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A MESSAGE FROM THE CHAIRMAN AND PRESIDENT
Magna Bank is pleased to report net income of $2,833,796 for the year ending December 31, 2009. Net income
available to common shareholders after the payment of the return on the Series A preferred shares of stock
owned by the U. S. Treasury under the TARP-CPP program was $1,780,164. The book value per share of the
Company’s stock at December 31, 2009 was $7.79, a 7% increase from year-end 2008.
In August, 2009 we closed the sale of our retail branch in Brentwood, TN to Reliant Bank. This was our only
retail branch outside of the Memphis area. The sale included $35 million of loans and $42 million of deposits.
Primarily because of this transaction, in 2009 total assets declined by 16% to $436 million, while loans declined
by 18%. Total deposits declined by 16%, due to the branch sale and brokered deposits declining by $44 million.
Deposits in Memphis-area branches grew by $28 million, or 10%. It is significant that 48% of deposits at year-
end were in transaction accounts-checking, escrow, savings or money market accounts-up from 34% at the
end of 2008. This growth in transaction accounts reflects a maturing of our three new retail branch facilities in
Memphis, plus the good job done by our private banking group, which grew deposits with their customers by
47% in 2009. We expect growth in loans and deposits in most of our operating groups in 2010.
Equity Capital was $53.3 million at December 31, 2009, unchanged from a year earlier. The Company
redeemed $3,455,000 or approximately 25% of its Series A preferred stock on November 24, 2009 from the
U. S. Treasury. We plan to continue to redeem the balance of the preferred shares as economic conditions
improve.
Non-performing assets, excluding FHA/VA insured loans, increased from 1.10% of assets at December 31,
2008 to 1.70% at year-end 2009. This trend is being watched closely. This number remains better than the
average of our peer banks. In response to the challenging economic circumstances, we increased our allowance
for loan losses from 1.33% of loans at December 31, 2008 to 1.58% of loans at December 31, 2009.
Our residential mortgage origination group enjoyed record profitability in 2009. Mortgage loan production
increased by 30% over 2008 to $415 million in loans originated, with revenue per loan growing by 6%.
Refinance activity increased in 2009 over prior years as mortgage loan interest rates hovered around 5% for
most of the year. We expect refinance lending activity to decline in 2010, while loans to purchase homes could
improve slightly over 2009.
Most economists we monitor call for a gradual improvement in overall economic conditions in the United
States in 2010. High unemployment levels will limit consumer spending growth for some time, preventing
a rapid recovery. We expect 2010 to be another challenging year for
financial institutions, as credit problems linger. In this environment,
we remain focused on enhanced service delivery, building customer
relationships, preserving capital and liquidity, controlling operating
expenses, making prudent credit decisions, and swift and total focus
on problems as they arise.
We are working to insure that we are positioned for a positive future
that creates value for our shareholders. The Board of Directors and
employees of Magna Bank appreciate the support of our shareholders.
We look forward to reporting to you on the performance of your
Company at the Annual Meeting to be held on Monday, May 10th
at 10:30 a.m. at the Embassy Suites Hotel in Memphis at 1022 South
Shady Grove Road.
Kirk Bailey
Chairman and President
Securities Filing Desk
Office of Thrift Supervision
1700 G Street NW
Washington, DC 20552
FORM 10-K
Annual Report Pursuant to Section 13 or 15(d)
of the Securities Exchange Act of 1934
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 (NO FEE
REQUIRED)
For the fiscal year ended December 31, 2009
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 (NO
FEE REQUIRED)
For the transition period from ________ to ________
OTS Charter No. 15525
(Exact name of registrant as specified in its charter)
Federal Charter 62-1760666
(State of incorporation) (IRS Employer Identification No.)
6525 Quail Hollow Road Suite 513
Memphis, Tennessee 38120
Registrant’s telephone number, including area code: (901) 259-5600
SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT:
Title of Class Exchange on which registered
Common Stock (par value $1 per share) None
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes No
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes No
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Sections 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 requirement for the past 90 days. Yes No
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(§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 No
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be
contained, to the best of the registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of
this Form 10-K or any amendment to this Form 10-K.
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 definition 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
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes No
The aggregate estimated market value of the voting stock held by non-affiliates of the registrant at June 30, 2009 was approximately
$22.2 million.
INDICATE THE NUMBER OF SHARES OUTSTANDING OF EACH OF THE REGISTRANT’S CLASSES OF COMMON STOCK
Class Outstanding at March 31, 2010
Common Stock, par value $1 per share 5,480,450
Documents incorporated by reference Part of Form 10-K into which incorporated
Definitive Proxy Statement for the Annual Shareholders Meeting Part II, Item 5 Part III, Items 10, 11, 12, 13, and 14
to be held May 10, 2010
Form 10-K Index
Part I
Item 1. Business.................................................................................................................................2
Item 1A. Risk Factors...........................................................................................................................7
Item 1B. Unresolved Staff Comments.................................................................................................*
Item 2. Properties.............................................................................................................................12
Item 3. Legal Proceedings ...............................................................................................................12
Item 4. Removed and Reserved ........................................................................................................*
Part II
Item 5. Market for the Registrant’s Common Stock, Related Stockholder
Matters and Issuer Purchases of Equity Securities.............................................................13
Item 6. Selected Financial Data.......................................................................................................14
Item 7. Management’s Discussion and Analysis of Financial Condition
and Results of Operations ...................................................................................................15
Item 7A. Quantitative and Qualitative Disclosures About Market Risk...........................................39
Item 8. Financial Statements and Supplementary Data
Report of independent registered public accounting firm ...........................................40
Consolidated financial statements................................................................................41
Notes to consolidated financial statements..................................................................45
Selected quarterly data .................................................................................................75
Item 9. Changes in and Disagreements with Accountants on Accounting
and Financial Disclosure.......................................................................................................*
Item 9A.(T) Controls and Procedures .....................................................................................................76
Item 9B. Other Information .................................................................................................................*
Part III
Item 10. Directors, Executive Officers and Corporate Governance.................................................77
Item 11. Executive Compensation ....................................................................................................77
Item 12. Security Ownership of Certain Beneficial Owners and
Management and Related Stockholder Matters .................................................................77
Item 13. Certain Relationships and Related Transactions, and Director
Independence ......................................................................................................................78
Item 14. Principal Accounting Fees and Services ............................................................................78
Part IV
Item 15. Exhibits and Financial Statement Schedules......................................................................78
Signatures ..................................................................................................................................................81
* Item not applicable
2009 Annual Report
PART 1
Item 1. Business
General
Magna Bank (“Magna,” the “Company,” or the “Bank”) is a federally chartered unitary thrift institution
based in Memphis, Tennessee. Magna operates banking branches in Memphis, Germantown, and Cordova,
Tennessee and mortgage origination offices in Memphis, Nashville, and Chattanooga, Tennessee and Little
Rock, Arkansas.
At December 31, 2009, Magna had total assets of $435.8 million and was the third largest financial
institution based in Memphis, Tennessee as measured by total assets at that date. Magna’s core businesses
include retail branch banking, commercial banking, private banking, mortgage banking (both residential and
commercial), construction lending and consumer lending.
Retail Branch Banking
Magna’s primary focus is on the delivery of retail and commercial banking products in east Memphis and
Germantown, Tennessee; areas of stable growth and above average median income households. At
December 31, 2009, Magna had five bank branches in Memphis. There are no plans to open additional
branches during 2010. Our branches are located in high traffic commercial corridors and are designed to
cater to a convenience oriented customer base. Our customers have access to banking products and services
through our network of branches, through a fully developed on-line banking platform, via a nationwide
network of automatic teller machines (“ATM’s”), through a sophisticated voice response system, and in
2010, we will offer mobile banking to our customers.
Lending Activities
General. Magna’s lending activities reflect its community banking philosophy, emphasizing secured loans
to individuals and businesses in its primary market of Memphis. See “Management’s Discussion and
Analysis of Financial Condition and Results of Operations – Lending” for additional information regarding
Magna’s loan portfolio.
Commercial Real Estate Lending. Loans secured by commercial real estate, both permanent and
construction, reflect the largest concentration in our loan portfolio, comprising $151.1 million, or 47.0%, of
total loans outstanding at December 31, 2009. Most of these loans are secured by non-residential properties,
such as office and retail buildings, commercially zoned land and multifamily structures and generally are
limited to terms of five years or less. The construction loan portion of this portfolio totaled $34.0 million at
December 31, 2009.
Commercial Business Loans. Our commercial business lending (“C&I”) department targets small to
medium sized business banking. At December 31, 2009, the portfolio of C&I loans totaled $22.4 million.
These loans are generally secured by commercial real estate and business assets. C&I loans are used for a
variety of purposes including working capital and purchase of trade equipment.
Private Banking. Magna’s private banking department focuses on delivering a very high level of personal
service to members of the medical and professional community. Total loans for this group were $63.4
million at December 31, 2009.
Construction Lending. Residential construction lending has been a part of Magna’s core lending since its
inception. At December 31, 2009, residential construction, residential zoned land and land development
loans totaled $34.9 million and were concentrated in the Memphis market.
Investment Activities
Magna invests in a variety of securities in the conduct of both liquidity management and balance sheet
leveraging activities. We are authorized to use a wide range of security types in this regard and have, and
will continue to, vary the mix of securities in our portfolio. Investments may increase or decrease depending
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2009 Annual Report
upon the availability of liquidity and capital and the comparative yields on investments in relation to the
returns on loans.
Sources of Funds
Deposits. Deposits are Magna’s primary source of balance sheet funding. Inflows and outflows are
significantly influenced by competitor’s rates, the supply of funds, the returns from alternative investments
and general economic conditions. Consumer, small business and commercial deposits are attracted from
within Magna’s primary markets through a combination of:
1. Offering a wide range of product types that appeal to different cross sections of consumers
2. Adding a variety of features and options to deposit products to differentiate Magna’s selection from
other banks
3. Providing multiple access points for customers to access their deposits
4. Stressing a high level of service and convenience to deposit customers
The mix of deposits has a significant impact on our profitability as non-interest bearing demand accounts
generally have a lower overall cost than time deposits. For more information regarding the makeup of
Magna’s deposits, see Note 9, Deposits to the consolidated financial statements.
Deposits are also sourced from brokers. These deposits originate from outside of Tennessee and offer
Magna a reliable source of funds. Furthermore, because Magna sets the maturity dates for, and can add call
options to these deposits, they enhance our asset/liability management strategies. From a rate perspective,
these funds are currently lower than retail deposits although the cost of brokered deposits has historically
been higher than retail deposits. We can offer brokered deposits as long as Magna remains “well
capitalized”. Should our capital levels fall below well capitalized, further use of brokered deposits would
require advance authorization by the FDIC. At December 31, 2009, we had $20.5 million borrowed through
the brokered market.
Borrowings. Borrowings are another funding source for balance sheet growth. Our principal source of
borrowings is the Federal Home Loan Bank of Cincinnati (“FHLB”) under the terms of a blanket collateral
pledge agreement covering a portion of Magna’s loan portfolio, as well as the majority of its securities
portfolio. At December 31, 2009, FHLB advances totaled $63.0 million. Magna established a credit facility
with the Federal Reserve Bank (“FRB”) of St. Louis in 2008. Total borrowing capacity under this credit
facility is approximately $33.5 million at December 31, 2009. Borrowings under this facility were negligible
during 2009 and the Company had no funds borrowed from the FRB at December 31, 2009. In addition to
these two secured lines, Magna has established short-term unsecured federal funds lines with three
correspondent banks which provide an additional $52.3 million of available short-term funding.
Recent Events
Over the past two years, the financial industry and the United States economy has been under stress from the
most severe recession since the “Great Depression.” Beginning with the lockdown in the short-term credit
markets (which led to the failure of high profile Wall Street primary dealers Bear Stearns and Lehman
Brothers), the financial industry was rocked by bank failures, credit crises, counterparty defaults and the
nationalization of FNMA and FHLMC. The Emergency Economic Stabilization Act of 2008 (“EESA”) was
enacted on October 4, 2008 to provide capital infusion in the form of direct U.S. Government investment in
banks and insurance companies under the Capital Purchase Program (“CPP”) provisions of the EESA. We
believe it is useful to highlight the impact some of those events have had on our business as it illustrates how
events beyond our control can adversely affect us, as follows:
• The loss of short-term liquidity effectively eliminated the use of special investment vehicles
(”SIV’s”) used by many hedge funds to finance their balance sheets. This collapse caused banks to
begin hoarding cash, slashing inter-bank federal funds lines and increasing deposit rates.
Consequently, cost of funds, as measured by the spread to wholesale funding sources, increased
even though the Federal Open Market Committee (“FOMC”) lowered the targeted discount rate by
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2009 Annual Report
400 basis points. Magna’s cost of deposits, as measured by the spread to wholesale funding sources,
was at an all time high during 2009.
• The sudden and precipitous lowering of the targeted prime index rate further reduced the spread
banks earn on financial assets because most loans written in the past ten years were tied to prime
and did not have “floor” rate provisions in them. Magna repriced maturing loans in the second half
of 2008 through 2009 to widen the spread to prime and to put floor rates in place.
• The sudden contraction in the financial markets eliminated credit extension to all but the most
creditworthy customers, putting stress on corporate performance. In reaction, employee layoffs
skyrocketed and unemployment levels hit multi-year highs. Unemployment, in turn, led to mortgage
defaults on a scale never seen in the history of the modern U.S. economy. Magna saw an increase in
non-performing loans, foreclosures and charge-offs. We downgraded the environmental outlook
component of our process for establishing the allowance for loan losses in the prior year and
maintained the downgraded environmental factor during 2009, causing a significant increase in the
provision for possible loan losses in both periods over historical levels.
• Uncertainty as to the extent and severity of the credit crises significantly curtailed trading in all
mortgage related assets and corporate debt obligations. In response to the inactive market, the
Treasury Department invested heavily in debt securities (increasing the size of the FRB’s balance
sheet to unprecedented levels), in an attempt to create a functioning market and to stabilize the
economy. The inactive market depressed prices and triggered provisions for impairment in value.
Magna evaluated all securities whose values were at least 20% below its book value for evidence of
impairment and wrote securities down to market value which exhibited meaningful exposure to
principal loss.
• The reduction in the targeted prime rate by the FOMC in 2008 translated into the lowest mortgage
rates in five years during 2009. As a result, Magna’s mortgage division experienced increased
origination volume and record profitability. The expectation of increased refinance activity at the
end of 2008 significantly reduced the value of Magna’s mortgage servicing rights. We recorded a
$1.2 million impairment charge related to this asset at December 31, 2008. In 2009, we recovered
$1.1 million of the impairment charge as the refinanced loans we serviced paid off.
• The erosion in capital attributable to the write-off of the Bank’s investment in the preferred stock of
FNMA and FHLMC and in certain investment securities whose values declined significantly in the
aftermath of the housing meltdown precipitated Magna’s participation in the CPP. Under this
program, we sold approximately $13.8 million of preferred stock to the U.S. Treasury Department
in 2008. The Company redeemed approximately $3.5 million of the preferred stock in 2009, and we
anticipate redeeming all of the preferred stock within five years of original issuance.
• Participation in the CPP resulted in a significant amount of additional regulatory burden, including
periodic certifications by the Compensation Committee, additional segregation and reporting of
lending activity, and responding to data requests by the Office of the Special Inspector General –
Troubled Assets Relief Program (“SIGTARP”).
Other Information
Competition. Magna competes with a wide variety of financial service providers including commercial
banks, credit unions, investment banks, mortgage banks, insurance companies, and mortgage brokers. Our
local banking market, in particular, is served by a number of financial institutions which have been
organized within the past ten years and who are focused on asset growth similar to our own strategy.
Employees. At December 31, 2009, Magna had 167 employees including 6 part time employees. Magna
provides its employees with a comprehensive array of benefits including comprehensive
medical/hospitalization/dental, 401(k) savings plan with matching contributions, life insurance, and
disability insurance.
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2009 Annual Report
Regulation
The banking industry is subject to an extensive array of regulations and regulatory oversight. The
regulations are generally aimed at (i) restricting a bank’s operations to certain approved activities, (ii)
mandating capital levels commensurate with risks, (iii) requiring fair and equitable availability of banking
products to all segments of society, and (iv) providing safeguards to personal financial information from
becoming public. Magna’s participation in the Capital Purchase Program under the EESA requires
additional oversight by regulatory agencies.
To avoid regulatory redundancy, every financial institution has a “primary regulator” whose responsibility it
is to ensure that the institution is following all applicable laws, rules and regulations which pertain to its
activities. Magna’s primary regulator is the Office of Thrift Supervision (“OTS”), a division of the United
States Treasury Department.
Regulatory Capital Requirements. The OTS is required by law to take prompt corrective action when a
bank does not meet certain minimum capital requirements. The Federal Deposit Insurance Corporation
Improvement Act of 1991 (“FDICIA”) established five capital tiers, the highest of which is “well
capitalized”. FDICIA requires the regulatory authorities to subject undercapitalized institutions to a variety
of limitations including:
• The amount of dividends that may be paid,
• The amount of growth a bank may incur, and
• The activities a bank may engage in (such as the ability to acquire brokered deposits).
An undercapitalized bank must develop and submit a capital restoration plan. If the capital restoration plan
is approved, the bank must adhere to its provisions or file an amended plan with the OTS. Failure to adhere
to an approved plan subjects the bank to all of FDICIA’s prompt corrective action regulations including, but
not limited to, a supervisory agreement, formal cease and desist action or regulatory takeover.
Under certain circumstances, the OTS may reclassify a well-capitalized bank to “adequately capitalized”.
The OTS is also permitted to require an “adequately capitalized” or “undercapitalized” bank to comply with
the supervisory provisions as if the bank were in the next lower category based on supervisory information
other than the capital levels of the bank. The statute provides that a bank may be reclassified if the OTS
determines that the bank is in an unsafe or unsound condition or deems the bank to be engaging in an unsafe
or unsound practice.
Magna was “well-capitalized” under the FDICIA standards throughout 2008 and 2009, although it would
have been classified as “adequately capitalized” at December 31, 2008 had it not participated in the
Treasury’s CPP.
Dividend Restrictions. There are regulatory limitations on the payment of dividends by the Company. We
are required to obtain the prior approval of the OTS before the declaration of common dividends if the total
of all common dividends to be declared in any year would exceed the total of (i) the Company’s net profits
for that year, plus (ii) the retained net profits for the preceding two years, less any required transfers to
surplus or if we would not be at least “adequately capitalized” following the payment of common dividends.
Furthermore, all depository institutions are prohibited from paying any dividends, making other
distributions, or paying any management fees if, after such payment, the depository institution would fail to
satisfy its minimum capital requirements. We may declare common dividends up to the amounts described
in (i) and (ii) above without receiving regulatory approval, but must still provide notice of our intent to do so
to the OTS.
Dividend payments are also restricted under the terms of the CPP. Magna may not institute a common
dividend without the express consent of the U.S. Treasury Department.
Future dividends will depend primarily upon the level of Magna’s earnings. Under the prompt corrective
action provisions of FDICIA, Federal banking regulators also have the authority to prohibit banks from
paying a dividend if they deem such payment to be an unsafe or unsound practice.
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2009 Annual Report
Insurance of Accounts; Depositor Preference. The FDIC’s Rules and Regulations governing deposit
insurance assessments and administration of the insurance Depository Institution Fund (“DIF”) sets the
designated reserve ratio (“DRR”) at 1.25% of insured deposits, but allows for the DRR to range between
1.15% and 1.50%. The FDIC must adopt a restoration plan if the DRR falls below 1.15% and must begin
paying dividends if the ratio exceeds 1.35%.
The DIF’s reserve ratio at December 31, 2008 was 1.25%; however, because of the significant number of
bank failures in 2008 (25 bank failures) and 2009 (140 bank failures), the DDR fell below 1.15 percent and
there was concern expressed by the FDIC that if no action was taken, the ratio could decline to 0%. In
response to the depleted DDR, the FDIC implemented increases to deposit assessments. On May 22, 2009,
the FDIC adopted a final rule imposing a 5 basis point special assessment on each insured depository
institution's assets minus Tier 1 capital as of June 30, 2009, subject to a limit not to exceed 10 basis points
times the institution's assessment base for the second quarter 2009. Magna’s portion of the special
assessment, totaling approximately $230,000, was accrued in the second quarter of 2009 and was paid on
September 30, 2009. FDIC assessments are included in regulatory fees and deposit insurance assessments in
the consolidated statement of operations.
On September 29, 2009, the FDIC adopted an Amended Restoration Plan to allow the DDR to return to a
reserve ratio of 1.15% within eight years, as mandated by statute. On November 17, 2009, the FDIC
amended its regulations requiring insured institutions to prepay their estimated quarterly risk based
assessments for the fourth quarter of 2009, and for all of 2010, 2011, and 2012. The prepaid assessment rate
is equal to Company’s total base assessment rate in effect on September 30, 2009. The Company’s third
quarter 2009 assessment base will be increased quarterly at a 5 percent annual growth rate through the end
of 2012. The FDIC also increased annual assessment rates uniformly by 3 basis points beginning in 2011.
The prepaid assessment for these periods was paid on December 30, 2009, along with the Company’s
regular quarterly risk-based deposit insurance assessment for the third quarter of 2009. The prepaid
assessment, totaling approximately $1.8 million at December 31, 2009, is included in other assets in the
consolidated statements of financial condition. The prepaid assessment will be amortized to expense over 3
years, or approximately $600,000 per year, beginning in 2010.
Under federal law, deposits and certain claims against an insured institution for administrative expenses and
employee compensation are afforded priority over other general unsecured claims, including federal funds
and letters of credit, in the liquidation or resolution of such an institution by any receiver appointed by the
regulatory authorities. Such priority creditors would include the FDIC.
Examinations and Regulatory Sanctions. Magna is subject to periodic examination by the OTS, which
results in the awarding of a confidential numerical quality rating ranging from 1 (highest) to 5 (lowest).
These ratings are a composite of the OTS’ evaluation of:
• Capital adequacy,
• Asset quality,
• Management competence,
• Earnings,
• Liquidity management, and
• Sensitivity of change in net portfolio value to changes in interest rates.
The OTS may impose a number of restrictions on an institution found to be operating in an unsafe and
unsound manner including, but not limited to:
• Limitations on asset growth,
• Limitations on dividend payment,
• Mandates to increase capital,
• Requirement to add to the allowance for loan and lease losses,
• Increase in supervisory assessments, and
• Restrictions on activities deemed to be imprudent.
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2009 Annual Report
The imposition of one or more of these restrictions could adversely affect the holders of debt or equity
securities issued by Magna. In addition, the OTS may enforce civil money penalties against Magna, its
directors, officers, employees, agents or independent contractors providing services to Magna.
Other Laws and Regulations. Magna is subject to a wide array of other laws and regulations governing its
business affairs, a violation of any one of which could result in a material adverse effect to its results of
operations.
Such significant laws include, but are not limited to:
• Home Owners Loan Act • Equal Credit Opportunity Act
• Sarbanes Oxley Act • Electronic Funds Transfer Act
• USA Patriot Act • Truth-in-Lending Act
• Bank Secrecy Act • Truth-in-Savings Act
• Community Reinvestment Act • Real Estate Settlement Procedures Act
• Home Mortgage Disclosure Act • Emergency Economic Stabilization Act
• Fair and Accurate Credit Transaction Act
Magna is also subject to laws and regulations that may impose liability on lenders for clean-up and other costs
associated with hazardous waste located on properties securing real estate loans made by Magna.
Taxation
Magna is subject to taxation at both the federal and state levels. The Internal Revenue Service of the United States, a
department of the U.S. Treasury Department, as well as the State of Tennessee may examine Magna’s tax returns
and may impose penalties and interest on amounts deemed to be unpaid or underpaid. To date, neither taxing
authority has undertaken an examination of Magna’s tax returns; the statute of limitations on Magna’s consolidated
federal income tax return is closed through 2005. See Notes 1 and 13 to the consolidated financial statements for
additional information regarding Magna’s income taxes.
Available Information
Magna’s website, www.magnabank.com, contains links to the Company’s news releases, periodic filings on
Form 10-Q, annual reports on Form 10-K, and current reports on Form 8-K. Shareholders may also request
a printed copy of these documents by contacting the Corporate Secretary at Magna Bank, 6525 Quail
Hollow Road, Suite 513, Memphis, Tennessee 38120.
Item 1A. Risk Factors
Enterprise Risk Management
In the normal course of business, management is required to balance the Bank’s strategic goals, including
growth and profitability objectives, with the risks associated therewith. In defining the Bank’s risk profile,
management organizes risks into three main categories: Credit Risk, Market Risk (which includes interest-
rate risk, liquidity risk, and price risk) and Operational Risk (which includes transaction risk and compliance
risk). Policies, systems and procedures have been adopted which are intended to identify, assess, control,
monitor, and manage risk in each of these areas.
Primary responsibility for risk management lies with the heads of various business lines within the Bank.
Each business unit maintains policies, systems and procedures which are intended to identify, assess,
control, monitor, and manage risk within their respective areas. Management continually reviews the
adequacy and effectiveness of these policies, systems and procedures.
As an integral part of risk management, management has established various committees consisting of
directors, senior executives and others within the Bank. The purpose of these committees is to closely
monitor risks and ensure that adequate risk management practices exist within their respective areas of
authority. Some of the principal committees include Loan Approval, Asset/Liability Management
(“ALCO”), Loan Policy and Oversight, Compensation, and Information Technology Steering. Overlapping
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2009 Annual Report
membership of these committees by directors, senior executives and others helps provide a unified view of
risk on an enterprise-wide basis.
The Board of Directors, through its Audit Committee, has overall responsibility for oversight of the Bank’s
enterprise risk management governance process.
Credit Risk Management
Credit risk is the risk that an obligor fails to meet the repayment terms, or otherwise fails to perform as
agreed under the terms, of his obligation. This risk may be on balance sheet, in the form of direct investment
in loans or securities, or off balance sheet, in the form of direct credit substitutions, counterparty risk, letters
of credit, etc.
To manage credit risk arising from lending activities, management has adopted and maintains what it
believes are prudent underwriting policies and procedures, and periodically reviews the appropriateness of
these policies and procedures. Customers are evaluated as part of the initial underwriting processes and
through periodic reviews. For consumer loans and small business banking loans, credit scoring models are
used to help determine eligibility for terms of credit. Limits are established on the exposure to a single
customer (including their affiliates) and on concentrations for certain categories of customers. Loan credit
approval levels are established so that larger credit exposures receive managerial and Board review at the
appropriate level through various credit approval committees.
Management continuously monitors asset quality in order to manage the Bank’s credit risk and determine
the appropriateness of valuation allowances. This includes, in the case of commercial loans and leases, a
risk rating methodology under which a rating (1 through 8) is assigned to every loan. The rating reflects
management’s assessment of the level of the customer’s financial stress which may impact repayment.
Asset quality is monitored separately based on the type or category of loan or lease. This allows
management to better define the Bank’s loan portfolio risk profile. Management uses various risk models-
called stress tests- to estimate probable impact on payment performance under various scenarios.
Market Risk Management (Including Interest-Rate Risk and Liquidity Risk)
Market risk is the potential for losses arising from changes in interest rates, equity prices, and other relevant
market rates or prices, and includes interest-rate risk, liquidity risk and price risk. Interest-rate risk and
liquidity risk are the Bank’s primary market risks.
Interest-Rate Risk. Interest-rate risk is the exposure of net interest income and fair value of financial
instruments to adverse movements in interest rates. Interest-rate risk arises mainly from (i) the timing
differences in the maturity and repricing characteristics of assets and liabilities, (ii) changes in relationships
between rate indices (basis risk), (iii) changes in customer behavior and (iv) changes in the shape of the
yield curve. Management measures these risks and their impact using simulation analysis and discounted
cash flow techniques. The primary goal of interest-rate risk management is to control exposure to interest-
rate risk within acceptable tolerances established by ALCO and the Board of Directors.
Simulation analysis is used to model net interest income from current and projected asset and liability
positions over a specified time period (generally one year), and the sensitivity of net interest income under
various interest rate scenarios. The interest rate scenarios may include gradual or rapid changes in interest
rates, spread narrowing and widening, and yield curve twists. The simulation analysis is based on critical
assumptions relating to the behavior of interest rates and spreads, changes in product balances, the repricing
characteristics of products, and the behavior of loan and deposit customers in different rate environments.
The simulation analysis does not take into account actions management may undertake in response to
changes in interest rates, but instead is designed to help formulate those responses.
In addition to the valuation analysis, management constantly reviews the Bank’s repricing gap (difference
between interest-earning assets and interest-bearing liabilities repricing within given periods). While the
repricing gap measurement has some limitations, including no assumptions regarding future asset or liability
production and a static interest rate assumption (large changes may occur related to those items), the
repricing gap represents the net asset or liability sensitivity at any point in time. A repricing gap measure
8
2009 Annual Report
could be significantly affected by external factors such as loan prepayments, early withdrawals of deposits,
changes in the correlation of various interest-bearing instruments, competition or a rise or decline in interest
rates. See Item 7A. “Quantitative and Qualitative Disclosures About Market Risk” for further information
about Magna’s interest-rate risk, gap analysis and simulation analysis.
Management also uses discounted cash flow analysis to measure the risk of change in the net fair value of
assets and liabilities (“Net Portfolio Value”) under different interest rate scenarios. Whereas net interest
income volatility simulation highlights exposure over a relatively short time period, Net Portfolio Valuation
analysis incorporates all cash flows over the estimated remaining life of all balance sheet positions. The Net
Portfolio Valuation of the balance sheet, at any point in time, is the discounted present value of asset cash
flows minus the discounted present value of liability cash flows. Net Portfolio Valuation analysis addresses
only the current balance sheet and does not incorporate the growth assumptions that are used in the net
interest income simulation model. As with the net interest income simulation model, Net Portfolio
Valuation analysis is based on key assumptions about the timing and variability of balance sheet cash flows.
It also does not take into account actions management may undertake in response to anticipated changes in
interest rates.
Liquidity Risk. Liquidity risk is the risk to earnings or capital arising from the Bank’s inability to fund its
obligations when they come due without incurring unacceptable losses from liquidating assets. The primary
goal of liquidity risk management is to ensure that the Bank’s entire funding needs are met promptly, in a
cost-efficient and reliable manner.
ALCO and the Board of Directors have adopted a Liquidity Management Policy governing management of
the Bank’s liquidity risk. Under the Liquidity Management Policy, the CFO reviews current and forecasted
funding needs for the Bank and analyzes alternative sources of funding for the Bank. Key liquidity ratios
and the amount available from alternative funding sources are reported to ALCO on a periodic basis.
The Company strives to maintain diverse and reliable sources of funding. These include retail deposits,
unsecured federal funds lines, secured lines of credit with the FHLB and the FRB, and wholesale deposits.
Other Market Risks. Another source of market risk is the Bank’s investment in the common stock of the
Federal Home Loan Bank of Cincinnati (“FHLB”). The investment in FHLB stock is required as a
condition of Magna’s borrowings from this bank. The FHLB obtains its funding primarily through issuance
of consolidated obligations of the Federal Home Loan Bank System. The U.S. Government does not
guarantee these obligations, and each of the 12 FHLBs are jointly and severally liable for repayment of each
other’s debt. Therefore, Magna’s investments in the Cincinnati Bank could be adversely impacted by the
operations of the other FHLBs. The regional banks in Pittsburgh, Seattle and Chicago have announced
capital preservation measures as a result of the economic recession.
Operational Risk Management
Operation risk is the risk of loss resulting from, among other things,
• Faulty performance by our employees, vendors, or agents resulting in claims upon our Bank,
• Inadequate or failed internal control procedures or processes that result in incurred losses,
• System failures that limit or eliminate our ability to timely conduct business, and
• External catastrophes that result in loss of facilities from which to deliver financial services.
This definition includes transaction risk, which includes losses from fraud, error, the inability to deliver
products or services, and loss or theft of information. Transaction risk encompasses product development
and delivery, transaction processing, information technology systems, and the internal control environment.
Operational risk also includes compliance risk, which is the risk of loss from violations of, or
nonconformance with laws, rules, regulations, prescribed practices, or ethical standards.
The Bank’s Internal Audit department periodically assesses the adequacy and effectiveness of the Bank’s
processes for controlling and managing risks in all the core areas of operations. This includes determining
whether internal controls and information systems are properly designed and adequately tested and
reviewed. This also includes determining whether the system of internal controls over financial reporting is
9
2009 Annual Report
appropriate for the type and level of risks posed by the nature and scope of the Bank’s activities. Audit
plans are prepared using a risk-based methodology as well as any concerns identified by management, the
Audit Committee, regulators or the Bank’s independent registered public accounting firm. Significant
issues related to the adequacy of controls, together with recommendations for improvements to those
controls, are reported to the Audit Committee.
The Bank’s Compliance Officer and others charged with compliance responsibilities periodically assess the
adequacy and effectiveness of the Bank’s processes for controlling and managing its principal compliance
risks. Significant issues related to the adequacy of controls, together with recommendations for
improvements to those controls, are reported to the Audit Committee.
Other Risks
Customer Behavior. Changes in customers’ behavior regarding use of deposit accounts could result in
lower fee revenue, higher borrowing costs, and higher operational costs for Magna. Magna obtains a large
portion of its revenue from its deposit accounts and depends on low-cost deposits as a significant source of
funds.
In addition, competition from other financial institutions could result in higher numbers of closed accounts
and increased account acquisition costs. Magna actively monitors customer behavior and adjusts policies
and marketing efforts accordingly to attract new and retain existing deposit account customers.
Branch Expansion. Opening new branches has been an integral part of Magna’s growth strategy for
generating new customers, deposit accounts and loans. The risk of branch expansion is that the increased
cost will not be offset by increased revenue from new business. Therefore, the success of Magna’s branch
expansion is dependent on the continued success of branch banking in attracting new customers and
business. Many other financial institutions have also opened new branches and the competition is
significant.
Declines in Home Values. Declines in home values in Magna’s markets could adversely impact results
from operations. Like all banks, Magna is subject to the effects of any economic downturn and, in
particular, a significant decline in home values in Magna’s markets could have a negative effect on results of
operations. At December 31, 2009, Magna had $136.8 million of consumer home equity and residential real
estate loans. A significant decline in home values, which has likely occurred, would lead to a decrease in
new home equity loan originations and increased delinquencies and defaults in both the consumer home
equity loan and residential real estate loan portfolios and result in increased losses in these portfolios. A
significant decline in home values and increased delinquencies and defaults also increases the risk that
Magna will be required to repurchase mortgage loans that we originate and sell to third party investors. This
repurchase risk is further described in Note 18, Financial Instruments with Off-Balance Sheet Risk to the
consolidated financial statements.
Expense Control. Expenses and other costs directly affect our earnings. Our ability to successfully manage
expenses is important to our long-term profitability. Many factors can influence the amount of our expenses.
As our businesses change or expand, additional expenses can arise from asset purchases, structural
reorganization, evolving business strategies, and changing regulations, among other things. We manage
expense growth and risk through a variety of means, including actual versus budget management,
imposition of expense authorization limits and procurement coordination and processes.
Lack of an Established Market for our Common Stock. Our common stock is not listed on any
established stock trading exchange, including bulletin board or “pink slip” trading. All exchanges of our
stock occur through negotiated transactions between buyers and sellers with Wunderlich Securities of
Memphis. There is no market established settlement time frame for trades that are executed. As such, our
stock trades in extremely limited amounts and there can be no assurance that shares can be bought or sold in
an acceptable time frame at a reasonable price per share.
Concentration of Mortgage Business. Our residential mortgage production division relies heavily on our
affiliation with the Crye-Leike realtor network. We have had a cooperative marketing agreement in place
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2009 Annual Report
with Crye-Leike since 2004, for which we pay an equitable annual fee for marketing and promotional
services. Further, the mortgage division operates in production offices that are primarily leased by Magna
from Crye-Leike or Crye-Leike affiliated entities. Many of these offices are leased on a month-to-month
basis. Magna has sourced loan origination volumes from Crye-Leike of approximately 57%, 67%, and 73%
in 2009, 2008, and 2007, respectively, through its mortgage division largely due to the marketing efforts and
positioning of loan officers in prime locations for mortgage loan origination activity. The marketing
agreement was recently amended to increase its term from one year to three years and to add a termination
clause that allows the non-selling party to terminate the agreement and receive a $250,000 fee if the other
party experiences a change in control. While we believe the marketing agreement, coupled with the leases in
the Crye-Leike offices, enhances our ability to derive loans from Crye-Leike agents, there is no and there
has never been an exclusive mortgage origination arrangement between the two companies; therefore, we
can provide no assurance that historical mortgage origination volume derived from the Crye-Leike
relationship will continue in the future.
Insider Ownership. Approximately 44% of our common stock is owned or controlled by the members of
the board of directors and named executive officers. Additionally, a significant number of our shares are
owned by employees and others affiliated with our Company through the Crye-Leike relationship. This lack
of a wide dispersion of ownership makes it likely that a substantial number of votes can be cast as a group
when matters are put forward for a vote by shareholders.
Rules and Regulations. The financial services industry is extensively regulated. New or revised tax,
accounting, and other laws, regulations, rules and standards could significantly impact strategic initiatives,
results of operations, and financial condition. Federal and state laws and regulations are designed primarily
to protect the deposit insurance funds and consumers, and not necessarily to benefit a financial company’s
shareholders. These laws and regulations may sometimes impose significant limitations on operations.
These limitations, and sources of potential liability for the violation of such laws and regulations, are
described in “Regulation.” These regulations, along with the currently existing tax and accounting laws,
regulations, rules, and standards, control the methods by which financial institutions conduct business;
implement strategic initiatives, as well as past, present, and contemplated tax planning; and govern financial
disclosures. These laws, regulations, rules, and standards are constantly evolving and may change
significantly over time. Current events that may not have a direct impact on Magna, such as accounting
improprieties, may result in the adoption of substantive revisions to laws, regulations, rules, and standards
that ultimately do affect us. The nature, extent, and timing of the adoption of new laws, changes in existing
laws, or repeal of existing laws may have a material impact on Magna’s business, results of operations, and
financial condition, the effect of which is impossible to predict at this time.
Future Legislative and Regulatory Change; Litigation and Enforcement Activity. There are a number
of respects in which future legislative or regulatory change, or changes in enforcement practices or court
rulings, could adversely affect Magna, and it is generally not possible to predict when or if such changes
may have an impact on Magna. Magna’s income in future periods may be negatively impacted by pending
state and federal legislative proposals which, if enacted, could limit interest rates or loan, deposit or other
fees and service charges. Financial institutions have increasingly been subject to class action lawsuits or, in
some cases, regulatory actions challenging a variety of practices involving consumer lending and retail
deposit-taking activity.
The Community Reinvestment Act (“CRA”) and fair lending laws and regulations impose
nondiscriminatory lending requirements on financial institutions. The Department of Justice (“DOJ”) and
other federal agencies are responsible for enforcing these laws and regulations. A successful challenge to an
institution’s performance under the CRA or fair lending laws and regulations could result in a wide variety
of sanctions, including the required payment of damages and civil money penalties, injunctive relief,
imposition of restrictions on mergers and acquisitions activity, and restrictions on expansion activity.
Private parties may also challenge an institution’s performance under fair lending laws in private class
action litigation.
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2009 Annual Report
USA Patriot and Bank Secrecy Acts. The USA Patriot and Bank Secrecy Acts require financial
institutions to develop programs to prevent financial institutions from being used for money laundering and
terrorist activities. If such activities are detected, financial institutions are obligated to file suspicious
activity reports with the U.S. Treasury Department’s Office of Financial Crimes Enforcement Network.
These rules require financial institutions to establish procedures for identifying and verifying the identity of
customers seeking to open financial accounts. Failure to comply with these regulations could result in fines
or sanctions. In recent years, several banking institutions have received large fines for non-compliance with
these laws and regulations. Magna has developed policies and procedures designed to ensure compliance.
Disruption to Infrastructure. The extended disruption of vital infrastructure could negatively impact
Magna’s business, results of operations, and financial condition. Magna’s operations depend upon, among
other things, its technological and physical infrastructure, including its equipment and facilities. Extended
disruption of its vital infrastructure by fire, power loss, natural disaster, telecommunications failure,
computer hacking and viruses, terrorist activity or the domestic and foreign response to such activity, or
other events outside Magna’s control, could have a material adverse impact either on the financial services
industry as a whole, or on Magna’s business, results of operations, and financial condition. Magna has
developed and periodically tests a business continuity plan to mitigate this risk.
Estimates and Assumptions. Magna’s consolidated financial statements conform with generally accepted
accounting principles, which require management to make estimates and assumptions that affect amounts
reported therein. These estimates are based on information available to management at the time the
estimates are made. Actual results could differ from those estimates. For further information relating to
critical accounting estimates, see “Management’s Discussion and Analysis of Financial Condition and
Results of Operations – Summary of Critical Accounting Estimates.”
Item 2. Properties
Corporate headquarters are located in leased facilities located at 6525 Quail Hollow Road, Memphis,
Tennessee, 38120, housing corporate governance, information technology, compliance, human resources,
banking operations, accounting and mortgage origination personnel. Construction Lending, Commercial
Real Estate Lending and Commercial Banking are located at 1000 Ridgeway Loop Road in Memphis. The
Company operates 5 banking offices in Tennessee and 19 mortgage origination offices in Tennessee,
Arkansas and Mississippi. Three of the branches are corporately owned subject to long-term ground leases.
Our remaining locations are leased under various terms generally ranging from month-to-month in many of
our mortgage origination offices to five years. Certain of these leases are with related parties as described in
Note 19, Commitments and Contingencies to the consolidated financial statements, and under the heading
“Related party transactions” in the Proxy Statement, which information is incorporated herein by reference.
For additional information, see the section captioned “Corporate Information and Office Locations”
on page 83.
Item 3. Legal Proceedings
The Company is subject to litigation and claims arising in the ordinary course of business. Magna is
currently, and expects to continue to be, involved in various matters where counterparties assert claims
for damages resulting from real or perceived actions or inactions on the part of Magna. The Company
evaluates these contingencies based on information currently available, including consultation with
counsel and the availability of insurance coverage. Magna intends to vigorously defend itself in each of
these matters and has retained counsel to conduct its defense. Although it is not possible to predict the
ultimate resolution or financial liability with respect to pending and threatened litigation, management is
currently of the opinion that the outcome of pending matters would not have a material effect on the
Company’s consolidated statement of financial condition or results of operations.
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2009 Annual Report
Item 5. Market for the Registrant’s Common Stock, Related Stockholder Matters and Issuer
Purchases of Equity Securities
As of March 31, 2010, there were 725 shareholders of record holding 5,480,450 shares of Magna’s common
stock. Magna’s common stock is not listed on any established stock exchange; all transactions pertaining to
our stock are conducted in negotiated transactions between parties. To our knowledge, during 2009 there
were 16,000 shares of stock bought/sold in the secondary market, at prices ranging from $4.50 to $7.50.
Magna has never paid a dividend on its common stock nor is it anticipated that such dividends will be paid
in the foreseeable future. As discussed in the “Dividend Restrictions” section of Item 1.”Business” of this
Annual Report on Form-10-K, the Company’s ability to repurchase its common stock is limited by the terms
of the CPP.
Other than the sale of $13.8 million of non-cumulative preferred stock to the U.S. Treasury pursuant to the
CPP in a transaction that closed on December 23, 2008, Magna has not sold any securities to third parties.
On November 24, 2009, the Company redeemed 3,455 shares for $3,455,000 or approximately 25% of the
preferred stock held by Treasury.
Certain information required by Item 5 is included in the section captioned “Securities authorized for
issuance under equity compensation plans” of the Company’s proxy statement, for the Annual Meeting of
Shareholders’ to be held on May 10, 2010, which is incorporated herein by reference.
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2009 Annual Report
Item 6. Selected Financial Data
The five year financial information presented below should be read in conjunction with the consolidated
financial statements and related notes.
Compound annual
Five Year Financial Summary Year Ended December 31, Growth Rate
One Five
Consolidated Statements of Operations: 2009 2008 2007 2006 2005 Year Year
Interest income $ 24,077,371 $ 28,541,227 $ 26,680,801 $ 19,433,134 $ 13,654,772 -15.6% 12.1%
Interest expense 10,578,293 15,691,292 15,533,867 10,023,594 6,326,481 -32.6% 10.8%
Net interest income 13,499,078 12,849,935 11,146,934 9,409,540 7,328,291 5.1% 13.1%
Provision for loan losses 1,381,381 2,527,000 1,070,400 812,670 225,700 -45.3% 43.7%
Net interest income after provision for loan losses 12,117,697 10,322,935 10,076,534 8,596,870 7,102,591 17.4% 11.4%
Non-interest income 15,652,759 12,283,528 12,880,277 12,829,700 11,810,004 27.4% 5.6%
Non-interest expense 23,926,836 21,843,837 22,054,710 19,358,660 16,579,897 9.5% 6.7%
Other-than-temporary impairment on securities
Other-than-temporary impairment on securities (165,000) (6,485,000)
(6,485,000) -
- -
- -
- 97.5%
97.5% ~
~
Net recovery (impairment) on morgage servicing rights
Net recovery (impairment) on morgage servicing rights 1,060,000 (1,210,000)
(1,210,000) - - - 187.6%
187.6% ~
~
Income (loss) before taxes
Income (loss) before taxes 4,738,620
4,738,620 (6,932,374)
(6,932,374) 902,101
902,101 2,067,910
2,067,910 2,332,698
2,332,698 168.4%
168.4% 15.2%
15.2%
Income tax expense (benefit)
Income tax expense (benefit) 1,904,824
1,904,824 (2,630,660)
(2,630,660) 369,948
369,948 802,202
802,202 898,579
898,579
172.4%
172.4% 16.2%
16.2%
Net income (loss)
Net income (loss) $
$ 2,833,796
2,833,796 $
$ (4,301,714) $
(4,301,714) $ 532,153
532,153 $
$ 1,265,708
1,265,708 $
$ 1,434,119
1,434,119
165.9%
165.9% 14.6%
14.6%
At December 31,
At December 31,
Consolidated Financial Condition: 2009 2008 2007 2006 2005
Consolidated Financial Condition: 2009 2008 2007 2006 2005
Total loans
Total loans $ 326,830,425 $ 396,304,019 $ 380,397,211 $ 279,454,792 $ 198,518,813 -17.5%
-17.5%
10.6%
10.6%
$ 326,830,425 $ 396,304,019 $ 380,397,211 $ 279,454,792 $ 198,518,813
Total investments
Total investments $ 54,376,737 $ 62,484,186 $ 37,052,822 $ 25,894,272 $ 27,764,725 -13.0%
-13.0%
14.4%
14.4%
$ 54,376,737 $ 62,484,186 $ 37,052,822 $ 25,894,272 $ 27,764,725
Total assets
Total assets $ 435,803,967 $ 521,047,466 $ 468,378,160 $ 351,676,706 $ 273,189,052 -16.4%
-16.4%
10.0%
10.0%
$ 435,803,967 $ 521,047,466 $ 468,378,160 $ 351,676,706 $ 273,189,052
Total deposits $ 315,704,612 $ 373,385,188 $ 300,506,286 $ 213,628,306 $ 189,976,343 -15.4% 10.8%
Total deposits $ 315,704,612 $ 373,385,188 $ 300,506,286 $ 213,628,306 $ 189,976,343 -15.4% 10.8%
Total borrowings $ 63,000,000 $ 86,100,000 $ 109,260,000 $ 81,750,000 $ 31,500,000 -26.8% 14.9%
Total borrowings $ 63,000,000 $ 86,100,000 $ 109,260,000 $ 81,750,000 $ 31,500,000 -26.8% 14.9%
Common Stock Data:
Common Stock Data:
Basic earnings (loss) per share $ 0.33 $ (0.80) $ 0.10 $ 0.24 $ 0.43
Basic earnings (loss) per share $ 0.33 $ (0.80) $ 0.10 $ 0.24 $ 0.43
Fully diluted earnings (loss) per share 0.33 (0.80) 0.10 0.23 0.42
Fully diluted earnings (loss) per share 0.33 (0.80) 0.10 0.23 0.42
Estimated market value per share (note 1) 5.75 7.50 11.25 11.25 9.00
Proforma price/earningsper share (note 1)
Estimated market value ratio 5.75 7.50 11.25 11.25 9.00
17.7 (9.4) 113.7 46.9 20.8
Proforma price/earnings ratio 17.7 (9.4) 113.7 46.9 20.8
Proforma market capitalization $ 31,512,588 $ 40,665,750 $ 60,548,625 $ 60,469,875 $ 48,306,906
Proforma market capitalization $ 31,512,588 $ 40,665,750 $ 60,548,625 $ 60,469,875 $ 48,306,906
Average shares outstanding 5,468,584 5,392,154 5,371,812 5,372,812 3,318,154
Average shares outstanding 5,468,584 5,392,154 5,371,812 5,372,812 3,318,154
Period-end shares outstanding 5,480,450 5,422,100 5,382,100 5,375,100 5,367,434
Period-end shares outstanding 5,480,450 5,422,100 5,382,100 5,375,100 5,367,434
Key Ratios and Other Data:
Key Ratios and Other Data:
Return on average equity 5.16% -9.75% 1.20% 2.92% 6.17%
Return on average equity 5.16% -9.75% 1.20% 2.92% 6.17%
Return on average assets 0.58% -0.84% 0.13% 0.41% 0.58%
Return on average assets 0.58% -0.84% 0.13% 0.41% 0.58%
Average equity to assets 11.2% 8.7% 11.1% 14.1% 9.3%
Average equity to assets
Allowance for loan losses to loans 11.2%
1.58% 8.7%
1.33% 11.1%
0.82% 14.1%
0.74% 9.3%
0.60%
Net charge-offsloan losses to loans
Allowance for to average loans 1.58%
0.41% 1.33%
0.09% 0.82%
0.00% 0.74%
-0.02% 0.60%
0.08%
Net charge-offs to
Net interest marginaverage loans 0.41%
2.94% 0.09%
2.73% 0.00%
3.04% -0.02%
3.38% 0.08%
3.26%
Net interest margin
Regulatory capital amounts and ratios: 2.94% 2.73% 3.04% 3.38% 3.26%
Regulatory to risk-weighted assets
Total capitalcapital amounts and ratios: $ 58,940,165 $ 58,073,164 $ 47,439,841 $ 45,536,073 $ 42,995,350
Total capital to risk-weighted assets $ 58,940,165 $ 58,073,164 $ 47,439,841 $ 45,536,073 $ 42,995,350
Core capital to adjusted tangible assets $ 53,805,434 $ 53,446,340 $ 44,307,509 $ 43,472,707 $ 41,799,357
Core capital to adjusted tangible assets $ 53,805,434 $ 53,446,340 $ 44,307,509 $ 43,472,707 $ 41,799,357
Tangible capital to tangible assets $ 53,805,434 $ 53,446,340 $ 44,307,509 $ 43,472,707 $ 41,799,357
Tangible capital to tangible assets $ 53,805,434 $ 53,446,340 $ 44,307,509 $ 43,472,707 $ 41,799,357
Tier 1 capital to risk-weighted assets $ 53,805,434 $ 53,446,340 $ 44,307,509 $ 43,472,707 $ 41,799,357
Tier 1 capital to risk-weighted assets $ 53,805,434 $ 53,446,340 $ 44,307,509 $ 43,472,707 $ 41,799,357
Number of banking locations 5 6 4 3 3
Number of banking locations 5 6 4 3 3
Note 1: Based on the last observed trade price of each year.
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2009 Annual Report
Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations
This discussion analyzes major factors and trends regarding the consolidated financial condition of Magna
Bank as of December 31, 2009, 2008 and 2007, and the consolidated results of operations of Magna Bank
for the years then ended. This discussion should be read in conjunction with the tabular data contained
herein and the consolidated financial statements and the notes thereto as of and for the three years ended
December 31, 2009.
Forward-looking statements. This report may contain “forward-looking statements”, within the meaning
of the Private Securities Litigation Reform Act of 1995, which generally cover statements about anticipated
balance sheet growth, plans and objectives for future operations, and expectations about Magna’s
performance under certain economic and market conditions. They can be identified by the use of words like
“expect,” “may,” “could,” “intend,” “project,” “estimate,” “believe,” or “anticipate.” Magna may include
forward-looking statements in filings with the OTS, in other written materials, and in oral statements made
by management to investors, representatives of the media, and others. These forward-looking statements
speak only to expectations on the date the statements are made; Magna undertakes no obligation to update
any forward-looking statement to reflect events or circumstances occurring after that date.
By their nature, forward-looking statements are based on assumptions and are subject to risks, uncertainties,
and other factors. Actual results may differ materially from those contained in the forward-looking
statement. The discussion in the “Management’s Discussion and Analysis of Financial Condition and
Results of Operations,” and in “Risk Factors” lists some of the factors which could cause Magna’s actual
results to vary materially from those in the forward-looking statements. Other uncertainties which could
affect Magna’s future performance include the effects of competition, technological changes and regulatory
developments; changes in fiscal monetary and tax policies; changes in business conditions and inflation;
changes in general economic conditions, either nationally or regionally, resulting in, among other things,
credit quality deterioration; and changes in the securities markets. Investors should consider these risks,
uncertainties, and other factors in addition to those mentioned by Magna from time to time when
considering any forward-looking statements.
Table of Contents Page
Overview ..............................................................................................................................................16
Economic trends...................................................................................................................................17
Actual versus expected results .............................................................................................................18
Results of operations
Performance summary .......................................................................................................................19
Operating segment results..................................................................................................................20
Consolidated statement of operations analysis
Net interest income variance..............................................................................................................20
Provision for loan losses ....................................................................................................................23
Non-interest income ...........................................................................................................................24
Non-interest expense..........................................................................................................................26
Consolidated financial condition analysis
Short-term investments and securities ...............................................................................................29
Loans held for sale .............................................................................................................................30
Loan portfolio.....................................................................................................................................30
Non-performing loans and assets.......................................................................................................31
Potential problem loans and securities...............................................................................................32
Allowance for loan losses ..................................................................................................................33
Mortgage servicing rights ..................................................................................................................35
Liquidity management .......................................................................................................................35
Deposits ..............................................................................................................................................36
Borrowings .........................................................................................................................................36
Shareholder’s equity...........................................................................................................................37
Summary of critical accounting estimates.........................................................................................37
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2009 Annual Report
Overview.
Magna’s primary businesses are divided into two groups, retail banking and mortgage banking. The
following operating units are included in each group:
Retail Banking Mortgage Banking
Retail branches Residential mortgage banking
Construction lending Residential loan servicing
Commercial banking
Private Banking
Mortgage lending
Consumer lending
Commercial real estate lending
Commercial real estate brokerage and servicing
Magna’s goal is straight forward - to be the dominant Memphis-based community bank. Our targets include
becoming the largest community bank based on assets and capital, and to provide the broadest array of
financial services to individuals and business customers. Consistent with our focus to be the dominant
Memphis-based community bank, in 2009, we sold our only retail branch not in the Memphis area. The sale
of our Brentwood, Tennessee branch to Reliant Bank closed on July 31, 2009. The sale involved
approximately $35.0 million in loans and $41.8 million in deposits. A pre-tax gain of approximately $1.8
million was recognized on the sale of the branch.
Opening new branches in Memphis has been integral to executing on our strategy, but this process is costly,
as new branches produce operating losses until the deposit base reaches a certain “critical mass”. New
branches have had a significant negative impact on our earnings for 2007, 2008 and 2009 as we executed
our expansion strategy and incurred significant one-time costs related to our name change. Management is
focused on deposit growth within the current five branch structure, particularly transaction accounts. We
have no plans for additional branches in 2010.
Magna’s lending has predominately been real-estate focused. Such lending is spread across many sectors of
the real estate market, including commercial, construction, residential and junior lien lending. In 2007, we
undertook an expansion into commercial and industrial lending and have achieved some success in this area,
with such loans now comprising approximately 7% of total loans outstanding. We intend to continue our
loan portfolio diversification efforts.
Loans declined 17.5% for the year ended December 31, 2009, and declined 8.7% excluding the $35 million
in loans sold to Reliant Bank. However, the Company’s compounded annual loan growth rate for the five
years then ended was 10.6%. Economic uncertainty, the decline in real estate values and the loss of
household net worth severely curtailed demand for new loans throughout 2009. We expect single-digit loan
growth for 2010 as the economy struggles through the recession that began at the end of 2007.
Mortgage banking, both residential and commercial, will continue to be emphasized as a fee-based
compliment to the interest spread focus of the retail banking group. These businesses, particularly residential
mortgage banking, contributed significantly to our results of operations in 2009.
16
2009 Annual Report
Economic trends. The economy was extremely weak in 2008 and 2009, with the current recession
beginning at the end of 2007. During 2008, the FOMC reduced the targeted federal funds rates seven times
for a total of 400 basis points in an effort to stimulate the economy, with little impact. The targeted federal
funds rate was last changed on December 16, 2008 to a range of 0% to .25%. The yield curve steepened
during 2009, as seen in the following graph:
Treasury Yields at Period End
5.00%
4.00%
3.00%
2.00%
1.00%
0.00%
Fed Funds 3 month 6 month 1 year 2 year 3 year 5 year 7 year 10 year 20 year
Dec-08 Mar-09 Jun-09 Sep-09 Dec-09
There were 140 bank failures in 2009 and 25 bank failures in 2008, including the largest in history when
Washington Mutual failed. The FDIC has posted 26 bank failures in 2010 (as of March 11, 2010),
surpassing total 2008 failures in only a little over two months. Significant bank failures caused the FDIC to
impose special assessments and prepaid assessments in 2009 that are discussed elsewhere in this report. On
February 10, 2009, the Treasury Department announced the Financial Stability Plan (“FSP”), which built
upon existing programs and earmarked the second $350 billion of unused funds originally authorized under
the Emergency Economic Stabilization Act (“EESA”). Included in the FSP, the Capital Assistance Program
(“CAP”) was designed to invest in convertible preferred stocks of certain qualifying institutions. As part of
this program, all banks over $100 billion in assets were required to undergo “stress tests” to determine the
sufficiency of their capital. The stress tests required banks to raise additional capital; however, due to the
higher transparency and accountability standards required by the FSP, banks raised capital from the private
market. On November 9, 2009 the CAP was closed with no funds disbursed to the participants, the nations
19 largest financial institutions. As of September 30, 2009, the Treasury had disbursed $364 billion of the
authorized $700 billion under the EESA, most of it in the form of investments, and $73 billion of those
TARP funds had been repaid.
Unemployment claims, both new and continuing, hit volumes not seen since the recession of 1981 and the
turn of 2010 was accompanied by disclosures of additional layoffs totaling thousands of jobs. Nationally,
the unemployment rate exceeded 10%, also for the first time since 1981. Consumers reacted by reducing
household spending in record amounts, placing additional stress on retailers. A number of national retailers
announced bankruptcy filings; others reacted by further trimming sales staff and cutting back or eliminating
expansion plans. The recession has been particularly harsh on residential land developers and homebuilders,
their suppliers and real estate sales entities, as sales of new and existing homes dropped to record low levels.
Home price depreciation restricted real estate transactions and financially weak borrowers, particularly those
with sub-prime mortgages, began defaulting in record numbers. This further compounded the inventory of
homes for sale and depressed prices.
The impact of five years of easy credit and unsustainable residential price appreciation continues through a
correction period of massive de-leveraging. This de-leveraging has only modestly abated as 2010 begins.
We expect that the recession will be both broad and deep. To lessen the severity of the recession, the U.S.
Government has taken unprecedented measures to stabilize the economy, but their actions thus far, have had
minimal impact on job creation and have contributed to unsustainable budget deficits. Through this period
17
2009 Annual Report
of uncertainty, Magna Bank will follow a path of prudent lending to creditworthy customers in an effort to
provide liquidity to stabilize the Memphis market we serve.
Actual and expected results. During the period August 2007 to December 2008, the FOMC reduced its
targeted federal funds rate by 500 basis points, from 5.25% to .25%, in reaction to recessionary pressures.
The targeted federal funds rate has remained at a range of 0% to .25% since December 2008. The
unexpectedly rapid and dramatic series of rate reductions can be seen in the following chart:
Targeted Federal Funds Rate
6.00% 5.25%
5.00% 4.25%
4.00%
3.00%
2.00%
0.25%
1.00%
0.00%
Jan-07
Apr-07
Jun-07
Jul-07
Aug-07
Nov-07
Dec-07
Jan-08
Feb-08
Mar-08
Apr-08
May-08
Jun-08
Jul-08
Aug-08
Sep-08
Oct-08
Nov-08
Dec-08
Feb-07
Sep-07
Mar-07
Oct-07
May-07
With the targeted federal funds rate at or near zero, our net interest margin and spread improved during 2009
as our funding sources repriced downward, and we implemented a strategy of adding minimum interest
rates (floor rates) in loans that we originate or renew. The improvement in our net interest margin and net
interest spread is detailed in the following chart:
3.50%
3.25%
3.00%
2.75%
2.50%
2.25%
2.00%
Dec-09 Sep-09 Jun-09 Mar-09 Dec-08
Net interest margin Net interest spread
Some of the spread improvement was offset by a decline in earning assets, as average loans outstanding
declined by $33.0 million (8.3%) during 2009. We expect only a slight improvement in net interest spread
and margin during 2010, but anticipate modest asset growth as economic growth is restrained by the
recession. A slower growing economy has and will probably continue to translate into higher delinquency
rates in the loan portfolio, thus we anticipate that 2010’s charge-offs and provisions for possible loan losses
will continue to exceed historical levels.
18
2009 Annual Report
Results of Operations.
Performance Summary. Magna recorded net income of $2.8 million for 2009, compared to a net loss of
$4.3 million for 2008, and net income of $532,153 for 2007. Net income attributable to common
shareholders totaled $1.8 million in 2009. Net income (loss) per common share for the respective periods
were $.33, ($.80), and $.10. Earnings in 2009 were positively impacted by the sale of our Brentwood
branch. A pre-tax gain of $1.8 million was recorded on the branch sale. Net impairment recoveries of
$895,000 also contributed to earnings in the current year, but the recovery was offset by increased
amortization expense recorded on mortgage servicing rights, which increased $878,270 in 2009. A penalty
of $504,866 was incurred as a result of an election by management to prepay $9.0 million of higher cost
FHLB advances.
While the problems related to real estate were particularly acute in certain large urban cities that had
experienced immense growth since the turn of the century, Memphis was not immune to the problems.
Home sales and homebuilding in particular, fell to multi-year lows and foreclosures increased dramatically.
We foreclosed on loans totaling $2.7 million in 2009 and have identified other potential problem loans,
which we will monitor closely. Net charge-offs for the periods ended 2009, 2008 and 2007 were
approximately $1.5 million, $376,000, and $1,400, respectively, while the provision for loan losses totaled
$1.4 million, $2.5 million, and $1.1 million for the same periods. We continue to monitor all segments of
the loan portfolio for evidence of weakness and will adequately provide for possible losses.
Accounting standards require us to evaluate our securities portfolio periodically for evidence of “other than
temporary” impairment. The guidance provides for significant amounts of judgment to be applied and
different banks will report different results from this process, even if they own substantially identical
securities. Magna followed what we consider to be a conservative yet appropriate approach to the evaluation
process and identified securities that we deemed to be other than temporarily impaired. We recorded a
charge to earnings equal to the difference between our carrying value and the observed market price (where
available) or the estimated market price (where no active market existed) for the securities. The non-cash
charge totaled $27,000 and $4.1 million in the fourth quarter of 2009 and 2008, respectively, and $165,000
and $6.5 million for the year-to-date periods ending December 31, 2009 and 2008, respectively. While some
of these securities have defaulted (preferred stock issued by FNMA and FHLMC, which Magna no longer
owns), all of the remaining securities are paying in accordance with their terms. Full collection of our
investment is possible, as is the possibility of further losses on these, or other, securities in our portfolio.
Although a portion of Magna’s securities portfolio is backed by the full faith and credit of the United States
or its agencies, a significant portion is not. When coupled with the unknown length and intensity of the
recession, it is impossible to predict the ultimate collectability of all of our investments. Management is
actively monitoring each issue for evidence of weakness, and further charges are possible.
Accounting standards require periodic evaluation of intangible mortgage servicing rights for evidence of
impairment. Mortgage refinance velocity is one of the primary factors considered when determining
impairment in servicing rights because the expectation of higher levels of refinance reduces the expected
realization of one’s investment in such assets. At December 31, 2008, mortgage rates had reached a level
approximately 1.25% to 1.50% below the average rate on loans we service, creating refinance incentive for
much of our portfolio. Considering the lack of an actively traded market for servicing rights and the
expectation of rapidly increasing refinance activity, our discounted cash flow model indicated the fair value
for our servicing portfolio was approximately $1.2 million below our carrying value and an impairment
charge was recorded. In 2009, the Company recovered $1.06 million of the $1.2 million impairment charge
recorded in 2008 as the expected refinances resulted in loan payoffs in the current year. Again, this non-cash
charge and subsequent recovery is the result of applying significant judgment in the estimation process and
any loss from our investment may be greater than, or less than, estimated amounts.
19
2009 Annual Report
Operating Segment Results. The Company operates two business segments, Banking and Mortgage
Banking. Transactions between business segments are conducted at fair value and are eliminated for
reporting consolidated financial condition and results of operations. Expenses for centrally provided
services such as corporate compliance, legal representation, human resources, accounting, and information
technology are allocated to each segment based, primarily, upon headcount or per-unit-of-production.
Corporate governance costs, including the Chairman of the Board/CEO and the Board of Directors, are
borne primarily by the Banking segment. Each segment bears its own loan losses and other ancillary
business expenses. The Banking division provides significant funding to the Mortgage Banking division for
the assets it owns. These funds bear interest using a “maturity match-funded” method, shifting any
maturity/repricing income or cost to the Banking division. The interdivision interest related to this funding,
as well as the average balance thereof, has been eliminated from the Banking division’s reported
information. There are no other significant intersegment items.
Banking reported net income of $978,093 in 2009, compared to a net loss of $5.2 million for 2008. Net
interest income was up 10.2% to $12.1 million from $11.0 million in 2008, primarily due to spread and
margin improvement. The provision for loan losses was $1.4 million, which was a decrease of $1.2 million
(46.2%) compared to 2008. As 2008 came to a close, economic conditions had deteriorated significantly,
causing Magna’s environmental component of the allowance for loan losses to be increased from 10% to
20%. We maintained the 20% environmental factor for 2009. A decline in loans, partially attributable to the
sale of the Brentwood branch ($35.0 million in loans sold), also contributed to the decline in the provision
for loan losses. Non-interest income totaled $2.6 million, an increase of approximately $1.4 million
(117.0%) over 2008, primarily due to a pre-tax gain of $1.8 million recorded on the sale of the branch,
which was offset by a decline in loan brokerage fees of approximately $362,000. The banking unit also
absorbed other than temporary impairment charges of $165,000 and $6.5 million related to its securities
portfolio in 2009 and 2008, respectively. Operating expenses for Banking declined by $96,915 primarily
from the branch sale and curtailment of advertising and public relations expenses. These declines were
offset by a debt prepayment penalty of $504,866, and an increase of approximately $514,000 in FDIC
assessments, which included a special assessment of $230,000.
Mortgage Banking reported net income of $1,855,703 in 2009, compared to net income of $945,555 in
2008. A $1.9 million increase in non-interest income, which included approximately $235,000 related to the
gain on sale of residential mortgage servicing rights in 2008, was largely offset by a $2.2 million increase in
operating expense in 2009. Compensation and employee benefits expense increased $1.1 million and
mortgage servicing rights amortization expense increased approximately $881,000 in 2009. In 2009, this
division recovered $1.06 million of the $1.2 million charge recognized in 2008 for possible impairment in
the value of mortgage servicing rights. See Note 22, Business Segment Information to the consolidated
financial statements for further information on the Company’s business segments.
Consolidated Statement of Operations Analysis
Net interest income variance. Adjusted for the effect of impairment charges or recoveries and the gain
recognized on the branch sale on non-interest income, net interest income represented 46.3% of Magna’s
total revenue in 2009 compared to 51.1% and 46.4% in 2008 and 2007, respectively. Total interest income
for the year ended December 31, 2009, including dividends earned on FHLB stock included in other income
in the accompanying statement of operations, was $24.3 million, a $4.5 million (15.6%) decrease from the
preceding year. Most of the decrease was attributable to a decline in the level of average interest earning
assets, which declined $17.5 million (3.6%). Overall, the yield on interest earning assets decreased by 74
basis points to 5.22%, while the yield on the loan portfolio decreased by 70 basis points to 5.35%. Interest
expense decreased $5.1 million (32.6%) to $10.6 million for the year ended December 31, 2009 compared
to 2008. Average outstanding interest bearing liabilities decreased by $25.1 million, while the average cost
of interest bearing liabilities decreased by 104 basis points. This decrease was attributable to both deposits
and short-term borrowings, which declined by 129 basis points and 272 basis points, respectively.
20
2009 Annual Report
Achieving further net interest growth is dependent upon Magna’s ability to reprice new and maturing loans
to higher yields and to maintain a stable deposit base at a lower interest cost. With little to no room left for
the FOMC to target more accommodative rates, we are intensely focused on reducing our cost of deposits to
achieve an acceptable spread between interest bearing assets and interest costing liabilities. Net interest
income for the year ended December 31, 2009 was $13.7 million compared to $13.0 million for 2008, a
$634,454 (4.9%) increase. The following tables summarize the average yields earned and the average rates
paid, comparing 2009 to 2008 and 2008 to 2007.
Years Ended December 31,
2009 2008
Interest Interest
Average Income/ Average Average Income/ Average
Balance Expense Rate Balance Expense Rate
ASSETS
Short-term investments $ 10,279,060 $ 24,809 0.24% $ 2,375,509 $ 45,569 1.92%
Securities available-for-sale 47,464,107 2,620,413 5.52% 41,963,158 2,314,979 5.52%
Securities held-to-maturity 10,783,953 569,973 5.29% 16,812,228 952,667 5.67%
Total securities 58,248,060 3,190,386 5.48% 58,775,387 3,267,645 5.56%
Loans held for sale 25,603,649 1,256,341 4.91% 17,655,056 1,043,071 5.91%
Commercial Loans:
Mortgage 124,259,604 6,695,724 5.39% 99,689,838 6,303,902 6.32%
Construction 44,947,071 2,150,170 4.78% 75,232,217 4,276,761 5.68%
Other 28,577,627 1,367,364 4.78% 37,697,664 2,054,268 5.45%
Consumer Loans:
First Mortgage 88,454,270 5,362,550 6.06% 97,625,582 6,355,111 6.51%
Junior Mortgage, Primarily HELOC 63,364,124 3,214,153 5.07% 66,177,055 3,979,345 6.01%
Construction 13,826,330 650,565 4.71% 19,676,089 1,002,148 5.09%
Other 3,157,250 165,309 5.24% 3,453,854 213,406 6.18%
Total loans 366,586,276 19,605,835 5.35% 399,552,300 24,184,941 6.05%
Investment in Federal Home Loan Bank 3,963,265 182,286 4.60% 3,793,489 196,975 5.19%
Total interest earning assets/income 464,680,311 24,259,657 5.22% 482,151,741 28,738,202 5.96%
Non interest earning assets 27,320,627 28,800,962
Total assets $ 492,000,938 $ 510,952,703
LIABILITIES
Interest-bearing transaction accounts $ 73,874,891 $ 1,028,167 1.39% 75,543,533 2,011,031 2.66%
Savings deposits 66,258,106 1,294,021 1.95% 17,151,710 561,936 3.28%
Time deposits 160,251,921 4,949,487 3.09% 173,796,134 7,361,211 4.24%
Brokered deposits 22,125,455 710,711 3.21% 51,275,081 2,032,740 3.96%
Total deposits 322,510,373 7,982,386 2.48% 317,766,458 11,966,918 3.77%
Federal funds purchased and other short-
term borrowings 5,399,096 21,169 0.39% 36,261,524 1,128,663 3.11%
Term FHLB Advances 71,773,973 2,574,738 3.59% 70,743,169 2,595,711 3.67%
Total interest bearing liabilities/expense 399,683,442 10,578,293 2.65% 424,771,151 15,691,292 3.69%
Non interest bearing liabilities 37,348,837 42,066,012
Shareholders' equity 54,968,659 44,115,541
Total liabilities and shareholders' equity $ 492,000,938 $ 510,952,703
Net interest income/net interest spread $ 13,681,364 2.57% $ 13,046,910 2.27%
Net interest margin 2.94% 2.71%
21
2009 Annual Report
Years Ended December 31,
2008 2007
Interest Interest
Average Income/ Average Average Income/ Average
Balance Expense Rate Balance Expense Rate
ASSETS
Short-term investments $ 2,375,509 $ 45,569 1.92% 2,498,659 $ 127,273 5.09%
Securities available-for-sale 41,963,158 2,314,979 5.52% 17,319,397 872,752 5.04%
Securities held-to-maturity 16,812,228 952,667 5.67% 7,019,810 608,354 8.67%
Total securities 58,775,387 3,267,645 5.56% 24,339,207 1,481,106 6.09%
Loans held for sale 17,655,056 1,043,071 5.91% 21,012,036 1,326,382 6.31%
Commercial Loans:
Mortgage 99,689,838 6,303,902 6.32% 85,182,706 6,401,473 7.51%
Construction 75,232,217 4,276,761 5.68% 49,868,387 3,745,407 7.51%
Other 37,697,664 2,054,268 5.45% 25,144,578 1,921,128 7.64%
Consumer Loans:
First Mortgage 97,625,582 6,355,111 6.51% 82,796,593 5,556,176 6.71%
Junior Mortgage, Primarily HELOC 66,177,055 3,979,345 6.01% 55,661,752 4,257,868 7.65%
Construction 19,676,089 1,002,148 5.09% 20,648,019 1,618,749 7.84%
Other 3,453,854 213,406 6.18% 3,213,579 245,239 7.63%
Total loans 399,552,300 24,184,941 6.05% 322,515,614 23,746,040 7.36%
Investment in Federal Home Loan Bank 3,793,489 196,975 5.19% 3,579,400 236,069 6.60%
Total interest earning assets/income 482,151,741 28,738,202 5.96% 373,944,916 26,916,870 7.20%
Non interest earning assets 28,800,962 24,552,928
Total assets $ 510,952,703 $ 398,497,844
LIABILITIES
Interest-bearing transaction accounts $ 75,543,533 $ 2,011,031 2.66% $ 55,996,793 $ 2,222,145 3.97%
Savings deposits 17,151,710 561,936 3.28% 1,100,179 11,623 1.06%
Time deposits 173,796,134 7,361,211 4.24% 164,390,291 8,410,153 5.12%
Brokered deposits 51,275,081 2,032,740 3.96% 21,971,326 1,113,511 5.07%
Total deposits 317,766,458 11,966,918 3.77% 243,458,589 11,757,432 4.83%
Federal funds purchased and other short-
term borrowings 36,261,524 1,128,663 3.11% 49,824,685 2,680,097 5.38%
Term FHLB Advances 70,743,169 2,595,711 3.67% 22,552,055 1,096,338 4.86%
Total interest bearing liabilities/expense 424,771,151 15,691,292 3.69% 315,835,329 15,533,867 4.92%
Non interest bearing liabilities 42,066,012 38,254,395
Shareholders' equity 44,115,541 44,408,120
Total liabilities and shareholders' equity $ 510,952,703 $ 398,497,844
Net interest income/net interest spread $ 13,046,910 2.27% $ 11,383,003 2.28%
Net interest margin 2.71% 3.04%
22
2009 Annual Report
The following unaudited table provides detail of the components of each change attributable to rate and
volume variances. The changes in interest due to rate and volume have been allocated to change due to rate
and change due to volume in proportion to the absolute amounts of the changes in each:
Years ended December 31, 2009 compared to Years ended December 31, 2008 compared to
December 31, 2008 December 31, 2007
Increase (decrease) due to Increase (decrease) due to
Rate Volume Total Rate Volume Total
Interest earning assets:
Short-term investments $ (67,412) $ 46,653 $ (20,759) $ (75,717) $ (5,986) $ (81,704)
Securities available-for-sale 1,736 303,697 305,433 90,054 1,352,173 1,442,227
Securities held-to-maturity (52,589) (330,105) (382,694) (357,449) 701,762 344,313
Total securities (50,853) (26,408) (77,261) (267,395) 2,053,935 1,786,540
Loans held for sale (198,519) 411,790 213,271 (81,092) (202,218) (283,311)
Commercial Loans:
Mortgage (1,018,265) 1,410,086 391,821 (1,098,266) 1,000,695 (97,571)
Construction (600,737) (1,525,855) (2,126,592) (1,060,280) 1,591,635 531,354
Other (230,218) (456,684) (686,902) (651,264) 784,404 133,140
Consumer Loans:
First Mortgage (419,228) (573,334) (992,562) (170,653) 969,588 798,936
Junior Mortgage, Primarily HELOC (601,699) (163,493) (765,192) (1,002,201) 723,678 (278,524)
Construction (71,708) (279,875) (351,583) (543,566) (73,035) (616,601)
Other (30,778) (17,319) (48,097) (49,185) 17,352 (31,833)
Total loans (2,972,633) (1,606,474) (4,579,107) (4,575,416) 5,014,317 438,901
Investment in Federal Home Loan Bank (23,221) 8,532 (14,689) (52,554) 13,460 (39,094)
Total change in interest income (3,312,638) (1,165,908) (4,478,545) (5,052,175) 6,873,507 1,821,332
Interest bearing liabilities:
Interest-bearing transaction accounts (939,382) (43,483) (982,865) (855,384) 644,271 (211,114)
Savings deposits (307,299) 1,039,384 732,085 69,278 481,035 550,313
Time deposits (1,872,769) (538,955) (2,411,724) (1,509,479) 460,537 (1,048,942)
Brokered deposits (330,821) (991,208) (1,322,029) (287,877) 1,207,106 919,229
Total deposits (3,450,271) (534,262) (3,984,533) (2,583,463) 2,792,949 209,486
Federal funds purchased and other short-
term borrowings (561,107) (546,388) (1,107,495) (942,518) (608,916) (1,551,434)
FHLB Advances (58,461) 37,489 (20,972) (328,001) 1,827,375 1,499,373
Total change in interest expense (4,069,839) (1,043,161) (5,113,000) (3,853,983) 4,011,408 157,425
Increase in net interest income $ 757,201 $ (122,747) $ 634,454 $ (1,198,192) $ 2,862,100 $ 1,663,907
Provision for loan losses. Magna provided $1.4 million for possible loan losses in 2009 compared to $2.5
million in 2008 and $1.1 million in 2007. Net loan charge-offs totaled $1.5 million in 2009 compared to
$375,695 in 2008 and $1,434 in 2007. Net charge-offs prior to 2008 were extremely low due to appreciating
property values, low unemployment rates, and a generally sound economy. The rate of charge-off we
experienced in 2009 reflects the rapid deterioration of these metrics. It is difficult to project loan charge-
offs. Charge-offs will remain significantly above historical levels and could exceed 2009 if the economy
does not improve during 2010. Overall, charge-offs in 2009 totaled .41% of average loans outstanding
compared to .09% in 2008.
Magna’s process of determining the necessary level of allowance for possible loan losses involves objective
calculations supplemented by a more subjective environmental assessment. Against the backdrop of an
economy in a deep recession, our estimate of the general level of allowance for losses was increased by an
environmental assessment factor of 20% in both 2009 and 2008, which increased the allowance for loan loss
by approximately $814,000 and $771,000, respectively. The determination of the adequacy of the level of
allowance for loan losses and the related provision for loan losses is a critical accounting estimate, which
involves such factors as the historical level of losses, trends in delinquencies, and valuation of collateral.
Based on information available to Magna at December 31, 2009, we believe the allowance for possible loan
losses to be adequate.
23
2009 Annual Report
Non-Interest Income. Non-interest income is a significant source of revenue for Magna, comprising
50.7%, 48.9%, and 53.6% of net revenue for the years ending December 31, 2009, 2008 and 2007,
respectively, adjusted for the effect of other than temporary impairment charges and gain on sale of branch
discussed below. Total non-interest income, excluding the effect of other than temporary impairment
charges and gain on sale of branch, was $13.9 million, $12.3 million, and $12.9 million for the years ended
December 31, 2009, 2008 and 2007, respectively. Non-interest income has historically been sourced from
three areas, (i) mortgage banking, (ii) mortgage servicing and (iii) loan brokerage, although the contribution
from deposit and branch fees has increased as the volume of transaction related accounts has grown.
The sale of our Brentwood, Tennessee branch to Reliant Bank closed on July 31, 2009. This was our
only retail bank branch outside of the Memphis area, and we decided to focus our future retail growth
plans in the Memphis area. The sale involved approximately $35 million in loans and $41.8 million in
deposits. A pre-tax gain of approximately $1.8 million was recognized on the sale of the branch.
Mortgage banking revenue, which comprised 68.9%, 60.0%, and 55.9% of non-interest income,
adjusted for the effect of other than temporary impairment charges and gain on sale of branch, for 2009,
2008 and 2007, respectively, is derived from originating and selling single family residential loans to
third parties. Gain on sale of mortgage loans totaled $9.6 million, $7.4 million, and $7.2 million for
2009, 2008 and 2007, respectively. Our mortgage banking operation includes a large percentage of
government insured loan originations, which have seen a significant increase in volume as low down-
payment sub-prime loan offerings disappeared in 2008. Another factor allowing Magna’s mortgage
origination operation to flourish is the rapid reduction in capacity we have witnessed as large broker
networks have been dismantled by entities such as Countrywide Home Loans and Washington Mutual.
Our residential mortgage production division relies heavily on our affiliation with the Crye-Leike realtor
network. We have had a cooperative marketing agreement in place with Crye-Leike since 2004, for which
we pay an equitable annual fee for marketing and promotional services. Further, the mortgage division
operates in production offices that are primarily leased by Magna from Crye-Leike or Crye-Leike affiliated
entities. Many of these offices are leased on a month-to-month basis. Magna has sourced loan origination
volumes from Crye-Leike of approximately 57%, 67%, and 73% in 2009, 2008, and 2007, respectively,
through its mortgage division largely due to the marketing efforts and positioning of loan officers in prime
locations for mortgage loan origination activity. While we believe the marketing agreement, coupled with
the leases in the Crye-Leike offices, enhances our ability to derive loans from Crye-Leike agents, there is no
and there has never been an exclusive mortgage origination arrangement between the two companies;
therefore, we can provide no assurance that historical mortgage origination volume derived from the Crye-
Leike relationship will continue in the future. See Note 15, Transactions with Insiders to the consolidated
financial statements for additional information.
Mortgage originations increased by $96.7 million (30.4%) from 2008 to 2009 compared to a decrease of
$8.8 million (2.7%) between 2007 and 2008. Refinance (Refi) activity is a significant driver of total
origination volume and is dependent upon mortgage interest rates, which were at historic lows for much of
2009. Total origination volume and the percentage of origination volume derived from refinance activity is
presented in the following table.
24
2009 Annual Report
The second major component of non-interest income is residential mortgage servicing fees, which totaled
$3.7 million for the years ended 2009 and 2008, and $3.6 million for the year ended 2007, respectively. The
following table provides information about the Company’s book of residential servicing business as of the
end of each of its last three years:
Magna believes that economically hedging the revenue from mortgage loan origination involves
maintaining a servicing portfolio that falls within a range of two and three times the level of our annual
mortgage loan production, with the multiple being on the lower end of the range during periods of declining
mortgage rates and on the higher end when mortgage rates are rising. At December 31, 2009 and 2008, the
ratio of loan production to loans serviced for others was 2.4X and 2.9X, respectively.
As a general rule, when mortgage interest rates fall, the increased revenue from rising loan production is
offset by a decrease in net servicing revenue from more rapid amortization of servicing rights and/or
recognition of impairment charges related to such rights. Generally the opposite is true when mortgage
interest rates rise. This inverse relationship, however, has three principal drawbacks. First, the timing of the
increase in servicing amortization, and more critically impairment recognition, often precedes the increase
in loan production revenue. Evidence of this is seen in the $1.2 million impairment charge Magna
recognized in the fourth quarter of 2008, and recovered $1.06 million in 2009, as mortgage interest rates
descended to their lowest level in five years. Second, the hedge between servicing and loan production is
dependent upon maintaining a production level that moves in lockstep with interest rates. While we
experienced an increase in loan production volumes from the recent decline in mortgage interest rates and
the home buyers’ credit, the uncertainty of home price depreciation coupled with the significant
deterioration of credit and heightened underwriting standards may prevent this from continuing.
Consequently, there can be no assurance that the correlation of servicing amortization/impairment and loan
production revenue will serve as an effective hedge against losses in the future. Third, as interest rates trend
upwards, the servicing asset’s gain in value plateaus at a point approximately 2% above the average note
rate of the servicing portfolio because expected prepayments do not slow further above that point.
Magna has historically enjoyed a significant contribution to revenue from brokering commercial real estate
loans to the Federal Home Loan Mortgage Corporation, various life insurance companies and conduit
entities. These transactions are competitively negotiated, often complex, and are highly dependent upon our
ability to work out terms acceptable to both borrower and lender. Much like the residential mortgage
market, the commercial real estate market is very sensitive to changes in rates and credit. Beginning with the
liquidity crisis and subsequent credit freeze in early 2008, the buyers of commercial mortgages all but
disappeared from the investment scene and Magna’s pipeline of commercial brokerage declined. Brokerage
fees totaled $106,750, $469,215, and $1.6 million for 2009, 2008 and 2007 on volumes of $13.3 million,
$90.3 million, and $210.6 million, respectively. We expect the volume of brokerage transactions to improve
in 2010 as a result of improving economic conditions.
25
2009 Annual Report
Non-Interest Expense. Non-interest expense for 2009 increased by $2.1 million compared to 2008, after
decreasing by $210,873 in 2008 and increasing by $2.7 million in 2007. The following table summarizes
components of the changes in non-interest expense over the last five years:
Compound Annual
Year ended December 31, Growth Rate
One Five
2009 2008 2007 2006 2005 Year Year
Salary, wages and commission $ 11,161,575 $ 10,982,528 $ 11,654,854 $ 10,700,847 $ 8,675,515 1.6% 5.2%
Benefits and taxes 1,813,997 1,872,326 2,191,749 1,782,874 1,208,407 -3.1% 8.4%
Subtotal compensation and benefits 12,975,572 12,854,854 13,846,603 12,483,721 9,883,923 0.9% 5.6%
Professional services 332,010 449,976 530,102 537,599 215,175 -26.2% 8.6%
Occupancy and equipment 3,042,004 3,013,562 2,244,379 1,967,822 2,211,132 0.9% 6.5%
Amortization of servicing rights 2,542,675 1,664,405 1,560,076 1,515,188 1,640,482 52.8% 9.1%
Marketing and business development 469,222 693,462 1,050,226 487,487 238,356 -32.3% 14.1%
Regulatory fees and deposit insurance
assessments 925,236 385,443 294,131 100,541 86,799 140.0% 59.8%
FHLB advance prepayment penalty 504,866 - - - - ~ ~
Provision for claim and repurchase loss 573,000 244,103 211,300 149,000 112,500 134.7% 37.8%
Other 2,562,251 2,538,032 2,317,893 2,117,302 2,191,531 1.0% 2.6%
$ 23,926,836 $ 21,843,837 $ 22,054,710 $ 19,358,660 $ 16,579,898 9.5% 7.5%
Compensation and employee benefits, representing 55.4%, 58.8%, and 62.8%, of total non-interest expense
in 2009 (excluding the FHLB advance prepayment penalty), 2008 and 2007, respectively, increased by
$120,718 (0.9%) in 2009. This increase follows a decrease of $991,749 and an increase of $1.4 million for
2008 and 2007, respectively. The changes in salary and benefits expense can be attributed to four areas:
• In 2007, we added or upgraded fifteen additional positions (mostly related to the opening of new
branches) which further increased the salary and wage component of our operating expenses. In
2008, we added four additional positions in our Forest Hill branch. In 2009, we added or filled 4
new or vacant positions and eliminated 5 positions. We sold the Brentwood branch on July 31,
2009, eliminating 5 full-time positions totaling approximately $450,000 in annualized
compensation and benefit expenses. Compensation and benefit expenses for the Brentwood branch
declined by approximately $177,000 from 2008 to 2009.
• During 2008, several key management positions, including the commercial banking division head
and one commercial loan officer, were vacated and remained unfilled until November 2009.
Additionally, we executed on a reduction in force in the first quarter of 2008, resulting in the
elimination of several additional positions.
• Based on the Company’s failure to reach its targets of growth and profitability, there was no
incentive compensation earned by the participants in Magna’s corporate incentive plan in 2008.
Incentive expense of $300,000 and $429,891 were included in operating expense for 2009 and
2007, respectively. Certain members of the Company’s executive management team participate in
individual plans tied to the profitability of their respective divisions without reference to the overall
results of operations of the Company. Incentive expense of $494,254, $675,350, and $918,819 were
included in operating expense for 2009, 2008 and 2007, respectively.
• We adopted the provisions of ASC 718, Stock Compensation, formerly, Statement of Financial
Accounting Standards 123(R) Share Based Payments, which required us to expense the value of
option awards beginning January 1, 2006. Option expense was $127,189 in 2009 compared to
$219,000 and $379,000 in 2008 and 2007, respectively.
26
2009 Annual Report
Occupancy and equipment expenses increased by $28,442 or 1.0% in 2009 and were positively impacted by
the branch sale. Occupancy and equipment expenses increased by $769,183 or 34.3% in 2008 primarily due
to operating expenses and depreciation charges related to opening the Oak Court and Forest Hill branches,
coupled with the first full year of operation of the Wolf River branch. We expect occupancy expenses to
decline in 2010 because 2009 reflects a partial year impact of the branch sale.
The following table summarizes the components of occupancy and equipment expense:
Amortization of servicing rights is a highly volatile component of non-interest expense that is dramatically
affected by interest rates and the rate of prepayment we experience in our servicing portfolio. The table on
the previous page reflects a relatively steady rate of amortization between 2005, when the FOMC began
increasing interest rates, and 2007, when they reversed course and began lowering interest rates.
Amortization expense increased $878,270 or 52.8% in 2009, but is expected to decline in 2010.
Marketing and business development costs, as detailed on the previous page, have risen substantially since
we embarked on our long term strategy to become a more convenience oriented full service commercial
bank. These expenses are expected to be an on-going part of our business development strategy; however, as
evidenced by the decline of $224,240 or 32.3% in 2009, management exercised cost control measures in this
area. Expenses associated with changing the Bank’s name and rebranding its image occurred in 2007. While
it is difficult to categorize all of the expense we incurred in that endeavor as recurring or non-recurring,
management estimates that approximately $500,000 of 2007’s marketing and business development charges
were associated with the changing of our name.
Regulatory fees and deposit insurance assessments increased $539,793 or 140.0% in 2009. In response to
depleted FDIC reserves caused by bank failures not seen since the Great Depression, the FDIC implemented
increases to deposit assessments. In May 2009, the FDIC adopted a final rule imposing a 5 basis point
special assessment on each insured depository institution's assets minus Tier 1 capital as of June 30, 2009,
subject to a limit not to exceed 10 basis points times the institution's assessment base for the second quarter
2009. The special assessment, totaling approximately $230,000, was accrued in the second quarter of 2009
and was paid on September 30, 2009.
In September 2009, the FDIC adopted an Amended Restoration Plan to allow the Designated Reserve Ratio
(“DDR”) to return to a reserve ratio of 1.15% within eight years, as mandated by statute. In November 2009,
the FDIC amended its regulations requiring insured institutions to prepay their estimated quarterly risk
based assessments for the fourth quarter of 2009, and for all of 2010, 2011, and 2012. The prepaid
assessment rate is equal to the Company’s total base assessment rate in effect on September 30, 2009. The
Company’s third quarter 2009 assessment base will be increased quarterly at a 5 percent annual growth rate
through the end of 2012. The FDIC also increased annual assessment rates uniformly by 3 basis points
beginning in 2011.
The prepaid assessment for these periods was paid on December 30, 2009, along with the Company’s
regular quarterly risk-based deposit insurance assessment for the third quarter of 2009. The prepaid
assessment, totaling approximately $1.8 million at December 31, 2009, is included in other assets in the
consolidated statements of financial condition. The prepaid assessment will be amortized to expense over 3
years, or approximately $600,000 per year, beginning in 2010. We do not expect additional special
assessments or changes in deposit assessment rates in 2010, but increases could occur if the FDIC
determines that their reserve levels are not adequate.
27
2009 Annual Report
The Company elected to prepay $9.0 million in term FHLB advances during 2009 and incurred a
prepayment penalty of $504,866. FHLB term advances are fixed rate advances repayable in full at maturity,
but, prepayment is allowed at any time prior to maturity. Prepayment resulted in the Company incurring a
prepayment penalty based upon a yield maintenance formula contained in the loan agreement. The term
advances had a weighted average interest rate of 4.0% and a weighted average remaining maturity of 36
months.
Other non-interest expense consists of the following:
Years Ended December 31,
2009 2008 2007
Data processing $ 947,597 $ 808,161 $ 693,848
Travel and entertainment 176,559 211,068 312,995
Bank fees and service charges 164,652 154,622 91,301
Postage, shipping and delivery 209,855 213,429 205,569
Printing and office supplies 186,238 218,004 236,127
Provision for loan repurchase and FHA/VA
claim losses 573,000 244,103 211,300
Other 877,350 932,748 778,053
Total other expense $ 3,135,251 $ 2,782,135 $ 2,529,193
The significant increase in data processing from 2006 to 2009 reflects the October 2006 migration of our
core banking software to a full-featured platform capable of delivering all of the products we offer to our
retail and commercial customers, including remote deposit capture, business internet banking, and other
essential products. The provision for loan repurchase and FHA/VA claim losses increased $328,897 or
134.7% over 2008. The provision for loan repurchase increased approximately $394,000 in 2009. This
reserve increases during recessionary periods because mortgage loan defaults, which normally increase
during these periods, may result in loan repurchases by the Company. Additionally, the weak financial
condition of both FNMA and the private mortgage insurers are expected to increase the risk of loss. The
provision for loan repurchase and FHA/VA claims is expected to remain above historical levels in 2010.
Income tax expense represented 40.2% of pretax income for 2009 compared to 37.9% and 41.0% and for
2008 and 2007, respectively. The increase in 2009 is primarily due to non deductible compensation
expenses and the disposition of certain tax advantaged securities from the available-for-sale portfolio. The
determination of current and deferred income tax expense is a critical accounting estimate which is based on
interpretation of complex tax regulations, the difference between the tax and financial reporting bases of
assets and liabilities (temporary differences), estimates of when such temporary differences will reverse
themselves, the tax rates estimated to be in effect when they reverse, and current financial accounting
standards. There can be no assurance that estimates and interpretations used in determining income tax
liabilities may not be challenged by federal or state taxing authorities. Magna’s tax returns have never been
examined by any federal or state agency and years prior to 2006 are closed to examination. See Note 13,
Income Taxes to the consolidated financial statements for additional information regarding the Company’s
income taxes.
Consolidated Financial Condition Analysis
Total assets were $435.8 million at December 31, 2009 and $521.0 million at December 31, 2008, a
decrease of $85.2 million or 16.4%. The decrease was primarily attributable to loans outstanding, which
declined by $69.5 million. The branch sale accounted for $35.0 million of the decline in loans. Another
contributor to decline in total assets was the securities portfolio, which declined $8.1 million. Total
liabilities were $382.5 million at December 31, 2009 and $467.7 million at December 31, 2008, a decrease
of $85.2 million or 18.2%. The decrease was primarily attributable to deposits, which declined by $57.7
million. The branch sale accounted for $41.8 million of the decline in deposits. While total deposits,
excluding the branch sale, declined by $15.9 million, brokered deposits declined by $43.5 million and all
other deposits grew by $27.6 million as we were able to attract new customer deposits as a result of our
28
2009 Annual Report
expanded branch presence. Borrowings declined by $23.1 million in 2009, with long-term debt declining by
$12.5 million and federal funds purchased and short-term debt declining by $10.6 million. The shift in the
funding of our assets from borrowings to deposits, and more importantly, from time deposits to transactional
deposits, was significant in 2009.
Short-Term Investments and Securities. Liquid assets, which includes cash, short-term deposits, fed
funds sold, and securities available-for-sale, decreased by $7.2 million, from $59.1 million at December 31,
2008, to $51.9 million at December 31, 2009. The net decrease in our securities portfolio was $8.1 million
consisting of purchases of $7.4 million, proceeds from sales of $2.9 million and principal repayments of
$14.1 million. The available-for-sale portfolio declined $5.5 million from a combination of $7.4 million in
purchases, proceeds from sales of $2.8 million, $11.5 million in principal repayments and a $1.4 million
improvement in market value. Securities held-to-maturity decreased by $2.6 million from payoffs in the
mortgage backed security component of this portfolio and from sales of $71,250. Net pretax losses in the
available-for-sale portfolio totaled $661,598 at December 31, 2009 compared to $1.9 million at December
31, 2008. Most of this unrealized loss is attributable to the Bank’s investment in residential mortgage
backed securities and a significant portion of the unrealized loss has existed for more than twelve months.
These securities had a year-end, pre-tax mark-to-market unrealized loss of $1.6 million.
In April 2009, the FASB issued authoritative guidance codified in ASC 320.10, Recognition and
Presentation of Other-Than-Temporary Impairment. ASC 320.10 changed the presentation and amount of
the other-than-temporary impairment recognized in the income statement. The other-than-temporary
impairment is separated into (a) the amount of the total other-than-temporary impairment related to a
decrease in cash flows expected to be collected from the debt security (credit loss) and (b) the amount of the
total other-than-temporary impairment related to all other factors (non credit loss). The amount of the total
other-than-temporary impairment related to the credit loss is recognized in earnings. The amount of the total
other-than-temporary impairment related to all other factors is recognized in other comprehensive income.
At adoption (June 2009), the Company increased retained earnings approximately $1.4 million and
decreased other comprehensive income approximately $1.4 million, which represented the portion of losses
recorded (net of tax) as a charge to earnings that the Company determined to be other-than-temporary
impairment related to all other “non credit” factors. The non credit components of other-than-temporary
impairment on securities as of December 31, 2009 totaled $345,097 and $2,109,700 in the available-for-sale
and the held-to-maturity portfolios, respectively.
The Company sold a security in 2009 (corporate debt obligation) classified as held-to-maturity with a
carrying value of $42,739. Proceeds from the sale of the security totaled $71,250, with a gross realized gain
of $28,511. Sales of securities classified as held-to-maturity are rare, but are allowed by GAAP under
certain circumstances. The Company sold the security because of evidence of a significant deterioration in
the issuer's creditworthiness, which is allowable by GAAP. The Company has the intent and ability to hold
the remaining securities classified as held-to-maturity until maturity. The Company sold its remaining
investment in FHLMC preferred stock (38,883 shares) in the fourth quarter of 2009 that had been written
down through OTTI in the third quarter of 2008. The amount recorded as loss on sale of securities available-
for-sale in the accompanying statements of operations from the sale of these shares totaled $19,738 in 2009.
This loss is in addition to the OTTI loss recorded on these shares of $1,385,812 in the third quarter of 2008,
for a total realized loss of $1,405,550 from the sale of these shares of FHLMC preferred stock.
Management performed a comprehensive evaluation of the entire investment portfolio as of December 31,
2009 and identified securities whose loss of value was determined to be other than temporary in nature.
Most of the impairment was in securities, the repayment of which is dependent upon the rate of default in a
portfolio of corporate obligations and residential mortgage backed securities. The identified securities are all
paying in accordance with their terms, but have lost substantial marketability from the contraction of short-
term liquidity markets. Management monitors the securities portfolio each quarter for evidence of additional
stress on the ability of our portfolio to continue to perform. Current economic indicators on the state of the
U.S economy are mixed and, consequently, there can be no assurance that other securities in our portfolio
29
2009 Annual Report
will not become impaired upon subsequent evaluation. Further detail on the securities portfolio is provided
in Note 3, Investment Securities to the consolidated financial statements. The Company did not have trading
securities at December 31, 2009 or 2008, nor had the Bank engaged in any securities trading activities
during the years ended December 31, 2009 and 2008.
Loans Held For Sale. Loans held for sale are those which we have originated but which have not yet been
purchased by an investor. This loan portfolio decreased by approximately $3.0 million from $24.2 million
at December 31, 2008 to $21.2 million at December 31, 2009. This entire portfolio is sold to investors on a
flow delivery basis; the Bank does not securitize its loan production for sale in the mortgage-backed
securities market. A significant portion of our loan production is sold to FNMA under mandatory or best
efforts agreements. If Magna cannot produce enough loans to meet at least the minimum delivery level for
each agreement, we may be forced to “pair-off” the remainder of the position at some loss. Pair off losses
were insignificant for the three years ended December 31, 2009.
Under the representations and warranties Magna makes to its investors, we bear repurchase risk after
delivery of a mortgage loan for faulty origination. The total principal amount of loans repurchased or
indemnified was $941,016 for 2009. During 2008 and 2007, we repurchased or paid an indemnity on loans
with total principal of $210,947 and $831,347, respectively. We quantify repurchase risk by reference to
historical occurrence and an allowance for losses associated with repurchase has been established. We
mitigate the risk of loss by performing both pre-delivery and post delivery quality control reviews on
selected loans. See Note 18, Financial Instruments with Off-Balance-Sheet Risk to the consolidated
financial statements for additional information relating to activity in the repurchase reserve.
Loan Portfolio. Loans totaled $326.8 at December 31, 2009, down from $396.3 million at December 31,
2008. The branch sale accounted for $35.0 million of the decline in loans. Total loans declined by 17.5% as
seen in the following table:
December 31, 2009
December 31, 2009 December 31, 2008
December 31, 2008 Change
Change
Commercial Loans:
Commercial Loans:
Mortgage $ 117,120,112
$ 117,120,112 36.4%
36.4% 132,345,296
$$ 132,345,296 33.8%
33.8% $ $ (15,225,184) -11.5%
(15,225,184) -11.5%
Construction
Construction 33,990,660
33,990,660 10.6%
10.6% 47,844,858
47,844,858 12.2%
12.2% (13,854,198) -29.0%
(13,854,198) -29.0%
Other 22,381,622
22,381,622 7.0%
7.0% 33,456,092
33,456,092 8.6%
8.6% (11,074,470) -33.1%
(11,074,470) -33.1%
Other
173,492,394
173,492,394 53.9%
53.9% 213,646,246
213,646,246 54.6%
54.6% (40,153,852) -18.8%
(40,153,852) -18.8%
Consumer Loans:
Consumer Loans:
First Mortgage 82,025,890 25.5% 92,915,873 23.8% (10,889,983) -11.7%
First Mortgage 82,025,890 25.5% 92,915,873 23.8% (10,889,983) -11.7%
Junior Mortgage, Primarily HELOC 54,804,498 17.0% 71,400,918 18.3% (16,596,420) -23.2%
Junior Mortgage, Primarily HELOC 54,804,498 17.0% 71,400,918 18.3% (16,596,420) -23.2%
Construction 13,775,740 4.3% 14,874,791 3.7% (1,099,051) -7.4%
Construction 13,775,740 4.3% 14,874,791 3.7% (1,099,051) -7.4%
Other 2,731,903 0.8% 3,466,191 0.9% (734,288) -21.2%
Other 2,731,903 0.8% 3,466,191 0.9% (734,288) -21.2%
153,338,031 47.7% 182,657,773 46.6% (29,319,742) -16.1%
153,338,031 47.7% 182,657,773 46.6% (29,319,742) -16.1%
Total loans 326,830,425 101.6% 396,304,019 101.4% (69,473,594) -17.5%
Total loansfor loan losses
Allowance 326,830,425
(5,174,731) 101.6%
-1.6% 396,304,019
(5,283,639) 101.4%
-1.4% (69,473,594)
108,908 -17.5%
-2.1%
Allowance for loan losses (5,174,731) -1.6% (5,283,639) -1.4% 108,908 -2.1%
Net loans $ 321,655,694 100.0% $ 391,020,380 100.0% $ (69,364,686) -17.7%
Net loans $ 321,655,694 100.0% $ 391,020,380 100.0% $ (69,364,686) -17.7%
We anticipate 2010’s loan growth to be modest as the economy’s problems curtail the appetite for expansion
and fewer credit-worthy customers seek loans.
Commercial Lending. The Bank’s commercial real estate (“CRE”) department focuses on originating multi-
family and non-residential mortgage loans for the Bank’s portfolio as well as for the investor market. At
December 31, 2009, the CRE department’s portfolio of such loans totaled $107.1 million compared to
$125.9 million at December 31, 2008, a decline of $18.8 million. We do not anticipate any significant net
increase in this division during 2010.
30
2009 Annual Report
Construction Lending. Construction lending, both commercial and residential, fell during 2009 as Magna
sought to limit its exposure to this very hard hit sector of the economy. Residential construction lending also
incurred a significant foreclosure (approximately $2.0 million cost basis at foreclosure and year end carrying
value of $1.5 million) during 2008 which constitutes a significant portion of foreclosed real estate reported
on the balance sheet. Management has carefully evaluated Magna’s exposure to the construction lending
sector for evidence of further potential losses. We anticipate a further decline in the construction loan
portfolio during the year if economic conditions do not improve in 2010.
Commercial & Industrial Loans. Magna’s commercial and industrial (“C&I”) loan portfolio decreased
$16.0 million in 2009 as a result of the loss of loan officers and reassignment of the division head to the
position of chief lending officer. We operated for the first half of 2009 with a staff of two in this department
and no employees during the second half of the year, which is down from five at the beginning of 2008. We
actively engaged in a search for personnel in the C&I division and hired a division head in late 2009. We
expect growth in this portfolio in 2010.
The following table presents information regarding loan growth (decline) by quarter over the last year:
Total Loan Growth by Quarter
$0.0
-$10.0
$ in Millions
-$9.6
-$6.3
-$20.0 -$2.7 -$28.0
-$30.0
-$32.4
-$40.0
Dec-08 Mar-09 Jun-09 Sep-09 Dec-09
Note: The quarter ended September 30, 2009 includes $35.0 million in loans sold.
Non-performing Loans and Assets. Non-performing assets, which includes non-performing loans (loans
ninety or more days past due) and other real estate owned, totaled $10.8 million at December 31, 2009
compared to $10.7 million at December 31, 2008. These totals include residential mortgage loans totaling
$3.6 million and $5.1 million at the respective year ends which have U.S. government full faith and credit
backing. We purchase these loans out of pools of loans we service for GNMA (“Early Buy-Out Loans” or
“EBO Loans”) when the yield on the loan is substantially higher than our own portfolio loans.
31
2009 Annual Report
The following table summarizes Magna’s non-performing assets for the five years ended December 31,
2009:
AtAt December 31,
December 31,
2009
2009 2008
2008 2007
2007 2006
2006 2005
2005
Total non-performing loans 7,623,172 7,874,571 7,126,279 10,256,943 $ 13,261,361
$ $ 7,623,172 $ $ 7,874,571 $ $ 7,126,279 $ $ 10,256,943 $ 13,261,361
Non-performing loans to total loans 2.33%
2.33% 1.99%
1.99% 1.87%
1.87% 3.67%
3.67% 6.68%
6.68%
Non-performing loans exclusive of EBO loans $ 4,016,434 2,771,045 1,306,040 2,585,068 1,061,478
$ 4,016,434 $ $ 2,771,045 $ $ 1,306,040 $ $ 2,585,068 $ $ 1,061,478
Non-performing loans to total loans, exclusive of EBO loans 1.28%
1.28% 0.70%
0.70% 0.34%
0.34% 0.93%
0.93% 0.53%
0.53%
Non-performing assets 10,668,446 7,186,549 10,256,943
$ $ 10,789,180 $ $ 10,668,446 $ $ 7,186,549 $ $ 10,256,943 $ 13,691,920
10,789,180 $ 13,691,920
Non-performing assets to total assets
Non-performing assets to total assets 2.45%
2.45% 2.05%
2.05% 1.53%
1.53% 2.92%
2.92% 5.01%
5.01%
Non-performing assets, exclusive of EBO loans
Non-performing assets, exclusive of EBO loans 1,366,311 2,639,068
$ $ 7,182,442 $ $5,564,920 $ $1,366,311 $ $ 2,639,068 $ 13,691,920
7,182,442 5,564,920 $ 13,691,920
Non-performing assets to total assets, exclusive of EBO loans
Non-performing assets to total assets, exclusive of EBO loans 1.70%
1.70% 1.10%
1.10% 0.31%
0.31% 0.80%
0.80% 0.16%
0.16%
Potential Problem Loans and Securities. In addition to non-performing loans, management diligently
reviews the loan and security portfolios for evidence of deteriorating credit quality. When a borrower is
identified as having some possibility of not being able to meet the repayment terms, the loan is classified as
“special mention.” From that point, the loan is monitored to determine if the likelihood of repayment is
improving or deteriorating further, in which case the classification of the loan moves to “substandard” then
“doubtful” and finally to “loss” status. Securities are classified based on the credit rating assigned by the
credit rating agencies. The following table summarizes the balances of loans, foreclosed real estate and
securities in each of the classification categories as of December 31, 2009. Note that non-performing loans
identified above are included in the table.
Special
Mention Substandard Doubtful Loss
Commercial Mortgage $ 6,461,261 $ 476,462 $ - $ -
Commercial - 42,475 - -
Consumer - 142,774 - -
Residential First Mortgage 2,228,187 3,416,456 - -
Residential Junior Mortgage 30,645 246,683 - -
Residential Construction - - - -
Total Loans 8,720,093 4,324,850 - -
Foreclosed real estate, net - 3,166,963 - -
Securities 4,251,000 2,329,034 - -
$ 12,971,093 $ 9,820,847 $ - $ -
The risk profile of Magna’s loan portfolio crosses all spectrums, from low risk, highly collateralized real
estate loans to riskier unsecured credits. Along this spectrum are junior mortgage loans and loans where the
combined loan to value ratio (“CLTV”) is higher than 80% of appraised value. Moreover, the events of the
past year have had a negative impact on real estate values, likely increasing the CLTV on an unknown
number of loans above the level originally thought to exist.
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2009 Annual Report
Allowance for Loan Losses. The determination of the adequacy of the allowance for loan losses is a critical
accounting estimate. Magna’s methodology for determining and allocating the allowance is comprised of:
• An on-going review and risk rating of larger individual loans,
• Dividing the portfolio into homogeneous and non-homogeneous loan categories,
• Further subdivision of loans by (i) lien position, (ii) insurance coverage, (iii) age, and (iv) collateral
coverage.
After reviewing historical charge-offs and delinquency trends, calculations are made of the range of the
allowance that is warranted. Following this calculation, management makes a determination as to the overall
trend in the economy from both a macro (i.e. national) and a micro (i.e. localized) view. After weighting
each factor considered, management determines an overall environmental factor, either as a positive or a
negative multiplier, to apply to the calculated allowance level. Notwithstanding this process, no assurance
can be given that Magna will not, in any particular period, incur losses that are sizable in relation to the level
of the allowance for loan losses or that subsequent evaluation, in light of then current conditions, will not
result in material additional provisions for loan losses. Furthermore, while management believes that the
allowance for loan losses is adequate and that the methodologies used to arrive at the level thereof are
sound, it is possible that our primary regulator, the OTS, could challenge the sufficiency of the reserve or
the methodology used to arrive at the reserve at any time, which may cause Magna to make additional
provisions for loan losses.
The allocation of Magna’s allowance for loan losses expressed in dollars and as a percent of outstanding
loans is presented in the following tables:
2009 2008 2007 2006 2005
One-to-four family residential $ 642 $ 440 $ 288 $ 182 $ 189
Construction and land development 1,000 1,015 828 527 259
Other, primarily revolving home equity 1,229 1,213 697 537 374
Commercial Real Estate 1,954 2,096 927 680 345
Commercial & Industrial 297 410 301 - -
Consumer 54 110 92 139 29
Total $ 5,175 $ 5,284 $ 3,132 $ 2,063 $ 1,196
As a Percent of Outstanding Loans
2009 2008 2007 2006 2005
One-to-four family residential 0.78% 0.47% 0.30% 0.23% 0.28%
Construction and land development 2.09% 1.62% 0.87% 0.89% 0.00%
Other, primarily revolving home equity 2.24% 1.70% 1.20% 1.34% 1.11%
Commercial Real Estate 1.67% 1.58% 1.01% 0.91% 0.65%
Commercial & Industrial 1.33% 1.23% 0.85% 0.00% 0.00%
Consumer 1.96% 3.18% 1.88% 2.88% 1.37%
Total 1.58% 1.33% 0.74% 0.60% 0.67%
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2009 Annual Report
The following table summarizes activity in Magna’s allowance for loan losses for the periods indicated:
Other,
One-to-four Construction primarily
family and land revolving Commercial Commercial
residential development home equity Real Estate & Industrial Consumer Total
Balance December 31, 2004 $ 147,436 $ 138,905 $ 421,687 $ 367,133 $ - $ 32,849 $ 1,108,010
Provision for loan losses 125,300 120,400 6,200 (22,000) - (4,200) 225,700
Charge-offs (102,822) - (54,277) - - - (157,099)
Recoveries 19,181 - 200 - - - 19,381
Net charge-offs (83,641) - (54,077) - - - (137,718)
Balance December 31, 2005 189,095 259,305 373,810 345,133 - 28,649 1,195,992
Provision for loan losses (61,750) 267,275 162,700 334,520 - 109,925 812,670
Charge-offs - - - - - - -
Recoveries 54,604 - 100 - - - 54,704
Net charge-offs 54,604 - 100 - - - 54,704
Balance December 31, 2006 181,949 526,580 536,610 679,653 - 138,574 2,063,366
Provision for loan losses 105,592 301,674 161,827 247,156 301,201 (47,050) 1,070,400
Charge-offs - - (1,434) - - - (1,434)
Recoveries - - - - - - -
Net charge-offs - - (1,434) - - - (1,434)
Balance December 31, 2007 287,541 828,254 697,003 926,809 301,201 91,524 3,132,332
Provision for loan losses 229,636 211,637 789,334 1,169,011 108,843 18,539 2,527,000
Charge-offs (77,413) (25,000) (273,280) - - - (375,693)
Recoveries - - - - - - -
Net charge-offs (77,413) (25,000) (273,280) - - - (375,693)
Balance December 31, 2008 439,764 1,014,891 1,213,057 2,095,820 410,044 110,063 5,283,639
Provision for loan losses 220,236 172,275 386,626 349,837 172,817 79,590 1,381,381
Charge-offs (18,200) (187,212) (372,935) (502,912) (285,616) (136,023) (1,502,898)
Recoveries - - 1,763 10,846 - - 12,609
Net charge-offs (18,200) (187,212) (371,172) (492,066) (285,616) (136,023) (1,490,289)
Balance December 31, 2009 $ 641,800 $ 999,954 $ 1,228,511 $ 1,953,591 $ 297,245 $ 53,630 $ 5,174,731
The following table provides information regarding the Company’s historical charge-offs by allowance
category:
Other,
Net charge-offs as a One-to-four Construction primarily
percent of average family and land revolving Commercial Commercial
loans outstanding: residential development home equity Real Estate & Industrial Consumer Total
2009 0.02% 0.32% 0.59% 0.40% 1.00% 4.31% 0.41%
2008 0.08% 0.03% 0.41% 0.00% 0.00% 0.00% 0.09%
2007 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00%
2006 -0.07% 0.00% 0.00% 0.00% 0.00% 0.00% -0.02%
2005 0.11% 0.00% 0.17% 0.00% 0.00% 0.00% 0.08%
34
2009 Annual Report
Mortgage Servicing Rights. Mortgage servicing rights (“MSRs”) are recorded at the lower of cost or fair
value and totaled $10.4 million and $9.3 million at December 31, 2009 and 2008, respectively. Determining
fair market value (and thereby impairment) for MSRs is another critical accounting estimate that is made
difficult due to the number and subjective nature of the assumptions applied in determining market value, as
well as the lack of a liquid market for mortgage servicing rights. Magna reviews its portfolio of mortgage
servicing rights each quarter end for evidence of impairment using discounted cash flow techniques. Where
available, we obtain discount rates and prepayment assumptions from brokers familiar with MSR valuations
and apply observable trends in the performance of our portfolio to derive the present value of future cash
flows from mortgage servicing.
At December 31, 2008, mortgage interest rates had declined significantly from the end of the third quarter,
causing a sharp increase in the estimated rate of future mortgage prepayments from anticipated refinance
activity. The result was a dramatic downward revision to our estimate of the value of our mortgage servicing
portfolio triggering an impairment charge of $1.2 million. In 2009, the Company recovered $1.06 million of
the $1.2 million impairment charge recorded in 2008 as the expected refinances resulted in loan payoffs in
the current year. Again, this non-cash charge and subsequent recovery is the result of applying significant
judgment in the estimation process and any loss from our investment may be greater than, or less than,
estimated amounts.
Our residential servicing portfolio is comprised primarily of mortgage loans owned by FNMA and the
Tennessee Housing Development Agency (“THDA”) as follows:
Increase Average Average
2009 2008 (Decrease) Note Rate Service Fee
FNMA $ 669,112,048 $ 559,721,281 $ 109,390,767 5.66% 0.257%
THDA 274,829,871 318,056,936 (43,227,065) 5.99% 0.376%
GNMA 21,272,126 25,096,386 (3,824,260) 7.07% 0.513%
Other 20,217,748 22,040,142 (1,822,394) 5.92% 0.250%
$ 985,431,793 $ 924,914,745 $ 60,517,049 5.82% 0.296%
Liquidity Management. Deposits and mortgage servicing escrow accounts are the main source of balance
sheet funding and are comprised primarily of retail time deposits from the Memphis metropolitan market.
During the past year, we increased the percentage of deposits in interest bearing transaction and savings
accounts in conjunction with our branch expansion strategy. During 2009, deposits declined $57.7 million,
but $41.8 million of the decline was due to the branch sale and a decline in brokered deposits of $43.5
million. This shift to a higher percentage of deposit based balance sheet funding has been the focus of our
branch expansion strategy and we expect to continue to attract additional retail deposits as our branches
mature.
For short-term credit needs, Magna has established unsecured federal funds facilities with three banks
totaling $52.3 million, all of which was available as of December 31, 2009. During 2008, we established a
secured credit facility with the Federal Reserve Bank of St. Louis with an available borrowing capacity of
approximately $33.5 million at December 31, 2009.
For longer term borrowing purposes, Magna has a secured credit facility with the Federal Home Loan Bank
of Cincinnati. Substantially all mortgage related assets and all eligible securities are pledged against this line
which had total borrowing capacity of $108.4 million at December 31, 2009. Of this amount, Magna had
advances outstanding totaling $63.0 million at December 31, 2009 leaving $45.4 million of remaining credit
available at that date.
Additionally, we have participated in the brokered deposit market when prudent to allow us to better
manage our asset/liability repricing gap and to add call flexibility to our funding sources. The brokered CD
market is a well established and highly liquid source of funds available to financial institutions who are
“well capitalized” from a regulatory perspective, which Magna is. Acquiring these funds entails
35
2009 Annual Report
competitive bidding against other market participants, which has historically resulted in a higher interest rate
versus retail funding. However, as we have experienced for the past two years, the interest rate on brokered
deposits has been lower than retail funding, especially when considering the additional cost of acquisition
(i.e. advertising) and maintenance (i.e. number of accounts) of retail funding. While there are no hard
limitations on the amount of brokered funds that an institution can borrow (other than the capital limitation
previously mentioned) most brokers are cautious when acquiring deposits for institutions with an IDC
Financial Publishing, Inc. (“IDC”) rating of 125 or less. Magna’s IDC rating as of September 30, 2009 (the
most recent date for which data is available) was 224 on a scale of 300.
Magna has other sources of available liquidity, including issuance of debt and equity securities, sales of
securities available-for-sale, and securitization of portfolio assets, but management has no current intent to
utilize these resources for funds.
Deposits. Deposits totaled $315.7 million at December 31, 2009 compared to $373.4 million at December
31, 2008. The balance of brokered deposits reported at those dates was $20.5 million and $64.0 million,
respectively. Excluding brokered deposits and $41.8 million in deposits sold, our deposit balances grew by
$27.6 million (10.3%) in 2009 and $54.1 million (21.2%) in 2008. The following table summarizes the
components of total deposits at each quarter end since the end of 2008:
As of the quarter ended
Dec-09 Sep-09 Jun-09 Mar-09 Dec-08
Non-interest bearing $ 16,456,767 $ 16,764,193 $ 14,109,799 $ 15,161,571 $ 15,015,948
Escrow Accounts 10,431,503 18,651,668 18,487,509 14,786,977 10,085,847
Interest bearing transaction 56,589,820 54,009,933 61,898,723 62,117,262 62,067,110
Savings 69,184,820 69,371,790 78,358,425 62,290,128 40,964,893
Time deposits 142,498,702 141,687,177 159,900,068 178,096,050 181,218,394
Brokered deposits 20,543,000 25,045,000 37,879,999 46,059,000 64,032,996
Total deposits $ 315,704,612 $ 325,529,761 $ 370,634,523 $ 378,510,988 $ 373,385,188
Percent of total deposits at quarter ended
Dec-09 Sep-09 Jun-09 Mar-09 Dec-08
Non-interest bearing 5.2% 5.1% 3.8% 4.0% 4.0%
Escrow Accounts 3.3% 5.7% 5.0% 3.9% 2.7%
Interest bearing transaction 17.9% 16.6% 16.7% 16.4% 16.6%
Savings 21.9% 21.3% 21.1% 16.5% 11.0%
Time deposits 45.1% 43.5% 43.1% 47.1% 48.5%
Brokered deposits 6.5% 7.7% 10.2% 12.2% 17.1%
Total deposits 100.0% 100.0% 100.0% 100.0% 100.0%
While we will continue to execute deposit promotions as our primary funding mechanism, there can be no
assurance we will be able to fund all of our growth in this manner. At December 31, 2009, the ratio of total
loans to deposits was 103.5% compared to 106.1% at December 31, 2008.
Borrowings. Term borrowings totaled $63.0 million at December 31, 2009 compared to $75.5 million at
December 31, 2008, a decrease of $12.5 million (16.6%). These borrowings are all with the FHLB of
Cincinnati under the credit facility previously described. We executed most of these advances with a call
feature which allows the FHLB to require repayment of the advance on any quarterly anniversary of the
advance after an initial lockout period, generally of one to three years (“Callable”). Others were executed
with conversion features such that the FHLB may convert the fixed rate advance to a floating rate advance
36
2009 Annual Report
on the quarterly anniversary of the advance (“Convertible”). Term advances are fixed rate advances
repayable in full at maturity. Prepayment at any time prior to maturity may result in the Company incurring
a prepayment penalty based upon a yield maintenance formula contained in the loan agreement. The
Company elected to prepay $9.0 million in term FHLB advances during 2009 and incurred a prepayment
penalty of $504,866. The term advances had a weighted average interest rate of 4.0% and a weighted
average remaining maturity of 36 months.
The following table summarizes FHLB advances:
At December 31, 2009
Callable Convertible Total
Average Average Average
Amount Rate Amount Rate Amount Rate
Final maturity of:
Three months or less $ - - $ - $ - -
After three within six months - - - - - -
After six within twelve months - - 6,000,000 5.14% 6,000,000 5.14%
After twelve months 53,000,000 3.18% 4,000,000 5.37% 57,000,000 3.33%
$ 53,000,000 3.18% $ 10,000,000 5.23% $ 63,000,000 3.50%
Shareholder’s Equity. Shareholder’s equity at December 31, 2009 was $53.3 million (12.2% of total
assets) compared to $53.3 million (10.2% of total assets) as of December 31, 2008. During 2008, Magna
participated in the U.S. Treasury Department’s CPP initiative by selling $13.8 million of non-cumulative
preferred stock in a transaction that closed on December 23, 2008. While participation was voluntary,
management determined that, given the exceedingly negative direction in which the economy was heading it
would be prudent to add to tier 1 capital. With bank failures reaching a multi-year high and with other
capital resources all but unavailable, many banks, including Magna, took advantage of this program to build
capital. On November 24, 2009, the Company redeemed 3,455 shares or approximately 25% of its Series A
preferred stock, and plans to redeem the remaining shares over time as we accumulate capital through
retaining earnings from after tax net income.
Participation in the CPP program includes certain obligations placed on Magna to report lending activity,
curtail executive compensation, pay a dividend on the preferred stock to the U.S. Treasury out of after tax
earnings, and limit common dividends and redemptions of stock to shareholders without authorization from
the Treasury Department.
Management believes the Company is well capitalized, given our risk profile, but internal growth will be
moderated due to general economic conditions in our market and nationally. While internal growth
prospects are moderated by the recession, opportunities for growth through merger or acquisition of
financial institutions, assets or liabilities (deposits) may present themselves.
The Company has not paid dividends to shareholders since its inception. Magna Bank is restricted under
federal regulations as to the amount of dividends that may be paid to shareholders as discussed in Note 21,
Regulatory Capital and Restrictions on Cash and Dividends to the consolidated financial statements.
Summary of Critical Accounting Estimates. Certain amounts reported in the accompanying financial
statements are subject to considerable levels of judgment in their determination. The most significant of
these are the fair values of securities, the carrying value of mortgage servicing rights (MSRs), determining
the allowance for loan losses, ascertaining the carrying value of foreclosed real estate and accounting for
stock options.
The fair value of securities is determined by reference to quoted market prices for similar securities, where
available. Whereas such prices have historically been readily obtainable, the market turmoil created by the
37
2009 Annual Report
recession has rendered the reliability of quoted prices for certain securities dubious. Consequently, some fair
values represent our estimate of the intrinsic value of expected cash flows estimated to occur over the life of
the security. It is important to note that such prices reflect only the approximate fair value for a security at a
point in time. Actual values will differ due to factors such as size of offering, average age since origination,
supply and demand for the security at the time it is sold, etc.
Available-for-sale securities which exhibit material and persistent mark-to-market losses for a period of
twelve months or more are evaluated to determine whether such losses are other than temporary. If, in the
opinion of management, the economic circumstances under which those securities would regain all or most
of their loss in value are deemed to be remote, or if management determines that the Company has neither
the intent nor the financial capacity to hold the securities until such value is recovered, a permanent loss is
recorded through a charge to earnings. Absent either of those determinations, management will continue to
reflect the mark-to-market loss through a comprehensive earnings adjustment to total capital.
The fair value reported for MSRs is subject to an impairment test under authoritative guidance codified in
ASC 860, Transfers and Servicing, which requires management to make numerous assumptions in
determining whether impairment has occurred. Unlike the securities market, the market for MSRs is
dominated by relatively few market makers and most exchanges of MSRs occur in privately negotiated
transactions. Consequently, the determination of fair value is determined using discounted cash flow
analysis taking into consideration many factors. Thus, the reported value for MSRs represents
management’s best effort at valuing MSRs and should not be construed as an absolute indicator of value.
Actual realizable value of MSRs will likely be different than that reported in the balance sheet.
Capitalized mortgage servicing rights are recorded as a portion of the net profit earned on a loan sold with
servicing rights retained in accordance with ASC 860. This process requires Magna to internally value
servicing rights using discounted cash flow techniques. The primary assumptions used in deriving the value
of capitalized servicing, principally prepayment speed, discount rate and cost to service, are obtained from
third party sources and when available by reference to recent trades of servicing in the secondary market.
The allowance for loan losses is a highly subjective area of reporting, because its determination is dependent
upon many factors, both known and unknown. Chief among these are the effect that current economic
conditions have on a borrower’s ability and willingness to repay a loan, and the value, if any, that may be
realized from liquidating collateral that may have been taken in connection with originating the loan.
Because of the impracticability of reassessing these factors at the individual loan level on a periodic basis,
management must rely on trend analysis, industry “norm,” periodic sampling, general knowledge of local
economics and other factors in determining the adequacy of the allowance for loan losses. Actual loan
losses could differ significantly from management’s estimates.
The carrying value of foreclosed real estate is management’s estimate of the net present value of expected
future cash flows from sale or other disposition of the real property foreclosed upon. The basis for this
estimate is the fair market value as obtained from an independent third party appraiser. This amount is then
reduced for expected selling expenses and property improvements and further discounted for the expected
holding period using the effective rate of interest on the note. These estimates are reevaluated periodically
whenever conditions or circumstances change with subsequent declines in expected net realization being
charged to expense.
The recognition of expense associated with the granting of stock options is dependent upon the value
assigned to each option at the time of issuance. While Statement 123R provides guidelines regarding the
various methodologies and assumptions that should be considered in determining such value, there is
considerable leeway afforded companies in deciding which methods and assumptions to use. Magna has
chosen to use the Black-Scholes model to establish option value as more fully described in Note 16,
Employee Benefit Plans to the consolidated financial statements.
38
2009 Annual Report
Item 7A. Quantitative and Qualitative Disclosures About Market Risk
Magna manages market risk, which includes interest rate risk, liquidity risk and pricing risk, primarily
through the operation of its ALCO Committee, which meets periodically to review the economic outlook,
trends in interest rates and rate forecasts, changes in market indices, historical and projected sources and
uses of funds, maturity gap, repricing gap and changes in net portfolio value. The principal objective of the
ALCO Committee’s market risk management is to provide maximum levels of net interest income while
maintaining acceptable levels of interest rate risk within the funding needs of the Company.
Magna utilizes a net interest simulation model to estimate the near term effects of changing interest rates on
its net interest income. Management exercises its best judgment in making assumptions regarding loan
prepayments, deposit withdrawals, calls and other non-controllable events in making these estimates but
they are inherently uncertain and, consequently, they cannot precisely predict the anticipated change in net
interest income when rates change. Management strategy change, basis change, customer behavior changes
and other non-mathematical factors can and do affect reported results. In addition to net interest income
simulation, Magna reviews the gap between maturing/repricing assets and liabilities on both a static and
dynamic basis to maintain the mismatch of these financial assets to within guidelines established by ALCO.
These guidelines are generally established as a range of values since the optimum mismatch in
maturing/repricing assets and liabilities changes depending upon the trend interest rates are exhibiting.
At December 31, 2009, Magna had $10.5 million more assets repricing over the ensuing twelve months than
liabilities; a so-called “positive gap” position that is advantageous when interest rates are expected to rise.
The Company’s thirty day repricing gap is approximately $35.6 million positively gapped.
39
2009 Annual Report
Item 8. Financial Statements and Supplementary Data
Report of Independent Registered Public Accounting Firm
To the Board of Directors and Shareholders of
Magna Bank
Memphis, Tennessee
We have audited the consolidated balance sheets of Magna Bank and its subsidiary (the “Company”) as of
December 31, 2009 and 2008 and the related consolidated statements of operations, changes in
shareholders’ equity and cash flows for each of the three years in the period ended December 31, 2009.
These financial statements are the responsibility of the Company's management. Our responsibility is to
express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with the standards of the Public Company Accounting Oversight
Board (United States). Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An
audit also includes assessing the accounting principles used and significant estimates made by management,
as well as evaluating the overall financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present fairly, in all material respects,
the financial position of the Company as of December 31, 2009 and 2008 and the results of their operations
and their cash flows for each of the three years in the period ended December 31, 2009, in conformity with
accounting principles generally accepted in the United States of America.
Memphis, Tennessee
March 31, 2010
40
Consolidated Statements of Financial Condition
December 31, 2009 and 2008
2009 2008
ASSETS
Cash and due from banks $ 2,749,695 $ 6,307,173
Interest-bearing deposits at other financial institutions 1,207,765 331,740
Federal funds sold 2,492,737 1,556,104
Securities:
Available-for-sale, at fair value (amortized cost of $46,061,333 and $52,851,312, respectively) 45,399,735 50,944,920
Held-to-maturity, at amortized cost (fair value of $7,694,539 and $10,874,986, respectively) 8,977,002 11,539,266
Loans held for sale, at lower of cost or fair value 21,161,283 24,214,907
Loans, less allowance for loan losses of $5,174,731 and $5,283,639, respectively 321,655,694 391,020,380
Accrued interest receivable - securities 268,538 345,200
- loans 1,556,632 2,156,710
Premises and equipment, net 5,044,902 5,721,304
Mortgage servicing rights, net 10,415,334 9,287,775
Foreclosed real estate, net 3,166,008 2,793,875
Investment in Federal Home Loan Bank, at cost 3,981,400 3,902,600
Other assets 7,727,242 10,925,512
TOTAL ASSETS $ 435,803,967 $ 521,047,466
LIABILITIES
Deposits
Non-interest-bearing transaction accounts $ 16,456,767 $ 15,015,948
Servicing escrow accounts 10,431,503 10,085,847
Interest-bearing transaction accounts 72,339,820 77,817,106
Savings accounts 69,184,820 40,964,893
Time deposits 147,291,702 229,501,394
Total deposits 315,704,612 373,385,188
Federal funds purchased and short-term borrowings - 10,600,000
Long-term Federal Home Loan Bank borrowings 63,000,000 75,500,000
Accrued interest payable 1,162,947 2,767,975
Accounts payable 2,039,436 3,113,867
Other liabilities 572,030 2,333,019
TOTAL LIABILITIES 382,479,025 467,700,049
Commitments and contingencies - -
SHAREHOLDERS' EQUITY
Preferred stock ($1 par value (liquidation preference $1,000); 10,000,000 shares authorized;
11,030 and 14,485 shares issued and outstanding) 10,644,437 13,795,000
Common stock ($1 par value; 10,000,000 shares authorized; 5,506,559 and 5,448,209
shares issued and 5,480,450 and 5,422,100 shares outstanding, respectively) 5,506,559 5,448,209
Treasury stock, 26,109 shares at cost (200,374) (200,374)
Additional paid-in capital 31,591,226 31,214,117
Retained earnings 7,473,586 4,253,364
Accumulated other comprehensive loss, net of taxes (1,690,492) (1,162,899)
TOTAL SHAREHOLDERS' EQUITY 53,324,942 53,347,417
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 435,803,967 $ 521,047,466
The accompanying notes are an integral part of these financial statements.
41
Consolidated Statements of Operations
Years Ended December 31, 2009, 2008 and 2007
2009 2008 2007
INTEREST INCOME:
Short-term investments $ 24,809 $ 45,569 $ 127,273
Securities: Available-for-sale 2,620,413 2,314,979 872,752
Held-to-maturity 569,973 952,667 608,354
Loans held for sale 1,256,341 1,043,071 1,326,382
Loans, including fees and discounts 19,605,835 24,184,941 23,746,040
TOTAL INTEREST INCOME 24,077,371 28,541,227 26,680,801
INTEREST EXPENSE:
Deposits 7,982,386 11,966,918 11,757,432
Borrowings 2,595,907 3,724,374 3,776,435
TOTAL INTEREST EXPENSE 10,578,293 15,691,292 15,533,867
NET INTEREST INCOME BEFORE
PROVISION FOR LOAN LOSSES 13,499,078 12,849,935 11,146,934
Provision for loan losses 1,381,381 2,527,000 1,070,400
NET INTEREST INCOME AFTER PROVISION
FOR LOAN LOSSES 12,117,697 10,322,935 10,076,534
NON-INTEREST INCOME:
Service charges and other branch income 264,922 211,285 106,882
Servicing fee income 3,662,158 3,737,584 3,606,509
Loan brokerage fees 106,750 469,215 1,550,455
Gain on sale of mortgage loans, net 9,573,802 7,373,749 7,199,924
Gain (loss) on sale of securities 3,071 (48,073) 10,460
Other-than-temporary impairment on securities (165,000) (6,485,000) -
Net recovery (impairment) on morgage servicing rights 1,060,000 (1,210,000) -
Gain on sale of branch 1,756,559 - -
Other income 285,497 539,768 406,047
TOTAL NON-INTEREST INCOME 16,547,759 4,588,528 12,880,277
NON-INTEREST EXPENSE:
Salary, wages and commission 11,161,575 10,982,528 11,654,854
Benefits and taxes 1,813,997 1,872,326 2,191,749
Professional services 332,010 449,976 530,102
Occupancy and equipment 3,042,004 3,013,562 2,244,379
Amortization of servicing rights 2,542,675 1,664,405 1,560,076
Marketing and business development 469,222 693,462 1,050,226
Regulatory fees and deposit insurance assessments 925,236 385,443 294,131
Debt prepayment penalty 504,866 - -
Other 3,135,251 2,782,135 2,529,193
TOTAL NON-INTEREST EXPENSE 23,926,836 21,843,837 22,054,710
INCOME (LOSS) BEFORE TAXES 4,738,620 (6,932,374) 902,101
Income tax expense (benefit) 1,904,824 (2,630,660) 369,948
NET INCOME (LOSS) 2,833,796 (4,301,714) 532,153
LESS: DIVIDENDS AND ACCRETION OF PREFERRED STOCK 1,053,632 - -
NET INCOME (LOSS) AVAILABLE TO COMMON SHAREHOLDERS $ 1,780,164 $ (4,301,714) $ 532,153
Net income (loss) per common share:
Basic $ 0.33 $ (0.80) $ 0.10
Diluted $ 0.33 $ (0.80) $ 0.10
Comprehensive income
NET INCOME (LOSS) $ 2,833,796 $ (4,301,714) $ 532,153
Change in net unrealized loss on securities, net of taxes (527,593) (905,143) (67,950)
TOTAL COMPREHENSIVE INCOME (LOSS) $ 2,306,203 $ (5,206,857) $ 464,203
The accompanying notes are an integral part of these financial statements.
42
Consolidated Statements of Changes in Shareholders’ Equity
Years Ended December 31, 2009, 2008 and 2007
Accumulated
Other
Preferred Common Treasury Paid-in Retained Comprehensive
Stock Stock Stock Capital Earnings Loss Total
Balance January 1, 2007 $ - $ 5,401,209 $ (200,374) $ 30,439,116 $ 8,022,925 $ (189,806) $ 43,473,070
Stock options exercised 7,000 47,800 54,800
Recordation of stock option expense 378,285 378,285
Comprehensive income:
Net income 532,153 532,153
Other comprehensive income, change
in unrealized loss on available-for-sale
securities, net of tax - - - - - (67,950) (67,950)
Total comprehensive income - - - - 532,153 (67,950) 464,203
Balance December 31, 2007 - 5,408,209 (200,374) 30,865,201 8,555,078 (257,756) 44,370,358
Issuance of preferred stock for cash 13,795,000 13,795,000
Stock options exercised, net 40,000 129,785 169,785
Recordation of stock option expense 219,131 219,131
Comprehensive income:
Net loss (4,301,714) (4,301,714)
Other comprehensive income, change
in unrealized loss on available-for-sale
securities, net of tax - - - - - (905,143) (905,143)
Total comprehensive loss - - - - (4,301,714) (905,143) (5,206,857)
Balance December 31, 2008 13,795,000 5,448,209 (200,374) 31,214,117 4,253,364 (1,162,899) 53,347,417
Redemption of preferred stock (3,455,000) (3,455,000)
Accretion of warrant preferred stock 304,437 (304,437) -
Preferred dividends (749,194) (749,194)
Stock options exercised, net 58,350 249,920 308,270
Recordation of stock option expense 127,189 127,189
Comprehensive income:
Net income 2,833,796 2,833,796
Non-credit component of other than temporary
impairment charges, net of tax (76,623) (76,623)
Other comprehensive income, change
in unrealized loss on available-for-sale
securities, net of tax 969,833 969,833
Cumulative effect of change in accounting
principle due to adoption of FAS 115-2 - - - - 1,440,057 (1,420,803) 19,254
Total comprehensive income - - - - 2,833,796 (527,593) 2,306,203
Balance December 31, 2009 $ 10,644,437 $ 5,506,559 $ (200,374) $ 31,591,226 $ 7,473,586 $ (1,690,492) $ 53,324,942
The accompanying notes are an integral part of these financial statements.
43
Consolidated Statements of Cash Flows
Years Ended December 31, 2009, 2008 and 2007
2009 2008 2007
Cash flows from operating activities:
Net income (loss) $ 2,833,796 $ (4,301,714) $ 532,153
Reconciliation of net income (loss) to cash provided by (used in)
operating activities:
Provision for loan losses 1,381,381 2,527,000 1,070,400
Provision for foreclosure and mortgage origination losses 573,000 244,103 211,300
(Recovery of) charges for impairment of mortgage servicing rights (1,060,000) 1,210,000 -
Charges for other than temporary impairment of securities 165,000 6,485,000 -
Depreciation of premises and equipment 780,686 763,710 623,710
Stock-based compensation expense 127,189 219,131 378,285
Capitalization of mortgage servicing rights (2,593,245) (2,443,980) (3,278,454)
Amortization of mortgage servicing rights 2,542,675 1,664,405 1,560,076
Net discount accretion on securities (197,300) (111,435) (34,572)
Net premium amortization on loans 54,806 82,696 119,742
Provision (benefit) for deferred income tax 3,876,056 (3,540,575) (755,920)
Decrease (increase) in other assets 265,518 (50,934) 774,789
(Decrease) increase in accounts payable and other liabilities (5,161,566) (6,142,743) 601,048
Proceeds from sales and repayments of loans held-for-sale 427,597,612 322,777,732 331,836,259
Gain on sale of mortgage loans (9,573,802) (7,373,749) (7,199,924)
Origination of loans held-for-sale (414,970,186) (318,291,945) (327,082,488)
(Gain) loss on sale of securities (3,071) 48,073 (10,460)
Gain on sale of branch (1,756,559) - -
Decrease (increase) in accrued interest receivable 530,102 178,146 (179,000)
(Decrease) increase in accrued interest payable (1,366,807) (177,063) 794,789
Gain on sale of mortgage servicing rights - (227,856) -
Net loss on sale of premises and equipment 5,737 9,926 43,986
Net loss on sale of foreclosed real estate 33,200 22,834 21,035
Net cash provided by (used in) operations 4,084,222 (6,429,238) 26,754
Cash flows from investing activities:
Purchases of available-for-sale securities (7,350,998) (38,073,418) (6,496,555)
Purchases of held-to-maturity securities - - (14,351,060)
Proceeds from sale of securities 2,916,449 1,202,679 1,848,000
Proceeds from sale of mortgage servicing rights - 1,439,893 -
Proceeds paid from sale of branch (4,877,580) - -
Principal repayment of available-for-sale securities 11,508,349 9,566,714 5,240,066
Principal repayment of securities held-to-maturity 2,555,870 2,174,426 2,534,519
Net decrease (increase) in loans 30,273,635 (27,786,770) (101,971,156)
Proceeds from sale of foreclosed real estate 2,270,075 457,493 846,258
Purchases of FHLB stock (78,800) (323,200) -
Purchases of mortgage servicing rights (16,989) (130,829) (247,498)
Purchases of premises and equipment, net (226,044) (1,915,396) (3,236,894)
Net cash provided by (used in) investing activities 36,973,966 (53,388,408) (115,834,320)
Cash flows from financing activities:
Net (decrease) increase in deposits (15,843,660) 72,878,902 86,877,980
Net decrease in short-term borrowings (10,600,000) (57,160,000) (2,990,000)
Advances of long-term debt - 35,000,000 30,500,000
Repayment of long-term debt (12,500,000) (1,000,000) -
(Redemption of) issuance of preferred stock (3,455,000) 13,795,000 -
Dividends on preferred stock (749,194) - -
Proceeds from stock options exercised, net 344,845 169,785 54,800
Net cash (used in) provided by financing activities (42,803,009) 63,683,687 114,442,780
Net (decrease) increase in cash and cash equivalents (1,744,820) 3,866,041 (1,364,786)
Cash and equivalents at beginning of year 8,195,017 4,328,976 5,693,762
Cash and equivalents at end of year $ 6,450,197 $ 8,195,017 $ 4,328,976
The accompanying notes are an integral part of these financial statements.
44
Notes to Consolidated Financial Statements
Years Ended December 31, 2009, 2008 and 2007
1. Summary of Significant Accounting Policies
The accounting and financial reporting policies of the Company conform to accounting principles generally
accepted in the United States of America. Presentation of the financial statements in conformity with
accounting principles generally accepted in the United States of America requires management to make
estimates and assumptions which may impact the reported amounts in the financial statements and
accompanying notes. Actual results could differ from those estimates and assumptions.
Certain prior period amounts have been reclassified to conform to the current period presentation. These
reclassifications are immaterial and have no effect on net income (loss), total assets or stockholders’ equity.
The Company has evaluated all subsequent events for potential recognition and disclosure through March
29, 2010, the date of the filing of this Form 10-K.
Principles of consolidation. The consolidated financial statements include the accounts of Magna Bank
and its consolidated subsidiary, 1st Trust Services, Inc (“Magna” or the “Company”). All significant
intercompany accounts and transactions have been eliminated in consolidation.
Statement of cash flows. Cash and cash equivalents include cash and due from banks, interest-bearing
deposits at other financial institutions and federal funds sold. Cash flows from loans, either originated or
acquired, are classified at that time according to management’s original intent to either sell or hold the loan
for the foreseeable future. When management’s intent is to sell the loan, the cash flows are presented as
operating cash flows. When management’s intent is to hold the loan for the foreseeable future, the cash
flows are presented as investing cash flows. Certain prior period amounts have been reclassified to conform
to current period presentation. Interest-bearing deposit balances of $331,740 and $524,073 as of December
31, 2008 and 2007 are classified as cash and cash equivalents.
The following table summarizes supplemental cash flow information for the years ended December 31:
Securities. Management determines the appropriate classification of debt and equity securities at the time
of purchase using the following criteria:
• Securities are classified as held-to-maturity when the Company has the positive intent and ability to
hold the securities to maturity. Securities held-to-maturity are carried at amortized cost.
• Securities not classified as trading or held-to-maturity are classified as available-for-sale. Securities
classified as available-for-sale are carried at fair value with unrealized gains and losses reported as a
separate component of equity, net of tax.
Premiums are amortized and discounts are accreted using the interest method. Fair value of securities is
determined based upon quoted market prices obtained from independent pricing services, although actual
values will differ due to factors such as size of offering, average age since origination, supply and demand
for the security at the time it is sold. Gains and losses on the sale of securities are determined by the specific
identification method and are accounted for on the trade-date basis.
Loans held for sale. Loans held for sale are carried at the lower of cost or fair value determined on a loan
level basis. The cost of these loans is the net amount advanced in connection with closing the loan. Fair
value is determined based on posted market prices for uncommitted loans and on firm purchase
commitments from third party investors for committed loans. All loans held-for-sale are delivered to
investors under “best efforts” and “mandatory” commitments as soon as practicable after closing.
Loans. Interest income on loans is recognized based on the outstanding principal and the stated interest
rates, primarily using the simple interest method. Recognition of interest income is discontinued when a
loan is placed on non-accrual status. When a loan is placed on non-accrual status, uncollected interest
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2009 Annual Report
accrued is reversed and charged to interest income. A loan is placed on non-accrual status when payment in
full of principal or interest is not expected or when payment of principal or interest is more than 90 days past
due, unless the loan is both well-secured and in the process of collection. Interest payments received on
non-accrual loans are applied to principal if full collection of principal is doubtful. Loans are removed from
non-accrual status when they become current and collectability of principal and interest is no longer
doubtful.
Loans are considered impaired if, based on current information and events, it is probable that we will be
unable to collect the scheduled payments of principal or interest when due according to the contractual
terms of the loan agreement. We consider loans on non-accrual status and troubled debt restructurings
(“TDRs”) to be impaired and measure the extent to which such loans are impaired based on the present
value of expected future cash flows discounted at the note rate or on the fair value of the collateral less
expected selling costs; however, impaired loans may be evaluated on a pooled basis for loans with similar
characteristics and historical loss patterns.
Fees charged to borrowers for originating loans and costs associated with originating loans are deferred and
amortized over the contractual life of the loan as an adjustment to yield.
Allowance for losses on loans. The allowance for losses on loans represents management’s determination
of probable losses inherent in the existing loan portfolio at period end. The allowance for loan losses is
increased by the provision for losses on loans charged to expense and reduced by loans charged off, net of
recoveries. The provision for losses on loans is determined based on management’s assessment of several
factors: current economic conditions and the related impact on specific borrowers and industry groups, the
level of classified and non-performing loans, reviews and evaluations of specific loans, changes in the
nature and volume of the loan portfolio, and the results of regulatory examinations.
Premises and equipment. Buildings and equipment are stated at cost less accumulated depreciation.
Depreciation is provided by the straight-line method based on estimated useful lives of ten to thirty-nine
years for real property and leasehold improvements and three to seven years for furniture and equipment.
Long-lived assets are considered impaired if the undiscounted cash flow estimated to be generated from the
operation or sale of those assets are less than the assets’ net book value. In that event, the asset is reported at
the fair value, less selling costs, in accordance with Accounting Standards Codification (“ASC”) 360,
Property, Plant, and Equipment.
Accounting for transfers and servicing of financial assets. When the Company sells mortgage loans, it
sometimes retains servicing rights which are retained interests in the mortgage loan receivables. Gain or loss
on sale of the loans depends in part on the previous carrying amount of the financial assets involved in the
transfer, allocated between the assets sold and the retained interests based on their relative fair value at the
date of transfer. To obtain fair values, quoted market prices are used if available. However, quotes are
generally not available for retained interests, so the Company estimates fair value based on the present value
of future expected cash flows using management's best estimates of the key assumptions – principally credit
losses, prepayment speeds and discount rates.
The Company recognizes as assets the rights to service mortgage loans for others. Mortgage servicing rights
(“MSRs”) are recorded at the lower of aggregate cost or estimated fair value on a stratified basis based on
certain risk characteristics, including loan type and interest rate. The estimated fair value of MSRs is
determined using various assumptions including future cash flows, servicing costs, mortgage interest rates,
discount rates, mortgage loan prepayment speeds, market trends, industry demand, and other factors.
Changes in these factors could result in impairment of the servicing asset and a charge against earnings.
Magna reviews its portfolio of MSRs rights each quarter end for evidence of impairment using discounted
cash flow techniques. Where available, we obtain discount rates and prepayment assumptions from brokers
familiar with MSR valuations and apply observable trends in the performance of our portfolio to derive the
present value of future cash flows from mortgage servicing. The Company does not hedge the change in fair
value of MSRs and, therefore, the Company is susceptible to significant fluctuations in the fair value of its
MSRs in changing interest rate environments.
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2009 Annual Report
Foreclosed real estate. The amount reported as real estate acquired through foreclosure proceedings is
carried at the lower of the recorded investment in the loan or fair value less estimated cost to sell the
property. At the date of transfer, if the recorded investment in the loan exceeds the fair value less estimated
cost to sell the property, write-downs are recorded as charge-offs to the allowance for loan losses.
Subsequent to transfer, additional write-downs are recorded to foreclosure expense, which is included in
other non-interest expense in the consolidated statements of operations. Recoverable costs relating to the
development and improvement of foreclosed properties are capitalized whereas routine holding costs are
charged to foreclosure expense as incurred.
Derivative Instruments. The Company may use derivative financial instruments to manage interest rate
risk and to facilitate asset/liability management strategies. The derivative instruments held by the Company
include commitments to fund fixed-rate mortgage loans to customers and forward commitments to sell
fixed-rate mortgage loans. Both the commitments to fund fixed-rate mortgage loans and the forward
commitments to sell fixed-rate mortgage loans are reported at fair value with adjustments being recorded in
current period earnings (if material), and are not accounted for as hedges.
Stock compensation. Compensation cost for stock compensation, as required by ASC 718, Stock
Compensation (formerly SFAS No. 123(R), Share-Based Payment), is measured based on the fair value of
the award, which most commonly includes restricted stock grants and awards of stock options. The fair
value of restricted stock is determined based on the price of the Company’s common stock at the date of
grant. All options are valued as of the award date using assumptions from observable sources (i.e. U.S.
Treasury yield, last trade price, book value, and average life) and from internal projections (i.e. price
volatility and forfeitures). The expense of option awards or restricted stock grants is recognized using the
straight-line method over the vesting period, (three years) and is adjusted for anticipated forfeitures.
Income taxes. The Company and its subsidiary file consolidated income tax returns. The provision for
income taxes is based on income reported for consolidated financial statement purposes and includes
deferred taxes resulting from the recognition of certain revenues and expenses in different periods for tax-
reporting purposes. Deferred tax assets and liabilities are measured using the enacted tax rates expected to
apply to taxable income in the year in which those temporary differences are expected to be realized or
settled. Recognition of deferred tax assets is based upon management’s belief that normal operations will
generate sufficient future taxable income to realize these benefits. A valuation allowance is established for
deferred tax assets when, in the opinion of management, it is “more likely than not” that the asset will not be
realized. At December 31, 2009 and 2008, the Company had no valuation allowance with respect to its
deferred tax assets.
The FASB issued authoritative guidance codified in ASC 740, Income Taxes in June 2006, which defines
the threshold for recognizing the benefits of tax return positions in the financial statements as “more-likely-
than-not” to be sustained by the taxing authority. ASC 740 also provides guidance on the de-recognition,
measurement and classification of income tax uncertainties in interim periods. The Company adopted the
provisions of ASC 740 on January 1, 2007 and determined at that time that there was no need to make an
adjustment to retained earnings upon adoption.
Recent Accounting Pronouncements and Accounting Changes. In June 2009, the FASB issued
Statement No. 168, The FASB Accounting Standards Codification and the Hierarchy of Generally Accepted
Accounting Principles (Statement No. 168). Statement No. 168 replaces FASB Statement No. 162, The
Hierarchy of Generally Accepted Accounting Principles. The Codification is the single source of
authoritative nongovernmental U.S. generally accepted accounting principles (“US GAAP”). Statement No.
168 defines the new hierarchy for US GAAP and explains how the FASB will use its Accounting Standards
Codification as the sole source for all authoritative guidance. References to accounting standards are based
on this Accounting Standards Codification document, which is effective for interim and annual periods
ending after September 15, 2009.
In April 2009, the FASB issued authoritative guidance codified in ASC 320.10, Recognition and
Presentation of Other-Than-Temporary Impairment to clarify the interaction of the factors that should be
considered when determining whether a debt security is other-than-temporarily impaired. For debt
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2009 Annual Report
securities, management must assess whether (a) it has the intent to sell the security and (b) it is more likely
than not that it will be required to sell the security prior to its anticipated recovery. These steps are done
before assessing whether the entity will recover the cost basis of the investment. Previously, this assessment
required management to assert it has both the intent and the ability to hold a security for a period of time
sufficient to allow for an anticipated recovery in fair value to avoid recognizing an other-than-temporary
impairment. This change does not affect the need to forecast recovery of the value of the security through
either cash flows or market price. In instances when a determination is made that an other-than-temporary
impairment exists but the investor does not intend to sell the debt security and it is not more likely than not
that it will be required to sell the debt security prior to its anticipated recovery, ASC 320.10 changes the
presentation and amount of the other-than-temporary impairment recognized in the income statement. The
other-than-temporary impairment is separated into (a) the amount of the total other-than-temporary
impairment related to a decrease in cash flows expected to be collected from the debt security (the credit
loss) and (b) the amount of the total other-than-temporary impairment related to all other factors. The
amount of the total other-than-temporary impairment related to the credit loss is recognized in earnings. The
amount of the total other-than-temporary impairment related to all other factors is recognized in other
comprehensive income. This pronouncement is effective for interim and annual reporting periods ending
after June 15, 2009, with early adoption permitted for periods ending after March 15, 2009. Magna Bank
adopted this accounting standard during the second quarter of 2009. The impact on the Company from
adoption of this authoritative guidance is discussed in Note 3, Investment Securities to the consolidated
financials statements.
In April 2009, the FASB issued authoritative guidance codified in ASC 820, Determining Fair Value When
the Volume and Level of Activity for the Asset or Liability Have Significantly Decreased and Identifying
Transactions That Are Not Orderly. This pronouncement provides additional guidance for estimating fair
value when the volume and level of activity for the asset or liability have significantly decreased. It also
includes guidance on identifying circumstances that indicate when a transaction is not orderly and provides
latitude in determining the fair value of a security when an orderly market is deemed not to exist. The
guidance is effective for interim and annual periods ending after June 15, 2009, with early adoption
permitted. Magna owns a number of securities for which it has concluded that an orderly market does not
exist and has adopted the guidance in deriving the fair values thereof. These securities are classified as
“Level 3” securities disclosed in Note 24, Fair Value Disclosures to the consolidated financial statements.
In April 2009, the FASB issued authoritative guidance codified in ASC 805.20, Accounting for Assets
Acquired and Liabilities Assumed in a Business Combination That Arise from Contingencies. This guidance
amends and clarifies guidance provided in ASC 805.10 regarding business combinations to address the
initial recognition and measurement of an asset acquired or a liability assumed in a business combination
that arises from a contingency provided the asset or liability's fair value on the date of acquisition can be
determined. When the fair value, at the acquisition date, of an asset acquired or liability assumed cannot be
determined, ASC 805.20 requires using the guidance under ASC 450.10 relating to loss contingencies and
the estimation of the amount thereof. ASC 805.20 is effective for assets or liabilities arising from
contingencies in business combinations that occur following the start of the first annual reporting period
beginning on or after December 15, 2008. The adoption of this guidance impacts the Company’s
accounting for and reporting of acquisitions completed, if any, after January 1, 2009.
In May 2009, the FASB issued authoritative guidance codified in ASC 855.10, Subsequent Events. The
objective is to clarify standards of accounting for and disclosures of events that occur after the balance sheet
date but before financial statements are issued or are available to be issued. The guidance sets forth the
period after the balance sheet date during which management of a reporting entity should evaluate events or
transactions that may occur for potential recognition or disclosure in the financial statements, the
circumstances under which an entity should recognize events or transactions occurring after the balance
sheet date in its financial statements, and the disclosures that an entity should make about events or
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2009 Annual Report
transactions that occurred after the balance sheet date. ASC 855.10 was effective for the Company for the
quarterly period ended June 30, 2009. The Company has evaluated for consideration of recognition or
disclosure, subsequent events that have occurred through the date of issuance of its financial statements, and
has determined that any significant events that occurred subsequent to the balance sheet date, but prior to the
filing of these financial statements that would have a material impact on its financial statements, have been
disclosed herein.
In June 2009, the FASB issued authoritative guidance codified in ASC 860, Transfers and Servicing to
prescribe the information that a reporting entity must provide in its financial reports about a transfer of
financial assets; the effects of a transfer on its financial position, financial performance and cash flows; and
a transferor’s continuing involvement in transferred financial assets. Specifically, among other aspects, it
modifies the concept of a qualifying special-purpose entity. It also modifies the financial-components
approach used in fiscal years beginning after November 15, 2009. The Company does not anticipate the
adoption of this guidance to have a material impact on its consolidated financial statements.
Future Application of Accounting Standards. In January 2010, the FASB issued authoritative guidance
codified in ASC 820 that requires new disclosures and clarifications of existing disclosures about recurring
and nonrecurring fair value measurements. New disclosures require a reporting entity to disclose separately
the amount of significant transfers in and out of Level 1 and Level 2 fair value measurements and describe
the reasons for the transfers, and present separately information about purchases, sales, issuances and
settlements in the reconciliation for fair value measurements using Level 3 inputs. Clarification of existing
disclosures include that a reporting entity should provide fair value measurements for each class within each
category of asset and liabilities, and provide disclosures about the valuation techniques and inputs used to
measure fair value for both recurring and nonrecurring fair measurements and fall in either Level 2 or Level
3. The new disclosures and clarifications of existing disclosures are effective for interim and annual
reporting periods beginning after December 15, 2009, except for the disclosures about purchases, sales,
issuances and settlements, which are effective after December 15, 2010, and for interim periods within those
fiscal years. The Company is currently in the process of evaluating the impact of adopting this ASC on its
financial statements.
2. Branch Sale
The sale of our Brentwood, Tennessee branch to Reliant Bank closed on July 31, 2009. This was our only
retail bank branch outside of the Memphis area, and we decided to focus our future retail growth plans in the
Memphis area. As a result, loans of approximately $35.0 million, deposits of approximately $41.8 million
and fixed assets of approximately $116,000 were sold. The Company recorded a pre-tax gain from the sale
of approximately $1.8 million.
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2009 Annual Report
3. Investment Securities
Securities held at December 31, 2009 and 2008 are summarized as follows:
Amortized Unrealized Fair
Cost Gain Loss Value
December 31, 2009:
Available-for-sale:
U.S. Agency securities $ 8,632,903 $ 292,073 $ 401 $ 8,924,575
Collateralized mortgage obligations 15,215,654 18,994 1,615,883 13,618,765
Commercial mortgage-backed securities 2,984,847 30,233 12,023 3,003,057
Agency Mortgage-backed securities 19,227,929 635,883 10,474 19,853,338
Subtotal available-for-sale 46,061,333 977,183 1,638,781 45,399,735
Held to maturity:
Corporate Debt Obligations 1,896,370 - 356,589 1,539,781
Collateralized mortgage obligations 3,170,671 2,703 1,178,368 1,995,006
Agency Mortgage-backed securities 3,909,961 249,791 - 4,159,752
Subtotal held to maturity 8,977,002 252,494 1,534,957 7,694,539
Total at December 31, 2009 $ 55,038,335 $ 1,229,677 $ 3,173,738 $ 53,094,274
December 31, 2008
Available-for-sale:
Agency Preferred stock $ 60,301 $ - $ 47,476 $ 12,825
U.S. Agency securities 4,604,495 156,238 365 4,760,368
Collateralized mortgage obligations 19,905,258 7,774 1,763,478 18,149,554
Commercial mortgage-backed securities 5,703,544 - 338,989 5,364,555
Agency Mortgage-backed securities 22,577,714 265,847 185,943 22,657,618
Subtotal available-for-sale 52,851,312 429,859 2,336,251 50,944,920
Held-to-maturity:
Corporate Debt Obligations 2,824,963 - 78,946 2,746,017
Collateralized mortgage obligations 4,053,212 - 768,591 3,284,621
Agency Mortgage-backed securities 4,661,091 183,257 - 4,844,348
Subtotal held to maturity 11,539,266 183,257 847,537 10,874,986
Total at December 31, 2008 $ 64,390,578 $ 613,116 $ 3,183,788 $ 61,819,906
Proceeds from sales of securities available-for-sale in 2009 were approximately $2.8 million, with gross
realized losses of $25,440. Proceeds from sales of securities available-for-sale in 2008 were approximately
$1.2 million, with gross realized losses of $48,073. Proceeds from sales of securities available-for-sale in
2007 were approximately $1.8 million, with gross realized gains of $10,460.
The Company sold a security in 2009 (corporate debt obligation) classified as held-to-maturity with a
carrying value of $42,739. Proceeds from the sale of the security totaled $71,250, with a gross realized gain
of $28,511 in 2009. This security was written down through OTTI in the fourth quarter of 2008 by $1.365
million. Sales of securities classified as held-maturity are rare, but are allowed by GAAP under certain
circumstances. The Company sold the security because of evidence of a significant deterioration in the
issuer's creditworthiness, which is allowable by GAAP. The Company has the intent and ability to hold the
remaining securities classified as held-to-maturity until maturity.
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2009 Annual Report
The Company sold its remaining investment in FHLMC preferred stock (38,883 shares) in the fourth quarter
of 2009 that had been written down through OTTI in the third quarter of 2008. The amount recorded as loss
on sale of securities available-for-sale in the accompanying statements of operations from the sale of these
shares totaled $19,738 in 2009. This loss is in addition to the OTTI loss recorded on these shares of
$1,385,812 in the third quarter of 2008, for a total realized loss of $1,405,550 from the sale of these shares
of FHLMC preferred stock.
The following tables summarize the gross unrealized loss in securities available-for-sale by the time frame
for which such unrealized losses have existed as of December 31, 2009 and 2008:
Less than 12 months 12 months or more Total
Unrealized Unrealized Unrealized
December 31, 2009: Fair value losses Fair value losses Fair value losses
U.S. Agency $ - $ - $ 33,782 $ 401 $ 33,782 $ 401
Corporate Debt Obligations 79,780 300 1,460,000 356,289 1,539,780 356,589
Collateralized mortgage obligations 4,154,852 665,249 10,770,533 2,129,002 14,925,385 2,794,251
Commercial mortgage-backed securities 1,243,913 6,087 299,995 5,936 1,543,908 12,023
Agency Mortgage-backed securities 2,102,326 10,309 15,699 165 2,118,025 10,474
$ 7,580,871 $ 681,945 $ 12,580,009 $ 2,491,793 $ 20,160,880 $ 3,173,738
Less than 12 months 12 months or more Total
Unrealized Unrealized Unrealized
December 31, 2008: Fair value losses Fair value losses Fair value losses
Agency Preferred stock $ 12,825 $ 47,476 $ - $ - $ 12,825 $ 47,476
U.S. Agency 36,123 365 - - 36,123 365
Corporate Debt Obligations - - 2,746,017 78,946 2,746,017 78,946
Collateralized mortgage obligations 19,299,051 2,382,763 1,200,205 149,306 20,499,256 2,532,069
Commercial mortgage-backed securities 5,364,555 338,989 - - 5,364,555 338,989
Agency Mortgage-backed securities 8,840,603 128,350 1,939,440 57,593 10,780,043 185,943
$ 33,553,157 $ 2,897,943 $ 5,885,662 $ 285,845 $ 39,438,819 $ 3,183,788
At December 31, 2009, the losses which have existed for more than twelve months are primarily related to
the Company’s investment in non-agency guaranteed residential mortgage backed securities. Management
has reviewed all debt securities with losses which have existed for more than twelve months for evidence of
impairment and does not intend to sell the investments and it is not more likely than not that the company
will be required to sell the investments before recovery of their amortized cost bases, which may be
maturity, except for securities that were determined to be other-than-temporarily impaired as discussed
below.
In April 2009, the FASB issued authoritative guidance codified in ASC 320.10, Recognition and
Presentation of Other-Than-Temporary Impairment. ASC 320.10 changed the presentation and amount of
the other-than-temporary impairment recognized in the income statement. The other-than-temporary
impairment is separated into (a) the amount of the total other-than-temporary impairment related to a
decrease in cash flows expected to be collected from the debt security (credit loss) and (b) the amount of the
total other-than-temporary impairment related to all other factors (non credit loss). The amount of the total
other-than-temporary impairment related to the credit loss is recognized in earnings. The amount of the total
other-than-temporary impairment related to all other factors is recognized in other comprehensive income.
This pronouncement is effective for interim and annual reporting periods ending after June 15, 2009, with
early adoption permitted for periods ending after March 15, 2009. Magna Bank adopted this accounting
standard during the second quarter of 2009. At adoption, the Company increased retained earnings
approximately $1.4 million and decreased other comprehensive income approximately $1.4 million, which
represents the portion of losses recorded (net of tax) as a charge to earnings that the Company determined to
be other-than-temporary impairment related to all other “non credit” factors.
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2009 Annual Report
Accounting standards require us to evaluate our securities portfolio periodically for evidence of “other-than-
temporary” impairment. The guidance provides for significant amounts of judgment to be applied in this
process. Magna followed what we consider to be a conservative yet appropriate approach to the evaluation
process and identified securities that we deemed to be other than temporarily impaired at December 31,
2009. We recorded a charge to earnings totaling $27,000 and $4.1 million in the fourth quarter of 2009 and
2008, respectively, and $165,000 and $6.5 million for the years ending December 31, 2009 and 2008,
respectively.
While some of these securities have defaulted (preferred stock issued by FNMA and FHLMC, which Magna
no longer owns), all of the remaining securities are currently paying in accordance with their terms. A
portion of Magna’s securities portfolio is backed by the full faith and credit of the United States or its
agencies, but a significant portion is not. Full collection of our investment is possible, as is the likelihood of
further losses on these, or other, securities in our portfolio, but it is not possible to predict the ultimate
collectability of all of our investments. Management is actively monitoring each issue for evidence of
weakness, but further charges are possible.
The components of accumulated other comprehensive loss, which is presented net of tax in the consolidated
statements of financial condition, are presented in the following tables. The components of net unrealized
loss on available-for-sale securities at December 31, 2009 and 2008 are as follows:
The non credit components of other-than-temporary impairment on securities as of December 31, 2009 are
as follows:
The amortized cost and estimated fair value of securities at December 31, 2009 by contractual maturity are
shown below. Actual maturities will differ from contractual maturities because borrowers may have the
right to call or prepay obligations with or without call or prepayment penalties:
All eligible investment securities have been pledged to the Federal Home Loan Bank of Cincinnati as
collateral for current or future borrowings. The carrying value of these securities as of December 31, 2009
and 2008 totaled $54.4 million and $62.5 million, respectively.
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2009 Annual Report
4. Loans
The Company classifies its loan portfolio as either commercial or consumer, generally depending upon the
borrower type. Loans made to corporations and non-natural persons are categorized as commercial while
loans made to, or on behalf of, an individual is classified as consumer. Construction loans are classified as
consumer if the collateral is 1-4 family residential property and commercial if the collateral is non 1-4
family property.
Major categories of loans at December 31, 2009 and 2008 are summarized as follows:
December 31, 2009 December 31, 2008 Change
December 31, 2009 December 31, 2008 Change
Commercial Loans:
Commercial Loans:
Mortgage $ 117,120,112 36.4% $ 132,345,296 33.8% $ (15,225,184) -11.5%
Mortgage $ 117,120,112 36.4% $ 132,345,296 33.8% $ (15,225,184) -11.5%
Construction 33,990,660 10.6% 47,844,858 12.2% (13,854,198) -29.0%
Construction 33,990,660 10.6% 47,844,858 12.2% (13,854,198) -29.0%
Other
Other 22,381,622
22,381,622 7.0%
7.0% 33,456,092
33,456,092 8.6%
8.6% (11,074,470) -33.1%
(11,074,470) -33.1%
173,492,394
173,492,394 53.9%
53.9% 213,646,246
213,646,246 54.6%
54.6% (40,153,852) -18.8%
(40,153,852) -18.8%
Consumer Loans:
Consumer Loans:
First Mortgage
First Mortgage 82,025,890
82,025,890 25.5%
25.5% 92,915,873
92,915,873 23.8%
23.8% (10,889,983) -11.7%
(10,889,983) -11.7%
Junior Mortgage, Primarily HELOC
Junior Mortgage, Primarily HELOC 54,804,498
54,804,498 17.0%
17.0% 71,400,918
71,400,918 18.3%
18.3% (16,596,420) -23.2%
(16,596,420) -23.2%
Construction
Construction 13,775,740
13,775,740 4.3%
4.3% 14,874,791
14,874,791 3.7%
3.7% (1,099,051) -7.4%
(1,099,051) -7.4%
Other
Other 2,731,903
2,731,903 0.8%
0.8% 3,466,191
3,466,191 0.9%
0.9% (734,288) -21.2%
(734,288) -21.2%
153,338,031
153,338,031 47.7%
47.7% 182,657,773
182,657,773 46.6%
46.6% (29,319,742) -16.1%
(29,319,742) -16.1%
Total loans
Total loans 326,830,425
326,830,425 101.6%
101.6% 396,304,019
396,304,019 101.4%
101.4% (69,473,594) -17.5%
(69,473,594) -17.5%
Allowance for loan losses
Allowance for loan (5,174,731)
(5,174,731) -1.6%
-1.6% (5,283,639)
(5,283,639) -1.4%
-1.4% 108,908 -2.1%
108,908 -2.1%
Net loans
Net loans 321,655,694
$ 321,655,694 100.0%
100.0% $ 391,020,380
$ 391,020,380 100.0%
100.0% $$ (69,364,686) -17.7%
(69,364,686) -17.7%
Non-performing loans include (i) loans ninety days or more past due and still accruing interest, (ii) loans
placed on non-accrual, and (iii) loans ninety days or more past due whose terms have been modified in an
attempt to allow the borrower to avoid foreclosure/repossession (restructured debt or TDR). Real estate
loans are considered impaired and placed on non-accrual status when they become more than ninety days
past due as to any payment of principal or interest unless the loan is both well secured (including interest
due) and in the process of collection. Generally, “well secured” means the total amount owed, after giving
consideration to mortgage insurance, does not exceed eighty percent of the current value of the property
underlying the loan or that the loan is insured or guaranteed by an agency of the U.S. government. Non-real
estate loans are placed on non-accrual status when they become more than ninety days past due as to any
payment of principal or interest regardless of the value of the collateral.
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2009 Annual Report
Non-performing loans are summarized as follows:
At December 31, 2009 2008 2007 2006 2005
Non-accrual loans:
Recorded investment with related allowance for credit losses:
Single family residential, first mortgage, without insurance $ 40,000 $ - $ 50,563 $ 37,703 $ -
Residential construction - 330,000 - - -
Consumer other - 50,000 - - -
Recorded investment without related allowance for credit
losses:
Single family residential, first mortgage, with insurance 604,560 225,010 461,143 479,486 296,672
Single family residential, first mortgage, without insurance 2,392,637 598,610 - - -
Single family residential, junior mortgage, without insurance 166,683 - 29,730 - -
Loans secured by land 476,462 200,362 - - -
Commercial loans 283,278 - - - -
Residential construction - 1,366,623 - - -
Total non-accrual loans 3,963,620 2,770,605 541,436 517,189 296,672
Past due 90 or more days and still accruing interest:
Single family residential, first mortgage, FHA/VA insured 3,606,739 5,103,526 5,820,238 7,671,875 12,199,883
Single family residential, first mortgage, with insurance - - 196,843 825,568 194,372
Single family residential, first mortgage, without insurance 52,813 440 567,761 1,242,311 570,434
Total loans past due and still accruing interest 3,659,552 5,103,966 6,584,843 9,739,754 12,964,689
Total non-performing loans $ 7,623,172 $ 7,874,571 $ 7,126,279 $ 10,256,943 $ 13,261,361
Average non-performing loans $ 7,515,243 $ 7,586,111 $ 7,416,918 $ 10,087,405 $ 12,586,958
The Company had one loan classified as a TDR as of December 31, 2009 with a carrying value of $80,000.
The loan was not past due at year-end and the Company was accruing interest on this loan. The Company
did not have any loans classified as a TDR as of December 31, 2008.
The following summarizes the changes in the allowance for loan losses for the years ended December 31,
2009, 2008 and 2007:
2009 2008 2007
Beginning balance $ 5,283,639 $ 3,132,332 $2,063,366
Provision for loan losses 1,381,381 2,527,000 1,070,400
Recoveries 12,609 - -
Charge off of uncollectible loans (1,502,898) (375,693) (1,434)
Ending balance $ 5,174,731 $ 5,283,639 $ 3,132,332
There were no commitments to lend additional funds to debtors whose loans were classified as non-
performing at December 31, 2009, and interest income was reduced by $66,048, $78,122, and $27,579 for
the years ended December 31, 2009, 2008 and 2007, respectively, as a result of non-accrual loans.
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2009 Annual Report
5. Mortgage Servicing Rights
The rights to service mortgage loans are intangible financial assets reported at the lower of amortized cost or
fair market value in the accompanying balance sheets. The following table summarizes net servicing fee
revenues for the years ended December 31, 2009, 2008 and 2007:
Years ended December 31: Residential Commercial Total
2009
Gross servicing fees $ 2,921,095 $ 250,041 $ 3,171,136
Late charges and other ancilliary revenue 663,174 - 663,174
Gross servicing revenue 3,584,269 250,041 3,834,310
Servicing asset amortization 2,510,546 32,129 2,542,675
Guaranty fees and loan pay-off interest 66,694 - 66,694
Other servicing expenses 105,458 - 105,458
Total other expenses 172,152 - 172,152
Gross servicing expenses 2,682,698 32,129 2,714,827
Net servicing fee income $ 901,571 $ 217,912 $ 1,119,483
2008
Gross servicing fees $ 3,074,577 $ 250,041 $ 3,324,618
Late charges and other ancilliary revenue 669,243 - 669,243
Gross servicing revenue 3,743,820 250,041 3,993,861
Servicing asset amortization 1,630,784 33,621 1,664,405
Guaranty fees and loan pay-off interest 168,187 - 168,187
Other servicing expenses 88,090 - 88,090
Total other expenses 256,277 - 256,277
Gross servicing expenses 1,887,061 33,621 1,920,682
Net servicing fee income $ 1,856,759 $ 216,420 $ 2,073,179
2007
Gross servicing fees $ 3,122,449 $ 230,916 $ 3,353,365
Late charges and other ancilliary revenue 663,843 - 663,843
Gross servicing revenue 3,786,292 230,916 4,017,208
Servicing asset amortization 1,526,346 33,730 1,560,076
Guaranty fees and loan pay-off interest 228,614 - 228,614
Other servicing expenses 182,084 - 182,084
Total other expenses 410,699 - 410,699
Gross servicing expenses 1,937,045 33,730 1,970,775
Net servicing fee income $ 1,849,247 $ 197,186 $ 2,046,433
The residential loan servicing at December 31, 2009 relates to 8,434 mortgage loans with a total unpaid
principal balance of $985.4 million. Comparable balances for December 31, 2008 and 2007 were $924.9
million and $970.4 million, respectively. At December 31, 2009 and 2008, the estimated fair value of the
residential servicing rights was $10.4 million and $9.1 million, respectively. In order to determine fair value,
the portfolio is first stratified into homogenous groups. Next, key assumptions relating to prepayment speed
(“PSA”), expected return on investment (discount rate), cost of servicing, and other factors are established.
Finally, prevailing market conditions, including the level of long-term interest rates, and the shape of the
U.S. Treasury security yield curve, are factored in.
Accounting standards require periodic evaluation of intangible mortgage servicing rights for evidence of
temporary loss of value. Mortgage refinance velocity is one of the primary factors considered when
determining impairment in servicing rights because the expectation of higher levels of refinance reduces the
expected realization of one’s investment in such assets. At December 31, 2008, mortgage rates had reached
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2009 Annual Report
a level approximately 1.25% to 1.50% below the average rate on loans we service, creating refinance
incentive for much of our portfolio. Considering the lack of an actively traded market for servicing rights
and the expectation of rapidly increasing refinance activity, our discounted cash flow model indicated the
fair value for our servicing portfolio was approximately $1.2 million below our carrying value and an
impairment charge was recorded.
In 2009, the Company recovered $1.06 million of the $1.2 million impairment charge recorded in 2008 as
the expected refinances resulted in loan payoffs in the current year. Again, this non-cash charge and
subsequent recovery is the result of applying significant judgment in the estimation process and any loss
from our investment may be greater than, or less than, estimated amounts.
The following summarizes the changes in loan servicing rights for the periods indicated:
Years ended December 31,
2009 2008
Commercial Residential Total Commercial Residential Total
Beginning balance $ 149,026 $ 9,138,749 $ 9,287,775 $ 182,647 $ 10,616,761 $ 10,799,408
Add: Purchased mortgage servicing rights - 16,989 16,989 - 130,829 130,829
Capitalized mortgage servicing rights - 2,593,245 2,593,245 - 2,443,980 2,443,980
Gross additions to mortgage servicing rights - 2,610,234 2,610,234 - 2,574,809 2,574,809
Less: Amortization of mortgage servicing rights (32,129) (2,510,546) (2,542,675) (33,621) (1,630,784) (1,664,405)
Recovery (impairment) charge - 1,060,000 1,060,000 - (1,210,000) (1,210,000)
Sale of mortgage servicing rights - - - - (1,212,037) (1,212,037)
Gross reductions in mortgage servicing rights (32,129) (1,450,546) (1,482,675) (33,621) (4,052,821) (4,086,442)
Ending balance $ 116,897 $ 10,298,437 $ 10,415,334 $ 149,026 $ 9,138,749 $ 9,287,775
In addition to the periodic fair value review required under ASC 860, Transfers and Servicing the Company
performs a “stress test” on the carrying value of MSRs by assuming that immediate and permanent increases
or decreases in certain of the more critical assumptions will occur. The purpose of this “shock” test is to
determine the potential volatility inherent in the carrying value of the MSRs. The following table presents
the assumptions used to derive a “base case” value of $10.4 million and shows the results of applying
different assumptions, taken both separately and together, on the fair value of the Company’s MSRs.
Management believes that the assumptions used accurately reflect a consensus of what participants in the
secondary market for mortgage loan servicing rights would apply in an arm’s length purchase transaction,
but there can be no assurance of that. We also cannot predict the likelihood of the actual occurrence of any
of these scenarios; nor is there any certainty that the fair value of the Company’s MSRs would be affected
exactly as depicted in the table. Readers are cautioned that the values presented in the table are the result of
mathematical modeling only.
Estimated Fair Value ($ in 000's)
PSA Unchanged PSA Increased 20%
Discount Discount
Discount Increased by Discount Increased by
Unchanged 1.5% Unchanged 1.5%
Estimated prepayment speed (% PSA) 253.2% 253.2% 303.8% 303.8%
Pre-tax discount rate 9.98% 11.48% 9.98% 11.48%
Servicing cost unchanged $ 114.60 $ 10,427 $ 10,317 $ 9,557 $ 9,089
Servicing cost increased by 10% $ 126.06 $ 10,044 $ 9,517 $ 9,210 $ 8,761
Income and expense associated with these MSRs, which includes servicing fees, late charges, guarantee fees
and loan payoff interest, is recorded on a cash basis. Purchased MSRs are recorded at the gross acquisition
price, including any transfer related expenses, while mortgage servicing rights retained in connection with
the sale of the principal due on a mortgage loan are capitalized at fair value.
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2009 Annual Report
The value of servicing rights is initially measured using a discounted cash flow model taking into
consideration many of the assumptions listed above. To date, all servicing rights capitalized have involved
the retention of servicing rights only; the Company does not retain residual interests, “first loss” obligations,
or other similar on-going financial interests in the loans it sells to third parties; nor have we transacted any
securitizations with any special purpose entities.
Except for recovery of amounts invested in acquiring servicing rights, servicing mortgage loans for others
does not generally impose significant financial risks to the servicer. There are, however, certain investors
for whom servicing does involve some risk of loss. For example, servicing FHA insured or VA guaranteed
loans can result in the servicer advancing principal and interest payments for delinquent borrowers, or
incurring a shortfall in the total amount of principal collected under certain foreclosure circumstances.
The following table summarizes activity in the reserve for servicing losses for the years ended December 31,
2009, 2008 and 2007:
Years ended December 31,
2009 2008 2007
Beginning balance $ 199,213 $ 136,514 $ 149,856
Provision for losses 173,000 238,000 206,300
Claim losses charged off (151,723) (175,301) (219,642)
Recoveries of claim losses - - -
Net losses (151,723) (175,301) (219,642)
Ending balance $ 220,490 $ 199,213 $ 136,514
6. Premises and Equipment
Premises and equipment at December 31, 2009 and 2008 are summarized as follows:
2009 2008
Buildings and improvements $ 4,344,058 $ 4,566,788
Furniture and equipment 4,799,085 5,057,754
Construction in progress 28,419 5,684
Total cost 9,171,562 9,630,226
Less: Accumulated depreciation (4,126,660) (3,908,922)
Premises and equipment, net $ 5,044,902 $ 5,721,304
7. Foreclosed Real Estate
The amount reported as real estate acquired through foreclosure proceedings is carried at the lower of the
recorded investment in the loan or fair value less estimated cost to sell the property. The following table
summarizes changes in foreclosed real estate for the years ended December 31:
2009 2008
Beginning balance $ 2,793,875 $ 60,271
Transfer from loans 2,675,408 3,213,930
Capital Improvements 10,545 -
Foreclosed property sold (1,344,727) (230,571)
Writedowns and partial liquidations (969,093) (249,755)
Ending balance $ 3,166,008 $ 2,793,875
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2009 Annual Report
8. Federal Home Loan Bank Membership
Member institutions of the Federal Home Loan Bank (“FHLB”) system are required to purchase FHLB
stock in proportion to the level of borrowings from the FHLB. This stock is restricted in that it cannot be
sold to or redeemed by any entity other than the FHLB. Like many financial institutions, the federal home
loan banks are experiencing a significant amount of credit and capital stress on their balance sheets.
Although the Cincinnati bank has declared quarterly dividends for as long as Magna has been a member
institution, there can be no assurance that the declaration of such dividends will continue.
On December 31, 2009 and 2008, the Company had $4.0 million and $3.9 million, respectively, of cost
method investments in FHLB stock. These investments, which do not have a readily determinable market
and for which it is not practicable to estimate a fair value, are evaluated for impairment only if there are
identified events or changes in circumstances that may have had a significant adverse effect on the fair value
of the investment.
The Company has entered into a blanket mortgage loan collateral pledge agreement with the FHLB that
encumbers substantially all qualifying first and second mortgage loans which it owns, including revolving
home equity lines of credit and commercial real estate loans. The Company may sell or transfer loans or
securities pledged to the FHLB to the extent that the amount of loans or securities sold are in excess of
minimum collateral requirements.
9. Deposits
At December 31, 2009 and 2008, the scheduled maturities of interest-bearing deposits are as follows:
At December 31, 2009 At December 31, 2008
Average % of Average % of
Maturing within: Amount Amount
Rate total Rate total
One year 105,801,109 2.12% 36.6% 213,673,858 3.68% 61.4%
Two years 29,573,051 2.62% 10.2% 11,401,001 3.68% 3.3%
Three years 10,427,621 2.96% 3.6% 2,442,996 4.21% 0.7%
Four years 199,221 3.67% 0.1% 1,673,579 4.30% 0.5%
Five years 1,290,700 3.20% 0.4% 309,960 3.75% 0.1%
147,291,702 2.29% 50.9% 229,501,394 3.69% 65.8%
Interest bearing deposits with no stated
141,524,640 1.35% 49.1% 118,781,999 2.41% 34.2%
maturity
Total interest-bearing deposits $ 288,816,342 1.83% 100.0% $ 348,283,393 3.25% 100.0%
The following table summarizes the amount of all outstanding time deposits, including certificates of
deposit, with balances of $100,000 or greater by time remaining until maturity as of December 31, 2009 and
2008:
At December 31, 2009 At December 31, 2008
Average % of Average % of
Balance Balance
Rate total Rate total
Due in three months or less $ 10,096,018 2.31% 11.6% $ 36,333,797 3.45% 25.7%
Due after three through six months 11,842,488 2.02% 13.7% 50,088,119 3.65% 35.4%
Due after six through twelve months 38,176,731 2.05% 44.2% 47,244,402 3.76% 33.4%
Due after twelve months 26,322,671 2.70% 30.5% 7,730,923 3.90% 5.5%
$ 86,437,908 2.28% 100.0% $ 141,397,242 3.65% 100.0%
Percent of total deposits 27.4% 37.9%
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2009 Annual Report
10. Short-term Borrowings
The following table sets forth selected information for short-term borrowings (borrowings with an original
maturity of less than one year) for each of the years in the three year period ended December 31, 2009:
2009 2008 2007
Amount Rate Amount Rate Amount Rate
At December 31,
Federal Funds Purchased and
$ - - $ 10,600,000 1.25% $ 67,760,000 4.24%
short-term borrowings
Repurchase agreements - - - - - -
Total $ - 0.00% $ 10,600,000 1.25% $ 67,760,000 4.24%
Year ended December 31
Average Daily Balance
Federal Funds Purchased and
$ 5,399,096 0.39% $ 35,279,611 2.73% $ 49,824,685 5.27%
short-term borrowings
Repurchase agreements - - 981,913 3.57% - -
Total $ 5,399,096 0.39% $ 36,261,524 2.75% $ 49,824,685 5.27%
Maximum Month-end Balance
Federal Funds Purchased and
$ 23,100,000 $ 81,310,000 $ 87,000,000
short-term borrowings
Repurchase agreements - 5,807,738 -
Total $ 23,100,000 $ 87,117,738 $ 87,000,000
11. Long-term Borrowings
All long-term borrowings (borrowings with an original maturity of one year or more) are advances from the
FHLB. Each requires monthly interest payments. The long-term advances all are either “term”,
“convertible” or “callable”. All eligible investment securities and certain eligible loans are pledged as
collateral for current or future borrowings.
Term advances are fixed rate advances repayable in full at maturity. Prepayment at any time prior to
maturity may result in the Company incurring a prepayment penalty based upon a yield maintenance
formula contained in the loan agreement. The Company elected to prepay $9.0 million in term FHLB
advances during 2009 and incurred a prepayment penalty of $504,866. The term advances had a weighted
average interest rate of 4.0% and a weighted average remaining maturity of 36 months.
The interest rate on convertible rate advances was fixed at inception for periods ranging from one to three
years at interest rates ranging from 5.00% to 5.45%. Upon the expiration of the fixed rate period, and on
each quarterly anniversary thereafter, the interest rate may be converted to a floating rate indexed to the 90
day London Interbank Offering Rate (LIBOR). The advances carry a prepayment penalty during the fixed
rate period; there are no prepayment penalties once an advance has converted to an adjustable rate.
Convertible rate advances whose rates float with LIBOR may be repaid at any time without penalty.
The callable advances are structured with lock-out periods, generally ranging from one to three years, and a
final maturity, generally ranging from five to ten years. The FHLB has the right to require the Company to
repay the advance at the expiration of the lock-out period, and on any quarterly anniversary date thereafter.
If not called, the advance remains in place at its fixed rate until its final maturity.
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2009 Annual Report
The following table summarizes long-term borrowings by type with information regarding the expected
maturity thereof:
At December 31, 2009
Callable Convertible Total
Average Average Average
Amount Rate Amount Rate Amount Rate
Final maturity of:
Three months or less $ - - $ - $ - -
After three within six months - - - - - -
After six within twelve months - - 6,000,000 5.14% 6,000,000 5.14%
After twelve months 53,000,000 3.18% 4,000,000 5.37% 57,000,000 3.33%
$ 53,000,000 3.18% $ 10,000,000 5.23% $ 63,000,000 3.50%
At December 31, 2008
Callable Convertible Term Total
Average Average Average Average
Amount Rate Amount Rate Amount Rate Amount Rate
Final maturity of:
Three months or less $ - - $ - $ 1,000,000 4.62% $ 1,000,000 4.62%
After three within six months - - - - - - - -
After six within twelve months - - - - 2,500,000 4.57% 2,500,000 4.57%
After twelve months 56,500,000 3.23% 10,000,000 5.23% $ 5,500,000 4.07% 72,000,000 3.57%
$ 56,500,000 3.23% $ 10,000,000 5.23% $ 9,000,000 4.27% $75,500,000 3.62%
12. Preferred Stock
On December 23, 2008, the Company issued and sold $13.795 million of its Series A and Series B preferred
stock. The issuance occurred in connection with, and is governed by, the Treasury Capital Purchase
Program administered by the U.S. Treasury under the Troubled Asset Relief Program (“TARP”). The
preferred stock carries certain restrictions. The preferred stock has a senior rank and also provides
limitations on compensation arrangements of executive officers and provides restrictions on dividends.
Generally, the preferred shares are non-voting; however, should the Company fail to pay six quarterly
dividends, the holder may elect two directors to the Company’s Board until such dividends are paid. On
November 24, 2009, the Company redeemed 3,455 shares of Series A preferred stock. The preferred stock
qualifies as Tier 1 capital and is presented in shareholders’ equity in the accompanying consolidated
statements of financial condition. The following table summarizes the principal terms of the offering:
Series A Series B
Redemption value at date of issuance $13,795,000 $690,000
Less: Value of shares redeemed (3,455,000)
Redemption value at December 31,2009 $10,340,000 $690,000
5.0% until December 23, 2013; 9.0%
Dividend rate 9.0%
thereafter
Stated life Perpetual
Voting rights Non-voting
Transferability Transferable at any time
Dividend payment dates Feb 15, May 15, Aug 15, Nov 15 (or first business day thereafter)
Dividend type Non-cumulative
Redemption Redeemable in whole or part subject to approval by the Treasury
No dividends may be declared on Magna's common stock without the prior consent of the
Dividend restrictions U.S. Treasury. After 10 years, no dividends may be paid on common stock unless all
preferred stock held by the U.S Treasury has been redeemed.
For as long as the U.S. Treasury holds any preferred stock, Magna's executive
Other provisions compensation structure must comply with section 111 of the EESA, as amended from time
to time. Magna is also subject to any future regulations promulgated under the EESA.
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2009 Annual Report
13. Income Taxes
The components of total tax expense (benefit) for the years ended December 31, 2009, 2008 and 2007 are as
follows:
A reconciliation of total tax expense (benefit) at the statutory rate of 34.0% to the actual total tax expense
(benefit) for the years ended December 31, 2009, 2008 and 2007 is as follows:
As of December 31, 2009, the Company has no unrecognized tax benefits related to federal and state
income tax matters. If ultimately realized, the Company does not anticipate any material increase in the
effective tax rate relating to any tax positions taken prior to January 1, 2007. As of December 31, 2009, the
Company has no material accrual for interest and penalties related to uncertain tax positions. It is the
Company’s policy to recognize interest and/or penalties related to income tax matters in income tax
expense.
The Company and its subsidiary file consolidated U.S. federal and state income tax returns. Magna is
currently open to audit under the statute of limitations by the Internal Revenue Service and state taxing
authorities for the years ending December 31, 2006 through 2008.
Deferred income taxes reflect the net tax effect of temporary differences between the carrying amounts of
assets and liabilities for financial reporting purposes and the amounts used for income tax purposes. The
Company has carryback potential of taxable income in prior years and future reversal of taxable temporary
differences. Based upon the level of historical taxable income and projections for future taxable income over
the periods in which the deferred tax assets are deductible, management believes it is more likely than not
that the Company will realize the benefits of these deductible differences existing at December 31, 2009.
At December 31, 2009, Magna has immaterial state net operating loss carryforwards that expire in years
2010 through 2029. Management believes that it can realize all of its state net operating loss carryforwards.
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2009 Annual Report
Significant components of deferred tax assets and liabilities as of December 31 are listed below:
14. Earnings per Share
Earnings per share is computed by dividing net income or loss available to common shareholders by the
weighted average number of common shares outstanding for each period. Diluted earnings per share in net
income periods is computed by dividing net income available to common shareholders by the weighted
average number of common shares adjusted to include the number of additional common shares that would
have been outstanding if the dilutive potential common shares resulting from options granted under the
Company’s stock option plans had been issued utilizing the treasury stock method. Diluted earnings per
share do not reflect an adjustment for potentially dilutive shares in net loss periods.
Stock options outstanding as of December 31, 2009 have no intrinsic value; therefore, the options have no
dilutive impact (antidilutive) and are not included in the earnings per share calculations. See Note 16,
Employee Benefit Plans for further discussion of stock options.
Due to the net loss attributable to common shareholders for the twelve months ended December 31, 2008,
no potentially dilutive shares were included in the loss per share calculations as including such shares would
have been antidilutive. Stock options of 35,397 with a weighted average exercise price of $5.50 per share
for the twelve months ended December 31, 2008 were not included in the computation of diluted loss per
common share.
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2009 Annual Report
15. Transactions With Insiders
Leader Investments LLC (“Leader”), an entity owned by the Vice-Chairman of the Company, periodically
underwrites and purchases loans that the Company has declined for sale to the secondary market or for its
own portfolio. For the years ended December 31, 2009, 2008 and 2007, the Company originated and sold
mortgage loans totaling $95,500, $196,425, and $409,785, respectively, to Leader. Gains recorded on the
sale of these loans approximated those realized from the sale of similar loans to third party investors.
In 2007, the Company engaged CB Richard Ellis (“CBRE”), a national real estate management services
firm to provide Magna representation in branch site lease negotiations and to oversee construction
management of its branches. Mr. Kevin Adams, a director, is the CEO of CBRE in Memphis. The total
amount paid to CBRE in 2008 for construction management services was $76,740. In 2007, construction
management services payments were $27,474. Commissions earned by CBRE, which were paid by the
lessors, totaled $166,000, as reported by CBRE. No fees were paid to CBRE in 2009.
The Company serviced loans with unpaid principal balances aggregating $9.2 million and $9.4 million at
December 31, 2009 and 2008, respectively, which were owned by investors who are affiliated persons.
The Company has entered into various lease arrangements with two members of the Board of Directors
(“Affiliates”). See Note 19, Commitments and Contingencies for further detail on non-cancelable lease
commitments, including commitments to these Affiliates.
The aggregate amount of related party deposits totaled $3.3 million and $5.2 million at December 31, 2009
and 2008, respectively.
The following table summarizes the balances of and changes in loans on which directors and executive
officers are either directly or contingently liable for the three years ended December 31, 2009:
In March 2010, the Company extended the lease on its corporate office, which is leased from an entity
affiliated with Crye-Leike. The term of the lease is approximately 3 years, extending through September 30,
2012, and the annual rent expense is approximately $460,000. This lease is not included in future minimum
payments under non-cancelable operating leases disclosed in Note 19, Commitments and Contingencies to
the consolidated financial statements.
Also in March 2010, the Company extended the cooperative marketing agreement in place with Crye-Leike
affiliated entities for which we pay an equitable annual fee for marketing and promotional services. The
agreement extends the term of the marketing relationship through December 2012. Annual payments under
the marketing agreement total approximately $150,000, $175,000, and $200,000 in 2010, 2011, and 2012,
respectively. The new marketing agreement now contains a termination clause that allows the non-selling
party to elect to terminate the agreement if a party experiences a change in control (“selling party”) as
defined in the agreement. Upon termination of the agreement, the non-selling party shall receive a fee of
$250,000 from the selling party. While we believe the marketing agreement, coupled with the leases in the
Crye-Leike offices, enhances our ability to derive loans from Crye-Leike agents, there is no and has never
been an exclusive mortgage origination arrangement between the two companies; therefore, we can provide
no assurance that historical mortgage origination volume derived from the Crye-Leike relationship will
continue in the future.
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2009 Annual Report
16. Employee Benefit Plans
The Company sponsors the Magna Bank 401(k) Profit Sharing Plan (“the Plan”). The Plan covers all
employees who meet age and service requirements and is funded with pretax voluntary contributions made
by participating employees and with matching contributions from the Company. Employer mandatory
contributions are equal to 100% of the first 3% of total eligible compensation of participating employees.
The Board of Directors may make discretionary matches in excess of that required under the Plan although
there were no discretionary matches for plan years 2009, 2008 or 2007. Plan assets are held and the Plan is
administered by Great West Retirement Services, a division of Great-West Life and Annuity Insurance
Company. The Company’s matching expense to the Plan for 2009, 2008 and 2007 was $183,627, $222,034,
and $199,288, respectively.
The Company has a Corporate Incentive Plan which is designed to motivate corporate officers to achieve
specific annual performance objectives. Payment of incentives to an employee, which may occur annually
under the Plan, is at the discretion of the Company’s Compensation Committee of the Board of Directors.
Incentives earned for the years ended December 31, 2009 and 2007 totaled $300,000 and $429,891,
respectively. There were no incentives earned in 2008.
The Company also has a Three Year Incentive Plan which targets return on equity and other profitability
measures above target levels over a rolling three year period. There are currently no participants in this plan.
The Company has an Equity Incentive Plan, which is designed to provide an incentive for officers of the
Company to promote the best interests and long-term performance of the Company and to motivate officers
to join and remain in employment with the Company. Employees of the Company who are officers are
eligible to participate in the Plan. The Plan provides that the Compensation Committee may award either
stock options or shares of restricted stock to officers on the terms and conditions established by the
Compensation Committee, subject to the provisions set forth in the Plan. The aggregate nuber of shares of
stock available for grant under the Plan as either stock options or restricted stock is 805,115 shares. The Plan
requires that any awards of stock options vest pro-rata over a three year period. Immediate vesting of stock
options occurs in the event of a change in control of ownership. All options awarded have an exercise price
not less than 100% of the fair market value per common share on the date of grant and are exercisable over a
ten year period. The vesting period for restricted stock is determined by the Compensation Committee;
provided, however, that so long as the Company is a recipient of the TARP funds, any awards of restricted
stock to the Company’s most highly compensated employee will be subject to the restrictions imposed
under the TARP Rules. No grant or award of options or restricted stock may be made under the plan more
than twenty years and one day from the original effective date of the plan which is, January 27, 1999.
As of December 31, 2009, a total of 805,115 shares have been authorized for grants or awards of restricted
stock or options; 665,265 shares remain in the plan at December 31, 2009. A total of 271,500 options were
outstanding at December 31, 2009 at exercise prices ranging from $6.70 to $11.25 per share; the weighted
average exercise price was $8.41 and $7.67 at December 31, 2009 and 2008, respectively, and the average
remaining term to expiration was 77 months at December 31, 2009. At December 31, 2009, there were
182,273 and 89,227 vested and unvested options outstanding and 7,666 unvested restricted stock shares
outstanding, respectively. Assuming each option could be exercised and sold at the last observed per share
price of $5.75, which occurred on December 30, 2009, the options have no intrinsic value. Additionally, the
options have no dilutive impact (antidilutive) and are not included in our earnings per share calculations as
of December 31, 2009. Compensation expense arising from stock options that has been charged against
income was approximately $127,000, $219,000, and $379,000 for 2009, 2008 and 2007, respectively. At
December 31, 2009, there was $143,336 of remaining unrecognized expense related to outstanding options
which will be amortized to expense over a weighted average term of 29 months.
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2009 Annual Report
The following table summarizes activity in the Plan for the years ended December 31, 2009, 2008 and 2007:
Available for
grant Vested Non-vested Total
Balance December 31, 2006 329,365 218,949 222,301 770,615
Additional shares approved - - - -
Options-granted (31,500) - 31,500 -
-exercised - (7,000) - (7,000)
-forfeited 6,250 (1,500) (4,750) -
-vested - 78,890 (78,890) -
Balance December 31, 2007 304,115 289,339 170,161 763,615
Additional shares approved - - - -
Options-granted (50,100) - 50,100 -
-exercised - (40,000) - (40,000)
-forfeited 132,250 (68,001) (64,249) -
-vested - 60,740 (60,740) -
Balance December 31, 2008 386,265 242,078 95,272 723,615
Additional shares approved - - - -
Restricted stock awards (7,666) - 7,666 -
Options-granted (53,250) 53,250 -
-exercised - (58,350) - (58,350)
-forfeited / expired 60,750 (57,416) (3,334) -
-vested - 55,961 (55,961) -
Balance December 31, 2009 386,099 182,273 96,893 665,265
Use of the Black Scholes model requires making assumptions about future events to derive a theoretical
value for a stock option at the grant date. For purposes of Magna’s option valuation, the respective
assumptions used were:
• Risk free rate of return – Yield on the U.S. treasury note of 7 year maturity as of the grant date, the
expected life of a ten year final maturity option,
• Expected dividend yield – None, the Company currently does not pay any dividends on its stock
and anticipates retaining future earnings for internal growth,
• Expected stock price volatility – Internal projections for growth in assets and earnings provide an
expected stock price volatility (standard deviation of stock price over expected life of options) of
32%, 20%, and 29% for 2009, 2008 and 2007, respectively.
• Forfeitures – No forfeitures were estimated prior to 2008 given the low level of such occurrences
observed since the plan’s inception. An estimated forfeiture rate of 7% was utilized in 2009 and
2008.
• Expected life – 7 year expected life represents the period of time that options are expected to be
outstanding from the grant date.
The total fair value of all stock options granted during 2009, 2008, and 2007 was $113,032, $134,786, and
$130,002 respectively.
The Company had a non-qualifying deferred compensation plan which allowed directors and participating
employees the option to defer receipt, and therefore taxation on, a portion of the salary, bonus or fees due
them until a future date. Amounts deferred were an unsecured general corporate obligation of the Company;
there were no segregated accounts or trust arrangements relating to the deferred amounts. The Company
credited each participant with a rate of return on his deferred balance equal to either (i) the net change in the
Standard & Poor’s 500 stock index on a monthly basis, or (ii) the average yield of a portfolio of preferred
stocks of small banks or other financial services firms selected by the Compensation Committee. In
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2009 Annual Report
establishing the yield rate for bank preferred stocks to be used in 2009, the Compensation Committee of the
board determined that such yields were unacceptably high and modified the plan, effectively terminating the
plan. Participant balances were disbursed in early 2009. The balances of these deferred accounts, which are
included in other liabilities in the accompanying consolidated statements of financial condition, totaled $2.0
million at December 31, 2008. The expense associated with the earnings on these balances totaled $137,571
and $104,631 for the years ended December 31, 2008 and 2007, respectively, and is included in other
expense in the accompanying consolidated statement of operations. The Company had no liability at
December 31, 2009 and recorded no expense in 2009 related to this plan.
17. Other Non-Interest Expense
The following table details the components of other non-interest expense for the years ended December 31:
Years Ended December 31,
2009 2008 2007
Data processing $ 947,597 $ 808,161 $ 693,848
Travel and entertainment 176,559 211,068 312,995
Bank fees and service charges 164,652 154,622 91,301
Postage, shipping and delivery 209,855 213,429 205,569
Printing and office supplies 186,238 218,004 236,127
Provision for loan repurchase and FHA/VA claim losses 573,000 244,103 211,300
Other 877,350 932,748 778,053
Total other expense $ 3,135,251 $ 2,782,135 $ 2,529,193
18. Financial Instruments With Off-Balance-Sheet Risk
The Company is a party to financial instruments entered into in the normal course of business which have
off-balance-sheet risk. These financial instruments are primarily commitments to extend credit under first
mortgages, revolving home equity lines of credit or construction loans (“portfolio commitments”) or to
originate mortgage loans by “locking” an interest rate with a borrower for an agreed upon loan amount.
When locking a rate with a borrower it is the Company’s policy to immediately enter into an offsetting
commitment to deliver a like amount of loan to a third party investor at the same interest rate for an agreed
upon price (“third party commitments”).
The following table summarizes the extent of both types of commitments as of December 31, 2009 and
2008:
December 31,
2009 2008
Commitments for portfolio:
Undisbursed term loans $ 11,029,275 $ 17,131,289
Undrawn revolving lines of credit 55,019,913 64,901,471
Undrawn letters of credit 4,619,449 7,061,703
Subtotal, portfolio commitments 70,668,637 89,094,462
Commitments for third-parties:
Locked commitments to originate mortgage loans 9,267,127 22,533,061
Commitments to sell locked but unclosed loans (9,267,127) (21,873,365)
Commitments to sell closed loans held for sale (21,160,693) (24,450,270)
Subtotal, third party commitments (21,160,693) (23,790,574)
Grand total, all commitments $ 49,507,944 $ 65,303,888
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2009 Annual Report
The amount of collateral obtained to support commitments to extend credit is based on management’s credit
evaluation of the counter party. Collateral held varies but may include stock, accounts receivable, inventory,
property, plant and equipment, and income-producing commercial properties.
In connection with the sale of mortgage loans to third party investors, the Company makes usual and
customary representations and warranties as to the propriety of its origination activities. Occasionally, the
investors require us to repurchase loans sold to them under the terms of the warranties. When this happens,
the loans are recorded at fair value with a corresponding charge to a valuation reserve. The total principal
amount of loans repurchased (or indemnified for) was $941,016, $210,947, and $831,347 during 2009,
2008, and 2007, respectively.
The following table summarizes the activity in the valuation reserve for the years ended December 31, 2009,
2008 and 2007:
19. Commitments and Contingencies
Future minimum payments under non-cancelable operating leases that have initial or remaining terms in
excess of one year at December 31, 2009, are as follows:
Total Affiliates
2010 $ 937,565 $ 363,056
2011 832,199 257,690
2012 693,030 154,197
2013 540,248 108,443
2014 480,083 48,278
Thereafter 15,890,899 -
Gross operating lease commitments $ 19,374,024 $ 931,664
Rent expense was approximately $1.7 million in 2009 and 2008 and was $1.2 million in 2007, respectively.
Rent expense is included in occupancy and equipment expense in the accompanying consolidated
statements of operations. The Company operates three branches under long-term ground leases (Magna
owns the buildings, but leases the land) with initial terms ranging from 20 to 25 years and option terms of 20
years. The initial terms of the ground leases began in 2007 and 2008 in conjunction with the opening of the
Wolf River, Oak Court, and Forest Hill branch locations.
The Company serviced residential loans owned by others with unpaid principal balances aggregating $985.4
million and $924.9 million at December 31, 2009 and 2008, respectively. Related escrow funds totaled
$10.4 million and $10.0 million at December 31, 2009 and 2008, respectively. Loans serviced for others are
not included in the accompanying consolidated statements of financial condition.
At the time of its inception, the Company entered into a buy/sell agreement with the founding shareholders
(“the Agreement”) which restricts their ability to sell or transfer their ownership interest and may result in
the Company electing to repurchase the stock owned by these shareholders under certain circumstances.
The Agreement was amended in January 2006 to include shares acquired by the participant subsequent to
the inception of the Company under its terms and to release former participants from its provisions. The
total number of shares subject to this Agreement is 1,862,708 or 34% of the outstanding stock of the
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2009 Annual Report
Company. If the Agreement is exercised, the repurchase price is equal to 1.4 times the book value of the
Company’s stock. There were no repurchases from 2007 to 2009 under the agreement and repurchases
cannot be exercised without approval of the U.S. Treasury Department until the Company fully repays
TARP funds.
The Company is engaged in lines of business that are heavily regulated and involve a large volume of
financial transactions with numerous customers. Although the Company has developed policies and
procedures to minimize the impact of legal noncompliance and other disputes, litigation presents an ongoing
risk. Although we are not currently engaged in any litigation which involves a material risk of loss, we
cannot make assurances that such litigation will not occur nor that we would be successful in defending
against such claims.
20. Advances
In connection with its mortgage servicing operations, the Company periodically advances funds to third
parties under its servicing obligation to the investor who owns the loan. Such advances typically relate to
escrow shortfalls resulting from changes in real estate tax rates, interest advanced to an investor when not
collected from the borrower, or expenses related to collection or foreclosure efforts instituted on behalf of an
investor. Such advances are recovered through increases in the borrower’s tax and insurance escrow
remittance, collection at time of loan payoff or through foreclosure proceeds.
The following advance amounts have been included in other assets in the accompanying consolidated
statements of financial condition:
21. Regulatory Capital and Restrictions on Cash and Dividends
The Company is subject to various regulatory capital requirements administered by the federal banking
agencies. Failure to meet minimum capital requirements can initiate certain mandatory and possibly
additional discretionary actions by regulators that, if undertaken, could have a direct material effect on the
consolidated financial statements of the Company. Under capital adequacy guidelines and the regulatory
framework for prompt corrective action, the Company must meet specific capital guidelines that involve
regulatory defined quantitative measures of the Company’s assets, liabilities and certain off-balance-sheet
items. The Company’s capital amounts and classification are also subject to qualitative judgments by the
regulators about components, risk weightings and other factors.
Quantitative measures established by regulation to ensure capital adequacy require the Company to maintain
minimum amounts and ratios (set forth in the table below) of total and Tier I capital (as defined) to risk-
weighted assets (as defined), core capital (as defined) to adjusted tangible assets (as defined) and Tangible
Capital (as defined) to Tangible Assets (as defined). As of December 31, 2009 and 2008, the Company met
all capital adequacy requirements which we are subject to.
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2009 Annual Report
The Company’s capital and ratios as of December 31, 2009 and 2008, which place the Company in the
“well-capitalized” range, are presented in the following table. Nothing has come to the attention of
management that would result in a change in this classification. No amount was deducted from capital for
interest-rate risk. Additionally, the federal banking agencies have the ability to require additional capital
levels or additional capital for certain business activities at their discretion; therefore, the amounts shown
below could change in the future based upon additional input and/or guidance from the federal banking
agencies.
The Company’s capital and ratios as of December 31, 2009 and 2008, which place the Company in the
“well-capitalized” range, are presented in the following table.
The Company is required to maintain average reserve and clearing balances with the Federal Reserve Bank
under the Federal Reserve Act and Regulation D. The balance required on December 31, 2009 and 2008
was $928,000 and $856,000, respectively. These reserves are included in Interest-bearing deposits at other
financial institutions in the accompanying consolidated statements of financial condition.
There are regulatory limitations on the payment of dividends by the Company. We are required to obtain
the prior approval of the U.S. Treasury Department to pay any common dividends as a condition of issuing
preferred stock to the Treasury in December of 2008, as discussed further in Note 13, Preferred Stock. Prior
approval from the Office of Thrift Supervision (“OTS”) would also be required before the declaration of
dividends if the total of all dividends to be declared in any year would exceed the total of (i) the Company’s
net profits (as defined and interpreted by regulation) for that year, plus (ii) the retained net profits (as
defined and interpreted by regulation) for the preceding two years, less any required transfers to surplus or if
we would not be at least “adequately capitalized” following the payment of dividends. Furthermore, all
depository institutions are prohibited from paying any dividends, making other distributions, or paying any
management fees if, after such payment, the depository institution would fail to satisfy its minimum capital
requirements. We may declare dividends up to the amounts described in (i) and (ii) without receiving
regulatory approval, but must still provide notice of our intent to do so to the OTS. Future dividends will
depend primarily upon the level of earnings of the Company. Under the prompt corrective action provisions
of FDICIA, Federal banking regulators also have the authority to prohibit banks from paying a dividend if
they should deem such payment to be an unsafe or unsound practice.
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2009 Annual Report
22. Business Segment Information
The Company operates two business segments, Banking and Mortgage Banking. Transactions between
business segments are conducted at fair value and are eliminated for reporting consolidated financial
condition and results of operations. Expenses for centrally provided services such as corporate compliance,
legal representation, human resources, accounting, and information technology are allocated to each
segment based, primarily, upon headcount or per-unit-of-production. Corporate governance costs, including
the Chairman of the Board/CEO and the Board of Directors, are borne primarily by the Banking segment.
Additionally, in 2007, the Banking unit was charged with the entire cost of the name change conversion.
Each segment bears its own loan losses and other ancillary business expenses. The Banking division
provides significant funding to the Mortgage Banking division for the assets it owns. These funds bear
interest using a “maturity match-funded” method, shifting any maturity/repricing income or cost to the
Banking division. The interdivision interest related to this funding, as well as the average balance thereof,
has been eliminated from the Banking division’s reported information. There are no other significant
intersegment items.
The following table presents financial information for each reportable business segment for the years ended
December 31:
2009 2008
Mortgage Mortgage
Banking Banking Total Banking Banking Total
Net interest income $ 12,107,119 $ 1,391,959 $ 13,499,078 $ 10,990,047 $ 1,859,888 $ 12,849,935
Provision for loan losses (1,362,781) (18,600) (1,381,381) (2,533,159) 6,159 (2,527,000)
Net interest income after
10,744,338 1,373,359 12,117,697 8,456,888 1,866,047 10,322,935
provision for loan loss
Non-interest income 2,647,284 13,005,475 15,652,759 1,220,173 11,063,355 12,283,528
Impairment charges (recovery)
on securities and servicing 165,000 (1,060,000) (895,000) 6,485,000 1,210,000 7,695,000
rights
Non-interest expense 11,577,683 12,349,153 23,926,836 11,674,598 10,169,239 21,843,837
Income (loss) before taxes 1,648,939 3,089,681 4,738,620 (8,482,537) 1,550,163 (6,932,374)
Income taxes 670,846 1,233,978 1,904,824 (3,235,268) 604,608 (2,630,660)
Net income (loss) $ 978,093 $ 1,855,703 $ 2,833,796 $ (5,247,269) $ 945,555 $ (4,301,714)
Total Average Assets $ 436,408,919 $ 55,592,019 $ 492,000,938 $ 464,742,803 $ 46,209,899 $ 510,952,702
Operating efficiency: 78.5% 85.8% 82.1% 95.6% 78.7% 86.9%
2008 2007
Mortgage Mortgage
Banking Banking Total Banking Banking Total
Net interest income $ 10,990,047 $ 1,859,888 $ 12,849,935 $ 9,529,196 $ 1,617,738 $ 11,146,934
Provision for loan losses (2,533,159) 6,159 (2,527,000) (1,070,400) - (1,070,400)
Net interest income after
8,456,888 1,866,047 10,322,935 8,458,796 1,617,738 10,076,534
provision for loan loss
Non-interest income 1,220,173 11,063,355 12,283,528 2,412,612 10,467,665 12,880,277
Impairment charges on
6,485,000 1,210,000 7,695,000 - - -
securities and servicing rights
Non-interest expense 11,674,598 10,169,239 21,843,837 12,256,301 9,798,409 22,054,710
Income (loss) before taxes (8,482,537) 1,550,163 (6,932,374) (1,384,893) 2,286,994 902,101
Income taxes (3,235,268) 604,608 (2,630,660) (545,250) 915,198 369,948
Net income (loss) $ (5,247,269) $ 945,555 $ (4,301,714) $ (839,643) $ 1,371,796 $ 532,153
Total Average Assets $ 464,742,803 $ 46,209,899 $ 510,952,702 $ 338,272,644 $ 60,225,200 $ 398,497,844
Operating efficiency: 95.6% 78.7% 86.9% 102.6% 81.1% 91.8%
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2009 Annual Report
23. Fair Value of Financial Instruments
Accounting standards require the disclosure of estimated fair values of all assets, liabilities and off-balance
sheet financial instruments for which it is practical to estimate such value. Fair value is a point in time
estimate based on relevant market conditions and current interest rates. Fair value estimates are subjective in
nature and involve uncertainties and matters of significant judgment. While financial instruments, including
loans and deposits, are widely traded, most such exchanges occur in negotiated transactions at prices that are
heavily influenced by concentrated due diligence, geographic dispersion, seasoning and other factors that
simple discounted cash flow valuations cannot replicate.
The reported carrying value of cash and due from banks, interest-bearing deposits at other financial
institutions, short-term borrowings, and accrued interest receivable and payable approximate their fair value
based upon the short term (term of one day to one year) until expected realization. Securities available-for-
sale are reported at fair value based upon market quotes when available. The fair value of securities held-to-
maturity, as disclosed elsewhere herein, is also based on quoted market prices when available. Loans held
for sale are likewise reported at fair value based upon contractual delivery value expected to occur within
thirty days of the balance sheet date.
The following methods and assumptions were used to estimate fair value for the remaining financial
instruments. Be aware that market conditions are particularly unsettled as of December 31, 2009 and 2008,
and that obtaining a reliable estimate of fair value is extremely difficult. The use of discounted cash flow
techniques to calculate value does not take into consideration the thinly traded market.
Loans. Magna uses an instrument-level discounted cash flow model to estimate the fair value of all loans
except loans that reprice instantaneously with changes in interest rates, for which fair value is equal to the
carrying value. The model takes prepayment rates on loans containing such options into account using OTS
prepayment tables. The discount rate on each loan is based on the yield curve of fixed rate term advance
rates posted by the FHLB of Cincinnati, which approximates the swap curve. All loans are discounted at
2.00% over this hypothetical funding rate.
Mortgage servicing rights. The fair value of mortgage servicing rights is estimated using discounted
present value analysis, adjusting cash flows for assumed prepayments, and applying assumptions for cost to
service, differentials in discount rates for various types of loans and escrow balances collected.
Deposits. The fair value of retail deposits having no stated term to maturity (i.e., checking accounts, savings
accounts, money market deposit accounts, and NOW accounts) is calculated using discounted cash flows
which incorporate expected decay rates as estimated by the OTS. The fair value of deposits with a stated
maturity (i.e. certificates of deposit) is estimated by discounting the future cash flows related to these
instruments using the current offering rates on time deposits with the same remaining maturity (i.e. a “cost-
of-funds” curve).
Borrowings. Fair value of term advances is estimated using discounted cash flow calculations applying
interest rates currently being offered on these instruments to a schedule of aggregated expected monthly
maturities plus or minus the value of the conversion options held by the lender.
The use of assumptions and estimates in the valuation techniques, combined with the absence of an
established secondary market for most of our assets and liabilities, reduces the comparability of fair value
disclosures among financial institutions.
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2009 Annual Report
The book value and estimated fair value of the Company’s financial instruments are summarized as follows:
December 31, 2009 December 31, 2008
Carrying Fair Carrying Fair
Amount Value Amount Value
Financial Assets
Securities available-for-sale $ 45,399,735 $ 45,399,735 $ 50,944,920 $ 50,944,920
Securities held-to-maturity 8,977,002 7,694,539 11,539,266 10,874,986
Commercial Loans:
Mortgage 117,120,112 107,481,230 132,345,296 120,698,582
Construction 33,990,660 32,902,111 47,844,858 47,230,657
Other 22,381,622 20,972,523 33,456,092 32,464,441
Consumer Loans:
First Mortgage 82,025,890 75,574,573 92,092,253 81,262,201
Junior Mortgage, Primarily HELOC 54,804,498 40,434,190 71,400,918 67,087,792
Construction 13,775,740 13,571,474 15,698,411 14,615,988
Other 2,731,903 2,596,953 3,466,191 3,244,782
Mortgage loans held for sale 21,161,283 21,161,283 24,214,907 24,214,907
Mortgage servicing rights 10,415,334 10,543,897 9,287,775 9,152,911
Financial Liabilities
Non interest-bearing deposits 26,888,270 22,624,654 25,101,795 21,759,425
Interest-bearing deposits with no stated maturity 125,774,640 108,147,830 103,032,003 89,687,617
Interest-bearing deposits with a stated maturity 142,498,702 141,547,275 181,218,394 180,072,095
Brokered deposits 20,543,000 20,522,067 64,032,996 63,861,745
Short-term borrowings 10,600,000 10,600,000 10,600,000 10,600,000
Federal Home Loan Bank advances 63,000,000 66,102,541 75,500,000 80,250,928
Commitments to extend credit are off-balance sheet agreements to lend to a customer as long as there is no
violation of any condition established in the contract. Construction loan commitments generally expire
within one year and home equity lines expire in ten years. The terms of these commitments call for interest
to be charged at the then current prevailing rate, resulting in parity between the notional amount and the fair
value of the commitment. See Note 18, Financial Instruments with Off-Balance-Sheet Risk for additional
information regarding these commitments.
24. Fair Value Disclosures. ASC 820.10, Fair Value Measurements and Disclosures establishes a framework
for measuring the fair value of assets and liabilities. ASC 820.10 establishes a fair value hierarchy that
prioritizes the inputs to valuation techniques used to measure fair value into three broad levels. The fair
value hierarchy gives the highest priority to quoted prices in active markets for identical assets and liabilities
(Level 1) and the lowest priority to unobservable inputs (Level 3). The hierarchy maximizes the use of
observable inputs and minimizes the use of unobservable inputs by requiring that the most observable inputs
be used when available. Observable inputs are inputs that market participants would use in pricing the asset
or liability based on market data obtained from sources independent of the Company. Unobservable inputs
are inputs that are derived from assumptions based on management’s estimate of assumptions that market
participants would use in pricing the asset or liability based on the best information available under the
circumstances.
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2009 Annual Report
The hierarchy is broken down into the following three levels, based on the reliability of inputs:
Level 1: Unadjusted quotes prices in active markets for identical assets or liabilities that are
accessible at the measurement date.
Level 2: Significant other observable inputs other than Level 1 prices, such as quoted prices for
similar assets or liabilities, quoted prices in markets that are not active or other inputs that are
observable or can be corroborated by observable market data.
Level 3: Significant unobservable inputs for assets or liabilities that are derived from assumptions
based on management’s estimate of assumptions that market participants would use in pricing the
assets or liabilities.
The Company estimates the fair values of financial assets and liabilities using the following methods and
assumptions:
Securities available-for-sale: Available-for-sale securities are recorded at fair value on a recurring basis.
Fair values for securities are based on quoted market prices, where available. If quoted prices are not
available, fair values are based on quoted market prices of similar instruments or are determined by matrix
pricing, which is a mathematical technique widely used in the industry to value debt securities without
relying exclusively on quoted prices for the specific securities but rather by relying on the pricing
relationship or correlation among other benchmark quoted securities. Where no active market exists for a
security or other benchmark securities, fair value is estimated by the Company with reference to discount
margins for other high risk securities. Available-for-sale securities valued using quoted market prices of
similar instruments or that are valued using matrix pricing are classified as Level 2.
Mortgage servicing rights: The Company records MSRs at the lower of cost or estimated fair value. The
Company reviews the portfolio of MSRs each quarter end for evidence of impairment using discounted cash
flow techniques that utilize assumptions from brokers, when available, about factors such as mortgage
interest rates, discount rates, mortgage loan prepayment speeds, market trends and demand. The Company’s
MSR portfolio is subject to non-recurring fair value adjustments that are classified as Level 3.
Loans held for sale: Loans held for sale are carried at the lower of cost or estimated fair value on a loan
level basis and are subject to non-recurring fair value adjustments. Estimated fair value is determined based
on posted market prices for uncommitted loans and on firm purchase commitments from third party
investors for committed loans. Loans held for sale were carried at cost in the consolidated statements of
financial condition at December 31, 2009 and December 31, 2008, respectively.
Foreclosed real estate: Foreclosed real estate (“REO”) is comprised of commercial and residential real
estate obtained in partial or total satisfaction of loan obligations. REO acquired in settlement of indebtedness
is carried at the lower of the recorded investment in the loan or fair value less estimated cost to sell the
property. Fair value is determined based on appraisals by qualified licensed appraisers and is adjusted for
management’s estimates of costs to sell and holding period discounts. Subsequently, it may be necessary to
record non-recurring fair value adjustments, which are classified as Level 3.
Impaired loans: Loans considered impaired under FASB ASC 310, Receivables, are loans for which, based
on current information and events, it is probable that the creditor will be unable to collect all amounts due
according to the contractual terms of the loan agreement. Fair value adjustments for impaired loans are
recorded as either partial write downs based on observable market prices or current appraisal of the
collateral or full charge-off of the loan carrying value. Impaired loans are subject to non-recurring fair value
adjustments and all impaired loans are classified as Level 3.
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73
2009 Annual Report
The balances and levels of the assets measured at fair value on both a recurring and non-recurring basis as of
December 31, 2009 and 2008 are presented in the following table.
At December 31, 2009
Level 1 Level 2 Level 3 Total
Recurring valuation:
Securities available-for-sale $ - $ 45,399,735 $ - $ 45,399,735
Non-recurring valuation:
Mortgage servicing rights $ - $ - $ 10,298,437 $ 10,298,437
Foreclosed real estate 3,166,008 3,166,008
Loans held for sale 21,161,283 21,161,283
Impaired loans - - 7,623,172 7,623,172
Total Non-recurring $ - $ - $ 42,248,900 $ 42,248,900
At December 31, 2008
Level 1 Level 2 Level 3 Total
Recurring valuation:
Securities available-for-sale $ - $ 50,231,071 $ 713,849 $ 50,944,920
Non-recurring valuation:
Mortgage servicing rights $ - $ - $ 9,138,749 $ 9,138,749
Foreclosed real estate 2,793,875 2,793,875
Loans held for sale 24,214,907 24,214,907
Impaired loans - - 7,874,571 7,874,571
Total Non-recurring $ - $ - $ 44,022,102 $ 44,022,102
The following table presents changes in level 3 assets measured at fair value on a recurring basis for the
period ended December 31, 2009:
Securities
available-for-sale
Balance at December 31, 2008 $ 713,849
Total net gains ( losses) included in: -
Net income -
Other comprehensive income -
Purchases, sales and settlements, net -
Transfers in (out) of level 3 (713,849)
Balance at December 31, 2009 $ -
Net unrealized gains (losses) included in net income for
the period relating to assets held at December 31, 2009 $ -
The securities with recorded OTTI as of December 31, 2009 and 2008 that are classified as held-to-maturity
securities are not reflected in the table above because the Company does not record held-to-maturity
securities at fair value on a recurring or non-recurring basis. However, held-to-maturity securities are
analyzed each reporting period for potential impairment.
34
74
Selected Quarterly Financial Data (Unaudited)
Quarter Ended
December-09 September-09 June-09 March-09 December-08
Operating data:
Net interest income 3,427,842 3,526,933 3,393,004 3,151,299 3,239,025
Provision for loan losses 520,510 46,211 398,970 415,690 1,116,553
Net interest income after provision for loan losses 2,907,332 3,480,722 2,994,034 2,735,609 2,122,472
Non-interest income 3,182,808 5,066,829 3,915,178 3,487,944 2,621,874
Impairment charges (recovery of impairment) 27,000 138,000 (660,000) (400,000) 5,312,000
Non-interest expense 5,741,504 5,992,339 6,277,580 5,915,413 5,306,050
Income (loss) before taxes 321,636 2,417,212 1,291,632 708,140 (5,873,704)
Income tax expense (benefit) 175,763 931,415 501,670 295,976 (3,139,723)
Net income (loss) 145,873 1,485,797 789,962 412,164 (2,733,981)
Other comprehensive income (loss) 154,001 678,089 (461,659) (898,024) (616,366)
Total comprehensive income (loss) $ 299,874 $ 2,163,886 $ 328,303 $ (485,860) $ (3,350,347)
Net income (loss) available to common shareholders $ (329,256) $ 1,299,923 $ 597,826 $ 211,671 $ (2,733,981)
Per share data:
Income (loss) per share - diluted $ (0.06) $ 0.24 $ 0.11 $ 0.04 $ (0.50)
Weighted average shares outstanding - diluted 5,477,391 5,477,100 5,480,875 5,442,267 5,422,100
Income (loss) per share - basic $ (0.06) $ 0.24 $ 0.11 $ 0.04 $ (0.50)
Weighted average shares outstanding - basic 5,477,391 5,477,100 5,477,100 5,442,267 5,422,100
Book value per common share (at period end) $ 7.79 $ 7.80 $ 7.44 $ 7.20 $ 7.29
Balance sheet data (at period end):
Total assets $ 435,803,967 $ 457,657,601 $ 505,656,895 $ 521,063,461 $ 521,047,466
Total securities 54,376,737 59,291,632 55,730,603 58,301,657 62,484,186
Loans held for sale 21,161,283 23,321,583 28,275,423 30,326,942 24,214,907
Total loans 326,830,425 341,460,473 380,450,471 395,571,034 396,304,019
Total loans-adjusted 1 314,143,092 327,584,613 365,990,338 380,215,703 380,156,680
Allowance for loan losses (5,174,731) (5,025,366) (5,744,611) (5,684,688) (5,283,639)
Mortgage servicing rights, net 10,415,334 10,500,121 10,602,947 9,923,039 9,287,775
Foreclosed real estate, net 3,166,008 3,279,335 2,599,475 2,741,310 2,793,875
Servicing escrows 10,431,503 18,651,668 18,487,509 14,786,977 10,085,847
Brokered deposits 20,543,000 25,045,000 37,879,999 46,059,000 64,032,996
Total deposits 315,704,612 325,529,761 370,634,523 378,510,988 373,385,188
Borrowings 63,000,000 71,000,000 74,500,000 84,500,000 86,100,000
Equity 53,324,942 56,605,593 54,640,537 53,029,086 53,347,417
Financial ratios:
Equity to assets 12.24% 12.37% 10.81% 10.18% 10.24%
Total loans to deposits 103.52% 104.89% 102.65% 104.51% 106.14%
Allowance for loan losses to loans 1.58% 1.47% 1.51% 1.44% 1.33%
Allowance for loan losses to non-performing loans 67.88% 81.13% 69.90% 74.15% 67.10%
Non-performing loans to loans 2.33% 1.81% 2.16% 1.94% 1.99%
Non-performing loans to loans-adjusted 1 1.28% 0.52% 1.00% 0.95% 0.73%
Non-performing assets to total assets 2.48% 2.07% 2.14% 2.00% 2.05%
Non-performing assets to total assets-adjusted1 1.70% 1.12% 1.28% 1.25% 1.10%
Operating efficiency 86.9% 69.7% 85.9% 89.1% 90.5%
Return on average assets 0.13% 1.24% 0.61% 0.32% -2.14%
Return on average equity 1.05% 10.35% 5.90% 3.05% -24.79%
Net interest spread 2.92% 2.81% 2.47% 2.25% 2.31%
Net interest margin 3.26% 3.18% 2.83% 2.62% 2.70%
1
Adjustment excludes FHA/VA insured or guaranteed loans purchased from GNMA pools.
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2009 Annual Report
Item 9A. (T) Controls and Procedures
Under the supervision and participation of management, including the Chief Executive Officer and the Chief
Financial Officer, the Company carried out an evaluation of the effectiveness of the design and operation of
Magna’s disclosure controls and procedures pursuant to Exchange Act Rule13a-15 under the Securities Exchange
Act of 1934 (Exchange Act) as of the end of December 31, 2009. Based on that evaluation, the Chief Executive
Officer and the Chief Financial Officer concluded that the Company’s disclosures controls and procedures are
effective to ensure that information required to be disclosed by Magna in reports that Magna files or submits under
the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC’s
rules and forms, and that such information is accumulated and communicated to management to allow timely
decisions regarding required disclosures. Also, there were no changes in the Company’s disclosure controls or
internal controls over financial reporting during the fourth quarter of 2009 that have materially affected, or are
reasonably likely to materially affect, Magna’s internal control over financial reporting.
Management’s Report on Internal Control over Financial Reporting
Management is responsible for establishing and maintaining adequate internal control over financial reporting for
Magna Bank. Internal control over financial reporting is a process designed to provide reasonable assurance
regarding the reliability of financial reporting and the preparation of financial statements for external purposes in
accordance with generally accepted accounting practices.
Internal control over financial reporting includes those policies and procedures that pertain to the maintenance of
records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the
Company; provide reasonable assurance that transactions are recorded as necessary to permit preparation of
financial statements in accordance with generally accepted accounting principles, and that receipts and
expenditures of the Company are only being made in accordance with authorizations of management and directors
of the Company; and provide reasonable assurance regarding prevention or timely detection of unauthorized
acquisition, use, or disposition of the Company’s assets that could have a material effect on the financial
statements.
Management completed an assessment of Magna’s internal control over financial reporting as of December 31,
2009. This assessment was based on criteria for evaluating internal control over financial reporting established in
Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway
Commission. Based on this assessment, management concluded that Magna’s internal control over financial
reporting was effective as of December 31, 2009.
Any control system, no matter how well conceived and operated, can provide only reasonable, but not absolute,
assurance that the objectives of the control system are met. The design of a control system inherently has
limitations, and the benefits of controls must be weighed against their costs. Additionally, controls can be
circumvented by the individual acts of persons, the collusion of two or more persons, or by management override
of the control. Therefore, no assessment of a cost-effective system of internal controls can provide absolute
assurance that all control issues and instances of fraud, if any, will be detected.
This annual report does not include an attestation report of the Company’s registered public accounting firm
regarding internal control over financial reporting. Management’s report was not subject to attestation by the
Company’s registered public accounting firm pursuant to temporary rules of the Securities and Exchange
Commission that permit the Company to provide only Management’s report in this annual report.
By: /S/ Kirk P. Bailey By: /S/ David C. Wadlington
Kirk P. Bailey David C. Wadlington
Chairman and Chief Executive Officer Executive Vice President and Chief Financial
Officer
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2009 Annual Report
Item 10. Directors and Executive Officers and Corporate Governance
Information regarding directors and executive officers of Magna Bank is set forth in the following sections of Magna’s
definitive proxy statement dated April 9, 2010 and incorporated herein by reference (i) Proposal 1: Election of Directors-
Nominees (ii) Proposal 1: Election of Directors-Continuing Directors, and (iii) Information with respect to executive
officers and compensation matters-Senior Executive Officers of the Company. Information regarding procedures for
nominations of Directors is set forth in Proposal 1: Election of Directors-General in Magna’s definitive proxy statement
dated April 9, 2010 and incorporated herein by reference.
Audit Committee and Financial Expert
Information regarding Magna’s separate standing Audit Committee, its members and financial experts is set forth in the
section of Magna’s definitive proxy statement for the 2010 Annual Meeting entitled Election of Directors: Committee
Membership, incorporated herein by reference.
Magna’s Board of Directors is required to determine whether it has at least one audit committee financial expert and that
the expert is independent. An audit committee financial expert is a committee member who has an understanding of
generally accepted accounting principles and financial statements and has the ability to assess the general application of
these principles in connection with the accounting for estimates, accruals and reserves. Additionally, this individual
should have experience in preparing, auditing, analyzing or evaluating financial statements that present the breadth and
level of complexity of accounting issues present in Magna’s financial statements. The member should also have an
understanding of internal control over financial reporting as well as an understanding of audit committee functions.
The Board has determined that Harry L. Smith, CPA meets the requirements of an audit committee financial expert. The
Board has also determined that members of the Audit Committee are independent. Additional information regarding the
members of the Audit Committee is set forth in the sections “Nominees” and “Continuing Directors” Magna’s definitive
proxy statement dated April 9, 2010 and incorporated herein by reference.
Code of Ethics for Senior Financial Management
Magna has adopted a code of ethics as well as a conflict of interest policy that is applicable to every employee. These
policies are available for review at the Company’s website at www.magnabank.com under the “Corporate Governance”
section.
Item 11. Executive Compensation
Information regarding compensation of directors and executive officers of Magna is set forth in the following sections of
Magna’s definitive proxy statement dated April 9, 2010 and incorporated herein by reference: Director Compensation;
Executive Compensation; Compensation Discussion and Analysis, Compensation Committee Report, Summary
Compensation Table, Equity Incentive Plan Awards Outstanding at Fiscal Year End; Option Exercises and Stock Vested;
and Pension Benefits.
Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
Information regarding ownership of Magna’s common stock by Magna’s directors, executive officers, and certain other
shareholders and shares authorized under plans is set forth in the sections entitled Magna Stock Ownership of Directors,
Officers and 5% Owners and Equity Compensation Plans Approved by Shareholders of Magna’s definitive proxy
statement dated April 9, 2010 and incorporated herein by reference.
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2009 Annual Report
Director Independence
Item 13. Certain Relationships and Related Transactions, and Director Independence
certain relationships and transactions between Magna and management is forth in in section
Information regarding certain relationships and transactions between Magna and management is setset forth the the section
of Directors: Director Independence of Magna’s definitive proxy statement dated April 9, 2010 is
entitled Election of Directors: Director Independence of Magna’s definitive proxy statement dated April 9, 2010 andand is
incorporated herein by reference.
Item 14. Principal Account Fees and Services
Information regarding principal accounting fees and services and the Audit Committee’s pre-approval policies and
Information regarding principal accounting fees and services and the Audit Committee’s pre-approval policies and
procedures relating to audit and non-audit services provided by the Company’s independent registered public accounting
procedures relating to audit and non-audit services provided by the Company’s independent registered public accounting
firm is set forth in the section entitled Audit Committee Report of Magna’s definitive proxy statement dated April 9, 2010
firm is set forth in the section entitled Audit Committee Report of Magna’s definitive proxy statement dated April 9, 2010
and is incorporated herein by reference.
and is incorporated herein by reference.
Item 15. Exhibits, Financial Statement Schedules, and Reports on Form 8-K
Exhibits, Financial Statement Schedules, and Reports on Form 8-K
(a)(1)
(a)(1) The following audited consolidated financial statements of Magna Bank, are filed as part of this report:
The following audited consolidated financial statements of Magna Bank, are filed as part of this report:
Description
Description Page Page
Reports of Independent Accountants ....................................................................................................................
Reports of Independent Accountants................................................................................................. 40
Consolidated Statements of Financial Condition December 31, 2009 and 2008 ..............................................
Consolidated Statements of Financial Condition - -December 31, 2009 and 2008 ........................... 41
Consolidated Statements of Operations Years ended December 31, 2009, 2008 and 2007 .......... 42
Consolidated Statements of Operations - - Years ended December31, 2009, 2008 and 2007 .............................
Consolidated Statements of Changes in Shareholders’ Equity Years ended
Consolidated Statements of Changes in Shareholders’ Equity --Years ended
December 31, 2009, 2008 and 2007 .....................................................................................................................
December 31, 2009, 2008 and 2007 ................................................................................................. 43
Consolidated Statements of Cash Flows Years ended December 31, 2009, 2008 and 2007 ............................
Consolidated Statements of Cash Flows - - Years ended December31, 2009, 2008 and 2007.......... 44
Notes Consolidated Financial Statements..................................................................................... 45
Notes toto Consolidated Financial Statements ........................................................................................................
(a)(2)
(a)(2) All schedules the Consolidated Financial Statements required by by the applicable accounting regulation
All schedules to to the Consolidated Financial Statements requiredthe applicable accounting regulation are are
included in the consolidated financial statements or in the notes thereto.
included in the consolidated financial statements or in the notes thereto.
(a)(3) Exhibits:
(a)(3) Exhibits:
Exhibit No.
Exhibit No. Description
Description
3(i)
3(i) Charter of Registrant charter of Registrant (filed herewith)
Amended and restated(incorporated by reference to exhibit 3(i) of Magna Bank’s amended report
3(ii) on Form 10-K filed June charter adopted at the annual meeting of shareholders held May 12,
Amendent to Registrant’s19, 2001)
3(ii) 2008 (filed herewith)
Amendment to Registrant’s charter adopted at the special meeting of shareholders held December
3(iii) 19, 2008 (incorporated by reference to exhibit the of Magna Bank’s shareholders held December
Amendment to Registrant’s charter adopted at 3(ii)special meeting of report on Form 10-K filed
19, 2008 (incorporated by reference to exhibit 3(ii) of Magna Bank’s report on Form 10-K filed
March 31, 2009)
3(iii) March 31, 2009)
By-laws of Registrant, as amended (incorporated by reference to exhibit 3(iii) of Magna Bank’s
3(iv) report on Form 10-K filed March 31, 2009) (filed herewith)
Amended and restated by-laws of Registrant
3(v)
3(iv) Certificate of designation of fixed rate non-cumulative perpetual preferred stock, Series A
Certificate of designation of fixed rate non-cumulative perpetual preferred stock, Series A (incor-
(incorporated by reference to exhibit of Magna Bank’s report on FormForm 10-K filed March 31,
porated by reference to exhibit 3(iv) 3(ii) of Magna Bank’s report on 10-K filed March 31, 2009)
3(v)
3(vi) 2009)
Certificate of designation of fixed rate non-cumulative perpetual preferred stock, Series B (incor-
3(vi) Certificate of designation of fixed rate non-cumulative perpetual preferred filed Series 31,
porated by reference to exhibit 3(v) of Magna Bank’s report on Form 10-Kstock, March B 2009)
Amendment 4 to By-Laws of Registrant dated January 13, 2006, (incorporated by reference to
4(i) Form of common stock certificate (incorporated by reference to exhibit 4(i) of Magna Bank’s
4(i) exhibit 3(iii) of Magna Bank’s report on Form 10K filed March 28, 2006)
amended report on Form 10-K filed June 19, 2001)
Form of common stock certificate (incorporated by reference to exhibit 4(i) of Magna Bank’s
4(ii) Form of Warrant issued to Treasury (incorporated by reference to exhibit 4(ii) of Magna Bank’s
4(ii) amended report on Form 10-K filed June 19, 2001)
10(i) Form on Form 10-K filed Treasury
report of Warrant issued toMarch 31, 2009)
10(i) Amended and restated Buy/Sell and Shareholders Agreement (incorporated by reference to (incor-
Second Amended and restated Buy/Sell and Shareholders Agreement dated January 9, 2006exhibit
10(ii) 10(i) of Magna Bank’s exhibit 10(ii) of Magna 10-K filed June Form 10K
porated by reference to amended report on FormBank’s report on19, 2001) filed March 28, 2006)
10(ii) Amended and restated Equity Incentive Plan approved December 19, 2008 (incorporated by refer-
ence to exhibit 10(v) of Magna Bank’s report on Form 10-K filed March 31, 2009)
10(iii) Amended and restated Deferred Compensation Plan for Executives (incorporated by reference to
exhibit 10(vii) of Magna Bank’s report on Form 10-K filed March 31, 2009)
38
78
2009 Annual Report
Item 13. Certain Relationships Description Transactions, and Director Independence
Exhibit No. and Related
10(iv) Certificate of Membership-Federal Home Loan Bank and management is set forth reference to
Information regarding certain relationships and transactions between Magna of Cincinnati (incorporated by in the section
exhibit 10(iv) of Magna Bank’s amended report on Form 10-K filed June 19, April
entitled Election of Directors: Director Independence of Magna’s definitive proxy statement dated 2001) 9, 2010 and is
10(v) Lease agreement, including addendum, between Magna Bank and 6525 Quail Hollow Road GP,
incorporated herein by reference.
6525 Quail Hollow Suites 107, 300 and 513, Memphis, TN (incorporated by reference to exhibit
Item 14. Principal Account Fees and Servicesreport on Form 10-K filed March 31, 2006)
10(v) of Magna Bank’s
10(vi) Lease accounting fees and services and the Audit E. Crye/Richard H. Leike, 1440 Shelby
Information regarding principalagreement between Magna Bank and HaroldCommittee’s pre-approval policies and Drive
#1, Memphis, TN (incorporated by by the Company’s 10(vii) of Magna Bank’s amended report
procedures relating to audit and non-audit services provided reference to exhibit independent registered public accounting
on Form 10-K filed June 19, 2001)
firm is set forth in the section entitled Audit Committee Report of Magna’s definitive proxy statement dated April 9, 2010
is incorporated herein by reference. between Magna Bank and Harold E. Crye Living Trust, 5109 Peter Taylor Park
and 10(vii) Lease agreement
Drive, Nashville, TN (incorporated by reference to exhibit 10(viii) of Magna Bank’s amended
report on Form Schedules, and Reports
Item 15. Exhibits, Financial Statement10-K filed June 19, 2001) on Form 8-K
10(viii) Lease agreement between Magna Bank and Crye-Leike Property Management, Inc., 2868 Sum-
(a)(1) The following audited consolidated financial statements of Magna Bank, are filed as part of this report:
mer Oaks Suite 115, Memphis, TN (filed herewith)
10(ix) Lease agreement between Magna Bank and Harold E. Crye, 1306 Goodman Road Suite 109,
Description Page
Southaven, MS (filed herewith)
Reports of Independent Accountants ....................................................................................................................
10(x) Amendment to lease agreement between Magna Bank and Harold E. Crye Living Trust, 383
Consolidated Statements of Financial Condition - December 31, 2009 and 2008 ..............................................
Johnny Cash Pkwy, Hendersonville, TN (filed herewith)
Consolidated Statements of Operations - Years ended December 31, 2009, 2008 and 2007 .............................
10(xi) Lease agreement between Magna Bank and Harold E. Crye/Richard H. Leike, 894 Germantown
Consolidated Statements of Changes in Shareholders’ Equity - Years ended
Parkway Suite 1, Memphis, TN (incorporated by reference to exhibit 10(xii) of Magna Bank’s
December 31, 2009, 2008 and 2007 .....................................................................................................................
amended report on Form 10-K filed June 19, 2001)
Consolidated Statements of Cash Flows - Years ended December 31, 2009, 2008 and 2007 ............................
10(xii) Ground lease agreement between Magna Bank and WMT Germantown LLC, 1774 Plantation
Notes to Consolidated Financial Statements ........................................................................................................
Road, Germantown, TN 38138 (incorporated by reference to exhibit 10(xv) of Magna Bank’s
(a)(2) report Consolidated filed March 28, 2008)
All schedules to the on Form 10-K Financial Statements required by the applicable accounting regulation are
10(xiii) Ground lease agreement between Magna notes thereto.
included in the consolidated financial statements or in theBank and Simon Property Group, LP, Oak Court Mall,
Memphis, TN 38117 (incorporated by reference to exhibit 10(xvi) of Magna Bank’s report on
(a)(3) Exhibits: Form 10-K filed March 28, 2008)
10(xiv) Ground lease agreement between Magna Bank and SWC Poplar FHI, LLC, Southwest corner of
Exhibit No. Poplar Avenue and Forest Hill Irene Road, Germantown, TN 38138 (incorporated by reference to
Description
3(i) Charter of Registrant (incorporated by reference 10-K filed March 28, 2008)
exhibit 10(xvii) of Magna Bank’s report on Formto exhibit 3(i) of Magna Bank’s amended report
10(xv) Separation Agreement, General Release and Waiver between Magna Bank and William C. Menkel
on Form 10-K filed June 19, 2001)
3(ii) Amendment by reference to report on Form 8-K special meeting of 2008)
(incorporatedto Registrant’s charter adopted at the filed September 19,shareholders held December
10(xvi) 19, 2008 (incorporated by reference to exhibit 3(ii) of Magna Bank’s report Department and
Letter agreement and securities purchase agreement between U.S. Treasury on Form 10-K filed
Magna Bank dated December 23, 2008 (incorporated by reference to exhibit 10(xxii) of Magna
March 31, 2009)
3(iii) Bank’s report on Form 10-K filed March 31, 2009) reference to exhibit 3(iii) of Magna Bank’s
By-laws of Registrant, as amended (incorporated by
10(xvii) report on Form 10-K filed March Bank and
Lease agreement between Magna 31, 2009) Harold E. Crye Living Trust, 1187 Old Hickory Blvd.,
3(iv) Certificate TN (filed herewith)
Brentwood,of designation of fixed rate non-cumulative perpetual preferred stock, Series A
14 (incorporated (incorporated exhibit 3(ii) to exhibit 14 of Magna on Form 10-K filed March 31,
Code of ethicsby reference toby reference of Magna Bank’s reportBank’s report on Form 10-K
3(v) filed March 31, 2006)
2009)
21(i)
3(vi) Subsidiaries of the Registrant (incorporated by reference to exhibit 21(i) of Magna Bank’s amend-
Certificate of designation of fixed rate non-cumulative perpetual preferred stock, Series B
Amendment 4 to 10-K filed Registrant dated
ed report on FormBy-Laws ofJune 19, 2001) January 13, 2006, (incorporated by reference to
31(i)
4(i) exhibit 3(iii) of Officer’s rule report on certifications (filed herewith)
Chief ExecutiveMagna Bank’s 13a-14(a) Form 10K filed March 28, 2006)
31(ii) Chief Financial Officer’s rule 13a-14(a) certifications (filed herewith) 4(i) of Magna Bank’s
Form of common stock certificate (incorporated by reference to exhibit
32(i)
4(ii) amended report Officer’s §1350 certification of appropriateness of financial statements and dis-
Chief Executive on Form 10-K filed June 19, 2001)
10(i) Form of contained in report on form 10-K (filed herewith)
closures Warrant issued to Treasury
32(ii) Amended and restated Buy/Sell and Shareholders Agreement (incorporated statements and disclo-
Chief Financial Officer’s §1350 certification of appropriateness of financial by reference to exhibit
10(ii) 10(i) of Magna in report on form 10-K on Form 10-K filed June 19, 2001)
sures contained Bank’s amended report (filed herewith)
99(i) Certifications of Principal Executive Officer pursuant to C.F.R. §30.15 (filed herewith)
99(ii) Certifications of Principal Financial Officer pursuant to C.F.R. §30.15 (filed herewith)
99(iii) Proxy Statement for the Registrant‘s Annual Meeting of Shareholders of May 10, 2010 (filed
38
herewith)
79
2009 Annual Report
Item Exhibits.
(b) 13. Certain Relationships and Related Transactions, and Director Independence
Information regarding certain relationships and transactions between Magna and management is set forth in the section
The exhibits listed in Item 15(a)(3) above have been filed as Exhibits to Form 10-K or are otherwise
entitled Election of Directors: Director Independence of Magna’s definitive proxy statement dated April 9, 2010 and is
incorporated reference.
incorporated herein byby reference as indicated above.
Item Financial Statement Schedules. Services
(c) 14. Principal Account Fees and
See Item 15(a)(2) above.
Information regarding principal accounting fees and services and the Audit Committee’s pre-approval policies and
procedures relating to audit and non-audit services provided by the Company’s independent registered public accounting
firm is set forth in the section entitled Audit Committee Report of Magna’s definitive proxy statement dated April 9, 2010
and is incorporated herein by reference.
Item 15. Exhibits, Financial Statement Schedules, and Reports on Form 8-K
(a)(1) The following audited consolidated financial statements of Magna Bank, are filed as part of this report:
Description Page
Reports of Independent Accountants ....................................................................................................................
Consolidated Statements of Financial Condition - December 31, 2009 and 2008 ..............................................
Consolidated Statements of Operations - Years ended December 31, 2009, 2008 and 2007 .............................
Consolidated Statements of Changes in Shareholders’ Equity - Years ended
December 31, 2009, 2008 and 2007 .....................................................................................................................
Consolidated Statements of Cash Flows - Years ended December 31, 2009, 2008 and 2007 ............................
Notes to Consolidated Financial Statements ........................................................................................................
(a)(2) All schedules to the Consolidated Financial Statements required by the applicable accounting regulation are
included in the consolidated financial statements or in the notes thereto.
(a)(3) Exhibits:
Exhibit No. Description
3(i) Charter of Registrant (incorporated by reference to exhibit 3(i) of Magna Bank’s amended report
on Form 10-K filed June 19, 2001)
3(ii) Amendment to Registrant’s charter adopted at the special meeting of shareholders held December
19, 2008 (incorporated by reference to exhibit 3(ii) of Magna Bank’s report on Form 10-K filed
March 31, 2009)
3(iii) By-laws of Registrant, as amended (incorporated by reference to exhibit 3(iii) of Magna Bank’s
report on Form 10-K filed March 31, 2009)
3(iv) Certificate of designation of fixed rate non-cumulative perpetual preferred stock, Series A
(incorporated by reference to exhibit 3(ii) of Magna Bank’s report on Form 10-K filed March 31,
3(v) 2009)
3(vi) Certificate of designation of fixed rate non-cumulative perpetual preferred stock, Series B
Amendment 4 to By-Laws of Registrant dated January 13, 2006, (incorporated by reference to
4(i) exhibit 3(iii) of Magna Bank’s report on Form 10K filed March 28, 2006)
Form of common stock certificate (incorporated by reference to exhibit 4(i) of Magna Bank’s
4(ii) amended report on Form 10-K filed June 19, 2001)
10(i) Form of Warrant issued to Treasury
Amended and restated Buy/Sell and Shareholders Agreement (incorporated by reference to exhibit
10(ii) 10(i) of Magna Bank’s amended report on Form 10-K filed June 19, 2001)
38
80
2009 Annual Report
Item 13. Certain Relationships and Related Transactions, and Director Independence
SIGNATURES
Information regarding certain relationships and transactions between Magna and management is set forth in the section
entitled Election of Directors: Director Independence of Magna’s definitive proxy statement dated April 9, 2010 and is
Pursuant to the requirements of Sections 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly
incorporated herein by reference.
caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
Item 14. Principal Account Fees and Services
Magna Bank
Information regarding principal accounting fees and services and the Audit Committee’s pre-approval policies and
(Registrant)
procedures relating to audit and non-audit services provided by the Company’s independent registered public accounting
firm is set forth in the section entitled Audit Committee Report of Magna’s definitive proxy statement dated April 9, 2010
and is incorporated herein by reference. By: /S/ Kirk P. Bailey
Kirk P. Bailey, Chairman, President, & Chief Executive Officer
Item 15. Exhibits, Financial Statement Schedules, and Reports on Form 8-K
Date: March 31, 2010
(a)(1) The following audited consolidated financial statements of Magna Bank, are filed as part of this report:
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following
persons on behalf of Description and in the capacities indicated on the 31st day of March 2010.
the Registrant Page
Reports of Independent Accountants ....................................................................................................................
Consolidated Statements of Financial Condition - December 31, 2009 and 2008 ..............................................
/S/ Thomas 2009, 2008 and 2007 .............................
/S/ Kirk P.Consolidated Statements of Operations - Years ended December 31,C. Farnsworth, III
Bailey
Consolidated Statements of Changes in Shareholders’ Equity - Years ended
Kirk P. Bailey Thomas C. Farnsworth, III
Chairman,December 31, 2009, 2008 and 2007 .....................................................................................................................
President, Chief Executive Officer and Director
Director Consolidated Statements of Cash Flows - Years ended December 31, 2009, 2008 and 2007 ............................
Notes to Consolidated Financial Statements ........................................................................................................
/S/ Ronald W. Stimpson /S/ Richard H. Leike
(a)(2) All schedules to the Consolidated Financial Statements required by the applicable accounting regulation are
Ronald W. Stimpson Richard H. Leike
included in the consolidated financial statements or in the notes thereto.
Vice Chairman and Director Director
(a)(3) Exhibits:
/S/ J. Kevin Adams /S/ Rudi E. Scheidt
J. Kevin Adams
Exhibit No. Description Rudi E. Scheidt, Jr.
Director
3(i) Director
Charter of Registrant (incorporated by reference to exhibit 3(i) of Magna Bank’s amended report
on Form 10-K filed June 19, 2001)
3(ii) Amendment to Registrant’s charter adopted at the special meeting of shareholders held December
/S/ Edwin W. Barnett /S/ Harry L. Smith
19, 2008 (incorporated by reference to exhibit 3(ii) of Magna Bank’s report on Form 10-K filed
Edwin W. Barnett March 31, 2009) Harry L. Smith
Director
3(iii) Director
By-laws of Registrant, as amended (incorporated by reference to exhibit 3(iii) of Magna Bank’s
report on Form 10-K filed March 31, 2009)
3(iv) Certificate of designation of fixed rate non-cumulative perpetual preferred stock, Series A
/S/ Dr. James H. Beaty /S/ David C. Wadlington
(incorporated by reference to exhibit 3(ii) of Magna Bank’s report on Form 10-K filed March 31,
3(v)
Dr. James H. Beaty 2009) David C. Wadlington
3(vi)
Director Certificate of designation of fixed rate non-cumulative perpetual preferred stock, Series B
Executive Vice President and Chief Financial Officer
Amendment 4 to By-Laws of Registrant dated January 13, 2006, (incorporated by reference to
4(i) exhibit 3(iii) of Magna Bank’s report on Form 10K filed March 28, 2006)
/S/ Harold E. Crye Form of common stock certificate (incorporated by reference to exhibit 4(i) of Magna Bank’s
/S/ Arthur N. Seessel, III
4(ii)
Harold E. Crye amended report on Form 10-K filed June 19, 2001)
Arthur N. Seessel, III
10(i)
Director Form of Warrant issued to Treasury Director
Amended and restated Buy/Sell and Shareholders Agreement (incorporated by reference to exhibit
10(ii) 10(i) of Magna Bank’s amended report on Form 10-K filed June 19, 2001)
38
81
Board of Directors/Senior Officers
Board of Directors/Senior Officers
Board of Directors
Board of Directors Senior Officers
Senior Officers
Board of Directors
J. of Directors
BoardKevin Adams Officers
Senior Officers
Senior Cochran
Chief Executive Officer, CB Richard Ellis
J. Kevin Adams Jim B.
Jim B. Cochran
J. Kevin Adams Senior Vice President, Commercial Lending
Chief Executive Officer, CB Richard Ellis Ellis
Chief Executive Officer, CB Richard Senior Vice President, Commercial Lending
Jim B. Cochran
J. Kevin Adams Jim B. Cochran
Kirk P. Bailey Senior Vice President, Commercial Lending
Officer, CB Richard Ellis
Chief Executive President, & Chief Executive Officer, Senior Vice President, Commercial Lending
Stephen W. Crocker
KirkChairman,
P. Bailey
Kirk P. Bailey Stephen W. Crocker
Magna Bank Senior Vice President, Information Technology
Chairman, President, & Chief Executive Officer, Senior Vice President, Information Technology
Stephen W. Crocker
KirkChairman, President, & Chief Executive Officer,
P. Bailey Stephen W. Crocker
Magna Bank
MagnaW. Barnett Senior Vice President, Information Technology
Edwin Bank
Chairman, President, & Chief Executive Officer, Anne Vice President,
Senior B. Davenport Information Technology
Anne B. Davenport
Executive Vice President, Chief Compliance and
Magna Bank
Chief Executive Officer, Barnett Group
Edwin W. Barnett
Edwin W. Barnett Anne B. Vice President, Chief Compliance and
ExecutiveDavenport
Risk B. Davenport
Anne Officer President, Chief Compliance and
Executive Vice
Chief Executive Officer, Barnett Group
Chief Executive Officer, Barnett Group Risk Officer
Edwin W. Barnett
Dr. James Beaty Executive Vice President, Chief Compliance and
Risk Officer
Orthopedic Officer, & Chief of Staff,
Chief Executive SurgeonBarnett Group Campbell
Dr. James Beaty
Lisa G. Foley
Risk Officer
Dr. James Beaty
Clinic Lisa G. Foley President, Retail Banking Manager
Executive Vice
Orthopedic Surgeon & Chief of Staff, Campbell
Orthopedic Surgeon & Chief of Staff, Campbell Clinic Lisa G. Foley
Executive Vice President, Retail Banking Manager
Dr. James Beaty
Clinic Lisa G. Foley President, Retail Banking Manager
Executive Vice
Orthopedic E. Crye & Chief of Staff, Campbell Clinic
Harold Surgeon Holly F. Vice President, Retail Banking Manager
ExecutiveBronson
Harold E. CryeCrye-Leike, Inc.
President, Senior Bronson
Holly F.Vice President, Private Banking Group
Harold E. Crye
President, Crye-Leike, Inc. Holly F. Bronson
Senior Vice President, Private Banking Group
Harold E. CryeCrye-Leike, Inc.
President, Senior Bronson
Holly F.Vice President, Private Banking Group
Lisa W. Reid
Thomas C. Farnsworth,
President, Crye-Leike, Inc. III Senior Vice President, Private Banking Group
Thomas C. Farnsworth, III Investment Company
President, Farnsworth Executive Vice
Lisa W. Reid President, Mortgage Production
Thomas C. Farnsworth, III Lisa W. Reid
President, Farnsworth Investment Company Manager
Executive Vice President, Mortgage Production Manager
Thomas C. Farnsworth, III Investment Company
President, Farnsworth Executive Vice
Lisa W. Reid President, Mortgage Production
Richard H. Leike
President, Farnsworth Investment Company Manager
Executive Vice President, Mortgage Production Manager
Vice President,
Richard H. Leike Crye-Leike, Inc.
Richard H. Leike
Edward L. Simpson
Edward L. Simpson
Vice Vice President, Crye-Leike, Inc.
President, Crye-Leike, Inc. Executive Vice President, Chief Lending Officer
Executive Vice President, Chief Lending Officer
Richard H. Leike Edward L. Simpson
Edward L. Simpson
Rudi E. Scheidt, Jr.
Vice General Partner, Commissum Capital Management,
President, Crye-Leike, Inc. Vice President, Chief Lending Officer
ExecutiveVice President, Chief Lending Officer
Executive Stallworth
RudiRudi E. Scheidt, Jr.
E. Scheidt, Jr. B. Frank
B. Frank Stallworth
LLC
General Partner, Commissum Capital Management, LLC Vice President, Commercial Real Estate
ExecutiveVice President, Commercial Real Estate
Executive Stallworth
RudiGeneral Partner, Commissum Capital Management,
E. Scheidt, Jr. B. Frank
B. Frank Stallworth
LLC
General Partner, Commissum Capital Management, LLC Executive Vice President, Commercial Real Estate
Executive Vice President, Commercial Real Estate
Arthur N. Seessel, III III
Arthur N. Seessel, Nick R. Sutton
Nick R. Sutton
Private Investor Senior Vice President, Residential Construction
Private Investor Nick Vice President, Residential Construction Lending
SeniorR. Sutton
Arthur N. Seessel,
Arthur N. Seessel, III III Nick R. Sutton
Lending
Private Investor Senior Vice President, Residential Construction
Private Investor
Harry L. Smith Senior Vice President, Residential Construction Lending
Harry L. Smith Lending
David C. Wadlington
Private Investor David C. Wadlington
Private Investor
Harry L. Smith Executive Vice President and
Executive Vice President and
Harry L. Smith David C. Wadlington
Private Investor David C. Wadlington
Chief Financial Officer
Private InvestorStimpson
Ronald W. Chief Financial Officer
Executive Vice President and
Ronald W. Stimpsonof the Board, Magna Bank Executive Vice President and
Vice-Chairman Chief Financial Officer
Vice-Chairman Stimpson
Ronald W. of the Board, Magna Bank Chief Financial Officer
Ronald W. Stimpsonof the Board, Magna Bank
Vice-Chairman
Vice-Chairman of the Board, Magna Bank
6
6
82
2009 Annual Report
Item 13. Certain Relationships and Related Transactions, and Director Independence Offices
Corporate Information Mortgage Origination
Magna and management is set forth in the section
Information regarding certain relationships and transactions betweenMemphis Region
Administrative Offices
6525 Election of Directors: Director
entitledQuail Hollow Road, Suite 513 Independence of Magna’s definitive proxy statement dated April 9, 2010 and is
• 6525 Quail Hollow Road, Suite 300
herein by
incorporatedTN 38120reference.
Memphis, Memphis, TN 38120
(901) 259-5600 (toll free 888-653-1888) • 3565 Ridge Meadow Pkwy., Suite 101
Item 14. Principal Account Fees and Services Memphis, TN 38115
Information regarding principal accounting fees and services and the Audit Committee’s pre-approval policies and
Annual Meeting of Shareholders • 2868 Summer Oaks Dr., Suite 115
procedures relating to audit and non-audit services provided by the Company’s independent registered public accounting
The Annual Meeting of Shareholders of Bartlett, TN 38134
firm is set forth in the section entitled Audit Committee Report of Magna’s definitive proxy statement dated April 9, 2010
Magna Bank will be held Monday, May 10, 2010 at 10:30 • 585 S. Perkins
and is incorporated herein by reference.
a.m., local time, in the Ambassador Room at the Embassy Memphis, TN 38117
• 3030
Suites Hotel, 1022 South Shady Grove Road, Memphis,Reports on Form 8-KForest Hill Irene
Item 15. Exhibits, Financial Statement Schedules, and
Tennessee 38120. Germantown, TN 38138
The following audited consolidated financial statements of Magna Bank, are filed as part of 109
All shareholders are cordially invited to attend.
(a)(1) • 1306 Goodman Rd., Suitethis report:
Southaven, MS 38671
Investor Information Description Arkansas Region Page
Reports of Independent Vice President
Ms. Anne Davenport, ExecutiveAccountants ....................................................................................................................
• 11600 Kanis Rd., Suite 300
of Investor Statements Little Rock, AR 72211
ManagerConsolidatedRelations of Financial Condition - December 31, 2009 and 2008 ..............................................
6525 Quail Hollow Road, Suite 513Operations - Years ended December 3400 John F. Kennedy Blvd., Suite B
Consolidated Statements of • 31, 2009, 2008 and 2007 .............................
Memphis, TN 38120 Statements of Changes in Shareholders’ Equity - Years ended
Consolidated N. Little Rock, AR 72116
• 4000 Highway 5 N., Suite 5
December 31, 2009, 2008 and 2007 .....................................................................................................................
Transfer Agent
Consolidated Statements of Cash Flows - Years ended DecemberBryant, AR 72022 2007 ............................
31, 2009, 2008 and
Notes to Consolidated
Registrar & Transfer CompanyFinancial Statements ........................................................................................................
• 1280 East Stearns St.
Investor Relations Dept. Fayetteville, AR 72703
(a)(2) Middle Tennessee applicable accounting regulation are
All schedules to the Consolidated Financial Statements required by the Region
10 Commerce Drive
consolidated financial statements or in the notes thereto.Old Hickory Blvd., Suite 100
included in the07016
Cranford, New Jersey • 1187
(800) 368-5948 Brentwood, TN 37027
(a)(3) Exhibits: • 383 Johnny Cash Pkwy.
Independent Accountants Hendersonville, TN 37075
Exhibit No. Description
Horne LLP • 1285 N. Mount Juliet Rd.
3(i) Charter of Registrant (incorporated by reference to exhibit 3(i) of Magna Bank’s amended report
Memphis, Tennessee Mt. Juliet, TN 37122
on Form 10-K filed June 19, 2001)
• 206A Cool Springs Blvd., Suite 106
3(ii) Amendment to Registrant’s charter adopted at the special meeting of shareholders held December
Magna (incorporated by reference to exhibit 3(ii) of Magna Bank’s report on Form 10-K filed
The deposit accounts of19, 2008Bank Franklin, TN 37067
are FDIC insured. March 31, 2009) • 1139 NW Broad St.
Magna Bank is an Equal Housing Lender and as amended (incorporated Murfreesboro, TN 37129 of Magna Bank’s
3(iii) By-laws of Registrant, by reference to exhibit 3(iii)
an Equal Opportunity Employer. Form 10-K filed March 31, 2009) • 599 Sam Ridley Pkwy. West
report on
3(iv) Smyrna, TN 37167
Certificate of designation of fixed rate non-cumulative perpetual preferred stock, Series A
Office Locations (incorporated by reference to exhibit 3(ii)Southeast Tennessee Region
of Magna Bank’s report on Form 10-K filed March 31,
Financial Centers
3(v) 2009) • 4627 North Lee Hwy.
• 6525 Quail Hollow Rd., Suite 107
3(vi) Cleveland, TN 37312
Certificate of designation of fixed rate non-cumulative perpetual preferred stock, Series B
Memphis, TN 38120 • 580 S. Congress Pkwy.
Amendment 4 to By-Laws of Registrant dated January 13, 2006, (incorporated by reference to
•
4(i) 894 N. Germantown Parkway, Suite 4 Bank’s report on Form 10K filed March 28, 2006)
exhibit 3(iii) of Magna Athens, TN 37303
Cordova, TN 38018 of common stock certificate (incorporated by reference to exhibit 4(i) of Magna Bank’s
Form • 1201 Market St.
•
4(ii) 1264 Germantown Road report on Form 10-K filed June 19, 2001)
amended Chattanooga, TN 37402
10(i) Germantown, TN 38138Warrant issued to Treasury
Form of • 1510 Gunbarrel Rd.
• 4445 Poplar Avenue Agreement (incorporated
Amended and restated Buy/Sell and ShareholdersChattanooga, TN 37421 by reference to exhibit
10(ii) Memphis, TN 38117 of Magna Bank’s amended report on Form 10-K filed June 19, 2001)
10(i)
• 9057 Poplar Ave.
Germantown, TN 38138
38
83
Cordova Forest Hill Oak Court
894 N. Germantown Pkwy 9057 Poplar Avenue 4445 Poplar Avenue
Cordova, TN 38018 Germantown, TN 38138 Memphis, TN 38117
901.624.9469 901.309.4990 901.309.4960
Quail Hollow Wolf River
6525 Quail Hollow Road 1264 Germantown Road
Memphis, TN 38120 Germantown, TN 38138
901.259.5600 901.309.4940
MAGNA BANK Magna Means More
®
MEMBER
FEDERAL DEPOSIT INSURANCE CORPORATION
