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EX-31 - CENTRAL VIRGINIA BANKSHARES INCex311.htm
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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

 

FORM 10-Q

 

 

x

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934

 

 

For the quarterly period ended September 30, 2009

 

OR

 

 

[  ]

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934

 

 

For the transition period from ____________ to _____________

 

Commission file number: 000-24002

 

CENTRAL VIRGINIA BANKSHARES, INC.

(Exact name of registrant as specified in its charter)

 

Virginia

(State or other jurisdiction of

incorporation or organization)

 

54-1467806

(I.R.S. Employer

Identification No.)

2036 New Dorset Road, Post Office Box 39

Powhatan, Virginia

(Address of principal executive offices)

 

23139

(Zip Code)

 

 

 

Registrant’s telephone number, including area code: (804) 403-2000

 

Not Applicable

(Former name, former address and former fiscal year, if changed since last report)

 

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes [ X ] No [ ]

 

Indicate by checkmark 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 whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer”, “accelerated filer”, and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer __

Accelerated filer __

Non-accelerated filer __ Smaller reporting company X

(Do not check if smaller reporting company)

 

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes [ ] No [ X ]

 

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.

 

Class

Outstanding at November 16, 2009

Common stock, par value $1.25

2,614,008

 

 

 


CENTRAL VIRGINIA BANKSHARES, INC.

QUARTERLY REPORT ON FORM 10-Q

 

INDEX

 

Part I. Financial Information

Page No.

 

Item 1

Financial Statements

 

Consolidated Balance Sheets -

 

September 30, 2009 (Unaudited) and December 31, 2008

3

 

Consolidated Statements of Operations – Three and Nine Months

 

Ended September 30, 2009 and 2008 (Unaudited)

4

 

Consolidated Statements of Stockholders’ Equity - Nine

 

Months Ended September 30, 2009 and 2008 (Unaudited)

6

 

Consolidated Statements of Cash Flows - Nine

 

Months Ended September 30, 2009 and 2008 (Unaudited)

8

 

Notes to Consolidated Financial Statements -

 

September 30, 2009 and 2008 (Unaudited)

9

 

Item 2

Management’s Discussion and Analysis of Financial

 

Condition and Results of Operations

25

 

Item 3

Quantitative and Qualitative Disclosures About Market Risk

38

 

Item 4

Controls and Procedures

38

 

Part II. Other Information

 

Item 1

Legal Proceedings

39

 

Item 1A

Risk Factors

39

 

Item 2

Unregistered Sales of Equity Securities and Use of Proceeds

39

 

Item 3

Defaults Upon Senior Securities

39

 

Item 4

Submission of Matters to a Vote of Security Holders

39

 

Item 5

Other Information

39

 

Item 6

Exhibits

39

 

 

 

 

2

 

PART I

FINANCIAL INFORMATION

 

ITEM 1

FINANCIAL STATEMENTS

 

CENTRAL VIRGINIA BANKSHARES, INC.

CONSOLIDATED BALANCE SHEETS

September 30, 2009 and December 31, 2008

 

 

 

 

 

 

 

September 30, 2009

 

December 31, 2008

 

ASSETS

 

 

 

 

(Unaudited)

 

(Audited)

Cash and due from banks

 

 

 

$     8,095,190

 

$   6,565,019

Federal funds sold

 

 

 

 

6,859,000

 

-

 

Total cash and cash equivalents

 

 

14,954,190

 

6,565,019

Securities available for sale at fair value

 

 

117,421,809

 

140,854,918

Securities held to maturity at amortized cost (fair value 2009 $5,187,768; 2008 $5,114,177)

5,082,342

 

5,086,919

Mortgage loans held for sale

 

 

 

671,250

 

743,950

SBA loans held for resale

 

 

 

 

2,170,413

 

358,181

Total loans

 

 

 

 

299,123,077

 

293,433,968

Less:Unearned income

 

 

 

(28,241)

 

(28,232)

Allowance for loan losses

 

 

(4,830,228)

 

(3,796,458)

Loans, net

 

 

 

 

294,264,608

 

289,609,278

Bank premises and equipment, net

 

 

9,396,641

 

9,856,774

Accrued interest receivable

 

 

 

2,737,923

 

2,808,345

Deferred income taxes

 

 

 

11,241,218

 

12,745,878

Other real estate owned

 

 

 

3,509,864

 

647,867

Other assets

 

 

 

17,329,289

 

16,991,147

 

Total assets

 

 

 

$ 478,779,547

 

$  486,268,276

 

 

 

 

 

 

 

 

 

 

LIABILITIES AND STOCKHOLDERS' EQUITY

 

 

 

LIABILITIES

 

 

 

 

 

 

 

Deposits:

 

 

 

 

 

 

 

Non-interest bearing demand deposits

 

$ 36,259,890

 

$   33,784,800

Interest bearing demand deposits and NOW accounts

 

76,735,247

 

62,896,702

Savings deposits

 

 

 

34,299,306

 

29,739,277

Time deposits, $100,000 and over

 

 

73,189,556

 

63,318,955

Other time deposits

 

 

 

158,205,415

 

158,223,402

 

Total deposits

 

 

 

 

378,689,414

 

347,963,136

Federal funds purchased and securities sold under repurchase agreements

 

7,791,658

 

43,302,142

FHLB borrowings

 

 

 

 

50,000,000

 

59,500,000

Short term borrowings

 

-

 

7,000,000

Capital trust preferred securities

 

5,155,000

 

5,155,000

Accrued interest payable

 

 

 

578,321

 

646,054

Other liabilities

 

 

 

 

2,520,896

 

2,393,782

 

Total liabilities

 

 

 

$  444,735,289

 

$ 465,960,114

STOCKHOLDERS’ EQUITY

 

 

 

 

 

 

Preferred stock, $1.25 par value, $1,000 liquidation value, 1,000,000 shares authorized

 

 

 

 

and 11,385 and 0 shares issued and outstanding, respectively

 

$    11,385,000

 

$                  -

Common stock, $1.25 par value; 6,000,000 shares authorized; 2,614,008

 

 

 

 

and 2,596,220 shares issued and outstanding, respectively

 

3,267,510

 

3,245,275

Common stock warrant

 

 

 

 

411,947

 

-

Discount on preferred stock

 

 

 

 

(363,214)

 

-

Surplus

 

 

 

 

16,883,526

 

16,870,988

Retained earnings

 

 

 

8,728,714

 

10,380,523

Accumulated other comprehensive loss, net

 

(6,269,225)

 

(10,188,624)

 

Total stockholders’ equity

 

 

34,044,258

 

20,308,162

 

Total liabilities and stockholders’ equity

 

 

$ 478,779,547

 

$ 486,268,276

 

See Notes to Consolidated Financial Statements.

 

3

 

CENTRAL VIRGINIA BANKSHARES, INC.

CONSOLIDATED STATEMENTS OF OPERATIONS

(Unaudited)

 

 

 

 

 

Three Months Ended

 

Nine Months Ended

 

 

 

 

September 30,

 

September 30,

 

 

 

 

2009

 

2008

 

2009

 

2008

Interest income

 

 

 

 

 

 

 

 

 

Interest and fees on loans

 

$ 4,917,876

 

$ 4,867,173

 

$ 13,781,374

 

$ 14,837,593

Interest on securities and federal funds sold:

 

 

 

 

 

 

 

U.S. Government treasury

1,920

 

-

 

3,141

 

-

U.S. Government agencies and corporations

1,081,502

 

1,301,214

 

3,354,777

 

4,018,956

States and political subdivisions

 

191,589

 

212,047

 

595,765

 

687,489

Other

 

 

 

519,876

 

924,942

 

1,993,079

 

3,131,372

Interest on federal funds sold

 

5,466

 

145

 

14,666

 

1,749

 

 

 

 

 

 

 

 

 

 

 

Total interest income

 

 

6,718,229

 

7,305,521

 

19,742,802

 

22,677,159

 

 

 

 

 

 

 

 

 

 

 

Interest expense

 

 

 

 

 

 

 

 

 

Interest on deposits

 

 

2,487,849

 

2,842,022

 

7,760,908

 

9,034,954

Interest on borrowings:

 

 

 

 

 

 

 

 

 

Federal funds purchased and

 

 

 

 

 

 

 

 

securities sold under repurchase agreements

46,008

 

259,550

 

202,235

 

709,017

FHLB advances:

 

 

 

 

 

 

 

 

 

Term

 

 

 

413,926

 

477,681

 

1,326,630

 

1,389,079

Overnight

 

 

8,480

 

89,306

 

41,539

 

230,626

Short-term borrowings

 

-

 

1,151

 

115,792

 

1,151

Capital trust preferred securities

 

44,051

 

72,202

 

149,351

 

239,367

 

 

 

 

 

 

 

 

 

 

 

Total interest expense

 

 

3,000,314

 

3,741,912

 

9,596,455

 

11,604,194

 

 

 

 

 

 

 

 

 

 

 

Net interest income

 

 

3,717,915

 

3,563,609

 

10,146,347

 

11,072,965

 

 

 

 

 

 

 

 

 

 

 

Provision for loan losses

 

 

968,236

 

300,000

 

1,893,236

 

880,000

 

 

 

 

 

 

 

 

 

 

 

Net interest income after provision for loan losses

2,749,679

 

3,263,609

 

8,253,111

 

10,192,965

Non-interest income

 

 

 

 

 

 

 

 

 

Deposit fees and charges

 

 

472,858

 

477,632

 

1,341,023

 

1,410,332

Bank card fees

 

 

142,904

 

129,712

 

392,611

 

384,822

Increase in cash surrender value of life insurance

107,517

 

95,670

 

327,600

 

293,026

Secondary mortgage loan fees

 

59,541

 

22,564

 

175,159

 

64,100

Investment and insurance commissions

28,224

 

94,881

 

91,458

 

216,873

Realized gain (loss) on sale of securities available for sale

(224,975)

 

21,747

 

478,720

 

138,684

Other

 

 

 

68,894

 

47,606

 

190,660

 

177,434

 

 

 

 

 

 

 

 

 

 

 

Total other income

 

 

654,963

 

889,814

 

2,997,231

 

2,685,271

 

 

 

 

 

 

 

 

 

 

 

 

 

 

4

CENTRAL VIRGINIA BANKSHARES, INC.

CONSOLIDATED STATEMENTS OF OPERATIONS

(Unaudited)

(Continued)

 

 

 

 

Three Months Ended

 

Nine Months Ended

 

 

 

 

September 30,

 

September 30,

 

 

 

 

2009

 

2008

 

2009

 

2008

Other expenses

 

 

 

 

 

 

 

 

 

Salaries and wages

 

 

1,180,791

 

1,400,993

 

3,703,635

 

4,143,798

Pensions and other employee benefits

 

390,133

 

493,446

 

1,201,479

 

1,475,953

Occupancy expense

 

 

154,648

 

159,551

 

488,107

 

476,166

Equipment depreciation

 

 

133,582

 

155,803

 

415,638

 

491,761

Equipment repairs and maintenance

 

57,362

 

101,842

 

160,327

 

288,116

Advertising and public relations

 

67,686

 

91,698

 

176,529

 

248,152

Federal insurance premiums

 

145,820

 

73,401

 

512,447

 

148,977

Office supplies, telephone, and postage

129,572

 

125,580

 

380,181

 

392,666

Taxes and licenses

 

 

66,149

 

77,255

 

199,113

 

242,340

Legal and professional fees

 

62,812

 

67,300

 

209,824

 

176,476

Consulting fees

 

 

55,111

 

92,954

 

184,053

 

254,942

Loss on securities write down (1)

 

2,231,331

 

17,850,850

 

3,434,286

 

17,850,850

Outsourced data processing

 

88,837

 

-

 

268,304

 

-

Other operating expenses

 

512,886

 

552,911

 

1,541,040

 

1,498,311

Total other expenses

 

 

5,276,720

 

21,243,584

 

12,874,963

 

27,688,508

 

 

 

 

 

 

 

 

 

 

 

Loss before income taxes

 

(1,872,078)

 

(17,090,161)

 

(1,624,621)

 

(14,810,272)

 

 

 

 

 

 

 

 

 

 

 

Income taxes (benefit)

 

 

(821,409)

 

(196,320)

 

(739,732)

 

278,487

 

 

 

 

 

 

 

 

 

 

 

Net loss

 

 

$  (1,050,669)

 

$ (16,893,841)

 

$    (884,889)

 

$ (15,088,759)

Effective dividend on preferred stock

 

 

 

160,588

 

-

 

429,814

 

-

Net loss available to common shareholders

$ ( 1,211,257)

 

$ (16,893,841)

 

$ (1,314,703)

 

$ (15,088,759)

 

 

 

 

 

 

 

 

Loss per share of common stock - basic:

$          (0.46)

 

$ (6.56)

 

$         (0.50)

 

$           (5.86)

 

 

 

 

 

 

 

 

 

 

 

Loss per share of common stock - diluted:

$          (0.46)

 

$ (6.56)

 

$         (0.50)

 

$           (5.86)

 

 

 

 

 

 

 

 

 

 

 

Dividends paid per share

 

 

$         0.0525

 

$ 0.18

 

$         0.158

 

$             0.54

 

 

 

 

 

 

 

 

 

 

 

Weighted average shares, basic

 

 

2,609,152

 

2,581,760

 

2,603,247

 

2,576,578

Weighted average shares, assuming dilution

2,609,152

 

2,581,760

 

2,603,247

 

2,576,578

 

 

 

 

 

 

 

 

 

 

 

 

(1) Total of other-than-temporary impairment losses on securities in the nine months ended September 30, 2009 is $6,066,018 of which $2,631,732 has been recognized in other comprehensive loss, and impairment losses of $3,434,286 have been recognized in earnings in the nine months ended September 30, 2009.

 

See Notes to Consolidated Financial Statements.

 

5

 

CENTRAL VIRGINIA BANKSHARES, INC.

CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY

For the Nine Months Ended September 30, 2009 and 2008

(Unaudited)

 

 

Preferred

Common

Common Stock

Discount on

Preferred

 

Retained

Accumulated Other

Comprehensive

Comprehensive

 

 

Stock

Stock

Warrant

Stock

Surplus

Earnings

(Loss)

Income/(Loss)

Total

 

 

 

 

 

 

 

 

 

 

Balance, December 31, 2007

$           -

$ 3,058,895

$            -

$            -

$ 14,792,997

$ 23,633,722

$ (4,621,530)

 

$ 36,864,084

Comprehensive loss:

 

 

 

 

 

 

 

 

 

Net loss

 

 

 

 

 

(15,088,759)

 

(15,088,759)

(15,088,759)

Other comprehensive loss, net of tax:

 

 

 

 

 

 

 

 

 

Unrealized holding losses on securities

available for sale arising during the

period, net of deferred income taxes of

$4,017,171

 

 

 

 

 

 

(7,794,831)

(7,794,831)

(7,794,831)

Less reclassification adjustment for gains

on securities available for sale included in

net income net of deferred income taxes of

$47,153

 

 

 

 

 

 

(91,531)

(91,531)

(91,531)

 

 

 

 

 

 

 

 

 

 

Total comprehensive loss

 

 

 

 

 

 

 

$ (22,975,121)

 

 

 

 

 

 

 

 

 

 

 

Issuance of common stock:

 

 

 

 

 

 

 

 

 

3,682 shares pursuant to exercise of stock

options

 

4,603

 

 

38,367

-

-

 

42,970

Income tax benefit of deduction for tax

purposes attributable to exercise of stock

options

 

-

 

 

7,436

-

-

 

7,436

122,425 shares pursuant to a 5% stock dividend

 

153,031

 

 

1,830,254

(1,983,285)

 

 

-

14,685 shares pursuant to dividend

reinvestment plan

 

18,356

 

 

171,346

-

-

 

189,702

Payment for 290 fractional shares of common stock

 

 

 

 

 

(4,691)

 

 

(4,691)

Cash dividends declared, $.54 per share

          -

-

-

-

-

(1,368,778)

-

 

(1,368,778)

Balance, September 30, 2008

$          -

3,234,885

$           -

$             -

$ 16,840,400

$ 5,188,209

$ (12,507,892)

 

$ 12,755,602

 

 

 

 

 

 

 

 

 

 

 

 

 

See Notes to Consolidated Financial Statements

 

 

 

 

 

 

6

CENTRAL VIRGINIA BANKSHARES, INC.

CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY

For the Nine Months Ended September 30, 2009 and 2008

(Unaudited)

 

 

 

 

 

 

 

 

Accumulated

 

 

 

Preferred

Common

Common Stock

Discount on

Preferred

 

Retained

Other

Comprehensive

Comprehensive

 

 

Stock

Stock

Warrant

Stock

Surplus

Earnings

(Loss) (1)

Income/(Loss)

Total

Balance, December 31, 2008

$          -

$ 3,245,275

$            -

$             -

$ 16,870,988

$ 10,380,523

$ (10,188,624)

 

$ 20,308,162

Comprehensive income:

 

 

 

 

 

 

 

 

 

Net loss

-

-

-

-

-

(884,889)

-

(884,889)

(884,889)

Other comprehensive loss, net of tax:

 

 

 

 

 

 

 

 

 

Unrealized holding gains on

securities available for sale arising during

the period, net of deferred income taxes of

$1,014,192

-

-

-

-

-

-

1,968,725

1,968,725

1,968,725

Reclassification adjustment for loss on

write-down of securities, net of deferred

taxes of $1,167,657

-

-

-

-

-

-

2,266,629

2,266,629

2,266,629

 

 

 

 

 

 

 

 

 

 

Reclassification adjustment for gains on

securities available for sale included in net

income net of deferred income taxes of

$162,765

-

-

-

-

-

-

(315,955)

(315,955)

(315,955)

 

 

 

 

 

 

 

 

 

 

Total comprehensive income

 

 

 

 

 

 

 

$ 3,034,510

 

Issuance of preferred stock

11,385,000

-

-

-

(36,811)

-

-

 

11,348,189

Common stock warrant

 

 

411,947

 

 

 

 

 

411,947

Discount on preferred stock

 

 

 

(411,947)

 

 

 

 

(411,947)

Issuance of common stock

 

 

 

 

 

 

 

 

-

17,788 common shares pursuant to dividend

reinvestment plan

-

22,235

-

-

49,349

-

-

 

71,584

Dividends paid and accumulated on preferred

stock

 

 

 

 

 

(308,344)

 

 

(308,344)

Accretion of discount on preferred stock

-

-

-

48,733

-

(48,733)

-

 

-

Common Stock cash dividends declared,

$.158 per share

-

-

-

-

-

(409,843)

-

 

(409,843)

Balance, September 30, 2009

$11,385,000

$ 3,267,510

$ 411,947

$ (363,214)

$ 16,883,526

$ 8,728,714

$ (6,269,225)

 

$ 34,044,258

 

(1(1) Total accumulated other comprehensive loss includes an other-than-temporary impairment of $2,631,732, or $1,736,943, net of tax of  $894,789.

 

See Notes to Consolidated Financial Statements

7

CENTRAL VIRGINIA BANKSHARES, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

Nine Months Ended September 30, 2009 and 2008

(Unaudited)

 

 

 

 

 

 

 

2009

 

2008

Cash Flows from Operating Activities

 

 

 

 

 

Net Loss

 

 

 

 

 

$ (884,889)

 

$ (15,088,759)

Adjustments to reconcile net loss to net cash (used in ) provided by operating activities:

 

 

 

Depreciation

 

 

 

 

 

576,182

 

650,991

Amortization

 

 

 

 

 

11,008

 

27,883

Deferred income taxes

 

 

 

 

(497,589)

 

(277,718)

Provision for loan losses

 

 

 

1,893,236

 

880,000

Amortization and accretion on securities, net

 

 

 

218,062

 

42,756

Realized gains on available for sale securities

 

 

(478,720)

 

(138,684)

Loss on securities write-down

 

 

3,434,286

 

17,850,850

Increase in cash surrender value of life insurance

 

 

(327,600)

 

(293,026)

Change in operating assets and liabilities:

 

 

 

 

 

 

(Increase) decrease in assets:

 

 

 

 

 

 

 

Mortgage loans held for sale

 

 

 

 

72,700

 

(309,000)

SBA loans held for resale

 

 

 

 

(1,812,232)

 

(300,142)

Accrued interest receivable

 

 

 

 

70,422

 

(76,547)

Other assets

 

 

 

 

 

113,055

 

(925,706)

Increase (decrease) in liabilities:

 

 

 

 

 

Accrued interest payable

 

 

 

 

(67,733)

 

(83,969)

Other liabilities

 

 

(461,721)

 

548,819

Net cash (used in) provided by operating activities

 

 

 

1,858,467

 

2,507,748

 

 

 

 

 

 

 

 

 

 

Cash Flows from Investing Activities

 

 

 

 

 

 

 

Proceeds from calls and maturities of securities held to maturity

 

-

 

925,413

Proceeds from calls and maturities of securities available for sale

 

 

46,676,131

 

53,194,087

Proceeds from sales of securities available for sale

 

 

45,511,525

 

19,805,398

Purchase of securities available for sale

 

 

 

(65,982,224)

 

(65,832,400)

Net increase in loans made to customers

 

 

 

(8,885,458)

 

(31,828,580)

Net purchases of premises and equipment

 

 

 

 

(116,050)

 

(269,055)

Acquisition of other assets

 

 

 

(90,600)

 

(202,500)

Net cash provided by (used in) investing activities

 

 

 

17,113,324

 

(24,207,637)

 

 

 

 

 

 

 

 

 

 

Cash Flows from Financing Activities

 

 

 

 

 

Net increase in demand deposits, MMDA, NOW, and savings accounts

 

 

20,873,664

 

1,306,793

Net increase (decrease) in time deposits

 

 

 

9,852,614

 

(10,727,130)

Net increase (decrease) in federal funds purchased & securities sold under repurchase

agreements

 

(35,510,484)

 

15,510,598

Net (payments) advances on FHLB borrowings

 

 

 

(9,500,000)

 

6,150,000

Net (payments) advances of short term borrowings

 

 

 

(7,000,000)

 

7,000,000

Net proceeds from issuance of preferred stock

 

 

 

11,348,189

 

-

Net proceeds from issuance of common stock

 

 

 

71,584

 

232,672

Payment for purchase of fractional shares of common stock

 

-

 

(4,691)

Dividends paid on preferred stock

 

(308,344)

 

-

Dividends paid on common stock

 

 

 

 

 

(409,843)

 

(1,368,778)

Net cash (used in) provided by financing activities

 

 

 

(10,582,620)

 

18,099,464

 

 

 

 

 

 

 

 

 

 

Increase (decrease) in cash and cash equivalents

 

 

 

$ 8,389,171

 

$ (3,600,425)

Cash and cash equivalents:

 

 

 

 

 

 

 

Beginning

 

 

 

 

 

6,565,019

 

10,362,944

Ending

 

 

 

 

 

 

$ 14,954,190

 

$ 6,762,519

Supplemental Disclosures of Cash Flow Information

 

 

 

 

 

Cash payments for: Interest

 

 

 

 

$ 9,664,188

 

$ 11,688,163

Income taxes

 

 

 

382,164

 

897,660

Unrealized gain (loss) on securities available for sale

 

 

$ 5,938,483

 

$ (11,950,686)

Loans transferred to other real estate owned

 

 

$ 2,784,896

 

$ 673,542

See Notes to Consolidated Financial Statements.

 

8

CENTRAL VIRGINIA BANKSHARES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

September 30, 2009 and 2008

(Unaudited)

 

Note 1. Basis of Presentation

 

Principles of consolidation: The accompanying consolidated financial statements include the accounts of Central Virginia Bankshares, Inc., and its subsidiary, Central Virginia Bank, including its subsidiary, CVB Title Services, Inc. and Central Virginia Bankshares Statutory Trust I. All significant intercompany transactions and balances have been eliminated in consolidation. Generally Accepted Accounting Principles requires that the Company no longer eliminate through consolidation the equity investment in Central Virginia Bankshares Statutory Trust I by the parent company, Central Virginia Bankshares, Inc., which equaled $155,000 at September 30, 2009. The subordinated debt of the Trust is reflected as a liability on the Company’s balance sheet.

 

The consolidated financial statements have been prepared in conformity with U.S. generally accepted accounting principles. In preparing these consolidated financial statements, the Company has evaluated events and transactions for potential recognition or disclosure through November 16, 2009, the date of the consolidated financial statements issued.

 

In the opinion of management, the accompanying financial statements contain all adjustments (consisting of only normal recurring accruals) necessary to present fairly the financial position as of September 30, 2009, and December 31, 2008, the results of operations, and cash flows and statements of changes in stockholders’ equity for the nine months ended September 30, 2009 and 2008. The statements should be read in conjunction with Notes to Consolidated Financial Statements included in the annual report for the year ended December 31, 2008. The results of operations for the nine month period ended September 30, 2009 are not necessarily indicative of the results to be expected for the full year.

 

The consolidated financial statements of Central Virginia Bankshares, Inc. (the Company) and its wholly-owned subsidiary, Central Virginia Bank, (the Bank), include the accounts of both companies. All material inter-company balances and transactions have been eliminated in consolidation. Certain reclassifications have been made to prior period amounts to conform to the current year presentations.

 

Capital Purchase Program through the U.S. Treasury Department

 

On January 22, 2009, the Company held a Special Meeting of Shareholders for the purpose of approving an amendment and restatement of the Articles of Incorporation of Central Virginia Bankshares, Inc. to authorize the issuance of preferred stock. The primary purpose of authorizing preferred stock was to allow participation in the Capital Purchase Program (“Capital Purchase Program”) established by the U.S. Department of the Treasury (“Treasury”) under the Emergency Economic Stabilization Act of 2008 (“EESA”). At the meeting, affirmative votes were received from not less than two-thirds of the shares of common stock then outstanding thereby approving the amendment of the Articles of Incorporation and authorizing the Company to issue up to 1,000,000 shares of preferred stock.

 

On January 30, 2009, as part of the Capital Purchase Program, the Company issued and sold to the U.S. Treasury for an aggregate purchase of $11,385,000 in cash (i) 11,385 shares of the Company’s fixed rate cumulative perpetual preferred stock, Series A, par value $1.25 per share, having a liquidation preference of $1,000 per share (“Series A Preferred Stock”) and (ii) a ten-year warrant to purchase up to 263,542 shares of the Company’s common stock, par value $1.25 per share (“Common Stock”), at an initial

 

 

9

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

 

Note 1. Basis of Presentation (Continued)

 

exercise price of $6.48 per share (“Warrant”). The Series A Preferred Stock may be treated as Tier 1 capital for regulatory capital adequacy determination purposes. Cumulative dividends on the Series A Preferred Stock will accrue on the liquidation preference at a rate of 5% per annum for the first five years, and at a rate of 9% per annum thereafter. The Series A Preferred Stock has no maturity date and ranks senior to the Common Stock with respect to the payment of dividends. The Company may redeem the Series A Preferred Stock at 100% of their liquidation preference (plus any accrued and unpaid dividends) beginning on January 30, 2012. Prior to this date, the Company may redeem the Series A Preferred Stock at 100% of their liquidation preference (plus any accrued and unpaid dividends) if (i) the Company has raised aggregate gross proceeds in one or more qualified equity offerings (as defined in the purchase agreement with Treasury) of at least $2.85 million, and (ii) the aggregate redemption price does not exceed the aggregate net proceeds from such qualified equity offerings. Any redemption is subject to the consent of the FDIC. Pursuant to the terms of the American Reinvestment and Recovery Act of 2009, the Company alternatively may, subject to consultation with its federal banking agency, repay the funds it received under the Capital Purchase Program at any time.

 

The purchase agreement pursuant to which the Series A Preferred Stock and the Warrant were sold contains limitations on the payment of dividends or distributions on the Common Stock (including the payment of the cash dividends in excess of the Company’s current quarterly cash dividend of $0.0525 per share) and on the Company’s ability to repurchase, redeem or acquire its Common Stock or other securities, and subjects the Company to certain of the executive compensation limitations included in the

EESA until such time as Treasury no longer owns any debt or equity securities acquired through the Capital Purchase Program.

 

Securities Impairment: During the nine months ended September 30, 2009, the Company recorded $3,434,286 in other-than-temporary impairment charges, net of tax $1,167,657. This non-cash charge to earnings is related to Collateralized Debt Obligation (CDO) investment securities.

 

Recent Accounting Pronouncements

 

In December 2007, the FASB issued Statement of Financial Accounting Standards No. 141(R), “Business Combinations” (SFAS 141(R)) (ASC 805 Business Combinations). The Standard significantly changed the financial accounting and reporting of business combination transactions. SFAS 141(R) establishes principles for how an acquirer recognizes and measures the identifiable assets acquired, liabilities assumed, and any noncontrolling interest in the acquiree; recognizes and measures the goodwill acquired in the business combination or a gain from a bargain purchase; and determines what information to disclose to enable users of the financial statements to evaluate the nature and financial effects of the business combination. SFAS 141(R) is effective for acquisition dates on or after the beginning of an entity’s first year that begins after December 15, 2008. The Company does not expect the implementation of SFAS 141(R) to have a material impact on its consolidated financial statements, at this time.

 

In April 2009, the FASB issued FSP FAS 141(R)-1, “Accounting for Assets Acquired and Liabilities Assumed in a Business Combination That Arise from Contingencies” (ASC 805 Business Combinations). FSP FAS 141(R)-1 amends and clarifies SFAS 141(R) to address application issues on initial recognition and measurement, subsequent measurement and accounting, and disclosure of assets and liabilities arising from contingencies in a business combination. The FSP is effective for assets and liabilities arising from contingencies in business combinations for which the acquisition date is on or after the beginning of the first annual reporting period beginning on or after December 15, 2008. The Company does not expect the adoption of FSP FAS 141(R)-1 to have a material impact on its consolidated financial statements.

 

10

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

 

Recent Accounting Pronouncements (Continued)

 

In April 2009, the FASB issued FSP FAS 157-4, “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” (ASC 820 Fair Value Measurements and Disclosures). FSP FAS 157-4 provides additional guidance for estimating fair value in accordance with SFAS 157 when the volume and level of activity for the asset or liability have significantly decreased. The FSP also includes guidance on identifying circumstances that indicate a transaction is not orderly. FSP FAS 157-4 is effective for interim and annual periods ending after June 15, 2009, and shall be applied prospectively. The Company recognizes that the adoption of FSP FAS 157-4 may have a material impact on its consolidated financial statements.

 

In April 2009, the FASB issued FSP FAS 107-1 and APB 28-1, “Interim Disclosures about Fair Value of Financial Instruments” (ASC 825 Financial Instruments and ASC 270 Interim Reporting). FSP FAS 107-1 and APB 28-1 amends SFAS No. 107, “Disclosures about Fair Value of Financial Instruments,” to require disclosures about fair value of financial instruments for interim reporting periods of publicly traded companies as well as in annual financial statements. In addition, the FSP amends APB Opinion No. 28, “Interim Financial Reporting,” to require those disclosures in summarized financial information at interim reporting periods. The FSP is effective for interim periods ending after June 15, 2009. The Company does not expect the adoption of FSP FAS 107-1 and APB 28-1 to have a material impact on its consolidated financial statements.

 

In April 2009, the FASB issued FSP FAS 115-2 and FAS 124-2, “Recognition and Presentation of Other-Than-Temporary Impairments” (ASC 320 Investments – Debt and Equity Securities). FSP FAS 115-2 and FAS 124-2 amends other-than-temporary impairment guidance for debt securities to make guidance more operational and to improve the presentation and disclosure of other-than-temporary impairments on debt and equity securities. The FSP does not amend existing recognition and measurement guidance related to other-than-temporary impairments of equity securities. FSP FAS 115-2 and FAS 124-2 is effective for interim and annual periods ending after June 15, 2009. The Company recognizes that the adoption of FSP FAS 115-2 and FAS 124-2 may have a material impact on its consolidated financial statements.

 

In April 2009, the Securities and Exchange Commission issued Staff Accounting Bulletin No. 111 (SAB 111). SAB 111 amends and replaces SAB Topic 5.M. in the SAB Series entitled “Other Than Temporary Impairment of Certain Investments in Debt and Equity Securities.” SAB 111 maintains the SEC Staff’s previous views related to equity securities and amends Topic 5.M. to exclude debt securities from its scope. The Company does not expect the implementation of SAB 111 to have a material impact on its consolidated financial statements.

 

In May 2009, the FASB issued Statement of Financial Accounting Standards No. 165, “Subsequent Events” (ASC 855 Subsequent Events). SFAS 165 establishes general standards of accounting for and disclosure of events that occur after the balance sheet date but before financial statements are issued or are available to be issued. SFAS 165 is effective for interim and annual periods ending after June 15, 2009. The Company does not expect the adoption of SFAS 165 to have a material impact on its (consolidated) financial statements.

 

In June 2009, the FASB issued Statement of Financial Accounting Standards No. 166, “Accounting for Transfers of Financial Assets – an amendment of FASB Statement No. 140” (ASC 860 Transfers and Servicing). SFAS 166 provides guidance to improve the relevance, representational faithfulness, and comparability of the information that a report entity provides in its financial statements 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, if any, in transferred financial assets. SFAS 166 is effective for

 

11

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

 

Recent Accounting Pronouncements (Continued)

 

interim and annual periods beginning after November 15, 2009. The Company does not expect the adoption of SFAS 166 to have a material impact on its consolidated financial statements.

 

In June 2009, the FASB issued Statement of Financial Accounting Standards No. 167, “Amendments to FASB Interpretation No. 46(R)” (ASC 810 Consolidation). SFAS 167 improves financial reporting by enterprises involved with variable interest entities. SFAS 167 is effective for interim and annual periods beginning after November 15, 2009. Early adoption is prohibited. The Company does not expect the adoption of SFAS 167 to have a material impact on its consolidated financial statements.

 

In June 2009, the FASB issued Statement of Financial Accounting Standards No. 168, “The FASB Accounting Standards Codification and the Hierarchy of Generally Accepted Accounting Principles – replacement of FASB Statement No. 162” (ASC 105 Generally Accepted Accounting Principles). SFAS 168 establishes the FASB Accounting Standards Codification which will become the source of authoritative U.S. generally accepted accounting principles (GAAP) recognized by the FASB to be applied by nongovernmental entities. SFAS 168 is effective immediately. The Company does not expect the adoption of SFAS 168 to have a material impact on its consolidated financial statements.

 

In June 2009, the Securities and Exchange Commission issued Staff Accounting Bulletin No. 112 (SAB 112). SAB 112 revises or rescinds portions of the interpretative guidance included in the codification of SABs in order to make the interpretive guidance consistent with current U.S. GAAP. The Company does not expect the adoption of SAB 112 to have a material impact on its consolidated financial statements.

 

In June 2009, the FASB issued EITF Issue No. 09-1, “Accounting for Own-Share Lending Arrangements in Contemplation of Convertible Debt Issuance or Other Financing” (ASC 470 Debt). EITF Issue No. 09-1 clarifies how an entity should account for an own-share lending arrangement that is entered into in contemplation of a convertible debt offering. EITF Issue No. 09-1 is effective for arrangements entered into on or after June 15, 2009. Early adoption is prohibited. The Company does not expect the adoption of EITF Issue No. 09-1 to have a material impact on its consolidated financial statements.

 

In August 2009, the FASB issued Accounting Standards Update No. 2009-05 (ASU 2009-05), “Fair Value Measurements and Disclosures (Topic 820) – Measuring Liabilities at Fair Value.” ASU 2009-05 amends Subtopic 820-10, “Fair Value Measurements and Disclosures – Overall,” and provides clarification for the fair value measurement of liabilities. ASU 2009-05 is effective for the first reporting period including interim period beginning after issuance. The Company does not expect the adoption of ASU 2009-05 to have a material impact on its consolidated financial statements.

 

In September 2009, the FASB issued Accounting Standards Update No. 2009-12 (ASU 2009-12), “Fair Value Measurements and Disclosures (Topic 820): Investments in Certain Entities That Calculate Net Asset Value per Share (or Its Equivalent).” ASU 2009-12 provides guidance on estimating the fair value of alternative investments. ASU 2009-12 is effective for interim and annual periods ending after December 15, 2009. The Company does not expect the adoption of ASU 2009-12 to have a material impact on its consolidated financial statements.

 

In October 2009, the FASB issued Accounting Standards Update No. 2009-15 (ASU 2009-15), “Accounting for Own-Share Lending Arrangements in Contemplation of Convertible Debt Issuance or Other Financing.” ASU 2009-15 amends Subtopic 470-20 to expand accounting and reporting guidance for own-share lending arrangements issued in contemplation of convertible debt issuance. ASU 2009-15 is effective for fiscal years beginning on or after December 15, 2009 and interim periods within those fiscal years for arrangements outstanding as of the beginning of those fiscal years. The Company does not

 

12

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

 

Recent Accounting Pronouncements (Continued)

 

expect the adoption of ASU 2009-15 to have a material impact on its consolidated financial statements.

 

In October 2009, the Securities and Exchange Commission issued Release No. 33-99072, “Internal Control over Financial Reporting in Exchange Act Periodic Reports of Non-Accelerated Filers.” Release No. 33-99072 delays the requirement for non-accelerated filers to include an attestation report of their independent auditor on internal control over financial reporting with their annual report until the fiscal year ending on or after June 15, 2010.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

13

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

 

Note 2. Securities

 

Carrying amounts and approximate market values of securities available for sale are as follows:

 

 

 

 

 

September 30, 2009

 

 

 

 

Amortized

Cost

Gross

Unrealized

Gains

Gross

Unrealized

Losses

Approximate

Market

Value

U.S. government agencies & corporations

 

$ 73,117,653

$ 980,059

$ (1,168,932)

$ 72,928,780

Bank eligible preferred and equities

 

2,580,445

-

(848,350)

1,732,095

Mortgage-backed securities

 

12,458,143

323,820

-

12,781,963

Corporate and other debt

 

30,055,467

38,429

(8,874,471)

21,219,425

States and political subdivisions

 

8,718,616

153,277

(112,347)

8,759,546

 

 

 

 

$ 126,930,324

$ 1,495,585

$(11,004,100)

$ 117,421,809

 

 

 

 

 

 

 

 

 

 

 

 

December 31, 2008

 

 

 

 

Amortized

Cost

Gross

Unrealized

Gains

Gross

Unrealized

Losses

Approximate

Market

Value

U.S. government agencies & corporations

 

$90,103,520

$ 875,648

$ (1,293,728)

$ 89,685,440

Bank eligible preferred and equities

 

2,603,657

6,010

(1,200,602)

1,409,065

Mortgage-backed securities

 

8,128,778

137,777

(739,275)

7,527,280

Corporate and other debt

 

45,357,621

330,127

(13,266,471)

32,421,277

States and political subdivisions

 

10,101,542

109,985

(399,671)

9,811,856

 

 

 

 

$156,295,118

$1,459,547

$(16,899,747)

$140,854,918

 

Carrying amounts and approximate market value of securities classified as held to maturity are as follows:

 

 

 

 

 

September 30, 2009

 

 

 

Amortized

Cost

Gross

Unrealized

Gains

Gross

Unrealized

Losses

Approximate

Market

Value

States and political subdivisions

 

$ 5,082,342

$ 105,426

$                -

$ 5,187,768

 

 

 

 

 

 

 

 

 

 

 

 

December 31, 2008

 

 

 

 

Amortized

Cost

Gross

Unrealized

Gains

Gross

Unrealized

Losses

Approximate

Market

Value

States and political subdivisions

 

$ 5,086,919

$  44,623

$   (17,365)

$  5,114,177

 

 

 

 

 

 

14

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

 

Note 2. Securities (Continued)

 

The following table sets forth securities classified as available for sale and securities classified as held to maturity with unrealized losses for less than twelve months and twelve months or longer at September 30, 2009 and December 31, 2008. Securities identified as other-than-temporary impaired are excluded from this table.

 

 

 

 

September 30, 2009

 

 

 

 

Less than twelve months

Twelve months or longer

Total

Securities Available for Sale

 

Approximate

Market

Value

Unrealized

Losses

Approximate

Market

Value

Unrealized

Losses

Approximate

Market

Value

Unrealized

Losses

 

 

U.S. government agencies & corporations

 

$ 24,438,735

$ (569,662)

$ 6,400,731

$ (599,270)

$ 30,839,466

$ (1,168,932)

Bank eligible preferred and equities

 

-

-

2,430,195

(821,305)

2,430,195

(821,305)

Corporate and other debt (1)

 

2,502,217

(1,016,317)

9,841,942

(5,304,938)

12,344,159

(6,321,255)

States and political subdivisions

 

2,069,635

(27,934)

1,397,072

(84,414)

3,466,707

(112,348)

 

 

$ 29,010,587

$(1,613,913)

$20,069,940

$(6,809,927)

$ 49,080,527

$ (8,423,840)

 

 

(1) Other Than-Temporary-Impaired securities are excluded from this table

 

 

 

 

 

 

 

 

December 31, 2008

 

Less than twelve months

Twelve months or longer

Total

 

Approximate

Market

Value

Unrealized

Losses

Approximate

Market

Value

Unrealized

Losses

Approximate

Market

Value

Unrealized

Losses

 

Securities Available for Sale

 

U.S. government agencies & corporations

 

$ 26,484,762

$  (579,388)

$ 1,285,660

$     (714,340)

$ 27,770,422

$ (1,293,728)

Bank eligible preferred and equities

 

199,750

(29,045)

2,253,657

(1,171,557)

2,453,407

(1,200,602)

Mortgage-backed securities

 

1,147,765

(7,724)

255,550

(731,551)

1,403,315

(739,275)

Corporate and other debt

 

8,954,463

(2,499,377)

13,904,955

(10,767,094)

22,859,418

(13,266,471)

States and political subdivisions

 

4,911,159

(355,928)

213,861

(43,743)

5,125,020

(399,671)

 

 

 

 

$ 41,697,899

$(3,471,462)

$17,913,683

$(13,428,285)

$59,611,582

$(16,899,747)

Securities Held to Maturity

 

 

 

 

 

 

 

States and political subdivisions

 

$   1,336,782

$     (17,365)

$                 -

$                  -

$ 1,336,782

$      (17,365)

 

Changes in market interest rates and changes in credit spreads may result in temporary impairment or unrealized losses, as the fair value of securities will fluctuate in response to these market factors. Of the securities in a net unrealized loss position longer than 12 months as of September 30, 2009, $5.3 million of the total $6.8 million unrealized loss is in the corporate and other debt category, where the Company has a number of corporate debt securities issued by companies within the financial sector and other pooled trust preferred securities where the underlying instruments are commercial bank or insurance company trust preferred issues. Due to the multitude of negative economic issues, and the resulting general market unrest, most all of the financial sector debt instruments have experienced historical lows in their market value. While this is not considered a permanent condition, the Company cannot predict with any degree of accuracy when prices will return to historical levels.

 

In accordance with generally accepted accounting principles, securities are evaluated for other than temporary impairment on a quarterly or more frequent basis if market concerns warrant such evaluation. Impairment is considered to be “other than temporary” if the Company does not anticipate being able to

 

15

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

 

Note 2. Securities (Continued)

 

recover substantially all of its cost, and intends to sell the security, or it is more likely than not to be required to sell the security before recovering its cost basis. Impairment is measured based on the entity’s intention to sell the security, it is more likely than not that the entity will be required to sell the security before recovery of its amortized cost basis, or the entity does not expect to recover the security’s entire amortized cost basis. For certain of the Company’s Collateralized Debt Obligations (CDO) investments, where there are quarterly or semiannual cash flows, an evaluation utilizing discounted net cash flow analysis is performed to ascertain if there was a significant deterioration, (adverse change) in the instrument’s cash flows and thereby indicating impairment. This analysis utilizes Intex information on cash flows. EITF 99-20 (ASC 325 Investments and Other) prescribes using a discount rate "equal to the current yield used to accrete the beneficial interest." This discount rate is calculated using the original discount margin (or credit spread) calculated as of the purchase date based on the purchase price. The original discount margin is then added to the appropriate forward 3-month LIBOR rate to determine the discount rate. For fixed/floating securities, the original coupon is used as the discount rate for the remaining fixed-rate portion of the security's estimated life. Forward interest rates are used to project future principal and interest payments. This permits modeling the impact of over or under collateralization for each transaction, e.g. higher interest rates generally increase the credit stress on under-collateralized transactions by reducing excess interest, which is the difference between the interest received from the underlying collateral and the interest paid on the bonds. The analysis assumes a level of annual deferrals and defaults, which are treated the same at 75 basis points for the remaining life of the security, a 15 percent recovery on deferrals after two years, and no prepayments by issuers.

After such an analysis and in connection with the preparation of financial statements to be included in this Form 10-Q, a determination of the credit portion of the impairment that would be recognized through earnings was made during the nine months ended September 30, 2009 and management recorded an Other Than Temporary Impairment (OTTI) related to five CDO investment securities with current par value of $7,960,999 of which $2,631,732 has been recognized in other comprehensive loss, and impairment losses of $3,434,000, net of tax of $1,167,560, have been recognized in earnings during the nine months of 2009. The following table provides additional information on the impaired securities at September 30, 2009.

 

Security

Tranche Level

Ratings Moody/Fitch

Current Defaults and Deferrals

(in 000's)

Percent of Current Defaults & Deferrals to Current Collateral

Estimated incremental defaults required to break yield (1)

(in 000's)

Par Value

9-30-2009

Book Value
9-30-09

Estimated Fair Value

9-30-09

Cumulative Other Comprehensive Loss (2)

Amount of OTTI related to Credit Loss (2)

ALESC

D-1

CaCC

191,451

29.8%

Broken

1,037,984

5,101

5,101

158,529

874,354

PreTSL II

Mezz

CaCC

 96,500

45.1%

Broken

2,357,418

880,237

880,237

738,738

738,443

PreTSL XII

B-3

CaCC

184,600

31.3%

 900

2,011,420

801,480

801,480

942,628

267,312

PreTSL XVI

D-1

NR C

157,150

39.1%

Broken

1,554,177

0

0

0

1,554,177

PreTSL XXIII

D-1

NR CC

237,500

20.6%

 122

1,000,000

208,163

208,163

791,837

0

           

7,960,999

1,894,981

1,894,981

2,631,732

3,434,286



 

(1)     

 

A break in yield for a given tranche means that defaults and or deferrals have reached such a level that the tranche would not receive all of contractual cash flows (principal and interest) by maturity (so not just a temporary interest shortfall, but an actual loss in yield on the investment). This represents additional defaults beyond those assumed in the cash flow modeling.



(2)     

Pre-tax



The following table presents a roll forward of the credit loss component amount of OTTI recognized in earnings:
  

 

Quarter Ended
September 30, 2009

Nine Months Ended
September 30, 2009

Balance beginning of period

1,202,955

0

Additions:     Initial credit impairments

267,312

3,434,286

                      Subsequent credit impairments

1,964,019

0

Balance, end of period

3,434,286

3,434,286



The Company monitors these and other Pooled Trust Preferred Securities in its portfolio as to additional collateral issuer defaults and deferrals, which, as a general rule, indicate that additional impairment may have occurred. These events are predominantly related to issuer banks in default and as a result, the likelihood of failure is high. Due to the continuing stress on banks in general due to the overall economic conditions, the Company anticipates having to recognize additional impairment in future periods, however the extent and timing of any additional impairment can not be reasonably estimated at this time. 
  
 


  
 

16

 

 

The Company’s investment in Federal Home Loan Bank (“FHLB”) stock totaled $3.6 million at September 30, 2009. FHLB stock is generally viewed as a long-term investment and as a restricted investment security, which is carried at cost, because there is no market for the stock other than the FHLB’s or member institutions. Therefore, when evaluating FHLB stock for impairment, its value is based on the ultimate recoverability of the par value rather than by recognizing temporary declines in value. Although the FHLB temporarily suspended cash dividend payments and repurchase of excess capital stock in 2009, they have resumed dividend payments and the Company does not consider this investment to be other than temporarily impaired at September 30, 2009 and no impairment has been recognized.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

17

 

 

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

 

Note 3. Loans

 

Major classifications of loans are summarized as follows:

 

 

 

 

September 30, 2009

December 31, 2008

 

 

 

 

(Unaudited)

 

 

Commercial

 

$  68,745,307

$  59,327,260

 

Real Estate:

 

 

 

 

Mortgage

 

127,673,959

124,053,357

 

Home equity

 

20,911,962

18,828,294

 

Construction

 

72,937,016

81,761,966

 

Total real estate

 

221,522,937

224,643,617

 

Bank cards

 

 

930,198

951,063

 

Installment

 

 

7,924,635

8,512,028

 

 

 

 

299,123,077

293,433,968

 

Less unearned income

 

(28,241)

(28,232)

 

 

 

 

299,094,836

293,405,736

 

Allowance for loan losses

(4,830,228)

(3,796,458)

 

Loans, net

 

 

$ 294,264,608

$ 289,609,278

 

 

 

 

 

 

 

Changes in the allowance for loan losses were as follows:

 

 

 

 

 

 

 

 

 

 

 

September 30, 2009

December 31, 2008

September 30, 2008

 

 

 

(Unaudited)

 

 

Balance, beginning

 

$3,796,458