Attached files
file | filename |
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EX-31.2 - CERTIFICATION OF PRINCIPAL FINANCIAL OFFICER - AB&T Financial CORP | d351830dex312.htm |
EX-31.1 - CERTIFICATION OF PRINCIPAL EXECUTIVE OFFICER - AB&T Financial CORP | d351830dex311.htm |
EXCEL - IDEA: XBRL DOCUMENT - AB&T Financial CORP | Financial_Report.xls |
EX-32 - CERTIFICATION OF PRINCIPAL EXECUTIVE OFFICER AND PRINCIPAL FINANCIAL OFFICER - AB&T Financial CORP | d351830dex32.htm |
Table of Contents
AB&T FINANCIAL CORPORATION
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 March 31, 2012
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: 000-53249
AB&T FINANCIAL CORPORATION
(Exact name of registrant as specified in its charter)
North Carolina | 26-2588442 | |
(State or other jurisdiction of incorporation or organization) |
(I.R.S. Employer Identification No.) |
292 W. Main Avenue
Gastonia, North Carolina 28052
(Address of principal executive offices and zip code)
(704) 867-5828
(Registrants telephone number, including area code)
NA
(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 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 x NO ¨
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of large accelerated filer, accelerated filer and smaller reporting company in Rule 12b-2 of the Exchange Act.
Large accelerated filer | ¨ | Accelerated filer | ¨ | |||
Non-accelerated filer | ¨ (Do not check if a smaller reporting company) | Smaller reporting company | x |
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act) YES ¨ NO x
APPLICABLE ONLY TO CORPORATE ISSUERS:
State the number of shares outstanding of each of the issuers classes of common stock as of the latest practicable date.
2,668,205 shares of common stock, $1.00 par value, as of May 14, 2012
Table of Contents
AB&T FINANCIAL CORPORATION
Table of Contents
PART I - FINANCIAL INFORMATION
Consolidated Balance Sheets
March 31, 2012 |
December 31, 2011 |
|||||||
(Unaudited) | (Audited) | |||||||
Assets |
||||||||
Cash and cash equivalents |
||||||||
Cash and due from banks |
$ | 9,738,824 | $ | 4,890,563 | ||||
Federal funds sold |
1,138,498 | 5,944,001 | ||||||
|
|
|
|
|||||
Total cash and cash equivalents |
10,877,322 | 10,834,564 | ||||||
|
|
|
|
|||||
Time deposits with other banks |
3,302,847 | 3,300,572 | ||||||
Securities available for sale at fair value |
36,219,909 | 36,583,896 | ||||||
Nonmarketable equity securities |
1,238,280 | 1,187,180 | ||||||
|
|
|
|
|||||
Total investments |
37,458,189 | 37,771,076 | ||||||
|
|
|
|
|||||
Loans receivable |
158,513,230 | 163,039,560 | ||||||
Less allowance for loan losses |
(3,338,430 | ) | (3,272,645 | ) | ||||
|
|
|
|
|||||
Loans, net |
155,174,800 | 159,766,915 | ||||||
Premises, furniture and equipment, net |
3,704,563 | 3,741,759 | ||||||
Accrued interest receivable |
629,048 | 686,389 | ||||||
Other real estate owned |
5,423,750 | 5,605,042 | ||||||
Other assets |
2,457,607 | 2,423,592 | ||||||
|
|
|
|
|||||
Total assets |
$ | 219,028,126 | $ | 224,129,909 | ||||
|
|
|
|
|||||
Liabilities |
||||||||
Deposits |
||||||||
Noninterest-bearing transaction accounts |
$ | 12,420,281 | $ | 11,015,012 | ||||
Interest-bearing transaction accounts |
8,080,127 | 8,612,889 | ||||||
Savings and money market |
69,257,159 | 72,594,258 | ||||||
Time deposits $100,000 and over |
33,250,410 | 22,735,464 | ||||||
Other time deposits |
58,183,382 | 71,493,309 | ||||||
|
|
|
|
|||||
Total deposits |
$ | 181,191,359 | $ | 186,450,932 | ||||
|
|
|
|
|||||
FHLB advances |
19,000,000 | 19,000,000 | ||||||
Accrued interest payable |
82,700 | 77,580 | ||||||
Other liabilities |
201,680 | 284,017 | ||||||
|
|
|
|
|||||
Total liabilities |
200,475,739 | 205,812,529 | ||||||
|
|
|
|
|||||
Shareholders equity |
||||||||
Preferred stock, no par value, 1,000,000 shares authorized, issued and outstanding 3,500 at March 31, 2012 and at December 31, 2011 |
3,440,610 | 3,434,532 | ||||||
Common stock, $1.00 par value; 11,000,000 shares authorized, 2,678,205 issued at March 31, 2012 and December 31, 2011 |
2,678,205 | 2,678,205 | ||||||
Treasury stock, at cost (10,000 shares at March 31, 2012 and December 31, 2011) |
(55,600 | ) | (55,600 | ) | ||||
Warrants |
136,850 | 136,850 | ||||||
Capital surplus |
21,940,640 | 21,912,257 | ||||||
Retained deficit |
(9,619,304 | ) | (9,820,211 | ) | ||||
Accumulated other comprehensive income |
30,986 | 31,347 | ||||||
|
|
|
|
|||||
Total shareholders equity |
18,552,387 | 18,317,380 | ||||||
|
|
|
|
|||||
Total liabilities and shareholders equity |
$ | 219,028,126 | $ | 224,129,909 | ||||
|
|
|
|
See notes to consolidated financial statements
-3-
Table of Contents
Consolidated Statements of Operations
(Unaudited)
For the three months
ended March 31 |
||||||||
2012 | 2011 | |||||||
Interest income: |
||||||||
Loans, including fees |
$ | 1,848,490 | $ | 1,806,883 | ||||
Investment securities, taxable |
175,020 | 84,865 | ||||||
FHLB, interest and dividends |
3,387 | 2,480 | ||||||
Federal funds sold |
4,108 | 6,452 | ||||||
Time deposits with other banks |
5,694 | 3,098 | ||||||
|
|
|
|
|||||
Total |
2,036,699 | 1,903,778 | ||||||
|
|
|
|
|||||
Interest expense: |
||||||||
Time deposits $100,000 and over |
147,995 | 115,581 | ||||||
Other deposits |
276,669 | 305,471 | ||||||
Other interest expense |
83,786 | 61,960 | ||||||
|
|
|
|
|||||
Total |
508,450 | 483,012 | ||||||
|
|
|
|
|||||
Net interest income |
1,528,249 | 1,420,766 | ||||||
Provision (recovery) for loan losses |
184,998 | (877,138 | ) | |||||
|
|
|
|
|||||
Net interest income after provision (recovery) for loan losses |
1,343,251 | 2,297,904 | ||||||
|
|
|
|
|||||
Other operating income: |
||||||||
Service charges on deposit accounts |
120,483 | 81,595 | ||||||
Gain on sale of loans |
9,870 | | ||||||
Gain on sale of investment securities |
38,841 | | ||||||
Other service charges, commissions and fees |
92,375 | 14,796 | ||||||
|
|
|
|
|||||
Total |
261,569 | 96,391 | ||||||
|
|
|
|
|||||
Other operating expenses: |
||||||||
Salaries and employee benefits |
697,614 | 661,664 | ||||||
Occupancy expense |
45,783 | 52,983 | ||||||
Furniture and equipment expense |
54,724 | 13,452 | ||||||
HELOC pool purchase discount |
| 1,002,136 | ||||||
Other real estate expenses |
79,967 | 166,293 | ||||||
Loss on sale and write down of other real estate |
31,309 | | ||||||
Deposit insurance premium |
105,000 | 108,780 | ||||||
Other operating expenses |
383,436 | 361,461 | ||||||
|
|
|
|
|||||
Total |
1,397,833 | 2,366,769 | ||||||
|
|
|
|
|||||
Income before income taxes |
206,987 | 27,526 | ||||||
Income tax expense |
| 10,844 | ||||||
Net income |
$ | 206,987 | $ | 16,682 | ||||
|
|
|
|
|||||
Accretion of preferred stock to redemption value |
6,078 | 6,078 | ||||||
Preferred stock dividends (accrued) |
43,750 | 43,750 | ||||||
|
|
|
|
|||||
Net income (loss) available to common shareholders |
$ | 157,159 | $ | (33,146 | ) | |||
|
|
|
|
|||||
Income (Loss) per common share |
||||||||
Basic income (loss) per common share |
$ | 0.06 | $ | (0.01 | ) | |||
|
|
|
|
|||||
Diluted income (loss) per common share |
$ | 0.06 | $ | (0.01 | ) | |||
|
|
|
|
See notes to consolidated financial statements
-4-
Table of Contents
Consolidated Statements of Comprehensive Income (Loss)
(Unaudited)
For the three
months ended March 31 |
||||||||
2012 | 2011 | |||||||
Net Income |
$ | 206,987 | $ | 16,682 | ||||
Other comprehensive income (loss): |
||||||||
Unrealized holding gains (losses) on securities available for sale |
38,480 | (27,929 | ) | |||||
Reclassification of (gains) losses recognized in net income |
(38,841 | ) | | |||||
Income tax benefit (expense) |
| 10,878 | ||||||
|
|
|
|
|||||
Total other comprehensive income (loss) |
(361 | ) | (17,051 | ) | ||||
|
|
|
|
|||||
Comprehensive income (loss) |
$ | 206,626 | $ | (369 | ) | |||
|
|
|
|
-5-
Table of Contents
Consolidated Statements of Changes in Shareholders Equity
For the three months ended March 31, 2012 and 2011
(dollars in thousands except for share data)
(Unaudited)
Common Stock | Preferred Stock |
Treasury Stock |
Capital Surplus |
Accumulated Other Comprehensive Income (Loss) |
Retained Deficit |
|||||||||||||||||||||||||||||||||||
Shares | Amount | Shares | Amount | Warrants | Total | |||||||||||||||||||||||||||||||||||
Balance, December 31, 2010 |
2,678,205 | $ | 2,678 | 3,500 | $ | 3,410 | $ | (56 | ) | $ | 137 | $ | 21,787 | $ | (62 | ) | $ | (6,540 | ) | $ | 21,355 | |||||||||||||||||||
Net income |
16 | 16 | ||||||||||||||||||||||||||||||||||||||
Other comprehensive loss, net of tax |
(17 | ) | (17 | ) | ||||||||||||||||||||||||||||||||||||
Accretion of preferred stock to redemption value |
6 | (6 | ) | | ||||||||||||||||||||||||||||||||||||
Dividends paid, preferred |
(43 | ) | (43 | ) | ||||||||||||||||||||||||||||||||||||
Stock-based employee compensation |
46 | 46 | ||||||||||||||||||||||||||||||||||||||
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|
|||||||||||||||||||||
Balance March 31, 2011 |
2,678,205 | $ | 2,678 | 3,500 | $ | 3,416 | $ | (56 | ) | $ | 137 | $ | 21,790 | $ | (79 | ) | $ | (6,530 | ) | $ | 21,356 | |||||||||||||||||||
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|||||||||||||||||||||
Balance, December 31, 2011 |
2,678,205 | $ | 2,678 | 3,500 | $ | 3,435 | $ | (56 | ) | $ | 137 | $ | 21,912 | $ | 31 | $ | (9,820 | ) | $ | 18,317 | ||||||||||||||||||||
Net income |
207 | 207 | ||||||||||||||||||||||||||||||||||||||
Other comprehensive income, net of tax |
(1 | ) | (1 | ) | ||||||||||||||||||||||||||||||||||||
Accretion of preferred stock to redemption value |
6 | (6 | ) | | ||||||||||||||||||||||||||||||||||||
Stock-based employee compensation |
29 | 29 | ||||||||||||||||||||||||||||||||||||||
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|||||||||||||||||||||
Balance March 31, 2012 |
2,678,205 | $ | 2,678 | 3,500 | $ | 3,441 | $ | (56 | ) | $ | 137 | $ | 21,941 | $ | 30 | $ | (9,619 | ) | $ | 18,552 | ||||||||||||||||||||
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See notes to consolidated financial statements
-6-
Table of Contents
Consolidated Statements of Cash Flows
For the three months ended March 31, 2012 and 2011
(Unaudited)
For the three months
ended March 31, |
||||||||
2012 | 2011 | |||||||
Cash flows from operating activities: |
||||||||
Net income |
$ | 206,987 | $ | 16,682 | ||||
Adjustments to reconcile net income to net cash provided by operating activities |
||||||||
Provision (recovery) for loan losses |
184,998 | (877,138 | ) | |||||
Loss (gain) on sale of other real estate |
31,309 | (3,158 | ) | |||||
Gain on sale of investment securities |
(38,841 | ) | | |||||
Gain on sale of loans |
(9,870 | ) | | |||||
Depreciation and amortization expense |
46,372 | 44,175 | ||||||
Discount accretion and premium amortization |
104,953 | 57,048 | ||||||
(Increase) decrease in interest receivable |
57,341 | (133,656 | ) | |||||
Increase in interest payable |
5,120 | 8,921 | ||||||
(Increase) decrease in other assets |
(33,786 | ) | 64,665 | |||||
Decrease in other liabilities |
(82,337 | ) | (167,668 | ) | ||||
Discount on purchased loans |
| 1,002,136 | ||||||
Stock based compensation expense |
28,383 | 46,104 | ||||||
|
|
|
|
|||||
Net cash provided by operating activities |
500,629 | 58,111 | ||||||
|
|
|
|
|||||
Cash flows from investing activities: |
||||||||
Purchase of securities available for sale |
(4,990,085 | ) | (1,107,865 | ) | ||||
Calls and maturities of securities available for sale |
1,111,103 | 751,880 | ||||||
Net decrease (increase) in loans receivable |
3,822,245 | (29,132,425 | ) | |||||
Proceeds from sale of loans |
465,550 | 4,058,458 | ||||||
Proceeds from sale of available for sale securities |
4,176,265 | 514,943 | ||||||
Purchase of time deposits in other banks |
(2,275 | ) | (2,683 | ) | ||||
Purchase of equity securities |
(51,100 | ) | | |||||
Proceeds from sale of other real estate |
294,145 | 725,353 | ||||||
Capitalized other real estate expenses |
(14,970 | ) | (375,823 | ) | ||||
Purchases of premises, furniture, and equipment |
(9,176 | ) | (9,114 | ) | ||||
|
|
|
|
|||||
Net cash provided by (used in) investing activities |
4,801,702 | (24,577,276 | ) | |||||
|
|
|
|
|||||
Cash flows from financing activities: |
||||||||
Net (decrease) increase in demand deposits, interest- bearing transaction accounts and savings accounts |
(2,464,592 | ) | 11,496,348 | |||||
Net increase (decrease) in certificates of deposit and other time deposits |
(2,794,981 | ) | 25,863,822 | |||||
Repayment of borrowed funds and FHLB advances |
| (5,640,597 | ) | |||||
Dividends paid |
| (43,750 | ) | |||||
|
|
|
|
|||||
Net cash (used) provided by financing activities |
(5,259,573 | ) | 31,675,823 | |||||
|
|
|
|
|||||
Net increase in cash and cash equivalents |
42,758 | 7,161,036 | ||||||
Cash and cash equivalents, beginning of period |
10,834,564 | 8,075,241 | ||||||
|
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|
|
|||||
Cash and cash equivalents, end of period |
$ | 10,877,322 | $ | 15,236,277 | ||||
|
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|
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Supplemental disclosure of cash flow information: |
||||||||
Transfer of loans to real estate acquired in settlement of loans |
$ | 129,192 | $ | | ||||
|
|
|
|
|||||
Interest paid |
$ | 503,330 | $ | 474,091 | ||||
|
|
|
|
|||||
Taxes paid |
$ | | $ | | ||||
|
|
|
|
See notes to consolidated financial statements
-7-
Table of Contents
Notes to Consolidated Financial Statements
(Unaudited)
Note 1 Organization
AB&T Financial Corporation (the Company), was incorporated under the laws of the State of North Carolina on June 25, 2007. On May 14, 2008, the Company became the sole owner of all the shares of the capital stock of Alliance Bank & Trust Company (the Bank). Alliance Bank & Trust Company is a state-chartered bank which was organized and incorporated under the laws of the State of North Carolina in September 2004. The Bank is not a member of the Federal Reserve System. The Bank commenced operations on September 8, 2004.
The Bank is headquartered in Gastonia, North Carolina and currently conducts business in two North Carolina counties through four full service branch offices. The principal business activity of the Bank is to provide commercial banking services to domestic markets, principally in Gaston and Cleveland counties. As a state-chartered bank, the Bank is subject to regulation by the North Carolina Office of the Commissioner of Banks and the Federal Deposit Insurance Corporation. The Company is also regulated, supervised and examined by the Federal Reserve. The consolidated financial statements include the accounts of the parent company and its wholly-owned subsidiary after elimination of all significant intercompany balances and transactions.
Note 2 Enforcement Action
Effective February 1, 2012, the Bank stipulated to the issuance of a Consent Order (the Order) issued by the Federal Deposit Insurance Corporation (FDIC) and the North Carolina Commissioner of Banks (the Commissioner). Although the Bank neither admitted nor denied any unsafe or unsound banking practices or violations of law or regulation, it agreed to the Order, which under the terms of the Order, the Bank is required, among other things, to do the following: increase Board participation in the affairs of the Bank and establish a program to oversee compliance with the Order; ensure that the Bank has and retains qualified management and develop a written management plan based upon the findings of an independent third party management assessment; achieve and maintain (i) a total risk based capital ratio of at least 11%, and (ii) a Tier 1 leverage ratio of at least 8%; charge off all assets classified as Loss and 50% of those assets classified as Doubtful; develop a comprehensive policy for determining the adequacy of the Banks ALLL; formulate a plan to reduce the risk exposure for each asset or relationship in excess of $250,000 classified as Substandard or Doubtful; refrain from extending credit to any borrower whose extension of credit has been, in whole or in part, charged-off or classified as Loss or Doubtful and is uncollected; refrain from extending credit to any borrower who has a loan or other extension of credit from the Bank that has been classified as Substandard; perform a risk segmentation analysis on and develop a written plan to systematically reduce and monitor the Banks concentration of credit in revolving 14 family residential property loans; review and revise its loan review and grading system; review and revise the Banks strategic plan and comprehensive budget; review and revise its liquidity, contingent funding and asset liability management plan; develop and implement a written policy for interest rate management; and eliminate and/or correct all violations of rules and regulations noted by the Banks regulators.
The Order further prohibits the Bank from declaring or paying dividends or bonuses without prior regulatory approval. The Bank may not accept, renew, or roll over any brokered deposits unless it is in compliance with FDIC regulations governing brokered deposits. Furthermore, while the Consent Order is in effect, the Bank must notify its regulators at least sixty days prior to undertaking asset growth that exceeds 10% or more per year.
The Company intends to take all actions necessary to enable the Bank to comply with the requirements of the Consent Order. There can be no assurance that the Bank will be able to comply fully with the provisions of the Consent Order, and the determination of our compliance will be made by the FDIC and the Commissioner. Failure to meet the requirements of the Consent Order could result in additional regulatory action.
Quarterly written progress reports to the FDIC and Commissioner are required by the Order.
Due to the Banks recent receipt of the Consent Order, the Bank is not in compliance with its terms as of the filing date of these financial statements. However management and the Board are aggressively working to fulfill the terms of the agreement.
On May 7, 2012 as a follow on the Order, the Company entered into a formal agreement with the Federal Reserve Bank of Richmond. A form 8-K was filed on May 11, 2012, with a copy of the formal agreement.
Note 3 Basis of Presentation
The accompanying financial statements have been prepared in accordance with the requirements for interim financial statements and, accordingly, they are consolidated to omit disclosures, which would substantially duplicate those contained in the Companys 2011 Annual Report on Form 10-K. The financial statements as of March 31, 2012 and for the interim periods ended March 31, 2012 and 2011 are unaudited and, in the opinion of management, include all adjustments (consisting of normal recurring adjustments) considered necessary for a fair presentation. The financial information as of December 31, 2011 has been derived from the audited financial statements as of that date. For further information, refer to the financial statements and the notes included in the Companys 2011 Annual Report on Form 10-K filed with the Securities and Exchange Commission on April 9, 2012.
The preparation of the consolidated financial statements are in conformity with accounting principles generally accepted in the United States of America (GAAP) which requires management to make estimates and assumptions. These estimates and assumptions affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the financial statements. In addition, they affect the reported amounts of income and expense during the reporting period. Actual results could differ from these estimates and assumptions.
In preparing these financial statements, the Company has evaluated events and transactions for potential recognition or disclosure through the date the financial statements were issued.
Certain amounts in the 2011 consolidated financial statements were reclassified to conform to the 2012 presentation. These reclassifications had no effect on shareholders equity or results of operations as previously presented.
Note 4 Recently Issued Accounting Pronouncements
The following is a summary of recent authoritative pronouncements that could impact the accounting, reporting, and disclosure of financial information by the Company.
In April 2011, the criteria used to determine effective control of transferred assets in the Transfers and Servicing topic of the ASC was amended by ASU 2011-03. The requirement for the transferor to have the ability to repurchase or redeem the financial assets on substantially the agreed terms and the collateral maintenance implementation guidance related to that criterion were removed from the assessment of effective control. The other criteria to assess effective control were not changed. The amendments were effective for the Company on January 1, 2012 and had no effect on the financial statements.
-8-
Table of Contents
Notes to Consolidated Financial Statements
(Unaudited)
Note 4 Recently Issued Accounting Pronouncements continued
ASU 2011-04 was issued in May 2011 to amend the Fair Value Measurement topic of the ASC by clarifying the application of existing fair value measurement and disclosure requirements and by changing particular principles or requirements for measuring fair value or for disclosing information about fair value measurements. The amendments were effective for the Company beginning January 1, 2012 and the additional disclosures are reflected in Note 6 of the consolidated financial statements.
The Comprehensive Income topic of the ASC was amended in June 2011. The amendment eliminates the option to present other comprehensive income as a part of the statement of changes in stockholders equity. The amendment requires consecutive presentation of the statement of net income and other comprehensive income and requires an entity to present reclassification adjustments from other comprehensive income to net income on the face of the financial statements. The amendments were effective for the Company on January 1, 2012 and are applied retrospectively.
Other accounting standards that have been issued or proposed by the FASB or other standards-setting bodies are not expected to have a material impact on the Companys financial position, results of operations or cash flows.
-9-
Table of Contents
Notes to Consolidated Financial Statements
(Unaudited)
Note 5 Income (loss) per common share
Basic income per common share is computed by dividing net income available to common shareholders by the weighted-average number of common shares outstanding. Diluted income per common share is computed by dividing net income available to common shareholders by the weighted-average number of common shares outstanding and dilutive common share equivalents using the treasury stock method. No dilutive common share equivalents were included in the calculation because their effect would be anti-dilutive for the three month periods ended March 31, 2012 and 2011.
Three months ended March 31, 2012 | ||||||||||||
Income (Numerator) |
Shares (Denominator) |
Per Share Amount |
||||||||||
Basic income per share |
||||||||||||
Income available to common shareholders |
$ | 157,159 | 2,668,205 | $ | 0.06 | |||||||
Effect of dilutive securities |
||||||||||||
Stock options |
| | ||||||||||
|
|
|
|
|
|
|||||||
Dilutive income per share |
||||||||||||
Income available to common shareholders plus assumed conversions |
$ | 157,159 | 2,668,205 | $ | 0.06 | |||||||
|
|
|
|
|
|
|||||||
Three months ended March 31, 2011 | ||||||||||||
Income (Numerator) |
Shares (Denominator) |
Per Share Amount |
||||||||||
Basic loss per share |
||||||||||||
Loss available to common shareholders |
$ | (33,146 | ) | 2,668,205 | $ | (0.01 | ) | |||||
Effect of dilutive securities |
||||||||||||
Stock options |
| | ||||||||||
|
|
|
|
|
|
|||||||
Dilutive loss per share |
||||||||||||
Loss available to common shareholders plus assumed conversions |
$ | (33,146 | ) | 2,668,205 | $ | (0.01 | ) | |||||
|
|
|
|
|
|
-10-
Table of Contents
Notes to Consolidated Financial Statements
(Unaudited)
Note 6 Fair Value Measurements
Effective January 1, 2008, the Company adopted ASC Topic 820, Fair Value Measurements and Disclosures, which provides a framework for measuring and disclosing fair value under generally accepted accounting principles. ASC Topic 820 requires disclosures about the fair value of assets and liabilities recognized in the balance sheet in periods subsequent to initial recognition, whether the measurements are made on a recurring basis (for example, available for sale investment securities) or on a nonrecurring basis (for example, impaired loans).
ASC Topic 820 defines fair value as the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. ASC Topic 820 also establishes a fair value hierarchy which requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. The standard describes three levels of inputs that may be used to measure fair value:
Level 1 |
Quoted prices in active markets for identical assets or liabilities. Level 1 assets and liabilities include debt and equity securities and derivative contracts that are traded in an active exchange market, as well as U.S. Treasuries, other securities that are highly liquid and are actively traded in over-the-counter markets and money market funds. | |
Level 2 |
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 for substantially the full term of the assets or liabilities. Level 2 assets and liabilities include debt securities with quoted prices that are traded less frequently than exchange-traded instruments, mortgage-backed securities, municipal bonds, corporate debt securities, and derivative contracts whose value is determined using a pricing model with inputs that are observable in the market or can be derived principally from or corroborated by observable market data. This category generally includes certain derivative contracts and impaired loans. Our available for sale investments are valued using a pricing service through our bond record keeper, which we have verified with a third party. | |
Level 3 |
Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities. Level 3 assets and liabilities include financial instruments whose value is determined using pricing models, discounted cash flow methodologies, or similar techniques, as well as instruments for which the determination of fair value requires significant management judgment or estimation. For example, this category generally includes certain private equity investments, retained residual interests in securitizations, residential mortgage servicing rights, and highly-structured or long-term derivative contracts. |
Assets measured at fair value on a recurring basis are as follows as of March 31, 2012:
Quoted market price in active markets (Level 1) |
Significant other observable inputs (Level 2) |
Significant unobservable inputs (Level 3) |
||||||||||
Available for sale investments: |
||||||||||||
U.S. Agency securities |
$ | | $ | 19,020,302 | $ | | ||||||
Mortgage-backed securities |
17,199,607 | |||||||||||
|
|
|
|
|
|
|||||||
Total |
$ | | $ | 36,219,909 | $ | | ||||||
|
|
|
|
|
|
Assets measured at fair value on a recurring basis are as follows as of December 31, 2011:
Quoted market price in active markets (Level 1) |
Significant other observable inputs (Level 2) |
Significant unobservable inputs (Level 3) |
||||||||||
Available for sale investments: |
||||||||||||
U.S. Agency securities |
$ | | $ | 14,447,699 | $ | | ||||||
Mortgage-backed securities |
| 22,136,197 | | |||||||||
|
|
|
|
|
|
|||||||
Total |
$ | | $ | 36,583,896 | $ | | ||||||
|
|
|
|
|
|
The Company had no liabilities carried at fair value or measured at fair value on a recurring basis at March 31, 2012 or December 31, 2011.
-11-
Table of Contents
Notes to Consolidated Financial Statements
(Unaudited)
Note 6 Fair Value Measurements (continued)
The Company had no liabilities carried at fair value or measured at fair value on a non-recurring basis at March 31, 2012 or December 31, 2011.
The Company is predominantly an asset based lender with real estate serving as collateral on a substantial majority of loans. Loans which are deemed to be impaired are primarily valued on a nonrecurring basis at the fair values of the underlying real estate collateral. Such fair values are obtained using independent appraisals, which the Company considers to be Level 3 inputs. Appraisals are updated annually, and adjusted downward for estimated selling costs.
For Level 3 assets and liabilities measured at fair value on a recurring or non-recurring basis as of March 31, 2012, the significant unobservable inputs used in the fair value measurements were as follows:
Fair Value at March 31, 2012 |
Valuation Technique |
Significant Unobservable Inputs |
Significant Unobservable Input Value | |||||||
Impaired Loans |
$ | 24,674,847 | Appraised Value/ Discounted Cash Flows/ |
Appraisals and/or sales of comparable properties/ Independent quotes |
n/a | |||||
OREO |
$ | 5,423,750 | Appraised Value/ Comparable Sales/ Other Estimates from Independent Sources |
Appraisals and/or sales of comparable properties/ Independent quotes/bids |
n/a |
For Level 3 assets and liabilities measured at fair value on a recurring or non-recurring basis as of December 31, 2011, the significant unobservable inputs used in the fair value measurements were as follows:
Fair Value at December 31, 2011 |
Valuation Technique |
Significant Unobservable Inputs |
Significant Unobservable Input Value | |||||||
Impaired Loans |
$ | 24,312,809 | Appraised Value/ Discounted Cash Flows/ |
Appraisals and/or sales of comparable properties/ Independent quotes |
n/a | |||||
OREO |
$ | 5,605,042 | Appraised Value/ Comparable Sales/ Other Estimates from Independent Sources |
Appraisals and/or sales of comparable properties/ Independent quotes/bids |
n/a |
-12-
Table of Contents
Notes to Consolidated Financial Statements
(Unaudited)
Note 6 Fair Value Measurements (continued)
Other real estate owned is adjusted to fair value upon transfer of the loans at foreclosure. Subsequently, the assets are carried at the lower of carrying value or fair value less costs to sell. Fair value is based upon independent market prices, fair values of the collateral or managements estimation of the value of the collateral. When the fair value of the collateral is based on an observable market price or current appraised value, the Company records the asset as nonrecurring Level 3 inputs.
Level 3 Valuation Methodologies
Impaired loans are loans recorded at fair value less estimated selling costs. Once a loan is identified as individually impaired, the Company measures impairment. The fair value of impaired loans is estimated using one of several methods, including collateral value and discounted cash flows and, in rare cases, the market value of the note. Those impaired loans not requiring an allowance represent loans for which the net present value of the expected cash flows or fair value of the collateral less costs to sell exceed the recorded investments in such loans. At March 31, 2012 and December 31, 2011, a majority of the total impaired loans were evaluated based on the fair value of the collateral. When the fair value of the collateral is based on an executed sales contract with an independent third party, the Company records the impaired loans as nonrecurring Level 1. If the collateral is based on another observable market price or a current appraised value, the Company records the impaired loans as nonrecurring Level 2. When an appraised value is not available or the Company determines the fair value of the collateral is further impaired below the appraised value and there is no observable market price, the Company records the impaired loan as nonrecurring Level 3. Impaired loans can also be evaluated for impairment using the present value of expected future cash flows discounted at the loans effective interest rate. The measurement of impaired loans using future cash flows discounted at the loans effective interest rate rather than the market rate of interest is not a fair value measurement and is therefore excluded from fair value disclosure requirements. Impaired loans are reviewed and evaluated on at least a quarterly basis for additional impairment and adjusted accordingly.
Foreclosed real estate and repossessed personal property. Foreclosed real estate and repossessed personal property is carried at the lower of carrying value or fair value less estimated selling costs. Fair value is generally based upon current appraisals, comparable sales, and other estimates of value obtained principally from independent sources, adjusted for selling costs. When the fair value of the collateral is based on an observable market price or a current appraised value, the Company records the asset as nonrecurring Level 2. However, the Company also considers other factors or recent developments which could result in adjustments to the collateral value estimates indicated in the appraisals such as changed in absorption rates or market conditions from the time of valuation. In situations where management adjustments are significant to the fair value measurements in its entirety, such measurements are classified as Level 3 within the valuation hierarchy.
The following presents the carrying amount, fair value, and placement in the fair value hierarchy of the Companys financial instruments as of March 31, 2012 and December 31, 2011. This table excludes financial instruments for which the carrying amount approximates fair value. For short-term financial assets such as cash and cash equivalents, the carrying amount is a reasonable estimate of fair value due to the relatively short time between the origination of the instrument and its expected realization. For financial liabilities such as noninterest-bearing demand, interest-bearing demand, and savings deposits, the carrying amount is a reasonable estimate of fair value due to these products having no stated maturity.
In accordance with ASC Topic 825, the Company has not included assets and liabilities that are not financial instruments in its disclosure, such as the value of the long-term relationships with the Companys deposit, net premises and equipment, net core deposit intangibles, deferred taxes and other assets and liabilities. Additionally, the amounts in the table have not been updated since the date indicated; therefore the valuations may have changed since that point in time. For these reasons, the total of the fair value calculations presented does not represent, and should not be construed to represent, the underlying value of the Company.
The following disclosures represent financial instruments in which the ending balance at March 31, 2012, and December 31, 2011 are not carried at fair value in its entirety on the Companys Consolidated Balance Sheet.
Loans - Fair values were generally determined by discounting both principal and interest cash flows expected to be collected using an observable discount rate for similar instruments with adjustments that the Company believes a market participant would consider in determining fair value. The Company estimates the cash flows expected to be collected using internal credit risk, interest rate and prepayment risk models that incorporate the Companys best estimate of current key assumptions, such as default rates, loss severity and prepayment speeds for the life of the loan.
Deposits - The fair value for certain deposits with stated maturities was calculated by discounting contractual cash flows using current market rates for instruments with similar maturities. For deposits with no stated maturities, the carrying amount was considered to approximate fair value and does not take into account the significant value of the cost advantage and stability of the Companys long-term relationships with depositors.
FHLB Advances - The Company uses quoted market prices for its long-term debt when available. When quoted market prices are not available, fair value is estimated based on current market interest rates and credit spreads for debt with similar maturities.
-13-
Table of Contents
Notes to Consolidated Financial Statements
(Unaudited)
Note 6 Fair Value Measurements (continued)
The carrying and fair values of certain financial instruments at March 31, 2012 and December 31, 2011 were as follows:
Fair Value Measurements | ||||||||||||||||||||
(dollars in thousands) | Carrying Amount |
Fair Value | Quoted Prices in Active Markets for Identical Assets or Liabilities (Level 1) |
Significant Other Observable Inputs (Level 2) |
Significant Unobservable Inputs (Level 3) |
|||||||||||||||
March 31, 2012 |
||||||||||||||||||||
Financial Instruments - Assets |
||||||||||||||||||||
Loans |
$ | 155,175 | $ | 148,492 | $ | | $ | | $ | 148,492 | ||||||||||
Financial Instruments Liabilities |
||||||||||||||||||||
Total Deposits |
181,191 | 181,003 | | 181,003 | | |||||||||||||||
FHLB advances |
19,000 | 19,198 | | 19,198 | | |||||||||||||||
December 31, 2011 |
||||||||||||||||||||
Financial Instruments - Assets |
||||||||||||||||||||
Loans |
$ | 159,767 | $ | 157,293 | $ | $ | | $ | 157,293 | |||||||||||
Financial Instruments Liabilities |
||||||||||||||||||||
Total Deposits |
186,451 | 186,086 | | 186,086 | | |||||||||||||||
FHLB advances |
19,000 | 19,338 | | 19,338 | |
Note 8 Investment Securities
The amortized cost and estimated fair values of securities available for sale were:
Amortized Cost |
Gross Unrealized | Estimated Fair Value |
||||||||||||||
Gains | Losses | |||||||||||||||
March 31, 2012 |
||||||||||||||||
U.S. Government agency securities |
$ | 17,221,730 | $ | 13,532 | $ | 35,655 | $ | 17,199,607 | ||||||||
Mortgage-backed securities |
18,947,031 | 138,894 | 65,623 | 19,020,302 | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Total |
$ | 36,168,761 | $ | 152,426 | $ | 101,278 | $ | 36,219,909 | ||||||||
|
|
|
|
|
|
|
|
|||||||||
December 31, 2011 |
||||||||||||||||
U.S. Government agency securities |
$ | 14,459,782 | $ | 15,842 | $ | 27,925 | $ | 14,447,699 | ||||||||
Mortgage-backed securities |
22,072,375 | 98,033 | 34,211 | 22,136,197 | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Total |
$ | 36,532,157 | $ | 113,875 | $ | 62,136 | $ | 36,583,896 | ||||||||
|
|
|
|
|
|
|
|
The following is a summary of maturities of securities available for sale as of March 31, 2012. The amortized cost and estimated fair values are based on the contractual maturity dates. Actual maturities may differ from contractual maturities because borrowers may have the right to call or prepay obligations with or without penalty.
Securities Available-for-Sale |
||||||||
Amortized Cost |
Estimated Fair Value |
|||||||
Due in one year or less |
$ | 130,537 | $ | 130,917 | ||||
Due after one year but within five years |
9,767,705 | 9,784,908 | ||||||
Due after five years but within ten years |
12,570,432 | 12,589,464 | ||||||
Due after ten years |
13,700,087 | 13,714,620 | ||||||
|
|
|
|
|||||
$ | 36,168,761 | $ | 36,219,909 | |||||
|
|
|
|
-14-
Table of Contents
Notes to Consolidated Financial Statements
(Unaudited)
Note 7 Investment Securities (continued)
The following table shows gross unrealized losses and fair value, aggregated by investment category, and length of time that individual securities have been in a continuous unrealized loss position at March 31, 2012 and December 31, 2011.
Less than twelve months |
Twelve months or more |
Total | ||||||||||||||||||||||
Fair Value | Unrealized losses |
Fair Value | Unrealized losses |
Fair Value | Unrealized losses |
|||||||||||||||||||
March 31, 2012 |
||||||||||||||||||||||||
U.S. Government agency securities |
$ | 7,919,493 | $ | 35,655 | $ | | $ | | $ | 7,919,493 | $ | 35,655 | ||||||||||||
Mortgage-backed securities |
5,820,281 | 60,752 | 550,137 | 4,871 | 6,370,418 | 65,623 | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Total |
$ | 13,739,774 | $ | 96,407 | $ | 550,137 | $ | 4,871 | $ | 14,289,911 | $ | 101,278 | ||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Less than twelve months |
Twelve months or more |
Total | ||||||||||||||||||||||
Fair Value | Unrealized losses |
Fair Value | Unrealized losses |
Fair Value | Unrealized losses |
|||||||||||||||||||
December 31, 2011 |
||||||||||||||||||||||||
U.S. Government agency securities |
$ | 6,364,844 | $ | 27,925 | $ | 240,914 | $ | 2,241 | $ | 6,605,758 | $ | 30,166 | ||||||||||||
Mortgage-backed securities |
5,204,043 | 31,970 | | | 5,204,043 | 31,970 | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Total |
$ | 11,568,887 | $ | 59,895 | $ | 240,914 | $ | 2,241 | $ | 11,809,801 | $ | 62,136 | ||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
Securities classified as available-for-sale are recorded at fair market value. Securities in a continuous loss position for twelve months or more at March 31, 2012, consisted of two securities. Of the securities in an unrealized loss position as of March 31, 2012, the Company does not intend to sell the securities and it is more likely than not that the Company will not be required to sell these securities before recovery of their amortized cost. The Company believes, based on industry analyst reports and credit ratings, that the deterioration in value is attributable to changes in market interest rates and is not in the credit quality of the issuer and therefore, these losses are not considered other-than-temporary.
Proceeds from sales of available for sale securities totaled $4,176,265 for the three months ended March 31, 2012, resulting in gross gains of $38,841. Proceeds from sales of available for sale securities totaled $514,943 for the three months ended March 31, 2011.
Note 8 Loans Receivable
Major classifications of loans receivable at March 31, 2012 and December 31, 2011 are summarized as follows:
2012 | 2011 | |||||||
Real estate construction |
$ | 13,998,775 | $ | 14,388,838 | ||||
Real estate commercial |
59,221,710 | 61,432,346 | ||||||
Real estate residential |
64,284,547 | 65,843,085 | ||||||
Commercial and industrial |
20,178,709 | 20,827,193 | ||||||
Consumer and other |
829,489 | 548,098 | ||||||
|
|
|
|
|||||
Total gross loans |
$ | 158,513,230 | $ | 163,039,560 | ||||
|
|
|
|
-15-
Table of Contents
Notes to Consolidated Financial Statements
(Unaudited)
Note 8 Loans Receivable (continued)
As of March 31, 2012 and December 31, 2011, loans individually evaluated and considered impaired were as follows:
2012 | 2011 | |||||||
Total loans considered impaired at period end |
$ | 24,674,847 | $ | 24,312,809 | ||||
Loans considered impaired for which there is a related allowance for loan loss: |
||||||||
Outstanding loan balance |
11,294,205 | 11,549,090 | ||||||
Related allowance established |
1,588,526 | 1,524,967 | ||||||
Loans considered impaired for which no related allowance for loan loss was established |
13,380,642 | 12,763,719 | ||||||
Average annual investment in impaired loans |
28,862,561 | 29,156,825 | ||||||
Interest income recognized on impaired loans |
||||||||
During the period of impairment |
||||||||
Cash basis |
916,945 | 757,680 |
The following table represents the balance in the allowance for loan losses and recorded investment in loans by portfolio segment on impairment method as of March 31, 2012:
Real Estate | Commercial and Industrial |
Consumer and Other |
||||||||||||||||||||||||||
Construction | Commercial | Residential | Unallocated | Total | ||||||||||||||||||||||||
Allowance for loan and lease losses: |
||||||||||||||||||||||||||||
Ending balance attributable to loans: |
||||||||||||||||||||||||||||
Individually evaluated for impairment |
$ | 394,043 | $ | 596,117 | $ | 501,312 | $ | 97,054 | $ | | $ | | $ | 1,588,526 | ||||||||||||||
Collectively evaluated for impairment |
180,800 | 477,913 | 490,367 | 424,931 | 5,616 | 170,277 | 1,749,904 | |||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||
Total |
$ | 574,843 | $ | 1,074,030 | $ | 991,679 | $ | 521,985 | $ | 5,616 | $ | 170,277 | $ | 3,338,430 | ||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||
Loans: |
||||||||||||||||||||||||||||
Loans individually evaluated for impairment |
$ | 4,959,234 | $ | 12,753,807 | $ | 6,266,857 | $ | 677,684 | $ | 17,265 | $ | | $ | 24,674,847 | ||||||||||||||
Loans collectively evaluated for impairment |
9,039,541 | 46,467,903 | 35,034,517 | 19,501,025 | 812,224 | | 110,855,210 | |||||||||||||||||||||
Loans acquired with deteriorated credit quality |
| | 22,983,173 | | | | 22,983,173 | |||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||
Total |
$ | 13,998,775 | $ | 59,221,710 | $ | 64,284,547 | $ | 20,178,709 | $ | 829,489 | $ | | $ | 158,513,230 | ||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
-16-
Table of Contents
Notes to Consolidated Financial Statements
(Unaudited)
Note 8 Loans Receivable (continued)
The following table represents the balance in the allowance for loan losses and recorded investment in loans by portfolio segment on impairment method as of December 31, 2011:
Real Estate | Commercial | Consumer | ||||||||||||||||||||||||||
Construction | Commercial | Residential | and Industrial | and Other | Unallocated | Total | ||||||||||||||||||||||
Allowance for loan and lease losses: |
||||||||||||||||||||||||||||
Ending balance attributable to loans: |
||||||||||||||||||||||||||||
Individually evaluated for impairment |
$ | 237,212 | $ | 623,884 | $ | 566,818 | $ | 97,053 | $ | | $ | | $ | 1,524,967 | ||||||||||||||
Collectively evaluated for impairment |
190,831 | 375,375 | 537,799 | 455,406 | 6,266 | 182,001 | 1,747,678 | |||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||
Total |
$ | 428,043 | $ | 999,259 | $ | 1,104,617 | $ | 552,459 | $ | 6,266 | $ | 182,001 | $ | 3,272,645 | ||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||
Loans: |
||||||||||||||||||||||||||||
Loans individually evaluated for impairment |
$ | 5,151,906 | $ | 12,559,956 | $ | 5,865,347 | $ | 716,852 | $ | 18,748 | $ | | $ | 24,312,809 | ||||||||||||||
Loans collectively evaluated for impairment |
9,236,932 | 48,872,390 | 36,449,125 | 20,110,341 | 529,350 | | 115,198,138 | |||||||||||||||||||||
Loans acquired with deteriorated credit quality |
| | 23,528,613 | | | | 23,528,613 | |||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||
Total |
$ | 14,388,838 | $ | 61,432,346 | $ | 65,843,085 | $ | 20,827,193 | $ | 548,098 | $ | | $ | 163,039,560 | ||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The following table presents loans individually evaluated for impairment as of March 31, 2012:
Unpaid Principal Balance |
Recorded Investment |
Allowance Allocated |
Average Recorded Investment |
Interest Income Recognized |
||||||||||||||||
With no related allowance recorded: |
||||||||||||||||||||
Commercial and industrial |
$ | 121,941 | $ | 121,941 | $ | | $ | 129,737 | $ | 3,262 | ||||||||||
Consumer & other |
17,265 | 17,265 | | 18,394 | 121 | |||||||||||||||
Real estate: |
||||||||||||||||||||
Construction |
2,523,735 | 2,523,735 | | 2,820,258 | 63,417 | |||||||||||||||
Mortgage residential |
4,951,199 | 3,784,281 | | 4,915,441 | 142,299 | |||||||||||||||
Mortgage commercial |
8,077,500 | 6,933,420 | | 9,152,747 | 156,666 | |||||||||||||||
With an allowance recorded: |
||||||||||||||||||||
Commercial and industrial |
555,743 | 555,743 | 97,054 | 573,713 | 11,060 | |||||||||||||||
Real estate: |
||||||||||||||||||||
Construction |
2,435,499 | 2,435,499 | 394,043 | 2,439,767 | 67,137 | |||||||||||||||
Mortgage residential |
2,482,576 | 2,482,576 | 501,312 | 2,579,673 | 254,551 | |||||||||||||||
Mortgage commercial |
5,820,387 | 5,820,387 | 596,117 | 6,232,831 | 218,432 | |||||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Total |
$ | 26,985,845 | $ | 24,674,847 | $ | 1,588,526 | $ | 28,862,561 | $ | 916,945 | ||||||||||
|
|
|
|
|
|
|
|
|
|
The following table presents loans individually evaluated for impairment as of December 31, 2011:
Unpaid Principal Balance |
Recorded Investment |
Allowance Allocated |
Average Recorded Investment |
Interest Income Recognized |
||||||||||||||||
With no related allowance recorded: |
||||||||||||||||||||
Commercial and industrial |
$ | 132,854 | $ | 132,854 | $ | | $ | 164,197 | $ | 7,155 | ||||||||||
Consumer & other |
18,748 | 18,748 | | 21,603 | 1,379 | |||||||||||||||
Real estate: |
||||||||||||||||||||
Construction |
2,470,326 | 2,470,327 | | 2,752,629 | 118,664 | |||||||||||||||
Mortgage residential |
4,481,501 | 3,314,583 | | 4,461,693 | 105,621 | |||||||||||||||
Mortgage commercial |
7,971,288 | 6,827,208 | | 9,427,284 | 323,105 | |||||||||||||||
With an allowance recorded: |
||||||||||||||||||||
Commercial and industrial |
583,998 | 583,998 | 97,053 | 600,966 | 9,032 | |||||||||||||||
Real estate: |
||||||||||||||||||||
Construction |
2,681,579 | 2,681,579 | 237,212 | 2,689,031 | 44,557 | |||||||||||||||
Mortgage residential |
2,550,764 | 2,550,764 | 566,818 | 2,646,315 | 10,757 | |||||||||||||||
Mortgage commercial |
5,732,748 | 5,732,748 | 623,884 | 6,393,107 | 137,410 | |||||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Total |
$ | 26,623,806 | $ | 24,312,809 | 1,524,967 | $ | 29,156,825 | $ | 757,680 | |||||||||||
|
|
|
|
|
|
|
|
|
|
-17-
Table of Contents
Notes to Consolidated Financial Statements
(Unaudited)
Note 8 Loans Receivable (continued)
Transactions in the allowance for loan losses for the three months ended March 31, 2012 are summarized as follows:
Real Estate | ||||||||||||||||||||||||||||
Construction | Commercial | Residential | Commercial and Industrial |
Consumer and Other |
Unallocated | Total | ||||||||||||||||||||||
Balance, beginning of year |
$ | 428,043 | $ | 999,259 | $ | 1,104,617 | $ | 552,459 | $ | 6,266 | $ | 182,001 | $ | 3,272,645 | ||||||||||||||
Provision charged to operations |
144,582 | 87,858 | (6,584 | ) | (30,473 | ) | 1,340 | (11,725 | ) | 184,998 | ||||||||||||||||||
Recoveries |
2,218 | | 1,319 | | 25,194 | | 28,731 | |||||||||||||||||||||
Charge-offs |
| (13,087 | ) | (107,673 | ) | | (27,184 | ) | | (147,944 | ) | |||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||
Balance, end of year |
$ | 574,843 | $ | 1,074,030 | $ | 991,679 | $ | 521,986 | $ | 5,616 | $ | 170,276 | $ | 3,338,430 | ||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Transactions in the allowance for loan losses for the three months ended March 31, 2011 are summarized as follows:
Real Estate | ||||||||||||||||||||||||||||
Construction | Commercial | Residential | Commercial and Industrial |
Consumer and Other |
Unallocated | Total | ||||||||||||||||||||||
Balance, beginning of year |
$ | 1,133,180 | $ | 1,532,386 | $ | 1,690,850 | $ | 636,627 | $ | 6,676 | $ | 226,195 | $ | 5,225,914 | ||||||||||||||
Provision (recovery) charged to operations (1) |
(480,910 | ) | (7,894 | ) | (373,696 | ) | 59,569 | 25,468 | (99,675 | ) | (877,138 | ) | ||||||||||||||||
Recoveries |
| | | 1,166 | 22,008 | | 23,174 | |||||||||||||||||||||
Charge-offs |
| | (10,639 | ) | | (34,152 | ) | | (44,791 | ) | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||
Balance, end of year |
$ | 652,270 | $ | 1,524,492 | $ | 1,306,515 | $ | 697,362 | $ | 20,000 | $ | 126,520 | $ | 4,327,159 | ||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) | Amount is net of the reversal of $1,046,479 specific reserves which were recorded on loans sold in conjunction with the HELOC portfolio acquisition. Of the total amount $777,246 related to real estate construction loans and $269,233 related to residential real estate loans. |
-18-
Table of Contents
Notes to Consolidated Financial Statements
(Unaudited)
Note 8 Loans Receivable (continued)
The following table presents the investment in nonaccrual and accruing loans delinquent for 90 days or more as of March 31, 2012 and December 31, 2011:
March 31, 2012 | December 31, 2011 | |||||||||||||||
Nonaccrual | Accruing loans delinquent for 90 days or more |
Nonaccrual | Accruing loans delinquent for 90 days or more |
|||||||||||||
Commercial and industrial |
$ | 206,703 | $ | | $ | 218,676 | $ | | ||||||||
Real estate: |
||||||||||||||||
Construction |
4,398,655 | | 3,485,061 | | ||||||||||||
Mortgage residential |
4,066,767 | 138,787 | 4,164,644 | | ||||||||||||
Mortgage commercial |
6,848,863 | | 4,339,334 | | ||||||||||||
Consumer & other |
6,384 | | 6,895 | | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Total |
$ | 15,527,372 | $ | 138,787 | $ | 12,214,610 | $ | | ||||||||
|
|
|
|
|
|
|
|
The following table presents the aging of the recorded investment in past due loans and leases as of March 31, 2012:
30 89 Days Past Due |
Greater than 90 Days Past Due |
Nonaccrual Loans |
Total Past Due |
Loans Not Past Due |
Total | |||||||||||||||||||
Commercial and industrial |
$ | 107,074 | $ | | $ | 206,703 | $ | 313,777 | $ | 19,864,932 | $ | 20,178,709 | ||||||||||||
Real estate: |
||||||||||||||||||||||||
Construction |
| | 4,398,655 | 4,398,655 | 9,600,120 | 13,998,775 | ||||||||||||||||||
Mortgage residential |
808,076 | 138,787 | 4,066,767 | 5,013,630 | 59,270,917 | 64,284,547 | ||||||||||||||||||
Mortgage commercial |
336,252 | | 6,848,863 | 7,185,115 | 52,036,595 | 59,221,710 | ||||||||||||||||||
Consumer & other |
| | 6,384 | 6,384 | 823,105 | 829,489 | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Total |
$ | 1,251,402 | $ | 138,787 | $ | 15,527,372 | $ | 16,917,561 | $ | 141,595,669 | $ | 158,513,230 | ||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
The following table presents the aging of the recorded investment in past due loans and leases as of December 31, 2011:
30 89 Days Past Due |
Greater than 90 Days Past Due |
Nonaccrual Loans |
Total Past Due |
Loans Not Past Due |
Total | |||||||||||||||||||
Commercial and industrial |
$ | 27,499 | $ | | $ | 218,676 | $ | 246,175 | $ | 20,581,018 | $ | 20,827,193 | ||||||||||||
Real estate: |
||||||||||||||||||||||||
Construction |
470,688 | | 3,485,061 | 3,955,749 | 10,433,089 | 14,388,838 | ||||||||||||||||||
Mortgage residential |
249,040 | | 4,164,644 | 4,413,684 | 61,429,401 | 65,843,085 | ||||||||||||||||||
Mortgage commercial |
654,801 | | 4,339,334 | 4,994,135 | 56,438,211 | 61,432,346 | ||||||||||||||||||
Consumer & other |
3,799 | | 6,895 | 10,694 | 537,404 | 548,098 | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Total |
$ | 1,405,827 | $ | | $ | 12,214,610 | $ | 13,620,437 | $ | 149,419,123 | $ | 163,039,560 | ||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
-19-
Table of Contents
Notes to Consolidated Financial Statements
(Unaudited)
Note 8 Loans Receivable continued
The Company categorizes loans into risk categories based on relevant information about the ability of borrowers to service their debt such as: current financial information, historical payment experience, credit documentation, public information, and current economic trends, among other factors. The Company analyzes loans individually by classifying the loans as to credit risk. This analysis includes loans with an outstanding balance greater than $0.5 million or $1.0 million, depending on loan type, and non-homogeneous loans, such as commercial and commercial real estate loans. This analysis is performed on a quarterly basis with the most recent analysis performed at September 30, 2011. The Company uses the following definitions for risk ratings:
Special Mention. Loans classified as special mention, while still adequately protected by the borrowers capital adequacy and payment capability, exhibit distinct weakening trends and/or elevated levels of exposure to external conditions. If left unchecked or uncorrected, these potential weaknesses may result in deteriorated prospects of repayment. These exposures require managements close attention so as to avoid becoming undue or unwarranted credit exposures.
Substandard. Loans classified as substandard are inadequately protected by the borrowers current financial condition and payment capability or of the collateral pledged, if any. Loans so classified have a well-defined weakness or weaknesses that jeopardize the orderly repayment of debt. They are characterized by the distinct possibility that the Bank will sustain some loss if the deficiencies are not corrected.
Doubtful. Loans classified as doubtful have all the weaknesses inherent in those classified as substandard, with the added characteristic that the weaknesses make collection or orderly repayment in full, on the basis of current existing facts, conditions and values, highly questionable and improbable. Possibility of loss is extremely high, but because of certain important and reasonably specific factors that may work to the advantage and strengthening of the exposure, its classification as an estimated loss is deferred until its more exact status may be determined.
Loss. Loans classified as loss are considered to be non-collectible and of such little value that their continuance as bankable assets is not warranted. This does not mean the loan has absolutely no recovery value, but rather it is neither practical nor desirable to defer writing off the loan, even though partial recovery may be obtained in the future. Losses are taken in the period in which they surface as uncollectible.
Loans not meeting the criteria above that are analyzed individually as part of the above described process are considered to be pass rated loans and leases. As of March 31, 2012 and December 31, 2011, the risk category of loans and leases is as follows:
March 31, 2012
Pass | Special Mention |
Substandard | Doubtful | Loss | Total | |||||||||||||||||||
Commercial and industrial |
$ | 15,908,245 | $ | 3,893,505 | $ | 376,959 | $ | | $ | | $ | 20,178,709 | ||||||||||||
Real estate: |
||||||||||||||||||||||||
Construction |
7,997,411 | 1,136,916 | 4,864,448 | | | 13,998,775 | ||||||||||||||||||
Mortgage residential |
54,569,672 | 3,928,459 | 5,786,416 | | | 64,284,547 | ||||||||||||||||||
Mortgage commercial |
40,306,051 | 9,017,171 | 9,898,488 | | | 59,221,710 | ||||||||||||||||||
Consumer & other |
802,309 | 9,915 | 17,265 | | | 829,489 | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Total |
$ | 119,583,688 | $ | 17,985,966 | $ | 20,943,576 | $ | | $ | | $ | 158,513,230 | ||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2011
Pass | Special Mention |
Substandard | Doubtful | Loss | Total | |||||||||||||||||||
Commercial and industrial |
$ | 16,442,783 | $ | 3,992,117 | $ | 392,293 | $ | | $ | | $ | 20,827,193 | ||||||||||||
Real estate: |
||||||||||||||||||||||||
Construction |
6,661,777 | 2,671,055 | 5,056,006 | | | 14,388,838 | ||||||||||||||||||
Mortgage residential |
55,509,327 | 4,952,469 | 5,381,288 | | | 65,843,084 | ||||||||||||||||||
Mortgage commercial |
45,775,112 | 5,955,956 | 9,701,279 | | | 61,432,347 | ||||||||||||||||||
Consumer & other |
518,579 | 10,771 | 18,748 | | | 548,098 | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Total |
$ | 124,907,578 | $ | 17,582,368 | $ | 20,549,614 | $ | | $ | | $ | 163,039,560 | ||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
At March 31, 2012 and December 31, 2011, the Company does not have loans defined as subprime.
On March 25, 2011, the Company completed a loan swap transaction accounted for as a transfer of financial assets, which included the purchase of a pool of residential mortgage home equity loans with a par value of $27,095,572 (an estimated fair value of $26,093,437). The residential mortgage home equity loan portfolio (portfolio) was purchased from a private equity firm in exchange for a combination of $4,058,458 in unpaid principal balance of certain non-performing loans and cash of $20,328,049. The non-performing loans were transferred without recourse and were carried at fair value prior to the exchange, in accordance with accounting standards. The Company obtained a third party valuation of the assets and will amortize approximately $850,000 in loan purchase adjustment (as a result of the fair value measurement) as a yield adjustment over the expected life of the loans. As a result of the transaction, the Company recorded a discount on the purchased loans of $1,002,136 and was able to eliminate $1,046,479 in recorded specific loan loss reserves. As of March 31, 2012 the bank held $986,981 in cash reserves against any future loan defaults. As such, there is no additional allowance provided for the HELOC portfolio. The Bank reviews the sufficiency of the cash reserves on a quarterly basis to determine if an additional provision for loan loss should be recorded for probable losses in the portfolio.
-20-
Table of Contents
Notes to Consolidated Financial Statements
(Unaudited)
Note 9 Troubled Debt Restructures
As a result of adopting the amendments in ASU 2011-02, the Bank reassessed all restructurings that occurred on or after the beginning of the fiscal year of adoption (January 1, 2011) to determine whether they are considered troubled debt restructurings (TDRs) under the amended guidance. The Bank identified as TDRs certain loans for which the allowance for loan losses had previously been measured under a general allowance methodology. Upon identifying those loans as TDRs, the Bank identified them as impaired under the guidance in ASC 310-10-35. The amendments in ASU 2011-02 require prospective application of the impairment measurement guidance in ASC 310-10-35 for those loans newly identified as impaired. At the end of the year of adoption (December 31, 2011), the recorded investment in loans for which the allowance was previously measured under a general allowance methodology and were then impaired under ASC 310-10-35 was $9,892,503, and the allowance for loan losses associated with those loans, on the basis of a current evaluation of loss was $381,039. During the year ended December 31, 2011, the Bank charged $494,997 to the allowance relating to impairment charges on restructured loans. No additional impairment charges were incurred during the three months ended March 31, 2012.
There were no loans modified during the twelve months preceding March 31, 2012 classified as troubled debt restructurings. The Bank only modifies loans that are considered troubled debt restructurings, as no such loans were modified during the stated time period. Restructured loans must perform for six months prior to being returned to accrual status.
The following table, by loan category, presents loans determined to be troubled debt restructurings as of December 31, 2011 which defaulted during the quarter ended March 31, 2012.
Three months ended March 31, 2012 |
||||||||
Number of Contracts |
Recorded Investment | |||||||
Troubled Debt Restructurings |
||||||||
That Subsequently Defaulted |
||||||||
During the Period: |
||||||||
Commercial and industrial |
| $ | | |||||
Consumer and other |
| | ||||||
Real estate: |
||||||||
Construction |
1 | 872,581 | ||||||
Mortgage - residential |
2 | 2,415,920 | ||||||
Mortgage - commercial |
| | ||||||
|
|
|
|
|||||
3 | $ | 3,288,501 | ||||||
|
|
|
|
In the determination of the allowance for loan losses, all TDRs are reviewed to ensure that one of the three proper valuation methods (fair market value of the collateral, present value of cash flows, or observable market price) is adhered to. All nonaccrual loans are written down to their corresponding collateral value. All TDR accruing loans where the loan balance exceeds the present value of cash flow will have a specific allocation. All TDR loans are considered impaired. Under ASC 310-10, a loan is impaired when it is probable that the bank will be unable to collect all amounts due including both principal and interest according to the original contractual terms of the loan agreement.
As of March 31, 2012 | ||||||||
Number of Contracts |
Recorded Investment |
|||||||
Troubled Debt Restructurings at Period End: |
||||||||
Accruing: |
||||||||
Commercial and industrial |
2 | $ | 381,583 | |||||
Consumer and other |
| | ||||||
Real estate: |
||||||||
Construction |
| | ||||||
Mortgage - residential |
1 | 254,115 | ||||||
Mortgage - commercial |
2 | 2,855,319 | ||||||
|
|
|
|
|||||
Total |
5 | 3,491,017 | ||||||
|
|
|
|
|||||
Nonaccruing: |
||||||||
Commercial and industrial |
1 | 27,264 | ||||||
Consumer and other |
1 | 6,384 | ||||||
Real estate: |
||||||||
Construction |
2 | 1,131,573 | ||||||
Mortgage - residential |
3 | 810,698 | ||||||
Mortgage - commercial |
6 | 4,633,121 | ||||||
|
|
|
|
|||||
Total |
13 | 6,609,040 | ||||||
|
|
|
|
|||||
Total Troubled Debt Restructurings |
18 | $ | 10,100,057 | |||||
|
|
|
|
-21-
Table of Contents
Notes to Consolidated Financial Statements
(Unaudited)
Note 9 Troubled Debt Restructures continued
As of December 31, 2011 | ||||||||
Number of Contracts |
Recorded Investment |
|||||||
Troubled Debt Restructurings at Period End: |
||||||||
Accruing: |
||||||||
Commercial and industrial |
3 | $ | 406,567 | |||||
Consumer other |
| | ||||||
Real estate: |
||||||||
Construction |
1 | 872,581 | ||||||
Mortgage - residential |
1 | 254,115 | ||||||
Mortgage - commercial |
4 | 5,274,597 | ||||||
|
|
|
|
|||||
Total |
9 | 6,807,860 | ||||||
|
|
|
|
|||||
Nonaccruing: |
||||||||
Commercial & Industrial |
1 | 27,984 | ||||||
Consumer & other |
1 | 6,895 | ||||||
Real estate: |
||||||||
Construction |
1 | 258,991 | ||||||
Mortgage - residential |
3 | 811,929 | ||||||
Mortgage - commercial |
4 | 1,978,844 | ||||||
Total |
10 | $ | 3,084,643 | |||||
|
|
|
|
|||||
Total Troubled Debt Restructurings |
19 | $ | 9,892,503 | |||||
|
|
|
|
-22-
Table of Contents
Notes to Consolidated Financial Statements
(Unaudited)
Note 10 Dividends on Series A Preferred Stock Issued to the U.S. Treasury
At the request of the Federal Reserve Bank of Richmond, the Company deferred the quarterly dividend payment on the shares of Series A Preferred Stock issued to the U.S. Treasury pursuant to the Capital Purchase Program (the CPP) commencing with the payment due May 15, 2011. This payment was the first dividend payment deferred. As part of the CPP, the Company entered into a letter agreement with the Treasury on January 23, 2009, which includes a Securities Purchase Agreement-Standard Terms. The Company also amended its articles of incorporation to set forth the terms of the Series A Preferred Stock. Under the Companys amended articles of incorporation, dividends compound if they accrue and are not paid. A failure to pay a total of six such dividends, whether or not consecutive, gives the Treasury the right to elect two directors to the Companys Board of Directors. That right would continue until the Company pays all dividends in arrears. As of the date of this report, the total arrearage was $175,000. The Company anticipates paying the accrued dividends in the future to avoid triggering the Treasurys ability to elect directors to the Companys Board of Directors.
Item 2 Managements Discussion and Analysis of Financial Condition and Results of Operations
The following is a discussion of the Companys financial condition as of March 31, 2012 compared to December 31, 2011, and the results of operations for the three month periods ended March 31, 2012 and 2011. This discussion should be read in conjunction with the Companys consolidated financial statements and accompanying notes appearing in this report and in conjunction with the financial statements and related notes and disclosures in the Companys 2011 Annual Report on Form 10-K. This report contains forward-looking statements relating to, without limitation, future economic performance, plans and objectives of management for future operations, and projections of revenues and other financial items that are based on the beliefs of the Companys management, as well as assumptions made by and information currently available to the Companys management. The words expect, estimate, anticipate, plan, and believe, as well as similar expressions, are intended to identify forward-looking statements. The Companys actual results may differ materially from the results discussed in the forward-looking statements, and the Companys operating performance each quarter is subject to various risks and uncertainties that are discussed in detail in the Companys filings with the Securities and Exchange Commission.
Because the Company has no separate operations and conducts no business on its own other than owning Alliance Bank & Trust Company (the Bank), the discussion contained in this Managements Discussion and Analysis concerns primarily the business of the Bank. However, for ease of reading and because the financial statements are presented on a consolidated basis, the Company and the Bank are collectively referred to herein as the Company unless otherwise noted.
The Companys wholly owned subsidiary, Alliance Bank & Trust Company (the Bank), entered into a Stipulation to the Issuance of a Consent Order (the Stipulation) with the Federal Deposit Insurance Corporation (the FDIC) and the North Carolina Office of the Commissioner of Banks (the Commissioner) and the FDIC and the Commissioner issued the related Consent Order (the Order), effective February 1, 2012. The description of the Stipulation and the Order set forth below is qualified in its entirety by reference to the Stipulation and the Order, copies of which are filed herewith as exhibits 10.1 and 10.2, respectively, and incorporated herein by reference.
Management. The Bank is required to assess managements ability to (1) comply with the requirements of the Order; (2) operate the Bank in a safe and sound manner; (3) comply with all applicable laws and regulations; and (4) improve the Banks asset quality, capital adequacy, earnings, management effectiveness, risk management, liquidity, and sensitivity to market risk. To assist with this assessment, the Bank must retain a consultant to develop a written analysis and assessment of the Banks management needs within 30 days of the effective date of the Order. The consultants management report must be developed within 60 days from the effective date of the Order. Within 30 days from receipt of the management report, the Bank must formulate a written management plan that incorporates the findings of the management report, a plan of action in response to each recommendation contained in the management report, and a time frame for completing each action.
Capital Requirements. While the Order is in effect, the Bank must maintain a leverage ratio (the ratio of Tier 1 capital to total assets) of at least 8% and a total risk-based capital ratio (the ratio of qualifying total capital to risk-weighted assets) of at least 11%. If either of these capital ratios is below the required levels as of the date of any call report or regulatory examination, the Bank must, within 30 days from receipt of a written notice of capital deficiency from its regulators, present a plan to increase capital to meet the requirements of the Order.
Charge-Offs, Credits. The Order requires that the Bank eliminate from its books, by charge-off or collection, all assets or portions of assets classified loss and 50% of those assets classified doubtful. If an asset is classified doubtful, the Bank may alternatively charge off the amount that is considered uncollectible in accordance with the Banks written analysis of loan or lease impairment. The Order also prevents the Bank from extending, directly or indirectly, any additional credit to, or for the benefit of, any borrower who has a loan or other extension of credit from the Bank that has been charged off or classified, in whole or in part, loss or doubtful and is uncollected. The Bank may not extend, directly or indirectly, any additional credit to any borrower who has a loan or other extension of credit from the Bank that has been classified substandard. These limitations do not apply if the Banks failure to extend further credit to a particular borrower would be detrimental to the best interests of the Bank.
Allowance for Loan and Lease Losses. Within 60 days of the effective date of the Order, the board of directors must review the adequacy of the allowance for loan and lease losses (the ALLL) and establish a policy for determining the adequacy of the ALLL.
Concentrations of Credit. Within 90 days from the effective date of the Order, the Bank must perform a risk segmentation analysis with respect to its concentrations of credit and must develop a written plan for systematically reducing and monitoring the Banks concentration of credit in revolving 14 family residential property loans to an amount commensurate with the Banks business strategy, management, expertise, size, and location.
Asset Growth. While the Order is in effect, the Bank must notify its regulators at least 60 days prior to undertaking asset growth that exceeds 10% or more per year or initiating material changes in asset or liability composition. The Banks asset growth cannot result in noncompliance with the capital maintenance provisions of the Order unless the Bank receives prior written approval from its regulators.
Restriction on Dividends and Other Payments. While the Order is in effect, the Bank cannot declare or pay dividends, pay bonuses, or pay any form of payment outside the ordinary course of business resulting in a reduction of capital without the prior written approval of its regulators. In addition, the Bank cannot make any distributions of interest, principal, or other sums on subordinated debentures without prior regulatory approval.
Brokered Deposits. The Order provides that the Bank may not accept, renew, or roll over any brokered deposits unless it is in compliance with the requirements of the FDIC regulations governing brokered deposits.
Loan Review. Within 60 days from the effective date of the Order, the Bank must review and revise its internal loan review and grading system to provide for the effective periodic review of the Banks loan portfolio in order to identify and categorize the Banks loans and other extensions of credit on the basis of credit quality. Within 90 days from the effective date of the Order, the Bank must contract for an external loan review to assess the accuracy of the Banks loan grading system and the quality of credit underwriting and administrative practices.
HELOC Portfolio. Within 60 days from the effective date of the Order, the Bank must perform a comprehensive assessment of the risk posed by its home equity line of credit (HELOC) portfolio. The Bank must also develop and implement a plan to reduce the risk in the HELOC portfolio.
Agreement with Federal Reserve. On May 7, 2012 as a follow on to the Order, the Company entered into a formal agreement with the Federal Reserve Bank of Richmond. A form 8-K was filed on May 11, 2012, with a copy of the formal agreement.
-23-
Table of Contents
Call Reports. As required by the Order, the Bank has filed amended call reports regarding the financial condition of the Bank as of March 31, 2011.
Written Plans and Other Material Terms. Under the terms of the Order, the Bank is required to prepare and submit the following written plans or reports to the FDIC and the Commissioner:
| Plan to reduce assets of $250,000 or greater classified as doubtful or substandard |
| Plan and comprehensive budget for all categories of income and expense for the year 2012 |
| Business/strategic plan covering the overall operation of the Bank |
| Plan to improve liquidity, contingency funding, interest rate risk, and asset liability management |
| Assessment of the Banks information technology function |
| Enterprise-wide disaster recovery/business continuity plan |
| Policy to provide adequate internal routines and controls within the Bank consistent with safe and sound banking practices |
| Independent testing of the Banks compliance with the Bank Secrecy Act and associated regulations |
Under the Order, the Banks board of directors has agreed to increase its participation in the affairs of the Bank, including assuming full responsibility for the approval of policies and objectives for the supervision of all of the Banks activities. The Bank must also establish a board committee to monitor and coordinate compliance with the Order.
The Order will remain in effect until modified or terminated by the FDIC and the Commissioner.
Results of Operations
Net Interest Income
For the three months ended March 31, 2012, net interest income was $1,528,249 as compared to $1,420,766 for the same period in 2011. The average rate paid on interest-bearing liabilities for the three months ended March 31, 2012 and 2011 was 1.06% and 1.19%, respectively. The average rate realized on interest-earning assets was 3.93% and 4.23% for the three months ended March 31, 2012 and 2011, respectively.
The net interest margin was 2.95% and 3.17% for the three month periods ended March 31, 2012 and 2011, respectively. The decrease is primarily due to the reversal of a significant accrued interest amount relating to one individual loan relationship that moved to nonaccrual during the quarter ended March 31, 2012.
The following table illustrates the Companys yield on earning assets and cost of funds for the three-month periods ended March 31, 2012 and 2011.
Three Months Ended March 31 | ||||||||||||||||||||||||
2012 | 2011 | |||||||||||||||||||||||
Average Daily Balance |
Interest Income/ Expense |
Average Rate |
Average Daily Balance |
Interest Income/ Expense |
Average Rate |
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Interest-earning assets |
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Loans |
$ | 161,066 | $ | 1,848 | 4.62 | % | $ | 150,008 | $ | 1,807 | 4.89 | % | ||||||||||||
Investment securities |
36,774 | 175 | 1.86 | % | 17,678 | 85 | 1.83 | % | ||||||||||||||||
Federal funds sold |
7,083 | 4 | .23 | % | 11,550 | 6 | 0.23 | % | ||||||||||||||||
Interest-bearing bank deposits |
4,888 | 6 | 1.28 | % | 2,372 | 3 | 0.54 | % | ||||||||||||||||
Nonmarketable equity securities |
1,187 | 4 | 1.17 | % | 1,267 | 3 | 0.81 | % | ||||||||||||||||
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Total interest-earning assets |
210,998 | 2,037 | 3.93 | % | 182,875 | 1,904 | 4.23 | % | ||||||||||||||||
Noninterest-earning assets: |
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Cash and due from banks |
3,465 | 3,758 | ||||||||||||||||||||||
Property and equipment |
3,729 | 3,848 | ||||||||||||||||||||||
Other assets |
9,037 | 9,977 | ||||||||||||||||||||||
Allowance for loan losses |
(3,282 | ) | (5,267 | ) | ||||||||||||||||||||
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Total noninterest-earning assets |
12,949 | 12,316 | ||||||||||||||||||||||
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Total assets |
$ | 223,947 | $ | 195,191 | ||||||||||||||||||||
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Interest-bearing liabilities |
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NOW accounts |
$ | 8,106 | 13 | .64 | % | $ | 7,199 | 13 | 0.72 | % | ||||||||||||||
Savings and money markets |
72,216 | 198 | 1.11 | % | 44,158 | 163 | 1.49 | % | ||||||||||||||||
Time deposits |
92,944 | 213 | 2.37 | % | 100,712 | 245 | 2.66 | % | ||||||||||||||||
Federal Home Loan Bank advances |
19,000 | 84 | 1.74 | % | 12,322 | 61 | 2.00 | % | ||||||||||||||||
Other borrowings |
5 | | 0.72 | % | 202 | 1 | 1.25 | % | ||||||||||||||||
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Total interest-bearing liabilities |
192,271 | 508 | 1.06 | % | 164,593 | 483 | 1.19 | % | ||||||||||||||||
Noninterest-bearing liabilities: |
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Demand deposits |
12,789 | 8,903 | ||||||||||||||||||||||
Interest payable and other |
330 | 218 | ||||||||||||||||||||||
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Total noninterest-bearing liabilities |
13,119 | 9,121 | ||||||||||||||||||||||
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Total liabilities |
205,390 | 173,714 | ||||||||||||||||||||||
Stockholders equity |
18,557 | 21,477 | ||||||||||||||||||||||
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Total liabilities and stockholders equity |
$ | 223,947 | $ | 195,191 | ||||||||||||||||||||
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Net interest income and interest rate spread |
$ | 1,529 | 2.87 | % | $ | 1,421 | 3.04 | % | ||||||||||||||||
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Net yield on average interest-earning assets |
2.95 | % | 3.17 | % | ||||||||||||||||||||
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Ratio of average interest-earning assets to average interest-bearing liabilities |
109.74 | % | 111.11 | % | ||||||||||||||||||||
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-24-
Table of Contents
The following table shows changes in interest income, interest expense, and net interest income arising from volume and rate changes for major categories of earning assets and interest-bearing liabilities. The change in interest not solely due to changes in either volume or rates has been allocated in proportion to the absolute dollar change in both.
Volume and Rate Variance Analysis (in thousands) |
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Three Months Ended March 31 2012 vs 2011 |
Three Months Ended March 31 2011 vs 2010 |
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Increase (Decrease) Due to | Increase (Decrease) Due to | |||||||||||||||||||||||
Volume | Rate | Total | Volume | Rate | Total | |||||||||||||||||||
Interest income: |
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Loans |
$ | (872 | ) | $ | 869 | $ | (3 | ) | $ | 160 | $ | (17 | ) | $ | 143 | |||||||||
Investment securities |
89 | 1 | 90 | 69 | (45 | ) | 24 | |||||||||||||||||
Federal funds sold |
2 | (4 | ) | (2 | ) | (5 | ) | | (5 | ) | ||||||||||||||
Interest-bearing bank deposits |
(1 | ) | 3 | 2 | 2 | (2 | ) | | ||||||||||||||||
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Total interest income |
(782 | ) | 869 | 87 | 226 | (64 | ) | 162 | ||||||||||||||||
Interest expense: |
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Interest bearing transaction accounts |
$ | 1 | $ | (1 | ) | $ | | $ | 4 | $ | (2 | ) | $ | 2 | ||||||||||
Savings and money market |
85 | (51 | ) | 34 | 64 | 4 | 68 | |||||||||||||||||
Time deposits |
(17 | ) | (18 | ) | (35 | ) | (67 | ) | (71 | ) | (138 | ) | ||||||||||||
Federal home loan bank advances |
57 | (35 | ) | 22 | | (15 | ) | (15 | ) | |||||||||||||||
Other borrowings |
| | | 1 | | 1 | ||||||||||||||||||
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Total interest expense |
126 | (105 | ) | 21 | 2 | (84 | ) | (82 | ) | |||||||||||||||
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Net increase (decrease) in net interest income |
$ | (908 | ) | $ | 974 | $ | 66 | $ | 224 | $ | 20 | $ | 244 | |||||||||||
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-25-
Table of Contents
Item 2 Managements Discussion and Analysis of Financial Condition and Results of Operations continued
Provision and Allowance for Loan Losses
The provision for loan losses is the charge to operating earnings that in managements judgment is necessary to maintain the allowance for loan losses at an adequate level in relation to the risk of future losses inherent in the loan portfolio. For the three month periods ended March 31, 2012 and 2011 the provision was $184,998 and $(877,138) respectively. The negative provision in the first quarter of 2011 is due to recapturing amounts that were specifically reserved relating to loans sold. On March 31, 2012, there were $15,527,372 in loans in nonaccrual status. On March 31, 2011, there were $10,905,872 in loans in nonaccrual status. Based on present information, management believes the allowance for loan losses is adequate at March 31, 2012 to meet presently known and inherent risks in the loan portfolio. The allowance for loan losses was 2.11% and 2.51% of total loans at March 31, 2012 and 2011, respectively. The allowance decreased from prior year (as a percentage of total loans) even with an increase in nonaccrual and classified loans over prior year primarily due to the stabilization of real estate values surrounding the collateral pledged to secure loans. There are risks inherent in making all loans, including risks with respect to the period of time over which loans may be repaid, risks resulting from changes in economic and industry conditions, risks inherent in dealing with individual borrowers, and, in the case of a collateralized loan, risks resulting from uncertainties about the future value of the collateral. The Company maintains an allowance for loan losses based on, among other things, historical experience, including managements experience at other institutions, an evaluation of economic conditions, and regular reviews of delinquencies and loan portfolio quality. Managements judgment about the adequacy of the allowance is based upon a number of assumptions about future events, which it believes to be reasonable, but which may not prove to be accurate. Thus, there is a risk that charge-offs in future periods could exceed the allowance for loan losses or that substantial additional increases in the allowance for loan losses could be required. Additions to the allowance for loan losses would result in a decrease in the Companys net income and, possibly, a reduction of its capital.
Noninterest Income
Total noninterest income for the three months ended March 31, 2012 was $261,569 or 171.36% greater than total noninterest income for the same period last year. The largest component of noninterest income for the three month period ended March 31, 2012, was service charges on deposit accounts which were $120,483 for the three month period ended March 31, 2012 or 47.66% higher than the same period last year. Other service charges, commissions and fees for the three months ended March 31, 2012 were $92,375 or 524.32% more than the same period last year. This increase was due to a management fee received by the Company relating to management of a real estate project under a forbearance agreement. In addition, the Bank had $38,841 in securities gains for the three month period ended March 31, 2012 compared to no gains in the prior year.
Noninterest Expense
Total noninterest expense for the three months ended March 31, 2012 was $1,397,833 or 41.10% less than total noninterest expense for the same period last year. The decrease is due to the one-time charge relating to the HELOC purchase discount of $1,002,136 recognized in the prior year. The primary recurring component of noninterest expense is salaries and benefits, which were $697,614 and $661,664 for the three months ended March 31, 2012 and 2011, respectively. Salaries and benefits increased due to the increase in the number of active employees. Other real estate expenses were $79,967 and $166,293 for the three months ended March 31, 2012 and 2011, respectively. The decrease from prior year is primarily due to the payment of past due property taxes on a large piece of property taken into other real estate owned. Other operating expenses were $383,436 and $376,777 for the three months ended March 31, 2012 and 2011, respectively.
Income Taxes
For the three months ended March 31, 2012 and 2011, the effective income tax rate was 0.00% and 39.39%, respectively. The income tax expense was $0, for the three months ended March 31, 2012 due to the Company having significant unused net operating loss carry forwards. The income tax expense for the three months ended March 31, 2011 was $10,844.
Net Income (loss)
The combination of the above factors resulted in net income available to common shareholders of $157,159 for the three months ended March 31, 2012 compared to net loss available to common shareholders of $33,146 for the comparable period in 2011.
Assets and Liabilities
During the first three months of 2012, total assets decreased $5,101,783 or 2.28% when compared to December 31, 2011. The decrease is primarily due to decrease in loans outstanding. Total investments decreased $312,887, or 0.83% during the three months ended March 31, 2012. Total deposits decreased $5,259,573 or 2.82% when compared to December 31, 2011. Of the total change in deposits over the same period, brokered deposits decreased $10,868,000 to $34,360,000 as of March 31, 2012. The decrease in brokered deposits was due to maturities of the underlying certificates of deposit. In order to comply with the consent agreement, management did not issue any additional brokered deposits during the three months ended March 31, 2012.
The Bank is under the Tier 1 leverage ratio required as a stipulation under the Consent Order as of March 31, 2012. In order the meet the required Tier 1 leverage ratio, the Bank is in the process of gradually shrinking its total assets in order to more promptly comply with the Consent Order stipulations.
Investment Securities
Investment securities totaled $37,458,189 as of March 31, 2012 as compared to $37,771,076 at December 31, 2011. Of this amount, $36,219,909 was designated as available for sale as of March 31, 2012. The other investments were nonmarketable equity securities consisting of $1,193,100 in Federal Home Loan Bank stock and a $45,180 investment in Community Bankers Bank stock as of March 31, 2012.
-26-
Table of Contents
Item 2 Managements Discussion and Analysis of Financial Condition and Results of Operations continued
Loans
In an effort to decrease total assets, loans were permitted to decrease $4,526,330, or 2.78%, during the period. As shown below, the largest decrease was in real estate commercial loans which decreased $2,210,636 or 3.60%, to $59,221,710 at March 31, 2012. Real estate construction loans decreased $390,063 or 2.71% to $13,998,775. Real estate residential loans decreased $1,558,538, or 2.37%, to $64,284,547. Consumer and other loans increased $281,391 or 51.34%, to $829,489 at March 31, 2012. Commercial and industrial loans decreased $648,484 or 3.11% to $20,178,709 at March 31, 2012. Balances within the major loans receivable categories as of March 31, 2012 and December 31, 2011 are as follows:
March 31, 2012 |
December 31, 2011 |
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Real estate construction |
$ | 13,998,775 | $ | 14,388,838 | ||||
Real estate commercial |
59,221,710 | 61,432,346 | ||||||
Real estate residential |
64,284,547 | 65,843,085 | ||||||
Commercial and industrial |
20,178,709 | 20,827,193 | ||||||
Consumer and other |
829,489 | 548,098 | ||||||
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Total gross loans |
$ | 158,513,230 | $ | 163,039,560 | ||||
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Risk Elements in the Loan Portfolio
Criticized loans are loans that have potential weaknesses that deserve close attention and which could, if uncorrected, result in deterioration of the prospects for repayment of the Companys credit position at a future date. Classified loans are loans that are inadequately protected by the sound worth and paying capacity of the borrower or any collateral and as to which there is a distinct possibility or probability that we will sustain a loss if the deficiencies are not corrected. At March 31, 2012 and December 31, 2011, the Company had criticized loans totaling $17,985,965 and $17,582,368, respectively. At March 31, 2012 and December 31, 2011, the Company had classified loans totaling $20,943,576 and $20,549,614, respectively. At March 31, 2011, the Company had $15,527,372 or 9.80% of total gross loans in nonaccrual status and $138,787 in loans that were 90 days or more past due and still accruing. Based upon the increase in impaired loans in the portfolio from December 31, 2011 to March 31, 2012 the Bank increased the provision for loan losses to $184,998 for the three months ended March 31, 2012. This is an increase over the same period last year. In the determination of the allowance for loan losses, all significant (typically greater than $250,000) criticized and classified loans are reviewed for impairment to ensure that one of the three proper valuation methods (fair market value of the collateral, present value of cash flows, or observable market price) is adhered to.
The following tables depict the activity in the allowance for loan losses for the three months ended March 31, 2012 and 2011:
Transactions in the allowance for loan losses for the three months ended March 31, 2012 are summarized as follows:
Real Estate | ||||||||||||||||||||||||||||
Construction | Commercial | Residential | Commercial and Industrial |
Consumer & Other |
Unallocated | Total | ||||||||||||||||||||||
Balance, beginning of year |
$ | 428,043 | $ | 999,259 | $ | 1,104,617 | $ | 552,459 | $ | 6,266 | $ | 182,001 | $ | 3,272,645 | ||||||||||||||
Provision charged to operations |
144,582 | 87,858 | (6,584 | ) | (30,473 | ) | 1,340 | (11,725 | ) | 184,998 | ||||||||||||||||||
Recoveries |
2,218 | | 1,319 | | 25,194 | | 28,731 | |||||||||||||||||||||
Charge-offs |
| (13,087 | ) | (107,673 | ) | | (27,184 | ) | | (147,944 | ) | |||||||||||||||||
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Balance, end of year |
$ | 574,843 | $ | 1,074,030 | $ | 991,679 | $ | 521,986 | $ | 5,616 | $ | 170,276 | $ | 3,338,430 | ||||||||||||||
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Transactions in the allowance for loan losses for the three months ended March 31, 2011 are summarized as follows:
Real Estate | ||||||||||||||||||||||||||||
Construction | Commercial | Residential | Commercial and Industrial |
Consumer & Other |
Unallocated | Total | ||||||||||||||||||||||
Balance, beginning of year |
$ | 1,133,180 | $ | 1,532,386 | $ | 1,690,850 | $ | 636,627 | $ | 6,676 | $ | 226,195 | $ | 5,225,914 | ||||||||||||||
Provision (recovery) charged to operations (1) |
(480,910 | ) | (7,894 | ) | (373,696 | ) | 59,569 | 25,468 | (99,675 | ) | (877,138 | ) | ||||||||||||||||
Recoveries |
| | | 1166 | 22,008 | | 23,174 | |||||||||||||||||||||
Charge-offs |
| | (10,639 | ) | | (34,152 | ) | | (44,791 | ) | ||||||||||||||||||
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Balance, end of year |
$ | 652,270 | $ | 1,524,492 | $ | 1,306,515 | $ | 697,362 | $ | 20,000 | $ | 126,520 | $ | 4,327,159 | ||||||||||||||
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(1) | Amount is net of the reversal of $1,046,479 specific reserves which were recorded on loans sold in conjunction with the HELOC portfolio acquisition. Of the total amount $777,246 related to real estate construction loans and $269,233 related to residential real estate loans. |
-27-
Table of Contents
Item 2 Managements Discussion and Analysis of Financial Condition and Results of Operations continued
March 31, 2012 |
March 31, 2011 |
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Balance, January 1 |
$ | 3,272,645 | $ | 5,225,914 | ||||
Provision (recovery) for loan losses for the period |
184,998 | (877,138 | ) | |||||
Net loans (charged-off) recovered during the period |
(119,213 | ) | (21,617 | ) | ||||
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Balance, March 31, |
$ | 3,338,430 | $ | 4,327,159 | ||||
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Gross loans outstanding, March 31, |
$ | 158,513,230 | $ | 172,339,726 | ||||
Allowance for loan losses to loans outstanding |
2.11 | % | 2.51 | % |
Deposits
Total deposits decreased $5,259,573 or 2.82%, from December 31, 2011 to $181,191,359 at March 31, 2012. Total time deposits decreased $2,794,981, or 2.97% to $91,433,792 at March 31, 2012. Total interest-bearing and non-interest bearing transaction accounts increased $872,507 or 4.44% since December 31, 2011. There was a decrease in savings and money market accounts as well, which decreased $3,337,099 or 4.60%, to $69,257,159 at March 31, 2012. This decrease in non time deposit accounts is a combination of the Bank instituting a revised market pricing strategy to emphasize certificates of deposit accounts and implementing a retail initiative focusing on growing the core deposits of the Bank. Brokered deposits represent a source of fixed rate funds priced competitively with Federal Home Loan Bank (FHLB) but do not require collateralization like FHLB borrowings.
Balances within the major deposit categories as of March 31, 2012 and December 31, 2011 are as follows:
March 31, 2012 | December 31, 2011 | |||||||
Noninterest-bearing transaction accounts |
$ | 12,420,281 | $ | 11,015,012 | ||||
Interest-bearing transaction accounts |
8,080,127 | 8,612,889 | ||||||
Savings and money market |
69,257,159 | 72,594,258 | ||||||
Time deposits $100,000 and over |
33,250,410 | 22,735,464 | ||||||
Other time deposits |
58,183,382 | 71,493,309 | ||||||
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Total deposits |
$ | 181,191,359 | $ | 186,450,932 | ||||
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Advances from Federal Home Loan Bank
Advances from the FHLB total $19,000,000 as of March 31, 2012 and December 31, 2011. The Bank utilizes the advances to fund loans and for general liquidity purposes. Advances from the Federal Home Loan Bank consisted of the following at March 31, 2012:
Description |
Interest Rate |
2011 | ||||||
Fixed rate advances maturing: |
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October 28, 2014 |
.9475 | % | $ | 11,000,000 | ||||
November 3, 2014 |
2.84 | % | $ | 8,000,000 | ||||
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$ | 19,000,000 | |||||||
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-28-
Table of Contents
Item 2 Managements Discussion And Analysis of Financial Condition and Results of Operations continued
Liquidity
Liquidity needs are met by the Company through cash and short-term investments, and scheduled maturities of loans on the asset side and through pricing policies on the liability side for interest-bearing deposit accounts. The Company also has the capacity to pledge certain loans as collateral for additional borrowings from FHLB during times when the comparable interest rate is favorable to the interest rate on deposit products. As of March 31, 2012, the Companys primary sources of liquidity included cash and due from banks of $9,738,824, federal funds sold totaling $1,138,498, time deposits with other banks of $3,302,847 and securities available for sale totaling $36,219,909, credit availability with the Federal Home Loan Bank of $14,800,000 and unused lines of credit with correspondent banks to purchase federal funds totaling $2,500,000 at March 31, 2012.
Capital Resources
Total shareholders equity increased $235,007 to $18,552,387 for the three month period ended March 31, 2012. This is primarily the result of the net income for the period of $206,987, and stock based compensation expense of $28,383.
The Federal Reserve Board and bank regulatory agencies require bank holding companies and financial institutions to maintain capital at adequate levels based on a percentage of assets and off-balance sheet exposures, adjusted for risk-weights ranging from 0% to 100%. Under the risk-based standard, capital is classified into two tiers. Tier 1 capital consists of common shareholders equity, excluding the unrealized gain (loss) on available-for-sale securities, minus certain intangible assets. Tier 2 capital consists of the general reserve for loan losses subject to certain limitations. An institutions qualifying capital base for purposes of its risk-based capital ratio consists of the sum of its Tier 1 and Tier 2 capital. In order to be considered adequately capitalized under federal regulations, a bank generally must have a total risk-based ratio of at least 8%, a Tier 1 capital to risk-weighted assets ratio of at least 4%, and a Tier 1 capital to average total assets ratio (referred to as the leverage ratio) of at least 4%. As such the Bank is under the required leverage ratio as of March 31, 2012. In order the meet the required leverage ratio, the Bank is in the process of gradually shrinking its total assets in order to more promptly comply with the requirements of the Consent Order.
Both the Company and the Bank exceeded their minimum regulatory capital ratios as of March 31, 2012, but due to the additional capital requirements under the Consent Order, the Bank is considered adequately capitalized.
The following table summarizes the Companys risk-based capital at March 31, 2012:
Shareholders equity |
$ | 18,552,387 | ||
Plus unrealized (gain) loss on available-for-sale securities |
(51,148 | ) | ||
Less disallowed deferred tax assets |
(1,234,000 | ) | ||
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Tier 1 capital |
$ | 17,267,239 | ||
Plus allowance for loan losses(1) |
2,020,000 | |||
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Total capital |
$ | 19,287,239 | ||
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Risk-weighted assets |
$ | 160,293,000 | ||
Risk-based capital ratios: |
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Tier 1 capital (to risk-weighted assets) |
10.77 | % | ||
Total capital (to risk-weighted assets) |
12.03 | % | ||
Leverage ratio |
7.78 | % |
(1) | Limited to 1.25% of risk-weighted assets |
-29-
Table of Contents
Item 2 Managements Discussion And Analysis of Financial Condition and Results of Operations continued
Off-Balance Sheet Risk
Through its operations, the Company has made contractual commitments to extend credit in the ordinary course of its business activities. These commitments are legally binding agreements to lend money to the Companys customers at predetermined interest rates for a specified period of time. At March 31, 2012, the Company had issued commitments to extend credit of approximately $11,273,000 through various types of commercial lending arrangements. All of these commitments to extend credit had variable rates.
The following table sets forth the length of time until maturity for unused commitments to extend credit and standby letters of credit at March 31, 2012 (amounts in thousands):
Within One Month |
After One Through Three Months |
After Three Through Twelve Months |
Greater Than One Year |
Total | ||||||||||||||||
Unused commitments to extend credit |
$ | 483 | $ | | $ | 1,934 | $ | 8,842 | $ | 11,259 | ||||||||||
Standby letters of credit |
| | 14 | | 14 | |||||||||||||||
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Totals |
$ | 483 | $ | | $ | 1,948 | $ | 8,842 | $ | 11,273 | ||||||||||
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Based on historical experience, many of the commitments and letters of credit will expire unfunded.
Accordingly, the amounts shown in the table above do not necessarily reflect the Companys need for funds in the periods shown.
The Company evaluates each customers creditworthiness on a case-by-case basis. The amount of collateral obtained, if deemed necessary by the Company upon extension of credit, is based on its credit evaluation of the borrower. Collateral varies but may include accounts receivable, inventory, property, plant and equipment, commercial and residential real estate.
Critical Accounting Policies
We have adopted various accounting policies which govern the application of accounting principles generally accepted in the United States in the preparation of our financial statements. Our significant accounting policies are described in the notes to the financial statements at December 31, 2011 as contained in our 2011 Annual Report on Form 10-K. Certain accounting policies involve significant judgments and assumptions by us which have a material impact on the carrying value of certain assets and liabilities. We consider these accounting policies to be critical accounting policies. The judgments and assumptions we use are based on historical experience and other factors, which we believe to be reasonable under the circumstances. Because of the nature of the judgments and assumptions we make, actual results could differ from these judgments and estimates which could have a material impact on our carrying values of assets and liabilities and our results of operations.
We believe the allowance for loan losses is a critical accounting policy that requires the most significant judgments and estimates used in preparation of our financial statements. Refer to the portions of the discussion in this report on Form 10-Q and in our 2011 Annual Report on Form 10-K that address our allowance for loan losses for a description of our processes and methodology for determining our allowance for loan losses.
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Item 4. Controls and Procedures
(a) | Based on their evaluation of the Companys disclosure controls and procedures (as defined in 17 C.F.R. Sections 240.13a-15(e) and 240.15d-15(e)) as of March 31, 2012, our chief executive officer and chief financial officer concluded that such controls and procedures were effective. |
(b) | There was no change in the Companys internal control over financial reporting that has materially affected, or is reasonably likely to materially affect, the Companys internal control over financial reporting subsequent to the date of its evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses. |
Item 3. Default Upon Senior Securities
As discussed in Note 10 of the Notes to Consolidated Financial Statements included with Part 1, Item 1, the Company deferred the payment of its regular quarterly cash dividends on its fixed rate cumulative perpetual preferred stock, series A, issued to the United States Department of the Treasury in connection with the Companys participation in the Treasurys Capital Purchase Program. Therefore, the Company is currently in arrears with the dividend payments on the series A preferred stock. As of March 31, 2012, the amount of the arrearage on the dividend payments for the series A preferred stock was $175,000.
Exhibit Number |
Description of Exhibit | |
10.1 | Stipulation to the Issuance of a Consent Order (incorporated by reference to Exhibit 10.1 to the Companys Current Report on form 8-K, filed with the Securities and Exchange Commission on February 7, 2012) | |
10.2 | Consent Order issued by the Federal Deposit Insurance Corporation and the North Carolina Office of the Commissioner of Banks (incorporated by reference to Exhibit 10.2 to the Companys Current Report on form 8-K, filed with the Securities and Exchange Commission on February 7, 2012) | |
31.1 | Certification of Principal Executive Officer pursuant to Rule 13a-14(a) | |
31.2 | Certification of Principal Financial Officer pursuant to Rule 13a-14(a) | |
32 | Certification of Principal Executive Officer and Principal Financial Officer pursuant to 18 USC 1350 as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 | |
101 | Interactive data files providing financial information from the Quarterly Report on Form 10-Q of AB&T Financial Corporation for the quarterly period ended March 31, 2012, in XBRL (eXtensible Business Reporting Language)* |
* | Pursuant to Regulation 406T of Regulation S-T, these interactive data files are furnished and not filed or part of a registration statement or prospectus for purposes of section 11 or 12 of the Securities Act of 1933, as amended, or section 18 of the Securities Exchange Act of 1934, as amended, and are otherwise not subject to liability. |
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
AB&T FINANCIAL CORPORATION | ||
(Registrant) | ||
By: | /s/ Daniel C. Ayscue | |
Daniel C. Ayscue | ||
President and Chief Executive Officer | ||
(Principal Executive Officer) |
Date: May 15, 2012
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EXHIBIT INDEX
Exhibit Number |
Description of Exhibit | |
10.1 | Stipulation to the Issuance of a Consent Order * | |
10.2 | Consent Order issued by the Federal Deposit Insurance Corporation and the North Carolina Office of the Commissioner of Banks * | |
31.1 | Certification of Principal Executive Officer pursuant to Rule 13a-14(a) | |
31.2 | Certification of Principal Financial Officer pursuant to Rule 13a-14(a) | |
32 | Certification of Principal Executive Officer and Principal Financial Officer pursuant to 18 USC 1350 as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 | |
101 | Interactive data files providing financial information from the Quarterly Report on Form 10-Q of AB&T Financial Corporation for the quarterly period ended March 31, 2012, in XBRL (eXtensible Business Reporting Language)** |
* | Incorporated by reference |
** | Pursuant to Regulation 406T of Regulation S-T, these interactive data files are furnished and not filed or part of a registration statement or prospectus for purposes of section 11 or 12 of the Securities Act of 1933, as amended, or section 18 of the Securities Exchange Act of 1934, as amended, and are otherwise not subject to liability. |
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