Attached files
file | filename |
---|---|
8-K/A - 8-K/A - OLD LINE BANCSHARES INC | a13-16966_18ka.htm |
EX-23 - EX-23 - OLD LINE BANCSHARES INC | a13-16966_1ex23.htm |
EX-99.2 - EX-99.2 - OLD LINE BANCSHARES INC | a13-16966_1ex99d2.htm |
Exhibit 99.1
CONSOLIDATED FINANCIAL STATEMENTS
AND INDEPENDENT AUDITORS REPORT
WSB HOLDINGS, INC.
AND SUBSIDIARY
DECEMBER 31, 2012 AND 2011
TABLE OF CONTENTS
|
PAGE |
|
|
INDEPENDENT AUDITORS REPORT |
2 |
|
|
CONSOLIDATED FINANCIAL STATEMENTS |
|
|
|
CONSOLIDATED BALANCE SHEETS |
3 |
|
|
CONSOLIDATED STATEMENTS OF OPERATIONS |
4 |
|
|
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS EQUITY |
5 |
|
|
CONSOLIDATED STATEMENTS OF CASH FLOWS |
6 |
|
|
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS |
7 |
[Stegman & Company Letterhead]
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors and Stockholders of
WSB Holdings, Inc.
Bowie, Maryland
We have audited the accompanying consolidated statements of financial condition of WSB Holdings, Inc. (the Company) as of December 31, 2012 and 2011, and the related consolidated statements of operations and comprehensive income, changes in stockholders equity, and cash flows for each of the years in the two-year period ended December 31, 2012. The Companys management is responsible for these consolidated financial statements. Our responsibility is to express an opinion on these consolidated financial statements based on our audits.
We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. Our audit included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Companys internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the consolidated financial position of the Company as of December 31, 2012 and 2011 and the results of their operations and their cash flows for the years in the two-year period ended December 31, 2012 in conformity with accounting principles generally accepted in the United States of America.
/s/ Stegman & Company
Baltimore, Maryland
March 14, 2013
WSB HOLDINGS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
AS OF DECEMBER 31, 2012 AND DECEMBER 31, 2011
|
|
December 31, |
|
December 31, |
| ||
|
|
2012 |
|
2011 |
| ||
ASSETS |
|
|
|
|
| ||
|
|
|
|
|
| ||
CASH AND CASH EQUIVALENTS: |
|
|
|
|
| ||
Cash |
|
$ |
2,315,185 |
|
$ |
437,414 |
|
Federal funds sold |
|
39,114,092 |
|
3,964,439 |
| ||
|
|
|
|
|
| ||
Total cash and cash equivalents |
|
41,429,277 |
|
4,401,853 |
| ||
|
|
|
|
|
| ||
LOANS RECEIVABLE: |
|
|
|
|
| ||
Held for sale |
|
17,844,400 |
|
10,245,483 |
| ||
|
|
|
|
|
| ||
Held for investment |
|
179,352,290 |
|
211,477,704 |
| ||
less: allowance for loan losses |
|
(3,151,476 |
) |
(6,124,116 |
) | ||
|
|
|
|
|
| ||
Loans receivable held-for-investment - net |
|
176,200,814 |
|
205,353,588 |
| ||
|
|
|
|
|
| ||
Total loans receivable - net |
|
194,045,214 |
|
215,599,071 |
| ||
|
|
|
|
|
| ||
Mortgage-backed securities - available for sale at fair value |
|
24,809,365 |
|
80,808,257 |
| ||
Investment securities - available for sale at fair value |
|
59,117,873 |
|
44,937,185 |
| ||
Investment in Federal Home Loan Bank Stock, at cost |
|
3,636,100 |
|
4,503,700 |
| ||
Accrued interest receivable on loans |
|
829,567 |
|
1,023,847 |
| ||
Accrued interest receivable on investments |
|
345,829 |
|
693,967 |
| ||
Real estate acquired in settlement of loans |
|
5,182,403 |
|
4,820,634 |
| ||
Bank owned life insurance |
|
12,824,768 |
|
12,368,974 |
| ||
Premises and equipment - net |
|
4,752,789 |
|
4,807,206 |
| ||
Deferred tax assets |
|
6,668,201 |
|
8,574,590 |
| ||
Other assets |
|
2,851,087 |
|
2,422,102 |
| ||
|
|
|
|
|
| ||
TOTAL ASSETS |
|
$ |
356,492,473 |
|
$ |
384,961,386 |
|
|
|
|
|
|
| ||
LIABILITIES AND STOCKHOLDERS EQUITY |
|
|
|
|
| ||
|
|
|
|
|
| ||
LIABILITIES: |
|
|
|
|
| ||
Deposits: |
|
|
|
|
| ||
Non-interest bearing |
|
$ |
6,668,011 |
|
$ |
5,256,111 |
|
Interest-bearing |
|
224,764,003 |
|
239,794,477 |
| ||
|
|
|
|
|
| ||
Total Deposits |
|
231,432,014 |
|
245,050,588 |
| ||
|
|
|
|
|
| ||
Federal Home Loan Bank borrowings |
|
68,000,000 |
|
84,000,000 |
| ||
Advances from borrowers for taxes and insurance |
|
469,701 |
|
426,238 |
| ||
Accounts payable, accrued expenses and other liabilities |
|
1,265,196 |
|
1,211,550 |
| ||
|
|
|
|
|
| ||
Total Liabilities |
|
301,166,911 |
|
330,688,376 |
| ||
|
|
|
|
|
| ||
STOCKHOLDERS EQUITY : |
|
|
|
|
| ||
Preferred stock, no stated par value; 10,000,000 shares authorized; none issued and outstanding |
|
|
|
|
| ||
Common stock authorized, 20,000,000 shares at $.0001 par value. 8,016,607 and 7,995,232 shares issued and outstanding |
|
802 |
|
799 |
| ||
Additional paid-in capital |
|
11,206,794 |
|
11,095,646 |
| ||
Retained earnings - substantially restricted |
|
43,256,158 |
|
42,230,566 |
| ||
Accumulated other comprehensive income |
|
861,808 |
|
945,999 |
| ||
|
|
|
|
|
| ||
Total stockholders equity |
|
55,325,562 |
|
54,273,010 |
| ||
|
|
|
|
|
| ||
TOTAL LIABILITIES AND STOCKHOLDERS EQUITY |
|
$ |
356,492,473 |
|
$ |
384,961,386 |
|
See notes to consolidated financial statements. |
|
|
|
|
|
WSB HOLDINGS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME
|
|
Year Ended |
|
Year Ended |
| ||
INTEREST INCOME: |
|
|
|
|
| ||
Interest and fees on loans |
|
$ |
11,496,188 |
|
$ |
13,957,048 |
|
Interest on mortgage-backed securities |
|
2,793,416 |
|
2,687,859 |
| ||
Interest and dividends on investments |
|
1,202,848 |
|
1,666,129 |
| ||
|
|
|
|
|
| ||
Total interest income |
|
15,492,452 |
|
18,311,036 |
| ||
|
|
|
|
|
| ||
INTEREST EXPENSE: |
|
|
|
|
| ||
Interest on deposits |
|
2,634,980 |
|
3,902,298 |
| ||
Interest on other borrowings |
|
2,025,970 |
|
2,111,356 |
| ||
|
|
|
|
|
| ||
Total interest expense |
|
4,660,950 |
|
6,013,654 |
| ||
|
|
|
|
|
| ||
NET INTEREST INCOME |
|
10,831,502 |
|
12,297,382 |
| ||
Provision for loan losses |
|
|
|
200,000 |
| ||
|
|
|
|
|
| ||
NET INTEREST INCOME AFTER PROVISION FOR LOAN LOSSES |
|
10,831,502 |
|
12,097,382 |
| ||
|
|
|
|
|
| ||
NON-INTEREST INCOME: |
|
|
|
|
| ||
Loan-related fees |
|
524,759 |
|
398,935 |
| ||
Gain on sale of loans |
|
1,739,016 |
|
1,534,725 |
| ||
Gain on sale of mortgage-backed securities - available-for-sale |
|
189,264 |
|
401,052 |
| ||
Gain on sale of investment securities - available-for-sale |
|
445,727 |
|
161,439 |
| ||
Loss on disposal of premises and equipment |
|
(9,198 |
) |
(2,005 |
) | ||
Rental income |
|
645,294 |
|
421,118 |
| ||
Gain on sale of real estate acquired in settlement of loans |
|
191,229 |
|
36,442 |
| ||
Service charges on deposits |
|
138,337 |
|
112,627 |
| ||
Bank owned life insurance |
|
455,794 |
|
457,173 |
| ||
Other income |
|
219,998 |
|
190,599 |
| ||
|
|
|
|
|
| ||
Total non-interest income |
|
4,540,220 |
|
3,712,105 |
| ||
|
|
|
|
|
| ||
NON-INTEREST EXPENSES: |
|
|
|
|
| ||
Salaries and benefits |
|
7,226,635 |
|
7,156,348 |
| ||
Occupancy expense |
|
703,351 |
|
677,885 |
| ||
Deposit insurance premiums and assessments |
|
632,418 |
|
742,078 |
| ||
Depreciation |
|
444,237 |
|
446,770 |
| ||
Advertising |
|
296,625 |
|
327,397 |
| ||
Service bureau charges |
|
551,116 |
|
497,979 |
| ||
Service charges from banks |
|
25,018 |
|
24,399 |
| ||
Service contracts |
|
309,319 |
|
364,213 |
| ||
Stationery, printing and supplies |
|
147,547 |
|
167,910 |
| ||
Foreclosure costs |
|
538,586 |
|
581,508 |
| ||
Professional services |
|
582,312 |
|
562,808 |
| ||
Other taxes |
|
264,316 |
|
316,630 |
| ||
Provisions for losses on real estate acquired in settlement of loans |
|
331,454 |
|
266,283 |
| ||
Other expenses |
|
1,864,367 |
|
1,716,711 |
| ||
|
|
|
|
|
| ||
Total non-interest expenses |
|
13,917,301 |
|
13,848,919 |
| ||
|
|
|
|
|
| ||
EARNINGS BEFORE INCOME TAXES |
|
1,454,421 |
|
1,960,568 |
| ||
INCOME TAX EXPENSE |
|
428,829 |
|
711,759 |
| ||
NET EARNINGS |
|
$ |
1,025,592 |
|
$ |
1,248,809 |
|
OTHER COMPREHENSIVE INCOME (NET OF TAX) |
|
|
|
|
| ||
Unrealized gains on securities |
|
300,360 |
|
1,522,861 |
| ||
Reclassification adjustment for gain on sale of securiities realized in net income (net of taxes of $250,440 and $221,846) |
|
(384,551 |
) |
(340,645 |
) | ||
TOTAL COMPREHENSIVE INCOME |
|
941,401 |
|
2,431,025 |
| ||
|
|
|
|
|
| ||
BASIC EARNINGS PER COMMON SHARE |
|
$ |
0.13 |
|
$ |
0.16 |
|
|
|
|
|
|
| ||
DILUTED EARNINGS PER COMMON SHARE |
|
$ |
0.13 |
|
$ |
0.16 |
|
|
|
|
|
|
| ||
AVERAGE COMMON SHARES OUTSTANDING |
|
7,998,081 |
|
7,987,720 |
| ||
|
|
|
|
|
| ||
AVERAGE DILUTED COMMON SHARES |
|
7,998,439 |
|
7,988,148 |
|
See notes to consolidated financial statements.
WSB HOLDINGS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS EQUITY
FOR THE YEARS ENDED DECEMBER 31, 2012 AND DECEMBER 31, 2011
|
|
|
|
|
|
|
|
Accumulated |
|
|
| |||||
|
|
|
|
Additional |
|
|
|
Other |
|
Total |
| |||||
|
|
Common |
|
Paid-In |
|
Retained |
|
Comprehensive |
|
Stockholders |
| |||||
|
|
Stock |
|
Capital |
|
Earnings |
|
Income(Loss) |
|
Equity |
| |||||
|
|
|
|
|
|
|
|
|
|
|
| |||||
BALANCES, JANUARY 1, 2011 |
|
$ |
792 |
|
$ |
10,872,561 |
|
$ |
40,981,757 |
|
$ |
(236,217 |
) |
$ |
51,618,893 |
|
|
|
|
|
|
|
|
|
|
|
|
| |||||
Exercise of stock options |
|
7 |
|
220,635 |
|
|
|
|
|
220,642 |
| |||||
|
|
|
|
|
|
|
|
|
|
|
| |||||
Tax effect of stock options exercised |
|
|
|
2,450 |
|
|
|
|
|
2,450 |
| |||||
|
|
|
|
|
|
|
|
|
|
|
| |||||
Net earnings |
|
|
|
|
|
1,248,809 |
|
|
|
1,248,809 |
| |||||
|
|
|
|
|
|
|
|
|
|
|
| |||||
Other comprehensive gain-unrealized gain on available for sale securities |
|
|
|
|
|
|
|
1,182,216 |
|
1,182,216 |
| |||||
|
|
|
|
|
|
|
|
|
|
|
| |||||
BALANCES, DECEMBER 31, 2011 |
|
799 |
|
11,095,646 |
|
42,230,566 |
|
945,999 |
|
54,273,010 |
| |||||
|
|
|
|
|
|
|
|
|
|
|
| |||||
Exercise of stock options |
|
3 |
|
111,148 |
|
|
|
|
|
111,151 |
| |||||
|
|
|
|
|
|
|
|
|
|
|
| |||||
Net earnings |
|
|
|
|
|
1,025,592 |
|
|
|
1,025,592 |
| |||||
|
|
|
|
|
|
|
|
|
|
|
| |||||
Other comprehensive gain-unrealized gain on available for sale securities |
|
|
|
|
|
|
|
(84,191 |
) |
(84,191 |
) | |||||
|
|
|
|
|
|
|
|
|
|
|
| |||||
BALANCES, DECEMBER 31, 2012 |
|
$ |
802 |
|
$ |
11,206,794 |
|
$ |
43,256,158 |
|
$ |
861,808 |
|
$ |
55,325,562 |
|
See notes to consolidated financial statements.
WSB HOLDINGS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
|
|
Year ended |
| ||||
|
|
December 31, |
| ||||
|
|
2012 |
|
2011 |
| ||
CASH FLOWS FROM OPERATING ACTIVITIES: |
|
|
|
|
| ||
|
|
|
|
|
| ||
Net earnings |
|
$ |
1,025,592 |
|
$ |
1,248,809 |
|
Adjustments to reconcile net earnings to net cash (used in) provided by operating activities: |
|
|
|
|
| ||
Provision for loan losses |
|
|
|
200,000 |
| ||
Provision for losses on real estate acquired in settlement of loans |
|
331,454 |
|
266,283 |
| ||
Depreciation |
|
444,237 |
|
446,770 |
| ||
Loss on disposal on premises and equipment |
|
9,198 |
|
2,005 |
| ||
Accretion of (discounts)/premiums on investment securities |
|
447,127 |
|
194,959 |
| ||
Gain on sale of MBS- available for sale |
|
(189,264 |
) |
(401,052 |
) | ||
Gain on sale of investment securities- available for sale |
|
(445,727 |
) |
(161,439 |
) | ||
Gain on sale of other real estate owned |
|
(191,229 |
) |
(36,442 |
) | ||
Gain on sale of loans |
|
(1,739,016 |
) |
(1,534,725 |
) | ||
Loans originated for sale |
|
(127,463,294 |
) |
(109,204,387 |
) | ||
Proceeds from sale of loans originated for sale |
|
119,864,377 |
|
123,128,500 |
| ||
Increase in cash surrender value of bank owned life insurance |
|
(455,794 |
) |
(457,173 |
) | ||
(Increase) decrease in other assets |
|
(428,985 |
) |
930,185 |
| ||
Decrease (increase) in accrued interest receivable |
|
542,418 |
|
(82,085 |
) | ||
Change in deferred income taxes |
|
1,961,219 |
|
485,140 |
| ||
Change in federal income taxes receivable |
|
|
|
629,167 |
| ||
Excess tax benefits from stock-based compensation |
|
|
|
(2,450 |
) | ||
Increase (decrease) in accounts payable, accrued expenses and other liabilities |
|
53,646 |
|
(38,920 |
) | ||
Decrease in accrued interest payable |
|
(4,964 |
) |
(18,178 |
) | ||
(Decrease) increase in net deferred loan fees |
|
(33,041 |
) |
21,277 |
| ||
|
|
|
|
|
| ||
Net cash (used in) provided by operating activities |
|
(6,272,046 |
) |
15,616,244 |
| ||
|
|
|
|
|
| ||
INVESTING ACTIVITIES: |
|
|
|
|
| ||
|
|
|
|
|
| ||
Net decrease in loans receivable- held for investment |
|
28,853,800 |
|
16,780,950 |
| ||
Purchase of mortgage-backed securities - available for sale |
|
(26,766,515 |
) |
(48,440,935 |
) | ||
Purchase of investment securities - available for sale |
|
(68,686,690 |
) |
(65,522,600 |
) | ||
Proceeds from sales, calls, and maturities of mortgage-backed securities |
|
82,842,854 |
|
27,839,957 |
| ||
Proceeds from sales, calls and maturities of investment securities-available for sale |
|
54,477,400 |
|
43,360,570 |
| ||
Redemption of Federal Home Loan Bank Stock |
|
867,600 |
|
998,100 |
| ||
Purchase of premises and equipment |
|
(399,019 |
) |
(453,306 |
) | ||
Development of real estate acquired in settlement of loans |
|
(199,306 |
) |
(104,178 |
) | ||
Proceeds from sale of real estate acquired in settlement of loans |
|
1,768,342 |
|
4,133,092 |
| ||
|
|
|
|
|
| ||
Net cash provided by (used in) investing activities |
|
72,758,466 |
|
(21,408,350 |
) | ||
|
|
|
|
|
| ||
FINANCING ACTIVITIES: |
|
|
|
|
| ||
|
|
|
|
|
| ||
Net (decrease) increase in demand deposits, NOW accounts and savings accounts |
|
(862,928 |
) |
29,050,312 |
| ||
Proceeds from issuance of certificates of deposit |
|
18,395,790 |
|
10,528,020 |
| ||
Payments for maturing certificates of deposit |
|
(31,146,472 |
) |
(61,090,708 |
) | ||
Net increase (decrease) in advance payments by borrowers for taxes and insurance |
|
43,463 |
|
(53,242 |
) | ||
(Decrease) increase in FHLB Advances |
|
(16,000,000 |
) |
8,000,000 |
| ||
Proceeds from exercise of stock options |
|
111,151 |
|
223,092 |
| ||
Excess tax benefits from stock-based compensation |
|
|
|
2,450 |
| ||
|
|
|
|
|
| ||
Net cash used in financing activities |
|
(29,458,996 |
) |
(13,340,076 |
) | ||
|
|
|
|
|
| ||
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS |
|
37,027,424 |
|
(19,132,182 |
) | ||
|
|
|
|
|
| ||
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD |
|
4,401,853 |
|
23,534,035 |
| ||
CASH AND CASH EQUIVALENTS, END OF PERIOD |
|
$ |
41,429,277 |
|
$ |
4,401,853 |
|
|
|
|
|
|
| ||
CASH PAID DURING THE PERIOD FOR: |
|
|
|
|
| ||
|
|
|
|
|
| ||
Income taxes |
|
$ |
|
|
$ |
|
|
|
|
|
|
|
| ||
Interest |
|
$ |
4,642,225 |
|
$ |
6,035,137 |
|
|
|
|
|
|
| ||
Non-cash transactions: |
|
|
|
|
| ||
Real estate acquired in settlement of loans |
|
$ |
2,071,030 |
|
$ |
3,023,444 |
|
See notes to consolidated financial statements.
WSB HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2012 and DECEMBER 31, 2011
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Principles of Consolidation - The consolidated financial statements include WSB Holdings, Inc. (WSB or we) and its wholly owned subsidiaries, The Washington Savings Bank FSB (the Bank), WSB, Inc., WSB Realty, LLC and WSB Realty, Inc. (collectively referred to herein, as the Company). All significant intercompany balances and transactions between entities have been eliminated.
Nature of Operations We are primarily engaged in the business of obtaining funds in the form of savings deposits and investing such funds in mortgage loans on residential, construction, and commercial real estate, and various types of consumer and other loans, mortgage-backed securities, and investment and money market securities. We grant loans throughout the Washington DC, Baltimore, Northern Virginia and surrounding metropolitan areas. Borrowers ability to repay is dependent upon the economy of these respective areas. WSB, Inc. is primarily engaged in the business of developing single family residential lots. WSB Realty, LLC and WSB Realty, Inc. are both primarily engaged to take assignment of the right to acquire title to certain properties purchased at foreclosure sales. Management is authorized to take usual and customary activities toward the acquisition, rehabilitation, sale, rental and disposition of these properties.
Management Estimates - The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements, and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. Material estimates that are particularly susceptible to significant changes in the near-term relate to the determination of the allowance for loan losses, the valuation of real estate held for development, and the valuation of real estate acquired in settlement of loans.
Cash and Cash Equivalents - Cash and cash equivalents include demand deposits at other financial institutions, interest bearing deposits at other financial institutions and federal funds sold. All cash equivalents have original maturities of three months or less.
Investment Securities and Mortgage-Backed Securities - Investment Securities and Mortgage-Backed Securities are required to be segregated into the following three categories: trading, held-to-maturity, and available-for-sale. Trading securities are purchased and held principally for the purpose of reselling them within a short period of time with unrealized gains and losses included in earnings. Debt securities classified as held-to-maturity are accounted for at amortized cost and require the Company to have both the positive intent and ability to hold those securities to maturity. Securities not classified as either trading or held-to-maturity are considered to be available-for-sale. The premium or discount associated with these securities are amortized on a level yield to the full term of the securities. Unrealized gains and losses for available-for-sale securities are excluded from earnings and reported, net of income taxes, as
other comprehensive income, a separate component of stockholders equity, until realized. Management systematically evaluates investment securities for other-than-temporary declines in fair value on a quarterly basis. This analysis requires management to consider various factors, which include (1) duration and magnitude of the decline in value, (2) the financial condition of the issuer or issuers and (3) the structure of the security. An impairment loss is recognized in earnings only when: (1) we intend to sell the debt security; (2) it is more likely than not that we will be required to sell the security before recovery of its amortized cost basis; or (3) we do not expect to recover the entire amortized cost basis of the security. In situations where we intend to sell or when it is more likely than not that we will be required to sell the security, the entire impairment loss must be recognized in earnings. In all other situations, only the portion of the impairment loss representing the credit loss must be recognized in earnings, with the remaining portion being recognized in stockholders equity as a component of other comprehensive income, net of deferred taxes. Credit loss is determined by calculating the present value of future cash flows of the security compared to the amortized cost of the security. Realized gains or losses on the sale of investment and mortgage-backed securities are reported in earnings and determined using the amortized cost of the specific security sold.
Restricted Stock Investments The Bank, as a member of the Federal Home Loan Bank System, is required to maintain an investment in capital stock of the FHLB in varying amounts based on balances of outstanding home loans and on amounts borrowed from the FHLB. Because no ready market exists for this stock and it has no quoted market value, our investment in this stock is carried at cost.
Loan Origination Fees, Discounts, and Premiums on Loans - Loan origination fees and direct loan origination costs are deferred and recognized as an adjustment to yield over the lives of the related loans utilizing the interest method. The amortization of such deferred fees and costs is adjusted for the prepayment experience on a loan-by-loan basis. Commitment fees to originate or purchase loans are deferred, and if the commitment is exercised, they are recognized over the life of the loan as an adjustment of yield. If the commitment expires unexercised, commitment fees are recognized in income upon expiration of the commitment.
Loans Receivable - We originate mortgage, commercial and consumer loans for portfolio investment and mortgage loans for sale in the secondary market. During the period of origination, mortgage loans are designated as either held-for-sale or held-for-investment purposes. Mortgage loans held-for-sale are carried at the lower of cost or fair value, determined on an individual loan basis. There was no valuation allowance required as of December 31, 2012 or December 31, 2011 on loans held-for-sale. The loans sold basis include any deferred loan fees and costs. Loans held-for-investment is stated at their principal balance outstanding net of related deferred fees and cost. Transfers of loans held-for-investment to the held-for-sale portfolio are recorded at the lower of cost or market value on the transfer date with any reduction in a loans value reflected as a write-down of the recorded investment resulting in a new cost basis with a corresponding charge to the allowance for loan losses.
We enter into commitments to originate residential mortgage loans whereby the interest rate on the loan is determined prior to funding (i.e. rate lock commitments). Such rate lock commitments on mortgage loans to be sold in the secondary market are considered to be derivatives. The period of time between issuance of a loan commitment and closing and sale of the loan generally ranges from 15 to 60 days. We protect our self from changes in interest rates
through the use of best efforts forward delivery commitments, whereby, we commit to sell a loan at the time the borrower commits to an interest rate with the intent that the buyer has assumed interest rate risk on the loan. As a result, we are not exposed to losses nor will we realize gains related to our rate lock commitments due to changes in interest rates.
The market values of rate lock commitments and best efforts contracts are not readily ascertainable with precision because rate lock commitments and best efforts contracts are not actively traded. Because of the high correlation between rate lock commitments and best efforts contracts, no gain or loss occurs on the rate lock commitments.
Income Recognition on Loans Receivable - Interest on loans receivable is credited to income as earned on the principal amount outstanding. For those loans that are carried on non-accrual status, interest income is recognized on the cash basis or cost recovery method. Loans are generally placed on non-accrual status when the collection of principal or interest is four payments or more past due, or earlier, if collection is deemed uncertain. Previously accrued but uncollected interest on these loans is charged against interest income. Loans may be reinstated to accrual status when such loans have been brought current, as to both principal and interest, and the borrower demonstrates the ability to pay and remain current.
Allowance for Loan Losses The allowance for loan losses represents an amount which, in managements judgment, reflects probable losses on existing loans and other extensions of credit that may become uncollectible as of the balance sheet date. The allowance for loan losses consists of an allocated component, consisting of both formula and specific allowances, and a non-specific component. The adequacy of the allowance for loan losses is determined through review and evaluation of the loan portfolio along with ongoing monthly assessments of the probable losses inherent in that portfolio, and, to a lesser extent, in unused commitments to provide financing. Loans deemed uncollectible are charged against, while recoveries are credited to, the allowance. Management adjusts the level of the allowance through the provision for loan losses, which is recorded as a current period operating expense. Our methodology for assessing the appropriateness of the allowance consists of several key elements, which include the formula allowance, specific allowances and the non-specific allowance. The amount of the allowance is reviewed monthly by the Loan Committee, and reviewed and approved by the Board of Directors.
The formula allowance is calculated by applying loss factors to corresponding categories of outstanding loans. Loss factors consider our historical loss experience in the various portfolio categories over the prior twelve months. The use of these loss factors is intended to reduce the differences between estimated losses inherent in the portfolio and observed losses.
Specific allowances are established in cases where management has identified significant conditions or circumstances related to a loan that management believes indicate the probability that a loss has been be incurred in an amount different from the amount determined by application of the formula allowance. For other problem-graded credits, allowances are established according to the application of loan risk factors. These factors are set by management to reflect its assessment of the relative level of risk inherent in each grade.
The non-specific allowance is based upon managements evaluation of various conditions that are not directly measured in the determination of the formula and specific allowances. Such conditions include general economic and business conditions affecting key lending areas, loan
quality trends (including trends in delinquencies and nonperforming loans expected to result from existing conditions), loan volumes and concentrations, specific industry conditions within portfolio categories, recent loss experience in particular loan categories, duration of the current business cycle, bank regulatory examinations results and managements judgment with respect to various other conditions including credit administration and management and the quality of risk identification systems. Executive management reviews these conditions monthly.
Management believes that the allowance for loan losses reflects its best estimate of the probable losses in the held-for-investment loan portfolio as of the respective balance sheet date. However, the determination of the allowance requires significant judgment, and estimates of probable losses inherent in the loan portfolio can vary significantly from the amounts actually observed. While management uses available information to recognize probable losses, future additions to the allowance may be necessary based on changes in the credits comprising the loan portfolio and changes in the financial condition of borrowers, such as may result from changes in economic conditions. In addition, various regulatory agencies, as an integral part of their examination process, periodically review our loan portfolio and allowance for loan losses. Such review may result in recognition of additions to the allowance for loan losses based on the examiners judgments of information available to them at the time of their examination.
Impairment of Loans - We consider a loan impaired when it is probable that we will be unable to collect all interest and principal payments as scheduled in the loan agreement. A loan is tested for impairment once it becomes four payments past due. A loan is not considered impaired during a period of insignificant delay in payment if the ultimate collectability of all amounts due is expected. We define an insignificant delay in payment as past due less than four payments. A valuation allowance is maintained to the extent that the measure of the impaired loan is less than the recorded investment. Our residential mortgage and consumer loan portfolios are collectively evaluated for impairment. The impairment of a loan is measured based on the present value of expected future cash flows discounted at the loans effective interest rate, or the fair value of the collateral if repayment is expected to be provided by the collateral. Generally, our impairment on such loans is measured by reference to the fair value of the collateral. Interest income on impaired loans is recognized on the cash basis.
Real Estate Acquired in Settlement of Loans - Real estate acquired in settlement of loans is carried at the lower of our recorded investment or fair value at the date of acquisition. Write-downs to fair value at the date of acquisition are charged to the allowance for loan losses. Subsequent write downs are included in non-interest expense. Costs relating to the development and improvement of a property are capitalized, whereas those relating to holding the property are charged to expense when incurred. The real estate is carried at the lower of acquisition or fair value net of estimated costs to sell subsequent to acquisition. Operating expenses of real estate owned are reflected in other non-interest expenses.
The amounts we could ultimately recover from real estate acquired in settlement of loans could differ materially from the amounts used in arriving at the net carrying value of the assets because of future market factors beyond our control or changes in our strategy for recovering our investment.
Premises and Equipment - Depreciation on buildings, furniture, and equipment is computed using the straight-line method over each assets estimated useful life. Leasehold improvements
are amortized using the straight-line method over the lesser of the estimated useful life or the lease term. Such estimated useful lives are as follows:
Buildings |
|
39 years |
Improvement to buildings |
|
5-10 years |
Leasehold improvements |
|
5-10 years |
Furniture, equipment |
|
7 years |
Computer equipment |
|
4 years |
Software |
|
3 years |
Automobiles |
|
3 years |
Mortgage Banking Activities It is our current practice to sell mortgage loans without retaining loan servicing rights (commonly referred to as servicing released). We have not purchased mortgage loans with servicing rights subsequent to 1994. Prior to 1995, we originated and sold some mortgage loans with servicing retained. The accounting treatment in effect at that time prohibited the capitalization of mortgage rights on internally originated loans that were subsequently sold. Accordingly, there are no capitalized mortgage servicing assets at December 31, 2012 and December 31, 2011.
Advertising Costs We expense advertising costs as they are incurred.
Income Taxes We file a consolidated federal income tax return with our subsidiaries. Deferred income tax assets and liabilities are recognized for the future income tax consequences attributed to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases. Any deferred tax asset is reduced by the amount of any tax benefit that more likely than not will not be realized.
A tax position is recognized in the financial statements only if it is more likely than not that the tax position would be sustained in a tax examination, with a tax examination being presumed to occur. The amount recognized is the largest amount of tax benefit that is greater than 50% likely of being realized on examination. For tax positions not meeting the more likely than not test, no tax benefit is recorded.
We recognize interest and penalties related to income tax matters in income tax expense.
The tax years before 2009 are no longer subject to U.S. Federal tax examinations.
Earnings Per Share - Basic earnings per share (EPS) is computed by dividing net income available to common stockholders by the weighted average number of common shares outstanding for the period. Diluted EPS reflects the potential dilution that could occur if options to issue common stock were exercised. Potentially dilutive common shares include incremental shares issuable upon exercise or outstanding stock options using the Treasury Stock Method.
Stock-Based Compensation - We have incentive compensation plans that permit the granting of incentive and non-qualified awards in the form of stock options. Generally, the terms of these plans stipulate that the exercise price of options may not be less than the fair market value of our common stock on the date the options are granted. Options predominantly vest over a two year period from the date of grant, and expire not later than ten years from date of grant.
Stock-based compensation is measured based on the grant-date fair value of the awards and the costs are recognized over the period during which an employee is required to provide service in exchange for the award. The fair value of each option grant is estimated on the date of grant using the Black-Scholes option pricing model.
Reclassifications - Certain reclassifications have been made to the prior years consolidated financial statements to conform to the 2012 presentation.
Recent Accounting Pronouncements
In April 2011, the FASB issued ASU No. 2011-03, Reconsideration of Effective Control for Repurchase Agreements. ASU No. 2011-03 affects all entities that enter into agreements to transfer financial assets that both entitle and obligate the transferor to repurchase or redeem the financial assets before their maturity. The amendments in ASU No. 2011-03 remove from the assessment of effective control the criterion relating to the transferors ability to repurchase or redeem financial assets on substantially the agreed terms, even in the event of default by the transferee. ASU No. 2011-03 also eliminates the requirement to demonstrate that the transferor possesses adequate collateral to fund substantially all the cost of purchasing replacement financial assets. The guidance is effective for the Companys reporting period ended March 31, 2012. The provisions of this guidance , which were adopted effective for the Companys quarter ended March 31, 2012, did not have a material impact on the Companys consolidated results of operations, financial condition or disclosure.
In December 2011, the FASB issued an accounting standards update to increase the disclosure requirements surrounding derivative instruments that are offset within the balance sheet pursuant to the provisions of current GAAP. The objective of the update is to provide greater comparability between issuers reporting under U.S. GAAP versus IFRS and provide users the ability to evaluate the effect of netting arrangements on a companys financial statements. The provisions of the update are effective for annual and interim periods beginning on or after January 1, 2013 and are not expected to add to the Companys current level of disclosures.
In February 2013 FASB issued ASU 2013-02, Comprehensive Income (Topic 220) Reporting of Amounts Reclassified Out of Accumulated Other Comprehensive Income. The objective of the new guidance is to improve the transparency of reporting reclassifications out of accumulated other comprehensive income (OCI) by requiring entities to present in one place information about significant amounts reclassified and, in some cases, to provide cross references to related footnote disclosures. The amendments do not change the current requirements for reporting net income or OCI, nor do they require new information to be disclosed. The amendments should be applied prospectively and are effective for public entities in both interim and annual reporting periods beginning after December 15, 2012.
2. LOANS RECEIVABLE
Loans receivable held-for-investment consists of the following:
|
|
December 31, |
| ||||
|
|
2012 |
|
2011 |
| ||
FIRST MORTGAGE LOANS: |
|
|
|
|
| ||
Secured by single-family residences |
|
$ |
67,113,044 |
|
$ |
79,719,713 |
|
Secured by 5 or more- residential |
|
2,211,044 |
|
3,068,229 |
| ||
Secured by other properties |
|
30,111,544 |
|
35,357,446 |
| ||
Construction loans |
|
4,495,641 |
|
3,984,630 |
| ||
Land and land development loans |
|
6,085,545 |
|
7,450,684 |
| ||
Land acquisition loans |
|
290,249 |
|
492,120 |
| ||
|
|
|
|
|
| ||
|
|
110,307,067 |
|
130,072,822 |
| ||
|
|
|
|
|
| ||
SECOND MORTGAGE LOANS |
|
1,678,060 |
|
1,977,851 |
| ||
|
|
|
|
|
| ||
COMMERCIAL AND OTHER LOANS: |
|
|
|
|
| ||
Commercial -secured by real estate |
|
65,498,712 |
|
76,607,916 |
| ||
Commercial |
|
1,838,454 |
|
2,735,036 |
| ||
Loans secured by savings accounts |
|
166,699 |
|
149,992 |
| ||
Consumer installment loans |
|
250,487 |
|
354,317 |
| ||
|
|
|
|
|
| ||
|
|
179,739,479 |
|
211,897,934 |
| ||
|
|
|
|
|
| ||
LESS: |
|
|
|
|
| ||
Allowance for loan losses |
|
(3,151,476 |
) |
(6,124,116 |
) | ||
|
|
|
|
|
| ||
Deferred loan fees |
|
(387,189 |
) |
(420,230 |
) | ||
|
|
|
|
|
| ||
TOTAL LOANS RECEIVABLE HELD-FOR-INVESTMENT |
|
$ |
176,200,814 |
|
$ |
205,353,588 |
|
We originate adjustable and fixed interest rate loans. The adjustable rate loans have interest rate adjustment limitations and are generally indexed to the 1- or 3-year U.S. Treasury index. Future market factors may affect the correlation of the interest rate adjustment with the rates we pay on the short-term deposits that have been primarily utilized to fund these loans. Adjustable interest rate loans at December 31, 2012 and December 31, 2011 were $2.5 million and $6.7 million, respectively.
Allowance for Loan Losses -
Allowance for loan losses and recorded investment in loans for the years ended December 31, 2012 and 2011 is summarized as follows:
For the year ended |
|
Residential |
|
Construction |
|
Land and Land |
|
Commercial |
|
Consumer |
|
Total |
| ||||||
|
|
(dollars in thousands) |
| ||||||||||||||||
Allowance for loan losses: |
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Beginning balance |
|
$ |
2,259 |
|
$ |
9 |
|
$ |
404 |
|
$ |
3,449 |
|
$ |
3 |
|
$ |
6,124 |
|
Charge-offs |
|
(1,292 |
) |
(405 |
) |
(464 |
) |
(916 |
) |
|
|
(3,077 |
) | ||||||
Recoveries |
|
17 |
|
|
|
14 |
|
73 |
|
|
|
104 |
| ||||||
Provisions |
|
713 |
|
485 |
|
209 |
|
(1,409 |
) |
2 |
|
|
| ||||||
Ending Balance |
|
1,697 |
|
89 |
|
163 |
|
1,197 |
|
5 |
|
3,151 |
| ||||||
Ending Balance: individually evaluated for impairment |
|
573 |
|
0 |
|
74 |
|
566 |
|
0 |
|
1,213 |
| ||||||
Ending Balance: collectively evaluated for impairment |
|
1,124 |
|
89 |
|
89 |
|
631 |
|
5 |
|
1,938 |
| ||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Loans: |
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Ending Balance |
|
$ |
101,113 |
|
$ |
4,496 |
|
$ |
6,376 |
|
$ |
67,337 |
|
$ |
417 |
|
$ |
179,739 |
|
Ending Balance: individually evaluated for impairment |
|
15,700 |
|
|
|
4,844 |
|
13,189 |
|
5 |
|
33,738 |
| ||||||
Ending Balance: collectively evaluated for impairment |
|
85,413 |
|
4,496 |
|
1,532 |
|
54,148 |
|
412 |
|
146,001 |
|
For the year ended |
|
Residential |
|
Construction |
|
Land and Land |
|
Commercial |
|
Consumer |
|
Total |
| ||||||
|
|
(dollars in thousands) |
| ||||||||||||||||
Allowance for loan losses: |
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Beginning balance |
|
$ |
2,891 |
|
$ |
326 |
|
$ |
2,932 |
|
$ |
4,067 |
|
$ |
4 |
|
$ |
10,220 |
|
Charge-offs |
|
(1,334 |
) |
|
|
(2,570 |
) |
(434 |
) |
(4 |
) |
(4,342 |
) | ||||||
Recoveries |
|
21 |
|
10 |
|
4 |
|
10 |
|
1 |
|
46 |
| ||||||
Provisions |
|
681 |
|
(327 |
) |
38 |
|
(194 |
) |
2 |
|
200 |
| ||||||
Ending Balance |
|
2,259 |
|
9 |
|
404 |
|
3,449 |
|
3 |
|
6,124 |
| ||||||
Ending Balance: individually evaluated for impairment |
|
1,057 |
|
0 |
|
283 |
|
1,595 |
|
0 |
|
2,935 |
| ||||||
Ending Balance: collectively evaluated for impairment |
|
1,202 |
|
9 |
|
121 |
|
1,854 |
|
3 |
|
3,189 |
| ||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Loans: |
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Ending Balance |
|
$ |
120,123 |
|
$ |
3,985 |
|
$ |
7,943 |
|
$ |
79,343 |
|
$ |
504 |
|
$ |
211,898 |
|
Ending Balance: individually evaluated for impairment |
|
13,588 |
|
|
|
3,486 |
|
14,256 |
|
|
|
31,330 |
| ||||||
Ending Balance: collectively evaluated for impairment |
|
106,535 |
|
3,985 |
|
4,457 |
|
65,087 |
|
504 |
|
180,568 |
|
The risks associated with each portfolio class are as follows:
First mortgage loans secured by single family residences, secured by 5 or more residential, secured by other properties and second mortgage loans The primary risks related to this type of lending include; unemployment, deterioration in real estate values, our ability to access the creditworthiness of the customer, deterioration in the borrowers financial condition (whether the result of personal issues or general economic downturn), the inability of the borrower to maintain occupancy for investment properties, and an appraisal on a property is not reflective of the true property value. Portfolio risk includes condition of the economy, changing demand for these
types of loans, large concentration of these types of loans and geographic concentration of these types of loans.
Construction loans Since this portfolio is substantially owner occupied residential construction loans, the loan specific risks and portfolio risks are the same as described above as first mortgage loans secured by single family residences. However these loans carry the additional risk associated with the builder and the potential for builder cost overruns and/or the builder being unable to complete the construction.
Land development loans and land acquisition loans The primary loan-specific risk in land and land development are: unemployment, deterioration of the business and/or collateral values, deterioration of the financial condition of the borrowers and/or guarantors creates a risk of default, and that an appraisal on the collateral is not reflective of the true property value. These loans usually include funding for the acquisition and development of unimproved properties to be used for residential or non-residential construction. We may provide permanent financing on the same projects for which we have provided the development and construction financing. Portfolio risk includes condition of the economy, changing demand for these types of loans, large concentration of these types of loans, and geographic concentrations of these types of loans.
Commercial and Commercial secured by real estate The primary loan-specific risks in these types of loans are: unemployment, general deterioration in the economy, deterioration of the business and/or business cash flows, financial condition of the guarantors, deterioration of collateral values, and that an appraisal on any real estate collateral is not reflective of the true property value. Portfolio risk includes condition of the economy, changing demand for these types of loans, large concentration of these types of loans, and geographic concentration of these types of loans.
Loans secured by savings accounts and consumer installment loans- The primary risks of these loans are: unemployment, and deterioration of the borrowers financial condition, whether the result of person issues or a general economic downturn. The portfolio risks for these types of loans is the same as for first mortgage loans secured by single family residences as described above.
Credit quality indicators as of December 31, 2012 are as follows:
Pass: Loans classified as pass generally meet or exceed normal credit standards. Factors include repayment source, collateral, borrower cash flows, and performance history.
Special Mention: Loans classified Special Mention loans have potential weaknesses that deserve managements attention. These loans are not adversely classified and do not expose an institution to sufficient risk to currently warrant adverse classification.
Substandard: Loans classified as substandard are loans that have a well-defined weakness. They are characterized by the distinct possibility that we will sustain some loss if the deficiencies are not corrected. These loans are inadequately protected by the current net worth and paying capacity of the obligor or the collateral pledged as security for the asset.
Doubtful: Loans classified as doubtful consists of loans where we expect a loss, but not a total loss. These loans have all the weaknesses inherent in a substandard asset, in addition, these weaknesses make collection highly questionable or improbable based on the existing circumstances.
Loss: Loans classified as loss are considered uncollectible. A loan classified as a loss does not mean that an asset has no recovery value, but that it is not practical to defer writing off or reserving all or a portion of the asset, even though partial recovery may be collected in the future. Loans that are classified as Loss are fully reserved for on our financial statements.
The credit risk profile by internally assigned grade under the Allowance for Loan Losses for the years ended December 31, 2012 and 2011 are as follows:
For the year ended |
|
Residential |
|
Construction |
|
Land and Land |
|
Commercial |
|
Consumer |
|
Total |
| ||||||
|
|
(dollars in thousands) |
| ||||||||||||||||
Pass |
|
$ |
90,846 |
|
$ |
4,496 |
|
$ |
1,916 |
|
$ |
53,279 |
|
$ |
412 |
|
$ |
150,949 |
|
Special Mention |
|
1,111 |
|
|
|
25 |
|
477 |
|
|
|
1,613 |
| ||||||
Substandard |
|
9,082 |
|
|
|
4,390 |
|
13,581 |
|
5 |
|
27,058 |
| ||||||
Doubtful/Loss |
|
74 |
|
|
|
45 |
|
|
|
|
|
119 |
| ||||||
Total |
|
$ |
101,113 |
|
$ |
4,496 |
|
$ |
6,376 |
|
$ |
67,337 |
|
$ |
417 |
|
$ |
179,739 |
|
For the year ended |
|
Residential |
|
Construction |
|
Land and Land |
|
Commercial |
|
Consumer |
|
Total |
| ||||||
|
|
(dollars in thousands) |
| ||||||||||||||||
Pass |
|
$ |
101,738 |
|
$ |
3,985 |
|
$ |
3,726 |
|
$ |
50,130 |
|
$ |
504 |
|
$ |
160,083 |
|
Special Mention |
|
4,501 |
|
|
|
58 |
|
12,251 |
|
|
|
16,810 |
| ||||||
Substandard |
|
13,724 |
|
|
|
3,889 |
|
16,875 |
|
|
|
34,488 |
| ||||||
Doubtful/Loss |
|
160 |
|
|
|
270 |
|
87 |
|
|
|
517 |
| ||||||
Total |
|
$ |
120,123 |
|
$ |
3,985 |
|
$ |
7,943 |
|
$ |
79,343 |
|
$ |
504 |
|
$ |
211,898 |
|
Information on impaired loans for the years ended December 31, 2012 and 2011 is as follows:
|
|
|
|
Unpaid |
|
|
|
Average |
|
Interest |
| |||||
For the year ended |
|
Recorded |
|
Principal |
|
Related |
|
Recorded |
|
Income |
| |||||
December 31, 2012 |
|
Investment |
|
Balance |
|
Allowance |
|
Investment |
|
Recognized |
| |||||
|
|
(dollars in thousands) |
| |||||||||||||
With no related allowance recorded: |
|
|
|
|
|
|
|
|
|
|
| |||||
Residential Real Estate |
|
$ |
5,166 |
|
$ |
5,166 |
|
$ |
|
|
$ |
6,839 |
|
$ |
298 |
|
Construction |
|
|
|
|
|
|
|
|
|
|
| |||||
Land and Land Acquisition |
|
2,157 |
|
2,157 |
|
|
|
3,626 |
|
63 |
| |||||
Commercial Real Estate and Commercial |
|
2,159 |
|
2,159 |
|
|
|
2,401 |
|
27 |
| |||||
Consumer |
|
5 |
|
5 |
|
|
|
7 |
|
1 |
| |||||
With an allowance recorded: |
|
|
|
|
|
|
|
|
|
|
| |||||
Residential Real Estate |
|
$ |
9,968 |
|
$ |
10,534 |
|
$ |
573 |
|
$ |
10,102 |
|
$ |
472 |
|
Construction |
|
|
|
|
|
|
|
|
|
|
| |||||
Land and Land Acquisition |
|
2,613 |
|
2,687 |
|
74 |
|
2,670 |
|
66 |
| |||||
Commercial Real Estate and Commercial |
|
10,457 |
|
11,030 |
|
566 |
|
10,501 |
|
533 |
| |||||
Consumer |
|
|
|
|
|
|
|
|
|
|
| |||||
Total |
|
|
|
|
|
|
|
|
|
|
| |||||
Residential Real Estate |
|
$ |
15,134 |
|
$ |
15,700 |
|
$ |
573 |
|
$ |
16,941 |
|
$ |
770 |
|
Construction |
|
|
|
|
|
|
|
|
|
|
| |||||
Land and Land Acquisition |
|
4,770 |
|
4,844 |
|
74 |
|
6,296 |
|
129 |
| |||||
Commercial Real Estate and Commercial |
|
12,616 |
|
13,189 |
|
566 |
|
12,902 |
|
560 |
| |||||
Consumer |
|
5 |
|
5 |
|
|
|
7 |
|
1 |
|
|
|
|
|
Unpaid |
|
|
|
Average |
|
Interest |
| |||||
For the year ended |
|
Recorded |
|
Principal |
|
Related |
|
Recorded |
|
Income |
| |||||
December 31, 2011 |
|
Investment |
|
Balance |
|
Allowance |
|
Investment |
|
Recognized |
| |||||
|
|
(dollars in thousands) |
| |||||||||||||
With no related allowance recorded: |
|
|
|
|
|
|
|
|
|
|
| |||||
Residential Real Estate |
|
$ |
1,569 |
|
$ |
2,467 |
|
$ |
|
|
$ |
2,484 |
|
$ |
82 |
|
Construction |
|
|
|
|
|
|
|
|
|
|
| |||||
Land and Land Acquisition |
|
1,273 |
|
2,300 |
|
|
|
2,309 |
|
58 |
| |||||
Commercial Real Estate and Commercial |
|
101 |
|
101 |
|
|
|
162 |
|
19 |
| |||||
Consumer |
|
|
|
|
|
|
|
|
|
|
| |||||
With an allowance recorded: |
|
|
|
|
|
|
|
|
|
|
| |||||
Residential Real Estate |
|
$ |
10,962 |
|
$ |
12,019 |
|
$ |
1,057 |
|
$ |
11,057 |
|
$ |
542 |
|
Construction |
|
|
|
|
|
|
|
|
|
|
| |||||
Land and Land Acquisition |
|
1,930 |
|
2,213 |
|
283 |
|
1,938 |
|
77 |
| |||||
Commercial Real Estate and Commercial |
|
12,560 |
|
14,155 |
|
1,595 |
|
14,781 |
|
501 |
| |||||
Consumer |
|
|
|
|
|
|
|
|
|
|
| |||||
Total |
|
|
|
|
|
|
|
|
|
|
| |||||
Residential Real Estate |
|
$ |
12,531 |
|
$ |
14,486 |
|
$ |
1,057 |
|
$ |
13,541 |
|
$ |
624 |
|
Construction |
|
|
|
|
|
|
|
|
|
|
| |||||
Land and Land Acquisition |
|
3,203 |
|
4,513 |
|
283 |
|
4,247 |
|
135 |
| |||||
Commercial Real Estate and Commercial |
|
12,661 |
|
14,256 |
|
1,595 |
|
14,943 |
|
520 |
| |||||
Consumer |
|
|
|
|
|
|
|
|
|
|
|
At December 31, 2012 and 2011, nonaccrual loans are $19.7 million and $12.8 million, respectively.
An age analysis of past due loans as of December 31, 2012 and 2011 are as follows:
For the year ended |
|
2 payments |
|
3 payments |
|
Non-Accrual |
|
Total |
|
|
|
|
|
December 31, 2012 |
|
Past Due |
|
Past Due |
|
Loans |
|
Past Due |
|
Current |
|
Total |
|
|
|
(dollars in thousands) |
| ||||||||||
Residential Real Estate |
|
1,842 |
|
1,329 |
|
5,088 |
|
8,259 |
|
92,855 |
|
101,114 |
|
Construction |
|
|
|
|
|
|
|
|
|
4,496 |
|
4,496 |
|
Land and Land Acquisition |
|
|
|
25 |
|
6,349 |
|
6,374 |
|
1 |
|
6,375 |
|
Commercial Real Estate and Commercial |
|
3,043 |
|
988 |
|
8,290 |
|
12,321 |
|
55,016 |
|
67,337 |
|
Consumer |
|
|
|
|
|
5 |
|
5 |
|
412 |
|
417 |
|
Total |
|
4,885 |
|
2,342 |
|
19,732 |
|
26,959 |
|
152,780 |
|
179,739 |
|
For the year ended |
|
2 payments |
|
3 payments |
|
Non-Accrual |
|
Total |
|
|
|
|
|
December 31, 2011 |
|
Past Due |
|
Past Due |
|
Loans |
|
Past Due |
|
Current |
|
Total |
|
|
|
(dollars in thousands) |
| ||||||||||
Residential Real Estate |
|
3,578 |
|
2,043 |
|
4,436 |
|
10,057 |
|
110,066 |
|
120,123 |
|
Construction |
|
|
|
|
|
|
|
|
|
3,985 |
|
3,985 |
|
Land and Land Acquisition |
|
2,197 |
|
58 |
|
1,823 |
|
4,078 |
|
3,865 |
|
7,943 |
|
Commercial Real Estate and Commercial |
|
1,617 |
|
|
|
6,580 |
|
8,197 |
|
71,146 |
|
79,343 |
|
Consumer |
|
|
|
|
|
|
|
|
|
504 |
|
504 |
|
Total |
|
7,392 |
|
2,101 |
|
12,839 |
|
22,332 |
|
189,566 |
|
211,898 |
|
Loans on which the recognition of interest has been discontinued amounted to approximately $19.7 million and $12.8 million at December 31, 2012 and 2011, respectively. If interest income had been recognized on those loans at their stated rates during the years ending December 31, 2012 and 2011, interest income would have been increased by approximately $2.0 million and $1.1 million, respectively. The total allowance for loan losses on these impaired loans was approximately $512,000 and $2.9 million at December 31, 2012 and 2011, respectively.
The impaired loans included in the table above were comprised of collateral dependent 1-4 residential real estate, lot loans, commercial real estate loans and consumer loans. The average recorded investment in impaired loans was $36.1 million and $32.7 million at December 31, 2012 and 2011, respectively, which included an average recorded balance in non-performing loans of $13.7 million and $19.3 million at December 31, 2012 and 2011, respectively.
A troubled debt restructure (TDR) is when we grant a concession to borrowers that the Bank would not otherwise have considered due to a borrowers financial difficulties. All TDRs are considered impaired. The substantial majority of our residential real estate TDRs involved reducing the interest rate for a specified period. We also have restructured loans involving the restructure of loan terms such as a reduction in the payment requiring interest only payments and/or extending the maturity date of these loans.
|
|
TDRs on Non- |
|
TDRs on |
|
Total |
| |||
December 31, 2012 (in thousands) |
|
Accural Status |
|
Accrual Status |
|
TDRs |
| |||
|
|
|
|
|
|
|
| |||
Residential Real Estate |
|
$ |
775 |
|
$ |
9,907 |
|
$ |
10,682 |
|
Land and Lot Loans |
|
943 |
|
762 |
|
1,705 |
| |||
Commercial Real Estate |
|
6,977 |
|
3,337 |
|
10,314 |
| |||
|
|
|
|
|
|
|
| |||
Total TDRs |
|
$ |
8,695 |
|
$ |
14,006 |
|
$ |
22,701 |
|
|
|
TDRs on Non- |
|
TDRs on |
|
Total |
| |||
December 31, 2011 (in thousands) |
|
Accural Status |
|
Accrual Status |
|
TDRs |
| |||
|
|
|
|
|
|
|
| |||
Residential Real Estate |
|
$ |
267 |
|
$ |
7,349 |
|
$ |
7,616 |
|
Land and Lot Loans |
|
931 |
|
1,689 |
|
2,620 |
| |||
Commercial Real Estate |
|
687 |
|
9,453 |
|
10,140 |
| |||
|
|
|
|
|
|
|
| |||
Total TDRs |
|
$ |
1,885 |
|
$ |
18,491 |
|
$ |
20,376 |
|
We consider an impaired loan to be performing to its modified terms if the loan is not past due 30 day or more as of the report date.
The following presents, by class, information related to loans modified in a TDR during the twelve months ending December 31, 2012 and 2011.
|
|
Loans Modified as a TDR for the Twelve Months Ended |
| ||||||||
|
|
December 31, 2012 |
|
December 31, 2011 |
| ||||||
Troubled Debt Restructurings: |
|
Number of |
|
Recorded Investment |
|
Number of |
|
Recorded Investment |
| ||
(dollars in thousands) |
|
Contracts |
|
(as of period end) |
|
Contracts |
|
(as of period end) |
| ||
|
|
|
|
|
|
|
|
|
| ||
Residential Real Estate |
|
14 |
|
$ |
2,202 |
|
12 |
|
$ |
5,140 |
|
Land and Lot Loans |
|
1 |
|
$ |
64 |
|
4 |
|
$ |
906 |
|
Commerical Real Estate |
|
1 |
|
99 |
|
9 |
|
1,867 |
| ||
|
|
|
|
|
|
|
|
|
| ||
Total TDRs |
|
16 |
|
$ |
2,365 |
|
25 |
|
$ |
7,913 |
|
The following reflects a summary of TDR loan modifications outstanding and respective performance under the modified terms as of December 31, 2012.
|
|
TDRs |
|
TDRs Not |
|
|
| |||
|
|
Performing to |
|
Performing to |
|
Total |
| |||
December 31, 2012 (in thousands) |
|
Modified Terms |
|
Modified Terms |
|
TDRs |
| |||
|
|
|
|
|
|
|
| |||
Residential Real Estate |
|
|
|
|
|
|
| |||
Rate reduction |
|
$ |
9,021 |
|
$ |
924 |
|
$ |
9,945 |
|
Extension or other modification |
|
581 |
|
156 |
|
737 |
| |||
Total residential TDRs |
|
$ |
9,602 |
|
$ |
1,080 |
|
$ |
10,682 |
|
|
|
|
|
|
|
|
| |||
Land and Lot Loans: |
|
|
|
|
|
|
| |||
Rate reduction |
|
$ |
762 |
|
$ |
912 |
|
$ |
1,674 |
|
Extension or other modification |
|
|
|
31 |
|
31 |
| |||
Total Land and Lot Loans |
|
$ |
762 |
|
$ |
943 |
|
$ |
1,705 |
|
|
|
|
|
|
|
|
| |||
Commercial: |
|
|
|
|
|
|
| |||
Rate reduction |
|
$ |
875 |
|
$ |
7,536 |
|
$ |
8,411 |
|
Extension or other modification |
|
|
|
1,903 |
|
1,903 |
| |||
Total commercial TDRs |
|
$ |
875 |
|
$ |
9,439 |
|
$ |
10,314 |
|
Total TDRs |
|
$ |
11,239 |
|
$ |
11,462 |
|
$ |
22,701 |
|
|
|
TDRs |
|
TDRs Not |
|
|
| |||
|
|
Performing to |
|
Performing to |
|
Total |
| |||
December 31, 2011 (in thousands) |
|
Modified Terms |
|
Modified Terms |
|
TDRs |
| |||
|
|
|
|
|
|
|
| |||
Residential Real Estate |
|
|
|
|
|
|
| |||
Rate reduction |
|
$ |
6,509 |
|
$ |
527 |
|
$ |
7,036 |
|
Extension or other modification |
|
579 |
|
|
|
579 |
| |||
Total residential TDRs |
|
$ |
7,088 |
|
$ |
527 |
|
$ |
7,615 |
|
|
|
|
|
|
|
|
| |||
Land and Lot Loans: |
|
|
|
|
|
|
| |||
Rate reduction |
|
$ |
1,079 |
|
$ |
989 |
|
$ |
2,068 |
|
Extension or other modification |
|
553 |
|
|
|
553 |
| |||
Total Land and Lot Loans |
|
$ |
1,632 |
|
$ |
989 |
|
$ |
2,621 |
|
|
|
|
|
|
|
|
| |||
Commercial: |
|
|
|
|
|
|
| |||
Rate reduction |
|
$ |
8,050 |
|
$ |
2,090 |
|
$ |
10,140 |
|
Extension or other modification |
|
|
|
|
|
|
| |||
Total commercial TDRs |
|
$ |
8,050 |
|
$ |
2,090 |
|
$ |
10,140 |
|
Total TDRs |
|
$ |
16,770 |
|
$ |
3,606 |
|
$ |
20,376 |
|
|
|
Twelve Months ended |
| ||||||||
TDRs that Defaulted During the Period, |
|
December 31, 2012 |
|
December 31, 2011 |
| ||||||
Within Twelve Months of Modification Date |
|
Number of |
|
Recorded Investment |
|
Number of |
|
Recorded Investment |
| ||
|
|
|
|
|
|
|
|
|
| ||
Residential Real Estate |
|
8 |
|
$ |
1,082 |
|
11 |
|
$ |
2,128 |
|
Lot Loans |
|
3 |
|
322 |
|
13 |
|
1,660 |
| ||
Commercial Real Estate |
|
2 |
|
869 |
|
5 |
|
7,682 |
| ||
|
|
|
|
|
|
|
|
|
| ||
Total TDRs |
|
13 |
|
$ |
2,273 |
|
29 |
|
$ |
11,470 |
|
Non-residential real estate loans had an outstanding balance of $30.1 million and $35.4 million at December 31, 2012 and 2011, respectively. These loans are considered by management to have somewhat greater risk of collectability due to the dependence on income production. Additionally, all of our non-residential real estate loans were collateralized by real estate (primarily warehouse and office space) in the Washington, D.C. metropolitan area.
We originate and participate in land and land development loans, real estate construction loans and commercial real estate loans, the proceeds of which are used by the borrower for acquisition, development, and construction purposes. Often the loan arrangements require us to provide, from the loan proceeds, amounts sufficient for payment of loan fees and anticipated costs during acquisition, development, or construction, including interest. This type of lending is considered by management to have higher risks. At December 31, 2012 and 2011, the undisbursed portion of such loans totaled $10.2 million and $11.0 million, respectively.
We have made loans to certain of the Banks executive officers and directors. These loans were made on substantially the same terms, including interest rate and collateral requirements, as those prevailing at the time for comparable transactions with unrelated customers. The risk of loss on these loans is considered to be no greater than for loans made to unrelated customers.
The following schedule summarizes changes in amounts of loans outstanding to executive officers and directors:
|
|
Years ended |
| ||||
|
|
December 31, |
| ||||
|
|
2012 |
|
2011 |
| ||
|
|
|
|
|
| ||
Balance at beginning of year |
|
$ |
5,054,698 |
|
$ |
4,928,053 |
|
Additions |
|
145,798 |
|
1,622,208 |
| ||
Repayments |
|
(1,299,341 |
) |
(1,495,563 |
) | ||
|
|
|
|
|
| ||
Balance at end of year |
|
$ |
3,901,155 |
|
$ |
5,054,698 |
|
3. MORTGAGE-BACKED SECURITIES
Mortgage-backed securities consisted of the following:
|
|
December 31, 2012 |
| ||||||||||
|
|
|
|
Gross |
|
Gross |
|
Estimated |
| ||||
|
|
Amortized |
|
Unrealized |
|
Unrealized |
|
Fair |
| ||||
|
|
Cost |
|
Gains |
|
Losses |
|
Value |
| ||||
|
|
|
|
|
|
|
|
|
| ||||
AVAILABLE FOR SALE: |
|
|
|
|
|
|
|
|
| ||||
FHLMC pass-through certificates |
|
3,220,880 |
|
141,916 |
|
|
|
3,362,796 |
| ||||
FNMA pass-through certificates |
|
8,667,364 |
|
467,908 |
|
|
|
9,135,272 |
| ||||
Other pass-through certificates |
|
11,536,733 |
|
774,564 |
|
|
|
12,311,297 |
| ||||
|
|
$ |
23,424,977 |
|
$ |
1,384,388 |
|
$ |
|
|
$ |
24,809,365 |
|
|
|
|
|
|
|
|
|
|
| ||||
Weighted average interest rate |
|
3.58 |
% |
|
|
|
|
|
| ||||
|
|
December 31, 2011 |
| ||||||||||
|
|
|
|
Gross |
|
Gross |
|
Estimated |
| ||||
|
|
Amortized |
|
Unrealized |
|
Unrealized |
|
Fair |
| ||||
|
|
Cost |
|
Gains |
|
Losses |
|
Value |
| ||||
|
|
|
|
|
|
|
|
|
| ||||
AVAILABLE FOR SALE: |
|
|
|
|
|
|
|
|
| ||||
GNMA certificates |
|
$ |
7,126,518 |
|
$ |
226,129 |
|
$ |
|
|
$ |
7,352,647 |
|
Private label collaterized mortgage obligations |
|
17,026,220 |
|
17,241 |
|
684,135 |
|
16,359,326 |
| ||||
FHLMC pass-through certificates |
|
4,904,114 |
|
181,994 |
|
|
|
5,086,108 |
| ||||
FNMA pass-through certificates |
|
20,036,967 |
|
443,052 |
|
|
|
20,480,019 |
| ||||
Freddie Mac pass-through certificates |
|
23,024,218 |
|
348,993 |
|
|
|
23,373,211 |
| ||||
Other pass-through certificates |
|
7,634,231 |
|
522,715 |
|
|
|
8,156,946 |
| ||||
|
|
$ |
79,752,268 |
|
$ |
1,740,124 |
|
$ |
684,135 |
|
$ |
80,808,257 |
|
|
|
|
|
|
|
|
|
|
| ||||
Weighted average interest rate |
|
4.08 |
% |
|
|
|
|
|
|
The portfolio classified as Available for Sale is consistent with managements assessment and intention as to the portfolio. While we have the intent to hold and do not expect to be required to sell the securities until maturity, from time to time or with changing conditions, it may be advantageous to sell certain securities either to take advantage of favorable interest rate changes or to increase liquidity. Securities classified as Held to Maturity are not subject to fair value adjustment due to temporary changes in value due to interest rate; while securities classified as Available for Sale are subject to adjustment in carrying value through the accumulated comprehensive income line item in stockholders equity section of the statement of financial condition.
Gross unrealized losses and fair value by length of time that the individual available-for-sale MBS have been in a continuous unrealized loss position is as follows:
|
|
December 31, 2012 |
|
December 31, 2011 |
| ||||||||
|
|
|
|
Continuous |
|
|
|
Continuous |
| ||||
|
|
Fair |
|
Unrealized |
|
Fair |
|
Unrealized |
| ||||
|
|
Value |
|
Losses |
|
Value |
|
Losses |
| ||||
|
|
|
|
|
|
|
|
|
| ||||
Less than 12 months |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
More than 12 months |
|
|
|
|
|
16,055,478 |
|
684,135 |
| ||||
Total |
|
$ |
|
|
$ |
|
|
$ |
16,055,478 |
|
$ |
684,135 |
|
At December 31, 2012, we had no securities in an unrealized loss position. At December 31, 2011, there were four securities that were in an unrealized loss related to our private labeled mortgage backed securities portfolio. These securities were sold during the year ending December 31, 2012.
At December 31, 2012 and December 31, 2011, we had no other-than-temporary impairment losses recognized in net earnings, related to available-for-sale investments.
In evaluating whether a security was other than temporarily impaired, we considered the severity and length of time impaired for each security in a loss position. Other qualitative data was also considered including recent developments specific to the organization issuing the security, market liquidity, extension risk, credit rating downgrades as well as analysis of performance of the underlying collateral.
Prior to the sale of our non-agency MBSs, the valuation process and OTTI determination, assumptions related to prepayment, default and severity on the collateral supporting the non-agency MBSs were input into an industry standard valuation model. The valuation is Level Three pursuant to FASB ASC Topic 820- Fair Value Measurements and Disclosures. As of December 31, 2012, we currently have no non-agency private-labeled MBS. At December 31, 2012, we had no securities classified as held-to-maturity.
We recognized a gain of $189,264 on the sale of mortgage-backed securities during year ending December 31, 2012 compared to a gain of $401,052 for the previous fiscal year. Proceeds from sale of mortgage-backed securities were as follows as of December 31, 2012 and 2011:
|
|
December 31, 2012 |
| |||||||
|
|
|
|
|
|
Gross Realized |
| |||
|
|
Carrying |
|
|
|
Gain |
| |||
|
|
Value |
|
Proceeds |
|
on sales |
| |||
|
|
|
|
|
|
|
| |||
MBS - available-for-sale |
|
$ |
53,618,467 |
|
$ |
53,807,731 |
|
$ |
189,264 |
|
|
|
$ |
53,618,467 |
|
$ |
53,807,731 |
|
$ |
189,264 |
|
|
|
December 31, 2011 |
| |||||||
|
|
|
|
|
|
Gross Realized |
| |||
|
|
Carrying |
|
|
|
Gain |
| |||
|
|
Value |
|
Proceeds |
|
on sales |
| |||
|
|
|
|
|
|
|
| |||
MBS - available-for-sale |
|
$ |
10,972,982 |
|
$ |
11,374,034 |
|
$ |
401,052 |
|
|
|
$ |
10,972,982 |
|
$ |
11,374,034 |
|
$ |
401,052 |
|
4. INVESTMENT SECURITIES
Investment securities consist of the following:
|
|
December 31, 2012 |
| ||||||||||
|
|
|
|
Gross |
|
Gross |
|
Estimated |
| ||||
|
|
Amortized |
|
Unrealized |
|
Unrealized |
|
Fair |
| ||||
|
|
Cost |
|
Gains |
|
Losses |
|
Value |
| ||||
|
|
|
|
|
|
|
|
|
| ||||
AVAILABLE FOR SALE: |
|
|
|
|
|
|
|
|
| ||||
FHLB Agencies |
|
$ |
12,401,830 |
|
$ |
68,247 |
|
$ |
22,474 |
|
$ |
12,447,603 |
|
Farmer Mac |
|
6,997,553 |
|
2,550 |
|
3,793 |
|
6,996,310 |
| ||||
FNMA Agencies |
|
33,613,844 |
|
45,714 |
|
47,618 |
|
33,611,940 |
| ||||
FHLMC Agencies |
|
6,065,936 |
|
6,584 |
|
10,500 |
|
6,062,020 |
| ||||
|
|
$ |
59,079,163 |
|
$ |
123,095 |
|
$ |
84,385 |
|
$ |
59,117,873 |
|
|
|
December 31, 2011 |
| ||||||||||
|
|
|
|
Gross |
|
Gross |
|
Estimated |
| ||||
|
|
Amortized |
|
Unrealized |
|
Unrealized |
|
Fair |
| ||||
|
|
Cost |
|
Gains |
|
Losses |
|
Value |
| ||||
|
|
|
|
|
|
|
|
|
| ||||
AVAILABLE FOR SALE: |
|
|
|
|
|
|
|
|
| ||||
FHLB Agencies |
|
$ |
32,139,478 |
|
$ |
505,954 |
|
$ |
|
|
$ |
32,645,432 |
|
Farmer Mac |
|
5,000,000 |
|
14,350 |
|
|
|
5,014,350 |
| ||||
Corporate Bonds |
|
5,000,000 |
|
|
|
53,160 |
|
4,946,840 |
| ||||
Municipal Bonds |
|
2,291,578 |
|
38,985 |
|
|
|
2,330,563 |
| ||||
|
|
$ |
44,431,056 |
|
$ |
559,289 |
|
$ |
53,160 |
|
$ |
44,937,185 |
|
|
|
December 31, 2012 |
| |||||||
|
|
|
|
|
|
Gross Realized |
| |||
|
|
Carrying |
|
|
|
Gain |
| |||
|
|
Value |
|
Proceeds |
|
on sales |
| |||
Farmer Mac Agency called - AFS |
|
$ |
5,000,000 |
|
$ |
5,000,000 |
|
$ |
|
|
FHLB Agencies- called - AFS |
|
38,542,640 |
|
38,550,000 |
|
7,360 |
| |||
FHLB Agencies -sales -AFS |
|
2,597,652 |
|
2,801,737 |
|
204,085 |
| |||
Corporate Bonds - sales - AFS |
|
5,000,000 |
|
5,202,500 |
|
202,500 |
| |||
Municipal Bonds - sales - AFS |
|
2,287,493 |
|
2,319,275 |
|
31,782 |
| |||
|
|
$ |
48,427,785 |
|
$ |
48,873,512 |
|
$ |
445,727 |
|
|
|
December 31, 2011 |
| |||||||
|
|
|
|
|
|
Gross Realized |
| |||
|
|
Carrying |
|
|
|
Gain |
| |||
|
|
Value |
|
Proceeds |
|
on sales |
| |||
FHLB Agencies- called - AFS |
|
$ |
31,966,865 |
|
$ |
32,000,000 |
|
$ |
33,135 |
|
FHLB Agencies -sales -AFS |
|
9,995,134 |
|
10,123,438 |
|
128,304 |
| |||
|
|
$ |
41,961,999 |
|
$ |
42,123,438 |
|
$ |
161,439 |
|
Approximately $43.5 million short term callable agency investments were called during the year ending December 31, 2012. Also, during the year ending December 31, 2012, we sold approximately $2.6 million in short term callable agencies, $5.0 million in corporate bonds and $2.3 million in municipal bonds.
In evaluating whether a security was other than temporarily impaired, we considered the severity and length of time impaired for each security in a loss position. Other qualitative data was also considered including recent developments specific to the organization issuing the security and the overall environment of the financial markets.
Gross unrealized losses and fair value by length of time that the individual available-for-sale investment securities have been in a continuous unrealized loss position are as follows:
|
|
December 31, 2012 |
|
December 31, 2011 |
| ||||||||
|
|
|
|
Continuous |
|
|
|
Continuous |
| ||||
|
|
Fair |
|
Unrealized |
|
Fair |
|
Unrealized |
| ||||
|
|
Value |
|
Losses |
|
Value |
|
Losses |
| ||||
Less than 12 months: |
|
|
|
|
|
|
|
|
| ||||
FHLB Agencies |
|
$ |
24,043,600 |
|
$ |
84,384 |
|
$ |
|
|
$ |
|
|
Farmer Mac Callable |
|
|
|
|
|
|
|
|
| ||||
Corporte Bond |
|
|
|
|
|
5,000,000 |
|
53,160 |
| ||||
More than 12 months |
|
|
|
|
|
|
|
|
| ||||
Total |
|
$ |
24,043,600 |
|
$ |
84,384 |
|
$ |
5,000,000 |
|
$ |
53,160 |
|
All of our temporarily impaired securities are defined as impaired due to declines in fair values resulting from increases in interest rates compared to the time they were purchased. None of these securities have exhibited a decline in value due to changes in credit risk. Furthermore, we have the ability to hold these securities for a period of time sufficient to allow for any anticipated recovery in fair value and do not expect to realize losses on any of these holdings. As such, management does not consider the impairments to be other than temporary.
Maturities for the investment securities are as follows:
|
|
2012 |
| ||||
|
|
Amortized |
|
Estimated |
| ||
|
|
Cost |
|
Fair Value |
| ||
Due in one year or less |
|
$ |
|
|
$ |
|
|
Due after one year through five years |
|
5,397,154 |
|
5,425,043 |
| ||
Due after five years through ten years |
|
48,682,009 |
|
48,675,130 |
| ||
Due after ten years |
|
5,000,000 |
|
5,017,700 |
| ||
Total debt securities |
|
$ |
59,079,163 |
|
$ |
59,117,873 |
|
5. LAND HELD FOR DEVELOPMENT
WSBs wholly owned subsidiary, WSB, Inc., previously was established to purchase land in Maryland to develop into single family building lots that were offered for sale to third parties. The subsidiary also built homes on lots on a contract basis. However, due to the current economy, the subsidiary has not purchased or participated in developing homes for the past fiscal years ending December 31, 2012 and 2011.
6. REAL ESTATE ACQUIRED IN SETTLEMENT OF LOANS
Real estate acquired in settlement of loans consists of the following:
|
|
December 31, |
| ||||
|
|
2012 |
|
2011 |
| ||
|
|
|
|
|
| ||
Single family properties |
|
$ |
645,207 |
|
$ |
603,381 |
|
Land |
|
1,677,156 |
|
2,285,183 |
| ||
Construction |
|
912,543 |
|
743,600 |
| ||
Commercial |
|
2,263,635 |
|
1,454,753 |
| ||
Less: valuation allowance |
|
(316,138 |
) |
(266,283 |
) | ||
|
|
|
|
|
| ||
|
|
$ |
5,182,403 |
|
$ |
4,820,634 |
|
|
|
Years Ended |
| ||||
|
|
December 31, |
| ||||
|
|
2012 |
|
2011 |
| ||
|
|
|
|
|
| ||
Buildings |
|
$ |
7,344,854 |
|
$ |
7,034,554 |
|
Land |
|
1,038,294 |
|
1,038,294 |
| ||
Furniture and fixtures |
|
3,466,625 |
|
3,427,304 |
| ||
Leasehold improvements |
|
418,418 |
|
410,559 |
| ||
Automobiles |
|
173,291 |
|
173,291 |
| ||
|
|
12,441,482 |
|
12,084,002 |
| ||
Less accumulated depreciation and amortization |
|
(7,688,693 |
) |
(7,276,759 |
) | ||
|
|
$ |
4,752,789 |
|
$ |
4,807,243 |
|
Depreciation expense totaled $444,237 and $446,770 for the years ending December 31, 2012, and 2011, respectively. Loss on disposal of assets totaled $9,198 and $2,005 for the years ending December 31, 2012 and 2011, respectively.
The Company has entered into long-term operating leases for certain premises. Some of these leases require payment of real estate taxes and other related expenses, and some contain escalation clauses that provide for increased rental payments under certain circumstances. Certain leases also contain renewal options. Rental expense under leases for the years ended December 31, 2012 and December 31, 2011 was $296,374 and $287,862, respectively.
8. DEPOSITS
Deposits consist of the following:
|
|
Years Ended |
| ||||||||
|
|
December 31, 2012 |
|
December 31, 2011 |
| ||||||
|
|
Amount |
|
Weighted |
|
Amount |
|
Weighted |
| ||
Non-interest-bearing: |
|
|
|
|
|
|
|
|
| ||
Checking accounts |
|
$ |
6,668,011 |
|
|
% |
$ |
5,256,111 |
|
|
% |
|
|
|
|
|
|
|
|
|
| ||
Interest-bearing: |
|
|
|
|
|
|
|
|
| ||
NOW accounts |
|
24,646,375 |
|
0.12 |
|
24,289,201 |
|
0.43 |
| ||
Savings deposits |
|
109,495,196 |
|
0.26 |
|
112,009,484 |
|
1.08 |
| ||
Time Deposits |
|
90,622,432 |
|
1.46 |
|
103,495,792 |
|
1.95 |
| ||
|
|
224,764,003 |
|
|
|
239,794,477 |
|
|
| ||
|
|
|
|
|
|
|
|
|
| ||
|
|
$ |
231,432,014 |
|
0.70 |
% |
$ |
245,050,588 |
|
1.34 |
% |
Time deposits at December 31, 2012 mature as follows:
|
|
|
|
Average |
| |
|
|
Amount |
|
Interest Rate |
| |
|
|
|
|
|
| |
Under 6 months |
|
$ |
14,505,024 |
|
1.18 |
% |
6 to 12 months |
|
19,859,046 |
|
0.82 |
| |
12 to 24 months |
|
17,065,916 |
|
2.34 |
| |
24 to 36 months |
|
17,464,530 |
|
1.84 |
| |
36 to 48 months |
|
12,999,121 |
|
1.18 |
| |
48 to 60 months |
|
8,728,795 |
|
1.29 |
| |
|
|
|
|
|
| |
|
|
$ |
90,622,432 |
|
1.46 |
% |
Our deposits are insured by the Federal Deposit Insurance Corporation (FDIC). The Dodd-Frank Wall Street Reform and Consumer Protection Act signed on July 21, 2010, made permanent the standard maximum deposit insurance amount of $250,000.
As of December 31, 2012, we have approximately 146 time deposits with a balance in excess of $100,000 for a total of $20,116,000, compared to approximately 176 for a total of $24,241,000 at December 31, 2011. These funds were primarily used to fund our loan originations. We currently have 5 accounts totaling approximately $18.0 million that are funds received through brokers. These brokered accounts consist of individual accounts that are not in excess of $100,000 but issued under master certificates in the brokers name for a combined total exceeding $100,000. These types of accounts meet the FDIC requirements and are federally insured.
The following is a summary of interest expense on deposits:
|
|
Years ending December 31, |
| ||||
|
|
2012 |
|
2011 |
| ||
NOW Accounts |
|
$ |
818,413 |
|
$ |
1,087,483 |
|
Savings Deposits |
|
122,817 |
|
143,012 |
| ||
Time Deposits |
|
1,693,750 |
|
2,671,803 |
| ||
|
|
$ |
2,634,980 |
|
$ |
3,902,298 |
|
9. BORROWINGS
Borrowings are as follows:
|
|
Year Ended December 31, 2012 |
| ||||||||
|
|
Balance |
|
Rate |
|
Average balance |
|
Weighted |
| ||
|
|
at year end |
|
at year end |
|
for the year |
|
average rate |
| ||
|
|
|
|
|
|
|
|
|
| ||
FHLB-advances-fixed |
|
$ |
68,000,000 |
|
2.81 |
% |
$ |
69,900,000 |
|
2.78 |
% |
|
|
$ |
68,000,000 |
|
|
|
$ |
69,900,000 |
|
|
|
|
|
Year Ended December 31, 2011 |
| ||||||||
|
|
Balance |
|
Rate |
|
Average balance |
|
Weighted |
| ||
|
|
at year end |
|
at year end |
|
for the year |
|
average rate |
| ||
|
|
|
|
|
|
|
|
|
| ||
FHLB-advances-fixed |
|
$ |
76,000,000 |
|
2.64 |
% |
$ |
76,000,000 |
|
2.64 |
% |
Daily Rate Credit |
|
8,000,000 |
|
0.36 |
% |
1,655,000 |
|
0.37 |
% | ||
|
|
$ |
84,000,000 |
|
|
|
$ |
77,655,000 |
|
|
|
The fixed rate advances mature as follows:
Year ending December 31, |
|
Total |
| |
|
|
|
| |
2013 |
|
$ |
22,000,000 |
|
2014 |
|
20,000,000 |
| |
2015 |
|
|
| |
2016 |
|
|
| |
2017 |
|
26,000,000 |
| |
and thereafter |
|
|
| |
Total |
|
$ |
68,000,000 |
|
At December 31, 2011, total borrowings consisted of $84.0 million in FHLB advances. During the fiscal year ending December 31, 2012, our borrowings were reduced as a result of an $8.0 million maturity and the repayment of $8.0 million in the daily rate credit, bringing the balance of our FHLB advances to $68.0 million at December 31, 2012. Borrowings for fiscal 2012 were as follows:
FHLB Borrowings
Beginning Balance at December 31, 2011 |
|
$ |
84,000 |
|
Matured |
|
(8,000 |
) | |
Repayment of daily rate credit |
|
(8,000 |
) | |
New advances |
|
|
| |
|
|
|
| |
Ending Balance at December 31, 2012 |
|
$ |
68,000 |
|
We are required to maintain collateral against FHLB advances. This collateral consisted of a blanket lien on our 1-to-4 family residential loan portfolio, commercial real estate loan portfolio and multi-family first trust mortgage portfolio, which had a net collateral value of $62,746,609 and $61,699,987 at December 31, 2012 and 2011, respectively.
During the years ended December 31, 2012 and 2011, the maximum month end balance of total borrowings was $76.0 million and $86.0 million, respectively. We currently have an unused secured line of credit of $7.0 million with M & T Bank as well as a $5.0 million unused line of credit with Atlantic Central Bankers Bank which includes $3.0 million unsecured and $2.0 million secured lines of credit.
10. BENEFIT PLANS
Profit Sharing/401(k) Retirement Plan The Bank has a 401(k) Retirement Plan (401(k)). The 401(k) offers a corporate match program of 100% of the first 3% of employee directed contributions and a 50% match up to an additional 2% of employee directed contributions. For the calendar year ending December 31, 2012 and 2011, we recognized expenses of $188,861 and $139,825, respectively.
Stock Option Plans - We have incentive compensation plans that permit the granting of incentive and non-qualified awards in the form of stock options. Generally, the terms of these plans stipulate that the exercise price of options may not be less than the fair market value of WSBs common stock on the date the options are granted. Options predominantly vest over a two year period from the date of grant, and expire not later than ten years from the date of grant.
All outstanding options are vested and there is currently no unrealized compensation cost related to non-vested share based compensation arrangements.
Equity Incentive Plans On April 27, 2011, the stockholders of WSB Holdings, Inc. approved the adoption of the WSB Holdings, Inc. 2011 Equity Incentive Plan, which reserve shares of common stock for issuance to certain key employees and non-employee directors. The
maximum number of shares of our common stock that be issued with respect to awards granted under the plan is 500,000 plus (i) any shares of common stock that are available under the Washington Savings Bank 2001 Stock Option and Incentive Plan (the 2001 Plan) as of its termination date (which was April 27, 2011) and (ii) shares of common stock subject to options granted under the 2001 Plan that expire or terminate without having been fully exercised. In no event, however, may the number of shares issuable pursuant to incentive stock options exceed 500,000. The period during which an option granted under the Plan will be exercisable, as determined by the Administrator, will be set forth in the agreement evidencing the option award. However, an incentive stock option may not be exercisable for more than ten years from its date of grant.
Information with respect to stock options is as follows:
|
|
December 31, |
| ||||||||
|
|
2012 |
|
2011 |
| ||||||
|
|
|
|
Weighted |
|
|
|
Weighted |
| ||
|
|
|
|
Average |
|
|
|
Average |
| ||
|
|
|
|
Exercise |
|
|
|
Exercise |
| ||
|
|
Shares |
|
Price |
|
Shares |
|
Price |
| ||
|
|
|
|
|
|
|
|
|
| ||
Outstanding at beginning of year |
|
33,875 |
|
$ |
5.71 |
|
341,375 |
|
$ |
3.56 |
|
Exercised |
|
(21,375 |
) |
5.20 |
|
(70,500 |
) |
3.16 |
| ||
Granted |
|
|
|
|
|
|
|
|
| ||
Forfeited/expired |
|
(7,500 |
) |
5.20 |
|
(237,000 |
) |
3.37 |
| ||
|
|
|
|
|
|
|
|
|
| ||
Outstanding at end of year |
|
5,000 |
|
$ |
8.65 |
|
33,875 |
|
$ |
5.71 |
|
Exercisable at end of year |
|
5,000 |
|
$ |
8.65 |
|
33,875 |
|
$ |
5.71 |
|
A summary of options outstanding and exercisable at December 31, 2012 is as follows:
Options Outstanding and Exercisable |
| |||||||
|
|
|
|
Weighted Average |
|
Options |
| |
Exercise |
|
|
|
Remaining |
|
Currently |
| |
Price |
|
Shares |
|
Life (years.months) |
|
Exercisable |
| |
|
|
|
|
|
|
|
| |
$ |
8.6500 |
|
5,000 |
|
4.04 |
|
5,000 |
|
There were no options granted during 2012 or 2011. The total intrinsic value of options exercised during the years ended December 31, 2012 and 2011 was $12,184 and $6,213 respectively. The aggregate intrinsic value of all options outstanding and exercisable was $0 at December 31, 2012. There was no pre-tax stock-based compensation recognized in the Statements of Operations for the years ended December 31, 2012 and December 31, 2011. All outstanding options are vested and there is currently no unrealized compensation cost related to non-vested share based compensation arrangements.
11. CONTINGENCIES
On September 10, 2012, WSB and Old Line Bancshares, Inc., the parent company of Old Line Bank, entered into an Agreement and Plan of Merger (the Merger Agreement), pursuant to which Old Line Bancshares will acquire WSB for consideration of approximately $48.7 million in stock and cash, or $6.12 per share, subject to possible adjustment. The Merger Agreement, which has been approved by the Boards of Directors of both companies, provides that WSB will be merged with and into Old Line Bancshares. The Bank will be merged with and into Old Line Bank immediately following consummation of the merger.
Consummation of the merger is subject to certain conditions, including, among others, the approval of the Merger Agreement by the stockholders of Old Line Bancshares and WSB and the receipt of required regulatory approvals; we received the required Federal Reserve Board approval and OCC non-objection as of February 6, 2013, and we received the required Maryland Commissioner approval as of March 4, 2013. Therefore, all required regulatory approvals with respect to the Merger have now been received. WSB and Old Line Bancshares have each scheduled a special meeting of their stockholders on April 15, 2013, for stockholders to vote to approve the merger agreement. In addition, a lawsuit has been filed against WSB and its directors and against Old Line Bancshares that seeks to enjoin the merger.
On September 27, 2012, a complaint was filed by Rosalie Jones, both individually and on behalf of a putative class of WSBs stockholders, in the Circuit Court for Prince Georges County, Maryland, against WSB and its Directors and Old Line Bancshares. The complaint seeks to enjoin the Merger and alleges, among other things, that the members of WSBs Board of Directors breached their fiduciary duties by agreeing to sell WSB for inadequate and unfair consideration and pursuant to an unfair process.
On February 5, 2013, the defendants entered into a memorandum of understanding with the plaintiff regarding settlement of all claims asserted on behalf of the alleged class of WSB stockholders. In connection with the settlement contemplated by that memorandum of understanding, the litigation and all claims asserted in such litigation will be dismissed, subject to court approval. The proposed settlement terms require Old Line Bancshares and WSB to make certain additional disclosures related to the merger, which disclosures are included in this joint proxy statement/prospectus. The parties also agreed that plaintiffs may seek attorneys fees and costs in an as-yet undetermined amount, with the defendants to pay such fees and costs if and to the extent they are approved by the court. The memorandum of understanding further contemplates that the parties will enter into a stipulation of settlement, which will be subject to customary conditions, including confirmatory discovery and court approval following notice to WSBs stockholders. If the parties enter into a stipulation of settlement, a hearing will be scheduled at which the court will consider the fairness, reasonableness and adequacy of the settlement. There can be no assurance that the parties will ultimately enter into a stipulation of settlement, that the court will approve any proposed settlement, or that any eventual settlement will be under the same terms as those contemplated by the memorandum of understanding.
The Merger Agreement includes customary representations, warranties and covenants of the parties. The Merger Agreement contains termination rights of WSB and Old Line Bancshares and further provides that we will be required to pay Old Line Bancshares a termination fee of $1.75 million if the Merger Agreement is terminated under specified circumstances set forth therein.
We expect the merger to close on or about May 3, 2013. For additional information regarding our pending merger with Old Line Bancshares, please see as our definitive proxy statement filed with the Securities and Exchange Commission on March 5, 2013.
You should keep in mind that discussions in this report that refer to WSBs business, operations and risks in the future refer to WSB as a stand-alone entity up to the closing of the pending merger or if the merger does not close, and that these considerations will be different with respect to the combined company after the closing of the merger.
12. STOCKHOLDERS EQUITY AND REGULATORY MATTERS
We are insured by the FDIC through its Deposit Insurance Fund (DIF) and regulated by the Office of the Comptroller of the Currency (OCC) and the Board of Governors of the Federal Reserve System (the Federal Reserve Board). As a condition of maintaining the insurance of accounts, we are required to maintain certain minimum regulatory capital in accordance with a formula provided in FDIC regulations. We may not pay dividends on our stock unless all such capital requirements are met. Failure to meet minimum capital requirements can initiate certain mandatory and possible additional discretionary actions by regulators that, if undertaken, could have a direct material effect on our financial statements. Under capital adequacy guidelines and the regulatory framework for prompt corrective action, we must meet specific capital guidelines that involve quantitative measures of our assets, liabilities, and certain off-balance sheet items as calculated under regulatory accounting practices. The Banks capital amounts and classification are also subject to qualitative judgments by the regulators about components, risk weightings, and other factors.
Quantitative measures established by regulation to ensure capital adequacy require the Bank to maintain minimum amounts and ratios (set forth in the table below) of tangible and core capital (as defined in the regulations) to total adjusted assets (as defined), and of total capital (as defined) to risk-weighted assets (as defined). Management believes, as of December 31, 2012, that the Bank meets all capital adequacy requirements to which it is subject.
Our management believes that, under current regulations, and eliminating the assets of WSB, the Bank remains well capitalized and will continue to meet its minimum capital requirements in the foreseeable future. However, events beyond the our control, such as a shift in interest rates or a further, unexpected downturn in the economy in areas where we extend credit, could adversely affect future earnings and, consequently, our ability to meet our future minimum capital requirements.
As of December 31, 2012, the Bank remains well capitalized under the regulatory framework for prompt corrective action. To be categorized as well-capitalized, the Bank must maintain minimum core, tier 1 risk-based and total risk-based ratios as set forth in the table. There are no conditions or events since that notification that management believes have changed the Banks category. The Banks actual capital amounts and ratios as of December 31, 2012 and 2011 are presented in the following tables:
|
|
Actual |
|
Required for |
|
To Be Considered |
| |||||||||
|
|
Amount |
|
Ratio |
|
Amount |
|
Ratio |
|
Amount |
|
Ratio |
| |||
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||
At December 31, 2012: |
|
|
|
|
|
|
|
|
|
|
|
|
| |||
Tangible |
|
|
|
|
|
|
|
|
|
|
|
|
| |||
(to Tangible Assets) |
|
$ |
45,503,884 |
|
13.04 |
% |
$ |
5,233,240 |
|
1.50 |
% |
N/A |
|
N/A |
| |
Core (leverage) |
|
|
|
|
|
|
|
|
|
|
|
|
| |||
(to Adjusted Tangible Assets) |
|
45,503,884 |
|
13.04 |
% |
13,955,308 |
|
4.00 |
% |
$ |
17,444,135 |
|
5.00 |
% | ||
Tier 1 capital |
|
|
|
|
|
|
|
|
|
|
|
|
| |||
(to Risk Weighted Assets) |
|
45,503,884 |
|
22.64 |
% |
N/A |
|
N/A |
|
12,059,739 |
|
6.00 |
% | |||
Total capital |
|
|
|
|
|
|
|
|
|
|
|
|
| |||
(to Risk Weighted Assets) |
|
47,461,707 |
|
23.61 |
% |
16,079,652 |
|
8.00 |
% |
20,099,565 |
|
10.00 |
% | |||
At December 31, 2011: |
|
|
|
|
|
|
|
|
|
|
|
|
| |||
Tangible |
|
|
|
|
|
|
|
|
|
|
|
|
| |||
(to Tangible Assets) |
|
$ |
43,584,440 |
|
11.61 |
% |
$ |
5,633,409 |
|
1.50 |
% |
N/A |
|
N/A |
| |
Core (leverage) |
|
|
|
|
|
|
|
|
|
|
|
|
| |||
(to Adjusted Tangible Assets) |
|
43,584,440 |
|
11.61 |
% |
15,022,424 |
|
4.00 |
% |
$ |
18,778,030 |
|
5.00 |
% | ||
Tier 1 capital |
|
|
|
|
|
|
|
|
|
|
|
|
| |||
(to Risk Weighted Assets) |
|
43,584,440 |
|
19.64 |
% |
N/A |
|
N/A |
|
13,317,186 |
|
6.00 |
% | |||
Total capital |
|
|
|
|
|
|
|
|
|
|
|
|
| |||
(to Risk Weighted Assets) |
|
46,360,354 |
|
20.89 |
% |
17,756,248 |
|
8.00 |
% |
22,195,310 |
|
10.00 |
% |
The following table summarizes the reconciliation of stockholders equity of the Bank to regulatory capital.
|
|
December 31, 2012 |
| |||||||
|
|
Tangible |
|
Core |
|
Total |
| |||
|
|
Capital |
|
Capital |
|
Capital |
| |||
|
|
|
|
|
|
|
| |||
Total stockholders equity- Bank only |
|
$ |
52,735,685 |
|
$ |
52,735,685 |
|
$ |
52,735,685 |
|
|
|
|
|
|
|
|
| |||
Nonallowable assets: |
|
|
|
|
|
|
| |||
Unrealized depreciation on available for sale securities, net of taxes |
|
(861,828 |
) |
(861,828 |
) |
(861,828 |
) | |||
Disallowed deferred tax asset |
|
(6,369,973 |
) |
(6,369,973 |
) |
(6,369,973 |
) | |||
Additional item: |
|
|
|
|
|
|
| |||
Low level recourse |
|
|
|
|
|
(562,512 |
) | |||
Allowance for loan losses |
|
|
|
|
|
2,520,335 |
| |||
|
|
|
|
|
|
|
| |||
Total regulatory capital |
|
$ |
45,503,884 |
|
$ |
45,503,884 |
|
$ |
47,461,707 |
|
|
|
December 31, 2011 |
| |||||||
|
|
Tangible |
|
Core |
|
Total |
| |||
|
|
Capital |
|
Capital |
|
Capital |
| |||
|
|
|
|
|
|
|
| |||
Total stockholders equity- Bank only |
|
$ |
51,425,694 |
|
$ |
51,425,694 |
|
$ |
51,425,694 |
|
|
|
|
|
|
|
|
| |||
Nonallowable assets: |
|
|
|
|
|
|
| |||
Unrealized depreciation on available for sale securities, net of taxes |
|
(935,577 |
) |
(935,577 |
) |
(935,577 |
) | |||
Disallowed deferred tax asset |
|
(6,905,677 |
) |
(6,905,677 |
) |
(6,905,677 |
) | |||
Additional item: |
|
|
|
|
|
|
| |||
Low level recourse |
|
|
|
|
|
(3,621 |
) | |||
Allowance for loan losses |
|
|
|
|
|
2,779,535 |
| |||
|
|
|
|
|
|
|
| |||
Total regulatory capital |
|
$ |
43,584,440 |
|
$ |
43,584,440 |
|
$ |
46,360,354 |
|
At December 31, 2012 and December 31, 2011, tangible assets used in computing regulatory capital were $348,882,700 and $375,560,600, respectively, and total risk-weighted assets used in the computation were $200,995,655 and $221,953,097, respectively.
13. EARNINGS PER SHARE
Options to purchase 5,000 shares of common stock were not included in the computation of diluted EPA for the period ended December 31, 2012 because their effect would have been anti-dilutive.
Options to purchase 33,875 shares of common stock were not included in the computation of diluted EPS for the period ended December 31, 2011 because their effect would have been anti-dilutive.
Average common and common equivalent shares used in the determination of earnings per share were:
|
|
Year Ended December 31, |
| ||||||||||||||
|
|
2012 |
|
2011 |
| ||||||||||||
|
|
Net Income |
|
Shares |
|
Per Share |
|
Net Loss |
|
Shares |
|
Per Share |
| ||||
|
|
(Numerator) |
|
(Denominator) |
|
Amount |
|
(Numerator) |
|
(Denominator) |
|
Amount |
| ||||
Basic EPS |
|
|
|
|
|
|
|
|
|
|
|
|
| ||||
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||
Net earnings (loss) available to Common Stockholders |
|
$ |
1,025,592 |
|
7,998,081 |
|
$ |
0.13 |
|
$ |
1,248,809 |
|
7,987,720 |
|
$ |
0.16 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||
Effect of Dilutive |
|
|
|
|
|
|
|
|
|
|
|
|
| ||||
Options |
|
|
|
|
|
|
|
|
|
|
|
|
| ||||
Incremental Shares |
|
|
|
358 |
|
|
|
|
|
428 |
|
|
| ||||
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||
Diluted EPS |
|
|
|
|
|
|
|
|
|
|
|
|
| ||||
Net earnings (loss) available to Common Stockholders |
|
$ |
1,025,592 |
|
7,998,439 |
|
$ |
0.13 |
|
$ |
1,248,809 |
|
7,988,148 |
|
$ |
0.16 |
|
14. INCOME TAXES
The provision for income taxes consists of the following:
|
|
Year ending |
| ||||
|
|
December 31, |
| ||||
|
|
2012 |
|
2011 |
| ||
Current taxes: |
|
|
|
|
| ||
Federal |
|
$ |
(441,003 |
) |
$ |
(1,321,046 |
) |
State |
|
|
|
|
| ||
|
|
(441,003 |
) |
(1,321,046 |
) | ||
Deferred taxes (credit): |
|
|
|
|
| ||
Federal |
|
869,832 |
|
1,607,548 |
| ||
State |
|
|
|
425,077 |
| ||
|
|
869,832 |
|
2,032,625 |
| ||
|
|
$ |
428,829 |
|
$ |
711,579 |
|
The provision for income taxes differs from that computed at the statutory corporate tax rate as follows:
|
|
Year ended |
|
Year ended |
| ||||||
|
|
December 31, 2012 |
|
December 31, 2011 |
| ||||||
|
|
|
|
Percent of |
|
|
|
Percent of |
| ||
|
|
|
|
Pretax |
|
|
|
Pretax |
| ||
|
|
Amount |
|
Income |
|
Amount |
|
Income |
| ||
|
|
|
|
|
|
|
|
|
| ||
Tax at statutory rate |
|
$ |
494,503 |
|
34.0 |
% |
$ |
666,593 |
|
34.0 |
% |
|
|
|
|
|
|
|
|
|
| ||
Increases (decreases): |
|
|
|
|
|
|
|
|
| ||
State income tax net of federal income tax benefit |
|
|
|
|
|
|
|
|
| ||
Bank owned life insurance |
|
(154,970 |
) |
(10.7 |
) |
(155,439 |
) |
(7.9 |
) | ||
Tax exempt interest |
|
(30,326 |
) |
(2.1 |
) |
(32,768 |
) |
(1.7 |
) | ||
Other |
|
119,622 |
|
8.2 |
|
233,373 |
|
11.9 |
| ||
|
|
|
|
|
|
|
|
|
| ||
|
|
$ |
428,829 |
|
29.5 |
% |
$ |
711,759 |
|
36.3 |
% |
Deferred income tax assets and liabilities reflect the net tax effects of temporary differences between the financial reporting and the tax bases of assets and liabilities.
The components of net deferred tax assets as of December 31, 2012 and December 31, 2011 are as follows:
|
|
December 31, |
| ||||
|
|
2012 |
|
2011 |
| ||
|
|
|
|
|
| ||
Deferred tax assets: |
|
|
|
|
| ||
Deferred loan fees |
|
$ |
742,234 |
|
$ |
840,262 |
|
Allowance for loan losses |
|
1,333,654 |
|
2,415,351 |
| ||
Non accrual interest adjustment |
|
806,437 |
|
424,424 |
| ||
Allowance for losses on real estate acquired in settlement of loans |
|
86,964 |
|
90,605 |
| ||
Deferred compensation |
|
8,913 |
|
8,952 |
| ||
Depreciation |
|
645,873 |
|
610,987 |
| ||
Net Operating Loss carryforward |
|
3,635,921 |
|
4,719,667 |
| ||
Other |
|
48,039 |
|
142,075 |
| ||
|
|
|
|
|
| ||
|
|
7,308,035 |
|
9,252,323 |
| ||
|
|
|
|
|
| ||
Deferred tax liabilities: |
|
|
|
|
| ||
Unrealized gain on available for sale securities |
|
561,270 |
|
616,099 |
| ||
Deferred rental income |
|
78,564 |
|
61,634 |
| ||
|
|
639,834 |
|
677,733 |
| ||
|
|
|
|
|
| ||
Net deferred tax assets |
|
$ |
6,668,201 |
|
$ |
8,574,590 |
|
15. FAIR VALUE MEASUREMENTS
The Company applies guidance issued by FASB regarding fair value measurements which provides a framework for measuring and disclosing fair value under generally accepted accounting principles. This guidance 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).
The guidance 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. The guidance 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 Company utilizes fair value measurements to record fair value adjustments to certain assets and to determine fair value disclosures. Securities available for sale are recorded at fair value on a recurring basis. Additionally, from time to time, the Company may be required to record at fair value other assets on a nonrecurring basis, such as loans held for sale, loans held for investment and certain other assets. These nonrecurring fair value adjustments typically involve application of lower of cost or market accounting or write-downs of individual assets.
Under the guidance, the Company groups assets and liabilities at fair value in three levels, based on the markets in which the assets and liabilities are traded and the reliability of the assumptions used to determine the fair value. These hierarchy levels are:
Level 1 inputs Unadjusted quoted process in active markets for identical assets or liabilities that the entity has the ability to access at the measurement date.
Level 2 inputs - Inputs other than quoted prices included in Level 1 that are observable for the asset or liability, either directly or indirectly. These might include quoted prices for similar assets and liabilities in active markets, and inputs other than quoted prices that are observable for the asset or liability, such as interest rates and yield curves that are observable at commonly quoted intervals.
Level 3 inputs - Unobservable inputs for determining the fair values of assets or liabilities that reflect an entitys own assumptions about the assumptions that market participants would use in pricing the assets or liabilities.
The following is a description of valuation methodologies used for assets and liabilities recorded at fair value:
Investment Securities Available-for-Sale
Investment securities available-for-sale is recorded at fair value on a recurring basis. Fair value measurement is based upon quoted prices, if available. If quoted prices are not available, fair values are measured using independent pricing models or other model-based valuation techniques such as the present value of future cash flows, adjusted for the securitys credit rating, prepayment assumptions and other factors such as credit loss assumptions. Level 1 securities include those traded on an active exchange such as the New York Stock Exchange, Treasury securities that are traded by dealers or brokers in active over-the-counter markets and money market funds. Level 2 securities include mortgage backed securities issued by government sponsored entities, municipal bonds and corporate debt securities. Securities classified as Level 3 include asset-backed securities in less liquid markets.
Loans
We do not record loans at fair value on a recurring basis, however, from time to time, a loan is considered impaired and an allowance for loan loss is established. Loans for which it is probable that payment of interest and principle will not be made in accordance with the contractual terms of the loan are considered impaired. Once a loan is identified as individually impaired, management measures impairment in accordance with the FASBs Accounting Standards Codification Receivables Topic. The fair value of impaired loans is estimated using one of several methods, including the collateral value, market value of similar debt, enterprise value, liquidation value and discounted cash flows. Those impaired loans not requiring a specific allowance represent loans for which the fair value of expected repayments or collateral exceed the recorded investment in such loans. At December 31, 2012, a majority of all of the totally impaired loans were evaluated based upon the fair value of the collateral. In accordance with guidance regarding fair value measurements, impaired loans where an allowance is established based on the fair value of collateral require classification in the fair value hierarchy. When the fair value of the collateral is based on an observable market price or a current appraised value, we record the loan as nonrecurring Level 2. When an appraised value is not available or management determines the fair value of the collateral is further impaired below the appraised value and there is no observable market price, we record the loan as nonrecurring Level 3.
Loans Held for Sale- Loans held for sale are value based quotations from the secondary market for similar instruments and are classified as level 2 of the fair value hierarchy.
Real Estate Acquired in Settlement of Loans- We record foreclosed real estate assets at the lower cost or estimated fair value on their acquisition dates and at the lower of such initial amount or estimated fair value less estimated selling costs thereafter. Estimated fair value is generally based upon independent appraisal of the collateral. We consider these collateral values to be estimated using Level 2 inputs.
Assets and Liabilities Measured at Fair Value on a Recurring Basis
The table below presents the recorded amount of assets and liabilities measured at fair value on a recurring basis as of December 31, 2012 and 2011.
|
|
At December 31, 2012 (In thousands) |
| ||||||||||||||||
|
|
|
|
Quoted Prices in |
|
Other |
|
Significant |
|
|
|
Total Changes |
| ||||||
|
|
|
|
Active Markets for |
|
Observable |
|
Unobservable |
|
Trading |
|
in Fair Values |
| ||||||
|
|
Carrying Value |
|
Identical Assets |
|
Inputs |
|
Inputs |
|
Gains and |
|
Included in |
| ||||||
|
|
December 31, 2012 |
|
(Level 1) |
|
(Level 2) |
|
(Level 3) |
|
(Losses) |
|
Period Earnings |
| ||||||
Loans Held-for-sale |
|
$ |
17,844 |
|
$ |
|
|
$ |
17,844 |
|
$ |
|
|
$ |
|
|
$ |
|
|
Available-for-Sale Agencies callable |
|
59,118 |
|
|
|
59,118 |
|
|
|
|
|
|
| ||||||
Available-for-Sale Mortgage-Backed Securities |
|
24,809 |
|
|
|
24,809 |
|
|
|
|
|
|
| ||||||
|
|
$ |
101,771 |
|
$ |
|
|
$ |
101,771 |
|
$ |
0 |
|
$ |
|
|
$ |
|
|
|
|
At December 31, 2011 (In thousands) |
| ||||||||||||||||
|
|
|
|
Quoted Prices in |
|
Other |
|
Significant |
|
|
|
Total Changes |
| ||||||
|
|
|
|
Active Markets for |
|
Observable |
|
Unobservable |
|
Trading |
|
in Fair Values |
| ||||||
|
|
Carrying Value |
|
Identical Assets |
|
Inputs |
|
Inputs |
|
Gains and |
|
Included in |
| ||||||
|
|
December 31, 2011 |
|
(Level 1) |
|
(Level 2) |
|
(Level 3) |
|
(Losses) |
|
Period Earnings |
| ||||||
Loans Held-for-sale |
|
$ |
10,245 |
|
$ |
|
|
$ |
10,245 |
|
$ |
|
|
$ |
|
|
$ |
|
|
Available-for-Sale Agencies callable |
|
37,660 |
|
|
|
37,660 |
|
|
|
|
|
|
| ||||||
Available-for-Sale, Municipal Bonds |
|
2,330 |
|
|
|
2,330 |
|
|
|
|
|
|
| ||||||
Available-for-Sale, Corporate Bonds |
|
4,947 |
|
|
|
4,947 |
|
|
|
|
|
|
| ||||||
Available-for-Sale Mortgage-Backed Securities |
|
80,808 |
|
|
|
64,449 |
|
16,359 |
|
|
|
|
| ||||||
|
|
$ |
135,990 |
|
$ |
|
|
$ |
119,631 |
|
$ |
16,359 |
|
$ |
|
|
$ |
|
|
Loans held-for-sale, which are carried at the lower of cost or market, did not have any impairment charge at December 31, 2012.
Assets included in Level 3 at December 31, 2011 included our private-labeled mortgage-backed securities (MBS) due to lack of observable market data due to decreases in market
activity for these securities. Our policy is to recognize transfers in and out as of the actual date of the event or change in circumstances that caused the transfer. No assets were transferred to Level 3 during the period ending December 31, 2012. The private-labeled MBS were sold during the current fiscal year ending December 31, 2012. The level 3 balance at December 31, 2011 was due to principal repayments and the change in unrealized gains/losses for the twelve month period ending December 31, 2011. The following assumptions were used for the Level 3 valuations on the five remaining private-labeled MBS for the period ending December 31, 2011:
· Estimated future defaults are derived by an analysis of the performance of the underlying collateral as well as obtaining models from a third party. The model addresses each component of the net present value calculation, which includes loss severity rate, current default rate and current voluntary prepayment rate.
· Each individual security is reviewed and an analysis is prepared for specific credit characteristics of the underlying collateral including recent developments specific to each organization issuing the security, market liquidity, extension risks and credit rating downgrades and an estimate of future defaults is derived.
The table below presents a reconciliation and income statement classification of gains and losses for all assets measured at fair value on a recurring basis using significant unobservable inputs (Level 3) for the periods ended December 31, 2012 and December 31, 2011.
|
|
Fair Value Measurements |
| ||||
|
|
Using Significant Unobservable Inputs |
| ||||
|
|
(Level 3) |
| ||||
|
|
Private Labeled Mortgage-Backed |
| ||||
|
|
Securities-Available for Sale |
| ||||
|
|
Twelve months ended December 31, |
| ||||
|
|
2012 |
|
2011 |
| ||
|
|
|
|
|
| ||
Beginning Balance |
|
$ |
16,359 |
|
$ |
23,365 |
|
Accretion/Amortization of Discount/Premiums |
|
4 |
|
9 |
| ||
Sales |
|
(11,993 |
) |
|
| ||
Payments received |
|
(5,037 |
) |
(7,926 |
) | ||
Difference in Unrealized gain (loss) |
|
667 |
|
911 |
| ||
Other than temporary impairment |
|
|
|
|
| ||
|
|
|
|
|
| ||
Ending Balance |
|
$ |
|
|
$ |
16,359 |
|
In accordance with the merger agreement, the Company has been repositioning a portion of the investment portfolio by selling existing securities and purchasing new securities with Old Line Bancshares consent. As a result, the remaining five non-agency private labeled MBS were sold in 2012, resulting in a net loss of approximately $648,000 pretax and approximately $392,000 net of tax.
Assets and Liabilities measured at Fair Value on a Nonrecurring Basis
The Company may be required from time to time, to measure certain assets at fair value on a non-recurring basis in accordance with U.S. generally accepted accounting principles. These include assets that are measured at the lower of cost or market that were recognized at fair value below cost at the end of the period. Assets measured at fair value on a nonrecurring basis are included in the tables below:
|
|
At December 31, 2012 (In thousands) |
| ||||||||||
|
|
|
|
Quoted Prices in |
|
Other |
|
Significant |
| ||||
|
|
|
|
Active Markets for |
|
Observable |
|
Unobservable |
| ||||
|
|
Carrying Value |
|
Identical Assets |
|
Inputs |
|
Inputs |
| ||||
|
|
December 31, 2012 |
|
(Level 1) |
|
(Level 2) |
|
(Level 3) |
| ||||
Impaired Loans: |
|
|
|
|
|
|
|
|
| ||||
Residential Real estate |
|
$ |
15,134 |
|
$ |
|
|
$ |
15,134 |
|
$ |
|
|
Construction |
|
|
|
|
|
|
|
|
| ||||
Land and land Acquisition |
|
4,770 |
|
|
|
4,770 |
|
|
| ||||
Commercial Real Estate and Commercial |
|
12,616 |
|
|
|
12,616 |
|
|
| ||||
Consumer |
|
5 |
|
|
|
5 |
|
|
| ||||
Total Impaired Loans |
|
32,525 |
|
|
|
32,525 |
|
|
| ||||
|
|
|
|
|
|
|
|
|
| ||||
Real estate acquired in settlement of loans: |
|
|
|
|
|
|
|
|
| ||||
Residential Real estate |
|
$ |
621 |
|
$ |
|
|
$ |
621 |
|
$ |
|
|
Construction |
|
913 |
|
|
|
913 |
|
|
| ||||
Land and land Acquisition |
|
1,447 |
|
|
|
1,447 |
|
|
| ||||
Commercial Real Estate and Commercial |
|
2,201 |
|
|
|
2,201 |
|
|
| ||||
Consumer |
|
|
|
|
|
|
|
|
| ||||
Total Real estate acquired in settlement of loans: |
|
5,182 |
|
|
|
5,182 |
|
|
| ||||
|
|
|
|
|
|
|
|
|
| ||||
Total |
|
$ |
37,707 |
|
$ |
|
|
$ |
37,707 |
|
$ |
|
|
|
|
At December 31, 2011 (In thousands) |
| ||||||||||
|
|
|
|
Quoted Prices in |
|
Other |
|
Significant |
| ||||
|
|
|
|
Active Markets for |
|
Observable |
|
Unobservable |
| ||||
|
|
Carrying Value |
|
Identical Assets |
|
Inputs |
|
Inputs |
| ||||
|
|
December 31, 2011 |
|
(Level 1) |
|
(Level 2) |
|
(Level 3) |
| ||||
Impaired Loans: |
|
|
|
|
|
|
|
|
| ||||
Residential Real estate |
|
$ |
12,531 |
|
$ |
|
|
$ |
12,531 |
|
$ |
|
|
Construction |
|
|
|
|
|
|
|
|
| ||||
Land and land Acquisition |
|
3,203 |
|
|
|
3,203 |
|
|
| ||||
Commercial Real Estate and Commercial |
|
12,661 |
|
|
|
12,661 |
|
|
| ||||
Consumer |
|
|
|
|
|
|
|
|
| ||||
Total Impaired Loans |
|
28,395 |
|
|
|
28,395 |
|
|
| ||||
|
|
|
|
|
|
|
|
|
| ||||
Real estate acquired in settlement of loans: |
|
|
|
|
|
|
|
|
| ||||
Residential Real estate |
|
$ |
739 |
|
$ |
|
|
$ |
739 |
|
$ |
|
|
Construction |
|
744 |
|
|
|
744 |
|
|
| ||||
Land and land Acquisition |
|
2,176 |
|
|
|
2,176 |
|
|
| ||||
Commercial Real Estate and Commercial |
|
1,162 |
|
|
|
1,162 |
|
|
| ||||
Consumer |
|
|
|
|
|
|
|
|
| ||||
Total Real estate acquired in settlement of loans: |
|
4,821 |
|
|
|
4,821 |
|
|
| ||||
|
|
|
|
|
|
|
|
|
| ||||
Total |
|
$ |
33,216 |
|
$ |
|
|
$ |
33,216 |
|
$ |
|
|
Impaired loans, which are measured for impairment using the fair value of the collateral for collateral dependent loans, had a principal balance of $33.7 million, with a related valuation allowance of $1.2 million as of December 31, 2012.
Real estate acquired in settlement of loans is carried at the lower of our recorded investment or fair value at the date of acquisition. Write-downs to fair value at the date of acquisition are charged to the allowance for loan losses. Subsequent write downs are included in non-interest expense. Costs relating to the development and improvement of a property are capitalized, whereas those relating to holding the property are charged to expense when incurred. The real estate is carried at the lower of acquisition or fair value net of estimated costs to sell subsequent to acquisition. Operating expenses of real estate owned are reflected in other non-interest expenses. The value of OREO properties held due to foreclosures at December 31, 2012 was $5.2 million, which included a valuation allowance of $316,138.
The following disclosures of the estimated fair value of financial instruments are made in accordance with the requirements of ASC 825, Disclosures about Fair Value of Financial Instruments. We have determined the fair value amounts by using available market information and appropriate valuation methodologies. However, considerable judgment is required in interpreting market data to develop the estimates of fair value. Accordingly, the estimates presented herein are not necessarily indicative of the amounts we could realize in a current market exchange. The use of different market assumptions and/or estimation methodologies may have a material effect on the estimated fair value amounts.
|
|
December 31, 2012 |
|
December 31, 2011 |
| ||||||||||||||||||||
|
|
|
|
Quoted Prices |
|
Significant |
|
Significant |
|
|
|
Quoted Prices |
|
Significant |
|
Significant |
| ||||||||
|
|
|
|
in Active |
|
Other |
|
Other |
|
|
|
in Active |
|
Other |
|
Other |
| ||||||||
|
|
Carrying |
|
Markets for |
|
Observable |
|
Unobservable |
|
Carrying |
|
Markets for |
|
Observable |
|
Unobservable |
| ||||||||
|
|
Amount |
|
Identical Assets |
|
Inputs |
|
Inputs |
|
Amount |
|
Identical Assets |
|
Inputs |
|
Inputs |
| ||||||||
|
|
(000s) |
|
(Level 1) |
|
(Level 2) |
|
(Level 3) |
|
(000s) |
|
(Level 1) |
|
(Level 2) |
|
(Level 3) |
| ||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||
Assets: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||
Cash and cash equivalents |
|
$ |
41,429 |
|
$ |
|
|
$ |
41,429 |
|
$ |
|
|
$ |
4,402 |
|
$ |
|
|
$ |
4,402 |
|
$ |
|
|
Loans receivable, net |
|
194,045 |
|
|
|
196,180 |
|
|
|
215,599 |
|
|
|
219,198 |
|
|
| ||||||||
Mortgage-backed securities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||
Available for sale |
|
24,809 |
|
|
|
24,809 |
|
|
|
80,808 |
|
|
|
64,449 |
|
16,359 |
| ||||||||
Investment securities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||
Available for sale |
|
59,118 |
|
|
|
59,118 |
|
|
|
44,937 |
|
|
|
44,937 |
|
|
| ||||||||
Investment in Federal Home |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||
Loan Bank stock |
|
3,636 |
|
|
|
3,636 |
|
|
|
4,504 |
|
|
|
4,504 |
|
|
| ||||||||
Bank Owned Life Insurance |
|
12,825 |
|
|
|
12,825 |
|
|
|
12,369 |
|
|
|
12,369 |
|
|
| ||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||
Liabilities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||
Deposits: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||
Non-interest-bearing |
|
6,668 |
|
|
|
6,668 |
|
|
|
5,256 |
|
|
|
5,256 |
|
|
| ||||||||
Interest bearing |
|
224,764 |
|
|
|
226,162 |
|
|
|
239,795 |
|
|
|
240,958 |
|
|
| ||||||||
Borrowings |
|
68,000 |
|
|
|
69,385 |
|
|
|
84,000 |
|
|
|
84,315 |
|
|
| ||||||||
Cash and Cash Equivalents - For cash and cash equivalents, the carrying amount is a reasonable estimate of fair value.
Loans Receivable, Net - Loans not having quoted market prices are priced using the discounted cash flow method. The discount rate used is the rate currently offered on similar products. The estimated fair value of loans held-for-sale is based on the terms of the related sale commitments.
Mortgage-Backed Securities - Fair values are based on quoted market prices or dealer quotes. If a quoted market price is not available, fair value is estimated using quoted market prices for similar securities.
Investment Securities - Fair values are based on quoted market prices or dealer quotes. If a quoted market price is not available, fair values are estimated using quoted market prices for similar securities.
Investment in Federal Home Loan Bank Stock - The carrying amount of Federal Home Loan Bank (FHLB) Stock is a reasonable estimate of fair value as FHLB stock does not have a readily available market and can only be sold back to the FHLB at its par value of $100 per share.
Bank Owned Life Insurance - The carrying amount of bank owned life insurance (BOLI) purchased on a group of officers is a reasonable estimate of fair value. BOLI is an insurance product that provides an effective way to offset current employee benefit costs.
Deposits - The fair value of non-interest bearing accounts is the amount payable on demand at the reporting date. The fair value of interest-bearing deposits is determined using the discounted cash flow method. The discount rate used is the rate currently offered on similar products.
Borrowings The fair value of borrowings is determined using the discounted cash flow method. The discount rate used is the rate currently offered on similar products.
Commitments to Grant Loans and Standby Letters of Credit and Financial Guarantees Written - The majority of our commitments to grant loans and standby letters of credit and financial guarantees written carry current market interest rates if converted to loans. Because commitments to extend credit and letters of credit are generally un-assignable by either us or the borrower, they only have value to us and the borrower and therefore it is impractical to assign any value to these commitments.
The fair value estimates presented herein are based on pertinent information available to management as of December 31, 2012 and December 31, 2011. Although management is not aware of any factors that would significantly affect the estimated fair value amounts, such amounts have not been comprehensively reevaluated for purposes of these financial statements since that date and, therefore, current estimates of fair value may differ significantly from the amounts presented herein.
16. FINANCIAL INSTRUMENTS WITH OFF-BALANCE-SHEET RISK
We are party to financial instruments with off-balance-sheet risk in the normal course of our business to meet the financing needs of our customers and to reduce our own exposure to fluctuations in interest rates. These financial instruments include commitments to extend credit, standby letters of credit, and financial guarantees.
These instruments involve, to varying degrees, elements of credit and interest rate risk in excess of the amount recognized in the statement of financial position. The contract or notional amounts of those instruments reflect the extent of involvement we have in particular classes of financial instruments.
Our exposure to credit loss in the event of nonperformance by the other party to the financial instrument for commitments to extend credit, standby letters of credit, and financial guarantees written is represented by the contractual notional amount of those instruments. We use the same credit policies in making commitments and conditional obligations as we do for on-balance-sheet instruments.
Unless noted otherwise, we do not require collateral or other security to support financial instruments with credit risk.
|
|
Contract Amount |
| ||||
|
|
December 31, 2012 |
|
December 31, 2011 |
| ||
Financial instruments whose contract amounts represent credit risk: |
|
|
|
|
| ||
|
|
|
|
|
| ||
Commitments to grant mortgage and commercial loans |
|
$ |
5,260,600 |
|
$ |
493,500 |
|
|
|
|
|
|
| ||
Unfunded commitments to extend credit under existing construction equity line and commercial lines of credit |
|
$ |
10,203,482 |
|
$ |
11,111,154 |
|
|
|
|
|
|
| ||
Standby letters of credit and financial guarantees written |
|
$ |
530,534 |
|
$ |
194,488 |
|
Commitments to grant mortgage and commercial loans, which include pending applications, are agreements to lend to a customer as long as there is no violation of any condition established in the contract. Commitments generally have fixed expiration dates or other termination clauses and may require payment of a fee. Since many of the commitments are expected to expire without being drawn upon or pending applications will be denied, the total commitment amounts do not necessarily represent future cash requirements. Historically, approximately seventy-five percent of the agreements and pending applications are drawn upon. We evaluate each customers credit-worthiness on a case-by-case basis. The amount of collateral obtained, if deemed necessary upon extension of credit, is based on managements credit evaluation of the counterparty. Most equity line commitments for the unfunded portion of equity lines are for a term of 12 months and commercial lines of credit are generally renewable on an annual basis.
Standby letters of credit and financial guarantees written are conditional commitments issued by us to guarantee the performance of a customer to a third party. Those guarantees are primarily issued to support construction borrowing. The credit risk involved in issuing letters of credit is essentially the same as that involved in extending loan facilities to customers. We hold cash as collateral supporting those commitments for which collateral is deemed necessary.
17. CONDENSED FINANCIAL STATEMENTS- PARENT COMPANY ONLY
WSB HOLDINGS, INC.
CONDENSED STATEMENTS OF FINANCIAL CONDITION - PARENT COMPANY ONLY
AS OF DECEMBER 31, 2012 AND DECEMBER 31, 2011
|
|
December 31, |
| ||||
|
|
2012 |
|
2011 |
| ||
ASSETS |
|
|
|
|
| ||
|
|
|
|
|
| ||
CASH AND CASH EQUIVALENTS: |
|
|
|
|
| ||
Cash |
|
$ |
2,054,321 |
|
$ |
1,751,571 |
|
|
|
|
|
|
| ||
Mortgage-backed securities - available for sale at fair value |
|
|
|
987,983 |
| ||
Accrued interest receivable on investments |
|
|
|
4,046 |
| ||
Deferred tax asset |
|
37,849 |
|
31,997 |
| ||
Investment in wholly owned subsidiaries |
|
52,953,921 |
|
51,642,535 |
| ||
Other assets |
|
677,648 |
|
11,091 |
| ||
|
|
|
|
|
| ||
TOTAL ASSETS |
|
$ |
55,723,739 |
|
$ |
54,429,223 |
|
|
|
|
|
|
| ||
LIABILITIES AND STOCKHOLDERS EQUITY |
|
|
|
|
| ||
|
|
|
|
|
| ||
LIABILITIES: |
|
|
|
|
| ||
Accounts payable, accrued expenses and other liabilities |
|
$ |
398,177 |
|
$ |
156,213 |
|
|
|
|
|
|
| ||
Total Liabilities |
|
398,177 |
|
156,213 |
| ||
|
|
|
|
|
| ||
STOCKHOLDERS EQUITY: |
|
|
|
|
| ||
Preferred stock, no stated par value; 10,000,000 shared authorized; none issued and outstanding |
|
|
|
|
| ||
Common stock authorized, 20,000,000 shares at $.0001 par value 8,016,607 and 7,995,232 shares issued and outstanding |
|
802 |
|
799 |
| ||
Additional paid-in capital |
|
11,206,794 |
|
11,095,646 |
| ||
Retained earnings - substantially restricted |
|
43,256,158 |
|
42,230,566 |
| ||
Accumulated other comprehensive income |
|
861,808 |
|
945,999 |
| ||
|
|
|
|
|
| ||
Total stockholders equity |
|
55,325,562 |
|
54,273,010 |
| ||
|
|
|
|
|
| ||
TOTAL LIABILITIES AND STOCKHOLDERS EQUITY |
|
$ |
55,723,739 |
|
$ |
54,429,223 |
|
WSB HOLDINGS, INC.
CONDENSED STATEMENTS - PARENT COMPANY ONLY
As of December 31, 2012 and 2011
Condensed Statement of Operations
|
|
Years Ended December 31, |
| ||||
|
|
2012 |
|
2011 |
| ||
INTEREST INCOME: |
|
|
|
|
| ||
Interest on mortgage-backed securities |
|
$ |
29,046 |
|
$ |
67,717 |
|
|
|
|
|
|
| ||
Total interest income |
|
29,046 |
|
67,717 |
| ||
|
|
|
|
|
| ||
NON-INTEREST EXPENSES: |
|
|
|
|
| ||
Salaries and benefits |
|
63,600 |
|
60,000 |
| ||
Professional services |
|
297,746 |
|
159,865 |
| ||
Other taxes |
|
80,996 |
|
133,957 |
| ||
Other expenses |
|
163,290 |
|
122,356 |
| ||
|
|
|
|
|
| ||
Total non-interest expenses |
|
605,632 |
|
476,178 |
| ||
|
|
|
|
|
| ||
LOSS BEFORE INCOME TAXES AND EQUITY IN UNDISTRIBUTED NET INCOME OF SUBSIDIARIES |
|
(576,586 |
) |
(408,461 |
) | ||
|
|
|
|
|
| ||
INCOME TAX BENEFIT |
|
217,042 |
|
159,600 |
| ||
|
|
|
|
|
| ||
EQUITY IN UNDISTRIBUTED NET INCOME OF SUBSIDIARIES |
|
1,385,136 |
|
1,497,670 |
| ||
|
|
|
|
|
| ||
NET EARNINGS |
|
$ |
1,025,592 |
|
$ |
1,248,809 |
|
Condensed Statement of Cash Flows
|
|
Year Ended December 31, |
| ||||
|
|
2012 |
|
2011 |
| ||
|
|
|
|
|
| ||
Cash Flows from Operating Activities |
|
|
|
|
| ||
Net earnings |
|
$ |
1,025,592 |
|
$ |
1,248,809 |
|
Adjustments to reconcile net income to net cash provided by (used in) operating activities |
|
|
|
|
| ||
Equity in undistributed income of subsidiaries |
|
(1,385,136 |
) |
(1,497,670 |
) | ||
Excess tax benefits from share based payment |
|
|
|
(2,450 |
) | ||
Accretion of (discounts)/premiums on MBS |
|
(370 |
) |
(2,035 |
) | ||
Decrease in other assets |
|
(662,511 |
) |
(96,569 |
) | ||
Decrease in income tax receivable |
|
|
|
336,060 |
| ||
Deferred income tax benefit |
|
947 |
|
12,637 |
| ||
Increase in current liabilities |
|
241,964 |
|
27,690 |
| ||
Net cash (used in) provided by operating activities |
|
(779,514 |
) |
26,472 |
| ||
|
|
|
|
|
| ||
Cash Flows from Investing Activities |
|
|
|
|
| ||
Repayment and proceeds from sale on MBS available for sale |
|
971,112 |
|
791,400 |
| ||
Net cash provided by investing activities |
|
971,112 |
|
791,400 |
| ||
|
|
|
|
|
| ||
Cash Flows from Financing Activities |
|
|
|
|
| ||
Exercise of stock options |
|
111,151 |
|
220,642 |
| ||
Excess tax benefits from tax-based compensation |
|
|
|
2,450 |
| ||
Net cash provided by financing activities |
|
111,151 |
|
223,092 |
| ||
|
|
|
|
|
| ||
INCREASE IN CASH |
|
302,749 |
|
1,040,964 |
| ||
CASH AT THE BEGINNING OF YEAR |
|
1,751,572 |
|
710,608 |
| ||
|
|
|
|
|
| ||
CASH AT END OF YEAR |
|
$ |
2,054,321 |
|
$ |
1,751,572 |
|
18. QUARTERLY DATA (Unaudited)
Summarized quarterly financial information is as follows (amounts in thousands except per share information):
|
|
First |
|
Second |
|
Third |
|
Fourth |
| ||||
|
|
Quarter |
|
Quarter |
|
Quarter |
|
Quarter |
| ||||
Year Ended December 31, 2012: |
|
|
|
|
|
|
|
|
| ||||
Interest income |
|
$ |
4,190 |
|
$ |
4,002 |
|
$ |
3,851 |
|
$ |
3,450 |
|
Interest expense |
|
1,306 |
|
1,213 |
|
1,149 |
|
993 |
| ||||
Net interest income |
|
2,884 |
|
2,789 |
|
2,702 |
|
2,457 |
| ||||
Provision for loan losses |
|
|
|
|
|
|
|
|
| ||||
Net interest income after provision for loan losses |
|
2,884 |
|
2,789 |
|
2,702 |
|
2,457 |
| ||||
Income income before income taxes |
|
420 |
|
247 |
|
(80 |
) |
871 |
| ||||
Income tax expense (benefit) |
|
142 |
|
73 |
|
(75 |
) |
292 |
| ||||
Net income (loss) |
|
278 |
|
174 |
|
(5 |
) |
579 |
| ||||
Basic earnings per common share |
|
0.03 |
|
0.03 |
|
0.00 |
|
0.07 |
| ||||
Diluted earnings per common share |
|
0.03 |
|
0.03 |
|
0.00 |
|
0.07 |
| ||||
|
|
First |
|
Second |
|
Third |
|
Fourth |
| ||||
|
|
Quarter |
|
Quarter |
|
Quarter |
|
Quarter |
| ||||
Year Ended December 31, 2011: |
|
|
|
|
|
|
|
|
| ||||
Interest income |
|
$ |
4,662 |
|
$ |
4,616 |
|
$ |
4,604 |
|
$ |
4,429 |
|
Interest expense |
|
1,635 |
|
1,532 |
|
1,439 |
|
1,408 |
| ||||
Net interest income |
|
3,027 |
|
3,084 |
|
3,165 |
|
3,021 |
| ||||
Provision for loan losses |
|
|
|
100 |
|
100 |
|
|
| ||||
Net interest income after provision for loan losses |
|
3,027 |
|
2,984 |
|
3,065 |
|
3,021 |
| ||||
Income income before income taxes |
|
286 |
|
457 |
|
726 |
|
491 |
| ||||
Income tax expense |
|
50 |
|
137 |
|
316 |
|
208 |
| ||||
Net income |
|
236 |
|
320 |
|
410 |
|
283 |
| ||||
Basic earnings per common share |
|
0.03 |
|
0.04 |
|
0.05 |
|
0.04 |
| ||||
Diluted earnings per common share |
|
0.03 |
|
0.04 |
|
0.05 |
|
0.04 |
| ||||
* * * *
Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure.
None.
Item 9A. Controls and Procedures
Our Chief Executive Officer and Chief Financial Officer have evaluated the effectiveness of the design and operation of our disclosure controls and procedures (as defined under Rules 13a-15(e) and 15d-15(e) of the Securities Exchange Act of 1934, as amended (Exchange Act)) as of the end of the period covered by this report. Based upon that evaluation, our Chief Executive Officer and Chief Financial Officer have concluded that our disclosure controls and procedures are effective as of December 31, 2012.
There were no changes in our internal control over financial reporting in connection with the evaluation required by paragraph (d) of Rules 13a-15 or 15d-15 under the Exchange Act that