UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
x | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended March 31, 2012
OR
¨ | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the transition period from to .
COMMISSION FILE NUMBER 000-22062
UWHARRIE CAPITAL CORP
(Exact name of registrant as specified in its charter)
NORTH CAROLINA | 56-1814206 | |
(State or Other Jurisdiction of | (I.R.S. Employer | |
Incorporation or Organization) | Identification No.) | |
132 NORTH FIRST STREET ALBEMARLE, NORTH CAROLINA |
28001 | |
(Address of Principal Executive Offices) | (Zip Code) |
Registrants Telephone number, including area code: (704) 983-6181
N/A
(Former name, former address and former fiscal year, if changed since last report)
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. x Yes ¨ No
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (Section 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such
files). Yes ¨ No ¨
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of large accelerated filer, accelerated filer and smaller reporting company in
Rule 12b-2 of the Exchange Act.
Large accelerated filer | ¨ | Accelerated filer | ¨ | |||
Non-accelerated filer | ¨ (Do not check if a smaller reporting company) | Smaller reporting company | x |
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). ¨ Yes x No
Indicate the number of shares outstanding of each of the classes of common stock issuers as of the latest practicable date: May 4, 2012 shares of common stock outstanding as of 7,593,929.
Page No. | ||||||
Part I. | ||||||
Item 1 - | ||||||
Consolidated Balance Sheets March 31, 2012 and December 31, 2011 | 3 | |||||
Consolidated Statements of Operations for the Three Months Ended March 31, 2012 and 2011 | 4 | |||||
Consolidated Statements of Comprehensive Income for the Three Months Ended March 31, 2012 and 2011 | 5 | |||||
Consolidated Statements of Changes in Shareholders Equity Three Months Ended March 31, 2012 | 6 | |||||
Consolidated Statements of Cash Flows Three Months Ended March 31, 2012 and 2011 | 7 | |||||
Notes to Consolidated Financial Statements | 8 | |||||
Item 2 - | Managements Discussion and Analysis of Financial Condition and Results of Operations |
26 | ||||
Item 3 - | 32 | |||||
Item 4 - | 32 | |||||
Part II. | ||||||
Item 1 - | 33 | |||||
Item 1A - | 33 | |||||
Item 2 - | 33 | |||||
Item 3 - | 34 | |||||
Item 4 - | 34 | |||||
Item 5 - | 34 | |||||
Item 6 - | 34 | |||||
Exhibit Index | 37 |
-2-
Uwharrie Capital Corp and Subsidiaries
March 31, | ||||||||
2012 | December 31, | |||||||
(Unaudited) | 2011* | |||||||
(dollars in thousands) | ||||||||
ASSETS |
||||||||
Cash and due from banks |
$ | 7,800 | $ | 7,487 | ||||
Interest-earning deposits with banks |
24,199 | 21,200 | ||||||
Securities available for sale, at fair value |
84,549 | 88,661 | ||||||
Loans held for sale |
2,023 | 1,958 | ||||||
Loans: |
||||||||
Loans held for investment |
356,456 | 366,675 | ||||||
Less allowance for loan losses |
(6,774 | ) | (6,815 | ) | ||||
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Net loans held for investment |
349,682 | 359,860 | ||||||
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|
|||||
Premises and equipment, net |
15,045 | 15,076 | ||||||
Interest receivable |
1,827 | 2,084 | ||||||
Restricted stock |
3,289 | 3,289 | ||||||
Bank owned life insurance |
6,230 | 6,171 | ||||||
Goodwill |
987 | 987 | ||||||
Other real estate owned |
9,499 | 10,258 | ||||||
Prepaid assets |
1,369 | 1,347 | ||||||
Other assets |
12,086 | 8,524 | ||||||
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Total assets |
$ | 518,585 | $ | 526,902 | ||||
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LIABILITIES |
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Deposits: |
||||||||
Demand noninterest-bearing |
$ | 66,135 | $ | 62,339 | ||||
Interest checking and money market accounts |
185,992 | 185,539 | ||||||
Savings deposits |
40,879 | 39,273 | ||||||
Time deposits, $100,000 and over |
56,147 | 58,274 | ||||||
Other time deposits |
84,947 | 85,913 | ||||||
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Total deposits |
434,100 | 431,338 | ||||||
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Short-term borrowed funds |
16,132 | 20,791 | ||||||
Long-term debt |
19,181 | 25,233 | ||||||
Interest payable |
289 | 301 | ||||||
Other liabilities |
2,980 | 3,636 | ||||||
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Total liabilities |
472,682 | 481,299 | ||||||
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Off balance sheet items, commitments and contingencies (Note 8) |
||||||||
SHAREHOLDERS EQUITY |
||||||||
Preferred stock, no par value: 10,000,000 shares authorized; 10,000 shares of series A issued and outstanding |
10,000 | 10,000 | ||||||
500 shares of series B issued and outstanding |
500 | 500 | ||||||
Discount on preferred stock |
(175 | ) | (200 | ) | ||||
Common stock, $1.25 par value: 20,000,000 shares authorized; 7,593,929 shares issued and outstanding |
9,492 | 9,492 | ||||||
Additional paid-in capital plus stock option surplus |
13,999 | 14,010 | ||||||
Unearned ESOP compensation |
(750 | ) | (772 | ) | ||||
Undivided profits |
10,918 | 10,379 | ||||||
Accumulated other comprehensive income |
1,919 | 2,194 | ||||||
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|||||
Total shareholders equity |
45,903 | 45,603 | ||||||
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|||||
Total liabilities and shareholders equity |
$ | 518,585 | $ | 526,902 | ||||
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(*) | Derived from audited consolidated financial statements |
See accompanying notes
-3-
Uwharrie Capital Corp and Subsidiaries
Consolidated Statements of Income (Unaudited)
Three Months Ended | ||||||||
March 31, | ||||||||
2012 | 2011 | |||||||
(in thousands, except share and | ||||||||
per share data) | ||||||||
Interest Income |
||||||||
Loans, including fees |
$ | 5,207 | $ | 5,342 | ||||
Investment securities |
||||||||
US Treasury |
147 | 279 | ||||||
US Government agencies and corporations |
189 | 224 | ||||||
State and political subdivisions |
91 | 94 | ||||||
Interest-earning deposits with banks and federal funds sold |
32 | 7 | ||||||
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Total Interest income |
5,666 | 5,946 | ||||||
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Interest Expense |
||||||||
Interest checking and money market accounts |
151 | 232 | ||||||
Savings deposits |
52 | 83 | ||||||
Time deposits, $100,000 and over |
215 | 278 | ||||||
Other time deposits |
264 | 306 | ||||||
Short-term borrowed funds |
74 | 103 | ||||||
Long-term debt |
242 | 276 | ||||||
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Total interest expense |
998 | 1,278 | ||||||
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Net interest income |
4,668 | 4,668 | ||||||
Provision for loan losses |
340 | 1,369 | ||||||
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Net interest income after provision for loan losses |
4,328 | 3,299 | ||||||
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Noninterest Income |
||||||||
Service charges on deposit accounts |
432 | 444 | ||||||
Other service fees and commissions |
730 | 857 | ||||||
Gain on sale of securities |
| 576 | ||||||
Gain on sale of other assets |
271 | | ||||||
Income from mortgage loan sales |
809 | 383 | ||||||
Other income |
120 | 117 | ||||||
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Total noninterest income |
2,362 | 2,377 | ||||||
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Noninterest Expense |
||||||||
Salaries and employee benefits |
3,106 | 3,045 | ||||||
Net occupancy expense |
285 | 301 | ||||||
Equipment expense |
188 | 206 | ||||||
Data processing costs |
211 | 209 | ||||||
Office supplies and printing |
71 | 73 | ||||||
Foreclosed real estate expense |
468 | 43 | ||||||
Professional fees and services |
45 | 262 | ||||||
Marketing and donations |
186 | 144 | ||||||
Electronic banking expense |
229 | 201 | ||||||
Software amortization and maintenance |
142 | 136 | ||||||
FDIC insurance |
174 | 227 | ||||||
Other noninterest expense |
661 | 592 | ||||||
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Total noninterest expenses |
5,766 | 5,439 | ||||||
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Income before income taxes |
924 | 237 | ||||||
Income taxes |
224 | 28 | ||||||
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Net income |
$ | 700 | $ | 209 | ||||
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Net income |
$ | 700 | $ | 209 | ||||
Dividends on preferred stock |
(161 | ) | (161 | ) | ||||
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Net income available to common shareholders |
$ | 539 | $ | 48 | ||||
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Net income per common share |
||||||||
Basic |
$ | 0.07 | $ | 0.01 | ||||
Diluted |
0.07 | 0.01 | ||||||
Weighted average common shares outstanding |
||||||||
Basic |
7,431,116 | 7,478,231 | ||||||
Diluted |
7,431,116 | 7,478,231 |
See accompanying notes
-4-
UWHARRIE CAPITAL CORP AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
Three Months Ended | ||||||||
March 31, | ||||||||
2012 | 2011 | |||||||
(in thousands) | ||||||||
Net Income |
$ | 700 | $ | 209 | ||||
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Other comprehensive income (loss) |
||||||||
Unrealized gain (loss) on available for sale securities |
(414 | ) | (429 | ) | ||||
Related tax effect |
139 | 127 | ||||||
Reclassification of (gain) loss recognized in net income |
| (576 | ) | |||||
Related tax effect |
| 222 | ||||||
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Total other comprehensive income (loss) |
(275 | ) | (656 | ) | ||||
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Comprehensive income (loss) |
$ | 425 | $ | (447 | ) | |||
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See accompanying notes
-5-
Uwharrie Capital Corp and Subsidiaries
Consolidated Statement of Changes in Shareholders Equity (Unaudited)
Number | Accumulated | |||||||||||||||||||||||||||||||||||||||
Common | Preferred | Preferred | Discount on | Additional | Unearned | Other | ||||||||||||||||||||||||||||||||||
Shares | Stock | Stock | Preferred | Common | Paid-in | ESOP | Undivided | Comprehensive | ||||||||||||||||||||||||||||||||
Issued | Series A | Series B | Stock | Stock | Capital | Compensation | Profits | Income (Loss) | Total | |||||||||||||||||||||||||||||||
(in thousands, except share data) | ||||||||||||||||||||||||||||||||||||||||
Balance, December 31, 2011 |
7,593,929 | $ | 10,000 | $ | 500 | $ | (200 | ) | $ | 9,492 | $ | 14,010 | $ | (772 | ) | $ | 10,379 | $ | 2,194 | $ | 45,603 | |||||||||||||||||||
Net income |
| | | | | | | 700 | | 700 | ||||||||||||||||||||||||||||||
Other comprehensive income |
| | | | | | | | (275 | ) | (275 | ) | ||||||||||||||||||||||||||||
Release of ESOP shares |
| | | | | (12 | ) | 22 | | | 10 | |||||||||||||||||||||||||||||
Increase in ESOP notes receivable |
| | | | | | | | | | ||||||||||||||||||||||||||||||
Stock compensation expense |
| | | | | 1 | | | | 1 | ||||||||||||||||||||||||||||||
Record preferred stock dividend and discount accretion |
| | | 25 | | | | (161 | ) | | (136 | ) | ||||||||||||||||||||||||||||
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Balance, March 31, 2012 |
7,593,929 | $ | 10,000 | $ | 500 | $ | (175 | ) | $ | 9,492 | $ | 13,999 | $ | (750 | ) | $ | 10,918 | $ | 1,919 | $ | 45,903 | |||||||||||||||||||
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See accompanying notes
-6-
Uwharrie Capital Corp and Subsidiaries
Consolidated Statements of Cash Flows (Unaudited)
Three Months Ended | ||||||||
March 31, | ||||||||
2012 | 2011 | |||||||
(dollars in thousands) | ||||||||
Cash flows from operating activities |
||||||||
Net income |
$ | 700 | $ | 209 | ||||
Adjustments to reconcile net income to net cash Provided by(used in) operating activities: |
||||||||
Depreciation |
237 | 207 | ||||||
Net amortization of security premiums/discounts |
278 | 185 | ||||||
Net amortization of mortgage servicing rights |
249 | 171 | ||||||
Impairment of foreclosed real estate |
352 | | ||||||
Provision for loan losses |
340 | 1,369 | ||||||
Stock compensation |
1 | 1 | ||||||
Net realized (gain) loss on sales / calls available for sales securities |
| (576 | ) | |||||
Income from mortgage loan sales |
(809 | ) | (383 | ) | ||||
Proceeds from sales of loans held for sale |
27,946 | 14,499 | ||||||
Origination of loans held for sale |
(27,202 | ) | (8,847 | ) | ||||
(Gain) loss on sale of premises, equipment and other assets |
(276 | ) | 1 | |||||
Increase in cash surrender value of life insurance |
(59 | ) | (51 | ) | ||||
(Gain)loss on sales of foreclosed real estate |
5 | | ||||||
Release of ESOP shares |
10 | 20 | ||||||
Net change in interest receivable |
257 | 468 | ||||||
Net change in other assets |
(3,146 | ) | (891 | ) | ||||
Net change in interest payable |
(12 | ) | (12 | ) | ||||
Net change in other liabilities |
(656 | ) | (131 | ) | ||||
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Net cash provided by( used in) operating activities |
(1,785 | ) | 6,239 | |||||
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Cash flows from investing activities |
||||||||
Proceeds from sales, maturities and calls of securities available for sale |
3,420 | 16,233 | ||||||
Net decrease in loans |
9,124 | 7,383 | ||||||
Purchase of premises and equipment |
(206 | ) | (261 | ) | ||||
Proceeds from sales of foreclosed real estate |
1,116 | 438 | ||||||
Investment in other assets |
(272 | ) | (227 | ) | ||||
Net increase in restricted stock |
| (29 | ) | |||||
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Net cash provided by investing activities |
13,182 | 23,537 | ||||||
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Cash flows from financing activities |
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Net increase (decrease) in deposit accounts |
2,762 | (3,659 | ) | |||||
Net increase (decrease) in short-term borrowed funds |
(4,659 | ) | 6,088 | |||||
Net decrease in long-term debt |
(6,052 | ) | (10,000 | ) | ||||
Proceeds from issuance of new junior subordinated debt |
| 1,787 | ||||||
Repayments of existing junior subordinated debt |
| (730 | ) | |||||
Dividends on preferred stock |
(136 | ) | (136 | ) | ||||
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Net cash used in financing activities |
(8,085 | ) | (6,650 | ) | ||||
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Increase in cash and cash equivalents |
3,312 | 23,126 | ||||||
Cash and cash equivalents, beginning of period |
28,687 | 13,624 | ||||||
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Cash and cash equivalents, end of period |
$ | 31,999 | $ | 36,750 | ||||
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Supplemental Disclosures of Cash Flow Information |
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Interest paid |
$ | 1,010 | $ | 1,290 | ||||
Income taxes paid |
| 132 | ||||||
Supplemental Schedule of Non-Cash Activities |
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Net change in fair value securities available for sale, net of tax |
$ | (275 | ) | $ | (656 | ) | ||
Loans transferred to foreclosed real estate |
714 | 517 |
See accompanying notes
-7-
UWHARRIE CAPITAL CORP AND SUBSIDIARIES
Notes to Consolidated Financial Statements (Unaudited)
Note 1 Basis of Presentation
The financial statements and accompanying notes are presented on a consolidated basis including Uwharrie Capital Corp (the Company) and its subsidiaries, Bank of Stanly (Stanly), Anson Bank & Trust Co. (Anson), Cabarrus Bank & Trust Company (Cabarrus), Strategic Investment Advisors, Inc. (SIA), and Uwharrie Mortgage Inc. Stanly consolidates its subsidiaries, the Strategic Alliance Corporation, BOS Agency, Inc. and Gateway Mortgage, Inc., each of which is wholly-owned by Stanly.
The information contained in the consolidated financial statements is unaudited. In the opinion of management, the consolidated financial statements have been prepared in conformity with generally accepted accounting principles in the United States of America (GAAP) and material adjustments necessary for a fair presentation of results of interim periods, all of which are of a normal recurring nature, have been made. The results of operations for the interim periods are not necessarily indicative of the results that may be expected for an entire year. Management is not aware of economic events, outside influences or changes in concentrations of business that would require additional clarification or disclosure in the consolidated financial statements.
The organization and business of the Company, accounting policies followed by the Company and other information are contained in the notes to consolidated financial statements filed as part of the Companys 2011 Annual Report on Form 10-K. This Quarterly report should be read in conjunction with such Annual Report.
Note 2 Comprehensive Income
The Company reports as comprehensive income all changes in shareholders equity during the year from sources other than shareholders. Other comprehensive income refers to all components (revenues, expenses, gains, and losses) of comprehensive income that are excluded from net income. The Companys only component of other comprehensive income is unrealized gains and losses, net of income tax, on investment securities available for sale.
Note 3 Per Share Data
Basic and diluted net income per common share is computed based on the weighted average number of shares outstanding during each period after retroactively adjusting for stock dividends. Diluted net income per common share reflects the potential dilution that could occur if securities or other contracts to issue common stock were exercised or converted into common stock or resulted in the issuance of common stock that then shared in the net income of the Company. For the three months ended March 31, 2012, the Companys 122,341 stock options outstanding did not have a dilutive effect on per share results because the exercise prices exceeded the share values for each period. The Company had 123,570 stock options outstanding at March 31, 2011 and they did not have a dilutive effect.
-8-
Basic and diluted net income per common share have been computed based upon net income available to common shareholders as presented in the accompanying consolidated statements of operations divided by the weighted average number of common shares outstanding or assumed to be outstanding. The computation of basic and dilutive earnings per share is summarized below:
Three Months Ended March 31, |
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2012 | 2011 | |||||||
Weighted average number of common shares outstanding |
7,593,929 | 7,593,929 | ||||||
Effect of unreleased ESOP shares |
(162,813 | ) | (115,698 | ) | ||||
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Adjusted weighted average number of common shares used in computing basic net income per common share |
7,431,116 | 7,478,231 | ||||||
Effect of dilutive stock options |
| | ||||||
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Weighted average number of common shares and dilutive potential common shares used in computing diluted net income per common share |
7,431,116 | 7,478,231 | ||||||
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Note 4 Investment Securities
Carrying amounts and fair values of securities available for sale are summarized below:
Gross | Gross | |||||||||||||||
Amortized | Unrealized | Unrealized | Fair | |||||||||||||
Cost | Gains | Losses | Value | |||||||||||||
March 31, 2012 |
(dollars in thousands) | |||||||||||||||
U.S. Treasury |
$ | 31,979 | $ | 1,150 | $ | | $ | 33,129 | ||||||||
U.S. Government agencies |
18,982 | 836 | | 19,818 | ||||||||||||
GSEMortgage-backed securities and CMOs |
20,717 | 359 | 78 | 20,998 | ||||||||||||
State and political subdivisions |
9,927 | 677 | | 10,604 | ||||||||||||
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Total securities available for sale |
$ | 81,605 | $ | 3,022 | $ | 78 | $ | 84,549 | ||||||||
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Amortized Cost |
Gross Unrealized Gains |
Gross Unrealized Losses |
Fair Value |
|||||||||||||
December 31, 2011 |
(dollars in thousands) | |||||||||||||||
U.S. Treasury |
$ | 32,073 | $ | 1,459 | $ | | $ | 33,532 | ||||||||
U.S. Government agencies |
19,142 | 855 | | 19,997 | ||||||||||||
GSEMortgage-backed securities and CMOs |
24,016 | 332 | 85 | 24,263 | ||||||||||||
State and political subdivisions |
10,071 | 798 | | 10,869 | ||||||||||||
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Total securities available for sale |
$ | 85,302 | $ | 3,444 | $ | 85 | $ | 88,661 | ||||||||
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At both March 31, 2012 and December 31, 2011 the Company owned Federal Reserve stock reported at cost of $802,250 and is included in other assets. Also at both March 31, 2012 and December 31, 2011, the Company owned Federal Home Loan Bank Stock (FHLB) of $2.5 million. The investments in Federal Reserve stock and FHLB stock are required investments related to the Companys membership in, and borrowings, with these banks. These investments are carried at cost since there is no ready market and historically redemption has been made at par value. The Company estimated that the fair value approximated cost and that these investments were not impaired at March 31, 2012.
-9-
Results from sales of securities available for sale for the three month period ended March 31, 2012 and March 31, 2011 are as follows:
Three Months Ended March 31, |
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2012 | 2011 | |||||||
(dollars in thousands) | ||||||||
Gross proceeds from sales |
$ | | $ | 15,064 | ||||
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Realized gains from sales |
$ | | $ | 576 | ||||
Realized losses from sales |
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Net realized gains |
$ | | $ | 576 | ||||
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At March 31, 2012 and December 31, 2011 securities available for sale with a carrying amount of $39.6 million and $37.7 million, respectively, were pledged as collateral on public deposits and for other purposes as required or permitted by law.
The following tables show the gross unrealized losses and fair value of investments, aggregated by investment category and length of time that individual securities have been in a continuous unrealized loss position, at March 31, 2012 and December 31, 2011. These unrealized losses on investment securities are a result of temporary fluctuations in the market prices due to a rise in interest rates, which will adjust if rates decline, and a volatile market and are in no way a reflection of the quality of the investments. At March 31, 2012, the unrealized losses related to four mortgage backed security. At December 31, 2011, the unrealized losses related three mortgage backed securities.
Less than 12 Months | 12 Months or More | Total | ||||||||||||||||||||||
Unrealized | Unrealized | Unrealized | ||||||||||||||||||||||
Fair Value | Losses | Fair Value | Losses | Fair Value | Losses | |||||||||||||||||||
March 31, 2012 | (dollars in thousands) | |||||||||||||||||||||||
Securities available for sale temporary impairment |
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GSEMortgage-backed securities and CMOs |
$ | 7,187 | $ | 61 | $ | 468 | $ | 17 | $ | 7,655 | $ | 78 | ||||||||||||
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$ | 7,187 | $ | 61 | $ | 468 | $ | 17 | $ | 7,655 | $ | 78 | |||||||||||||
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Less than 12 Months | 12 Months or More | Total | ||||||||||||||||||||||
Unrealized | Unrealized | Unrealized | ||||||||||||||||||||||
Fair Value | Losses | Fair Value | Losses | Fair Value | Losses | |||||||||||||||||||
December 31, 2011 | (dollars in thousands) | |||||||||||||||||||||||
Securities available for sale temporary impairment |
||||||||||||||||||||||||
GSEMortgage-backed securities and CMOs |
$ | 9,734 | $ | 85 | $ | | $ | | $ | 9,734 | $ | 85 | ||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
$ | 9,734 | $ | 85 | $ | | $ | | $ | 9,734 | $ | 85 | |||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
Declines in the fair value of the investment portfolio are believed by management to be temporary in nature. When evaluating an investment for other-than-temporary impairment losses, management considers among other things, the length of time and the extent to which the fair value has been in a loss position, the financial condition of the issuer and the intent and the ability the Company has to hold the investment until the loss position is recovered.
Any unrealized losses were largely due to increases in market interest rates over the yields available at the time of purchase. The fair value is expected to recover as the bonds approach their maturity date or market yields for such investments decline. The Company did have a Planned Amortization Class or PAC bond that had been in a loss position for more than twelve months. This bond is projected to be completely paid out in June of 2012. Management does not believe any of the securities in its portfolio are impaired due to reasons of credit quality and
-10-
that the losses are temporary in nature. At March 31, 2012, the Company had no intent to sell and not more likely than not to be required to sell the available for sale securities that were in a loss position prior to full recovery
The aggregate amortized cost and fair value of the available for sale securities portfolio at March 31, 2012 by remaining contractual maturity are as follows:
March 31, 2012 | ||||||||||||
Amortized | Estimated | Book | ||||||||||
Cost | Fair Value | Yield (1) | ||||||||||
Securities available for sale |
||||||||||||
U. S. Treasury |
||||||||||||
Due within one year |
999 | 1,005 | 1.50 | % | ||||||||
Due after one but within five years |
17,394 | 18,077 | 1.90 | % | ||||||||
Due after five but within ten years |
13,586 | 14,047 | 1.93 | % | ||||||||
|
|
|
|
|
|
|||||||
31,979 | 33,129 | 1.90 | % | |||||||||
|
|
|
|
|
|
|||||||
U.S. Government agencies |
||||||||||||
Due within one year |
1,181 | 1,210 | 4.49 | % | ||||||||
Due after one but within five years |
17,801 | 18,608 | 2.32 | % | ||||||||
|
|
|
|
|
|
|||||||
18,982 | 19,818 | 2.45 | % | |||||||||
|
|
|
|
|
|
|||||||
Mortgage-backed securities |
||||||||||||
Due after five but within ten year |
3,232 | 3,394 | 3.27 | % | ||||||||
Due after ten years |
17,485 | 17,604 | 3.12 | % | ||||||||
|
|
|
|
|
|
|||||||
20,717 | 20,998 | 3.14 | % | |||||||||
|
|
|
|
|
|
|||||||
State and political |
||||||||||||
Due within one year |
1,126 | 1,162 | 5.80 | % | ||||||||
Due after one but within five years |
2,503 | 2,606 | 3.37 | % | ||||||||
Due after five but within ten year |
4,694 | 5,095 | 3.07 | % | ||||||||
Due after ten years |
1,604 | 1,741 | 4.14 | % | ||||||||
|
|
|
|
|
|
|||||||
9,927 | 10,604 | 3.63 | % | |||||||||
|
|
|
|
|
|
|||||||
Total Securities available for sale |
||||||||||||
Due within one year |
3,306 | 3,377 | 4.03 | % | ||||||||
Due after one but within five years |
37,698 | 39,291 | 2.20 | % | ||||||||
Due after five but within ten year |
21,512 | 22,536 | 2.38 | % | ||||||||
Due after ten years |
19,089 | 19,345 | 3.21 | % | ||||||||
|
|
|
|
|
|
|||||||
$ | 81,605 | $ | 84,549 | 2.56 | % | |||||||
|
|
|
|
|
|
1) | Yields on securities and investments exempt from federal and/or state income taxes are stated on a fully tax- equivalent basis, assuming a 38.55% tax rate. |
-11-
Note 5 Loans Held for Investment
The composition of net loans held for investment by class as of March 31, 2012 and December 31, 2011 are as follows:
March 31, | December 31, | |||||||
2012 | 2011 | |||||||
(dollars in thousands) | ||||||||
Commercial |
||||||||
Commercial |
$ | 49,651 | $ | 45,907 | ||||
Real estatecommercial |
106,740 | 114,944 | ||||||
Other real estate construction loans |
29,899 | 31,601 | ||||||
Noncommercial |
||||||||
Real estate 1-4 family construction |
2,917 | 5,543 | ||||||
Real estateresidential |
101,501 | 101,847 | ||||||
Home equity |
51,139 | 51,413 | ||||||
Consumer loans |
13,867 | 14,710 | ||||||
Other loans |
625 | 602 | ||||||
|
|
|
|
|||||
356,339 | 366,567 | |||||||
Less: |
||||||||
Allowance for loan losses |
(6,774 | ) | (6,815 | ) | ||||
Deferred loan (fees) costs, net |
117 | 108 | ||||||
|
|
|
|
|||||
Loans held for investment, net |
$ | 349,682 | $ | 359,860 | ||||
|
|
|
|
-12-
Note 6 Allowance for Loan Losses
The following table shows the change in the allowance for loss by loan class for the three month periods ending March 31, 2012 and 2011 respectively:
March 31, 2012
Beginning Balance |
Provisions | Other | Chargeoffs | Recoveries | Ending Balance |
|||||||||||||||||||
(dollars in thousands) | ||||||||||||||||||||||||
Commercial |
$ | 1,127 | $ | (23 | ) | $ | | $ | (307 | ) | $ | 38 | $ | 835 | ||||||||||
Real estatecommercial |
1,459 | 232 | | (5 | ) | 3 | 1,689 | |||||||||||||||||
Other real estate construction |
318 | (19 | ) | | | | 299 | |||||||||||||||||
Real estate construction |
239 | 28 | | (8 | ) | | 259 | |||||||||||||||||
Real estateresidential |
1,983 | 118 | | (61 | ) | 1 | 2,041 | |||||||||||||||||
Home equity |
941 | 93 | | (11 | ) | 3 | 1,026 | |||||||||||||||||
Consumer loan |
667 | (8 | ) | | (42 | ) | 8 | 625 | ||||||||||||||||
Other loans |
81 | (81 | ) | | | | | |||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Total |
$ | 6,815 | $ | 340 | $ | | $ | (434 | ) | $ | 53 | $ | 6,774 | |||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
March 31, 2011
Beginning Balance |
Provisions | Other | Chargeoffs | Recoveries | Ending Balance |
|||||||||||||||||||
(dollars in thousands) | ||||||||||||||||||||||||
Commercial |
$ | 966 | $ | (101 | ) | $ | 1 | $ | (158 | ) | $ | 1 | $ | 709 | ||||||||||
Real estatecommercial |
2,240 | (258 | ) | 1 | (567 | ) | | 1,416 | ||||||||||||||||
Other real estate construction |
2,157 | 791 | | (376 | ) | | 2,572 | |||||||||||||||||
Real estate construction |
33 | (1 | ) | | (15 | ) | | 17 | ||||||||||||||||
Real estateresidential |
1,658 | 416 | | (220 | ) | | 1,854 | |||||||||||||||||
Home equity |
971 | 248 | | | | 1,219 | ||||||||||||||||||
Consumer loan |
984 | 279 | | (104 | ) | 31 | 1,190 | |||||||||||||||||
Other loans |
58 | (5 | ) | | | | 53 | |||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Total |
$ | 9,067 | $ | 1,369 | $ | 2 | $ | (1,440 | ) | $ | 32 | $ | 9,030 | |||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
The following tables shows period-end loans and reserve balances by loan class both individually and collectively evaluated for impairment at March 31, 2012 and December 31, 2011:
March 31, 2012
Individually Evaluated | Collectively Evaluated | Total | ||||||||||||||||||||||
Reserve | Loans | Reserve | Loans | Reserve | Loans | |||||||||||||||||||
(dollars in thousands) | ||||||||||||||||||||||||
Commercial |
$ | 274 | $ | 1,680 | $ | 561 | $ | 47,971 | $ | 835 | $ | 49,651 | ||||||||||||
Real estatecommercial |
827 | 12,703 | 862 | 94,037 | 1,689 | 106,740 | ||||||||||||||||||
Other real estate construction |
115 | 4,000 | 184 | 25,899 | 299 | 29,899 | ||||||||||||||||||
Real estate construction |
239 | 1,343 | 20 | 1,574 | 259 | 2,917 | ||||||||||||||||||
Real estateresidential |
878 | 11,421 | 1,163 | 90,080 | 2,041 | 101,501 | ||||||||||||||||||
Home equity |
164 | 1,065 | 862 | 50,074 | 1,026 | 51,139 | ||||||||||||||||||
Consumer loan |
146 | 312 | 479 | 13,555 | 625 | 13,867 | ||||||||||||||||||
Other loans |
| | | 625 | | 625 | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Total |
$ | 2,643 | $ | 32,524 | $ | 4,131 | $ | 323,815 | $ | 6,774 | $ | 356,339 | ||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
-13-
December 31, 2011
Individually Evaluated | Collectively Evaluated | Total | ||||||||||||||||||||||
Reserve | Loans | Reserve | Loans | Reserve | Loans | |||||||||||||||||||
(dollars in thousands) | ||||||||||||||||||||||||
Commercial |
$ | 578 | $ | 1,980 | $ | 549 | $ | 43,927 | $ | 1,127 | $ | 45,907 | ||||||||||||
Real estatecommercial |
452 | 12,888 | 1,007 | 102,056 | 1,459 | 114,944 | ||||||||||||||||||
Other real estate construction |
107 | 4,014 | 211 | 27,587 | 318 | 31,601 | ||||||||||||||||||
Real estate construction |
202 | 1,095 | 37 | 4,448 | 239 | 5,543 | ||||||||||||||||||
Real estateresidential |
1,001 | 11,877 | 982 | 89,970 | 1,983 | 101,847 | ||||||||||||||||||
Home equity |
124 | 993 | 817 | 50,420 | 941 | 51,413 | ||||||||||||||||||
Consumer loan |
119 | 242 | 548 | 14,468 | 667 | 14,710 | ||||||||||||||||||
Other loans |
| | 81 | 602 | 81 | 602 | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Total |
$ | 2,583 | $ | 33,089 | $ | 4,232 | $ | 333,478 | $ | 6,815 | $ | 366,567 | ||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
Past due loan information is used by management when assessing the adequacy of the allowance for loan loss. The following table summarizes the past due information of the loan portfolio by class:
March 31, 2012
Loans 30-89 Days Past Due |
Loans 90 Days or More Past due |
Total Past Due Loans |
Current Loans |
Total Loans |
Accuring Loans 90 or More Days Past Due |
|||||||||||||||||||
(dollars in thousands) | ||||||||||||||||||||||||
Commercial |
$ | 249 | $ | 556 | $ | 805 | $ | 48,846 | $ | 49,651 | $ | | ||||||||||||
Real estatecommercial |
964 | 2,597 | 3,561 | 103,179 | 106,740 | | ||||||||||||||||||
Other real estate construction |
166 | 2,431 | 2,597 | 27,302 | 29,899 | | ||||||||||||||||||
Real estate 1-4 family construction |
| 6 | 6 | 2,911 | 2,917 | | ||||||||||||||||||
Real estateresidential |
964 | 2,523 | 3,487 | 98,014 | 101,501 | | ||||||||||||||||||
Home equity |
72 | 285 | 357 | 50,782 | 51,139 | | ||||||||||||||||||
Consumer loans |
102 | 71 | 173 | 13,694 | 13,867 | | ||||||||||||||||||
Other loans |
| | | 625 | 625 | | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Total |
$ | 2,517 | $ | 8,469 | $ | 10,986 | $ | 345,353 | $ | 356,339 | $ | | ||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
-14-
December 31, 2011
Loans 30-89 Days Past Due |
Loan 90 Days or More Past due |
Total Past Due Loans |
Current Loans |
Total Loans |
Accuring Loans 90 or More Days Past Due |
|||||||||||||||||||
(dollars in thousands) | ||||||||||||||||||||||||
Commercial |
$ | 212 | $ | 329 | $ | 541 | $ | 45,366 | $ | 45,907 | $ | | ||||||||||||
Real estatecommercial |
2,396 | 2,742 | 5,138 | 109,806 | 114,944 | | ||||||||||||||||||
Other real estate construction |
358 | 2,084 | 2,442 | 29,159 | 31,601 | | ||||||||||||||||||
Real estate construction |
| | | 5,543 | 5,543 | | ||||||||||||||||||
Real estateresidential |
2,341 | 2,441 | 4,782 | 97,065 | 101,847 | | ||||||||||||||||||
Home equity |
298 | 255 | 553 | 50,860 | 51,413 | | ||||||||||||||||||
Consumer loan |
208 | 11 | 219 | 14,491 | 14,710 | | ||||||||||||||||||
Other loans |
| | | 602 | 602 | | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Total |
$ | 5,813 | $ | 7,862 | $ | 13,675 | $ | 352,892 | $ | 366,567 | $ | | ||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
Once a loan becomes 90 days past due, the loan is automatically transferred to a nonaccrual status. The exception to this policy is credit card loans that remain in accruing 90 days or more until they are paid current or charged off. Also, mortgage loans that were originated for sale but were not sold and are being held in the loan portfolio remain in an accruing status until they are foreclosed.
The composition of nonaccrual loans by class as of March 31, 2012 and December 31, 2011 is as follows:
March 31, 2012 |
December 31, 2011 |
|||||||
(dollars in thousands) | ||||||||
Commercial |
$ | 556 | $ | 329 | ||||
Real estatecommercial |
2,597 | 2,742 | ||||||
Other real estate construction |
2,431 | 2,084 | ||||||
Real estate 1 4 family construction |
6 | | ||||||
Real estateresidential |
2,523 | 2,441 | ||||||
Home equity |
285 | 255 | ||||||
Consumer loans |
71 | 11 | ||||||
Other loans |
| | ||||||
|
|
|
|
|||||
$ | 8,469 | $ | 7,862 | |||||
|
|
|
|
Management uses a risk-grading program to facilitate the evaluation of probable inherent loan losses and to measure the adequacy of the allowance for loan losses. In this program, risk grades are initially assigned by the loan officers and reviewed and monitored by the lenders and credit administration. The program has eight risk grades summarized in five categories as follows:
Pass: Loans that are pass grade credits include loans that are fundamentally sound and risk factors are reasonable and acceptable. They generally conform to policy with only minor exceptions and any major exceptions are clearly mitigated by other economic factors.
Watch: Loans that are watch credits include loans on managements watch list where a risk concern may be anticipated in the near future.
Substandard: Loans that are considered substandard are loans that are inadequately protected by current sound net worth, paying capacity of the obligor or the value of the collateral pledged. All nonaccrual loans are graded as substandard.
Doubtful: Loans that are considered to be doubtful have all weaknesses inherent in loans classified substandard, plus the added characteristic that the weaknesses make the collection
-15-
or liquidation in full on the basis of current existing facts, conditions and values highly questionable and improbable.
Loss: Loans that are considered to be a loss are considered to be uncollectible and of such little value that their continuance as bankable assets is not warranted.
The tables below summarize risk grades of the loan portfolio by class at March 31, 2012 and December 31 2011:
March 31, 2012
Pass | Watch | Sub- standard |
Doubtful | Total | ||||||||||||||||
(dollars in thousands) | ||||||||||||||||||||
Commercial |
$ | 47,517 | $ | 802 | $ | 1,332 | $ | | $ | 49,651 | ||||||||||
Real estatecommercial |
87,419 | 8,266 | 11,055 | | 106,740 | |||||||||||||||
other real estate construction |
24,300 | 409 | 5,190 | | 29,899 | |||||||||||||||
Real estate 1 4 family construction |
2,912 | | 5 | | 2,917 | |||||||||||||||
Real estateresidential |
86,914 | 4,957 | 9,630 | | 101,501 | |||||||||||||||
Home equity |
49,414 | 705 | 1,020 | | 51,139 | |||||||||||||||
Consumer loans |
13,217 | 341 | 309 | | 13,867 | |||||||||||||||
Other loans |
625 | | | | 625 | |||||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Total |
$ | 312,318 | $ | 15,480 | $ | 28,541 | $ | | $ | 356,339 | ||||||||||
|
|
|
|
|
|
|
|
|
|
December 31, 2011
Pass | Watch | Sub- standard |
Doubtful | Total | ||||||||||||||||
(dollars in thousands) | ||||||||||||||||||||
Commercial |
$ | 42,892 | $ | 1,670 | $ | 1,345 | $ | | $ | 45,907 | ||||||||||
Real estatecommercial |
95,699 | 7,971 | 11,274 | | 114,944 | |||||||||||||||
Other real estate construction |
26,256 | 745 | 4,600 | | 31,601 | |||||||||||||||
Real estate 1 4 family construction |
5,538 | 5 | | | 5,543 | |||||||||||||||
Real estateresidential |
89,209 | 4,269 | 8,369 | | 101,847 | |||||||||||||||
Home equity |
49,743 | 861 | 809 | | 51,413 | |||||||||||||||
Consumer loans |
13,970 | 332 | 408 | | 14,710 | |||||||||||||||
Other loans |
602 | | | | 602 | |||||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Total |
$ | 323,909 | $ | 15,853 | $ | 26,805 | $ | | $ | 366,567 | ||||||||||
|
|
|
|
|
|
|
|
|
|
Loans that are in nonaccrual status or 90 days past due and still accruing are considered to be nonperforming. The following tables show the breakdown between performing and nonperforming loans by class at March 31, 2012 and December 31, 2011:
March 31, 2012
Performing | Non- Performing |
Total | ||||||||||
(dollars in thousands) | ||||||||||||
Commercial |
$ | 49,095 | $ | 556 | $ | 49,651 | ||||||
Real estatecommercial |
104,143 | 2,597 | 106,740 | |||||||||
Other real estate construction |
27,468 | 2,431 | 29,899 | |||||||||
Real estate 1 4 family construction |
2,911 | 6 | 2,917 | |||||||||
Real estateresidential |
98,978 | 2,523 | 101,501 | |||||||||
Home equity |
50,854 | 285 | 51,139 | |||||||||
Consumer loans |
13,796 | 71 | 13,867 | |||||||||
Other loans |
625 | | 625 | |||||||||
|
|
|
|
|
|
|||||||
Total |
$ | 347,870 | $ | 8,469 | $ | 356,339 | ||||||
|
|
|
|
|
|
-16-
December 31, 2011
Non- | ||||||||||||
Performing | Performing | Total | ||||||||||
(dollars in thousands) | ||||||||||||
Commercial |
$ | 45,578 | $ | 329 | $ | 45,907 | ||||||
Real estatecommercial |
112,202 | 2,742 | 114,944 | |||||||||
Other real estate construction |
29,517 | 2,084 | 31,601 | |||||||||
Real estate 1 4 family construction |
5,543 | | 5,543 | |||||||||
Real estateresidential |
99,406 | 2,441 | 101,847 | |||||||||
Home equity |
51,158 | 255 | 51,413 | |||||||||
Consumer loans |
14,699 | 11 | 14,710 | |||||||||
Other loans |
602 | | 602 | |||||||||
|
|
|
|
|
|
|||||||
Total |
$ | 358,705 | $ | 7,862 | $ | 366,567 | ||||||
|
|
|
|
|
|
Loans are considered impaired when, based on current information and events; it is probable the Company will be unable to collect all amounts due in accordance with the original contractual terms of the loan agreement. If a loan is deemed impaired a specific calculation is performed and a specific reserve is allocated, if necessary. The tables below summarizes the loans deemed impaired and the amount of specific reserves allocated by class at March 31, 2012, December 31, 2011 and March 31, 2011:
March 31, 2012
Recorded | Recorded | |||||||||||||||||||||||
Unpaid | Investment | Investment | Average | |||||||||||||||||||||
Principal | With No | With | Related | Recorded | Interest | |||||||||||||||||||
Balance | Allowance | Allowance | Allowance | Investment | Income | |||||||||||||||||||
(dollars in thousands) | ||||||||||||||||||||||||
Commercial |
$ | 1,799 | $ | 1,259 | $ | 421 | $ | 274 | $ | 1,830 | $ | 14 | ||||||||||||
Real estatecommercial |
14,766 | 9,666 | 3,037 | 826 | 12,795 | 185 | ||||||||||||||||||
Other real estate construction |
4,002 | 2,631 | 1,369 | 115 | 4,007 | 52 | ||||||||||||||||||
Real estate 1 4 family construction |
1,344 | 745 | 599 | 239 | 1,219 | 6 | ||||||||||||||||||
Real estateresidential |
11,421 | 6,872 | 4,549 | 878 | 11,649 | 137 | ||||||||||||||||||
Home equity |
1,065 | 561 | 504 | 164 | 1,029 | 10 | ||||||||||||||||||
Consumer loans |
311 | 36 | 275 | 147 | 276 | 4 | ||||||||||||||||||
Other loans |
| | | | | | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Total |
$ | 34,708 | $ | 21,770 | $ | 10,754 | $ | 2,643 | $ | 32,805 | $ | 408 | ||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2011
Recorded | Recorded | |||||||||||||||||||||||
Unpaid | Investment | Investment | Average | |||||||||||||||||||||
Principal | With No | With | Related | Recorded | Interest | |||||||||||||||||||
Balance | Allowance | Allowance | Allowance | Investment | Income | |||||||||||||||||||
(dollars in thousands) | ||||||||||||||||||||||||
Commercial |
$ | 2,099 | $ | 889 | $ | 1,091 | $ | 578 | $ | 1,525 | $ | 93 | ||||||||||||
Real estatecommercial |
14,951 | 11,365 | 1,523 | 452 | 16,520 | 716 | ||||||||||||||||||
Other real estate construction |
4,016 | 2,644 | 1,370 | 107 | 7,746 | 236 | ||||||||||||||||||
Real estate 1 4 family construction |
1,095 | 501 | 594 | 202 | 1,249 | 53 | ||||||||||||||||||
Real estateresidential |
11,877 | 7,231 | 4,646 | 1,001 | 10,137 | 616 | ||||||||||||||||||
Home equity |
993 | 753 | 240 | 124 | 1,194 | 37 | ||||||||||||||||||
Consumer loans |
242 | 49 | 193 | 119 | 280 | 16 | ||||||||||||||||||
Other loans |
| | | | | | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Total |
$ | 35,273 | $ | 23,432 | $ | 9,657 | $ | 2,583 | $ | 38,651 | $ | 1,767 | ||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
-17-
March 31, 2011
Recorded | Recorded | |||||||||||||||||||||||
Unpaid | Investment | Investment | Average | |||||||||||||||||||||
Principal | With No | With | Related | Recorded | Interest | |||||||||||||||||||
Balance | Allowance | Allowance | Allowance | Investment | Income | |||||||||||||||||||
(dollars in thousands) | ||||||||||||||||||||||||
Commercial |
$ | 852 | $ | 535 | $ | 317 | $ | 224 | $ | 1,146 | $ | 14 | ||||||||||||
Real estatecommercial |
21,313 | 13,265 | 6,071 | 436 | 19,829 | 170 | ||||||||||||||||||
Other real estate construction |
10,347 | 2,540 | 7,429 | 2,326 | 10,490 | 4 | ||||||||||||||||||
Real estate 1 4 family construction |
1,459 | 1,459 | | | 876 | 22 | ||||||||||||||||||
Real estateresidential |
9,863 | 6,274 | 3,589 | 726 | 9,373 | 115 | ||||||||||||||||||
Home equity |
1,454 | 715 | 738 | 376 | 1,259 | 12 | ||||||||||||||||||
Consumer loans |
306 | 79 | 227 | 138 | 274 | 3 | ||||||||||||||||||
Other loans |
| | | | | | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Total |
$ | 45,594 | $ | 24,867 | $ | 18,371 | $ | 4,226 | $ | 43,247 | $ | 340 | ||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
Note 7 Troubled Debts Restructures
A modification of a loan constitutes a troubled debt restructuring (TDR) when a borrower is experiencing financial difficulty and the modification involves providing a concession to the existing loan contract. The Company offers various types of concessions when modifying loans to troubled borrowers, however, forgiveness of principal is rarely granted. Concessions offered are term extensions, capitalizing accrued interest, reducing interest rates to below current market rates or a combination of any of these. Combinations from time to time may include allowing a customer to be placed on interest-only payments. The presentations below in the other category are TDRs with a combination of concessions. At the time of a TDR, additional collateral or a guarantor may be requested.
Loans modified as a TDR are typically already on nonaccrual status and partial chargeoffs may have in some cases already been taken against the outstanding loan balance. The Company classifies TDR loans as impaired loans and evaluates the need for an allowance for loan loss on a loan-by-loan basis. An allowance is based on either the present value of expected future cash flows discounted at the loans effective interest rate, the loans observable market price or the estimated fair value of the underlying collateral less any selling costs, if the loan is deemed to be collateral dependent.
For the three months ended March 31, 2012 the following table presents a breakdown of the types of concessions made by loan class:
Three months ended March 31, 2012 | ||||||||||||
Pre-Modification | Post-Modification | |||||||||||
Number of Contracts |
Outstanding Recorded Investment |
Outstanding Recorded Investment |
||||||||||
(dollars in thousands) | ||||||||||||
Other: |
||||||||||||
Commercial |
1 | $ | 10 | $ | 9 | |||||||
Real estatecommercial |
2 | 619 | 618 | |||||||||
Other real estate construction |
| | | |||||||||
Real estate 1 4 family construction |
| | | |||||||||
Real estateresidential |
1 | 24 | 24 | |||||||||
Home equity |
| | | |||||||||
Consumer loans |
1 | 52 | 51 | |||||||||
Other loans |
| | | |||||||||
|
|
|
|
|
|
|||||||
Total |
5 | $ | 705 | $ | 702 | |||||||
|
|
|
|
|
|
-18-
The following table present loans that were modified as troubled debt restructurings within the previous twelve months ending March 31, 2012 for which there was a payment default:
Twelve months ended | ||||||||
March 31, 2012 | ||||||||
Number of Loans |
Recorded Investment |
|||||||
(dollars in thousands) | ||||||||
Below market interest rate: |
||||||||
Commercial |
| $ | | |||||
Real estate commercial |
| | ||||||
Other real estate construction |
| | ||||||
Real estate 1 4 family construction |
| | ||||||
Real estate residential |
1 | 207 | ||||||
Home Equity loans |
| | ||||||
Consumer loans |
| | ||||||
Other loans |
| | ||||||
|
|
|
|
|||||
1 | $ | 207 | ||||||
|
|
|
|
|||||
Other: |
||||||||
Commercial |
1 | $ | 9 | |||||
Real estate commercial |
3 | 712 | ||||||
Other real estate construction |
| | ||||||
Real estate 1 4 family construction |
| | ||||||
Real estate residential |
5 | 442 | ||||||
Home Equity loans |
| | ||||||
Consumer loans |
1 | 5 | ||||||
Other loans |
| | ||||||
|
|
|
|
|||||
10 | $ | 1,168 | ||||||
|
|
|
|
|||||
Total |
11 | $ | 1,375 | |||||
|
|
|
|
A default on a troubled debt restructure is defined as being past due 90 days or being out of compliance with the modification agreement. As mentioned, the Company considers TDRs to be impaired loans and has $671,000 in allowance for loan loss as a direct result of these TDRs.
The following table presents the successes and failures of the types of modifications within the previous twelve months as of March 31, 2012:
March 31, 2012
Paid In Full | Paying as restructured | Converted to nonaccrual | Foreclosure/ Default | |||||||||||||||||||||||||||||
Number of Loans |
Recorded Investments |
Number of Loans |
Recorded Investments |
Number of Loans |
Recorded Investments |
Number of Loans |
Recorded Investments |
|||||||||||||||||||||||||
(dollars in thousands) | ||||||||||||||||||||||||||||||||
Below market interest rate |
| $ | | | $ | | | $ | | 1 | $ | 207 | ||||||||||||||||||||
Other Loans |
| | 6 | 514 | 2 | 244 | 8 | 717 | ||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||
Total |
| $ | | 6 | $ | 514 | 2 | $ | 244 | 9 | $ | 924 | ||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Note 8 Commitments and Contingencies
The subsidiary banks are party to financial instruments with off-balance sheet risk in the normal course of business to meet the financing needs of their customers. These financial instruments include commitments to extend credit, lines of credit and standby letters of credit. These instruments involve elements of credit risk in excess of amounts recognized in the accompanying financial statements.
The banks risk of loss with the unfunded loans and lines of credit or standby letters of credit is represented by the contractual amount of these instruments. The banks use the same credit policies in making commitments under such instruments as they do for on-balance sheet instruments. The amount of collateral obtained, if any, is based on managements credit
-19-
evaluation of the borrower. Since many of the commitments are expected to expire without being drawn upon, the total commitment amounts do not necessarily represent future cash requirements. Credit card commitments are unsecured. At March 31, 2012, outstanding financial instruments whose contract amounts represent credit risk were approximately:
(in thousands) | ||||
Commitments to extend credit |
$ | 66,662 | ||
Credit card commitments |
8,958 | |||
Standby letters of credit |
1,320 | |||
|
|
|||
Total commitments |
$ | 76,940 | ||
|
|
Note 9 Fair Value Disclosures
Accounting Standards Codification (ASC) 820 defines fair value, establishes a framework for measuring fair value, and expands disclosures about fair value measurements. ASC 820 does not require any new fair value measurements, but clarifies and standardizes some divergent practices that have emerged since prior guidance was issued. ASC 820 creates a three-level hierarchy under which individual fair value estimates are to be ranked based on the relative reliability of the inputs used in the valuation.
ASC 820 defines fair value as the price that would be received to sell an asset or transfer a liability in an orderly transaction between market participants at the measurement date. When determining the fair value measurements for assets and liabilities, the Company considers the principal or most advantageous market in which those assets or liabilities are sold and considers assumptions that market participants would use when pricing those assets or liabilities. Fair values determined using Level 1 inputs rely on active and observable markets to price identical assets or liabilities. In situations where identical assets and liabilities are not traded in active markets, fair values may be determined based on Level 2 inputs, which exist when observable data exists for similar assets and liabilities. Fair values for assets and liabilities for which identical or similar assets and liabilities are not actively traded in observable markets are based on Level 3 inputs, which are considered to be unobservable.
Among the Companys assets and liabilities, investment securities available for sale are reported at their fair values on a recurring basis. Certain other assets are adjusted to their fair value on a nonrecurring basis, including other real estate owned, impaired loans, loans held for sale, which are carried at the lower of cost or market; and loan servicing rights, where fair value is determined using similar assets with similar characteristics, when available, or based upon discounted cash flows using market-based assumptions; goodwill, which is periodically tested for impairment. Deposits, short-term borrowings and long-term obligations are not reported at fair value.
Prices for US Treasury securities are readily available in the active markets in which those securities are traded, and the resulting fair values are shown in the Level 1 input column. Prices for government agency securities, mortgage-backed securities and for state, county and municipal securities are obtained for similar securities, and the resulting fair values are shown in the Level 2 input column. Prices for all other non-marketable investments are determined based on various assumptions that are not observable. The fair values for these investment securities are shown in the Level 3 input column. Non-marketable investment securities, which are carried at their purchase price, include those that may only be redeemed by the issuer. The changes in securities between Level 1 and Level 2 were related to the purchase and sale of several securities and not the transfer of securities.
The Company does 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 losses is established. Loans for which it is probable that payment of interest and principal will not be made in accordance with the contractual terms of the loan agreement are considered impaired. Once a loan is identified
-20-
as individually impaired, management measures impairment by using one of several methods including collateral value, fair value of similar debt and discounted cash flows. Those impaired loans not requiring an allowance represent loans for which the present value of the expected repayments or fair value of collateral exceed the recorded investments in such loans. At March 31, 2012, substantially all of the total impaired loans were evaluated based on the fair value of the underlying collateral. When the fair value of the collateral is based on an observable market price or a current appraised value, the Company records the impaired loan as nonrecurring Level 2. When an internal assessment of fair value based upon market data issued or management determines the fair value of the underlying collateral is further impaired below the appraised value, the Company records the impaired loan as nonrecurring Level 3.
Foreclosed assets are adjusted to fair value upon transfer of the loans to other real estate owned. Real estate acquired in settlement of loans is recorded initially at estimated fair value of the property less estimated selling costs at the date of foreclosure. The initial recorded value may be subsequently reduced by additional allowances, which are charged to earnings if the estimated fair value of the property less estimated selling costs declines below the initial recorded value. Fair value is based upon independent market prices, appraised values of the collateral or managements estimation of the value of the collateral. When the fair value of the collateral is based on an observable market price or a current appraised value, the Company records the foreclosed asset as nonrecurring Level 2. When an internal assessment of fair value based upon market data issued or management determines the fair value of the underlying collateral is further impaired below the appraised value, the Company records the impaired loan as nonrecurring Level 3.
Loans originated and intended for sale in the secondary market are carried at the lower of cost or estimated fair value in the aggregate, based on secondary market prices. Net unrealized losses, if any, are recognized through a valuation allowance by charges to income.
Servicing assets are evaluated for impairment based upon the fair value. Fair value is determined based upon discounted cash flows using market-based assumptions.
The following table provides fair value information for assets and liabilities measured at fair value on a recurring basis as of March 31, 2012 and December 31, 2011:
March 31, 2012 | ||||||||||||||||
(dollars in thousands) | ||||||||||||||||
Total | Level 1 | Level 2 | Level 3 | |||||||||||||
Securities available for sale: |
||||||||||||||||
US Treasury |
$ | 33,129 | $ | 33,129 | $ | | $ | | ||||||||
US Government Agencies |
19,818 | | 19,818 | | ||||||||||||
GSEMortgage-backed securities and CMOs |
20,998 | | 20,998 | | ||||||||||||
State and political subdivisions |
10,604 | | 10,604 | | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Total assets at fair value |
$ | 84,549 | $ | 33,129 | $ | 51,420 | $ | | ||||||||
|
|
|
|
|
|
|
|
|||||||||
Total liabilities at fair value |
$ | | $ | | $ | | $ | | ||||||||
|
|
|
|
|
|
|
|
-21-
December 31, 2011 | ||||||||||||||||
(dollars in thousands) | ||||||||||||||||
Total | Level 1 | Level 2 | Level 3 | |||||||||||||
Securities available for sale: |
||||||||||||||||
US Treasury |
$ | 33,532 | $ | 33,532 | $ | | $ | | ||||||||
US Govt |
19,997 | | 19,997 | | ||||||||||||
Mortgage-backed securities and CMOs |
24,263 | | 24,263 | | ||||||||||||
State and political subdivisions |
10,869 | | 10,869 | | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Total assets at fair value |
$ | 88,661 | $ | 33,532 | $ | 55,129 | $ | | ||||||||
|
|
|
|
|
|
|
|
|||||||||
Total liabilities at fair value |
$ | | $ | | $ | | $ | | ||||||||
|
|
|
|
|
|
|
|
The Company may be required, from time to time, to measure certain assets at fair value on a nonrecurring basis in accordance with U.S. GAAP. 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 table below as of March 31, 2012 and December 31, 2011:
March 31, 2012 | ||||||||||||||||
(dollars in thousands) | ||||||||||||||||
Total | Level 1 | Level 2 | Level 3 | |||||||||||||
Impaired loans |
$ | 8,111 | $ | | $ | | $ | 8,111 | ||||||||
Loans held for sale |
2,023 | | 2,023 | | ||||||||||||
Other real estate owned |
3,229 | | | 3,229 | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Total assets at fair value |
$ | 13,363 | $ | | $ | 2,023 | $ | 11,340 | ||||||||
|
|
|
|
|
|
|
|
|||||||||
Total liabilities at fair value |
$ | | $ | | $ | | $ | | ||||||||
|
|
|
|
|
|
|
|
December 31, 2011 | ||||||||||||||||
(dollars in thousands) | ||||||||||||||||
Total | Level 1 | Level 2 | Level 3 | |||||||||||||
Impaired loans |
$ | 7,074 | $ | | $ | | $ | 7,074 | ||||||||
Loans held for sale |
1,958 | | 1,958 | | ||||||||||||
Other real estate owned |
1,464 | | | 1,464 | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Total assets at fair value |
$ | 10,496 | $ | | $ | 1,958 | $ | 8,538 | ||||||||
|
|
|
|
|
|
|
|
|||||||||
Total liabilities at fair value |
$ | | $ | | $ | | $ | | ||||||||
|
|
|
|
|
|
|
|
Note 10 Fair Values of Financial Instruments and Interest Rate Risk
ASC 825, Disclosures about Fair Value of Financial Instruments, requires disclosure of the fair value of financial assets and financial liabilities, including those that are not measured and reported at fair value on a recurring basis or non-recurring basis.
The fair value estimates presented at March 31, 2012 and December 31, 2011, are based on relevant market information and information about the financial instruments. Fair value estimates are intended to represent the price an asset could be sold at or the price a liability could be settled for. However, given there is no active market or observable market transactions for many of the Companys financial instruments, the Company has made estimates of many of
-22-
these fair values which are subjective in nature, involve uncertainties and matters of significant judgment and therefore cannot be determined with precision. Changes in assumptions could significantly affect the estimated values. The estimated fair values disclosed in the following table do not represent market values of all assets and liabilities of the Company and should not be interpreted to represent the underlying value of the Company. The following table reflects a comparison of carrying amounts and the estimated fair value of the financial instruments as of March 31, 2012 and December 31, 2011:
March 31, 2012
Carrying Value |
Estimated Fair Value |
Level 1 | Level 2 | Level 3 | ||||||||||||||||
(dollars in thousands) | ||||||||||||||||||||
FINANCIAL ASSETS |
||||||||||||||||||||
Cash and cash equivalents |
$ | 31,999 | $ | 31,999 | $ | 31,999 | $ | | $ | | ||||||||||
Securities available for sale |
84,549 | 84,549 | 33,129 | 51,420 | | |||||||||||||||
Loans held for investment, net |
349,682 | 362,944 | | | 362,944 | |||||||||||||||
Loans held for sale |
2,023 | 2,023 | | 2,023 | | |||||||||||||||
Restricted stock |
3,289 | 3,289 | 3,289 | | | |||||||||||||||
Bank-owned life insurance |
6,230 | 6,230 | | | 6,230 | |||||||||||||||
Mortgage servicing rights |
2,173 | 2,575 | | | 2,575 | |||||||||||||||
Accrued interest receivable |
1,827 | 1,827 | | | 1,827 | |||||||||||||||
FINANCIAL LIABILITIES |
||||||||||||||||||||
Deposits |
$ | 434,100 | $ | 432,735 | $ | | $ | | $ | 432,735 | ||||||||||
Short-term borrowings |
16,132 | 16,132 | | 16,132 | | |||||||||||||||
Long-term borrowings |
8,054 | 8,447 | | 8,447 | | |||||||||||||||
Junior subordinated debt |
11,127 | 11,572 | | | 11,572 | |||||||||||||||
Accrued interest payable |
289 | 289 | | | 289 |
December 31, 2011
Carrying Value |
Estimated Fair Value |
|||||||
(dollars in thousands) | ||||||||
FINANCIAL ASSETS |
||||||||
Cash and cash equivalents |
$ | 28,687 | $ | 28,687 | ||||
Securities available for sale |
88,661 | 88,661 | ||||||
Loans held for investment, net |
359,860 | 374,636 | ||||||
Loans held for sale |
1,958 | 1,958 | ||||||
Restricted stock |
3,289 | 3,289 | ||||||
Bank-owned life insurance |
6,171 | 6,171 | ||||||
Mortgage servicing rights |
2,128 | 2,494 | ||||||
Accrued interest receivable |
2,084 | 2,084 | ||||||
FINANCIAL LIABILITIES |
||||||||
Deposits |
$ | 431,338 | $ | 430,641 | ||||
Short-term borrowings |
20,791 | 20,791 | ||||||
Long-term borrowings |
14,106 | 14,611 | ||||||
Junior subordinated debt |
11,127 | 11,283 | ||||||
Accrued interest payable |
301 | 301 |
The following methods and assumptions were used by the Company in estimating the fair value of financial instruments:
| Cash and cash equivalents The carrying amount of cash and cash equivalents approximate their fair values due to the short period of time until their expected realization and are recorded in Level 1. |
| Securities available for sale Securities available for sale are carried at fair value based on quoted and observable market prices and are recorded in Levels 1 and 2. Also see discussion in note 9 |
-23-
| Loans The fair value of loans is estimated based on discounted expected cash flows using the current interest rates at which similar loans would be made and carried in level 3. Loans held for sale, which represent current mortgage production forward sales not yet delivered, are valued based on secondary market prices. The fair value of loans does not consider the lack of liquidity and uncertainty in the market that would effect the valuation. Loans held for sale are recorded in Level 2. |
| Restricted stock It is not practicable to determine fair value of restricted stock which is comprised of Federal Home Loan Bank and Federal Reserve Bank stock due to restrictions placed on its transferability and it is presented at its carrying value and is recorded in Level 1. |
| Bank-owned life insurance The carrying amount of bank-owned life insurance is the current cash surrender value and is recorded in level 3. |
| Mortgage serving rights Fair value is determined based upon discounted cash flows using market-based assumptions and is recorded in Level 3. |
| Accrued interest receivable and payable Both accrued interest receivable and payable are recorded in Level 3, as there are not active markets for these. |
| Deposits The fair value of deposits is estimated based on discounted cash flow analyses using offered market rates and is recorded in Level 3. The fair value of deposits does not consider any customer related intangibles. |
| Borrowings The fair value disclosed for short-term borrowings, which are composed of overnight borrowings and debt due within one year approximate the carrying value for such debt and is recorded in Level 2. The estimated fair value for long-term borrowings are estimated based on discounted cash flow analyses using offered market rates. Total borrowings are carried in Level 2. Junior subordinated debt is fair valued based on discounted cash flow analyses and is recorded in Level 3. |
| Mortgage serving rights Fair value is determined using prices for similar assets with similar characteristics when available or is based upon discounted cash flows using market-based assumptions and is recorded in Level 3. |
At March 31, 2012, the subsidiary banks had outstanding standby letters of credit and commitments to extend credit. These off-balance sheet financial instruments are generally exercisable at the market rate prevailing at the date the underlying transaction will be completed; therefore, they were deemed to have no current fair value. See Note 8.
Note 11 Recent Accounting Pronouncements
In May 2011, the FASB issued Accounting Standards Update No. 2011-04, Fair Value Measurement. The purpose of the standard is to clarify and combine fair value measurements and disclosure requirements for U.S. generally accepted accounting principles, or GAAP, and international financial reporting standards, or IFRS. The new standard provides amendments and wording changes used to describe certain requirements for measuring fair value and for disclosing information about fair value measurements. This guidance is effective for interim and annual reporting periods beginning after December 15, 2011, and should be applied prospectively to the beginning of the annual period of adoption The adoption of this statement did not have a material impact on the consolidated financial statements.
In June 2011, the FASB issued ASU 2011-05, an update to ASC 220, Comprehensive Income. This update requires that all nonowner changes in stockholders equity be presented in either a
-24-
single continuous statement of comprehensive income or in two separate but consecutive statements. Additionally, ASU 2011-05 requires entities to present, on the face of the financial statements, reclassification adjustments for items that are reclassified from other comprehensive income to net income in the statement or statements where the components of net income and the components of other comprehensive income are presented. The option to present components of other comprehensive income as part of the statement of changes in stockholders equity was eliminated. ASU 2011-05 is effective for annual periods beginning after December 15, 2011, and did not have a significant impact on the Companys financial statements.
In September 2011, the FASB issued ASU 2011-08, an update to ASC 350 IntangiblesGoodwill and Other. This update gives entities the option to first assess qualitative factors to determine whether the existence of events or circumstances leads to a determination that it is more likely than not that the fair value of a reporting unit is less than its carrying amount. If, after assessing the totality of events or circumstances, an entity determines it is not more likely than not that the fair value of a reporting unit is less than its carrying amount, then performing the two-step impairment test is unnecessary. However, if an entity concludes otherwise, then it is required to perform the first step of the two-step impairment test by calculating the fair value of the reporting unit and comparing the fair value with the carrying amount of the reporting unit. ASU 2011-08 is effective for annual and interim impairment tests beginning after December 15, 2011, and did not have a significant impact on the Companys financial statements.
From time to time the FASB issues exposure drafts of proposed statements of financial accounting standards. Such exposure drafts are subject to comment from the public, to revisions by the FASB and to final issuance by the FASB as statements of financial accounting standards. Management considers the effect of the proposed statements on the consolidated financial statements of the Company and monitors the status of changes to and proposed effective dates of exposure drafts.
-25-
Item 2Managements Discussion and Analysis of Financial Condition and Results of Operations
This Quarterly Report on Form 10-Q may contain certain forward-looking statements consisting of estimates with respect to the financial condition, results of operations and business of the Company that are subject to various factors which could cause actual results to differ materially from these estimates. These factors include, but are not limited to, general economic conditions, changes in interest rates, deposit flows, loan demand, real estate values, and competition; changes in accounting principles, policies, or guidelines; changes in legislation or regulation; and other economic, competitive, governmental, regulatory, and technological factors affecting the Companys operations, pricing, products and services. Any use of we or our in the following discussion refers to the Company.
Comparison of Financial Condition at March 31, 2012 and December 31, 2011.
During the three months ended March 31, 2012, the Companys total assets decreased $8.3 million, from $526.9 million to $518.6 million. During the same period, loans held for investment also decreased $10.2 million to $356.5 million.
Cash and cash equivalents increased $3.3 million during the three months ended March 31, 2012. Cash and due from banks increased $313,000, while interest-earning deposits with banks increased $3.0 million.
Investment securities decreased $4.1 million to $84.5 million for the quarter ended March 31, 2012. The decrease was due to of one maturity for $125,000 with the remainder of the decrease stemming from principal pay down of mortgage backed securities. On March 31, 2012, the Company had net unrealized gains of $2.9 million.
Loans held for investment decreased from $366.7 million to $356.5 million, a decrease of $10.2 million. Contributing to this decrease was the sale of a government guaranteed portion of a loan of approximately $4.9 million. All areas of the loan portfolio decreased during the first quarter except for the commercial loan portfolio which experienced positive growth trends. Commercial real estate experienced the largest decline of $8.2 million reflecting the sale of the aforementioned loan. Loans held for sale increased 3.3% or $65,000 during the period. The allowance for loan losses was $6.8 million at March 31, 2012, which represents 1.90% of the loan portfolio.
Other changes in our consolidated assets are related to premises and equipment, interest receivable, restricted stock, bank owned life insurance, other real estate owned, prepaid assets and other assets. Bank owned life insurance and prepaid assets increased $59,000 and $22,000, respectively. Accrued interest receivable and premises and equipment declined $257,000 and $31,000, respectively. The Companys restricted stock which is required ownership in Federal Reserve Bank stock and Federal Home Loan Bank stock remained at $803,000 and $2.5 million, respectively during the first quarter. Other real estate owned decreased $759,000. The Company sold three properties totaling $1.1 million and had valuation write down adjustments of $352,000. These decreases were offset by the addition of four new foreclosed properties totaling $714,000. Other assets increased $3.6 million driven primarily by increases in accounts receivable related to the loan sale mentioned above.
Customer deposits, our primary funding source, experienced a $2.8 million increase during the quarter ended March 31, 2012, increasing from $431.3 million to $434.1 million. Demand noninterest bearing checking increased $3.8 million and interest checking and money market accounts increased $453,000, while savings deposits increased $1.6 million for the period. These increases were offset by declines in time deposits over $100,000 of $2.1 million and other time deposits of $966,000
-26-
Total borrowings decreased $10.7 million for the period and consist of both short-term and long-term borrowed funds primarily from the Federal Home Loan Bank. The maturity of $10.0 million in Federal Home Loan Bank advances played a major part in the decrease. At March 31, 2012, $17.0 million of the total borrowings of $35.3 million were comprised of Federal Home Loan Bank advances.
Other liabilities decreased from $3.6 million at December 31, 2011 to $3.0 million at March 31, 2012, a decrease of $656,000.
At March 31, 2012, total shareholders equity was $45.9 million, an increase of $300,000 from December 31, 2011. Net income for the period was $700,000. Net income was offset by a decline in unrealized gains and losses on investment securities, net of tax of $275,000. The Company also recorded $136,000 in dividends on the series A and B preferred stock for the three month period. At March 31, 2012, the Company and its subsidiary banks exceeded all applicable regulatory capital requirements.
Comparison of Results of Operations For the Three Months Ended March 31, 2012 and 2011.
Net Income and Net Income Available to Common Shareholders
Uwharrie Capital Corp reported net income of $700,000 for the three months ended March 31, 2012, as compared to $209,000 for the three months ended March 31, 2011, an increase of $491,000. Net income available to common shareholders was $539,000 or $0.07 per common share at March 31, 2012, compared at $48,000 or $0.01 per common share at March 31, 2011. Net income available to common shareholders is net income less any dividends on preferred stock related to the $10.0 million of capital received from the United States Department of the Treasury under the Capital Purchase Program in December 2008.
Net Interest Income
As with most financial institutions, the primary component of earnings for our banks is net interest income. Net interest income is the difference between interest income, principally from loan and investment securities portfolios, and interest expense, principally on customer deposits and borrowings. Changes in net interest income result from changes in volume, spread and margin. For this purpose, volume refers to the average dollar level of interest-earning assets and interest-bearing liabilities, spread refers to the difference between the average yield on interest-earning assets and the average cost of interest-bearing liabilities, and margin refers to net interest income divided by average interest-earning assets. Margin is influenced by the level and relative mix of interest-earning assets and interest-bearing liabilities, as well as by levels of noninterest-bearing liabilities and capital.
Net interest income for the three months ended March 31, 2012 and March 31, 2011 was $4.7 million. During the current quarter, our growth in the volume of interest-earning assets outpaced the volume of interest-bearing liabilities by $102,000. The average yield on our interestearning assets decreased 11 basis points to 4.91%, while the average rate we paid for our interest-bearing liabilities decreased 23 basis points. The Companys assets that are interest rate sensitive adjust at the time the Federal Reserve adjusts interest rates, while interest-bearing time deposits adjust at the time of maturity. The aforementioned decreases resulted in an increase of 12 basis points in our interest rate spread, from 3.80% in 2011 to 3.92% in 2012. Our net interest margin was 4.05% and 3.95% for the comparable periods in 2012 and 2011 respectively.
The following table presents average balance sheets and a net interest income analysis for the three months ended March 31, 2012 and 2011:
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Average Balance Sheet and Net Interest Income Analysis
For the Three Months Ended March 31,
Average Balance | Income/Expenses | Rate/Yield | ||||||||||||||||||||||
(in thousands) | 2012 | 2011 | 2012 | 2011 | 2012 | 2011 | ||||||||||||||||||
Interest-earning assets: |
||||||||||||||||||||||||
Taxable securities |
$ | 77,600 | $ | 84,835 | $ | 336 | $ | 503 | 1.74 | % | 2.40 | % | ||||||||||||
Nontaxable securities (1) |
9,474 | 10,692 | 91 | 94 | 6.31 | % | 5.83 | % | ||||||||||||||||
Short-term investments |
21,792 | 5,882 | 32 | 7 | 0.59 | % | 0.48 | % | ||||||||||||||||
Taxable loans |
353,094 | 379,761 | 5,094 | 5,276 | 5.80 | % | 5.64 | % | ||||||||||||||||
Non-taxable loans (1) |
12,792 | 7,132 | 113 | 66 | 5.77 | % | 5.60 | % | ||||||||||||||||
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Total interest-earning assets |
474,752 | 488,302 | 5,666 | 5,946 | 4.91 | % | 5.02 | % | ||||||||||||||||
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Interest-bearing liabilities: |
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Interest-bearing deposits |
364,367 | 373,397 | 682 | 899 | 0.75 | % | 0.98 | % | ||||||||||||||||
Short-term borrowed funds |
18,339 | 20,902 | 74 | 103 | 1.62 | % | 2.00 | % | ||||||||||||||||
Long-term debt |
23,796 | 31,389 | 242 | 276 | 4.09 | % | 3.57 | % | ||||||||||||||||
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Total interest bearing liabilities |
406,502 | 425,688 | 998 | 1,278 | 0.99 | % | 1.22 | % | ||||||||||||||||
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Net interest spread |
$ | 68,250 | $ | 62,614 | $ | 4,668 | $ | 4,668 | 3.92 | % | 3.80 | % | ||||||||||||
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Net interest margin (1) |
4.05 | % | 3.95 | % | ||||||||||||||||||||
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(1) | Yields related to securities and loans exempt from income taxes are stated on a fully tax-equivalent basis, assuming a 38.55% tax rate. |
Provision and Allowance for Loan Losses
The provision for loan losses was $340,000 for the three months ending March 31, 2012 compared to $1.4 million for the same period in 2011. There were net loan charge-offs of $381,000 for the three months ended March 31, 2012, as compared with net loan charge-offs of $1.4 million during the same period of 2011. Refer to the Asset Quality discussion on page 29 for further information.
Noninterest Income
The Company generates most of its revenue from net interest income; however, like all financial institutions, diversification of our revenue base is of major importance in our long term success. Total noninterest income decreased $15,000 for the three month period ending March 31, 2012 as compared to the same period in 2011. The Company realized a gain on the aforementioned government guaranteed loan in the amount of $276,000 in the first quarter of 2012 and the Company did not realize any gains on the sale of investment securities during 2012 as compared to realized gains of $576,000 for the same period in 2011. Income from mortgage loan sales increased $426,000 from $383,000 for the quarter ended March 31, 2011 to $809,000 for the same period in 2012. Service charges on deposit accounts produced revenue of $432,000, a decrease of $12,000 for the three months ended March 31, 2012. The primary factor leading to this decrease was a decrease in NSF fees for the comparable periods. Other service fees and commissions experienced a 14.8% decrease for the comparable three month period, primarily due to a decrease in brokerage commissions and asset management fees from $430,000 for the three month period in 2011 as compared to $340,000 for the same period in 2012.
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Noninterest Expense
Noninterest expense for the quarter ended March 31, 2012 was $5.8 million compared to $5.4 million for the same period of 2011, an increase of $327,000. Salaries and employee benefits, the largest component of noninterest expense, increased $61,000 for the quarter ending March 31, 2012. Foreclosed real estate expense increased $425,000 while professional fees and service fees decreased $217,000 for the three months ending March 31, 2012. The major factor related to the increase in foreclosed real estate expense was write downs on properties held in other real estate owned. These write downs were attributed to updated appraisals and the lowering of list prices late in the first quarter of 2012 totaling $352,000 compared to no write downs for the same period in 2011. The decrease in other professional fees and services was directly related to reimbursement of prior period legal fees totaling $267,000. Of this amount, $177,000 was related to a reimbursement for legal services under the Companys director and officer liability insurance policy and $90,000 associated with a previous closed government guaranteed loan. Other noninterest expense increased $69,000 for the comparable three month periods. The table below reflects the composition of other noninterest expense.
Other noninterest expense
Three Months Ended | ||||||||
March 31, | ||||||||
2012 | 2011 | |||||||
(in thousands) | ||||||||
Postage |
$ | 57 | $ | 54 | ||||
Telephone and data lines |
51 | 41 | ||||||
Loan collection expense |
89 | 59 | ||||||
Shareholder relations expense |
54 | 40 | ||||||
Dues and subscriptions |
49 | 50 | ||||||
Other |
361 | 348 | ||||||
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Total |
$ | 661 | $ | 592 | ||||
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Income Tax Expense
The Company had income tax expense of $224,000 for the three months ended March 31, 2012 resulting in an effective tax rate of 24.24% compared to income tax expense of $28,000 and an effective rate of 11.81% in the 2011 period. Income taxes computed at the statutory rate are reduced primarily by the eligible amount of interest earned on state and municipal securities, tax free municipal loans and income earned on bank owned life insurance.
Asset Quality
The Companys allowance for loan losses is established through charges to earnings in the form of a provision for loan losses. The allowance is increased by provisions charged to operations and by recoveries of amounts previously charged off and is reduced by loans charged off. Management continuously evaluates the adequacy of the allowance for loan losses. In evaluating the adequacy of the allowance, management considers the following: the growth, composition and industry diversification of the portfolio; historical loan loss experience; current delinquency levels; adverse situations that may affect a borrowers ability to repay; estimated value of any underlying collateral; prevailing economic conditions and other relevant factors. The Companys credit administration function, through a review process, periodically validates the accuracy of the initial risk grade assessment. In addition, as a given loans credit quality improves or deteriorates, the credit administration department has the responsibility to change the borrowers risk grade accordingly. For loans determined to be impaired, the allowance is based on either the present value of expected future cash flows discounted at the loans effective interest rate, the loans observable market price or the estimated fair value of the underlying collateral less the selling costs. This evaluation is inherently subjective, as it requires material estimates, including the amounts and timing of future cash flows expected to
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be received on impaired loans, which may be susceptible to significant change. In addition, regulatory agencies, as an integral part of their examination process, periodically review the allowance for loan losses and may require additions for estimated losses based upon judgments different from those of management.
Management uses a risk-grading program to facilitate the evaluation of probable inherent loan losses and the adequacy of the allowance for loan losses. In this program, risk grades are initially assigned by loan officers and reviewed and monitored by credit administration. The Company strives to maintain its loan portfolio in accordance with conservative loan underwriting policies that result in loans specifically tailored to the needs of its market area. Every effort is made to identify and minimize the credit risks associated with such lending strategies. The Company has no foreign loans and does not engage in significant lease financing or highly leveraged transactions. The Company follows a loan review program designed to evaluate the credit risk in the loan portfolio. This process includes the maintenance of an internally classified watch list that is designed to help management assess the overall quality of the loan portfolio and the adequacy of the allowance for loan losses. In establishing the appropriate classification for specific assets, management considers, among other factors, the estimated value of the underlying collateral, the borrowers ability to repay, the borrowers payment history and the current delinquent status. As a result of this process, certain loans are categorized as substandard, doubtful or loss, and reserves are allocated based on managements judgment and historical experience.
The allowance for loan losses represents managements best estimate of an appropriate amount to provide for inherent risk in the loan portfolio in the normal course of business. While management believes that it uses the best information available to establish the allowance for loan losses, future adjustments to the allowance may be necessary and results of operations could be adversely affected if circumstances differ from the assumptions used in making the determinations. Furthermore, while management believes it has established the allowance for loan losses in conformity with generally accepted accounting principles, there can be no assurance that banking regulators, in reviewing the Companys portfolio, will not require an adjustment to the allowance for loan losses. In addition, because future events affecting borrowers and collateral cannot be predicted with certainty, there can be no assurance that the existing allowance for loan losses is adequate or that increases will not be necessary, should the quality of any loans deteriorate as a result of the factors discussed herein. Any material increase in the allowance for loan losses may adversely affect the Companys financial condition and results of operations.
The provision for loan losses was $340,000 for the quarter ended March 31, 2012 as compared to $1.4 million for the same period in 2011. At March 31, 2012 the levels of our impaired loans, which includes all loans in nonaccrual status and other loans deemed by management to be impaired, were $32.5 million compared to $33.1 million at December 31, 2011, a decrease of $565,000. Total nonaccrual loans, which are a component of impaired loans, increased from $7.9 million at December 31, 2011 to $8.5 million at March 31, 2012. The Company had net loan charge-offs for the first quarter of 2012 of $381,000 compared to net loan charge-offs of $1.4 million for the same period in 2011.
The allowance expressed as a percentage of gross loans held for investment increased four basis points from 1.86% at December 31, 2011 to 1.90% at March 31, 2012. The collectively evaluated reserve allowance as a percentage of collectively evaluated loans was 1.27% at December 31, 2011 and 1.28% at March 31, 2012, while the individually evaluated allowance as a percentage of individually evaluated loans increased from 7.81% to 8.13%, a increase of 32 basis points.
Our allowance for loan loss model captures not only the mean loss of individual loans but also the rare event of severe loss that can occur within the loan portfolio. Specifically, the Company calculates probable losses on loans by computing a probability of loss and expected loss
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scenario by call codes. Together, these components created from Ordinary Least Squares (OLS) Regression of historical losses against multiple Macro-Economic factors make up the basis of the allowance model. The loans that are impaired and included in the specific reserve are excluded from these calculations. The Company also has a section within the model to account for other qualitative and/or environmental factors. Nonperforming loans, which consist of nonaccrual loans and loans past due 90 days and still accruing, to total loans increased from 2.14% at December 31, 2011, to 2.38% at March 31, 2012. Management believes the current level of the allowance for loan losses is appropriate in light of the risk inherent in the loan portfolio.
Restructured loans at March 31, 2012 totaled $6.2 million and $6.0 million at December 31, 2011 and are included in impaired loans.
The following nonperforming loan table shows the comparison of March 31, 2012 to December 31, 2011:
Nonperforming Assets
(dollars in thousands) | March 31, 2012 |
December 31, 2011 |
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Nonperforming assets: |
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Loans past due 90 days or more |
$ | | $ | | ||||
Nonaccrual loans |
8,469 | 7,862 | ||||||
Other real estate owned |
9,499 | 10,258 | ||||||
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Total nonperforming assets |
$ | 17,968 | $ | 18,120 | ||||
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Allowance for loans losses |
$ | 6,774 | $ | 6,815 | ||||
Nonperforming loans to total loans |
2.38 | % | 2.14 | % | ||||
Allowance for loan losses to total loans |
1.90 | % | 1.86 | % | ||||
Nonperforming assets to total assets |
3.46 | % | 3.44 | % | ||||
Allowance for loan losses to nonperforming loans |
79.98 | % | 86.88 | % |
During the first quarter of 2012, the Company had a net decrease of $759,000 in other real estate owned. The decrease was due to the sale of three pieces of property totaling $1.1 million and valuation write downs of $352,000. These decreases were offset by the addition of four pieces of property totaling $714,000. The Company has four pieces of property totaling $540,000 under contract to sell during the second quarter of 2012.
Liquidity and Capital Resources
The objective of the Companys liquidity management policy is to ensure the availability of sufficient cash flows to meet all financial commitments and to capitalize on any opportunities for expansion. Liquidity management addresses the ability to meet deposit withdrawals on demand or at contractual maturity, to repay borrowings as they mature and to fund new loans and investments as opportunities arise.
The Companys primary sources of internally generated funds are principal and interest payments on loans, cash flows generated from operations and cash flow generated by investments. Growth in deposits is typically the primary source of funds for loan growth. The Company and its subsidiary banks have multiple funding sources in addition to deposits that
-31-
can be used to increase liquidity and provide additional financial flexibility. These sources are the subsidiary banks established federal funds lines with correspondent banks aggregating $23.8 million at March 31, 2012, with available credit of $23.8 million, established borrowing relationships with the Federal Home Loan Bank, with available credit of $40.4 million, access to borrowings from the Federal Reserve Bank discount window, with available credit of $16.8 million and the issuance of commercial paper. The Company has also secured long-term debt from other sources. Total debt from these sources aggregated $35.3 million at March 31, 2012, compared to $46.0 million at December 31, 2011.
Banks and bank holding companies, as regulated institutions, must meet required levels of capital. The Federal Reserve, the primary federal regulator of the Company and its subsidiary banks, has adopted minimum capital regulations or guidelines that categorize components and the level of risk associated with various types of assets.
Regulatory guidelines require a minimum of total capital to risk-adjusted assets ratio of 8 percent and a Tier 1 leverage ratio of 4 percent. Banks, which meet or exceed a Tier 1 risk-based capital ratio of 6 percent, a total risked-based capital ratio of 10 percent and a leverage ratio of 5 percent, are considered well capitalized by regulatory standards. Financial institutions are expected to maintain a level of capital commensurate with the risk profile assigned to their assets in accordance with those guidelines.
The Company and its subsidiary banks have each maintained capital levels exceeding minimum levels for well capitalized banks and bank holding companies. The Company expects to continue to exceed minimum capital requirements without altering current operations or strategy. At March 31, 2012, the Company had $11.1 million in subordinated debt and $10.0 million in preferred stock issued to the United States Department of the Treasury and has continued to make all interest payments in a timely manner.
Accounting and Regulatory Matters
Management is not aware of any known trends, events, uncertainties or current recommendations by regulatory authorities that will have or that are reasonably likely to have a material effect on the Companys liquidity, capital resources, or other operations.
Item 3. Quantitative and Qualitative Disclosures about Market Risk
The Companys primary market risk is interest rate risk. Interest rate risk is the result of differing maturities or repricing intervals of interest-earning assets and interest-bearing liabilities and the fact that rates on these financial instruments do not change uniformly. These conditions may impact the earnings generated by the Companys interest earning assets or the cost of its interest-bearing liabilities, thus directly impacting the Companys overall earnings. The Companys management actively monitors and manages interest rate risk. One way this is accomplished is through the development of and adherence to the Companys asset/liability policy. This policy sets forth managements strategy for matching the risk characteristics of the Companys interest-earning assets and liabilities so as to mitigate the effect of changes in the rate environment. In managements opinion, the Companys market risk profile has not changed significantly since December 31, 2011.
Item 4. Controls and Procedures
Evaluation of Disclosure Controls and Procedures
At the end of the period covered by this report, the Company carried out an evaluation, under the supervision and with the participation of the Companys management, including the Companys principal executive officer and principal financial officer, of the effectiveness of the
-32-
design and operation of the Companys disclosure controls and procedures pursuant to Securities Exchange Act (Exchange Act) Rule 13a-15.
Based upon that evaluation, the principal executive officer and principal financial officer concluded that in their opinion, the Companys disclosure controls and procedures were effective (1) to provide reasonable assurance that information required to be disclosed by the Company in the reports filed or submitted by it under the Exchange Act was recorded, processed, summarized and reported within the time periods specified in the SECs rules and forms, and (2) to provide reasonable assurance that information required to be disclosed by the Company in such reports is accumulated and communicated to the Companys management, including its principal executive officer and principal financial officer, as appropriate to allow for timely decisions regarding required disclosure.
Changes in Internal Control over Financial Reporting
Management of the Company has evaluated, with the participation of the Companys principal executive officer and principal financial officer, changes in the Companys internal controls over financial reporting (as defined in Rule 13a -15(f) and 15d 15(f) of the Exchange Act) during the first quarter of 2012. In connection with such evaluation, the Company has determined that there were no changes in the Companys internal control over financial reporting during the period covered by this report that have materially affected, or are reasonably likely to materially affect, the Companys internal control over financial reporting. The Company reviews its disclosure controls and procedures, which may include its internal control over financial reporting, on an ongoing basis, and may from time to time make changes aimed at enhancing their effectiveness and to ensuring that the Companys systems evolve with its business.
Neither the Company nor its subsidiaries, nor any of their properties are subject to any material legal proceedings. From time to time the Banks are engaged in ordinary routine litigation incidental to their business.
Disclosure under this item is not required for smaller reporting companies.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
Trades of the Companys stock occur in the Over-the-Counter market from time to time. The Company also has in place a Stock Repurchase Plan that provides liquidity to its shareholders in the event a willing buyer is not available to purchase shares that are offered for sale. The Company is under no obligation to purchase shares offered; however, it will accommodate such offers as its Stock Repurchase Plan allows. This plan was initially adopted in 1995 and is approved annually by resolution of the Board of Directors or the Executive Committee of the Board.
Pursuant to the terms of the United States Department of the Treasurys investment in the Companys preferred stock under the Capital Purchase Program (CPP), the Company must obtain the prior consent of the United States Department of the Treasury to repurchase its common stock under the Stock Purchase Plan or otherwise or to pay a cash dividend.
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Item 3. Defaults Upon Senior Securities
None
None
Exhibit |
Description of Exhibit | |
3.1 | Registrants Articles of Incorporation (1) | |
3.2 | Registrants By-laws (6) | |
3.2 | Articles of Amendment dated December 19, 2008, regarding Series A and Series B Preferred Stock (5) | |
4 | Form of stock certificate (1) | |
4.2 | Form of certificate for the Series A Preferred stock (5) | |
4.3 | Form of certificate for the Series B Preferred stock (5) | |
4.4 | Warrant dated December 23, 2008, for purchase of share of Series B Preferred stock (5) | |
4.5 | Form of Security Holders Agreement (9) | |
10.1 | Incentive Stock Option Plan, as amended (1) | |
10.2 | Employee Stock Ownership Plan and Trust (2) | |
10.3 | 2006 Incentive Stock Option Plan (3) | |
10.4 | 2006 Employee Stock Purchase Plan (3) | |
10.5 | Amendment to the Employee Stock Ownership Plan and Trust (4) | |
10.6 | Letter Agreement dated December 23, 2008, between the Registrant and the United States Department of the Treasury (5) | |
10.7 | Relocation Assistance Agreement dated February 9, 2009, between the Registrant and Brendan P. Duffey (7) | |
10.8 | Nonqualified Deferred Compensation Plan and Supplemental Retirement Plan Agreement dated December 31, 2008, between the Registrant and Roger L. Dick, Brendan P. Duffey, Christy D. Stoner, and Jimmy L. Strayhorn (7) | |
31.1 | Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes- Oxley Act of 2002 (filed herewith) | |
31.2 | Certification of Principal Financial Officer pursuant to Section 302 of the Sarbanes- Oxley Act of 2002 (filed herewith) | |
32 | Certification pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (filed herewith) | |
101 | Interactive data files providing financial information from the Registrants Quarterly Report on Form 10-Q for the quarterly period ended March 31, 2012, in XBRL (eXtensible Business Reporting Language) (8) |
(1) | Incorporated by reference from exhibits to Registrants Registration Statement on Form S-4 (Reg. No. 33-58882). |
(2) | Incorporated by reference to Registrants Annual Report on Form 10-KSB for the Fiscal year ended 1999. |
(3) | Incorporated by reference to Registrants Quarterly Report on Form 10-Q for the Quarter ended June 30, 2007. |
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(4) | Incorporated by reference to Registrants Quarterly Report on Form 10-Q for the Quarter ended September 30, 2008. |
(5) | Incorporated by reference to Registrants current report on Form 8-K, filed with the Securities and Exchange Commission on December 23, 2008. |
(6) | Incorporated by reference to Registrants Quarterly Report on Form 10-Q for the Quarter ended September 30, 2009. |
(7) | Incorporated by reference to Registrants Annual Report on Form 10-K for the Fiscal year ended 2009. |
(8) | Pursuant to Regulation 406T of Regulation S-T, these interactive data files are furnished and not filed or part of a registration statement or prospectus for purposes of section 11 or 12 of the Securities Act of 1933, as amended, or section 18 of the Securities Exchange Act of 1934, as amended, and are otherwise not subject to liability. |
(9) | Incorporated by reference to Registrants Quarterly Report on Form 10-Q for the Quarter ended June 30, 2011. |
-35-
Signatures
Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned who is thereunto duly authorized.
UWHARRIE CAPITAL CORP (Registrant) | ||||||
Date: May 8, 2012 | By: | /s/ Roger L. Dick | ||||
Roger L. Dick | ||||||
President and Chief Executive Officer | ||||||
Date: May 8, 2012 | By: /s/ Robert O. Bratton | |||||
Robert O. Bratton | ||||||
Principal Financial Officer |
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Exhibit Number |
Description of Exhibit | |
4.1 | Registrants Articles of Incorporation (1) | |
3.2 | Registrants By-laws (6) | |
3.2 | Articles of Amendment dated December 19, 2008, regarding Series A and Series B Preferred Stock (5) | |
5 | Form of stock certificate (1) | |
4.2 | Form of certificate for the Series A Preferred stock (5) | |
4.3 | Form of certificate for the Series B Preferred stock (5) | |
4.4 | Warrant dated December 23, 2008, for purchase of share of Series B Preferred stock (5) | |
4.5 | Form of Security Holders Agreement (9) | |
10.9 | Incentive Stock Option Plan, as amended (1) | |
10.10 | Employee Stock Ownership Plan and Trust (2) | |
10.11 | 2006 Incentive Stock Option Plan (3) | |
10.12 | 2006 Employee Stock Purchase Plan (3) | |
10.13 | Amendment to the Employee Stock Ownership Plan and Trust (4) | |
10.14 | Letter Agreement dated December 23, 2008, between the Registrant and the United States Department of the Treasury (5) | |
10.15 | Relocation Assistance Agreement dated February 9, 2009, between the Registrant and Brendan P. Duffey (7) | |
10.16 | Nonqualified Deferred Compensation Plan and Supplemental Retirement Plan Agreement dated December 31, 2008, between the Registrant and Roger L. Dick, Brendan P. Duffey, Christy D. Stoner, and Jimmy L. Strayhorn (7) | |
32.1 | Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 (filed herewith) | |
32.2 | Certification of Principal Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 (filed herewith) | |
33 | Certification pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (filed herewith) | |
101 | Interactive data files providing financial information from the Registrants Quarterly Report on Form 10-Q for the quarterly period ended March 31, 2012, in XBRL(eXtensible Business Reporting Language) (8) |
(1) | Incorporated by reference from exhibits to Registrants Registration Statement on Form S-4 (Reg. No. 33-58882). |
(2) | Incorporated by reference to Registrants Annual Report on Form 10-KSB for the Fiscal year ended 1999. |
(3) | Incorporated by reference to Registrants Quarterly Report on Form 10-Q for the Quarter ended June 30, 2007. |
(4) | Incorporated by reference to Registrants Quarterly Report on Form 10-Q for the Quarter ended September 30, 2008. |
(5) | Incorporated by reference to Registrants current report on Form 8-K, filed with the Securities and Exchange Commission on December 23, 2008. |
(6) | Incorporated by reference to Registrants Quarterly Report on Form 10-Q for the Quarter ended September 30, 2009. |
(7) | Incorporated by reference to Registrants Annual Report on Form 10-K for the Fiscal year ended 2009. |
(8) | Pursuant to Regulation 406T of Regulation S-T, these interactive data files are furnished and not filed or part of a registration statement or prospectus for purposes of section 11 or 12 of the Securities Act of 1933, as amended, or section 18 of the Securities Exchange Act of 1934, as amended, and are otherwise not subject to liability. |
(9) | Incorporated by reference to Registrants Quarterly Report on Form 10-Q for the Quarter ended June 30, 2011. |
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Exhibit 31.1
UWHARRIE CAPITAL CORP
CERTIFICATION OF CHIEF EXECUTIVE OFFICER
Pursuant to Rule 13a-14(a)
I, Roger L. Dick, certify that:
1. | I have reviewed this quarterly report on Form 10-Q for the period ended March 31, 2012 of Uwharrie Capital Corp the registrant; |
2. | Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; |
3. | Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; |
4. | The registrants other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a 15(f) and 15d 15(f)) for the registrant and have: |
a) | Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; |
b) | Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; |
c) | Evaluated the effectiveness of the registrants disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and |
d) | Disclosed in this report any change in the registrants internal control over financial reporting that occurred during the registrants most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, the registrants internal control over financial reporting; and |
5. | The registrants other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrants auditors and the audit committee of the registrants board of directors (or persons performing the equivalent functions): |
a) | All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrants ability to record, process, summarize and report financial information; and |
b) | Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrants internal control over financial reporting. |
Date: May 8, 2012 | /s/ Roger L. Dick | |||
Roger L. Dick | ||||
President and Chief Executive Officer |
Exhibit 31.2
UWHARRIE CAPITAL CORP
CERTIFICATION OF PRINCIPAL FINANCIAL OFFICER
Pursuant to Rule 13a-14(a)
I, Robert O. Bratton, certify that:
1. | I have reviewed this quarterly report on Form 10-Q for the period ended March 31, 2012 of Uwharrie Capital Corp the registrant; |
2. | Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; |
3. | Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; |
4. | The registrants other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a 15(f) and 15d 15(f)) for the registrant and have: |
a) | Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; |
b) | Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; |
c) | Evaluated the effectiveness of the registrants disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and |
d) | Disclosed in this report any change in the registrants internal control over financial reporting that occurred during the registrants most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, the registrants internal control over financial reporting; and |
5. | The registrants other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrants auditors and the audit committee of the registrants board of directors (or persons performing the equivalent functions): |
a) | All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrants ability to record, process, summarize and report financial information; and |
b) | Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrants internal control over financial reporting. |
Date: May 8, 2012 | /s/ Robert O. Bratton | |||
Robert O. Bratton Principal Financial Officer |
Exhibit 32
Certification pursuant to 18 U.S.C. 1350 as adopted pursuant
to Section 906 of the Sarbanes-Oxley Act of 2002
The undersigned each hereby certifies that, to his knowledge, (i) the Form 10-Q filed by Uwharrie Capital Corp (the Issuer) for the quarter ended March 31, 2012, fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934, and (ii) the information contained in that report fairly presents, in all material respects, the financial condition and results of operations of the Issuer on the dates and for the periods presented therein.
Date: May 8, 2012 | /s/ Roger L. Dick | |||
Roger L. Dick | ||||
President and Chief Executive Officer |
Date: May 8, 2012 | /s/ Robert O. Bratton | |||
Robert O. Bratton | ||||
Principal Financial Officer |
Comprehensive Income
|
3 Months Ended |
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Mar. 31, 2012
|
|
Comprehensive Income [Abstract] | |
Comprehensive Income | Note 2 – Comprehensive Income The Company reports as comprehensive income all changes in shareholders' equity during the year from sources other than shareholders. Other comprehensive income refers to all components (revenues, expenses, gains, and losses) of comprehensive income that are excluded from net income. The Company's only component of other comprehensive income is unrealized gains and losses, net of income tax, on investment securities available for sale. |