XXX | QUARTERLY REPORT PURSUANT TO SECTION 13 or 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 | |||
For the quarterly period ended June 30, 2011 | ||||
TRANSITION REPORT PURSUANT TO SECTION 13 or 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 | ||||
For the transition period from | _______ to _______ |
West Virginia | 55-0732247 |
(State or Other Jurisdiction of | (I.R.S. Employer |
Incorporation or Organization) | Identification No.) |
111 East Washington Street | |
PO Box 906, Charles Town WV | 25414-0906 |
(Address of Principal Executive Offices) | (Zip Code) |
Registrant's telephone number, including area code | 304-725-8431 |
Yes | XX | No |
Yes | No |
Large Accelerated Filer
|
Accelerated Filer
|
Non-Accelerated Filer
|
Smaller Reporting Company
|
XX |
Yes | No | XX |
PART I. | FINANCIAL INFORMATION | PAGE | ||
Item 1. | Financial Statements. | |||
Consolidated Balance Sheets as of June 30, 2011 (Unaudited) and December 31, 2010 (Audited) | 3 | |||
Consolidated Statements of Income (Unaudited) for the Three Months Ended June 30, 2011 | ||||
and 2010 and for the Six Months ended June 30, 2011 and 2010 | 4 | |||
Consolidated Statements of Changes in Stockholders’ Equity (Unaudited) for the Six Months | ||||
Ended June 30, 2011 and 2010 | 5 | |||
Consolidated Statements of Cash Flows (Unaudited) for the Six Months Ended June 30, 2011 | ||||
and 2010 | 6 | |||
Notes to Consolidated Financial Statements (Unaudited) | 7 - 24 | |||
Item 2. | Management’s Discussion and Analysis of Financial Condition and Results of Operations. | 24 - 29 | ||
Item 4. | Controls and Procedures. | 30 | ||
Part II. | OTHER INFORMATION | |||
Item 1. | Legal Proceedings. | 30 | ||
Item 2. | Unregistered Sales of Equity Securities and Use of Proceeds. | 30 | ||
Item 4. | (Removed and Reserved). | 30 | ||
Item 5. | Other Information. | 30 | ||
Item 6. | Exhibits. | 31 | ||
Signatures | 32 |
June 30, | December 31, | |||||||
2011 | 2010 | |||||||
Assets: | ||||||||
Cash and due from banks | $ | 2 205 | $ | 2 185 | ||||
Interest-bearing deposits in other financial institutions | 7 847 | 7 995 | ||||||
Federal funds sold | 725 | 2 725 | ||||||
Securities available for sale, at fair value | 55 738 | 42 690 | ||||||
Loans held for sale | - - | 76 | ||||||
Loans, net of allowance for loan losses of $4,113 and | ||||||||
$5,012, respectively | 206 028 | 214 238 | ||||||
Premises and equipment, net | 8 101 | 8 270 | ||||||
Other real estate owned, net of valuation allowance of | ||||||||
$379 and $95, respectively | 7 501 | 6 563 | ||||||
Accrued interest receivable | 902 | 960 | ||||||
Federal Home Loan Bank of Pittsburgh stock | 690 | 765 | ||||||
Other assets | 11 030 | 11 142 | ||||||
Total Assets | $ | 300 767 | $ | 297 609 | ||||
Liabilities and Stockholders’ Equity: | ||||||||
Liabilities: | ||||||||
Deposits | ||||||||
Noninterest-bearing | $ | 26 700 | $ | 26 695 | ||||
Interest-bearing | 232 005 | 230 727 | ||||||
Total Deposits | 258 705 | 257 422 | ||||||
Securities sold under agreements to repurchase | 9 125 | 7 382 | ||||||
Federal Home Loan Bank advances | 2 122 | 2 717 | ||||||
Accrued interest payable | 273 | 361 | ||||||
Other liabilities | 3 011 | 2 951 | ||||||
Total Liabilities | $ | 273 236 | $ | 270 833 | ||||
Stockholders’ Equity: | ||||||||
Common stock, $1 per share par value; 5,000,000 shares | ||||||||
authorized; 3,671,691 shares issued and outstanding | $ | 3 672 | $ | 3 672 | ||||
Surplus | 3 940 | 3 932 | ||||||
Undivided profits | 24 089 | 23 725 | ||||||
Accumulated other comprehensive (loss), net | (1 304 | ) | (1 687 | ) | ||||
$ | 30 397 | $ | 29 642 | |||||
Less cost of shares acquired for the treasury, 281,513 shares | 2 866 | 2 866 | ||||||
Total Stockholders’ Equity | $ | 27 531 | $ | 26 776 | ||||
Total Liabilities and Stockholders’ Equity | $ | 300 767 | $ | 297 609 | ||||
For the Three Months | For the Six Months | |||||||||||||
Ended June 30 | Ended June 30 | |||||||||||||
2011 | 2010 | 2011 | 2010 | |||||||||||
Interest and Dividend Income: | ||||||||||||||
Interest and fees on loans | $ | 2 880 | $ | 3 269 | $ | 5 873 | $ | 6 546 | ||||||
Interest on securities available for sale - taxable | 192 | 216 | 360 | 412 | ||||||||||
Interest on securities available for sale – nontaxable | 55 | 49 | 109 | 98 | ||||||||||
Interest on federal funds sold | - - | 1 | 1 | 2 | ||||||||||
Other interest and dividends | 11 | 4 | 19 | 7 | ||||||||||
Total Interest and Dividend Income | 3 138 | 3 539 | 6 362 | 7 065 | ||||||||||
Interest Expense: | ||||||||||||||
Interest on deposits | 757 | 1 023 | 1 652 | 2 101 | ||||||||||
Interest on securities sold under agreements to repurchase | 16 | 20 | 35 | 40 | ||||||||||
Federal Home Loan Bank advances | 11 | 15 | 22 | 61 | ||||||||||
Total Interest Expense | 784 | 1 058 | 1 709 | 2 202 | ||||||||||
Net Interest Income | 2 354 | 2 481 | 4 653 | 4 863 | ||||||||||
Provision for Loan Losses | 175 | 461 | 599 | 771 | ||||||||||
Net Interest Income after | ||||||||||||||
Provision for Loan Losses | 2 179 | 2 020 | 4 054 | 4 092 | ||||||||||
Noninterest Income: | ||||||||||||||
Trust and financial services | 230 | 227 | 451 | 437 | ||||||||||
Service charges on deposit accounts | 480 | 478 | 909 | 914 | ||||||||||
(Loss) gain on sale of other real estate | (43 | ) | 30 | (70 | ) | 142 | ||||||||
Visa/MC Fees | 195 | 178 | 369 | 329 | ||||||||||
Cash surrender value of life insurance | 59 | 59 | 116 | 118 | ||||||||||
Other operating income | 107 | 121 | 201 | 205 | ||||||||||
Total Noninterest Income | 1 028 | 1 093 | 1 976 | 2 145 | ||||||||||
Noninterest Expenses: | ||||||||||||||
Salaries and employee benefits | 1 247 | 1 142 | 2 483 | 2 402 | ||||||||||
Net occupancy expense of premises | 151 | 144 | 322 | 334 | ||||||||||
Furniture and equipment expenses | 210 | 227 | 410 | 437 | ||||||||||
FDIC assessment | 106 | 154 | 259 | 274 | ||||||||||
Director and committee fees | 47 | 44 | 81 | 75 | ||||||||||
Other professional fees | 64 | 46 | 94 | 68 | ||||||||||
Printing, stationery and supplies | 58 | 67 | 99 | 102 | ||||||||||
Communications | 46 | 47 | 93 | 92 | ||||||||||
ATM and check card expenses | 82 | 71 | 153 | 135 | ||||||||||
Miscellaneous real estate expense | 45 | 9 | 48 | 28 | ||||||||||
Foreclosed property expense | 186 | 110 | 299 | 291 | ||||||||||
Other real estate write downs | 284 | - - | 284 | 17 | ||||||||||
Other operating expenses | 502 | 400 | 927 | 715 | ||||||||||
Total Noninterest Expenses
|
3 028 | 2 461 | 5 552 | 4 970 | ||||||||||
Income before Income Tax Expense
|
179 | 652 | 478 | 1 267 | ||||||||||
Income Tax Expense | 6 | 214 | 48 | 407 | ||||||||||
Net Income
|
$ | 173 | $ | 438 | $ | 430 | $ | 860 | ||||||
Earnings Per Share, basic and diluted | $ | .05 | $ | .13 | $ | .13 | $ | .25 | ||||||
Accumulated | |||||||||||||||||||||||||
Other | |||||||||||||||||||||||||
Common | Undivided | Treasury | Comprehensive | Comprehensive | |||||||||||||||||||||
Stock | Surplus | Profits | Stock | (Loss) | Income | Total | |||||||||||||||||||
Balances, December 31, 2009 | $ | 3 672 | $ | 3 898 | $ | 21 931 | $ | (2 866 | ) | $ | (1 063 | ) | $ | 25 572 | |||||||||||
Comprehensive income | |||||||||||||||||||||||||
Net income | - - | - - | 860 | - - | - - | $ | 860 | 860 | |||||||||||||||||
Other comprehensive income: | |||||||||||||||||||||||||
unrealized holding gains | |||||||||||||||||||||||||
arising during the period | |||||||||||||||||||||||||
(net of tax, $40) | - - | - - | - - | - - | 78 | 78 | 78 | ||||||||||||||||||
Total comprehensive income | $ | 938 | |||||||||||||||||||||||
Stock-based compensation expense | - - | 17 | - - | - - | - - | 17 | |||||||||||||||||||
Balances, June 30, 2010 | $ | 3 672 | $ | 3 915 | $ | 22 791 | $ | (2 866 | ) | $ | (985 | ) | $ | 26 527 | |||||||||||
Balances, December 31, 2010 | $ | 3 672 | $ | 3 932 | $ | 23 725 | $ | (2 866 | ) | $ | (1 687 | ) | $ | 26 776 | |||||||||||
Comprehensive income | |||||||||||||||||||||||||
Net income | - - | - - | 430 | - - | - - | $ | 430 | 430 | |||||||||||||||||
Other comprehensive income: | |||||||||||||||||||||||||
unrealized holding gains | |||||||||||||||||||||||||
arising during the period | |||||||||||||||||||||||||
(net of tax, $197) | - - | - - | - - | - - | 383 | 383 | 383 | ||||||||||||||||||
Total comprehensive income | $ | 813 | |||||||||||||||||||||||
Stock-based compensation expense | - - | 8 | - - | - - | - - | 8 | |||||||||||||||||||
Cash dividends ($.01 per share) | - - | - - | (66 | ) | - - | - - | (66 | ) | |||||||||||||||||
Balances, June 30, 2011 | $ | 3 672 | $ | 3 940 | $ | 24 089 | $ | (2 866 | ) | $ | (1 304 | ) | $ | 27 531 | |||||||||||
For the Six Months Ended | ||||||||
June 30 | June 30 | |||||||
2011 | 2010 | |||||||
CASH FLOWS FROM OPERATING ACTIVITIES | ||||||||
Net income | $ | 430 | $ | 860 | ||||
Adjustments to reconcile net income to net cash provided by | ||||||||
operating activities: | ||||||||
Provision for loan losses | 599 | 771 | ||||||
Depreciation | 245 | 281 | ||||||
Additional write down of other real estate | 284 | 17 | ||||||
Discount accretion and premium amortization on securities, net | 150 | 82 | ||||||
Loss (Gain) on sale of other real estate | 70 | (142 | ) | |||||
Loss on disposal of fixed assets | - - | 2 | ||||||
Stock compensation expense | 8 | 17 | ||||||
Proceeds from sale of loans | 686 | 1 091 | ||||||
Origination of loans for sale | (610 | ) | (994 | ) | ||||
Changes in assets and liabilities: | ||||||||
Decrease (increase) in accrued interest receivable | 58 | (39 | ) | |||||
(Increase) decrease in other assets | (10 | ) | 303 | |||||
Decrease in accrued interest payable | (88 | ) | (12 | ) | ||||
Increase in other liabilities | 27 | 1 462 | ||||||
Net cash provided by operating activities | $ | 1 849 | $ | 3 699 | ||||
CASH FLOWS FROM INVESTING ACTIVITIES | ||||||||
Proceeds from maturity of securities available for sale | $ | 2 915 | $ | - - | ||||
Proceeds from call of securities available for sale | 9 000 | 19 545 | ||||||
Purchase of securities available for sale | (24 533 | ) | (24 875 | ) | ||||
Net decrease in loans | 4 929 | 4 520 | ||||||
Purchases of premises and equipment | (77 | ) | (42 | ) | ||||
Proceeds from sale of other real estate | 1 391 | 1 353 | ||||||
Net cash (used in) provided by investing activities | $ | (6 375 | ) | $ | 501 | |||
CASH FLOWS FROM FINANCING ACTIVITIES | ||||||||
Net increase (decrease) in noninterest-bearing deposits | $ | 5 | $ | (303 | ) | |||
Net increase (decrease) in interest-bearing deposits | 1 278 | (1 087 | ) | |||||
Net purchase of securities sold under agreements to repurchase | 1 743 | 269 | ||||||
Net repayment of Federal Home Loan Bank advances | (595 | ) | (549 | ) | ||||
Cash dividends | (33 | ) | - - | |||||
Net cash provided by (used in) financing activities | $ | 2 398 | $ | (1 670 | ) | |||
(Decrease) increase in cash and cash equivalents | $ | (2 128 | ) | $ | 2 530 | |||
CASH AND CASH EQUIVALENTS | ||||||||
Beginning | 12 905 | 12 623 | ||||||
Ending | $ | 10 777 | $ | 15 153 | ||||
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION | ||||||||
Cash payments for: | ||||||||
Interest | $ | 1 797 | $ | 2 214 | ||||
Income taxes | $ | - - | $ | - - | ||||
SUPPLEMENTAL SCHEDULE OF NON-CASH INVESTING | ||||||||
AND FINANCING ACTIVITIES | ||||||||
Unrealized gain on securities available for sale | $ | 580 | $ | 118 | ||||
Loans transferred to other real estate owned | $ | 2 683 | $ | 2 226 | ||||
Loans made on sale of other real estate | $ | 68 | $ | 298 | ||||
Dividends declared | $ | 33 | $ | - - | ||||
1. | In the opinion of management, the accompanying financial statements contain all adjustments (consisting of only normal recurring accruals) necessary to present fairly the financial position as of June 30, 2011 and December 31, 2010, and the results of operations for the three months and six months ended June 30, 2011 and 2010, and cash flows and statements of changes in stockholders’ equity for the six months ended June 30, 2011 and 2010. The statements should be read in conjunction with Notes to Consolidated Financial Statements included in the Potomac Bancshares, Inc. annual report for the year ended December 31, 2010. The results of operations for the three month and six month periods ended June 30, 2011 are not necessarily indicative of the results to be expected for the full year. |
The consolidated financial statements of Potomac Bancshares, Inc. (the “company”) and its wholly-owned subsidiary, Bank of Charles Town (the “bank”), include the accounts of both companies. All material inter-company balances and transactions have been eliminated in consolidation. | |
Certain reclassifications have been made to prior period amounts to conform to the current year presentation. | |
In preparing these financial statements, the company has evaluated events and transactions for potential recognition or disclosure through the date the financial statements were issued. | |
2. | Stock-Based Compensation |
The 2003 Stock Incentive Plan was approved by stockholders on May 13, 2003, which authorized up to 183,600 shares of common stock to be used in the granting of incentive options to employees and directors. On April 24, 2007, the stockholders approved an additional 250,000 shares of common stock to be used in the granting of incentive options to employees and directors. This is the first and only stock incentive plan adopted by the company. Under the plan, the option price cannot be less than the fair market value of the stock on the date granted. An option’s maximum term is ten years from the date of grant. Employee options granted under the plan are subject to a five year vesting schedule. Director options immediately vest. | |
Incremental stock-based compensation expense recognized for the six month periods ending June 30, 2011 and 2010 was $8 thousand and $17 thousand, respectively. | |
Stock option compensation expense is the estimated fair value of options granted amortized on a straight-line basis over the requisite service period for each separately vesting portion of the award. Fair value is estimated using the Black-Scholes option-pricing model. There were no options granted during the first six months of 2011 and 2010. | |
Stock option plan activity for the six months ended June 30, 2011 is summarized below:
|
Weighted | ||||||||||
Average | ||||||||||
Weighted | Remaining | |||||||||
Average | Contractual | Aggregate | ||||||||
Exercise | Life | Intrinsic | ||||||||
Shares | Price | (in years) | Value | |||||||
Options outstanding, January 1, 2011 | 120 974 | $ | 14.76 | |||||||
Granted | - - | - - | ||||||||
Exercised | - - | - - | ||||||||
Canceled or expired | - - | - - | ||||||||
Options outstanding, June 30, 2011 | 120 974 | 14.76 | 4 | $ | - - | |||||
Options exercisable, June 30, 2011 | 116 896 | 14.73 | 4 | $ | - - | |||||
The aggregate intrinsic value of a stock option in the table above represents the total pre-tax intrinsic value (the amount by which the current market value of the underlying stock exceeds the exercise price of the option) that would have been received by the option holders had all option holders exercised their options on June 30, 2011. The aggregate intrinsic values change based on changes in the market value of the company’s stock.
As of June 30, 2011 there was $8 thousand of total unrecognized compensation expense related to nonvested stock options, which will be recognized over the remaining requisite service period.
|
3.
|
Securities
|
The amortized cost and fair value of securities available for sale as of June 30, 2011 and December 31, 2010 (in thousands) are as follows:
|
June 30, 2011 | |||||||||||||
Gross | Gross | ||||||||||||
Amortized | Unrealized | Unrealized | Fair | ||||||||||
Cost | Gains | (Losses) | Value | ||||||||||
Obligations of U. S. Government | |||||||||||||
sponsored agencies | $ | 47 560 | $ | 420 | $ | (4 | ) | $ | 47 976 | ||||
State and municipal obligations | 6 653 | 142 | (7 | ) | 6 788 | ||||||||
Equity securities | 1 098 | - - | (124 | ) | 974 | ||||||||
$ | 55 311 | $ | 562 | $ | (135 | ) | $ | 55 738 | |||||
December 31, 2010 | |||||||||||||
Gross | Gross | ||||||||||||
Amortized | Unrealized | Unrealized | Fair | ||||||||||
Cost | Gains | (Losses) | Value | ||||||||||
Obligations of U. S. Government | |||||||||||||
sponsored agencies | $ | 36 207 | $ | 241 | $ | (160 | ) | $ | 36 288 | ||||
State and municipal obligations | 5 537 | 71 | (84 | ) | 5 524 | ||||||||
Equity securities | 1 100 | - - | (222 | ) | 878 | ||||||||
$ | 42 844 | $ | 312 | $ | (466 | ) | $ | 42 690 | |||||
The primary purpose of the investment portfolio is to generate income and meet liquidity needs of the company through readily saleable financial instruments. The portfolio is made up of fixed rate bonds, whose prices move inversely with rates. At the end of any accounting period, the investment portfolio has unrealized gains and losses. The company monitors the portfolio, which is subject to liquidity needs, market rate changes and credit risk changes, to see if adjustments are needed. The primary concern in a loss situation is the credit quality of the business behind the instrument. There are six accounts in the consolidated portfolio that have losses at June 30, 2011. The primary cause of the temporary impairments in the company’s investments in debt securities was fluctuations in interest rates. Because the company intends to hold these investments in debt securities to maturity and it is more likely than not that the company will not be required to sell these investments before a recovery of unrealized losses, the company does not consider these investments to be other-than-temporarily impaired at June 30, 2011 and no impairment has been recognized.
There are two equity security investments in the company’s portfolio with losses at June 30, 2011. The company considers these investments to be temporarily impaired at June 30, 2011 and is recognizing no impairment. These are community bank stock related holdings.
U.S. Government sponsored agencies include the Federal National Mortgage Association and the Federal Home Loan Mortgage Corporation debt securities with a fair value of $20.4 million as of June 30,2011 and $11.7 million as of December 31, 2010
The following table summarizes the fair value and gross unrealized losses for securities aggregated by investment category and length of time that individual securities have been in a continuous gross unrealized loss position as of June 30, 2011 and December 31, 2010 (in thousands).
|
June 30, 2011 | ||||||||||||||||||||
Less than 12 months | More than 12 months | Total | ||||||||||||||||||
Gross | Gross | Gross | ||||||||||||||||||
Unrealized | Unrealized | Unrealized | ||||||||||||||||||
Fair Value | Losses | Fair Value | Losses | Fair Value | Losses | |||||||||||||||
Obligations of U.S. Government | ||||||||||||||||||||
sponsored agencies | $ | 2 996 | $ | (4 | ) | $ | - - | $ | - - | $ | 2 996 | $ | (4 | ) | ||||||
State and municipal obligations | 1 402 | (7 | ) | - - | - - | 1 402 | (7 | ) | ||||||||||||
Equity securities | 141 | (124 | ) | - - | - - | 141 | (124 | ) | ||||||||||||
Total | $ | 4 539 | $ | (135 | ) | $ | - - | $ | - - | $ | 4 539 | $ | (135 | ) | ||||||
3. | Securities (Continued) |
December 31, 2010 | |||||||||||||||||||||
Less than 12 months | More than 12 months | Total | |||||||||||||||||||
Gross | Gross | Gross | |||||||||||||||||||
Unrealized | Unrealized | Unrealized | |||||||||||||||||||
Fair Value | Losses | Fair Value | Losses | Fair Value | Losses | ||||||||||||||||
Obligations of U.S. Government | |||||||||||||||||||||
sponsored agencies | $ | 9 899 | $ | (147 | ) | $ | 1 108 | $ | (13 | ) | $ | 11 007 | $ | (160 | ) | ||||||
State and municipal obligations | 1 912 | (84 | ) | - - | - - | 1 912 | (84 | ) | |||||||||||||
Equity securities | 878 | (222 | ) | - - | - - | 878 | (222 | ) | |||||||||||||
Total | $ | 12 689 | $ | (453 | ) | $ | 1 108 | $ | (13 | ) | $ | 13 797 | $ | (466 | ) | ||||||
The company’s investment in Federal Home Loan Bank (FHLB) stock totaled $690 thousand at June 30, 2011. FHLB stock is generally viewed as a long-term investment and as a restricted investment security, which is carried at cost, because there is no market for the stock, other than the FHLBs or member institutions. Therefore, when evaluating FHLB stock for impairment, its value is based on the ultimate recoverability of the par value rather than by recognizing temporary declines in value. Despite the FHLB’s temporary suspension of repurchases of excess capital stock on a regular basis, the company does not consider this investment to be other-than-temporarily impaired at June 30, 2011 and no impairment has been recognized. FHLB stock is shown as a separate line item on the balance sheet and is not a part of the available for sale securities portfolio. | |
At June 30, 2011 and December 31, 2010, securities with carrying values of approximately $17.6 million and $24 million, respectively, were pledged to secure municipal deposits, securities sold under agreements to repurchase, other borrowings, and for other purposes as required or permitted by law. | |
4. | Loans |
The loan portfolio, stated at face amount, is composed of the following: | |
June 30, | December 31, | ||||
2011 | 2010 | ||||
(in thousands) | |||||
Commercial – non real estate | |||||
Commercial and industrial | $ | 8 362 | $ | 7 920 | |
Commercial real estate | |||||
Owner occupied | 63 286 | 67 517 | |||
Non-owner occupied | 12 978 | 12 098 | |||
Construction | |||||
Residential | 4 598 | 5 922 | |||
Commercial | 17 683 | 18 252 | |||
Real Estate | |||||
Farmland | 692 | 792 | |||
Residential | |||||
Revolving open end | 5 101 | 5 975 | |||
1 to 4 family – first liens | 79 177 | 82 691 | |||
1 to 4 family – junior liens | 8 159 | 8 871 | |||
5 or more family | 3 131 | 1 976 | |||
Consumer loans | |||||
Titled vehicles | 3 108 | 3 713 | |||
Deposit accounts | 815 | 737 | |||
All other consumer loans | 2 617 | 2 350 | |||
All other loans | 434 | 436 | |||
Total loans | 210 141 | 219 250 | |||
Less: allowance for loan losses | 4 113 | 5 012 | |||
$ | 206 028 | $ | 214 238 | ||
4. | Loans (Continued) |
The FHLB of Pittsburgh has a blanket lien on all the company’s loans except those loans specifically pledged to the Federal Reserve and removed from the FHLB lien. Currently, the FHLB lien is securing an advance to the company in the amount of $2.1 million and letters of credit issued on behalf of a customer of the company in the amount of $11 million. | |
5. | Allowance for Loan Losses |
The following is a summary of transactions (in thousands) in the allowance for loan losses: | |
June 30, | December 31, | June 30, | |||||||||
2011 | 2010 | 2010 | |||||||||
Balance at beginning of period | $ | 5 012 | $ | 5 718 | $ | 5 718 | |||||
Provision charged to operating expense | 599 | 1 599 | 771 | ||||||||
Recoveries added to the allowance | 93 | 321 | 122 | ||||||||
Loan losses charged to the allowance | (1 591 | ) | (2 626 | ) | (1 034 | ) | |||||
Balance at end of period | $ | 4 113 | $ | 5 012 | $ | 5 577 | |||||
Commercial | All | ||||||||||||||||||||||||||||||||||
Farmland | Commercial | Real Estate | Construction | Consumer | Residential | Other | Unallocated | Total | |||||||||||||||||||||||||||
Beginning balance | $ | 166 | $ | 239 | $ | 859 | $ | 2 022 | $ | 20 | $ | 1 691 | $ | 1 | $ | 14 | $ | 5 012 | |||||||||||||||||
Charge-offs | - - | (12 | ) | (59 | ) | (581 | ) | (76 | ) | (863 | ) | - - | - - | (1 591 | ) | ||||||||||||||||||||
Recoveries | - - | 11 | 6 | 5 | 65 | 6 | - - | - - | 93 | ||||||||||||||||||||||||||
Provision | (155 | ) | (42 | ) | 64 | (395 | ) | 11 | 1 129 | - - | (13 | ) | 599 | ||||||||||||||||||||||
Ending balance | $ | 11 | $ | 196 | $ | 870 | $ | 1 051 | $ | 20 | $ | 1 963 | $ | 1 | $ | 1 | $ | 4 113 | |||||||||||||||||
Individually evaluated | |||||||||||||||||||||||||||||||||||
for impairment | $ | - - | $ | 172 | $ | 547 | $ | 804 | $ | - - | $ | 633 | $ | - - | $ | - - | $ | 2 156 | |||||||||||||||||
Collectively evaluated | |||||||||||||||||||||||||||||||||||
for impairment | 11 | 24 | 323 | 247 | 20 | 1 330 | 1 | 1 | 1 957 | ||||||||||||||||||||||||||
$ | 11 | $ | 196 | $ | 870 | $ | 1 051 | $ | 20 | $ | 1 963 | $ | 1 | $ | 1 | $ | 4 113 | ||||||||||||||||||
Financing receivables: | |||||||||||||||||||||||||||||||||||
Ending balance | $ | 692 | $ | 8 362 | $ | 76 264 | $ | 22 281 | $ | 6 540 | $ | 95 568 | $ | 434 | $ | - - | $ | 210 141 | |||||||||||||||||
Ending balance: | |||||||||||||||||||||||||||||||||||
Individually evaluated | |||||||||||||||||||||||||||||||||||
for impairment | $ | - - | $ | 247 | $ | 9 107 | $ | 7 181 | $ | 21 | $ | 6 210 | $ | - - | $ | - - | $ | 22 766 | |||||||||||||||||
Collectively evaluated | |||||||||||||||||||||||||||||||||||
for impairment | 692 | 8 115 | 67 157 | 15 100 | 6 519 | 89 358 | 434 | - - | 187 375 | ||||||||||||||||||||||||||
Total | $ | 692 | $ | 8 362 | $ | 76 264 | $ | 22 281 | $ | 6 540 | $ | 95 568 | $ | 434 | $ | - - | $ | 210 141 | |||||||||||||||||
5. | Allowance for Loan Losses (Continued) |
Commercial | All | |||||||||||||||||||||||||
Farmland | Commercial | Real Estate | Construction | Consumer | Residential | Other | Unallocated | Total | ||||||||||||||||||
Ending balance | $ | 166 | $ | 239 | $ | 859 | $ | 2 022 | $ | 20 | $ | 1 691 | $ | 1 | $ | 14 | $ | 5 012 | ||||||||
Individually evaluated | ||||||||||||||||||||||||||
for impairment | $ | 161 | $ | 217 | $ | 528 | $ | 1 812 | $ | - - | $ | 429 | $ | - - | $ | - - | $ | 3 147 | ||||||||
Collectively evaluated | ||||||||||||||||||||||||||
for impairment | 5 | 22 | 331 | 210 | 20 | 1 262 | 1 | 14 | 1 865 | |||||||||||||||||
$ | 166 | $ | 239 | $ | 859 | $ | 2 022 | $ | 20 | $ | 1 691 | $ | 1 | $ | 14 | $ | 5 012 | |||||||||
Financing receivables: | ||||||||||||||||||||||||||
Ending balance | $ | 792 | $ | 7 920 | $ | 79 615 | $ | 24 174 | $ | 6 800 | $ | 99 513 | $ | 436 | $ | - - | $ | 219 250 | ||||||||
Ending balance: | ||||||||||||||||||||||||||
Individually evaluated | ||||||||||||||||||||||||||
for impairment | $ | 539 | $ | 367 | $ | 9 398 | $ | 11 484 | $ | - - | $ | 2 874 | $ | - - | $ | - - | $ | 24 662 | ||||||||
Collectively evaluated | ||||||||||||||||||||||||||
for impairment | 253 | 7 553 | 70 217 | 12 690 | 6 800 | 96 639 | 436 | - - | 194 588 | |||||||||||||||||
Total | $ | 792 | $ | 7 920 | $ | 79 615 | $ | 24 174 | $ | 6 800 | $ | 99 513 | $ | 436 | $ | - - | $ | 219 250 | ||||||||
Special | Sub- | ||||||||||||||
Internal Risk Rating Grades | Pass | Mention | Standard | Doubtful | Loss | ||||||||||
Commercial – non real estate | |||||||||||||||
Commercial and industrial | $ | 7 966 | $ | 149 | $ | - - | $ | 241 | $ | 6 | |||||
Commercial real estate | |||||||||||||||
Owner occupied | 50 429 | 3 880 | 3 159 | 5 818 | - - | ||||||||||
Non-owner occupied | 7 058 | 5 862 | - - | 58 | - - | ||||||||||
Construction | |||||||||||||||
Residential | 2 052 | 1 380 | 508 | - - | 658 | ||||||||||
Commercial | 11 633 | 333 | 4 274 | 457 | 986 | ||||||||||
Real estate | |||||||||||||||
Farmland | 692 | - - | - - | - - | - - | ||||||||||
Consumer | |||||||||||||||
Titled vehicles | N/A | N/A | N/A | N/A | N/A | ||||||||||
Deposit accounts | N/A | N/A | N/A | N/A | N/A | ||||||||||
All other | N/A | N/A | N/A | N/A | N/A | ||||||||||
Residential | |||||||||||||||
Revolving open end | N/A | - - | 335 | 23 | N/A | ||||||||||
1-4 family – first liens | N/A | 3 177 | 895 | 1 052 | 1 147 | ||||||||||
1-4 family – junior liens | N/A | 105 | - - | 173 | - - | ||||||||||
5 or more family | N/A | 302 | - - | - - | - - | ||||||||||
Totals | $ | 79 830 | $ | 15 188 | $ | 9 171 | $ | 7 822 | $ | 2 797 | |||||
As a matter of practice, we do not risk rate consumer or residential mortgage loans. Any of these loans listed in the risk rating table above are associated with commercial loans that have been risk rated as per our policy. Once a loan is designated as a loss, it will usually be cleared from the loan portfolio within 90 days. The majority of the loss loans above are in process of foreclosure and will be transferred to other real estate owned (including possible charge-offs) when foreclosures are completed. |
5. | Allowance for Loan Losses (Continued) |
Non Risk Rated Loans | Performing | Nonperforming | ||||
Consumer – non real estate | ||||||
Titled vehicles | $ | 3 101 | $ | 7 | ||
Deposit accounts | 815 | - - | ||||
All other | 2 614 | 3 | ||||
Residential | ||||||
Revolving open end | 4 731 | 12 | ||||
1-4 family – first liens | 71 861 | 1 045 | ||||
1-4 Family – junior liens | 7 881 | - - | ||||
5 or more family | 2 829 | - - | ||||
All other | 434 | - - | ||||
Totals | $ | 94 266 | $ | 1 067 | ||
Special | Sub- | ||||||||||||||
Internal Risk Rating Grades | Pass | Mention | Standard | Doubtful | Loss | ||||||||||
Commercial – non real estate | |||||||||||||||
Commercial and industrial | $ | 7 371 | $ | 180 | $ | 95 | $ | 106 | $ | 166 | |||||
Commercial real estate | |||||||||||||||
Owner occupied | 53 078 | 5 041 | 3 829 | 5 375 | 194 | ||||||||||
Non-owner occupied | 11 470 | 628 | - - | - - | - - | ||||||||||
Construction | |||||||||||||||
Residential | 282 | 489 | 4 005 | 1 095 | 51 | ||||||||||
Commercial | 10 348 | 2 789 | 3 575 | 1 363 | - - | ||||||||||
Real estate | |||||||||||||||
Farmland | 253 | - - | - - | 539 | - - | ||||||||||
Consumer | |||||||||||||||
Titled vehicles | N/A | N/A | N/A | N/A | N/A | ||||||||||
Deposit accounts | N/A | N/A | N/A | N/A | N/A | ||||||||||
All other | N/A | N/A | N/A | N/A | N/A | ||||||||||
Residential | |||||||||||||||
Revolving open end | N/A | N/A | N/A | N/A | N/A | ||||||||||
1-4 family – first liens | N/A | 3 234 | 956 | 1 434 | 242 | ||||||||||
1-4 family – junior liens | N/A | 187 | 42 | 175 | 25 | ||||||||||
5 or more family | N/A | 308 | - - | - - | - - | ||||||||||
Totals | $ | 82 802 | $ | 12 856 | $ | 12 502 | $ | 10 087 | $ | 678 | |||||
As a matter of practice, we do not risk rate consumer or residential mortgage loans. Any of these loans listed in the risk rating table above are associated with commercial loans that have been risk rated as per our policy. Once a loan is designated as a loss, it will usually be cleared from the loan portfolio within 90 days. The majority of the loss loans above are in process of foreclosure and will be transferred to other real estate owned (including possible charge-offs) when foreclosures are completed. |
Non Risk Rated Loans | Performing | Nonperforming | ||||
Consumer – non real estate | ||||||
Titled vehicles | $ | 3 705 | $ | 8 | ||
Deposit accounts | 737 | - - | ||||
All other | 2 345 | 7 | ||||
Residential | ||||||
Revolving open end | 5 962 | 13 | ||||
1-4 family – first liens | 75 901 | 1 101 | ||||
1-4 Family – junior liens | 8 442 | - - | ||||
5 or more family | 1 668 | - - | ||||
All other | 436 | - - | ||||
Totals | $ | 99 196 | $ | 1 129 | ||
5. | Allowance for Loan Losses (Continued) |
With no related allowance: | |||||||||||||||
Average | Interest | ||||||||||||||
Unpaid | Recorded | Related | Recorded | Income | |||||||||||
Principal | Investment | Allowance | Investment | Recognized | |||||||||||
Commercial – non real estate | |||||||||||||||
Commercial and industrial | $ | 75 | $ | 75 | $ | N/A | $ | 97 | $ | 2 | |||||
Commercial real estate | |||||||||||||||
Owner occupied | 4 365 | 4 339 | N/A | 3 878 | 233 | ||||||||||
Non-owner occupied | - - | - - | N/A | 15 | - - | ||||||||||
Construction | |||||||||||||||
Residential | 667 | 658 | N/A | 1 187 | 21 | ||||||||||
Commercial | 4 796 | 4 771 | N/A | 3 252 | 307 | ||||||||||
Real estate | |||||||||||||||
Farmland | - - | - - | N/A | - - | - - | ||||||||||
Residential | |||||||||||||||
Revolving open end | - - | - - | N/A | 60 | - - | ||||||||||
1 to 4 family – first liens | 3 005 | 2 984 | N/A | 1 500 | 42 | ||||||||||
1 to 4 family – junior liens | 538 | 536 | N/A | 247 | 15 | ||||||||||
5 or more family | - - | - - | N/A | - - | - - | ||||||||||
Consumer | |||||||||||||||
Titled vehicles | - - | - - | N/A | - - | - - | ||||||||||
Deposit accounts | - - | - - | N/A | - - | - - | ||||||||||
All other consumer | - - | - - | N/A | - - | - - | ||||||||||
All other | 21 | 21 | N/A | 4 | 1 | ||||||||||
$ | 13 467 | $ | 13 384 | $ | N/A | $ | 10 240 | $ | 621 | ||||||
With an allowance recorded: | |||||||||||||||
Average | Interest | ||||||||||||||
Unpaid | Recorded | Related | Recorded | Income | |||||||||||
Principal | Investment | Allowance | Investment | Recognized | |||||||||||
Commercial – non real estate | |||||||||||||||
Commercial and industrial | $ | 174 | $ | 172 | $ | 172 | $ | 229 | $ | 8 | |||||
Commercial real estate | |||||||||||||||
Owner occupied | 4 762 | 4 710 | 525 | 4 908 | 394 | ||||||||||
Non-owner occupied | 58 | 58 | 22 | 34 | 1 | ||||||||||
Construction | |||||||||||||||
Residential | 519 | 507 | 167 | 2 411 | 7 | ||||||||||
Commercial | 1 284 | 1 245 | 637 | 3 287 | 27 | ||||||||||
Real estate | |||||||||||||||
Farmland | - - | - - | - - | 323 | - - | ||||||||||
Residential | |||||||||||||||
Revolving open end | 363 | 358 | 28 | 76 | 19 | ||||||||||
1 to 4 family – first liens | 2 370 | 2 332 | 605 | 1 891 | 82 | ||||||||||
1 to 4 family – junior liens | - - | - - | - - | 100 | - - | ||||||||||
5 or more family | - - | - - | - - | - - | - - | ||||||||||
Consumer | |||||||||||||||
Titled vehicles | - - | - - | - - | - - | - - | ||||||||||
Deposit accounts | - - | - - | - - | - - | - - | ||||||||||
All other consumer | - - | - - | - - | - - | - - | ||||||||||
All other | - - | - - | - - | - - | - - | ||||||||||
$ | 9 530 | $ | 9 382 | $ | 2 156 | $ | 13 259 | $ | 538 | ||||||
Totals: | |||||||||||||||
Commercial – non real estate | $ | 249 | $ | 247 | $ | 172 | $ | 326 | $ | 10 | |||||
Commercial real estate | 9 185 | 9 107 | 547 | 8 835 | 628 | ||||||||||
Construction | 7 266 | 7 181 | 804 | 10 137 | 362 | ||||||||||
Real estate – farmland | - - | - - | - - | 323 | - - | ||||||||||
Residential | 6 276 | 6 210 | 633 | 3 874 | 158 | ||||||||||
Consumer | 21 | 21 | - - | 4 | 1 | ||||||||||
All other | - - | - - | - - | - - | - - | ||||||||||
$ | 22 997 | $ | 22 766 | $ | 2 156 | $ | 23 499 | $ | 1 159 | ||||||
5. | Allowance for Loan Losses (Continued) |
With no related allowance: | |||||||||||||||
Average | Interest | ||||||||||||||
Unpaid | Recorded | Related | Recorded | Income | |||||||||||
Principal | Investment | Allowance | Investment | Recognized | |||||||||||
Commercial – non real estate | |||||||||||||||
Commercial and industrial | $ | 117 | $ | 95 | $ | N/A | $ | 53 | $ | - - | |||||
Commercial real estate | |||||||||||||||
Owner occupied | 4 206 | 4 256 | N/A | 3 591 | 158 | ||||||||||
Non-owner occupied | 75 | - - | N/A | 15 | - - | ||||||||||
Construction | |||||||||||||||
Residential | 1 188 | 1 183 | N/A | 1 769 | 52 | ||||||||||
Commercial | 2 641 | 2 631 | N/A | 3 655 | 112 | ||||||||||
Real estate | |||||||||||||||
Farmland | - - | - - | N/A | - - | - - | ||||||||||
Residential | |||||||||||||||
Revolving open end | - - | - - | N/A | - - | - - | ||||||||||
1 to 4 family – first liens | 1 259 | 1 242 | N/A | 1 351 | 15 | ||||||||||
1 to 4 family – junior liens | 175 | 175 | N/A | 142 | 3 | ||||||||||
5 or more family | - - | - - | N/A | - - | - - | ||||||||||
Consumer | |||||||||||||||
Titled vehicles | - - | - - | N/A | - - | - - | ||||||||||
Deposit accounts | - - | - - | N/A | - - | - - | ||||||||||
All other consumer | - - | - - | N/A | - - | - - | ||||||||||
All other | - - | - - | N/A | - - | - - | ||||||||||
$ | 9 661 | $ | 9 582 | $ | N/A | $ | 10 576 | $ | 340 | ||||||
With an allowance recorded: | |||||||||||||||
Average | Interest | ||||||||||||||
Unpaid | Recorded | Related | Recorded | Income | |||||||||||
Principal | Investment | Allowance | Investment | Recognized | |||||||||||
Commercial – non real estate | |||||||||||||||
Commercial and industrial | $ | 274 | $ | 272 | $ | 217 | $ | 355 | $ | 6 | |||||
Commercial real estate | |||||||||||||||
Owner occupied | 5 201 | 5 142 | 528 | 4 972 | 272 | ||||||||||
Non-owner occupied | - - | - - | - - | - - | - - | ||||||||||
Construction | |||||||||||||||
Residential | 2 786 | 2 767 | 600 | 3 910 | 175 | ||||||||||
Commercial | 4 924 | 4 903 | 1 212 | 3 242 | 216 | ||||||||||
Real estate | |||||||||||||||
Farmland | 549 | 539 | 161 | 547 | - - | ||||||||||
Residential | |||||||||||||||
Revolving open end | - - | - - | - - | - - | - - | ||||||||||
1 to 4 family – first liens | 1 412 | 1 390 | 362 | 1 186 | 56 | ||||||||||
1 to 4 family – junior liens | 71 | 67 | 67 | 220 | - - | ||||||||||
5 or more family | - - | - - | - - | - - | - - | ||||||||||
Consumer | |||||||||||||||
Titled vehicles | - - | - - | - - | - - | - - | ||||||||||
Deposit accounts | - - | - - | - - | - - | - - | ||||||||||
All other consumer | - - | - - | - - | 4 | - - | ||||||||||
All other | - - | - - | - - | - - | - - | ||||||||||
$ | 15 217 | $ | 15 080 | $ | 3 147 | $ | 14 436 | $ | 725 | ||||||
Totals: | |||||||||||||||
Commercial – non real estate | $ | 391 | $ | 367 | $ | 217 | $ | 408 | $ | 6 | |||||
Commercial real estate | 9 482 | 9 398 | 528 | 8 578 | 430 | ||||||||||
Construction | 11 539 | 11 484 | 1 812 | 12 576 | 555 | ||||||||||
Real estate – farmland | 549 | 539 | 161 | 547 | - - | ||||||||||
Residential | 2 917 | 2 874 | 429 | 2 899 | 74 | ||||||||||
Consumer | - - | - - | - - | 4 | - - | ||||||||||
All other | - - | - - | - - | - - | - - | ||||||||||
$ | 24 878 | $ | 24 662 | $ | 3 147 | $ | 25 012 | $ | 1 065 | ||||||
5. | Allowance for Loan Losses (Continued) |
June 30, 2011 | |||||||||
Pre- | Post- | ||||||||
Modification | Modification | ||||||||
Number | Outstanding | Outstanding | |||||||
Of | Recorded | Recorded | |||||||
Contracts | Investment | Investment | |||||||
Troubled Debt Restructurings | |||||||||
Commercial – non real estate | |||||||||
Commercial and industrial | $ | - - | $ | - - | $ | - - | |||
Commercial real estate | |||||||||
Owner Occupied | 2 | 72 | 72 | ||||||
Non owner occupied | - - | - - | - - | ||||||
Construction | |||||||||
Residential | - - | - - | - - | ||||||
Commercial | 5 | 301 | 299 | ||||||
Real Estate | |||||||||
Farmland | - - | - - | - - | ||||||
Residential | |||||||||
Revolving open end 1 to 4 family | - - | - - | - - | ||||||
1 to 4 family – first liens | 16 | 2 455 | 2 222 | ||||||
1 to 4 family – junior liens | 10 | 367 | 362 | ||||||
5 or more family | - - | - - | - - | ||||||
Consumer | |||||||||
Titled Vehicles | - - | - - | - - | ||||||
Deposit Accounts | - - | - - | - - | ||||||
All other consumer | 1 | 22 | 21 | ||||||
All Other | - - | - - | - - | ||||||
Totals | $ | 34 | $ | 3 217 | $ | 2 976 | |||
5. | Allowance for Loan Losses (Continued) |
Recorded reserves for impaired loans total $2.2 million compared to total nonaccrual loans of $4.3 million. These loans are kept under constant scrutiny by the loan officers and credit administration. | |
90 Days | ||||||||||||||||||||||||
30-59 | 60-89 | 90 Days | Past Due | |||||||||||||||||||||
Days | Days | or more | Total | Total | Still | Non- | ||||||||||||||||||
Past Due | Past Due | Past Due | Past Due | Current | Loans | Accruing | Accrual | |||||||||||||||||
Commercial – non real estate | ||||||||||||||||||||||||
Commercial and industrial | $ | 34 | $ | - - | $ | 8 | $ | 42 | $ | 8 320 | $ | 8 362 | $ | - - | $ | 8 | ||||||||
Commercial real estate | ||||||||||||||||||||||||
Owner Occupied | - - | 590 | - - | 590 | 62 696 | 63 286 | - - | - - | ||||||||||||||||
Non owner occupied | 334 | - - | - - | 334 | 12 644 | 12 978 | - - | - - | ||||||||||||||||
Construction | ||||||||||||||||||||||||
Residential | - - | - - | 658 | 658 | 3 940 | 4 598 | - - | 658 | ||||||||||||||||
Commercial | 521 | 1 607 | 1 019 | 3 147 | 14 536 | 17 683 | - - | 1 231 | ||||||||||||||||
Real Estate | ||||||||||||||||||||||||
Farmland | - - | - - | - - | - - | 692 | 692 | - - | - - | ||||||||||||||||
Residential | ||||||||||||||||||||||||
Revolving open end | - - | - - | - - | - - | 5 101 | 5 101 | - - | 35 | ||||||||||||||||
1 to 4 family – first liens | 1 396 | 526 | 1 807 | 3 729 | 75 448 | 79 177 | - - | 2 357 | ||||||||||||||||
1 to 4 family – junior liens | 236 | - - | - - | 236 | 7 923 | 8 159 | - - | - - | ||||||||||||||||
5 or more family | - - | - - | - - | - - | 3 131 | 3 131 | - - | - - | ||||||||||||||||
Consumer | ||||||||||||||||||||||||
Titled Vehicles | 26 | 1 | - - | 27 | 3 081 | 3 108 | - - | 7 | ||||||||||||||||
Deposit Accounts | - - | - - | - - | - - | 815 | 815 | - - | - - | ||||||||||||||||
All other consumer | 14 | - - | 3 | 17 | 2 600 | 2 617 | - - | 3 | ||||||||||||||||
All Other | - - | - - | - - | - - | 434 | 434 | - - | - - | ||||||||||||||||
Totals | $ | 2 561 | $ | 2 724 | $ | 3 495 | $ | 8 780 | $ | 201 361 | $ | 210 141 | $ | - - | $ | 4 299 | ||||||||
Percentage to Total Loans | 1.22% | 1.30% | 1.66% | 4.18% | 95.82% | - - | 2.05% | |||||||||||||||||
90 Days | ||||||||||||||||||||||||
30-59 | 60-89 | 90 Days | Past Due | |||||||||||||||||||||
Days | Days | or more | Total | Total | Still | Non- | ||||||||||||||||||
Past Due | Past Due | Past Due | Past Due | Current | Loans | Accruing | Accrual | |||||||||||||||||
Commercial – non real estate | ||||||||||||||||||||||||
Commercial and industrial | $ | 80 | $ | 92 | $ | 2 | $ | 174 | $ | 7 746 | $ | 7 920 | $ | - - | $ | 97 | ||||||||
Commercial real estate | ||||||||||||||||||||||||
Owner Occupied | 612 | - - | - - | 612 | 66 905 | 67 517 | - - | - - | ||||||||||||||||
Non owner occupied | 194 | - - | - - | 194 | 11 904 | 12 098 | - - | - - | ||||||||||||||||
Construction | ||||||||||||||||||||||||
Residential | 238 | - - | - - | 238 | 5 684 | 5 922 | - - | - - | ||||||||||||||||
Commercial | 115 | - - | 285 | 400 | 17 852 | 18 252 | - - | 405 | ||||||||||||||||
Real Estate | ||||||||||||||||||||||||
Farmland | - - | - - | 539 | 539 | 253 | 792 | - - | 539 | ||||||||||||||||
Residential | ||||||||||||||||||||||||
Revolving open end | - - | - - | - - | - - | 5 975 | 5 975 | - - | 38 | ||||||||||||||||
1 to 4 family – first liens | 2 269 | 416 | 881 | 3 566 | 79 125 | 82 691 | - - | 1 099 | ||||||||||||||||
1 to 4 family – junior liens | 135 | 19 | - - | 154 | 8 717 | 8 871 | - - | 42 | ||||||||||||||||
5 or more family | - - | - - | - - | - - | 1 976 | 1 976 | - - | - - | ||||||||||||||||
Consumer | ||||||||||||||||||||||||
Titled Vehicles | 37 | 2 | - - | 39 | 4 310 | 4 349 | - - | 8 | ||||||||||||||||
Deposit Accounts | 11 | - - | - - | 11 | 774 | 785 | - - | - - | ||||||||||||||||
All other consumer | 3 | - - | 5 | 8 | 1 658 | 1 666 | - - | 5 | ||||||||||||||||
All Other | - - | - - | - - | - - | 436 | 436 | - - | - - | ||||||||||||||||
Totals | $ | 3 694 | $ | 529 | $ | 1 712 | $ | 5 935 | $ | 213 315 | $ | 219 250 | $ | - - | $ | 2 233 | ||||||||
Percentage to Total Loans | 1.69% | 0.24% | 0.78% | 2.71% | 97.29% | - -% | 1.02% | |||||||||||||||||
5. | Allowance for Loan Losses (Continued) |
The past due policy of the bank is to report all classes of loans past due in the following categories: |
6. | Employee Benefit Plans |
Components of net periodic benefit cost for the pension and postretirement benefit plans are shown below: | |
Pension Benefits | Other Postretirement Benefits | |||||||||||||
Three Months Ended | Three Months Ended | |||||||||||||
June 30, | June 30, | June 30, | June 30, | |||||||||||
2011 | 2010 | 2011 | 2010 | |||||||||||
(in thousands) | (in thousands) | |||||||||||||
Components of Net Periodic Benefit Cost | ||||||||||||||
Service cost | $ | - - | $ | - - | $ | 3 | $ | 3 | ||||||
Interest cost | 100 | 104 | 9 | 8 | ||||||||||
Expected return on plan assets | (119 | ) | (115 | ) | - - | - - | ||||||||
Amortization of net obligation at transition | - - | - - | 5 | 5 | ||||||||||
Recognized net actuarial loss | 38 | 24 | - - | - - | ||||||||||
Net periodic benefit cost | $ | 19 | $ | 13 | $ | 17 | $ | 16 | ||||||
Pension Benefits | Other Postretirement Benefits | |||||||||||||
Six Months Ended | Six Months Ended | |||||||||||||
June 30, | June 30, | June 30, | June 30, | |||||||||||
2011 | 2010 | 2011 | 2010 | |||||||||||
(in thousands) | (in thousands) | |||||||||||||
Components of Net Periodic Benefit Cost | ||||||||||||||
Service cost | $ | - - | $ | - - | $ | 6 | $ | 6 | ||||||
Interest cost | 200 | 207 | 18 | 17 | ||||||||||
Expected return on plan assets | (238 | ) | (230 | ) | - - | - - | ||||||||
Amortization of net obligation at transition | - - | - - | 10 | 9 | ||||||||||
Recognized net actuarial loss | 76 | 48 | - - | - - | ||||||||||
Net periodic benefit cost | $ | 38 | $ | 25 | $ | 34 | $ | 32 | ||||||
7. | Weighted Average Number of Shares Outstanding and Earnings Per Share |
The following shows the weighted average number of shares used in computing earnings per share and the effect on weighted average number of shares of diluted potential common stock. Potential diluted common stock had no effect on the three months and six months ended June 30, 2011 and June 30, 2010 earnings per share.
|
Three Months Ended | Three Months Ended | |||||||||
June 30, 2011 | June 30, 2010 | |||||||||
Average Shares | Per Share Amount | Average Shares | Per Share Amount | |||||||
Basic earnings per share | 3 390 178 | $ | .05 | 3 390 178 | $ | .13 | ||||
Effect of dilutive securities: | ||||||||||
Stock options | - - | - - | ||||||||
Diluted earnings per share | 3 390 178 | $ | .05 | 3 390 178 | $ | .13 | ||||
Six Months Ended | Six Months Ended | |||||||||
June 30, 2011 | June 30, 2010 | |||||||||
Average Shares | Per Share Amount | Average Shares | Per Share Amount | |||||||
Basic earnings per share | 3 390 178 | $ | .13 | 3 390 178 | $ | .25 | ||||
Effect of dilutive securities: | ||||||||||
Stock options | - - | - - | ||||||||
Diluted earnings per share | 3 390 178 | $ | .13 | 3 390 178 | $ | .25 | ||||
For the three months and six months ended June 30, 2011, stock options representing 120,974 average shares, and for the three months and six months ended June 30, 2010, stock options representing 126,224 average shares were not included in the calculation of earnings per share as their effect would have been anti-dilutive.
|
|
8. | Recent Accounting Pronouncements |
In January 2010, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) 2010-06, “Fair Value Measurements and Disclosures (Topic 820): Improving Disclosures about Fair Value Measurements.” ASU 2010-06 amends Subtopic 820-10 to clarify existing disclosures, require new disclosures, and includes conforming amendments to guidance on employers’ disclosures about postretirement benefit plan assets. ASU 2010-06 is effective for interim and annual periods beginning after December 15, 2009, except for disclosures about purchases, sales, issuances, and settlements in the roll forward of activity in Level 3 fair value measurements. Those disclosures are effective for fiscal years beginning after December 15, 2010 and for interim periods within those fiscal years. The adoption of the new guidance did not have a material impact on the company’s consolidated financial statements.
In July 2010, the FASB issued ASU 2010-20, “Receivables (Topic 310) – Disclosures about the Credit Quality of Financing Receivables and the Allowance for Credit Losses.” The new disclosure guidance significantly expands the existing requirements and will lead to greater transparency into a company’s exposure to credit losses from lending arrangements. The extensive new disclosures of information as of the end of a reporting period became effective for both interim and annual reporting periods ending on or after December 15, 2010. Specific disclosures regarding activity that occurred before the issuance of the ASU, such as the allowance roll forward and modification disclosures, will be required for periods beginning on or after December 15, 2010. The company has included the required disclosures in its consolidated financial statements.
The Securities Exchange Commission (SEC) issued Final Rule No. 33-9002, “Interactive Data to Improve Financial Reporting.” The rule requires companies to submit financial statements in extensible business reporting language (XBRL) format with their SEC filings on a phased-in schedule. Large accelerated filers and foreign large accelerated filers using U.S. GAAP were required to provide interactive data reports starting with their first quarterly report for fiscal periods ending on or after June 15, 2010. All remaining filers are required to provide interactive data reports starting with their first quarterly report for fiscal periods ending on or after June 15, 2011. The required disclosures will be presented as an exhibit in an amended filing.
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8. | Recent Accounting Pronouncements (continued) |
In March 2011, the SEC issued Staff Accounting Bulletin (SAB) 114. This SAB revises or rescinds portions of the interpretive guidance included in the codification of the Staff Accounting Bulletin Series. This update is intended to make the relevant interpretive guidance consistent with current authoritative accounting guidance issued as a part of the FASB’s Codification. The principal changes involve revision or removal of accounting guidance references and other conforming changes to ensure consistency of referencing through the SAB Series. The effective date for SAB 114 is March 28, 2011. The adoption of the new guidance did not have a material impact on the company’s consolidated financial statements.
In April 2011, the FASB issued ASU 2011-02, “Receivables (Topic 310) – A Creditor’s Determination of Whether a Restructuring Is a Troubled Debt Restructuring.” The amendments in this ASU clarify the guidance on a creditor’s evaluation of whether it has granted a concession to a debtor. They also clarify the guidance on a creditor’s evaluation of whether a debtor is experiencing financial difficulty. The amendments in this ASU are effective for the first interim or annual period beginning on or after June 15, 2011. Early adoption is permitted. Retrospective application to the beginning of the annual period of adoption for modifications occurring on or after the beginning of the annual adoption period is required. As a result of applying these amendments, an entity may identify receivables that are newly considered to be impaired. For purposes of measuring impairment of those receivables, an entity should apply the amendments prospectively for the first interim or annual period beginning on or after June 15, 2011. The company has adopted ASU 2011-02 and included the required disclosures in its consolidated financial statements.
In April 2011, the FASB issued ASU 2011-03, “Transfers and Servicing (Topic 860) – Reconsideration of Effective Control for Repurchase Agreements.” The amendments in this ASU remove from the assessment of effective control (1) the criterion requiring the transferor to have the ability to repurchase or redeem the financial assets on substantially the agreed terms, even in the event of default by the transferee and (2) the collateral maintenance implementation guidance related to that criterion. The amendments in this ASU are effective for the first interim or annual period beginning on or after December 15, 2011. The guidance should be applied prospectively to transactions or modifications of existing transactions that occur on or after the effective date. Early adoption is not permitted. The company is currently assessing the impact that ASU 2011-03 will have on its consolidated financial statements.
In May 2011, the FASB issued ASU 2011-04, “Fair Value Measurement (Topic 820) – Amendments to Achieve Common Fair Value Measurement and Disclosure Requirements in U.S. GAAP and IFRSs.” This ASU is the result of joint efforts by the FASB and IASB to develop a single, converged fair value framework on how (not when) to measure fair value and what disclosures to provide about fair value measurements. The ASU is largely consistent with existing fair value measurement principles in U.S. GAAP (Topic 820), with many of the amendments made to eliminate unnecessary wording differences between U.S. GAAP and IFRSs. The amendments are effective for interim and annual periods beginning after December 15, 2011 with prospective application. Early application is not permitted. The company is currently assessing the impact that ASU 2011-04 will have on its consolidated financial statements.
In June 2011, the FASB issued ASU 2011-05, “Comprehensive Income (Topic 220) – Presentation of Comprehensive Income.” The objective of this ASU is to improve the comparability, consistency and transparency of financial reporting and to increase the prominence of items reported in other comprehensive income by eliminating the option to present components of other comprehensive income as part of the statement of changes in stockholders’ equity. The amendments require that all non-owner changes in stockholders’ equity be presented either in a single continuous statement of comprehensive income or in two separate but consecutive statements. The single statement of comprehensive income should include the components of net income, a total for net income, the components of other comprehensive income, a total for other comprehensive income, and a total for comprehensive income. In the two-statement approach, the first statement should present total net income and its components followed consecutively by a second statement that should present all the components of other comprehensive income, a total for other comprehensive income, and a total for comprehensive income. The amendments do not change the items that must be reported in other comprehensive income, the option for an entity to present components of other comprehensive income either net of related tax effects or before related tax effects, or the calculation or reporting of earnings per share. The amendments in this ASU should be applied retrospectively. The amendments are effective for fiscal years and interim periods within those years beginning after December 15, 2011. Early adoption is permitted because compliance with the amendments is already permitted. The amendments do not require transition disclosures. Adoption of ASU 2011-05 is not expected to have a material impact on the company’s consolidated financial statements.
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9. | Fair Value Measurements |
Determination of Fair Value
The company uses fair value measurements to record fair value adjustments for certain assets and to determine fair value disclosures. In accordance with the Fair Value Measurements and Disclosures topic of FASB ASC, the fair value of a financial instrument is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. Fair value is best determined based upon quoted market prices. However, in many instances, there are no quoted market prices for the company’s various financial instruments. In cases where quoted market prices are not available, fair values are based on estimates using present value or other valuation techniques. Those techniques are significantly affected by the assumptions used, including the discount rate and estimates of future cash flows. Accordingly, the fair value estimates may not be realized in an immediate settlement of the instrument.
The recent fair value guidance provides a consistent definition of fair value, which focuses on exit price in an orderly transaction (that is, not a forced liquidation or distressed sale) between market participants at the measurement date under current market conditions. If there has been a significant decrease in the volume and level of activity for the asset or liability, a change in valuation technique or the use of multiple valuation techniques may be appropriate. In such instances, determining the price at which willing market participants would transact at the measurement date under current market conditions depends on the facts and circumstances and requires the use of significant judgment. The fair value is a reasonable point within the range that is most representative of fair value under current market conditions.
Fair Value Hierarchy
In accordance with this guidance, the company groups its financial assets and financial liabilities generally measured at fair value in three levels, based on the markets in which the assets and liabilities are traded and the reliability of the assumptions used to determine fair value.
Level 1—Valuation is based on quoted prices in active markets for identical assets or liabilities that the reporting entity has the ability to access at the measurement date. Level 1 assets and liabilities generally include debt and equity securities that are traded in an active exchange market. Valuations are obtained from readily available pricing sources for market transactions involving identical assets or liabilities.
Level 2—Valuation is based on inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly or indirectly. The valuation may be based on quoted prices for similar assets or liabilities; quoted prices in markets that are not active; or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the asset or liability.
Level 3—Valuation is based on unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities. Level 3 assets and liabilities include financial instruments whose value is determined using pricing models, discounted cash flow methodologies, or similar techniques, as well as instruments for which determination of fair value requires significant management judgment or estimation.
A financial instrument’s categorization within the valuation hierarchy is based upon the lowest level of input that is significant to the fair value measurement.
The following methods and assumptions were used by the company in estimating fair value disclosures for financial instruments:
Cash and Short-Term Investments
The carrying amounts of cash and short-term instruments approximate fair values based on the short-term nature of the assets.
Securities
Securities available for sale are recorded at fair value on a recurring basis. Fair value measurement is based upon quoted market prices, when available (Level 1). If quoted market prices are not available, fair values are measured utilizing independent valuation techniques of identical or similar securities for which significant assumptions are derived primarily from or corroborated by observable market data. Third party vendors compile prices from various sources and may determine the fair value of identical or similar securities by using pricing models that consider observable market data (Level 2).
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9. | Fair Value Measurements (Continued) |
Loans
For variable rate loans that reprice frequently and with no significant change in credit risk, fair values are based on carrying values. Fair values for other loans were estimated using discounted cash flow analyses, using interest rates currently being offered.
FHLB Stock
The carrying amounts of FHLB stock approximate fair value based on redemption provisions of the FHLB.
Bank Owned Life Insurance (BOLI)
The carrying amounts of BOLI approximate fair value.
Deposit Liabilities
The fair value of demand deposits, savings accounts, and certain money market deposits is the amount payable on demand at the reporting date. The fair value of fixed-maturity fixed rate certificates of deposit is estimated using the rates currently offered for deposits of similar remaining maturities.
Short-Term Borrowings
The carrying amounts of borrowings under repurchase agreements and federal funds purchased approximate fair value.
FHLB Advances
The fair values of the company’s FHLB advances are estimated using discounted cash flow analysis based on the company’s incremental borrowing rates for similar types of borrowing arrangements.
Accrued Interest
The carrying amounts of accrued interest approximate fair value.
Off-Balance Sheet Financial Instruments
At June 30, 2011 and December 31, 2010, the fair value of loan commitments and standby-letters of credit was immaterial. Therefore, they have not been included in the following table.
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9. | Fair Value Measurements (Continued) |
The carrying amounts and estimated fair values of the company’s financial instruments are as follows:
|
June 30, 2011 | December 31, 2010 | |||||||||||
Carrying | Fair | Carrying | Fair | |||||||||
Amount | Value | Amount | Value | |||||||||
(in thousands) | (in thousands) | |||||||||||
Financial assets: | ||||||||||||
Cash | $ | 10 052 | $ | 10 052 | $ | 10 180 | $ | 10 180 | ||||
Federal funds sold | 725 | 725 | 2 725 | 2 725 | ||||||||
Securities available for sale | 55 738 | 55 738 | 42 690 | 42 690 | ||||||||
Loans, net | 206 028 | 203 878 | 214 238 | 212 200 | ||||||||
Loans held for sale | - - | - - | 76 | 76 | ||||||||
FHLB stock | 690 | 690 | 765 | 765 | ||||||||
BOLI | 6 813 | 6 813 | 6 397 | 6 397 | ||||||||
Accrued interest receivable | 902 | 902 | 960 | 960 | ||||||||
Financial liabilities: | ||||||||||||
Deposits | $ | 258 705 | $ | 259 905 | $ | 257 422 | $ | 258 240 | ||||
Securities sold under | ||||||||||||
agreements to repurchase | 9 125 | 9 125 | 7 382 | 7 382 | ||||||||
FHLB advances | 2 122 | 2 142 | 2 717 | 2 734 | ||||||||
Accrued interest payable | 273 | 273 | 361 | 361 |
Assets and Liabilities Measured at Fair Value on a Recurring Basis
The following table presents the balances (in thousands) of financial assets measured at fair value on a recurring basis as of June 30, 2011 and December 31, 2010:
|
Fair Value Measurements at June 30, 2011 Using | |||||||||||||
Quoted Prices | |||||||||||||
in Active | Significant | ||||||||||||
Markets for | Other | Significant | |||||||||||
Balance as of | Identical | Observable | Unobservable | ||||||||||
June 30 | Assets | Inputs | Inputs | ||||||||||
Description | 2011 | (Level 1) | (Level 2) | (Level 3) | |||||||||
Available for sale debt securities | |||||||||||||
U.S. Government sponsored | |||||||||||||
agency securities | $ | 47 976 | $ | - - | $ | 47 976 | $ | - - | |||||
State and municipal securities | 6 788 | - - | 6 788 | - - | |||||||||
Total available for sale debt securities | 54 764 | - - | 54 764 | - - | |||||||||
Available for sale equity securities | |||||||||||||
Financial services industry | 974 | - - | 974 | - - | |||||||||
Total available for sale securities | $ | 55 738 | $ | - - | $ | 55 738 | $ | - - | |||||
9. | Fair Value Measurements (Continued) |
Fair Value Measurements at December 31, 2010 Using | |||||||||||||
Quoted Prices | |||||||||||||
in Active | Significant | ||||||||||||
Markets for | Other | Significant | |||||||||||
Balance as of | Identical | Observable | Unobservable | ||||||||||
December 31 | Assets | Inputs | Inputs | ||||||||||
Description | 2010 | (Level 1) | (Level 2) | (Level 3) | |||||||||
Available for sale debt securities | |||||||||||||
U.S. Government sponsored | |||||||||||||
agency securities | $ | 36 288 | $ | - - | $ | 36 288 | $ | - - | |||||
State and municipal securities | 5 524 | - - | 5 524 | - - | |||||||||
Total available for sale debt securities | 41 812 | - - | 41 812 | - - | |||||||||
Available for sale equity securities | |||||||||||||
Financial services industry | 878 | - - | 878 | - - | |||||||||
Total available for sale securities | $ | 42 690 | $ | - - | $ | 42 690 | $ | - - | |||||
Assets and Liabilities Measured at Fair Value on a Nonrecurring Basis
Certain assets are measured at fair value on a nonrecurring basis in accordance with generally accepted accounting principles. Adjustments to the fair value of these assets usually result from the application of lower-of-cost-or-market accounting or write-downs of individual assets.
The following describes the valuation techniques used by the company to measure certain assets recorded at fair value on a nonrecurring basis in the financial statements:
Loans held for sale: Loans held for sale are carried at the lower of cost or market value. These loans currently consist of one-to-four family residential loans originated for sale in the secondary market. Fair value is based on the price secondary markets are currently offering for similar loans using observable market data which is not materially different than cost due to the short duration between origination and sale (Level 2). As such, the company records any fair value adjustments on a nonrecurring basis. No nonrecurring fair value adjustments were recorded on loans held for sale during the periods ended June 30, 2011 and December 31, 2010. Gains and losses on the sale of loans are recorded within other operating income on the consolidated statements of income.
Impaired Loans: Loans are designated as impaired when, in the judgment of management based on current information and events, it is likely that some amounts due according to the contractual terms of the loan agreement may not be collected. The measurement of loss associated with impaired loans can be based on either the observable market price of the loan or the fair value of the collateral. Fair value is measured based on the value of the collateral securing the loans. Collateral may be in the form of real estate or business assets including equipment, inventory, and accounts receivable. The vast majority of the collateral is real estate. The value of real estate collateral is determined utilizing an income or market valuation approach based on an appraisal conducted by an independent, licensed appraiser outside of the company using observable market data (Level 2). However, if the collateral is a house or building in the process of construction or if an appraisal of the real estate property is over two years old, then the fair value is considered Level 3. The value of business equipment is based upon an outside appraisal if deemed significant, or the net book value on the applicable business’ financial statements if not considered significant using observable market data. Likewise, values for inventory and accounts receivable are based on financial statement balances or aging reports (Level 3). Impaired loans allocated to the Allowance for Loan Losses are measured at fair value on a nonrecurring basis. Any fair value adjustments are recorded in the period incurred as provision for loan losses on the consolidated statements of income.
Other Real Estate Owned: Certain assets such as other real estate owned (OREO) are measured at fair value less cost to sell. The value of real estate collateral is determined utilizing an income or market valuation approach based on an appraisal conducted by an independent, licensed appraiser outside of the company using observable market data (Level 2). However, if the collateral is a house or building in the process of construction or if an appraisal of the real estate property is over two years old, then the fair value is considered Level 3.
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9. | Fair Value Measurements (Continued) |
The following table summarizes the company’s financial assets that were measured at fair value (in thousands) on a nonrecurring basis as of June 30, 2011 and December 31, 2010.
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Carrying Value at June 30, 2011 | |||||||||||||
Quoted Prices | |||||||||||||
in Active | Significant | ||||||||||||
Markets for | Other | Significant | |||||||||||
Identical | Observable | Unobservable | |||||||||||
Balance as of | Assets | Input | Input | ||||||||||
Description | June 30, 2011 | (Level 1) | (Level 2) | (Level 3) | |||||||||
Assets | |||||||||||||
Impaired loans with a | |||||||||||||
valuation allowance | $ | 7 226 | $ | - - | $ | 7 072 | $ | 154 | |||||
OREO | 7 501 | - - | 7 501 | - - | |||||||||
Carrying Value at December 31, 2010 | |||||||||||||
Quoted Prices | |||||||||||||
in Active | Significant | ||||||||||||
Markets for | Other | Significant | |||||||||||
Identical | Observable | Unobservable | |||||||||||
Balance as of | Assets | Input | Input | ||||||||||
Description | December 31, 2010 | (Level 1) | (Level 2) | (Level 3) | |||||||||
Assets | |||||||||||||
Impaired loans with a | |||||||||||||
valuation allowance | $ | 11 933 | $ | - - | $ | 10 593 | $ | 1 340 | |||||
OREO | 6 563 | - - | 6 563 | - - |
CRITICAL ACCOUNTING POLICIES
General
The company’s financial statements are prepared in accordance with accounting principles generally accepted in the United States of America (GAAP). The financial information contained within our statements is, to a significant extent, financial information that is based on measures of the financial effects of transactions and events that have already occurred. A variety of factors could affect the ultimate value that is obtained either when earning income, recognizing an expense, recovering an asset or relieving a liability. We use historical loss factors as one factor in determining the inherent loss that may be present in our loan portfolio. Actual losses could differ significantly from the historical factors that we use. In addition, GAAP itself may change from one previously acceptable method to another method. Although the economics of our transactions would be the same, the timing of events that would impact our transactions could change.
Allowance for Loan Losses
The allowance for loan losses is an estimate of the losses that may be sustained in our loan portfolio. The allowance is based on two basic principles of accounting: (1) losses be accrued when they are probable of occurring and are capable of estimation and (2) losses be accrued based on the differences between the value of collateral, present value of future cash flows or values that are observable in the secondary market and the loan balance.
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The allowance consists of specific, general and unallocated components. The specific component relates to loans that are classified as loss, doubtful or substandard. For such loans that are also classified as impaired, an allowance is established when the discounted cash flows (or collateral value or observable market price) of the impaired loan is lower than the carrying value of that loan. The general component covers non-classified loans and is based on historical loss experience adjusted for qualitative factors. An unallocated component is maintained to cover uncertainties that could affect management’s estimate of probable losses. The unallocated component of the allowance reflects that margin of imprecision inherent in the underlying assumptions used in the methodologies for estimating specific and general losses in the portfolio.
FINANCIAL OVERVIEW
The second quarter of 2011 has been what one might call “more of the same.” The local economy has remained relatively unchanged. The housing market and unemployment continue to be a drag on the local economy. Management has counteracted the reductions in loan income by increasing the investment portfolio and reducing expenses wherever possible.
We continue to pursue potential loan candidates and are vigilantly marketing our current inventory of foreclosed properties. It is management’s opinion that one of the key elements to improving our situation and that of the local economy is to reduce this housing inventory currently owned by financial institutions. As these inventories are liquidated, the real estate market should begin to rebound to a more “normal” market. We expect this economic growth to be slow and do not expect the real estate market to return to the level experienced during the first seven years of this century.
Total assets have increased $3.2 million or 1.1% from the December 31, 2010 total of $297.6 million to $300.8 million at June, 2011. Though this change is relatively small, the movement within the assets is more significant. Net loans have decreased approximately $8.2 million from the December 31, 2010 total of $214.2 million to $206 million at June 30, 2011 due to minimal loan demand, the pay down of existing loans, loan charge-offs and the transfer of loans to OREO. Other real estate, net of valuation allowance, has increased $938 thousand. With the decrease in loans, excess funds of $13 million have been invested in securities in order to get more yield than if invested in Federal funds or leaving funds in the Federal Reserve account.
Total deposits have increased $1.3 million or .5% at June 30, 2011 compared to December 31, 2010. Interest-bearing deposits have increased .6% during the first half of 2011, with non-interest bearing deposits remaining flat.
The June 30, 2011 annualized return on average assets is .28% compared to .59% at December 31, 2010. At June 30, 2011 the annualized return on average equity is 3.15% compared to 6.70% at December 31, 2010.
The recent debate in Congress regarding the national debt ceiling, federal budget deficit concerns and overall weakness in the economy recently resulted in a downgrade of U.S. government securities by Standard and Poor’s, one of the three major credit rating agencies. This downgrade and the possible future downgrade by one or both of the other two major ratings agencies could create uncertainty in the U.S. and global financial markets. These actions could cause other events which, directly or indirectly, may adversely affect the company’s operations, earnings and financial condition.
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The following table is an analysis of the company’s allowance for loan losses with amounts shown in thousands. Management monitors the loan portfolio on a continual basis with procedures that allow for problem loans and potentially problem loans to be highlighted and watched. Written reports are prepared on a monthly basis for all loans including commercial loans graded below a certain level and are reported to the Board of Directors on a monthly basis. Based on experience, these loan policies and the bank’s grading and review system, management believes the loan loss allowance is adequate.
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June 30, | December 31, | June 30, | |||||||
2011 | 2010 | 2010 | |||||||
Balance at beginning of period | $ | 5 012 | $ | 5 718 | $ | 5 718 | |||
Charge-offs: | |||||||||
Commercial, financial and agricultural | 12 | 313 | - - | ||||||
Real estate – construction | 581 | 775 | 406 | ||||||
Real estate – mortgage | 922 | 1 245 | 487 | ||||||
Consumer | 76 | 293 | 141 | ||||||
Total charge-offs | 1 591 | 2 626 | 1 034 | ||||||
Recoveries: | |||||||||
Commercial, financial and agricultural | 11 | 25 | - - | ||||||
Real estate – construction | 5 | - - | - - | ||||||
Real estate – mortgage | 12 | 95 | 8 | ||||||
Consumer | 65 | 201 | 114 | ||||||
Total recoveries | 93 | 321 | 122 | ||||||
Net charge-offs | 1 498 | 2 305 | 912 | ||||||
Provision charged to operations | 599 | 1 599 | 771 | ||||||
Balance at end of period | $ | 4 113 | $ | 5 012 | $ | 5 577 | |||
Ratio of net charge-offs (annualized) during the period | |||||||||
to average loans outstanding during the period | 1.40% | 1.01% | .80% | ||||||
As a result of the regular loan reviews by management, the allowance for loan losses decreased when comparing data as of June 30, 2011 to June 30, 2010. Many of the loans foreclosed upon or currently in nonaccrual status are related to the real estate industry. In comparing data for the loan loss reserve for the June 30, 2011 quarter end to December 31, 2010 information, the reserve has decreased. The decrease in the allowance for loan losses is partially due to loans with specific reserves being charged off. Management continues to review these assets on a regular basis.
Loans are placed on nonaccrual status when principal or interest is delinquent for 90 days or more. Interest income generally is not recognized on specific impaired loans unless the likelihood of further loss is remote. Interest income on other nonaccrual loans is recognized only to the extent of interest payments received. The majority of the current nonaccrual loans as shown in the chart below are in the process of collection. Following is a table showing the risk elements in the loan portfolio with amounts in thousands.
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June 30, | December 31, | June 30, | |||||||
2011 | 2010 | 2010 | |||||||
Nonperforming Assets | |||||||||
Nonaccrual loans | $ | 4 299 | $ | 2 233 | $ | 3 094 | |||
Troubled debt restructures (1) | - - | - - | - - | ||||||
Foreclosed properties | 7 501 | 6 563 | 6 647 | ||||||
Total nonperforming assets | $ | 11 800 | $ | 8 796 | $ | 9 741 | |||
Performing troubled debt restructures (2) | $ | 2 976 | $ | - - | $ | - - | |||
Loans past due 90 days accruing interest | $ | - - | $ | - - | $ | - - | |||
Allowance for loan losses to period end loans | 1.96% | 2.29% | 2.46% | ||||||
Nonperforming assets to period end loans and | |||||||||
foreclosed properties, net | 5.42% | 3.90% | 4.17% | ||||||
Performing troubled debt restructures to period end loans | 1.42% | - -% | - -% | ||||||
(1) | Currently there are no TDR’s in non-performing assets. | ||
(2) | Performing troubled debt restructures are restructured loans that are performing in accordance with the modified terms of the loan agreement. |
June 30, 2011 | ||||||||||||
Actual |
Minimum
Capital Requirement
|
|||||||||||
Amount | Ratio | Amount | Ratio | |||||||||
Total capital to risk weighted assets | $ | 30 268 | 13.85 | % | $ | 17 483 | 8.00 | % | ||||
Tier 1 capital to risk weighted assets | $ | 27 520 | 12.59 | % | $ | 8 741 | 4.00 | % | ||||
Tier 1 capital to average assets | $ | 27 520 | 9.02 | % | $ | 12 202 | 4.00 | % | ||||
December 31, 2010 | ||||||||||||
Actual |
Minimum
Capital Requirement
|
|||||||||||
Amount | Ratio | Amount | Ratio | |||||||||
Total capital to risk weighted assets | $ | 30 798 | 14.24 | % | $ | 17 306 | 8.00 | % | ||||
Tier 1 capital to risk weighted assets | $ | 28 065 | 12.97 | % | $ | 8 653 | 4.00 | % | ||||
Tier 1 capital to average assets | $ | 28 065 | 9.36 | % | $ | 11 992 | 4.00 | % |
(c) Total Number | ||||||||
of Shares | ||||||||
(a) Total | Purchased as | (d) Maximum Number | ||||||
Number of | (b) Average | Part of Publicly | of Shares that May | |||||
Shares | Price Paid | Announced | Yet be Purchased | |||||
Period | Purchased | Per Share | Programs | Under the Program | ||||
April 1 through | ||||||||
April 30 | NONE | - - | 283 553 | 62 515 | ||||
May 1 through | ||||||||
May 31 | NONE | - - | 283 553 | 62 515 | ||||
June 1 through | ||||||||
June 30 | NONE | - - | 283 553 | 62 515 |
(b) | There have been no changes to the procedures by which security holders may recommend nominees to the registrant’s board of directors since the registrant last provided disclosure in response to Item 7(d)(2)(ii)(G) of Schedule 14A. |
31.1 | Certification Under Exchange Act Rule 13a-14, Chief Executive Officer (and Section 302 of Sarbanes-Oxley Act of 2002) | ||
31.2 | Certification Under Exchange Act Rule 13a-14, Chief Financial Officer (and Section 302 of Sarbanes-Oxley Act of 2002) | ||
32 | Certification Pursuant to 18 U.S.C. Section 1350, Chief Executive Officer and Chief Financial Officer (pursuant to Section 906 of Sarbanes-Oxley Act of 2002) |
POTOMAC BANCSHARES, INC. | ||
Date: August 15, 2011 | /s/ Robert F. Baronner, Jr. | |
Robert F. Baronner, Jr. | ||
President & CEO | ||
Date: August 15, 2011 | /s/ Gayle Marshall Johnson | |
Gayle Marshall Johnson | ||
Sr. Vice President and Chief Financial Officer |
Date: August 15, 2011 | /s/ Robert F. Baronner, Jr. | |
Robert F. Baronner, Jr. | ||
President and CEO |
Date: August 15, 2011 | /s/ Gayle Marshall Johnson | |
Gayle Marshall Johnson | ||
Chief Financial Officer |
(1) | The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934; and | ||
(2) | The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the company. |
/s/ Robert F. Baronner, Jr. | |
Robert F. Baronner, Jr. | |
Chief Executive Officer | |
August 15, 2011 | |
/s/ Gayle Marshall Johnson | |
Gayle Marshall Johnson | |
Chief Financial Officer | |
August 15, 2011 |