UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the Quarterly Period Ended September 30, 2012
Commission File No.: 000-52195
BANK OF THE CAROLINAS CORPORATION
(Exact name of registrant as specified in its charter)
NORTH CAROLINA | 20-4989192 | |
(State or other jurisdiction of incorporation or organization) |
(IRS Employer Identification No.) | |
135 Boxwood Village Drive Mocksville, North Carolina |
27028 | |
(Address of principal executive offices) | (Zip Code) |
Registrants telephone number, including area code: (336) 751-5755
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x No ¨
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate web site, if any, every interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (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 x No ¨
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of large accelerated filer, accelerated filer and smaller reporting company in Rule 12b-2 of the Exchange Act.
Large accelerated filer | ¨ | Accelerated filer | ¨ | |||
Non-accelerated filer | ¨ | Smaller reporting company | x |
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ¨ No x
On November 14, 2012 there were 3,895,840 outstanding shares of the registrants common stock.
BANK OF THE CAROLINAS CORPORATION
FORM 10-Q
September 30, 2012
2
Bank of the Carolinas Corporation
Consolidated Balance Sheets
(amounts in thousands, except share and per share data)
September 30 2012 |
December 31 2011* |
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(Unaudited) | (As restated) | |||||||
Assets: |
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Cash and due from banks, noninterest-bearing |
$ | 3,987 | $ | 5,044 | ||||
Interest-bearing deposits in banks |
3,843 | 2,557 | ||||||
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Cash and cash equivalents |
7,830 | 7,601 | ||||||
Federal funds sold |
13,710 | 28,165 | ||||||
Investment securities |
121,387 | 112,404 | ||||||
Loans receivable |
280,671 | 307,907 | ||||||
Less: Allowance for loan losses |
(7,450 | ) | (8,101 | ) | ||||
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Total loans, net |
273,221 | 299,806 | ||||||
Premises and equipment |
11,911 | 12,229 | ||||||
Other real estate owned |
5,424 | 8,524 | ||||||
Bank owned life insurance |
10,447 | 10,732 | ||||||
Deferred tax assets |
| | ||||||
Prepaid FDIC insurance assessment |
998 | 2,200 | ||||||
Accrued interest receivable |
1,393 | 1,503 | ||||||
Other assets |
1,952 | 2,803 | ||||||
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Total Assets |
$ | 448,273 | $ | 485,967 | ||||
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Liabilities: |
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Deposits: |
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Noninterest-bearing demand deposits |
$ | 34,756 | $ | 34,034 | ||||
Interest-checking deposits |
39,138 | 37,306 | ||||||
Savings and money market deposits |
106,541 | 106,308 | ||||||
Time deposits |
204,095 | 238,565 | ||||||
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Total deposits |
384,530 | 416,213 | ||||||
Securities sold under agreements to repurchase |
45,379 | 45,381 | ||||||
Subordinated debt |
7,855 | 7,855 | ||||||
Other liabilities |
1,919 | 1,903 | ||||||
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Total Liabilities |
439,683 | 471,352 | ||||||
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Commitments and contingencies (Note 6) |
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Stockholders Equity: |
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Preferred stock, no par value |
13,179 | 13,179 | ||||||
Discount on preferred stock |
(496 | ) | (716 | ) | ||||
Common stock, $5 per share par value |
19,479 | 19,479 | ||||||
Additional paid-in capital |
12,991 | 12,991 | ||||||
Retained deficit |
(37,463 | ) | (31,871 | ) | ||||
Accumulated other comprehensive income |
900 | 1,553 | ||||||
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Total Stockholders Equity |
8,590 | 14,615 | ||||||
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Total Liabilities and Stockholders Equity |
$ | 448,273 | $ | 485,967 | ||||
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Preferred shares authorized |
3,000,000 | 3,000,000 | ||||||
Preferred shares issued and outstanding |
13,179 | 13,179 | ||||||
Common shares authorized |
15,000,000 | 15,000,000 | ||||||
Common shares issued and outstanding |
3,895,840 | 3,895,840 |
* | Derived from audited consolidated financial statements. |
The accompanying notes are an integral part of these consolidated financial statements.
3
Bank of the Carolinas Corporation
Consolidated Statements of Operations
(Unaudited)
(dollars in thousands, except per share data)
Three Months Ended September 30 |
Nine Months Ended September 30 |
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2012 | 2011 | 2012 | 2011 | |||||||||||||
Interest income |
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Interest and fees on loans |
$ | 3,571 | $ | 4,276 | $ | 10,905 | $ | 13,415 | ||||||||
Interest on securities |
723 | 823 | 2,043 | 2,422 | ||||||||||||
Other interest income |
13 | 16 | 59 | 42 | ||||||||||||
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Total interest income |
4,307 | 5,115 | 13,007 | 15,879 | ||||||||||||
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Interest expense |
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Interest on deposits |
779 | 1,075 | 2,530 | 3,405 | ||||||||||||
Interest on borrowed funds |
570 | 571 | 1,698 | 2,075 | ||||||||||||
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Total interest expense |
1,349 | 1,646 | 4,228 | 5,480 | ||||||||||||
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Net interest income |
2,958 | 3,469 | 8,779 | 10,399 | ||||||||||||
Provision for loan losses |
1,471 | 5,650 | 2,996 | 14,567 | ||||||||||||
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Net interest income (loss) after provision for loan losses |
1,487 | (2,181 | ) | 5,783 | (4,168 | ) | ||||||||||
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Noninterest income |
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Customer service fees |
297 | 318 | 867 | 951 | ||||||||||||
Increase in value of bank owned life insurance |
89 | 91 | 685 | 269 | ||||||||||||
Gains on sales of investment securities |
| | 2,147 | 6 | ||||||||||||
Other income |
5 | 6 | 20 | 16 | ||||||||||||
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Total noninterest income |
391 | 415 | 3,719 | 1,242 | ||||||||||||
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Noninterest expense |
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Salaries and benefits |
1,723 | 1,757 | 5,266 | 4,947 | ||||||||||||
Occupancy and equipment |
468 | 502 | 1,451 | 1,571 | ||||||||||||
FDIC insurance assessments |
405 | 345 | 1,225 | 949 | ||||||||||||
Data processing services |
257 | 218 | 737 | 654 | ||||||||||||
Valuation provisions and net operating costs associated with foreclosed real estate |
1,324 | 1,053 | 2,415 | 4,050 | ||||||||||||
Other |
1,048 | 1,205 | 3,371 | 3,591 | ||||||||||||
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Total noninterest expense |
5,225 | 5,080 | 14,465 | 15,762 | ||||||||||||
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Loss before income taxes |
(3,347 | ) | (6,846 | ) | (4,963 | ) | (18,688 | ) | ||||||||
Provision for income taxes |
(383 | ) | | 409 | 996 | |||||||||||
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Net loss |
(2,964 | ) | (6,846 | ) | (5,372 | ) | (19,684 | ) | ||||||||
Dividends and accretion on preferred stock |
(239 | ) | (234 | ) | (714 | ) | (698 | ) | ||||||||
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Net loss available to common stockholders |
$ | (3,203 | ) | $ | (7,080 | ) | $ | (6,086 | ) | $ | (20,382 | ) | ||||
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Loss per common share: |
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Basic |
$ | (0.82 | ) | $ | (1.82 | ) | $ | (1.56 | ) | $ | (5.23 | ) | ||||
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Diluted |
$ | (0.82 | ) | $ | (1.82 | ) | $ | (1.56 | ) | $ | (5.23 | ) | ||||
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The accompanying notes are an integral part of these consolidated financial statements.
4
Bank of the Carolinas Corporation
Consolidated Statements of Comprehensive Loss
(Unaudited)
(dollars in thousands)
Three Months Ended September 30 |
Nine Months Ended September 30 |
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2012 | 2011 | 2012 | 2011 | |||||||||||||
Net loss |
$ | (2,964 | ) | $ | (6,846 | ) | $ | (5,372 | ) | $ | (19,684 | ) | ||||
Other comprehensive income (loss): |
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Unrealized holding gains on securities available-for-sale |
996 | 1,121 | 1,085 | 2,125 | ||||||||||||
Reclassification adjustment for gains realized in net loss |
| | (2,147 | ) | (6 | ) | ||||||||||
Income tax effect |
(383 | ) | (431 | ) | 409 | (815 | ) | |||||||||
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Total other comprehensive income (loss), net of income tax effect |
613 | 690 | (653 | ) | 1,304 | |||||||||||
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Total comprehensive loss |
$ | (2,351 | ) | $ | (6,156 | ) | $ | (6,025 | ) | $ | (18,380 | ) | ||||
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The accompanying notes are an integral part of these consolidated financial statements.
5
Bank of the Carolinas Corporation
Consolidated Statements of Cash Flows
(Unaudited)
(dollars in thousands)
Nine Months Ended September 30 | ||||||||
2012 | 2011 | |||||||
Cash flows from operating activities: |
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Net loss |
$ | (5,372 | ) | $ | (19,684 | ) | ||
Adjustments to reconcile net loss to net cash provided by operating activitites: |
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Provision for loan losses |
2,996 | 14,567 | ||||||
Stock based compensation benefit |
| (4 | ) | |||||
Loss on disposal of premises and equipment |
| 3 | ||||||
Depreciation and amortization |
627 | 751 | ||||||
Change in valuation allowance on other real estate owned |
1,965 | 3,191 | ||||||
(Gain) loss on sale of other real estate owned |
(33 | ) | 125 | |||||
Gains on sales of investment securities |
(2,147 | ) | (6 | ) | ||||
Decrease (increase) in bank owned life insurance |
285 | (269 | ) | |||||
Net amortization/accretion of premiums and discounts on investments |
464 | 572 | ||||||
Net change in other assets |
1,730 | 1,361 | ||||||
Net change in other liabilities |
16 | 93 | ||||||
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Net cash provided by operating activities |
531 | 700 | ||||||
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Cash flows from investing activities: |
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Net change in federal funds sold |
14,455 | (13,300 | ) | |||||
Purchases of premises and equipment |
(309 | ) | (96 | ) | ||||
Purchases of securities |
(118,959 | ) | (31,533 | ) | ||||
Proceeds from sales, calls, maturities and principal repayments of securities available for sale |
110,597 | 29,691 | ||||||
Redemption of FHLB stock |
842 | 298 | ||||||
Proceeds from sales of other real estate owned |
4,711 | 2,855 | ||||||
Net decrease in loans |
20,046 | 20,975 | ||||||
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Net cash provided by investing activities |
31,383 | 8,890 | ||||||
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Cash flows from financing activities: |
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Net increase (decrease) in deposits |
(31,683 | ) | 1,389 | |||||
Net repayments of other borrowings |
| (12,000 | ) | |||||
Net decrease in repurchase agreements |
(2 | ) | (191 | ) | ||||
Cash dividends paid on preferred stock |
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Net cash used by financing activities |
(31,685 | ) | (10,802 | ) | ||||
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Net increase (decrease) in cash and cash equivalents |
229 | (1,212 | ) | |||||
Cash and cash equivalents at beginning of period |
7,601 | 10,565 | ||||||
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Cash and cash equivalents at end of period |
$ | 7,830 | $ | 9,353 | ||||
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Supplemental disclosure of cash flow information: |
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Cash paid during the period for interest |
$ | 4,338 | $ | 4,900 | ||||
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Noncash investing and financing activities: |
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Change in fair value of securities available for sale, net of tax |
$ | 653 | $ | 1,304 | ||||
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Transfer from loans to other real estate owned |
$ | 3,543 | $ | 7,682 | ||||
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The accompanying notes are an integral part of these consolidated financial statements.
6
Bank of the Carolinas Corporation
Consolidated Statements of Changes in Stockholders Equity
(Unaudited)
(dollars in thousands)
Discount | Additional | Accumulated Other |
Total | |||||||||||||||||||||||||||||||||
Preferred Stock | on Preferred | Common Stock | Paid-In | Retained | Comprehensive | Stockholders | ||||||||||||||||||||||||||||||
Shares | Amount | Stock | Shares | Amount | Capital | Deficit | Income | Equity | ||||||||||||||||||||||||||||
Balance, December 31, 2010 |
13,179 | $ | 13,179 | $ | (991 | ) | 3,897,174 | $ | 19,486 | $ | 12,988 | $ | (3,268 | ) | $ | 310 | $ | 41,704 | ||||||||||||||||||
Net loss |
| | | | | | (19,684 | ) | | (19,684 | ) | |||||||||||||||||||||||||
Other comprehensive income |
| | | | | | | 1,304 | 1,304 | |||||||||||||||||||||||||||
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Total comprehensive loss |
| | | | | | | | (18,380 | ) | ||||||||||||||||||||||||||
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Stock based compensation benefit |
| | | | | (4 | ) | | | (4 | ) | |||||||||||||||||||||||||
Discount accretion on preferred stock |
| | 204 | | | | (204 | ) | | | ||||||||||||||||||||||||||
Dividends accrued on preferred stock |
| | | | | | (77 | ) | | (77 | ) | |||||||||||||||||||||||||
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Balance, September 30, 2011 |
13,179 | $ | 13,179 | $ | (787 | ) | 3,897,174 | $ | 19,486 | $ | 12,984 | $ | (23,233 | ) | $ | 1,614 | $ | 23,243 | ||||||||||||||||||
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Balance, December 31, 2011 |
13,179 | $ | 13,179 | $ | (716 | ) | 3,895,840 | $ | 19,479 | $ | 12,991 | $ | (31,871 | ) | $ | 1,553 | $ | 14,615 | ||||||||||||||||||
Net loss |
| | | | | | (5,372 | ) | | (5,372 | ) | |||||||||||||||||||||||||
Other comprehensive loss |
| | | | | | | (653 | ) | (653 | ) | |||||||||||||||||||||||||
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Total comprehensive loss |
| | | | | | | | (6,025 | ) | ||||||||||||||||||||||||||
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Discount accretion on preferred stock |
| | 220 | | | | (220 | ) | | | ||||||||||||||||||||||||||
Dividends accrued on preferred stock |
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Balance, September 30, 2012 |
13,179 | $ | 13,179 | $ | (496 | ) | 3,895,840 | $ | 19,479 | $ | 12,991 | $ | (37,463 | ) | $ | 900 | $ | 8,590 | ||||||||||||||||||
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The accompanying notes are an integral part of these consolidated financial statements.
7
Bank of the Carolinas Corporation
Notes to Consolidated Financial Statements
(Unaudited)
NOTE 1. BASIS OF PRESENTATION
In the opinion of management, the financial information included in these unaudited financial statements reflects all adjustments (consisting of normal recurring adjustments) necessary for a fair presentation of the financial information as of September 30, 2012 and December 31, 2011 and for the three- and nine-month periods ended September 30, 2012 and 2011, in conformity with accounting principles generally accepted in the United States of America.
The preparation of financial statements requires management to make estimates and assumptions that affect reported amounts of assets and liabilities at the date of the financial statements, as well as the amounts of income and expense during the reporting period. Actual results could differ from those estimates. Operating results for the three- and nine-month periods ended September 30, 2012 are not necessarily indicative of the results that may be expected for the fiscal year ending December 31, 2012.
The results presented here are for Bank of the Carolinas Corporation (the Company), the parent company of Bank of the Carolinas (the Bank). The organization and business of the Company, accounting policies followed by the Company and other relevant information are contained in the notes to the financial statements filed as part of the Companys annual report on Form 10-K for the year ended December 31, 2011. This quarterly report should be read in conjunction with the annual report. Because the Company has no separate operations and conducts no business on its own other than owning the Bank, this discussion concerns primarily the business of the Bank. However, because the financial statements are presented on a consolidated basis, the Company and the Bank are collectively referred to as the Company unless otherwise noted.
Reclassifications
Certain 2012 and 2011 accounts have been reclassified to conform to the September 30, 2012 presentations. There was no impact on earnings or stockholders equity as a result of the reclassifications.
Restatement of Previously Issued Financial Statements
The Corporation has restated its previously issued financial statements to correct the accounting for dividends on preferred stock. The preferred stock issued to the U.S. Treasury pursuant to the Capital Purchase Program has a cumulative dividend rate of 5% per year. Although the Corporation had deferred payment of all dividends, a liability was recorded for each of the quarters in the period March 31, 2011 June 30, 2012. The accounting guidance for recording dividends prohibits a dividend from being accrued until it has been declared. The Corporation and the Bank are prohibited from declaring dividends as a result of a written agreement between the Corporation and the FDIC and the North Carolina Commissioner of Banks. (See the Corporations Management Discussion and Analysis for further discussion.) As a result, since the dividend was never declared, a liability should not have been established and other liabilities was overstated and retained earnings was understated as outlined below. Because of the nature of the misclassification, there was no impact on the net loss available to common shareholders. The following is a summary of the effects of the restatement for December 31, 2011 (dollars in thousands):
As of December 31, 2011 | ||||||||||||
Consolidated Balance Sheets |
As Previously Reported |
Preferred Dividend Adjustment |
Restated | |||||||||
Other liabilities |
$ | 2,485 | $ | (582 | ) | $ | 1,903 | |||||
Total Liabilities |
471,934 | (582 | ) | 471,352 | ||||||||
Retained deficit |
(32,453 | ) | 582 | (31,871 | ) | |||||||
Total Stockholders Equity |
14,033 | 582 | 14,615 |
See Note 13 for the further effects of the restatement on the quarterly financial information.
8
NOTE 2. EARNINGS PER SHARE
Basic earnings (loss) per share represents income (loss) available to common stockholders divided by the weighted average number of common shares outstanding during the period. When applicable, the weighted average shares outstanding for the diluted earnings per share computations are adjusted to reflect the assumed conversion of shares available under stock options using the treasury stock method.
Earnings (loss) per share have been computed based on the following (dollars in thousands):
Three months ended September 30, |
Nine months ended September 30, |
|||||||||||||||
2012 | 2011 | 2012 | 2011 | |||||||||||||
Net loss applicable to common stockholders |
($ | 3,203 | ) | $ | (7,080 | ) | ($ | 6,086 | ) | $ | (20,382 | ) | ||||
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Weighted average number of common shares outstanding |
3,895,840 | 3,897,174 | 3,895,840 | 3,897,174 | ||||||||||||
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Weighted average number of diluted common shares outstanding |
3,895,840 | 3,897,174 | 3,895,840 | 3,897,174 | ||||||||||||
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Common stock options and common stock warrants - anti-dilutive |
497,605 | 502,205 | 497,605 | 502,205 | ||||||||||||
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The common stock warrants referred to above were issued to the United States Treasury in connection with the Companys April 17, 2009 participation in the Capital Purchase Program, which was authorized as a part of the TARP legislation passed by Congress during 2008.
9
NOTE 3. INVESTMENT SECURITIES
The amortized cost, estimated fair values and carrying values of the investment securities portfolios at the indicated dates are summarized as follows (dollars in thousands):
September 30, 2012 | ||||||||||||||||||||
Amortized Cost |
Gross Unrealized Gains |
Gross Unrealized Losses |
Estimated Fair Value |
Carrying Value |
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Investment securities available for sale: |
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U.S. Government agencies securities |
$ | 55,793 | $ | 463 | $ | 19 | $ | 56,237 | $ | 56,237 | ||||||||||
State and municipal bonds |
8,487 | 3 | 99 | 8,391 | 8,391 | |||||||||||||||
Corporate securities |
| | | | | |||||||||||||||
Mortgage-backed securities |
53,686 | 1,090 | 4 | 54,772 | 54,772 | |||||||||||||||
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Total investment securities available for sale |
117,966 | 1,556 | 122 | 119,400 | 119,400 | |||||||||||||||
Investment securities held to maturity: |
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Corporate securities |
1,987 | 29 | 235 | 1,781 | 1,987 | |||||||||||||||
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Total investment securities |
$ | 119,953 | $ | 1,585 | $ | 357 | $ | 121,181 | $ | 121,387 | ||||||||||
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December 31, 2011 | ||||||||||||||||||||
Amortized Cost |
Gross Unrealized Gains |
Gross Unrealized Losses |
Estimated Fair Value |
Carrying Value |
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Investment securities available for sale: |
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U.S. Government agencies securities |
$ | 43,131 | $ | 1,128 | $ | | $ | 44,259 | $ | 44,259 | ||||||||||
State and municipal bonds |
3,433 | 157 | | 3,590 | 3,590 | |||||||||||||||
Corporate securities |
963 | 54 | | 1,017 | 1,017 | |||||||||||||||
Mortgage-backed securities |
60,415 | 1,188 | 32 | 61,571 | 61,571 | |||||||||||||||
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|
|
|
|
|||||||||||
Total investment securities available for sale |
107,942 | 2,527 | 32 | 110,437 | 110,437 | |||||||||||||||
Investment securities held to maturity: |
||||||||||||||||||||
Corporate securities |
1,967 | 67 | 235 | 1,799 | 1,967 | |||||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Total investment securities |
$ | 109,909 | $ | 2,594 | $ | 267 | $ | 112,236 | $ | 112,404 | ||||||||||
|
|
|
|
|
|
|
|
|
|
Management of the Bank believes all unrealized losses on available-for-sale securities as of September 30, 2012 represent temporary impairments related to market fluctuations. The unrealized losses on our securities are a nominal portion of the total value of the portfolio. The Bank has no intention of selling these securities before their maturity and has the appropriate sources of liquidity to hold these securities until maturity in order to minimize the likelihood that recognized losses will occur.
10
The fair values of securities with unrealized losses at September 30, 2012 and December 31, 2011 are as follows (dollars in thousands):
September 30, 2012:
Less than 12 Months | 12 Months or More | Total | ||||||||||||||||||||||
Estimated Fair Value |
Unrealized Losses |
Estimated Fair Value |
Unrealized Losses |
Estimated Fair Value |
Unrealized Losses |
|||||||||||||||||||
Temporarily impaired securities: |
||||||||||||||||||||||||
U.S. Government agency securities |
$ | 1,971 | $ | 19 | $ | | $ | | $ | 1,971 | $ | 19 | ||||||||||||
State and municipal securities |
7,468 | 99 | | | 7,468 | 99 | ||||||||||||||||||
Mortgage-backed securities |
1,331 | 4 | | | 1,331 | 4 | ||||||||||||||||||
Corporate securities |
| | 1,000 | 235 | 1,000 | 235 | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Total |
$ | 10,770 | $ | 122 | $ | 1,000 | $ | 235 | $ | 11,770 | $ | 357 | ||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2011:
Less than 12 Months | 12 Months or More | Total | ||||||||||||||||||||||
Estimated Fair Value |
Unrealized Losses |
Estimated Fair Value |
Unrealized Losses |
Estimated Fair Value |
Unrealized Losses |
|||||||||||||||||||
Temporarily impaired securities: |
||||||||||||||||||||||||
U.S. Government agency securities |
$ | | $ | | $ | | $ | | $ | | $ | | ||||||||||||
State and municipal securities |
| | | | | | ||||||||||||||||||
Mortgage-backed securities |
3,071 | 32 | | | 3,071 | 32 | ||||||||||||||||||
Corporate securities |
| | 1,000 | 235 | 1,000 | 235 | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Total |
$ | 3,071 | $ | 32 | $ | 1,000 | $ | 235 | $ | 4,071 | $ | 267 | ||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
NOTE 4. LOANS
The loan portfolio as of the dates indicated is summarized below (dollars in thousands):
September 30, 2012 |
December 31, 2011 |
|||||||
Real estate loans: |
||||||||
1-4 family residential |
$ | 74,033 | $ | 78,631 | ||||
Commercial real estate |
114,502 | 126,849 | ||||||
Construction and development |
30,740 | 33,081 | ||||||
Home equity |
29,417 | 29,727 | ||||||
|
|
|
|
|||||
Total real estate loans |
248,692 | 268,288 | ||||||
|
|
|
|
|||||
Commercial business and other loans |
24,459 | 34,271 | ||||||
|
|
|
|
|||||
Consumer loans: |
||||||||
Installment |
3,373 | 3,490 | ||||||
Other |
4,147 | 1,858 | ||||||
|
|
|
|
|||||
Total consumer loans |
7,520 | 5,348 | ||||||
|
|
|
|
|||||
Gross loans receivable |
280,671 | 307,907 | ||||||
Allowance for loan losses |
(7,450 | ) | (8,101 | ) | ||||
|
|
|
|
|||||
Loans, net |
$ | 273,221 | $ | 299,806 | ||||
|
|
|
|
11
Impaired loans, segregated by class of loans, are summarized as follows as of the dates indicated (dollars in thousands):
September 30, 2012 | December 31, 2011 | |||||||||||||||||||||||||||||||||||||||
Recorded Investment |
Unpaid Principal Balance |
Related Allowance |
Average Recorded Investment |
Interest Income Recognized |
Recorded Investment |
Unpaid Principal Balance |
Related Allowance |
Average Recorded Investment |
Interest Income Recognized |
|||||||||||||||||||||||||||||||
With no related allowance: |
||||||||||||||||||||||||||||||||||||||||
Commercial - Non Real Estate |
$ | 1,190 | $ | 1,469 | $ | | $ | 1,581 | $ | 61 | $ | 1,533 | $ | 2,413 | $ | | $ | 2,518 | $ | 121 | ||||||||||||||||||||
Commercial Real Estate |
||||||||||||||||||||||||||||||||||||||||
Owner occupied |
3,258 | 3,582 | | 3,608 | 131 | 4,352 | 8,513 | | 9,402 | 319 | ||||||||||||||||||||||||||||||
Income producing |
3,310 | 3,412 | | 3,431 | 96 | 4,226 | 4,634 | | 4,677 | 279 | ||||||||||||||||||||||||||||||
Multifamily |
| | | | | 708 | 826 | | 829 | 44 | ||||||||||||||||||||||||||||||
Construction & Development |
||||||||||||||||||||||||||||||||||||||||
1 - 4 Family |
| | | | | 387 | 387 | | 393 | 20 | ||||||||||||||||||||||||||||||
Other |
3,581 | 4,273 | | 3,092 | 118 | 3,288 | 3,702 | | 3,883 | 203 | ||||||||||||||||||||||||||||||
Farmland |
362 | 362 | | 362 | 12 | | | | | | ||||||||||||||||||||||||||||||
Residential |
||||||||||||||||||||||||||||||||||||||||
Equity Lines |
140 | 143 | | 237 | 5 | 38 | 39 | | 41 | 2 | ||||||||||||||||||||||||||||||
1 - 4 Family |
7,481 | 8,983 | | 9,043 | 310 | 7,920 | 9,491 | | 9,577 | 563 | ||||||||||||||||||||||||||||||
Junior Liens |
239 | 257 | | 260 | 12 | 58 | 73 | | 75 | 6 | ||||||||||||||||||||||||||||||
Consumer - Non Real Estate |
74 | 86 | | 87 | 4 | 58 | 58 | | 59 | 4 | ||||||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||||||
Total loans with no allowance |
$ | 19,635 | $ | 22,567 | $ | | $ | 21,701 | $ | 749 | $ | 22,568 | $ | 30,136 | $ | | $ | 31,454 | $ | 1,561 | ||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||||||
With an allowance recorded: |
||||||||||||||||||||||||||||||||||||||||
Commercial - Non Real Estate |
$ | 2,348 | $ | 2,348 | $ | 52 | $ | 2,416 | $ | 75 | $ | 2,409 | $ | 2,408 | $ | 74 | $ | 2,482 | $ | 105 | ||||||||||||||||||||
Commercial Real Estate |
||||||||||||||||||||||||||||||||||||||||
Owner occupied |
4,207 | 4,207 | 173 | 4,255 | 164 | 1,836 | 1,886 | 64 | 1,902 | 119 | ||||||||||||||||||||||||||||||
Income producing |
6,939 | 6,994 | 146 | 7,047 | 258 | 6,424 | 6,479 | 224 | 6,586 | 278 | ||||||||||||||||||||||||||||||
Multifamily |
1,319 | 1,352 | 50 | 1,364 | 38 | 1,282 | 1,316 | 68 | 1,345 | 31 | ||||||||||||||||||||||||||||||
Construction & Development |
||||||||||||||||||||||||||||||||||||||||
1 - 4 Family |
390 | 397 | 8 | 400 | 15 | 380 | 380 | 9 | 396 | 21 | ||||||||||||||||||||||||||||||
Other |
3,380 | 3,382 | 140 | 3,446 | 101 | 2,920 | 2,920 | 91 | 2,955 | 130 | ||||||||||||||||||||||||||||||
Farmland |
| | | | | 980 | 980 | | 982 | 50 | ||||||||||||||||||||||||||||||
Residential |
||||||||||||||||||||||||||||||||||||||||
Equity Lines |
| | | | | | | | | | ||||||||||||||||||||||||||||||
1 - 4 Family |
6,329 | 6,343 | 203 | 6,400 | 193 | 7,201 | 7,212 | 237 | 7,265 | 277 | ||||||||||||||||||||||||||||||
Junior Liens |
322 | 324 | 2 | 326 | 13 | 398 | 398 | 3 | 469 | 24 | ||||||||||||||||||||||||||||||
Consumer - Non Real Estate |
13 | 13 | | 15 | 1 | | | | | | ||||||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||||||
Total loans with an allowance |
$ | 25,247 | $ | 25,360 | $ | 774 | $ | 25,669 | $ | 858 | $ | 23,830 | $ | 23,979 | $ | 770 | $ | 24,382 | $ | 1,035 | ||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||||||
Total: |
||||||||||||||||||||||||||||||||||||||||
Commercial - Non Real Estate |
$ | 3,538 | $ | 3,817 | $ | 52 | $ | 3,997 | $ | 136 | $ | 3,942 | $ | 4,821 | $ | 74 | $ | 5,000 | $ | 226 | ||||||||||||||||||||
Commercial Real Estate |
$ | 19,033 | $ | 19,547 | $ | 369 | $ | 19,705 | $ | 687 | $ | 18,828 | $ | 23,654 | $ | 356 | $ | 24,741 | $ | 1,070 | ||||||||||||||||||||
Construction & Development |
$ | 7,713 | $ | 8,414 | $ | 148 | $ | 7,300 | $ | 246 | $ | 7,955 | $ | 8,369 | $ | 100 | $ | 8,609 | $ | 424 | ||||||||||||||||||||
Residential |
$ | 14,511 | $ | 16,050 | $ | 205 | $ | 16,266 | $ | 533 | $ | 15,615 | $ | 17,213 | $ | 240 | $ | 17,427 | $ | 872 | ||||||||||||||||||||
Consumer - Non Real Estate |
$ | 87 | $ | 99 | $ | | $ | 102 | $ | 5 | $ | 58 | $ | 58 | $ | | $ | 59 | $ | 4 | ||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||||||
Totals |
$ | 44,882 | $ | 47,927 | $ | 774 | $ | 47,370 | $ | 1,607 | $ | 46,398 | $ | 54,115 | $ | 770 | $ | 55,836 | $ | 2,596 | ||||||||||||||||||||
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|
12
Impaired loans include loans whose contractual terms have been restructured in a manner that grants a concession to a borrower experiencing financial difficulties. Troubled debt restructurings (TDRs) are a subset of impaired loans and totaled $41.2 million at September 30, 2012 and $35.6 million at December 31, 2011.
The following tables illustrate TDR information for the three and nine months ended September 30, 2012 and 2011 (dollars in thousands):
For the three months ended September 30, 2012 | For the nine months ended September 30, 2012 | |||||||||||||||||||||||
Troubled Debt Restructuring |
Number of Contracts |
Pre-Modification Recorded Investment |
Post-Modification Recorded Investment |
Number of Contracts |
Pre-Modification Recorded Investment |
Post-Modification Recorded Investment |
||||||||||||||||||
Commercial - Non Real Estate |
3 | $ | 82 | $ | 82 | 13 | $ | 603 | $ | 603 | ||||||||||||||
Commercial - Real Estate |
4 | 2,326 | 2,326 | 9 | 5,461 | 5,461 | ||||||||||||||||||
Construction & Development |
2 | 445 | 445 | 8 | 1,576 | 1,576 | ||||||||||||||||||
Residential |
3 | 1,293 | 1,293 | 22 | 3,325 | 3,325 | ||||||||||||||||||
Consumer - Non Real Estate |
1 | 14 | 14 | 2 | 32 | 32 | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Totals |
13 | $ | 4,160 | $ | 4,160 | 54 | $ | 10,997 | $ | 10,997 | ||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
For the three months ended September 30, 2011 | For the nine months ended September 30, 2011 | |||||||||||||||||||||||
Troubled Debt Restructuring |
Number of Contracts |
Pre-Modification Recorded Investment |
Post-Modification Recorded Investment |
Number of Contracts |
Pre-Modification Recorded Investment |
Post-Modification Recorded Investment |
||||||||||||||||||
Commercial - Non Real Estate |
5 | $ | 315 | $ | 315 | 18 | $ | 2,195 | $ | 2,195 | ||||||||||||||
Commercial - Real Estate |
4 | 693 | 693 | 12 | 3,656 | 3,656 | ||||||||||||||||||
Construction & Development |
1 | 902 | 902 | 6 | 2,311 | 2,311 | ||||||||||||||||||
Residential |
8 | 3,891 | 3,891 | 25 | 6,270 | 6,270 | ||||||||||||||||||
Consumer - Non Real Estate |
| | | | | | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Totals |
18 | $ | 5,801 | $ | 5,801 | 61 | $ | 14,432 | $ | 14,432 | ||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
For the purposes of this report, default is defined as being 90-days past due or on non-accrual status without performance. The following tables illustrate loans restructured in the twelve months prior to September 30, 2012 that went into default during the three- and nine-month periods ended September 30, 2012 and 2011 (dollars in thousands).
13
Three months ended September 30, 2012 |
Nine months ended September 30, 2012 |
|||||||||||||||
Troubled Debt Restructuring That Subsequently Defaulted |
Number of Contracts |
Recorded Investment |
Number of Contracts |
Recorded Investment |
||||||||||||
Commercial - Non Real Estate |
| $ | | | $ | | ||||||||||
Commercial - Real Estate |
| | | | ||||||||||||
Construction & Development |
| | | | ||||||||||||
Residential |
| | 1 | 69 | ||||||||||||
Consumer - Non Real Estate |
| | | | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Totals |
| $ | | 1 | $ | 69 | ||||||||||
|
|
|
|
|
|
|
|
|||||||||
Three months ended September 30, 2011 |
Nine months ended September 30, 2011 |
|||||||||||||||
Troubled Debt Restructuring That Subsequently Defaulted |
Number of Contracts |
Recorded Investment |
Number of Contracts |
Recorded Investment |
||||||||||||
Commercial - Non Real Estate |
| $ | | | $ | | ||||||||||
Commercial - Real Estate |
| | | | ||||||||||||
Construction & Development |
| | | | ||||||||||||
Residential |
| | | | ||||||||||||
Consumer - Non Real Estate |
| | | | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Totals |
| $ | | | $ | | ||||||||||
|
|
|
|
|
|
|
|
Some loan modifications classified as TDRs may not ultimately result in the full collection of principal and interest, as modified, and may result in potential incremental losses. These potential incremental losses have been factored into our overall allowance for loan losses estimate. The level of any re-defaults will likely be affected by future economic conditions. Once a loan becomes a TDR, it will continue to be reported as a TDR until it is ultimately repaid in full, reclassified to loans held for sale, or foreclosed and sold. Included in the allowance for loan losses at September 30, 2012 and 2011 was an impairment reserve for TDRs in the amount of $774,000 and $443,000, respectively.
14
Non-accrual loans and an age analysis of past due loans, segregated by class of loans, were as follows (dollars in thousands):
30 - 59 Days Past Due |
60 - 89 Days Past Due |
90 Days or More Past Due |
Total Past Due |
Current | Total Loans |
90 Days Past Due and Still Accruing |
Non-accrual Loans |
|||||||||||||||||||||||||
September 30, 2012: |
||||||||||||||||||||||||||||||||
Commercial - Non Real Estate |
$ | 136 | $ | 30 | $ | 106 | $ | 272 | $ | 24,187 | $ | 24,459 | $ | | $ | 446 | ||||||||||||||||
Commercial Real Estate |
||||||||||||||||||||||||||||||||
Owner occupied |
217 | 2,466 | | 2,683 | 57,915 | 60,598 | | 358 | ||||||||||||||||||||||||
Income producing |
385 | | | 385 | 46,223 | 46,608 | | 1,443 | ||||||||||||||||||||||||
Multifamily |
| | | | 7,296 | 7,296 | | | ||||||||||||||||||||||||
Construction & Development |
||||||||||||||||||||||||||||||||
1 - 4 Family |
46 | | | 46 | 1,816 | 1,862 | | | ||||||||||||||||||||||||
Other |
| 433 | | 433 | 28,083 | 28,516 | | 2,004 | ||||||||||||||||||||||||
Farmland |
| | | | 362 | 362 | | | ||||||||||||||||||||||||
Residential |
||||||||||||||||||||||||||||||||
Equity Lines |
| 35 | | 35 | 29,382 | 29,417 | | 140 | ||||||||||||||||||||||||
1 - 4 Family |
1,235 | 293 | 1,225 | 2,753 | 69,882 | 72,635 | | 3,690 | ||||||||||||||||||||||||
Junior Liens |
| | | | 1,398 | 1,398 | | 35 | ||||||||||||||||||||||||
Consumer - Non Real Estate |
4 | | 9 | 13 | 3,360 | 3,373 | | 9 | ||||||||||||||||||||||||
Other |
| | | | 4,147 | 4,147 | | | ||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||
Total |
$ | 2,023 | $ | 3,257 | $ | 1,340 | $ | 6,620 | $ | 274,051 | $ | 280,671 | $ | | $ | 8,125 | ||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||
30 - 59 Days Past Due |
60 - 89 Days Past Due |
90 Days or More Past Due |
Total Past Due |
Current | Total Loans |
90 Days Past Due and Still Accruing |
Non-accrual Loans |
|||||||||||||||||||||||||
December 31, 2011: |
||||||||||||||||||||||||||||||||
Commercial - Non Real Estate |
$ | 785 | $ | 559 | $ | 429 | $ | 1,773 | $ | 32,498 | $ | 34,271 | $ | | $ | 1,246 | ||||||||||||||||
Commercial Real Estate |
||||||||||||||||||||||||||||||||
Owner occupied |
319 | 270 | 957 | 1,546 | 74,706 | 76,252 | | 4,438 | ||||||||||||||||||||||||
Income producing |
2,250 | | 2,848 | 5,098 | 38,896 | 43,994 | | 4,021 | ||||||||||||||||||||||||
Multifamily |
59 | 708 | | 767 | 5,836 | 6,603 | | 708 | ||||||||||||||||||||||||
Construction & Development |
||||||||||||||||||||||||||||||||
1 - 4 Family |
| | 24 | 24 | 3,056 | 3,080 | | 24 | ||||||||||||||||||||||||
Other |
| | 976 | 976 | 27,683 | 28,659 | | 1,740 | ||||||||||||||||||||||||
Farmland |
| | | | 1,342 | 1,342 | | | ||||||||||||||||||||||||
Residential |
||||||||||||||||||||||||||||||||
Equity Lines |
137 | 99 | | 236 | 29,491 | 29,727 | | 38 | ||||||||||||||||||||||||
1 - 4 Family |
1,442 | 1,458 | 2,938 | 5,838 | 71,182 | 77,020 | | 6,779 | ||||||||||||||||||||||||
Junior Liens |
14 | | 19 | 33 | 1,578 | 1,611 | | 58 | ||||||||||||||||||||||||
Consumer - Non Real Estate |
31 | 5 | | 36 | 3,454 | 3,490 | | 10 | ||||||||||||||||||||||||
Other |
| | | | 1,858 | 1,858 | | | ||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||
Total |
$ | 5,037 | $ | 3,099 | $ | 8,191 | $ | 16,327 | $ | 291,580 | $ | 307,907 | $ | | $ | 19,062 | ||||||||||||||||
|
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|
The Bank categorizes loans and leases into risk categories based on relevant information about the ability of borrowers to service their debt such as: current financial information, historical payment experience, credit documentation, public information, and current economic trends, among other factors. This categorization is made on all commercial, commercial real estate, and construction and development loans. The Bank uses the following definitions for risk ratings:
Special Mention - Loans and leases classified as special mention, while still adequately protected by the borrowers capital adequacy and payment capability, exhibit distinct weakening trends and/or elevated levels of exposure to external conditions. If left unchecked or uncorrected, these potential weaknesses may result in deteriorated prospects of repayment. These exposures require managements close attention so as to avoid becoming undue or unwarranted credit exposures.
Substandard - Loans and leases classified as substandard are inadequately protected by the borrowers current financial condition and payment capability or of the collateral pledged, if any. Loans and leases so classified have a well-defined weakness or weaknesses that jeopardize the orderly repayment of debt. They are characterized by the distinct possibility that the Bank will sustain some loss if the deficiencies are not corrected.
15
Doubtful - Loans and leases classified as doubtful have all the weaknesses inherent in those classified as substandard, with the added characteristic that the weaknesses make collection or orderly repayment in full, on the basis of current existing facts, conditions and values, highly questionable and improbable. Possibility of loss is extremely high, but because of certain important and reasonably specific factors that may work to the advantage and strengthening of the exposure, its classification as an estimated loss is deferred until its more exact status may be determined. The Companys practice is to charge-off the portion of the loan amount determined to be doubtful in the quarter that the determination is made if the repayment of the loan is collateral dependent.
Loss - Loans and leases classified as loss are considered to be non-collectible and of such little value that their continuance as bankable assets is not warranted. This does not mean the loan has absolutely no recovery value, but rather it is neither practical nor desirable to defer writing off the loan, even though partial recovery may be obtained in the future. Losses are taken in the period in which they surface as uncollectible.
Loans not meeting the criteria above that are analyzed individually as part of the above described process are considered to be pass-rated loans. As of September 30, 2012 and December 31, 2011, and based on the most recent analysis performed, the loans and leases were categorized as follows (dollars in thousands):
September 30, 2012 | ||||||||||||||||||||
Internal Risk Rating Grades | Pass | Special Mention |
Substandard | Doubtful | Loss | |||||||||||||||
Commercial - Non Real Estate |
$ | 17,872 | $ | 3,691 | $ | 2,896 | $ | | $ | | ||||||||||
Commercial Real Estate |
||||||||||||||||||||
Owner occupied |
36,390 | 15,505 | 8,703 | | | |||||||||||||||
Income producing |
24,873 | 11,441 | 10,294 | | | |||||||||||||||
Multifamily |
5,267 | 710 | 1,319 | | | |||||||||||||||
Construction & Development |
||||||||||||||||||||
1 - 4 Family |
1,238 | 255 | 369 | | | |||||||||||||||
Other |
12,835 | 12,306 | 3,375 | | | |||||||||||||||
Farmland |
| | 362 | | | |||||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Totals |
$ | 98,475 | $ | 43,908 | $ | 27,318 | $ | | $ | | ||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Total: |
||||||||||||||||||||
Commercial - Non Real Estate |
$ | 17,872 | $ | 3,691 | $ | 2,896 | $ | | $ | | ||||||||||
Commercial Real Estate |
$ | 66,530 | $ | 27,656 | $ | 20,316 | $ | | $ | | ||||||||||
Construction & Development |
$ | 14,073 | $ | 12,561 | $ | 4,106 | $ | | $ | | ||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Totals |
$ | 98,475 | $ | 43,908 | $ | 27,318 | $ | | $ | | ||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
December 31, 2011 | ||||||||||||||||||||
Internal Risk Rating Grades | Pass | Special Mention |
Substandard | Doubtful | Loss | |||||||||||||||
Commercial - Non Real Estate |
$ | 26,552 | $ | 3,606 | $ | 3,727 | $ | 386 | $ | | ||||||||||
Commercial Real Estate |
||||||||||||||||||||
Owner occupied |
54,739 | 8,547 | 12,854 | 112 | | |||||||||||||||
Income producing |
29,583 | 3,604 | 10,807 | | | |||||||||||||||
Multifamily |
3,820 | 793 | 1,990 | | | |||||||||||||||
Construction & Development |
||||||||||||||||||||
1 - 4 Family |
1,081 | 1,255 | 744 | | | |||||||||||||||
Other |
18,191 | 8,199 | 1,988 | 281 | | |||||||||||||||
Farmland |
| 362 | 980 | | | |||||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Totals |
$ | 133,966 | $ | 26,366 | $ | 33,090 | $ | 779 | $ | | ||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Total: |
||||||||||||||||||||
Commercial - Non Real Estate |
$ | 26,552 | $ | 3,606 | $ | 3,727 | $ | 386 | $ | | ||||||||||
Commercial Real Estate |
$ | 88,142 | $ | 12,944 | $ | 25,651 | $ | 112 | $ | | ||||||||||
Construction & Development |
$ | 19,272 | $ | 9,816 | $ | 3,712 | $ | 281 | $ | | ||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Totals |
$ | 133,966 | $ | 26,366 | $ | 33,090 | $ | 779 | $ | | ||||||||||
|
|
|
|
|
|
|
|
|
|
16
All consumer-related loans, including residential real estate and non-real estate, are evaluated and monitored based upon payment activity. Once a consumer-related loan becomes past due on a recurring basis, the Company will pull that loan out of the homogenized pool and evaluate it individually for impairment. At this time, the consumer-related loan may be placed on the Companys internal watch list and risk rated either special mention or substandard, depending upon the individual circumstances. Consumer-related loans at September 30, 2012 and December 31, 2011, segregated by class of loans, were as follows (dollars in thousands):
September 30, 2012 | December 31, 2011 | |||||||||||||||
Risk Based on Payment Activity | Performing | Non- Performing |
Performing | Non- Performing |
||||||||||||
Residential |
||||||||||||||||
Equity Lines |
$ | 29,277 | $ | 140 | $ | 29,689 | $ | 38 | ||||||||
1 - 4 Family |
70,758 | 1,877 | 73,427 | 3,593 | ||||||||||||
Junior Liens |
1,398 | | 1,592 | 19 | ||||||||||||
Consumer - Non Real Estate |
||||||||||||||||
Credit Cards |
| | | | ||||||||||||
Other |
3,373 | | 3,480 | 10 | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Totals |
$ | 104,806 | $ | 2,017 | $ | 108,188 | $ | 3,660 | ||||||||
|
|
|
|
|
|
|
|
|||||||||
Total: |
||||||||||||||||
Residential |
$ | 101,433 | $ | 2,017 | $ | 104,708 | $ | 3,650 | ||||||||
Consumer - Non Real Estate |
$ | 3,373 | $ | | $ | 3,480 | $ | 10 | ||||||||
|
|
|
|
|
|
|
|
|||||||||
Totals |
$ | 104,806 | $ | 2,017 | $ | 108,188 | $ | 3,660 | ||||||||
|
|
|
|
|
|
|
|
NOTE 5. ALLOWANCE FOR LOAN LOSSES
The allowance for loan losses is a reserve established through a provision for loan losses charged to expense, which represents managements best estimate of probable losses that have been incurred within the existing portfolio of loans. The allowance is necessary to reserve for, in the judgment of management, estimated loan losses and risks inherent in the loan portfolio. The Companys allowance for loan loss methodology includes allowance allocations calculated in accordance with ASC Topic 310, Receivables and allowance allocations calculated in accordance with ASC Topic 450, Contingencies. Accordingly, the methodology is based on historical loss experience by type of credit and internal risk grade, specific homogeneous risk pools and specific loss allocations, with adjustments for current events and conditions. The Companys process for determining the appropriate level of the allowance for loan losses is designed to account for credit deterioration as it occurs. The provision for loan losses reflects loan quality trends, including the levels of and trends related to non-accrual loans, past due loans, potential problem loans, criticized loans and net charge-offs or recoveries, among other factors. The provision for loan losses also reflects the totality of actions taken on all loans for a particular period. In other words, the amount of the provision reflects not only the necessary increases in the allowance for loan losses related to newly identified criticized loans, but it also reflects actions taken related to other loans including, among other things, any necessary increases or decreases in required allowances for specific loans.
The level of the allowance reflects managements continuing evaluation of industry concentrations, specific credit risks, loan loss experience, current loan portfolio quality, present economic, political and regulatory conditions and unidentified losses inherent in the current loan portfolio. Portions of the allowance may be allocated for specific credits; however, the entire allowance is available for any credit that, in managements judgment, should be charged off. While management utilizes its best judgment and information available, the ultimate adequacy of the allowance is dependent upon a variety of factors beyond the Companys control, including, among other things, the performance of the Companys loan portfolio, the economy, changes in interest rates and the view of the regulatory authorities toward loan classifications.
The Companys allowance for loan losses consists of three elements: (i) specific valuation allowances determined in accordance with accounting principles regarding receivables based on probable losses on specific loans; (ii) historical valuation allowances determined in accordance with accounting principles regarding contingencies based on historical loan loss experience for similar loans with similar characteristics and trends, adjusted, as necessary, to reflect the impact of current conditions; and (iii) general valuation allowances determined in accordance with accounting principles regarding contingencies based on general economic conditions and other qualitative risk factors both internal and external to the Company.
17
Historical valuation allowances are calculated based on the historical loss experience of specific types of loans at the time they were charged-off. The Company calculates historical loss ratios for pools of similar loans with similar characteristics based on the proportion of actual charge-offs experienced to the total population of loans in the pool. The historical loss ratios are periodically updated based on actual charge-off experience. A historical valuation allowance is established for each pool of similar loans based upon the product of the historical loss ratio and the total dollar amount of the loans in the pool. The Companys pools of similar loans include commercial and industrial loans, commercial real estate loans, construction and development loans, residential real estate loans, and consumer and other loans. General valuation allowances are based on general economic conditions and other qualitative risk factors both internal and external to the Company. In general, such valuation allowances are determined by evaluating, among other things: (i) levels and trends in delinquencies and impaired loans; (ii) levels of and trends in charge-offs and recoveries; (iii) levels of non-impaired substandard loans; (iv) trends in volume and terms of loans; (v) effects of changes in risk selection and underwriting practices; (vi) experience, ability, and depth of lending management and staff; (vii) national and local economic trends and conditions; (viii) industry conditions; and (ix) effect of changes in credit concentrations. Management evaluates the degree of risk that each one of these components has on the quality of the loan portfolio on a quarterly basis. Loans identified as losses by management, internal loan review and/or regulatory examiners are charged-off.
Changes in the allowance for loan losses by segment, since their respective year-end, are as follows (dollars in thousands):
September 30, 2012 | September 30, 2011 | |||||||||||||||||||||||||||||||||||||||
Beginning Balance |
Chargeoffs | Recoveries | Provision | Ending Balance |
Beginning Balance |
Chargeoffs | Recoveries | Provision | Ending Balance |
|||||||||||||||||||||||||||||||
Commercial - Non Real Estate |
$ | 2,247 | $ | (382 | ) | $ | 306 | $ | (773 | ) | $ | 1,398 | $ | 2,252 | $ | (4,085 | ) | $ | 427 | $ | 4,280 | $ | 2,874 | |||||||||||||||||
Commercial Real Estate |
||||||||||||||||||||||||||||||||||||||||
Owner occupied |
1,794 | (550 | ) | 67 | 237 | 1,548 | 1,055 | (5,731 | ) | 21 | 6,290 | 1,635 | ||||||||||||||||||||||||||||
Income producing |
547 | (1,170 | ) | 47 | 1,359 | 783 | 99 | (101 | ) | | 190 | 188 | ||||||||||||||||||||||||||||
Multifamily |
80 | | | 5 | 85 | | | | | | ||||||||||||||||||||||||||||||
Construction & Development |
||||||||||||||||||||||||||||||||||||||||
1 - 4 Family |
58 | (99 | ) | 1 | 121 | 81 | 181 | (212 | ) | 4 | 168 | 141 | ||||||||||||||||||||||||||||
Other |
661 | (1,019 | ) | 166 | 939 | 747 | 486 | (492 | ) | 99 | 785 | 878 | ||||||||||||||||||||||||||||
Farmland |
| | | | | | | | | | ||||||||||||||||||||||||||||||
Residential |
||||||||||||||||||||||||||||||||||||||||
Equity Lines |
279 | (25 | ) | 7 | 20 | 281 | 459 | (692 | ) | 2 | 483 | 252 | ||||||||||||||||||||||||||||
1 - 4 Family |
1,168 | (1,073 | ) | 114 | 1,073 | 1,282 | 1,078 | (1,922 | ) | 43 | 1,902 | 1,101 | ||||||||||||||||||||||||||||
Consumer - Non Real Estate |
143 | (62 | ) | 25 | 26 | 132 | 161 | (115 | ) | 15 | 93 | 154 | ||||||||||||||||||||||||||||
Unallocated |
1,124 | | | (11 | ) | 1,113 | 1,092 | | | 376 | 1,468 | |||||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||||||
Total |
$ | 8,101 | $ | (4,380 | ) | $ | 733 | $ | 2,996 | $ | 7,450 | $ | 6,863 | $ | (13,350 | ) | $ | 611 | $ | 14,567 | $ | 8,691 | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
18
As of September 30, 2012 and December 31, 2011, loans were evaluated for impairment as follows (dollars in thousands):
Individually Evaluated for Impairment | ||||||||||||||||
September 30, 2012 | December 31, 2011 | |||||||||||||||
Allowance | Total Loans | Allowance | Total Loans | |||||||||||||
Commercial - Non Real Estate |
$ | 52 | $ | 3,538 | $ | 74 | $ | 5,451 | ||||||||
Commercial Real Estate |
||||||||||||||||
Owner occupied |
173 | 7,465 | 64 | 6,188 | ||||||||||||
Income producing |
146 | 10,249 | 224 | 10,650 | ||||||||||||
Multifamily |
50 | 1,319 | 68 | 1,990 | ||||||||||||
Construction & Development |
||||||||||||||||
1 - 4 Family |
8 | 390 | 9 | 1,668 | ||||||||||||
Other |
140 | 6,961 | 91 | 5,307 | ||||||||||||
Farmland |
| 362 | | | ||||||||||||
Residential |
||||||||||||||||
Equity Lines |
| 140 | | 38 | ||||||||||||
1 - 4 Family |
205 | 14,371 | 240 | 15,048 | ||||||||||||
Consumer - Non Real Estate |
| 87 | | 58 | ||||||||||||
Unallocated |
| | | | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Total |
$ | 774 | $ | 44,882 | $ | 770 | $ | 46,398 | ||||||||
|
|
|
|
|
|
|
|
|||||||||
Collectively Evaluated for Impairment | ||||||||||||||||
September 30, 2012 | December 31, 2011 | |||||||||||||||
Allowance | Total Loans | Allowance | Total Loans | |||||||||||||
Commercial - Non Real Estate |
$ | 1,346 | $ | 20,921 | $ | 2,173 | $ | 28,820 | ||||||||
Commercial Real Estate |
||||||||||||||||
Owner occupied |
1,375 | 53,133 | 1,730 | 70,064 | ||||||||||||
Income producing |
637 | 36,359 | 323 | 33,344 | ||||||||||||
Multifamily |
35 | 5,977 | 12 | 4,613 | ||||||||||||
Construction & Development |
||||||||||||||||
1 - 4 Family |
73 | 1,472 | 49 | 1,412 | ||||||||||||
Other |
607 | 21,555 | 570 | 23,352 | ||||||||||||
Farmland |
| | | 1,342 | ||||||||||||
Residential |
||||||||||||||||
Equity Lines |
281 | 29,277 | 279 | 29,689 | ||||||||||||
1 - 4 Family |
1,077 | 59,662 | 928 | 63,583 | ||||||||||||
Consumer - Non Real Estate |
132 | 3,286 | 143 | 3,432 | ||||||||||||
Unallocated |
1,113 | 4,147 | 1,124 | 1,858 | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Total |
$ | 6,676 | $ | 235,789 | $ | 7,331 | $ | 261,509 | ||||||||
|
|
|
|
|
|
|
|
19
NOTE 6. COMMITMENTS AND CONTINGENCIES
The Company is a party to financial instruments with off-balance sheet risk in the normal course of business to meet the financing needs of its 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 Companys risk of loss related to unfunded loan commitments and lines of credit or standby letters of credit is represented by the contractual amount of these instruments. The Company uses the same credit policies in making commitments under such instruments as it does for on-balance sheet instruments. The amount of collateral obtained, if any, is based on managements credit 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. The following table presents a summary of outstanding financial instruments whose contract amounts represent credit risk as of September 30, 2012 (dollars in thousands):
Unfunded loan commitments |
$ | 28,060 | ||
Financial standby letters of credit |
212 | |||
|
|
|||
Total unused commitments |
$ | 28,272 | ||
|
|
NOTE 7. RECENT ACCOUNTING PRONOUNCEMENTS
In January 2011, the FASB (also referred to in this note as the Board) issued Accounting Standards Update 2011-01, Receivables: Deferral of the Effective Date of Disclosures about Troubled Debt Restructurings in Update No. 2010-20. Under the existing effective date in Update 2010-20, public-entity creditors would have provided disclosures about troubled debt restructurings for periods beginning on or after December 15, 2010. The amendments in this Update temporarily deferred the effective date for interim and annual periods ending after June 15, 2011, enabling public-entity creditors to provide those disclosures after the Board clarifies the guidance for determining what constitutes a troubled debt restructuring. The deferral in this Update will result in more consistent disclosures about troubled debt restructurings. This amendment does not defer the effective date of the other disclosure requirements in Update 2010-20. The deferral in this amendment was effective upon issuance and did have a significant impact on the Company.
In April 2011, the FASB issued Accounting Standards Update 2011-02, Receivables: A Creditors Determination of Whether a Restructuring Is a Troubled Debt Restructuring. This update provides additional guidance and amendments to Subtopic 310-40, Receivables Troubled Debt Restructurings by Creditors. In evaluating whether a restructuring constitutes a troubled debt restructuring, a creditor must separately conclude that both of the following exist: the restructuring constitutes a concession, and the debtor is experiencing financial difficulties. The amendments clarify the guidance on a creditors evaluation of whether it has granted a concession, and on a creditors evaluation of whether a debtor is experiencing financial difficulties.
The amendments in this Update are effective for the first interim or annual period beginning on or after June 15, 2011, and should be applied retrospectively to the beginning of the annual period of adoption. As a result of applying these amendments, an entity may identify receivables that are newly considered 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. An entity should disclose the total amount of receivables and the allowance for credit losses as of the end of the period of adoption related to those receivables that are newly considered impaired under Section 310-10-35 for which impairment was previously measured under Subtopic 450-20, ContingenciesLoss Contingencies. An entity should disclose the information required by paragraphs 310-10-50-33 through 50-34, which was deferred by Accounting Standards Update No. 2011-01, Receivables (Topic 310): Deferral of the Effective Date of Disclosures about Troubled Debt Restructurings in Update No. 2010-20. The amendments in this update are for interim and annual periods beginning on or after June 15, 2011. The amendments did not have a significant impact on the Company.
In April 2011, the FASB issued Accounting Standards Update 2011-03, Transfers and Servicing: Reconsideration of Effective Control for Repurchase Agreements. The amendments in this Update 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
20
criterion. Other criteria applicable to the assessment of effective control are not changed by the amendments in this Update.
Those criteria indicate that the transferor is deemed to have maintained effective control over the financial assets transferred (and thus must account for the transaction as a secured borrowing) for agreements that both entitle and obligate the transferor to repurchase or redeem the financial assets before their maturity when all of the listed conditions have been met. The amendments in this Update are effective for public entities for fiscal years, and interim periods within those years, beginning after December 15, 2011. The amendments did not have a significant impact on the Company.
In May 2011, the FASB issued Accounting Standards Update 2011-04, Fair Value Measurement: Amendments to Achieve Common Fair Value Measurement and Disclosure Requirements in U.S. GAAP and IFRSs. The amendments in this Update result in common fair value measurement and disclosure requirements in U.S. GAAP and IFRSs. Consequently, the amendments change the wording used to describe many of the requirements in U.S. GAAP for measuring fair value and for disclosing information about fair value measurements. For many of the requirements, the Board does not intend for the amendments in this Update to result in a change in the application of the requirements in Topic 820.
Some of the amendments clarify the Boards intent about the application of existing fair value measurement requirements. Other amendments change a particular principle or requirement for measuring fair value or for disclosing information about fair value measurements. The amendments in this Update are effective for public entities for fiscal years, and interim periods within those years, beginning after December 15, 2011. The amendments did not have a significant impact on the Company.
In June 2011, the FASB issued Accounting Standards Update 2011-05, Comprehensive Income: Presentation of Comprehensive Income. Under the amendments to Topic 220, Comprehensive Income, in this Update, an entity has the option to present the total of comprehensive income, the components of net income, and the components of other comprehensive income either in a single continuous statement of comprehensive income or in two separate but consecutive statements. In both choices, an entity is required to present each component of net income along with total net income, each component of other comprehensive income along with a total for other comprehensive income, and a total amount for comprehensive income. In a single continuous statement, the entity is required to present the components of net income and total net income, the components of other comprehensive income and a total for other comprehensive income, along with the total of comprehensive income in that statement. In the two-statement approach, an entity is required to present components of net income and total net income in the statement of net income. The statement of other comprehensive income should immediately follow the statement of net income and include the components of other comprehensive income and a total for other comprehensive income, along with a total for comprehensive income.
Regardless of whether an entity chooses to present comprehensive income in a single continuous statement or in two separate but consecutive statements, the entity is required 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(s) where the components of net income and the components of other comprehensive income are presented.
The amendments in this Update do not change the items that must be reported in other comprehensive income or when an item of other comprehensive income must be reclassified to net income. The amendments do not change the option for an entity to present components of other comprehensive income either net of related tax effects or before related tax effects, with one amount shown for the aggregate income tax expense or benefit related to the total of other comprehensive income items. In both cases, the tax effect for each component must be disclosed in the notes to the financial statements or presented in the statement in which other comprehensive income is presented. The amendments do not affect how earnings per share is calculated or presented. The amendments in this Update are effective for public entities for fiscal years, and interim periods within those years, beginning after December 15, 2011. The amendments did not have a significant impact on the Company.
In December 2011, the FASB issued Accounting Standards Update 2011-12, Comprehensive Income: Deferral of the Effective Date for Amendments to the Presentation of Reclassifications of Items Out of Accumulated Other Comprehensive Income in Accounting Standards Update No. 2011-05. Under the amendments in Update 2011-05, entities are required to present reclassification adjustments and the effect of those reclassification adjustments on the face of the financial statements where net income is presented, by component of net income, and on the face of the financial statements where other comprehensive income is presented, by component of other comprehensive income. In addition, the amendments in Update 2011-05 require that reclassification adjustments be presented in interim financial periods.
The amendments in this Update supersede changes to those paragraphs in Update 2011-05 that pertain to how, when, and where reclassification adjustments are presented.
21
The objective of Update 2011-05 was to help financial statement users better understand the causes of an entitys change in financial position and results of operations. However, it is important that the benefits of improving the usefulness of financial statement information to users of financial statements be justified by the related costs. The Board received more information about the systems challenges for preparers to comply with the presentation requirements for reclassifications out of accumulated other comprehensive income by the effective date since the issuance of Update 2011-05. The information received caused the Board to reassess the costs and benefits of those provisions in Update 2011-05 related to reclassifications out of accumulated other comprehensive income. Due to the time required to properly make such a reassessment and to evaluate alternative presentation formats, the Board decided that it is necessary to reinstate the requirements for the presentation of reclassifications out of accumulated other comprehensive income that were in place before the issuance of Update 2011-05. The amendments in this Update are effective for public entities for fiscal years, and interim periods within those years, beginning after December 15, 2011. The amendments did not have a significant impact on the Company.
In July 2012, the FASB issued Accounting Standards Update 2012-02, Intangibles Goodwill and Other (Topic 350). The amendments in this Update are intended to reduce cost and complexity by providing an entity with the option to make a qualitative assessment about the likelihood that an indefinite-lived intangible asset is impaired to determine whether it should perform a quantitative impairment test. The amendments also enhance the consistency of impairment testing guidance among long-lived asset categories by permitting an entity to assess qualitative factors to determine whether it is necessary to calculate the assets fair value when testing an indefinite-lived intangible asset for impairment, which is equivalent to the impairment testing requirements for other long-lived assets. The amendments are not expected to have a significant impact on the Company.
From time to time the FASB issues Proposed Accounting Standards Updates. Such proposed updates are subject to comment from the public, to revisions by the FASB and to final issuance by the FASB as Accounting Standards Updates. Management considers the effect of the proposed updates on the consolidated financial statements of the Company and monitors the status of changes to and proposed effective dates of proposed updates.
NOTE 8. FAIR VALUE
Accounting principles generally accepted in the United States of America require that companies measure and record certain assets and liabilities at fair value and record any adjustments to the fair value of those assets. Securities are recorded at fair value on a recurring basis while other assets, such as impaired loans, are recorded at fair value on a non-recurring basis.
The Company uses three levels of measurement to group those assets measured at fair value. These groupings are made based on the markets the assets are traded in and the reliability of the assumptions used to determine fair value. The groupings include:
| Level 1 pricing for an asset or liability is derived from the most likely actively traded markets and considered very reliable. Quoted prices on actively traded equities, for example, fall into this category. |
| Level 2 pricing is derived from observable data including market spreads, current and projected rates, prepayment data and credit quality. Our bond price adjustments fall into this category as well as impaired loans and other real estate owned that use appraisals or brokered price opinions to determine fair value. |
| Level 3 pricing is derived without observable data. In such cases, mark-to-market strategies are typically employed. These types of instruments often have no active market, possess unique characteristics and are thinly traded. |
The Companys investment securities are measured on a recurring basis through a model used by our bond agent. All of our bond price adjustments meet Level 2 criteria. Prices are derived from a model which uses actively quoted rates, prepayment models and other underlying credit and collateral data.
22
The following table summarizes the Companys assets measured at fair value at the dates indicated (dollars in thousands):
At September 30, 2012 | ||||||||||||||||
Total | Level 1 | Level 2 | Level 3 | |||||||||||||
Assets valued on a recurring basis |
||||||||||||||||
Investment securities: |
||||||||||||||||
U.S. government and agency |
$ | 56,237 | $ | | $ | 56,237 | $ | | ||||||||
State and municipals |
8,391 | | 8,391 | | ||||||||||||
Mortgage-backed |
54,772 | | 54,772 | | ||||||||||||
Assets valued on a non-recurring basis |
||||||||||||||||
Impaired loans |
44,108 | | 44,108 | | ||||||||||||
Other real estate owned |
5,424 | | 5,424 | | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Total |
$ | 168,932 | $ | | $ | 168,932 | $ | | ||||||||
|
|
|
|
|
|
|
|
|||||||||
At December 31, 2011 | ||||||||||||||||
Total | Level 1 | Level 2 | Level 3 | |||||||||||||
Assets valued on a recurring basis |
||||||||||||||||
Investment securities: |
||||||||||||||||
U.S. government and agency |
$ | 44,259 | $ | | $ | 44,259 | $ | | ||||||||
State and municipals |
3,590 | | 3,590 | | ||||||||||||
Corporate |
1,017 | | 1,017 | | ||||||||||||
Mortgage-backed |
61,571 | | 61,571 | | ||||||||||||
Assets valued on a non-recurring basis |
||||||||||||||||
Impaired loans |
45,628 | | 45,628 | | ||||||||||||
Other real estate owned |
8,524 | | 8,524 | | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Total |
$ | 164,589 | $ | | $ | 164,589 | $ | | ||||||||
|
|
|
|
|
|
|
|
NOTE 9. BORROWED FUNDS
A summary of the Companys outstanding borrowings and the annual rate of interest currently payable on each category is presented in the following table at the dates indicated (dollars in thousands):
September 30, 2012 | December 31, 2011 | |||||||||||||||
Outstanding Balance |
Annual Interest Rate |
Outstanding Balance |
Annual Interest Rate |
|||||||||||||
Securities sold under overnight repurchase agreements |
$ | 379 | 0.10 | % | $ | 381 | 0.10 | % | ||||||||
Securities sold under term repurchase agreements |
45,000 | 4.38 | 45,000 | 4.38 | ||||||||||||
Trust preferred securities |
5,155 | 3.29 | 5,155 | 3.49 | ||||||||||||
Subordinated debt |
2,700 | 4.00 | 2,700 | 4.00 | ||||||||||||
|
|
|
|
|||||||||||||
Total borrowed funds |
$ | 53,234 | 4.22 | % | $ | 53,236 | 4.24 | % | ||||||||
|
|
|
|
The Bank engages from time-to-time in federal funds purchases from upstream correspondent institutions to meet temporary funding needs. There were none of these transactions outstanding at the close of either period presented in the above table.
23
The Bank had a total of $45.0 million of borrowings in the form of securities sold under term repurchase agreements that were entered into during 2008. These borrowings are secured by marketable investment securities equal to approximately 109.5% of the principal balances outstanding plus accrued interest and the value of an imbedded interest rate cap. The following table contains certain pertinent information with respect to these agreements at September 30, 2012 (dollars in thousands):
Outstanding Principal Balance |
Annual Effective Interest Rate |
Final Maturity Date |
Beginning Quarterly Call Dates |
Collateral Requirement |
||||||||||||||||
Agreement dated 7/8/2008 |
$ | 25,000 | 4.85 | % | 7/8/2018 | 7/8/2013 | $ | 8,796 | ||||||||||||
Agreement dated 8/20/2008 |
20,000 | 3.78 | 8/20/2015 | 8/20/2011 | 4,356 | |||||||||||||||
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|
|
|
|||||||||||||||||
Total |
$ | 45,000 | 4.38 | % | $ | 13,152 | ||||||||||||||
|
|
|
|
The Bank utilizes borrowings from the Federal Home Loan Bank (FHLB) as a source of liquidity. At September 30, 2012, the Bank had immediately available credit of $8.4 million. There were no advances from the FHLB at quarter-end.
During 2008, the Company issued $5.2 million of junior subordinated debentures to its wholly owned capital trust, Bank of the Carolinas Trust I (the Trust), which, in turn, issued $5.0 million in trust preferred securities having a like liquidation amount and $155,000 in common securities (all common securities are owned by the Company). The Company has fully and unconditionally guaranteed the Trusts obligations related to the trust preferred securities. The Trust has the right to redeem the trust preferred securities in whole or in part, on or after June 15, 2013 at a redemption price equal to 100% of the principal amount plus accrued and unpaid interest.
In addition, the Trust may redeem the trust preferred securities in whole (but not in part) at any time within 90 days following the occurrence of a tax event, an investment company event, or a capital treatment event at a special redemption price (as defined in the debenture). Interest is payable quarterly on the trust preferred securities at the annual rate of 90-day LIBOR plus 300 basis points. In February 2011, the Company announced its election to defer its regularly scheduled interest payments on the junior subordinated debentures related to the trust preferred securities. Furthermore, the Company is now party to a written agreement with the Federal Reserve, which restricts the Companys ability to make interest payments on subordinated debt, as described below.
The Company also has issued $2.7 million of subordinated debt in a private transaction with another financial institution. This subordinated note has a floating interest rate equal to 75 basis points over the Prime Rate published by Wall Street Journal and a maturity date of August 13, 2018. This debt can be repaid in full at any time with no penalty.
Under the terms of a written agreement between the Company and the Federal Reserve Bank of Richmond, the Company and the Trust may not make any distributions of interest, principal, or other sums on subordinated debentures or trust preferred securities without the prior written approval of the Federal Reserve Bank of Richmond and the Director of the Division of Banking Supervision and Regulation of the Federal Reserve Board of Governors.
NOTE 10. STOCKHOLDERS EQUITY
Preferred Stock:
The Company has 3.0 million shares of preferred stock authorized. There were 13,179 shares of preferred stock issued and outstanding with a $1,000 per share liquidation preference on September 30, 2012 and December 31, 2011. All of the shares were issued on April 17, 2009 in connection with the Companys participation in the U.S. Treasurys TARP Capital Purchase Program.
In February 2011, the Company notified the Treasury of its intent to defer the payment of its regular quarterly cash dividend on its Series A Preferred Stock sold to the Treasury. In addition, the Company has entered into a written agreement with the Federal Reserve Bank of Richmond, which prohibits the Companys payment of any dividends without the prior approval of the Federal Reserve Bank of Richmond and the Director of the Division of Banking Supervision and Regulation of the Federal Reserve Board of Governors.
At September 30, 2012 and December 31, 2011, the cumulative amount of dividends in arrears not declared was $1.1 million and $582,000, respectively.
Common Stock:
The Company has 15.0 million shares of $5 par value common stock authorized. There were 3,895,840 shares of common stock issued and outstanding at September 30, 2012 and December 31, 2011, respectively.
24
Warrants:
In connection with the issuance of the preferred shares under the U.S. Treasurys TARP Capital Purchase Program, the Company issued the U.S. Treasury a warrant to purchase 475,204 shares of its common stock for $4.16 per share. The warrant expires April 17, 2019.
NOTE 11. INCOME TAXES
The Company utilizes the liability method of computing income taxes. Under the liability method, deferred tax liabilities and assets are established for future tax return effects of the temporary differences between the stated value of assets and liabilities for financial reporting purposes and their tax bases. The focus is on accruing the appropriate balance sheet deferred tax amount, with the statement of income effect being the result of the changes in the balance sheet amounts from period to period. The current portion of income tax expense is provided based upon the actual tax liability incurred for tax return purposes.
An evaluation of the probability of being able to realize the future benefits of deferred tax assets is made. A valuation allowance is provided for the deferred tax asset when it is more likely than not that some portion or all of the deferred tax asset will not be realized. Management has established a deferred tax asset valuation allowance as of September 30, 2012 of $15.0 million. There was a $12.7 million valuation allowance as of December 31, 2011. The valuation allowance has been established because management believes current overall credit trends, as well as actual and forecasted performance, raise significant concern over the ability of the Company to realize the components of its deferred tax assets relating to net operating losses and the allowances for losses on loans and OREO.
NOTE 12. GOING CONCERN
Going Concern Considerations
The consolidated financial statements have been prepared on a going concern basis, which contemplates the realization of assets and the discharge of liabilities in the normal course of business for the foreseeable future. It is the responsibility of management to assess the Companys ability to continue as a going concern. In making this assessment, the Company has taken into account all available information about the future, which is at least, but is not limited to, twelve months from the balance sheet date of September 30, 2012. The Company had a history of profitable operations prior to 2008 and sufficient sources of liquidity to meet its short-term and long-term funding needs.
The effects of the current economic environment are being felt across many industries, with financial services and real estate being particularly hard-hit, and have been particularly severe during the last 45 months. The Bank, with a loan portfolio consisting of a concentration in commercial real estate loans, including residential construction and development loans, has seen a decline in the value of the collateral securing its portfolio as well as rapid deterioration in its borrowers cash flow and ability to repay their outstanding loans made by the Bank. As a result, the Banks level of nonperforming assets increased substantially during 2010 and 2011. The significant losses in 2010, 2011, and the first nine months of 2012, which were primarily related to credit losses and the valuation allowance on deferred tax assets, reduced the Companys capital levels. In order to again become well capitalized under federal banking agencies guidelines, management believes that the Company will need to raise additional capital to recapitalize the Bank and to absorb the potential future credit losses associated with the disposition of its nonperforming assets. Accordingly, management is in the process of evaluating various alternatives to increase tangible common equity and regulatory capital through the issuance of additional equity in public or private offerings. Management is actively evaluating a number of potential capital sources, asset reductions, and other balance sheet management strategies with the goal of increasing its level of regulatory capital to support its balance sheet long-term. Management is currently attempting to reduce and otherwise restructure the Companys balance sheet to improve capital ratios.
Current market conditions for banking institutions, the overall uncertainty in financial markets, and a depressed stock price are significant barriers to the success of any plan to issue additional equity in public or private offerings. An equity financing transaction would result in substantial dilution to the Companys current stockholders and could adversely affect the market price of the Companys common stock. There can be no assurance as to whether these efforts will be successful, either on a short-term or long-term basis. Should these efforts be unsuccessful, due to existing regulatory restrictions on cash payments and dividends between the Bank and the holding company, the Company may be unable to discharge its liabilities in the normal course of business. There can be no assurance that the Company will be successful in any efforts to raise additional capital.
25
Both the Company and the Bank actively manage liquidity and cash flow needs. The Bank is prohibited from declaring or paying dividends without prior approval of the FDIC or the North Carolina Commissioner of Banks and the Company is prohibited from declaring or paying dividends without the prior approval from the Federal Reserve. Even if these requirements were not in place, the Company does not intend to declare or pay dividends to shareholders at any time in the foreseeable future. At September 30, 2012, the Company had $7.8 million of cash and cash equivalents. The Company has no long-term debt maturing in 2012 or 2013.
Based on current capital levels and continued operating losses, management believes the Company will require additional capital to be able to remain viable. Management has implemented various strategies to provide this needed capital. In spite of managements best efforts, there is no assurance management will be successful in raising additional capital. The accompanying consolidated financial statements for the Company have been prepared on a going concern basis, which contemplates the realization of assets and the discharge of liabilities in the normal course of business for the foreseeable future, and does not include any adjustments to reflect the possible future effects on the recoverability or classification of assets.
Managements Plans and Intentions
The Company incurred significant net losses in 2010 and 2011, which have continued in 2012, primarily from the higher provisions for loan losses due to the significant level of nonperforming assets and increases in foreclosed real estate. The FDIC and the Commissioner issued the Consent Order in April 2011. The Company entered into a written agreement with the FRB in August 2011. The Companys independent registered public accounting firm issued a report with respect to the Companys audited financial statements for the fiscal year ended December 31, 2011, which contained an explanatory paragraph indicating that there is substantial doubt about the Companys ability to continue as a going concern. The Company is attempting to implement the following strategies to improve its financial condition:
Deferring Preferred Stock and Trust Preferred Securities Payments The Company began deferring the payment of cash dividends on its outstanding Fixed Rate Cumulative Perpetual Preferred Stock, Series A, in February 2011, as well as the payment of interest on the junior subordinated notes related to its outstanding trust preferred securities to enhance the Companys liquidity. The expense associated with trust preferred securities continues to accrue and is reflected in the Companys Consolidated Statements of Operations. Accrued but unpaid dividends on preferred stock are shown as an increase to net loss to derive net loss to common shareholders in the Consolidated Statements of Operations.
Balance Sheet Reduction Management currently is implementing strategies to improve capital ratios through the reduction of assets and off-balance sheet commitments. At September 30, 2012, risk-weighted assets had been reduced by $103.4 million since December 31, 2010. Reductions occurred primarily in the commercial loan portfolio. Management expects future reductions in risk-weighted assets to be moderate and occur primarily in the loan portfolio. To offset the majority of asset reductions, liabilities declined primarily through reductions in other borrowings by $22.0 million and non-core deposits by $9.6 million.
Earnings In June 2011, the Bank retired $10.0 million in FHLB advances and paid an early redemption penalty of $273,000 to the FHLB for the retirement of these advances. In November 2011, the Bank retired an additional advance of $10.0 million due to the FHLB and paid an early redemption penalty of $7,000. The advances had a remaining average life of 1.0 year and an average interest rate of 1.21%. The Bank is prohibited from accepting or rolling over any brokered certificates of deposit. Since April 2011, the brokered certificates of deposit had maturities ranging from 2 months to 27 months with interest rates ranging from 0.75% to 2.40%. As these matured and continue to mature, the Bank replaced and will continue to replace these funds with institutional certificates of deposit with average interest rates of 0.50%. As a result of these changes, the interest expense savings during 2012 should have a positive impact on net interest margin.
Additional Capital The Company has engaged investment banking firms and is working to secure investors in a capital raise plan that may include issuing common stock, preferred stock or a combination of both, debt, or other financing alternatives that may be treated as capital for capital adequacy ratio purposes. Currently, the Company is working diligently to raise additional capital; however, there are no assurances that an offering will be completed or that the Company will succeed in this endeavor. In addition, a transaction would more likely than not involve equity financing, resulting in substantial dilution to current shareholders and an adverse effect on the price of the Companys common stock. The Companys ability to raise capital depends to a large degree on the current capital markets and on its financial performance. Available capital markets are not currently favorable, and the Company can offer no assurance that it will be able to raise capital on terms that are acceptable, if at all.
26
NOTE 13. SELECTED QUARTERLY FINANCIAL INFORMATION (Unaudited)
September 30, 2012 |
June 30, 2012 (As Restated) |
March 31, 2012 (As Restated) |
December 31, 2011 (As Restated) |
September 30, 2011 (As Restated) |
June 30, 2011 (As Restated) |
March 31, 2011 (As Restated) |
||||||||||||||||||||||
(in thousands) | ||||||||||||||||||||||||||||
Assets: |
||||||||||||||||||||||||||||
Cash and due from banks, noninterest-bearing |
$ | 3,987 | $ | 3,884 | $ | 4,674 | $ | 5,044 | $ | 4,922 | $ | 10,172 | $ | 4,174 | ||||||||||||||
Interest-bearing deposits in banks |
3,843 | 3,226 | 2,562 | 2,557 | 4,431 | 4,256 | 4,208 | |||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||
Cash and cash equivalents |
7,830 | 7,110 | 7,236 | 7,601 | 9,353 | 14,428 | 8,382 | |||||||||||||||||||||
Federal funds sold |
13,710 | 48,465 | 44,245 | 28,165 | 22,630 | 8,175 | 14,985 | |||||||||||||||||||||
Investment securities |
121,387 | 105,609 | 103,682 | 112,404 | 113,768 | 118,534 | 116,879 | |||||||||||||||||||||
Loans receivable |
280,671 | 285,186 | 296,092 | 307,907 | 324,757 | 345,617 | 359,561 | |||||||||||||||||||||
Less: Allowance for loan losses |
(7,450 | ) | (7,541 | ) | (8,048 | ) | (8,101 | ) | (8,691 | ) | (6,685 | ) | (8,314 | ) | ||||||||||||||
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|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||
Total loans, net |
273,221 | 277,645 | 288,044 | 299,806 | 316,066 | 338,932 | 351,247 | |||||||||||||||||||||
Premises and equipment |
11,911 | 12,091 | 12,256 | 12,229 | 12,448 | 12,681 | 12,859 | |||||||||||||||||||||
Other real estate owned |
5,424 | 7,403 | 7,502 | 8,524 | 9,825 | 6,066 | 9,375 | |||||||||||||||||||||
Bank owned life insurance |
10,447 | 10,359 | 10,823 | 10,732 | 10,640 | 10,549 | 10,460 | |||||||||||||||||||||
Deferred tax assets |
| | | | 3,509 | 3,941 | 4,409 | |||||||||||||||||||||
Prepaid FDIC insurance assessment |
998 | 1,396 | 1,790 | 2,200 | 2,759 | 3,095 | 3,418 | |||||||||||||||||||||
Accrued interest receivable |
1,393 | 1,263 | 1,389 | 1,503 | 1,700 | 1,720 | 1,862 | |||||||||||||||||||||
Other assets |
1,952 | 2,265 | 2,791 | 2,803 | 3,179 | 2,922 | 3,182 | |||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||
Total Assets |
$ | 448,273 | $ | 473,606 | $ | 479,758 | $ | 485,967 | $ | 505,877 | $ | 521,043 | $ | 537,058 | ||||||||||||||
|
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|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||
Liabilities: |
||||||||||||||||||||||||||||
Deposits: |
||||||||||||||||||||||||||||
Noninterest-bearing demand deposits |
$ | 34,756 | $ | 38,486 | $ | 36,087 | $ | 34,034 | $ | 34,446 | $ | 38,176 | $ | 36,411 | ||||||||||||||
Interest-checking deposits |
39,138 | 38,363 | 38,349 | 37,306 | 38,527 | 37,139 | 35,221 | |||||||||||||||||||||
Savings and money market deposits |
106,541 | 103,613 | 104,733 | 106,308 | 103,163 | 107,717 | 110,401 | |||||||||||||||||||||
Time deposits |
204,095 | 226,986 | 233,816 | 238,565 | 241,422 | 243,066 | 241,706 | |||||||||||||||||||||
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|
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|
|
|||||||||||||||
Total deposits |
384,530 | 407,448 | 412,985 | 416,213 | 417,558 | 426,098 | 423,739 | |||||||||||||||||||||
Securities sold under agreements to repurchase |
45,379 | 45,249 | 45,418 | 45,381 | 45,412 | 45,710 | 45,458 | |||||||||||||||||||||
Federal Home Loan Bank advances |
| | | | 10,000 | 10,000 | 20,000 | |||||||||||||||||||||
Subordinated debt |
7,855 | 7,855 | 7,855 | 7,855 | 7,855 | 7,855 | 7,855 | |||||||||||||||||||||
Other liabilities |
1,919 | 2,111 | 1,947 | 1,903 | 1,809 | 1,981 | 1,731 | |||||||||||||||||||||
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|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||
Total Liabilities |
439,683 | 462,663 | 468,205 | 471,352 | 482,634 | 491,644 | 498,783 | |||||||||||||||||||||
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|
|
|
|
|
|
|||||||||||||||
Commitments and contingencies (Note 6) |
| | | | | | | |||||||||||||||||||||
Stockholders Equity: |
||||||||||||||||||||||||||||
Preferred stock, no par value |
13,179 | 13,179 | 13,179 | 13,179 | 13,179 | 13,179 | 13,179 | |||||||||||||||||||||
Discount on preferred stock |
(496 | ) | (570 | ) | (644 | ) | (716 | ) | (787 | ) | (856 | ) | (923 | ) | ||||||||||||||
Common stock, $5 per share par value |
19,479 | 19,479 | 19,479 | 19,479 | 19,486 | 19,486 | 19,486 | |||||||||||||||||||||
Additional paid-in capital |
12,991 | 12,992 | 12,992 | 12,991 | 12,984 | 12,983 | 12,984 | |||||||||||||||||||||
Retained deficit |
(37,463 | ) | (34,424 | ) | (34,419 | ) | (31,871 | ) | (23,233 | ) | (16,317 | ) | (6,627 | ) | ||||||||||||||
Accumulated other comprehensive income |
900 | 287 | 966 | 1,553 | 1,614 | 924 | 176 | |||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||
Total Stockholders Equity |
8,590 | 10,943 | 11,553 | 14,615 | 23,243 | 29,399 | 38,275 | |||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||
Total Liabilities and Stockholders Equity |
$ | 448,273 | $ | 473,606 | $ | 479,758 | $ | 485,967 | $ | 505,877 | $ | 521,043 | $ | 537,058 | ||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
September 30, 2012 |
June 30, 2012 |
March 31, 2012 |
December 31, 2011 |
September 30, 2011 |
June 30, 2011 |
March 31, 2011 |
||||||||||||||||||||||
(in thousands) | ||||||||||||||||||||||||||||
Other liabilities as previously stated |
$ | 1,919 | $ | 3,023 | $ | 2,694 | $ | 2,485 | $ | 2,226 | $ | 2,235 | $ | 1,819 | ||||||||||||||
Prior period adjustment (See Note 1) |
| (912 | ) | (747 | ) | (582 | ) | (417 | ) | (254 | ) | (88 | ) | |||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||
Other liabilities as restated |
$ | 1,919 | $ | 2,111 | $ | 1,947 | $ | 1,903 | $ | 1,809 | $ | 1,981 | $ | 1,731 | ||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||
Retained deficit as previously stated |
$ | (37,463 | ) | $ | (35,336 | ) | $ | (35,166 | ) | $ | (32,453 | ) | $ | (23,650 | ) | $ | (16,571 | ) | $ | (6,715 | ) | |||||||
Prior period adjustment (See Note 1) |
| 912 | 747 | 582 | 417 | 254 | 88 | |||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||
Retained deficit as restated |
$ | (37,463 | ) | $ | (34,424 | ) | $ | (34,419 | ) | $ | (31,871 | ) | $ | (23,233 | ) | $ | (16,317 | ) | $ | (6,627 | ) | |||||||
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|
27
Item 2. MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
GENERAL
Introduction
Bank of the Carolinas Corporation (the Company) is the parent holding company of Bank of the Carolinas (the Bank). Because the Company has no separate operations and conducts no business on its own other than owning the Bank, the discussion contained in this Managements Discussion and Analysis concerns primarily the business of the Bank. However, because the financial statements are presented on a consolidated basis, the Company and the Bank are collectively referred to herein as the Company unless otherwise noted.
The Bank began operations in December 1998 as a state chartered bank and currently has ten offices in the Piedmont region of North Carolina. The Bank competes for loans and deposits throughout the markets it serves. The Bank, like most community banks, derives most of its revenue from net interest income which is the difference between the income it earns from loans and securities and the interest expense it incurs on deposits and borrowings.
Written Agreement with Federal Reserve
The Company entered into a written agreement (the Agreement) with the Federal Reserve Bank of Richmond on August 26, 2011. The description of the Agreement set forth below is qualified in its entirety by reference to the full text of the Agreement, a copy of which is included as Exhibit 10.01 to the Companys Quarterly Report on Form 10-Q, filed with the Securities and Exchange Commission on November 14, 2011, and incorporated herein by reference.
Source of Strength. The Agreement requires that the Company take appropriate steps to fully utilize its financial and managerial resources to serve as a source of strength to the Bank and ensure that the Bank complies with the requirements of the consent order entered into between the North Carolina Commissioner of Banks, the FDIC, and the Bank.
Dividends, Distributions, and other Payments. The Agreement prohibits the Companys payment of any dividends without the prior approval of the Federal Reserve Bank of Richmond and the Director of the Division of Banking Supervision and Regulation of the Federal Reserve Board of Governors. It also prohibits the Company from directly or indirectly taking any dividends or any other form of payment representing a reduction in capital from the Bank without the prior written approval of the Federal Reserve Bank of Richmond.
Under the terms of the Agreement, the Company and Bank of the Carolinas Trust I may not make any distributions of interest, principal or other sums on subordinated debentures or trust preferred securities without the prior written approval of the Federal Reserve Bank of Richmond and the Director of the Division of Banking Supervision and Regulation.
Debt and Stock Redemption. The Agreement requires that the Company and any non-bank subsidiary of the Company not, directly or indirectly, incur, increase or guarantee any debt without the prior written approval of the Federal Reserve Bank. The Agreement also requires that the Company not, directly or indirectly, purchase or redeem any shares of its capital stock without the prior written approval of the Federal Reserve Bank of Richmond.
Capital Plan, Cash Flow Projections and Progress Reports. The Agreement requires that the Company file an acceptable capital plan and certain cash flow projections with the Federal Reserve Bank of Richmond. It also requires that the Company file a written progress report within 30 days after the end of each calendar quarter while the Agreement remains in effect.
The Agreement will remain in effect until modified or terminated by the Federal Reserve Bank of Richmond.
Consent Order with Regulators
The Bank entered into a Stipulation to the Issuance of a Consent Order (the Stipulation) with the Federal Deposit Insurance Corporation (the FDIC) and the North Carolina Office of the Commissioner of Banks (the Commissioner) and the FDIC and the Commissioner issued the related Consent Order (the Order), effective April 27, 2011. The description of the Stipulation and the Order set forth below is qualified in its entirety by reference to the Stipulation and the Order, copies of which are included as exhibits 10.1 and 10.2, respectively, to the Companys Current Report on Form 8-K, filed with the Securities and Exchange Commission on May 3, 2011, and incorporated herein by reference.
28
Management. The Order required that the Bank have and retain qualified management, including a chief executive officer, senior lending officer, and chief operating officer with qualifications and experience commensurate with their assigned duties and responsibilities within 60 days from the effective date of the Order. Within 30 days of the effective date of the Order, the board of directors was required to retain a bank consultant to develop a written analysis and assessment of the Banks management needs. Within 60 days from receipt of the consultants management report, the Bank was required to formulate a written management plan that incorporated the findings of the management report, a plan of action in response to each recommendation contained in the management report, and a time frame for completing each action.
Capital Requirements. While the Order is in effect, the Bank must maintain a leverage ratio (the ratio of Tier 1 capital to total assets) of at least 8% and a total risk-based capital ratio (the ratio of qualifying total capital to risk-weighted assets) of at least 10%. If the Banks capital ratios are below these levels as of the date of any call report or regulatory examination, the Bank must, within 30 days from receipt of a written notice of capital deficiency from its regulators, present a plan to increase capital to meet the requirements of the Order. At September 30, 2012, the Bank was not in compliance with the capital requirements contained in the Order.
Allowance for Loan and Lease Losses and Call Report. Upon issuance of the Order, the Bank was required to make a provision to replenish the allowance for loan and lease losses (ALLL). Within 30 days of the effective date of the Order, the Bank was required to review its call reports filed with its regulators on or after December 31, 2010, and was required to amend those reports if necessary to accurately reflect the financial condition of the Bank. Within 60 days of the effective date of the Order, the Bank was required to submit a comprehensive policy for determining the adequacy of the ALLL.
Concentrations of Credit. Within 60 days of the issuance of the Order, the Bank was required to perform a risk segmentation analysis with respect to its concentrations of credit and develop a written plan for systematically reducing and monitoring the Banks commercial real estate and acquisition, construction, and development loans to an amount commensurate with the Banks business strategy, management expertise, size, and location.
Charge-Offs, Credits. The Order required that the Bank eliminate from its books, by charge-off or collection, all assets or portions of assets classified loss and 50% of those assets classified doubtful. If an asset is classified doubtful, the Bank may alternatively charge off the amount that is considered uncollectible in accordance with the Banks written analysis of loan or lease impairment. The Order also prevents the Bank from extending, directly or indirectly, any additional credit to, or for the benefit of, any borrower who has a loan or other extension of credit from the Bank that has been charged off or classified, in whole or in part, loss or doubtful and is uncollected. The Bank may not extend, directly or indirectly, any additional credit to any borrower who has a loan or other extension of credit from the Bank that has been classified substandard. These limitations do not apply if the Banks failure to extend further credit to a particular borrower would be detrimental to the best interests of the Bank.
Asset Growth. While the Order is in effect, the Bank must notify its regulators at least 60 days prior to undertaking asset growth that exceeds 10% or more per year or initiating material changes in asset or liability composition. The Banks asset growth cannot result in noncompliance with the capital maintenance provisions of the Order unless the Bank receives prior written approval from its regulators.
Restriction on Dividends and Other Payments. While the Order is in effect, the Bank cannot declare or pay dividends, pay bonuses, or pay any form of payment outside the ordinary course of business resulting in a reduction of capital without the prior written approval of its regulators. In addition, the Bank cannot make any distributions of interest, principal, or other sums on subordinated debentures without prior regulatory approval.
Brokered Deposits. The Order provides that the Bank may not accept, renew, or roll over any brokered deposits unless it is in compliance with the requirements of the FDIC regulations governing brokered deposits. These regulations prohibit undercapitalized institutions from accepting, renewing, or rolling over any brokered deposits and also prohibit undercapitalized institutions from soliciting deposits by offering an effective yield that exceeds by more than 75 basis points the prevailing effective yields on insured deposits of comparable maturity in the institutions market area. An adequately capitalized institution may not accept, renew, or roll over brokered deposits unless it has applied for and been granted a waiver by the FDIC. As of September 30, 2012, the Bank was classified as significantly undercapitalized.
29
Written Plans and Other Material Terms. Under the terms of the Order, the Bank was required to prepare and submit the following written plans or reports to the FDIC and the Commissioner:
| Plan to improve liquidity, contingency funding, interest rate risk, and asset liability management |
| Plan to reduce assets of $500,000 or greater classified doubtful and substandard |
| Revised lending and collection policy to provide effective guidance and control over the Banks lending and credit administration functions |
| Effective internal loan review and grading system |
| Policy for managing the Banks other real estate |
| Business/strategic plan covering the overall operation of the Bank |
| Plan and comprehensive budget for all categories of income and expense for the year 2011 |
| Policy and procedures for managing interest rate risk |
| Assessment of the Banks information technology function |
Under the Order, the Banks board of directors agreed to increase its participation in the affairs of the Bank, including assuming full responsibility for the approval of policies and objectives for the supervision of all of the Banks activities. The Bank was also required to establish a board committee to monitor and coordinate compliance with the Order.
The Order will remain in effect until modified or terminated by the FDIC and the Commissioner.
30
CHANGES IN FINANCIAL CONDITION
Total Assets
At September 30, 2012, total assets were $448.3 million, a decrease of 7.8% compared to $486.0 million at December 31, 2011. The asset decrease was primarily the result of reductions in the loan portfolio, including net charge-offs of $3.6 million. The Company had earning assets of $419.6 million at September 30, 2012 consisting of $280.7 million in loans, $121.4 million in investment securities, and $17.5 million in temporary investments. Stockholders equity was $7.5 million at September 30, 2012 compared to $14.0 million at December 31, 2011.
Investment Securities
Investment securities totaled $121.4 million at September 30, 2012, compared to $112.4 million at December 31, 2011. The increase was primarily a result of reinvesting the proceeds from the sales of investment securities during the second quarter of 2012 and preparing for anticipated calls during the fourth quarter. A summary of the Companys investment securities holdings by major category at September 30, 2012 and December 31, 2011 is included in Note 3 of Notes to Consolidated Financial Statements.
Loans and Allowance for Loan Losses
At September 30, 2012, the loan portfolio totaled $280.7 million and represented 62.6% of total assets compared to $307.9 million or 63.4% of total assets at December 31, 2011. Total loans at September 30, 2012 decreased $27.2 million or 8.8% from December 31, 2011. The decrease in loans outstanding in the nine-month period is the result of net charge-offs of $3.6 million and principal repayments in excess of new loans originated due to slower loan demand under the current economic conditions. Real estate loans, including commercial real estate, constituted approximately 89% of the loan portfolio, and commercial business and other loans comprised approximately 11% of the total loan portfolio at both September 30, 2012 and December 31, 2011.
The allowance for loan losses is created by direct charges to income. Losses on loans are charged against the allowance in the period in which such loans, in managements opinion, become uncollectible. Recoveries during the period are credited to this allowance. The factors that influence managements judgment in determining the amount charged to operating expense include past loan experience, composition of the loan portfolio, current economic conditions and probable losses.
The appropriateness of the allowance for loan losses is measured on a quarterly basis using an allocation model that assigns reserves to various components of the loan portfolio in order to provide for probable inherent losses. It must be emphasized, however, that the determination of the reserve using the Companys procedures and methods rests upon various judgments and assumptions about current economic conditions and other factors affecting loans. No assurance can be given that the Company will not in any particular period sustain loan losses that are sizable in relation to amounts reserved or that subsequent evaluations of the loan portfolio, in light of conditions and factors then prevailing, will not require significant changes in the allowance for loan losses or future charges to earnings. In addition, bank regulatory agencies, as an integral part of their routine examination process, periodically review the Companys allowance. Those agencies may require the Company to recognize adjustments to the allowance based on their judgments about information available to them at the time of their examinations. The Company believes the allowance is appropriate based on managements current analysis.
The allowance for loan losses at September 30, 2012, amounted to $7.5 million, a decrease of $651,000, or 8.0% from December 31, 2011. The allowance consists of specific reserves of $774,000 and a general allowance $6.7 million. The Banks provisions for loan losses amounted to $3.0 million during the nine months ended September 30, 2012 compared to $14.6 million during the nine months ended September 30, 2011. While the Company has not participated in subprime lending activities, we have been affected by the economic downturn in our markets. We continue to work with our customers with troubled credit relationships to the extent that it is reasonably possible.
Certain credit risks are inherent in making loans, particularly commercial and consumer loans. Management prudently assesses these risks and attempts to manage them effectively. The Company also attempts to reduce default risks by adhering to internal credit underwriting policies and procedures. These policies and procedures include officer and customer limits, periodic loan documentation review and follow up on exceptions to credit policies. A loan is placed in nonaccrual status when, in managements judgment, the collection of interest appears doubtful.
31
The following table summarizes information regarding our nonaccrual loans, other real estate owned, and 90-day and over past due loans as of September 30, 2012 and December 31, 2011 (dollars in thousands):
September 30, 2012 |
December 31, 2011 |
|||||||
Loans accounted for on a nonaccrual basis: |
||||||||
Real estate loans: |
||||||||
1-4 family residential |
$ | 3,865 | $ | 6,875 | ||||
Commercial real estate |
1,801 | 9,167 | ||||||
Construction and development |
2,004 | 1,764 | ||||||
|
|
|
|
|||||
Total real estate loans |
7,670 | 17,806 | ||||||
Commercial business and other loans |
446 | 1,246 | ||||||
Consumer loans |
9 | 10 | ||||||
|
|
|
|
|||||
Total nonaccrual loans |
8,125 | 19,062 | ||||||
Accruing loans which are contractually past due 90 days or more |
| | ||||||
|
|
|
|
|||||
Total nonperforming loans |
8,125 | 19,062 | ||||||
Other real estate owned |
5,424 | 8,524 | ||||||
|
|
|
|
|||||
Total nonperforming assets |
$ | 13,549 | $ | 27,586 | ||||
|
|
|
|
|||||
Total nonperforming loans as a percentage of loans |
2.89 | % | 6.19 | % | ||||
Allowance for loan losses as a percentage of total nonperforming loans |
91.69 | % | 42.50 | % | ||||
Allowance for loan losses as a percentage of total loans |
2.65 | % | 2.63 | % | ||||
Total nonperforming assets as a percentage of loans and other real estate owned |
4.74 | % | 8.72 | % | ||||
Total nonperforming assets as a percentage of total assets |
3.02 | % | 5.68 | % |
Deposits
The Companys deposit services include business and individual checking accounts, interest bearing checking accounts, savings accounts, money market accounts, IRA deposits and certificates of deposit. At September 30, 2012, total deposits were $384.5 million compared to $416.2 million at December 31, 2011. The September 30, 2012 amount represents a decrease of 7.6% from December 31, 2011, which is mainly recognized in customer time deposits and brokered CDs. At September 30, 2012, the deposit mix was comparable to December 31, 2011.
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The following table presents a breakdown of our deposit base at September 30, 2012 and December 31, 2011 (dollars in thousands):
September 30, 2012 |
December 31, 2011 |
|||||||
Noninterest bearing demand deposits |
$ | 34,756 | $ | 34,034 | ||||
Interest checking deposits |
39,138 | 37,306 | ||||||
Savings deposits |
12,777 | 10,854 | ||||||
Money market deposits |
93,764 | 95,454 | ||||||
Customer time deposits |
176,490 | 195,841 | ||||||
Brokered certificates of deposit |
27,605 | 42,724 | ||||||
|
|
|
|
|||||
Total deposits |
$ | 384,530 | $ | 416,213 | ||||
|
|
|
|
|||||
Time deposits $100,000 or more: |
||||||||
Brokered certificates of deposit |
$ | 27,605 | $ | 42,724 | ||||
Customer time deposits issued in denominations of $100,000 or more |
102,829 | 109,780 | ||||||
|
|
|
|
|||||
Total time deposits issued in denominations of $100,000 or more |
$ | 130,434 | $ | 152,504 | ||||
|
|
|
|
|||||
As a percent of total deposits: |
||||||||
Noninterest bearing demand deposits |
9.04 | % | 8.18 | % | ||||
Interest checking deposits |
10.18 | 8.96 | ||||||
Savings deposits |
3.32 | 2.61 | ||||||
Money market deposits |
24.38 | 22.93 | ||||||
Customer time deposits |
45.90 | 47.05 | ||||||
Brokered certificates of deposit |
7.18 | 10.26 | ||||||
Total time deposits issued in denominations of $100,000 or more |
33.92 | 36.64 |
Liquidity
Liquidity management is the process of managing assets and liabilities, as well as their maturities, to ensure adequate funding for loan and deposit activities. Sources of liquidity come from both balance sheet and off-balance sheet sources. We define balance sheet liquidity as the relationship that net liquid assets have to unsecured liabilities. Net liquid assets are the sum of cash and cash items, less required reserves on demand and interest checking deposits, plus demand deposits due from banks, plus temporary investments, including federal funds sold, plus the fair value of investment securities, less collateral requirements related to public funds on deposit and repurchase agreements. Unsecured liabilities are equal to total liabilities less required cash reserves on noninterest-bearing demand deposits and interest checking deposits less the outstanding balances of all secured liabilities, whether secured by liquid assets or not. We consider off-balance sheet liquidity to include unsecured federal funds lines from other banks and loan collateral which may be used for additional advances from the Federal Home Loan Bank. As of September 30, 2012 our balance sheet liquidity ratio (net liquid assets as a percent of unsecured liabilities) amounted to 19.78% and our total liquidity ratio (balance sheet plus off-balance sheet liquidity) was 21.52%.
In addition, we have the ability to borrow $10.0 million from the discount window of the Federal Reserve, as well as a line of credit from a correspondent bank of $4.0 million subject to our pledge of marketable securities, which could be used for temporary funding needs. We also have the ability to borrow from the Federal Home Loan Bank on similar terms. While we consider these arrangements sources of back-up funding, we do not consider them as liquidity sources because they require our pledge of liquid assets as collateral. We regularly borrow from the Federal Home Loan Bank as a normal part of our business. These advances, of which there were none at September 30, 2012, are secured by various types of real estate-secured loans. The Company closely monitors and evaluates its overall liquidity position. The Company believes its liquidity position at September 30, 2012 is adequate to meet its operating needs.
33
Interest Rate Sensitivity
Fluctuating interest rates, increased competition, and changes in the regulatory environment continue to significantly affect the importance of interest rate sensitivity management. Rate sensitivity arises when interest rates on assets change in a different period of time or in a different proportion to interest rates on liabilities. The primary objective of interest rate sensitivity management is to prudently structure the balance sheet so that movements of interest rates on assets and liabilities are highly correlated and produce a reasonable net interest margin even in periods of volatile interest rates. The Company uses an asset/liability simulation model to project potential changes to the Companys net interest margin, net income, and economic value of equity based on simulated changes to market interest rates, namely the prime rate. Our goal is to maintain an interest rate sensitivity position as close to neutral as practicable whereby little or no change in interest income would occur as interest rates change. On September 30, 2012, we were cumulatively asset sensitive for the next twelve months, which means that our interest bearing assets would reprice more quickly than our interest bearing liabilities. Theoretically, our net interest margin will increase if market interest rates rise or decrease if market interest rates fall. However, the repricing characteristic of assets is different from the repricing characteristics of funding sources. Therefore, net interest income can be impacted by changes in interest rates even if the repricing opportunities of assets and liabilities are perfectly matched.
Capital Adequacy
Regulatory guidelines require banks to hold minimum levels of capital based upon the risk weighting of certain categories of assets as well as any off-balance sheet contingencies. Federal regulators have adopted risk-based capital and leverage capital guidelines for measuring the capital adequacy of banks and bank holding companies. All applicable capital standards must be satisfied for the Company and the Bank to be considered in compliance with regulatory requirements.
As described above, the Bank is subject to a consent order issued by the FDIC and the North Carolina Office of the Commissioner of Banks and the Company is party to a written agreement with the Federal Reserve Bank of Richmond. These regulatory agreements require that the Bank maintain capital levels in excess of normal regulatory minimums, including a Leverage Capital Ratio of at least 8.0% and a Total Risk-Based Capital Ratio of at least 10.0%, and that the Company and the Bank seek the approval of their respective regulators prior to the payment of any cash dividend. At September 30, 2012, the Bank was not in compliance with the minimum capital requirements set forth in the consent order. As a result, the Bank was required to present its federal and state regulators with a plan to increase its capital ratios to the required percentages. The Bank hired a consultant to help formulate this plan and assist in the exploration of other strategic alternatives.
At September 30, 2012, the Companys leverage and Tier 1 risk-weighted Capital Ratios were 2.30% and 3.23%, respectively, which are below the minimum level required by regulatory guidelines. At September 30, 2012, the Companys Total risk-weighted Capital Ratio was 5.98%, which is below the minimum level required by regulatory guidelines. At September 30, 2012, the Banks leverage and Tier 1 risk-weighted Capital Ratios were 3.37% and 4.73%, respectively, which are below the minimum levels required by regulatory guidelines. At September 30, 2012, the Banks Total risk-weighted Capital Ratio was 5.99%, which is below the minimum level required by regulatory guidelines. At September 30, 2012, the Banks leverage and Total risk-weighted Capital Ratios were both non-compliant with the levels specified in the above referenced consent order with bank regulators. Banks are placed into one of five capital categories based on the above three separate capital ratios. The five categories are well-capitalized, adequately capitalized, under-capitalized, significantly under-capitalized, and critically under-capitalized. The Bank was considered significantly under-capitalized as of September 30, 2012.
RESULTS OF OPERATIONS
Three Months Ended September 30, 2012 and 2011
Overview. For the three months ended September 30, 2012, the Company incurred a net loss available to common shareholders of $3.2 million, or $0.82 per common share. This compares to a net loss of $7.1 million, or $1.82 per common share, for the three months ended September 30, 2011. The third quarter of 2012 had an increased level of costs related to foreclosed real estate compared to the third quarter of 2011. Other noninterest expenses are still elevated due to costs in conjunction with compliance with the Consent Order with the FDIC and the North Carolina Office of the Commissioner of Banks and the Written Agreement with the Federal Reserve Bank of Richmond, but are improved compared to the third quarter of 2011.
Net Interest Income. The Companys net interest income for the three months ended September 30, 2012 totaled $3.0 million compared to $3.5 million at September 30, 2011. Net interest income decreased due to the reduction of $46.1 million in interest earning assets compared to September 30, 2011. The net interest margin decreased 22 basis points from 2.93% in the third quarter of 2011 to 2.71% in the third quarter of 2012.
34
Provision for Loan Losses. The loan loss provision amounted to $1.5 million for the quarter ended September 30, 2012, a decrease of $4.2 million, or 74.0%, from the $5.7 million provision recorded in the comparable quarter of 2011. Net charge-offs totaled $1.6 million in the third quarter of 2012 compared to $3.6 million in the third quarter of 2011.
Noninterest Income. Noninterest income totaled $391,000 for the three months ended September 30, 2012 compared to $415,000 for the comparable three-month period of 2011. Noninterest income includes customer service charges on deposit accounts, bank owned life insurance, and gains on investment securities. Noninterest income decreased $24,000, or 5.8%, for the third quarter of 2012 compared to the third quarter of 2011.
Noninterest Expenses. Noninterest expenses totaled $5.2 million and $5.1 million for the three months ended September 30, 2012 and 2011, respectively. Excluding the increase of other real estate expenses of $271,000, noninterest expenses for the three months would have decreased by $126,000. The increase in other real estate expense is primarily due to sales of said real estate and having current valuations performed on foreclosed assets over the last twelve months. Other noninterest expenses affecting overhead cost were: (1) FDIC insurance assessments, which increased $60,000 due to increased rates; (2) salaries and benefits, which decreased $34,000 due to staff reductions; and (3) consultant fees, which decreased $117,000 as a result of decreased needs regarding the consent order.
Income Taxes. Provisions for income taxes for each quarter were made to decrease the valuation allowance related to deferred tax assets, resulting in income tax benefit of $383,000 during the three months ending September 30, 2012 compared to no income tax expense in the third quarter of 2011.
Nine Months Ended September 30, 2012 and 2011
Overview. For the nine months ended September 30, 2012, the Company incurred a net loss available to common shareholders of $6.1 million, or $1.56 per common share. This compares to a net loss of $20.4 million, or $5.23 per common share, for the nine months ended September 30, 2011. Year-to-date 2012 had an improved level of costs related to foreclosed real estate. Other noninterest expenses are still elevated due to costs in conjunction with compliance with the Consent Order with the FDIC and the North Carolina Office of the Commissioner of Banks and the Written Agreement with the Federal Reserve Bank of Richmond, but are also improved compared to the first nine months of 2011.
Net Interest Income. The Companys net interest income for the nine months ended September 30, 2012 totaled $8.8 million compared to $10.4 million at September 30, 2011. Net interest income decreased due to the reduction of $46.1 million in interest earning assets compared to September 30, 2011. The net interest margin decreased 17 basis points from 2.88% at September 30, 2011 to 2.71% at September 30, 2012.
Provision for Loan Losses. The loan loss provision amounted to $3.0 million for the nine months ended September 30, 2012, a decrease of $11.6 million, or 79.4%, from the $14.6 million provision recorded in the comparable period of 2011. Net charge-offs totaled $3.6 million in the first nine months of 2012 compared to $12.7 million in the first nine months of 2011.
Noninterest Income. Noninterest income totaled $3.7 million for the nine months ended September 30, 2012 compared to $1.2 million for the comparable nine-month period of 2011. Noninterest income includes customer service charges on deposit accounts, bank owned life insurance, and gains on investment securities. Excluding gains on sale of investment securities of $2.1 million in 2012 and $6,000 in 2011 and a nonrecurring gain on bank owned life insurance of $415,000 in 2012, noninterest income decreased by $79,000, or 6.4%, for the nine months ended September 30, 2012 and 2011.
Noninterest Expenses. Noninterest expenses totaled $14.5 million and $15.8 million for the nine months ended September 30, 2012 and 2011, respectively. Excluding the decrease of other real estate expenses of $1.6 million, noninterest expenses for the nine months would have increased by $338,000. The decrease in other real estate expense is primarily due to having current valuations performed on foreclosed assets over the last twelve months. Other noninterest expenses affecting overhead cost were: (1) FDIC insurance assessments, which increased $276,000 due to increased rates; (2) director and shareholder expenses, which increased $128,000 due to increased premiums for director and officer liability insurance; (3) salaries and benefits, which increased $319,000 due to fully recognizing the addition of our special assets department; and (4) consultant fees, which decreased $61,000 as a result of decreased needs regarding the consent order.
35
Income Taxes. Provisions for income taxes for the nine months ended September 30, 2012 were made to increase the valuation allowance related to deferred tax assets, resulting in income tax expense of $409,000 compared to an income tax expense of $996,000 for the nine month period ended September 30, 2011.
DISCLOSURES ABOUT FORWARD LOOKING STATEMENTS
Statements in this Report relating to plans, strategies, economic performance and trends, projections of results of specific activities or investments, expectations or beliefs about future events or results, and other statements that are not descriptions of historical facts, may be forward-looking statements as defined in Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934. Forward-looking information is inherently subject to risks and uncertainties, and actual results could differ materially from those currently anticipated due to a number of factors. Forward-looking statements may be identified by terms such as may, will, should, could, expects, plans, intends, anticipates, feels, believes, estimates, predicts, forecasts, potential or continue, or similar terms or the negative of these terms, or other statements concerning opinions or judgments of our management about future events. Factors that could influence the accuracy of forward-looking statements include, but are not limited to (a) pressures on our earnings, capital and liquidity resulting from current and future conditions in the credit and capital markets, (b) continued or unexpected increases in nonperforming loans and credit losses in our loan portfolio, (c) continued adverse conditions in the economy and in the real estate market in our banking markets (particularly those conditions that affect our loan portfolio, the abilities of our borrowers to repay their loans, and the values of collateral that secures our loans), (d) the financial success or changing strategies of our customers, (e) actions of government regulators, or changes in laws, regulations or accounting standards, that adversely affect our business, (f) changes in the interest rate environment and the level of market interest rates that reduce our net interest margins and/or the values of loans we make and securities we hold, and changes in general economic conditions and real estate values in our banking market (particularly changes that affect our loan portfolio, the abilities of our borrowers to repay their loans, and the values of loan collateral), (g) changes in competitive pressures among depository and other financial institutions or in our ability to compete effectively against other financial institutions in our banking markets, and (h) other developments or changes in our business that we do not expect. Although we believe that the expectations reflected in the forward-looking statements included in this Report are reasonable, they represent our managements judgments only as of the date they are made, and we cannot guarantee future results, levels of activity, performance or achievements. As a result, readers are cautioned not to place undue reliance on these forward-looking statements. All forward-looking statements attributable to us are expressly qualified in their entirety by the cautionary statements in this paragraph. We have no obligation, and do not intend to update these forward-looking statements.
36
Item 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Smaller reporting companies such as the Company are not required to provide the information required by this item.
Item 4. CONTROLS AND PROCEDURES
The Companys management, under the supervision and with the participation of its principal executive officer and principal financial officer, has evaluated the effectiveness of the design and operation of the Companys disclosure controls and procedures in accordance with Rule 13a-15 of the Securities Exchange Act of 1934 (the Exchange Act). Based on their evaluation, the principal executive officer and principal financial officer concluded that, as of the end of the period covered by this report, the Companys disclosure controls and procedures were effective to provide reasonable assurance that it is able to record, process, summarize and report in a timely manner the information required to be disclosed in reports it files under the Exchange Act.
In connection with the above evaluation of the effectiveness of the Companys disclosure controls and procedures, no change in the Companys internal control over financial reporting was identified that occurred during the most recent quarterly period that has materially affected, or is reasonably likely to materially affect, the Companys internal control over financial reporting.
There are no material pending legal proceedings to which the Company or the Bank is a party, or of which any of their property is the subject other than routine litigation that is incidental to their business.
Smaller reporting companies such as the Company are not required to provide the information required by this item.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
None
Item 3. Defaults Upon Senior Securities.
As disclosed on its Current Report on Form 8-K, filed with the Securities and Exchange Commission on February 18, 2011, the Company has notified the United States Department of the Treasury of its intent to defer the payment of its regular quarterly cash dividends on its fixed rate cumulative perpetual preferred stock, series A, issued to the Treasury in connection with the Companys participation in the Treasurys TARP Capital Purchase Program. Therefore, the Company is currently in arrears with the dividend payments on the series A preferred stock. As of September 30, 2012, the amount of the arrearage on the dividend payments for the series A preferred stock was $1,241,022.50.
Item 4. Mine Safety Disclosures
Not applicable
None
37
The following exhibits are filed with this report.
31.01 | Certification of our principal executive officer pursuant to Rule 13a-14(a) | |
31.02 | Certification of our principal financial officer pursuant to Rule 13a-14(a) | |
32.01 | Certification of our principal executive officer and principal financial officer pursuant to 18 U.S.C. Section 1350 | |
101 | Interactive data files providing financial information from the Registrants Quarterly Report on Form 10-Q for the quarterly period ended September 30, 2012, in XBRL (eXtensible Business Reporting Language)* |
* | Pursuant to Regulation 406T of Regulation S-T, these interactive data files are furnished and not filed or part of a registration statement or prospectus for purposes of section 11 or 12 of the Securities Act of 1933, as amended, or section 18 of the Securities Exchange Act of 1934, as amended, and are otherwise not subject to liability. |
38
Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
BANK OF THE CAROLINAS CORPORATION
Date: November 14, 2012 | By: | /s/ Stephen R. Talbert | ||||
Stephen R. Talbert | ||||||
President and Chief Executive Officer | ||||||
(principal executive officer) | ||||||
Date: November 14, 2012 | By: | /s/ Megan W. Patton | ||||
Megan W. Patton | ||||||
Vice President and Controller | ||||||
(principal financial officer) |
39
Exhibit |
Description | |
31.01 | Certification of our principal executive officer pursuant to Rule 13a-14(a) | |
31.02 | Certification of our principal financial officer pursuant to Rule 13a-14(a) | |
32.01 | Certification of our principal executive officer and principal financial officer pursuant to 18 U.S.C. Section 1350 | |
101 | Interactive data files providing financial information from the Registrants Quarterly Report on Form 10-Q for the quarterly period ended September 30, 2012, in XBRL (eXtensible Business Reporting Language)* |
* | Pursuant to Regulation 406T of Regulation S-T, these interactive data files are furnished and not filed or part of a registration statement or prospectus for purposes of section 11 or 12 of the Securities Act of 1933, as amended, or section 18 of the Securities Exchange Act of 1934, as amended, and are otherwise not subject to liability. |
40
EXHIBIT 31.01
CERTIFICATION
(Pursuant to Rule 13a-14(a))
I, Stephen R. Talbert, certify that:
1. | I have reviewed this Quarterly Report on Form 10-Q of Bank of the Carolinas Corporation; |
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: November 14, 2012 | /s/ Stephen R. Talbert | |||||
Stephen R. Talbert | ||||||
President and Chief Executive Officer | ||||||
(principal executive officer) |
EXHIBIT 31.02
CERTIFICATION
(Pursuant to Rule 13a-14(a))
I, Megan W. Patton, certify that:
1. | I have reviewed this Quarterly Report on Form 10-Q of Bank of the Carolinas Corporation; |
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: November 14, 2012 | /s/ Megan W. Patton | |||||
Megan W. Patton | ||||||
Vice President and Controller | ||||||
(principal financial officer) |
EXHIBIT 32.01
CERTIFICATIONS
(Pursuant to 18 U.S.C. Section 1350)
The undersigned hereby certifies that (i) the foregoing Quarterly Report on Form 10-Q filed by Bank of the Carolinas Corporation (the Registrant) for the quarter ended September 30, 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 Registrant.
Date: November 14, 2012 | /s/ Stephen R. Talbert | |||||
Stephen R. Talbert | ||||||
President and Chief Executive Officer | ||||||
(principal executive officer) | ||||||
Date: November 14, 2012 | /s/ Megan W. Patton | |||||
Megan W. Patton | ||||||
Vice President and Controller | ||||||
(principal financial officer) |
Loans (Details 3) (USD $)
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3 Months Ended | 9 Months Ended | ||
---|---|---|---|---|
Sep. 30, 2012
|
Sep. 30, 2011
|
Sep. 30, 2012
|
Sep. 30, 2011
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Troubled debt restructuring that subsequently defaulted | ||||
Number of Contracts | $ 1 | |||
Recorded Investment | 69,000 | |||
Consumer - Non Real Estate [Member]
|
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Troubled debt restructuring that subsequently defaulted | ||||
Number of Contracts | ||||
Recorded Investment | ||||
Residential Mortgage [Member]
|
||||
Troubled debt restructuring that subsequently defaulted | ||||
Number of Contracts | 1 | |||
Recorded Investment | 69,000 | |||
Commercial - Non Real Estate [Member]
|
||||
Troubled debt restructuring that subsequently defaulted | ||||
Number of Contracts | ||||
Recorded Investment | ||||
Commercial - Real Estate [Member]
|
||||
Troubled debt restructuring that subsequently defaulted | ||||
Number of Contracts | ||||
Recorded Investment | ||||
Construction & Development [Member]
|
||||
Troubled debt restructuring that subsequently defaulted | ||||
Number of Contracts | ||||
Recorded Investment |
Selected Quarterly Financial Information (Unaudited) (Details) (USD $)
In Thousands, unless otherwise specified |
Sep. 30, 2012
|
Jun. 30, 2012
|
Mar. 31, 2012
|
Dec. 31, 2011
|
Sep. 30, 2011
|
Jun. 30, 2011
|
Mar. 31, 2011
|
Dec. 31, 2010
|
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---|---|---|---|---|---|---|---|---|---|---|---|---|
Assets: | ||||||||||||
Cash and due from banks, noninterest-bearing | $ 3,987 | $ 3,884 | $ 4,674 | $ 5,044 | [1] | $ 4,922 | $ 10,172 | $ 4,174 | ||||
Interest-bearing deposits in banks | 3,843 | 3,226 | 2,562 | 2,557 | [1] | 4,431 | 4,256 | 4,208 | ||||
Cash and cash equivalents | 7,830 | 7,110 | 7,236 | 7,601 | [1] | 9,353 | 14,428 | 8,382 | 10,565 | |||
Federal funds sold | 13,710 | 48,465 | 44,245 | 28,165 | [1] | 22,630 | 8,175 | 14,985 | ||||
Investment securities | 121,387 | 105,609 | 103,682 | 112,404 | [1] | 113,768 | 118,534 | 116,879 | ||||
Loans receivable | 280,671 | 285,186 | 296,092 | 307,907 | [1] | 324,757 | 345,617 | 359,561 | ||||
Less: Allowance for loan losses | (7,450) | (7,541) | (8,048) | (8,101) | [1] | (8,691) | (6,685) | (8,314) | (6,863) | |||
Total loans, net | 273,221 | 277,645 | 288,044 | 299,806 | [1] | 316,066 | 338,932 | 351,247 | ||||
Premises and equipment | 11,911 | 12,091 | 12,256 | 12,229 | [1] | 12,448 | 12,681 | 12,859 | ||||
Other real estate owned | 5,424 | 7,403 | 7,502 | [1] | 8,524 | [1] | 9,825 | 6,066 | 9,375 | |||
Bank owned life insurance | 10,447 | 10,359 | 10,823 | 10,732 | [1] | 10,640 | 10,549 | 10,460 | ||||
Deferred tax assets | [1] | 3,509 | 3,941 | 4,409 | ||||||||
Prepaid FDIC insurance assessment | 998 | 1,396 | 1,790 | 2,200 | [1] | 2,759 | 3,095 | 3,418 | ||||
Accrued interest receivable | 1,393 | 1,263 | 1,389 | 1,503 | [1] | 1,700 | 1,720 | 1,862 | ||||
Other assets | 1,952 | 2,265 | 2,791 | 2,803 | [1] | 3,179 | 2,922 | 3,182 | ||||
Total Assets | 448,273 | 473,606 | 479,758 | 485,967 | [1] | 505,877 | 521,043 | 537,058 | ||||
Deposits: | ||||||||||||
Noninterest-bearing demand deposits | 34,756 | 38,486 | 36,087 | 34,034 | [1] | 34,446 | 38,176 | 36,411 | ||||
Interest-checking deposits | 39,138 | 38,363 | 38,349 | 37,306 | [1] | 38,527 | 37,139 | 35,221 | ||||
Savings and money market deposits | 106,541 | 103,613 | 104,733 | 106,308 | [1] | 103,163 | 107,717 | 110,401 | ||||
Time deposits | 204,095 | 226,986 | 233,816 | 238,565 | [1] | 241,422 | 243,066 | 241,706 | ||||
Total deposits | 384,530 | 407,448 | 412,985 | 416,213 | [1] | 417,558 | 426,098 | 423,739 | ||||
Securities sold under agreements to repurchase | 45,379 | 45,249 | 45,418 | 45,381 | [1] | 45,412 | 45,710 | 45,458 | ||||
Federal Home Loan Bank advances | 10,000 | 10,000 | 20,000 | |||||||||
Subordinated debt | 7,855 | 7,855 | 7,855 | 7,855 | [1] | 7,855 | 7,855 | 7,855 | ||||
Other liabilities | 1,919 | 2,111 | 1,947 | 1,903 | [1] | 1,809 | 1,981 | 1,731 | ||||
Total Liabilities | 439,683 | 462,663 | 468,205 | 471,352 | 482,634 | 491,644 | 498,783 | |||||
Commitments and contingencies (Note 6) | [1] | |||||||||||
Stockholders' Equity: | ||||||||||||
Preferred stock, no par value | 13,179 | 13,179 | 13,179 | 13,179 | [1] | 13,179 | 13,179 | 13,179 | ||||
Discount on preferred stock | (496) | (570) | (644) | (716) | [1] | (787) | (856) | (923) | ||||
Common stock, $5 per share par value | 19,479 | 19,479 | 19,479 | 19,479 | [1] | 19,486 | 19,486 | 19,486 | ||||
Additional paid-in capital | 12,991 | 12,992 | 12,992 | 12,991 | [1] | 12,984 | 12,983 | 12,984 | ||||
Retained deficit | (37,463) | (34,424) | (34,419) | (31,871) | [1] | (23,233) | (16,317) | (6,627) | ||||
Accumulated other comprehensive income | 900 | 287 | 966 | 1,553 | [1] | 1,614 | 924 | 176 | ||||
Total Stockholders' Equity | 8,590 | 10,943 | 11,553 | 14,615 | [1] | 23,243 | 29,399 | 38,275 | 41,704 | |||
Total Liabilities and Stockholders' Equity | 448,273 | 473,606 | 479,758 | 485,967 | [1] | 505,877 | 521,043 | 537,058 | ||||
Other liabilities as previously stated | 1,919 | 3,023 | 2,694 | 2,485 | 2,226 | 2,235 | 1,819 | |||||
Prior period adjustment (See Note 1) | 0 | (912) | (747) | (582) | (417) | (254) | (88) | |||||
Other liabilities | 1,919 | 2,111 | 1,947 | 1,903 | [1] | 1,809 | 1,981 | 1,731 | ||||
Retained deficit as previously stated | (37,463) | (35,336) | (35,166) | (32,453) | (23,650) | (16,571) | (6,715) | |||||
Prior period adjustment (See Note 1) | 0 | 912 | 747 | 582 | 417 | 254 | 88 | |||||
Retained deficit | $ (37,463) | $ (34,424) | $ (34,419) | $ (31,871) | [1] | $ (23,233) | $ (16,317) | $ (6,627) | ||||
|
Earnings Per Share (Details) (USD $)
In Thousands, except Share data, unless otherwise specified |
3 Months Ended | 9 Months Ended | ||
---|---|---|---|---|
Sep. 30, 2012
|
Sep. 30, 2011
|
Sep. 30, 2012
|
Sep. 30, 2011
|
|
Computation of earnings (loss) per share | ||||
Net loss applicable to common stockholders | $ (3,203) | $ (7,080) | $ (6,086) | $ (20,382) |
Weighted average number of common shares outstanding | 3,895,840 | 3,897,174 | 3,895,840 | 3,897,174 |
Weighted average number of diluted common shares outstanding | 3,895,840 | 3,897,174 | 3,895,840 | 3,897,174 |
Common stock options and common stock warrants - anti-dilutive | 497,605 | 502,205 | 497,605 | 502,205 |
Loans (Tables)
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9 Months Ended | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Sep. 30, 2012
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Loans [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Loan portfolio |
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Impaired loans, segregated by class of loans |
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Troubled debt restructuring |
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Troubled debt restructurings (TDRs) information |
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Non-accrual loans and an age analysis of past due loans, segregated by class of loans |
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Schedule of loans and leases were categorized |
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Schedule of consumer-related loans, segregated by class of loans |
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Borrowed Funds (Details Textual) (USD $)
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3 Months Ended | 9 Months Ended | 9 Months Ended | |||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Sep. 30, 2012
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Jun. 30, 2012
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Mar. 31, 2012
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Dec. 31, 2011
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Sep. 30, 2011
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Jun. 30, 2011
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Mar. 31, 2011
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Sep. 30, 2012
Securities sold under term repurchase agreements [Member]
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Dec. 31, 2011
Securities sold under term repurchase agreements [Member]
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Sep. 30, 2012
Federal Home Loan Bank advances [Member]
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Sep. 30, 2012
Junior Subordinated Debt [Member]
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Sep. 30, 2012
Trust preferred securities [Member]
|
Sep. 30, 2012
Trust preferred securities [Member]
Rate
|
Dec. 31, 2011
Trust preferred securities [Member]
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Sep. 30, 2012
Trust preferred securities [Member]
Bank of Carolinas Trust I [Member]
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Sep. 30, 2012
Subordinated debt [Member]
|
Dec. 31, 2011
Subordinated debt [Member]
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Borrowed Funds (Textual) [Abstract] | ||||||||||||||||||||
Borrowings in the form of securities sold | $ 53,234,000 | $ 53,236,000 | $ 45,000,000 | $ 45,000,000 | $ 0 | $ 5,200,000 | $ 5,155,000 | $ 5,155,000 | $ 5,155,000 | $ 2,700,000 | $ 2,700,000 | |||||||||
Outstanding plus accrued interest | 1.095 | |||||||||||||||||||
Immediately available credit | 8,400,000 | |||||||||||||||||||
Issued trust preferred securities | 121,387,000 | 105,609,000 | 103,682,000 | 112,404,000 | [1] | 113,768,000 | 118,534,000 | 116,879,000 | 5,000,000 | |||||||||||
Investment Maturity Date1 | Jun. 15, 2013 | |||||||||||||||||||
Trust preferred Security | 10.00% | 10.00% | ||||||||||||||||||
Trust preferred Security Frequency of payment | quarterly | annual rate of 90-day LIBOR plus 300 basis points | ||||||||||||||||||
Trust preferred Security Basis Variable Spread | 3 | |||||||||||||||||||
Subordinated debt | 2,700,000 | |||||||||||||||||||
Subordinated debt Floating Rate Spread | 75.00% | |||||||||||||||||||
Subordinated debt Maturity Date | Aug. 13, 2018 | |||||||||||||||||||
Subordinated debt Penalty on early repayment | 0 | |||||||||||||||||||
Borrowed Funds (Additional Textual) [Abstract] | ||||||||||||||||||||
Issued common securities | $ 155,000 | |||||||||||||||||||
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Loans (Details 6) (USD $)
In Thousands, unless otherwise specified |
Sep. 30, 2012
|
Dec. 31, 2011
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---|---|---|
Consumer-related loans, segregated by class of loans | ||
Totals | $ 280,671 | $ 307,907 |
Consumer - Non Real Estate [Member]
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||
Consumer-related loans, segregated by class of loans | ||
Totals | 3,373 | 3,490 |
Performing [Member]
|
||
Consumer-related loans, segregated by class of loans | ||
Totals | 104,806 | 108,188 |
Performing [Member] | Consumer - Non Real Estate [Member]
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||
Consumer-related loans, segregated by class of loans | ||
Totals | 3,373 | 3,480 |
Performing [Member] | Credit Cards [Member] | Consumer - Non Real Estate [Member]
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||
Consumer-related loans, segregated by class of loans | ||
Totals | ||
Performing [Member] | Other [Member] | Consumer - Non Real Estate [Member]
|
||
Consumer-related loans, segregated by class of loans | ||
Totals | 3,373 | 3,480 |
Nonperforming [Member]
|
||
Consumer-related loans, segregated by class of loans | ||
Totals | 2,017 | 3,660 |
Nonperforming [Member] | Consumer - Non Real Estate [Member]
|
||
Consumer-related loans, segregated by class of loans | ||
Totals | 10 | |
Nonperforming [Member] | Credit Cards [Member] | Consumer - Non Real Estate [Member]
|
||
Consumer-related loans, segregated by class of loans | ||
Totals | ||
Nonperforming [Member] | Other [Member] | Consumer - Non Real Estate [Member]
|
||
Consumer-related loans, segregated by class of loans | ||
Totals | 10 | |
Residential Mortgage [Member] | Equity Lines [Member]
|
||
Consumer-related loans, segregated by class of loans | ||
Totals | 29,417 | 29,727 |
Residential Mortgage [Member] | Junior Liens [Member]
|
||
Consumer-related loans, segregated by class of loans | ||
Totals | 1,398 | 1,611 |
Residential Mortgage [Member] | Performing [Member]
|
||
Consumer-related loans, segregated by class of loans | ||
Totals | 101,433 | 104,708 |
Residential Mortgage [Member] | Performing [Member] | Equity Lines [Member]
|
||
Consumer-related loans, segregated by class of loans | ||
Totals | 29,277 | 29,689 |
Residential Mortgage [Member] | Performing [Member] | 1-4 Family [Member]
|
||
Consumer-related loans, segregated by class of loans | ||
Totals | 70,758 | 73,427 |
Residential Mortgage [Member] | Performing [Member] | Junior Liens [Member]
|
||
Consumer-related loans, segregated by class of loans | ||
Totals | 1,398 | 1,592 |
Residential Mortgage [Member] | Nonperforming [Member]
|
||
Consumer-related loans, segregated by class of loans | ||
Totals | 2,017 | 3,650 |
Residential Mortgage [Member] | Nonperforming [Member] | Equity Lines [Member]
|
||
Consumer-related loans, segregated by class of loans | ||
Totals | 140 | 38 |
Residential Mortgage [Member] | Nonperforming [Member] | 1-4 Family [Member]
|
||
Consumer-related loans, segregated by class of loans | ||
Totals | 1,877 | 3,593 |
Residential Mortgage [Member] | Nonperforming [Member] | Junior Liens [Member]
|
||
Consumer-related loans, segregated by class of loans | ||
Totals | $ 19 |
Income Taxes (Details) (USD $)
In Millions, unless otherwise specified |
Sep. 30, 2012
|
Dec. 31, 2011
|
---|---|---|
Income Taxes (Textual) [Abstract] | ||
Valuation allowance established against deferred tax asset | $ 15.0 | $ 12.7 |
Commitments and Contingencies (Details) (Commitments [Member], USD $)
In Thousands, unless otherwise specified |
Sep. 30, 2012
|
---|---|
Outstanding financial instruments whose contract amounts represent credit risk | |
Commitments | $ 28,272 |
Unfunded loan commitments [Member]
|
|
Outstanding financial instruments whose contract amounts represent credit risk | |
Commitments | 28,060 |
Financial standby letters of credit [Member]
|
|
Outstanding financial instruments whose contract amounts represent credit risk | |
Commitments | $ 212 |
Earnings Per Share
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9 Months Ended | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Sep. 30, 2012
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Earnings Per Share [Abstract] | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
EARNINGS PER SHARE |
NOTE 2. EARNINGS PER SHARE Basic earnings (loss) per share represents income (loss) available to common stockholders divided by the weighted average number of common shares outstanding during the period. When applicable, the weighted average shares outstanding for the diluted earnings per share computations are adjusted to reflect the assumed conversion of shares available under stock options using the treasury stock method. Earnings (loss) per share have been computed based on the following (dollars in thousands):
The common stock warrants referred to above were issued to the United States Treasury in connection with the Company’s April 17, 2009 participation in the Capital Purchase Program, which was authorized as a part of the TARP legislation passed by Congress during 2008.
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