Table of Contents
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 Quarterly Period Ended September 30, 2011
Commission File No. 000-29640
COMMUNITY FIRST BANCORPORATION
(Exact name of registrant as specified in its charter)
South Carolina
|
|
58-2322486
|
(State or other jurisdiction of
|
|
(IRS Employer Identification No.)
|
incorporation or organization)
|
|
|
449 HIGHWAY 123 BYPASS
SENECA, SOUTH CAROLINA 29678
(Address of principal executive offices, zip code)
(864) 886-0206
(Registrants telephone number, including area code)
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
o
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 during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes
x
No
o
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. (Check one):
Large accelerated filer
o
|
|
Accelerated filer
o
|
|
|
|
|
|
Non-accelerated filer
o
|
|
Smaller reporting company
x
|
|
(Do not check if a smaller reporting company)
|
|
|
|
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes
o
No
x
Indicate the number of shares outstanding of each of the issuers classes of common stock, as of the latest practicable date: Common Stock, no par or stated value, 3,972,976 Shares Outstanding on November 1, 2011
Table of Contents
PART I FINANCIAL INFORMATION
Item 1. Financial Statements
COMMUNITY FIRST BANCORPORATION
Consolidated Balance Sheets
|
|
(Unaudited)
|
|
|
|
|
|
September 30,
|
|
December 31,
|
|
|
|
2011
|
|
2010
|
|
|
|
(Dollars in thousands)
|
|
Assets
|
|
|
|
|
|
Cash and due from banks
|
|
$
|
1,260
|
|
$
|
1,711
|
|
Interest bearing balances due from banks
|
|
78,767
|
|
39,171
|
|
Cash and cash equivalents
|
|
80,027
|
|
40,882
|
|
Securities available-for-sale
|
|
129,206
|
|
169,369
|
|
Securities held-to-maturity (fair value $5,256 for 2011 and $6,817 for 2010)
|
|
4,865
|
|
6,389
|
|
Other investments
|
|
1,201
|
|
1,363
|
|
Loans
|
|
226,530
|
|
256,834
|
|
Allowance for loan losses
|
|
(5,713
|
)
|
(5,756
|
)
|
Loans - net
|
|
220,817
|
|
251,078
|
|
Premises and equipment - net
|
|
7,917
|
|
8,170
|
|
Accrued interest receivable
|
|
1,912
|
|
2,491
|
|
Bank-owned life insurance
|
|
9,928
|
|
9,666
|
|
Foreclosed assets
|
|
17,426
|
|
11,395
|
|
Net deferred tax assets
|
|
1,674
|
|
2,233
|
|
Other assets
|
|
1,763
|
|
2,723
|
|
Total assets
|
|
$
|
476,736
|
|
$
|
505,759
|
|
|
|
|
|
|
|
Liabilities
|
|
|
|
|
|
Deposits
|
|
|
|
|
|
Noninterest bearing
|
|
$
|
54,870
|
|
$
|
46,844
|
|
Interest bearing
|
|
364,404
|
|
398,466
|
|
Total deposits
|
|
419,274
|
|
445,310
|
|
Accrued interest payable
|
|
1,165
|
|
1,698
|
|
Short-term borrowings
|
|
|
|
5,000
|
|
Long-term debt
|
|
6,500
|
|
6,500
|
|
Other liabilities
|
|
2,471
|
|
1,939
|
|
Total liabilities
|
|
429,410
|
|
460,447
|
|
|
|
|
|
|
|
Shareholders equity
|
|
|
|
|
|
Preferred stock - Series A - non-voting 5% cumulative - $1,000 per share liquidation preference; 5,000 shares authorized; issued and outstanding - 3,150 shares
|
|
3,126
|
|
3,126
|
|
Preferred stock - no par value; 9,995,000 shares authorized; None issued and outstanding
|
|
|
|
|
|
Common stock - no par value; 10,000,000 shares authorized; issued and outstanding - 3,972,976 for 2011 and 2010
|
|
39,931
|
|
39,931
|
|
Additional paid-in capital
|
|
748
|
|
748
|
|
Retained earnings
|
|
1,919
|
|
1,396
|
|
Accumulated other comprehensive income
|
|
1,602
|
|
111
|
|
Total shareholders equity
|
|
47,326
|
|
45,312
|
|
Total liabilities and shareholders equity
|
|
$
|
476,736
|
|
$
|
505,759
|
|
See accompanying notes to unaudited consolidated financial statements.
3
Table of Contents
COMMUNITY FIRST BANCORPORATION
Consolidated Statements of Income
|
|
(Unaudited)
|
|
|
|
Period Ended September 30,
|
|
|
|
Three Months
|
|
Nine Months
|
|
|
|
2011
|
|
2010
|
|
2011
|
|
2010
|
|
|
|
(Dollars in thousands, except per share)
|
|
Interest income
|
|
|
|
|
|
|
|
|
|
Loans, including fees
|
|
$
|
3,498
|
|
$
|
4,068
|
|
$
|
10,776
|
|
$
|
12,125
|
|
Interest bearing balances due from banks
|
|
35
|
|
28
|
|
78
|
|
98
|
|
Securities
|
|
|
|
|
|
|
|
|
|
Taxable
|
|
945
|
|
1,258
|
|
3,177
|
|
3,875
|
|
Tax-exempt
|
|
165
|
|
188
|
|
517
|
|
584
|
|
Other investments
|
|
2
|
|
1
|
|
7
|
|
3
|
|
Total interest income
|
|
4,645
|
|
5,543
|
|
14,555
|
|
16,685
|
|
Interest expense
|
|
|
|
|
|
|
|
|
|
Time deposits $100M and over
|
|
450
|
|
806
|
|
1,481
|
|
2,285
|
|
Other deposits
|
|
683
|
|
1,303
|
|
2,296
|
|
4,158
|
|
Long-term debt
|
|
65
|
|
70
|
|
192
|
|
219
|
|
Total interest expense
|
|
1,198
|
|
2,179
|
|
3,969
|
|
6,662
|
|
Net interest income
|
|
3,447
|
|
3,364
|
|
10,586
|
|
10,023
|
|
Provision for loan losses
|
|
1,400
|
|
1,025
|
|
4,100
|
|
3,275
|
|
Net interest income after provision
|
|
2,047
|
|
2,339
|
|
6,486
|
|
6,748
|
|
Other income
|
|
|
|
|
|
|
|
|
|
Service charges on deposit accounts
|
|
289
|
|
319
|
|
817
|
|
929
|
|
Debit card transaciton fees
|
|
195
|
|
183
|
|
576
|
|
533
|
|
Net losses on sales of securities available-for-sale
|
|
|
|
|
|
(6
|
)
|
|
|
Increase in value of bank-owned life insurance
|
|
87
|
|
90
|
|
262
|
|
272
|
|
Other income
|
|
69
|
|
76
|
|
169
|
|
162
|
|
Total other income
|
|
640
|
|
668
|
|
1,818
|
|
1,896
|
|
Other expenses
|
|
|
|
|
|
|
|
|
|
Salaries and employee benefits
|
|
1,184
|
|
1,205
|
|
3,602
|
|
3,528
|
|
Net occupancy expense
|
|
137
|
|
133
|
|
410
|
|
416
|
|
Furniture and equipment expense
|
|
93
|
|
95
|
|
266
|
|
281
|
|
Amortization of computer software
|
|
109
|
|
97
|
|
305
|
|
306
|
|
Debit card transaction expenses
|
|
90
|
|
120
|
|
331
|
|
343
|
|
FDIC insurance assessment
|
|
231
|
|
233
|
|
695
|
|
866
|
|
Other expense
|
|
613
|
|
607
|
|
2,011
|
|
1,698
|
|
Total other expenses
|
|
2,457
|
|
2,490
|
|
7,620
|
|
7,438
|
|
Income before income taxes
|
|
230
|
|
517
|
|
684
|
|
1,206
|
|
Income tax expense
|
|
35
|
|
131
|
|
43
|
|
214
|
|
Net income
|
|
195
|
|
386
|
|
641
|
|
992
|
|
Deductions for amounts not available to common shareholders:
|
|
|
|
|
|
|
|
|
|
Dividends declared or accumulated on preferred stock
|
|
(39
|
)
|
(39
|
)
|
(138
|
)
|
(138
|
)
|
Net income available to common shareholders
|
|
$
|
156
|
|
$
|
347
|
|
$
|
503
|
|
$
|
854
|
|
See accompanying notes to unaudited consolidated financial statements.
4
Table of Contents
COMMUNITY FIRST BANCORPORATION
Consolidated Statements of Income - continued
|
|
(Unaudited)
|
|
|
|
Period Ended September 30,
|
|
|
|
Three Months
|
|
Nine Months
|
|
|
|
2011
|
|
2010
|
|
2011
|
|
2010
|
|
|
|
(Dollars in thousands, except per share)
|
|
Per common share*
|
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
0.04
|
|
$
|
0.09
|
|
$
|
0.13
|
|
$
|
0.21
|
|
Net income, assuming dilution
|
|
0.04
|
|
0.09
|
|
0.13
|
|
0.21
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
* Per common share information has been retroactively adjusted to reflect a 5% stock dividend effective December 16, 2010.
See accompanying notes to unaudited consolidated financial statements.
5
Table of Contents
COMMUNITY FIRST BANCORPORATION
Consolidated Statements of Changes in Shareholders Equity
(Unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated
|
|
|
|
|
|
Shares of
|
|
|
|
|
|
Additional
|
|
|
|
Other
|
|
|
|
|
|
Common
|
|
Preferred
|
|
Common
|
|
Paid-in
|
|
Retained
|
|
Comprehensive
|
|
|
|
|
|
Stock
|
|
Stock
|
|
Stock
|
|
Capital
|
|
Earnings
|
|
Income (Loss)
|
|
Total
|
|
|
|
(Dollars in thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, January 1, 2010
|
|
3,782,415
|
|
$
|
3,126
|
|
$
|
38,923
|
|
$
|
748
|
|
$
|
1,434
|
|
$
|
587
|
|
$
|
44,818
|
|
Comprehensive income:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
|
|
|
|
|
|
|
|
992
|
|
|
|
992
|
|
Unrealized holding gains and losses on available-for-sale securities arising during the period, net of income taxes of $914
|
|
|
|
|
|
|
|
|
|
|
|
1,633
|
|
1,633
|
|
Total other comprehensive income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,633
|
|
Total comprehensive income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,625
|
|
Dividends paid on preferred stock
|
|
|
|
|
|
|
|
|
|
(118
|
)
|
|
|
(118
|
)
|
Exercise of employee stock options
|
|
1,744
|
|
|
|
17
|
|
|
|
|
|
|
|
17
|
|
Balance, September 30, 2010
|
|
3,784,159
|
|
$
|
3,126
|
|
$
|
38,940
|
|
$
|
748
|
|
$
|
2,308
|
|
$
|
2,220
|
|
$
|
47,342
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, January 1, 2011
|
|
3,972,976
|
|
$
|
3,126
|
|
$
|
39,931
|
|
$
|
748
|
|
$
|
1,396
|
|
$
|
111
|
|
$
|
45,312
|
|
Comprehensive income:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
|
|
|
|
|
|
|
|
641
|
|
|
|
641
|
|
Unrealized holding gains and losses on available-for-sale securities arising during the period, net of income taxes of $834
|
|
|
|
|
|
|
|
|
|
|
|
1,487
|
|
1,487
|
|
Reclassification adjustment, net of income tax effects of $2
|
|
|
|
|
|
|
|
|
|
|
|
4
|
|
4
|
|
Total other comprehensive income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,491
|
|
Total comprehensive income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,132
|
|
Dividends paid on preferred stock
|
|
|
|
|
|
|
|
|
|
(118
|
)
|
|
|
(118
|
)
|
Balance, September 30, 2011
|
|
3,972,976
|
|
$
|
3,126
|
|
$
|
39,931
|
|
$
|
748
|
|
$
|
1,919
|
|
$
|
1,602
|
|
$
|
47,326
|
|
See accompanying notes to unaudited consolidated financial statements.
6
Table of Contents
COMMUNITY FIRST BANCORPORATION
Consolidated Statements of Cash Flows
|
|
(Unaudited)
|
|
|
|
Nine Months Ended
|
|
|
|
September 30,
|
|
|
|
2011
|
|
2010
|
|
|
|
(Dollars in thousands)
|
|
Operating activities
|
|
|
|
|
|
Net income
|
|
$
|
641
|
|
$
|
992
|
|
Adjustments to reconcile net income to net cash provided by operating activities
|
|
|
|
|
|
Provision for loan losses
|
|
4,100
|
|
3,275
|
|
Depreciation
|
|
275
|
|
287
|
|
Amortization of net loan (fees) and costs
|
|
44
|
|
(59
|
)
|
Securities accretion and premium amortization
|
|
597
|
|
1,079
|
|
Net losses on sales of securities available-for-sale
|
|
6
|
|
|
|
Increase in value of bank-owned life insurance
|
|
(262
|
)
|
(272
|
)
|
Writedowns of foreclosed assets
|
|
188
|
|
|
|
Net losses (gains) on sales of foreclosed assets
|
|
67
|
|
(7
|
)
|
Decrease (increase) in interest receivable
|
|
579
|
|
(771
|
)
|
(Decrease) increase in interest payable
|
|
(533
|
)
|
393
|
|
Decrease in prepaid expenses and other assets
|
|
960
|
|
1,168
|
|
Increase in other accrued expenses
|
|
532
|
|
577
|
|
Deferred income taxes
|
|
(277
|
)
|
|
|
Net cash provided by operating activities
|
|
6,917
|
|
6,662
|
|
|
|
|
|
|
|
Investing activities
|
|
|
|
|
|
Purchases of available-for-sale securities
|
|
(60,466
|
)
|
(144,027
|
)
|
Maturities, calls and paydowns of securities available-for-sale
|
|
97,911
|
|
99,895
|
|
Maturities, calls and paydowns of securities held-to-maturity
|
|
1,523
|
|
1,895
|
|
Proceeds from sales of securities available-for-sale
|
|
4,443
|
|
|
|
Proceeds from redemptions of other investments
|
|
162
|
|
94
|
|
Net decrease (increase) in loans made to customers
|
|
19,003
|
|
(618
|
)
|
Purchases of premises and equipment
|
|
(22
|
)
|
(81
|
)
|
Additional investments in foreclosed assets
|
|
|
|
(29
|
)
|
Proceeds of sale of foreclosed assets
|
|
828
|
|
591
|
|
Net cash provided (used) by investing activities
|
|
63,382
|
|
(42,280
|
)
|
|
|
|
|
|
|
Financing activities
|
|
|
|
|
|
Net increase (decrease) in demand deposits, interest bearing transaction accounts and savings accounts
|
|
6,895
|
|
(4,542
|
)
|
Net (decrease) increase in certificates of deposit and other time deposits
|
|
(32,931
|
)
|
26,272
|
|
Repayments of short-term borrowings
|
|
(5,000
|
)
|
|
|
Repayments of long-term debt
|
|
|
|
(1,500
|
)
|
Cash dividends paid on preferred stock
|
|
(118
|
)
|
(118
|
)
|
Exercise of employee stock options
|
|
|
|
17
|
|
Net cash (used) provided by financing activities
|
|
(31,154
|
)
|
20,129
|
|
Increase (decrease) in cash and cash equivalents
|
|
39,145
|
|
(15,489
|
)
|
Cash and cash equivalents, beginning
|
|
40,882
|
|
47,483
|
|
Cash and cash equivalents, ending
|
|
$
|
80,027
|
|
$
|
31,994
|
|
See accompanying notes to unaudited consolidated financial statements.
7
Table of Contents
COMMUNITY FIRST BANCORPORATION
Consolidated Statements of Cash Flows - continued
|
|
(Unaudited)
|
|
|
|
Nine Months Ended
|
|
|
|
September 30,
|
|
|
|
2011
|
|
2010
|
|
|
|
(Dollars in thousands)
|
|
Supplemental Disclosure of Cash Flow Information
|
|
|
|
|
|
Cash paid during the year for:
|
|
|
|
|
|
Interest
|
|
$
|
4,501
|
|
$
|
6,269
|
|
Income taxes
|
|
145
|
|
68
|
|
Net transfers from loans to foreclosed assets
|
|
7,114
|
|
3,030
|
|
Noncash investing and financing activities:
|
|
|
|
|
|
Other comprehensive income
|
|
1,491
|
|
1,633
|
|
|
|
|
|
|
|
|
|
See accompanying notes to unaudited consolidated financial statements.
8
Table of Contents
COMMUNITY FIRST BANCORPORATION
Notes to Unaudited Consolidated Financial Statements
(Dollar amounts in thousands, except per share)
Accounting Policies
A summary of significant accounting policies is included in Community First Bancorporations (the Company, our we, us, and similar references) Annual Report on Form 10-K for the year ended December 31, 2010 filed with the Securities and Exchange Commission. Certain amounts in the 2010 financial statements have been reclassified to conform to the current presentation. Such reclassifications had no effect on net income or retained earnings for any period.
Management Opinion
In the opinion of management, the accompanying unaudited consolidated financial statements of Community First Bancorporation reflect all adjustments necessary for a fair presentation of the results of the periods presented. Such adjustments were of a normal, recurring nature.
9
Table of Contents
Investment Securities
The following table presents information about amortized cost, unrealized gains, unrealized losses and estimated fair values of securities:
|
|
September 30, 2011
|
|
|
|
|
|
Gross
|
|
Gross
|
|
|
|
|
|
|
|
Unrealized
|
|
Unrealized
|
|
Estimated
|
|
|
|
Amortized
|
|
Holding
|
|
Holding
|
|
Fair
|
|
|
|
Cost
|
|
Gains
|
|
Losses
|
|
Value
|
|
|
|
(Dollars in thousands)
|
|
Available-for-sale
|
|
|
|
|
|
|
|
|
|
Mortgage-backed securities issued by US Government agencies
|
|
$
|
954
|
|
$
|
62
|
|
$
|
|
|
$
|
1,016
|
|
Government sponsored enterprises (GSEs)
|
|
84,734
|
|
679
|
|
64
|
|
85,349
|
|
Mortgage-backed securities issued by GSEs
|
|
24,773
|
|
1,200
|
|
|
|
25,973
|
|
State, county and municipal
|
|
16,245
|
|
645
|
|
22
|
|
16,868
|
|
Total
|
|
$
|
126,706
|
|
$
|
2,586
|
|
$
|
86
|
|
$
|
129,206
|
|
|
|
|
|
|
|
|
|
|
|
Held-to-maturity
|
|
|
|
|
|
|
|
|
|
Mortgage-backed securities issued by US Government agencies
|
|
$
|
|
|
$
|
|
|
$
|
|
|
$
|
|
|
Government sponsored enterprises (GSEs)
|
|
|
|
|
|
|
|
|
|
Mortgage-backed securities issued by GSEs
|
|
4,865
|
|
391
|
|
|
|
5,256
|
|
State, county and municipal
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
4,865
|
|
$
|
391
|
|
$
|
|
|
$
|
5,256
|
|
|
|
December 31, 2010
|
|
|
|
|
|
Gross
|
|
Gross
|
|
|
|
|
|
|
|
Unrealized
|
|
Unrealized
|
|
Estimated
|
|
|
|
Amortized
|
|
Holding
|
|
Holding
|
|
Fair
|
|
|
|
Cost
|
|
Gains
|
|
Losses
|
|
Value
|
|
|
|
(Dollars in thousands)
|
|
Available-for-sale
|
|
|
|
|
|
|
|
|
|
Mortgage-backed securities issued by US Government agencies
|
|
$
|
1,128
|
|
$
|
52
|
|
$
|
|
|
$
|
1,180
|
|
Government sponsored enterprises (GSEs)
|
|
130,492
|
|
863
|
|
1,495
|
|
129,860
|
|
Mortgage-backed securities issued by GSEs
|
|
20,145
|
|
983
|
|
|
|
21,128
|
|
State, county and municipal
|
|
17,432
|
|
130
|
|
361
|
|
17,201
|
|
Total
|
|
$
|
169,197
|
|
$
|
2,028
|
|
$
|
1,856
|
|
$
|
169,369
|
|
|
|
|
|
|
|
|
|
|
|
Held-to-maturity
|
|
|
|
|
|
|
|
|
|
Mortgage-backed securities issued by US Government agencies
|
|
$
|
|
|
$
|
|
|
$
|
|
|
$
|
|
|
Government sponsored enterprises (GSEs)
|
|
|
|
|
|
|
|
|
|
Mortgage-backed securities issued by GSEs
|
|
6,389
|
|
428
|
|
|
|
6,817
|
|
State, county and municipal
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
6,389
|
|
$
|
428
|
|
$
|
|
|
$
|
6,817
|
|
10
Table of Contents
The amortized cost and estimated fair value of securities by contractual maturity are shown below:
|
|
September 30, 2011
|
|
|
|
|
|
Due within one
year
|
|
Due after one
through five
years
|
|
Due after five
through ten years
|
|
Due after ten
years
|
|
Total
|
|
|
|
(Dollars in thousands)
|
|
|
|
Available-for-sale at fair value
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-mortgage-backed securities issued by GSEs
|
|
$
|
|
|
$
|
8,078
|
|
$
|
47,264
|
|
$
|
30,007
|
|
$
|
85,349
|
|
State, county and municpal issuers
|
|
|
|
532
|
|
4,648
|
|
11,688
|
|
16,868
|
|
|
|
|
|
8,610
|
|
51,912
|
|
41,695
|
|
102,217
|
|
Mortgage-backed securities issued by:
|
|
|
|
|
|
|
|
|
|
|
|
US Government agencies
|
|
|
|
|
|
|
|
|
|
1,016
|
|
GSEs
|
|
|
|
|
|
|
|
|
|
25,973
|
|
Total available-for-sale
|
|
|
|
|
|
|
|
|
|
$
|
129,206
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Held-to-maturity at amortized cost
|
|
|
|
|
|
|
|
|
|
|
|
Mortgage-backed securities issued by:
|
|
|
|
|
|
|
|
|
|
|
|
GSEs
|
|
|
|
|
|
|
|
|
|
$
|
4,865
|
|
Total held-to-maturity
|
|
|
|
|
|
|
|
|
|
$
|
4,865
|
|
11
Table of Contents
The estimated fair values and gross unrealized losses of all of the Companys investment securities whose estimated fair values were less than amortized cost as of September 30, 2011 and December 31, 2010 which had not been determined to be other-than-temporarily impaired are presented below. The Company evaluates all available-for-sale securities and all held-to-maturity securities for impairment as of each balance sheet date. The securities have been segregated in the table by investment category and the length of time that individual securities have been in a continuous unrealized loss position.
|
|
September 30, 2011
|
|
|
|
Continuously in Unrealized Loss Position for a Period of
|
|
|
|
Less than 12 Months
|
|
12 Months or more
|
|
Total
|
|
|
|
Estimated
Fair Value
|
|
Unrealized
Loss
|
|
Estimated
Fair Value
|
|
Unrealized
Loss
|
|
Estimated
Fair Value
|
|
Unrealized
Loss
|
|
|
|
(Dollars in thousands)
|
|
Available-for-sale
|
|
|
|
|
|
|
|
|
|
|
|
|
|
US Government agencies
|
|
$
|
|
|
$
|
|
|
$
|
|
|
$
|
|
|
$
|
|
|
$
|
|
|
Government-sponsored enterprises (GSEs)
|
|
11,156
|
|
64
|
|
|
|
|
|
11,156
|
|
64
|
|
Mortgage-backed securities issued by GSEs
|
|
|
|
|
|
|
|
|
|
|
|
|
|
State, county and municipal securities
|
|
|
|
|
|
488
|
|
22
|
|
488
|
|
22
|
|
Total
|
|
$
|
11,156
|
|
$
|
64
|
|
$
|
488
|
|
$
|
22
|
|
$
|
11,644
|
|
$
|
86
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Held-to-maturity
|
|
|
|
|
|
|
|
|
|
|
|
|
|
GSEs
|
|
$
|
|
|
$
|
|
|
$
|
|
|
$
|
|
|
$
|
|
|
$
|
|
|
Total
|
|
$
|
|
|
$
|
|
|
$
|
|
|
$
|
|
|
$
|
|
|
$
|
|
|
|
|
December 31, 2010
|
|
|
|
Continuously in Unrealized Loss Position for a Period of
|
|
|
|
Less than 12 Months
|
|
12 Months or more
|
|
Total
|
|
|
|
Estimated
Fair Value
|
|
Unrealized
Loss
|
|
Estimated
Fair Value
|
|
Unrealized
Loss
|
|
Estimated
Fair Value
|
|
Unrealized
Loss
|
|
|
|
(Dollars in thousands)
|
|
Available-for-sale
|
|
|
|
|
|
|
|
|
|
|
|
|
|
GSEs
|
|
$
|
60,543
|
|
$
|
1,495
|
|
$
|
|
|
$
|
|
|
$
|
60,543
|
|
$
|
1,495
|
|
Mortgage-backed securities issued by GSEs
|
|
|
|
|
|
|
|
|
|
|
|
|
|
State, county and municipal securities
|
|
9,648
|
|
306
|
|
455
|
|
55
|
|
10,103
|
|
361
|
|
Total
|
|
$
|
70,191
|
|
$
|
1,801
|
|
$
|
455
|
|
$
|
55
|
|
$
|
70,646
|
|
$
|
1,856
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Held-to-maturity
|
|
|
|
|
|
|
|
|
|
|
|
|
|
GSEs
|
|
$
|
|
|
$
|
|
|
$
|
|
|
$
|
|
|
$
|
|
|
$
|
|
|
|
|
$
|
|
|
$
|
|
|
$
|
|
|
$
|
|
|
$
|
|
|
$
|
|
|
As of September 30, 2011, eight securities had been continuously in an unrealized loss position for less than 12 months and one security had been continuously in an unrealized loss position for 12 months or more. We do not consider these investments to be other-than-temporarily impaired because the unrealized losses are believed to have resulted from current credit market disruptions. The securities issuers have remitted periodic interest payments as required and there are no indications that the issuers will be unable to make any such future payment according to the terms of the bond indentures. Although we classify a majority of our investment securities as available-for-sale, management has not determined that any specific securities will be disposed of prior to maturity and believes that we have both the ability and the intent to hold the investments until a recovery of fair value, including until maturity. Furthermore, we do not believe that we will be required to sell any of these securities prior to recovery of the unrealized loss. Substantially all of our holdings of state, county and municipal securities were rated at least investment grade by either S&P or Moodys, or both, as of September 30, 2011.
Our subsidiary bank is a member of the Federal Home Loan Bank of Atlanta (FHLB) and, accordingly, is required to own restricted stock in that institution in amounts that may vary from time to time. Because of the restrictions imposed, the
12
Table of Contents
stock may not be sold to other parties, but is redeemable by the FHLB at the same price as that at which it was acquired by the subsidiary. We evaluate this security for impairment based on the probability of ultimate recoverability of the par value of the investment. Based on our evaluation, no impairment has been recognized.
During the first nine months of 2011, we sold two available-for-sale securities for gross proceeds of $4,443 and net losses of $6. During the first nine months of 2010, we had no sales of available-for-sale securities. There were no transfers of available-for-sale securities to other categories in the 2011 and 2010 nine-month periods.
Loans
Loans consisted of the following:
|
|
September 30,
|
|
December 31,
|
|
|
|
2011
|
|
2010
|
|
|
|
(Dollars in thousands)
|
|
Commercial, financial and industrial
|
|
$
|
17,946
|
|
$
|
20,474
|
|
Real estate - construction
|
|
15,809
|
|
23,730
|
|
Real estate - mortgage
|
|
173,699
|
|
187,940
|
|
Consumer installment
|
|
19,076
|
|
24,690
|
|
Total
|
|
226,530
|
|
256,834
|
|
Allowance for loan losses
|
|
(5,713
|
)
|
(5,756
|
)
|
Loans - net
|
|
$
|
220,817
|
|
$
|
251,078
|
|
The following table provides information about the payment status of loans:
|
|
30-59 Days
Past Due
|
|
60-89 Days
Past Due
|
|
90 Days or
More Past Due
|
|
Total Past
Due
|
|
Current
|
|
Total Loans
|
|
|
|
(Dollars in thousands)
|
|
As of September 30, 2011
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial, financial and industrial
|
|
$
|
219
|
|
$
|
64
|
|
$
|
313
|
|
$
|
596
|
|
$
|
17,350
|
|
$
|
17,946
|
|
Real estate - construction
|
|
88
|
|
325
|
|
$
|
4,583
|
|
4,996
|
|
10,813
|
|
15,809
|
|
Real estate - mortgage
|
|
1,599
|
|
105
|
|
8,415
|
|
10,119
|
|
163,580
|
|
173,699
|
|
Consumer installment
|
|
152
|
|
134
|
|
206
|
|
492
|
|
18,584
|
|
19,076
|
|
Total
|
|
$
|
2,058
|
|
$
|
628
|
|
$
|
13,517
|
|
$
|
16,203
|
|
$
|
210,327
|
|
$
|
226,530
|
|
|
|
30-59 Days
Past Due
|
|
60-89 Days
Past Due
|
|
90 Days or
More Past Due
|
|
Total Past
Due
|
|
Current
|
|
Total Loans
|
|
|
|
(Dollars in thousands)
|
|
As of December 31, 2010
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial, financial and industrial
|
|
$
|
254
|
|
$
|
214
|
|
$
|
855
|
|
$
|
1,323
|
|
$
|
19,151
|
|
$
|
20,474
|
|
Real estate - construction
|
|
485
|
|
662
|
|
6,082
|
|
7,229
|
|
16,501
|
|
23,730
|
|
Real estate - mortgage
|
|
1,834
|
|
2,093
|
|
8,974
|
|
12,901
|
|
175,039
|
|
187,940
|
|
Consumer installment
|
|
294
|
|
256
|
|
433
|
|
983
|
|
23,707
|
|
24,690
|
|
Total
|
|
$
|
2,867
|
|
$
|
3,225
|
|
$
|
16,344
|
|
$
|
22,436
|
|
$
|
234,398
|
|
$
|
256,834
|
|
13
Table of Contents
Nonaccrual loans totaled $13,517 and $16,344 as of September 30, 2011 and December 31, 2010, respectively. As of September 30, 2011 and December 31, 2010, we had no loans past due 90 days or more and still accruing interest.
Troubled debt restructurings (TDRs), including $381 of such loans that are included in nonaccrual loans, totaled $5,765 as of September 30, 2011 and $5,457 as of December 31, 2010. The following table provides information about loans modified in troubled debt restructurings during the nine months ended September 30, 2011:
|
|
Modifications
|
|
|
|
As of and for the Nine Months Ended September 30, 2011
|
|
|
|
Number of
Contracts
|
|
Pre-Modification
Outstanding
Recorded
Investment
|
|
Post-Modification
Outstanding
Recorded
Investment
|
|
Losses
Recognized
Upon
Modification
|
|
|
|
(Dollars in thousands)
|
|
|
|
|
|
|
|
|
|
|
|
Commercial, financial and industrial
|
|
12
|
|
$
|
361
|
|
$
|
361
|
|
$
|
|
|
Real estate - construction
|
|
8
|
|
2,922
|
|
2,922
|
|
|
|
Real estate - mortgage
|
|
12
|
|
2,271
|
|
2,271
|
|
|
|
Consumer installment
|
|
12
|
|
211
|
|
211
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Troubled debt restructurings occur when, for reasons related to a borrowers financial difficulties, we agree to modify the terms of a loan and, in the process, grant a concession. Modifications of loan terms and concessions granted may take many forms. Sometimes, both we and the borrower may grant concessions. In such cases, we are considered to have granted a concession if the value of the concession(s) we made in the borrowers favor exceeds the value of the concession(s) made by the borrower in our favor.
Due to the concessions granted in loan modifications that result in TDRs, we generally recognize loan losses when such modifications are made. For loans in the real estate segment, TDR recognition generally indicates that the loans are collateral dependent. Consequently, we write-down such restructured loans to the extent that the pre-modification outstanding recorded investment exceeds the fair value of the collateral, less estimated selling costs. For loans in the other segment, collateral may or may not be held. If we hold collateral and the loan is collateral dependent, we would write down to the fair value of the collateral. If we hold no collateral, the expected cash flows under the modified terms are discounted at the effective interest rate of the original loan and, if there is a shortfall, we would write down to that amount. In both cases, if we had previously allowed for the losses sufficiently in the allowance for loan losses, no further provision would have resulted in the current period. If we had not previously allowed sufficiently, additional current provisions for loan losses may have been necessary to cover the shortfall.
During the third quarter of 2011, we applied new guidance about loan modifications contained in Accounting Standards Update 2011-02 A Creditors Determination of Whether a Restructuring is a Troubled Debt Restructuring retrospectively to the beginning of 2011, as required. As a result of applying that guidance, no loan modifications performed during the first six months of 2011 are now recognized as TDRs that were not considered to be TDRs under the previous guidance.
We have had no payment defaults on loans modified in TDRs within the preceding 12 months.
As of September 30, 2011, we had no loan commitments to borrowers who have loans included in troubled debt restructurings.
Loans that we grade Management Attention and Special Mention are not believed to present more than a minimal likelihood of loss. Those grades indicate that a change in the borrowers circumstances, or some other event, has occurred such that an elevated level of monitoring is warranted. Such loans are generally evaluated collectively for the purpose of estimating the allowance for loan losses. Loans graded Substandard are believed to present a moderate likelihood of loss due the presence of well-defined weaknesses in the borrowers financial condition such as a change in their demonstrated payment history, the effects of lower collateral values combined with other difficulties the borrowers may be experiencing, or deterioration of other indicators of the borrowers ability to service the loan as agreed. Loans graded Doubtful are believed to present a high likelihood of loss due to severe deterioration of a borrowers financial condition, severe past due status and/or substantial deterioration of collateral value, or other factors. Loans graded Substandard or Doubtful are evaluated individually for impairment. Management updates the internal risk grading system no less often than monthly. The following table provides information about our internal risk grading of loans as of the dates indicated:
14
Table of Contents
|
|
Internally Assigned Risk Grade
|
|
|
|
|
|
Management
Attention
|
|
Special Mention
|
|
Substandard
|
|
Doubtful
|
|
Total
|
|
|
|
(Dollars in thousands)
|
|
As of September 30, 2011
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial, financial and industrial
|
|
$
|
944
|
|
$
|
2,794
|
|
$
|
1,196
|
|
$
|
|
|
$
|
4,934
|
|
Real estate - construction
|
|
2,168
|
|
1,452
|
|
7,153
|
|
|
|
10,773
|
|
Real estate - mortgage
|
|
17,348
|
|
13,743
|
|
14,313
|
|
|
|
45,404
|
|
Consumer installment
|
|
642
|
|
855
|
|
780
|
|
|
|
2,277
|
|
|
|
$
|
21,102
|
|
$
|
18,844
|
|
$
|
23,442
|
|
$
|
|
|
$
|
63,388
|
|
|
|
Internally Assigned Risk Grade
|
|
|
|
|
|
Management
Attention
|
|
Special Mention
|
|
Substandard
|
|
Doubtful
|
|
Total
|
|
|
|
(Dollars in thousands)
|
|
As of December 31, 2010
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial, financial and industrial
|
|
$
|
524
|
|
$
|
577
|
|
$
|
1,385
|
|
$
|
|
|
$
|
2,486
|
|
Real estate - construction
|
|
1,953
|
|
2,980
|
|
7,953
|
|
|
|
12,886
|
|
Real estate - mortgage
|
|
12,628
|
|
8,326
|
|
12,795
|
|
237
|
|
33,986
|
|
Consumer installment
|
|
1,177
|
|
684
|
|
806
|
|
|
|
2,667
|
|
|
|
$
|
16,282
|
|
$
|
12,567
|
|
$
|
22,939
|
|
$
|
237
|
|
$
|
52,025
|
|
Impaired loans generally are nonaccrual loans, loans that are 90 days or more past due as to principal or interest payments, and other loans where, based on current information and events, it is probable that we will be unable to collect principal and interest payments according to the contractual terms of the loan agreements, including loans whose terms have been modified in a troubled debt restructuring. A loan is not considered to be impaired, however, if any period of delay or shortfalls of amounts expected to be collected are insignificant or if we expect that we will be able to collect all amounts due including interest during the period of delay.
Following is a summary of our impaired loans, by class:
15
Table of Contents
|
|
Recorded
Investment
|
|
Unpaid
Principal
Balance
|
|
Related
Allowance
|
|
Year-to-Date
Average
Recorded
Investment
|
|
Year-to-Date
Interest Income
Recognized
|
|
|
|
(Dollars in thousands)
|
|
As of September 30, 2011
|
|
|
|
|
|
|
|
|
|
|
|
With no related allowance recorded:
|
|
|
|
|
|
|
|
|
|
|
|
Commercial, financial and industrial
|
|
$
|
431
|
|
$
|
431
|
|
$
|
|
|
$
|
299
|
|
$
|
|
|
Real estate - construction
|
|
4,288
|
|
4,537
|
|
|
|
3,589
|
|
71
|
|
Real estate - mortgage
|
|
11,285
|
|
11,802
|
|
|
|
10,637
|
|
146
|
|
Consumer installment
|
|
231
|
|
231
|
|
|
|
282
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
With an allowance recorded:
|
|
|
|
|
|
|
|
|
|
|
|
Commercial, financial and industrial
|
|
$
|
709
|
|
$
|
709
|
|
$
|
530
|
|
$
|
738
|
|
$
|
|
|
Real estate - construction
|
|
1,597
|
|
1,949
|
|
59
|
|
1,222
|
|
21
|
|
Real estate - mortgage
|
|
1,887
|
|
2,221
|
|
1,349
|
|
3,624
|
|
|
|
Consumer installment
|
|
342
|
|
342
|
|
208
|
|
254
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total:
|
|
|
|
|
|
|
|
|
|
|
|
Commercial, financial and industrial
|
|
$
|
1,140
|
|
$
|
1,140
|
|
$
|
530
|
|
$
|
1,037
|
|
$
|
|
|
Real estate - construction and mortgage
|
|
19,057
|
|
20,509
|
|
1,408
|
|
19,072
|
|
238
|
|
Consumer installment
|
|
573
|
|
573
|
|
208
|
|
536
|
|
|
|
Total
|
|
$
|
20,770
|
|
$
|
22,222
|
|
$
|
2,146
|
|
$
|
20,646
|
|
$
|
238
|
|
|
|
Recorded
Investment
|
|
Unpaid
Principal
Balance
|
|
Related
Allowance
|
|
Year-to-Date
Average
Recorded
Investment
|
|
Year-to-Date
Interest Income
Recognized
|
|
|
|
(Dollars in thousands)
|
|
As of December 31, 2010
|
|
|
|
|
|
|
|
|
|
|
|
With no related allowance recorded:
|
|
|
|
|
|
|
|
|
|
|
|
Commercial, financial and industrial
|
|
$
|
167
|
|
$
|
167
|
|
$
|
|
|
$
|
73
|
|
$
|
|
|
Real estate - construction
|
|
2,890
|
|
3,462
|
|
|
|
2,569
|
|
13
|
|
Real estate - mortgage
|
|
9,989
|
|
10,638
|
|
|
|
7,761
|
|
118
|
|
Consumer installment
|
|
334
|
|
334
|
|
|
|
262
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
With an allowance recorded:
|
|
|
|
|
|
|
|
|
|
|
|
Commercial, financial and industrial
|
|
$
|
767
|
|
$
|
767
|
|
$
|
515
|
|
$
|
455
|
|
$
|
|
|
Real estate - construction
|
|
846
|
|
874
|
|
45
|
|
1,523
|
|
41
|
|
Real estate - mortgage
|
|
5,360
|
|
5,529
|
|
1,632
|
|
6,465
|
|
|
|
Consumer installment
|
|
166
|
|
166
|
|
66
|
|
273
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total:
|
|
|
|
|
|
|
|
|
|
|
|
Commercial, financial and industrial
|
|
$
|
934
|
|
$
|
934
|
|
$
|
515
|
|
$
|
528
|
|
$
|
|
|
Real estate - construction and mortgage
|
|
19,085
|
|
20,503
|
|
1,677
|
|
18,318
|
|
172
|
|
Consumer installment
|
|
500
|
|
500
|
|
66
|
|
535
|
|
|
|
Total
|
|
$
|
20,519
|
|
$
|
21,937
|
|
$
|
2,258
|
|
$
|
19,381
|
|
$
|
172
|
|
The following table provides information about how we evaluated loans for impairment, the amount of the allowance for loan losses estimated for loans subjected to each type of evaluation, and the related total amounts, by portfolio segment as of the dates indicated:
16
Table of Contents
|
|
Secured by
|
|
|
|
|
|
As of September 30, 2011
|
|
Real Estate
|
|
Other
|
|
Total
|
|
|
|
(Dollars in thousands)
|
|
Allowance for credit losses
|
|
|
|
|
|
|
|
Ending balance
|
|
$
|
3,806
|
|
$
|
1,907
|
|
$
|
5,713
|
|
Ending balance - individually evaluated for impairment
|
|
$
|
1,408
|
|
$
|
738
|
|
$
|
2,146
|
|
Ending balance - collectively evaluated for impairment
|
|
$
|
2,398
|
|
$
|
1,169
|
|
$
|
3,567
|
|
|
|
|
|
|
|
|
|
Loans
|
|
|
|
|
|
|
|
Ending balance
|
|
$
|
189,508
|
|
$
|
37,022
|
|
$
|
226,530
|
|
Ending balance - individually evaluated for impairment
|
|
$
|
18,775
|
|
$
|
1,995
|
|
$
|
20,770
|
|
Ending balance - collectively evaluated for impairment
|
|
$
|
170,733
|
|
$
|
35,027
|
|
$
|
205,760
|
|
|
|
|
|
|
|
|
|
|
|
Secured by
|
|
|
|
|
|
As of December 31, 2010
|
|
Real Estate
|
|
Other
|
|
Total
|
|
|
|
(Dollars in thousands)
|
|
Allowance for credit losses
|
|
|
|
|
|
|
|
Ending balance
|
|
$
|
3,753
|
|
$
|
2,003
|
|
$
|
5,756
|
|
Ending balance - individually evaluated for impairment
|
|
$
|
1,504
|
|
$
|
754
|
|
$
|
2,258
|
|
Ending balance - collectively evaluated for impairment
|
|
$
|
2,249
|
|
$
|
1,249
|
|
$
|
3,498
|
|
|
|
|
|
|
|
|
|
Loans
|
|
|
|
|
|
|
|
Ending balance
|
|
$
|
211,520
|
|
$
|
45,314
|
|
$
|
256,834
|
|
Ending balance - individually evaluated for impairment
|
|
$
|
18,425
|
|
$
|
2,094
|
|
$
|
20,519
|
|
Ending balance - collectively evaluated for impairment
|
|
$
|
193,095
|
|
$
|
43,220
|
|
$
|
236,315
|
|
During the nine months ended September 30, 2011, we continued to experience higher-than-normal (pre-recession) amounts of net charge-offs and relatively high levels of past due and nonaccrual loans. These and other measures of credit quality, as well as continuing weakness in real estate prices, relatively low levels of activity in the real estate market and the continuing high unemployment levels in our market areas, indicate that our loan customers and collateral values remain under stress. Accordingly, we have recorded higher-than-normal provision and allowance for loan losses to recognize these conditions. We have not changed our accounting policy or the methodology used to estimate the allowance for loan losses since December 31, 2010. The following table provides information about activity in the allowance for loan losses by portfolio segment for the nine months ended September 30, 2011:
17
Table of Contents
|
|
Secured by
|
|
|
|
|
|
For the nine months ended September 30, 2011
|
|
Real Estate
|
|
Other
|
|
Total
|
|
|
|
(Dollars in thousands)
|
|
Allowance for credit losses
|
|
|
|
|
|
|
|
Balance, January 1, 2011
|
|
$
|
3,753
|
|
$
|
2,003
|
|
$
|
5,756
|
|
Provision charged to expense
|
|
2,665
|
|
1,435
|
|
4,100
|
|
Recoveries
|
|
|
|
61
|
|
61
|
|
Charge-offs
|
|
(2,612
|
)
|
(1,592
|
)
|
(4,204
|
)
|
Balance at September 30, 2011
|
|
$
|
3,806
|
|
$
|
1,907
|
|
$
|
5,713
|
|
Earnings Per Share
Basic earnings per common share is computed by dividing net income applicable to common shares by the weighted average number of common shares outstanding. Diluted earnings per common share is computed by dividing net income applicable to common shares by the weighted average number of common shares outstanding and any dilutive potential common shares and dilutive stock options. It is assumed that all dilutive stock options are exercised at the beginning of each period and that the proceeds are used to purchase shares of our common stock at the average market price during the period. All 2010 per share information has been retroactively adjusted to give effect to a 5% stock dividend effective December 16, 2010. Stock options outstanding for the periods presented were not dilutive because the exercise prices were greater than the market value of the underlying shares. Net income per common share and net income per common share, assuming dilution, were computed as follows:
|
|
Period Ended September 30,
|
|
|
|
Three Months
|
|
Nine Months
|
|
|
|
2011
|
|
2010
|
|
2011
|
|
2010
|
|
|
|
(Dollars in thousands, except per share amounts)
|
|
|
|
|
|
|
|
|
|
|
|
Net income per common share, basic
|
|
|
|
|
|
|
|
|
|
Numerator - net income available to common shareholders
|
|
$
|
156
|
|
$
|
347
|
|
$
|
503
|
|
$
|
854
|
|
Denominator
|
|
|
|
|
|
|
|
|
|
Weighted average common shares issued and outstanding
|
|
3,972,976
|
|
3,973,367
|
|
3,972,976
|
|
3,973,066
|
|
|
|
|
|
|
|
|
|
|
|
Net income per share, basic
|
|
$
|
.04
|
|
$
|
.09
|
|
$
|
.13
|
|
$
|
.21
|
|
|
|
|
|
|
|
|
|
|
|
Net income per common share, assuming dilution
|
|
|
|
|
|
|
|
|
|
Numerator - net income available to common shareholders
|
|
$
|
156
|
|
$
|
347
|
|
$
|
503
|
|
$
|
854
|
|
Denominator
|
|
|
|
|
|
|
|
|
|
Weighted average common shares issued and outstanding
|
|
3,972,976
|
|
3,973,367
|
|
3,972,976
|
|
3,973,066
|
|
Effect of dilutive stock options
|
|
|
|
|
|
|
|
|
|
Total common shares
|
|
3,972,976
|
|
3,973,367
|
|
3,972,976
|
|
3,973,066
|
|
Net income per common share, assuming dilution
|
|
$
|
.04
|
|
$
|
.09
|
|
$
|
.13
|
|
$
|
.21
|
|
Stock-Based Compensation
Our 1998 stock option plan terminated on March 19, 2008 and no further options may be issued under the plan. As of September 30, 2011, a total of 271,581 unexpired and non-forfeited options under the plan remain exercisable until their expiration dates.
Income Taxes
Net deferred tax assets totaled $1,674 as of September 30, 2011. Approximately $554 of these net deferred tax assets is supported by available carrybacks and $1,120 is dependent upon projected future taxable income.
18
Table of Contents
Based on the available carrybacks and our projections of future federal taxable income, we believe it is more likely than not that we will be able to realize the related tax benefits. Consequently, no valuation allowance for net deferred tax assets was recorded as of September 30, 2011 and December 31, 2010.
Fair Value Measurements
Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly fashion between market participants at the measurement date. A three-level hierarchy is used for fair value measurements based upon the transparency of inputs to the valuation of an asset or liability as of the measurement date. In developing estimates of the fair values of assets and liabilities, no consideration of large position discounts for financial instruments quoted in active markets is allowed. However, an entity is required to consider its own creditworthiness when valuing its liabilities. For disclosure purposes, fair values for assets and liabilities are shown in the level of the hierarchy that correlates with the lowest level input that is significant to the fair value measurement in its entirety.
The three levels of the fair value input hierarchy are described as follows:
Level 1 inputs reflect quoted prices in active markets for identical assets or liabilities.
Level 2 inputs reflect observable inputs that may consist of quoted market prices for similar assets or liabilities, quoted prices that are not in an active market, or other inputs that are observable in the market and can be corroborated by observable market data for substantially the full term of the assets or liabilities being valued.
Level 3 inputs reflect the use of pricing models and/or discounted cash flow methodologies using other than contractual interest rates or methodologies that incorporate a significant amount of management judgment, use of the entitys own data, or other forms of unobservable data.
The following is a summary of the measurement attributes applicable to financial assets that are measured at fair value on a recurring basis:
|
|
|
|
Fair Value Measurement at Reporting Date Using
|
|
|
|
|
|
Quoted Prices
|
|
|
|
|
|
|
|
|
|
in Active
|
|
Significant
|
|
|
|
|
|
|
|
Markets for
|
|
Other
|
|
Significant
|
|
|
|
|
|
Identical
|
|
Observable
|
|
Unobservable
|
|
|
|
|
|
Assets
|
|
Inputs
|
|
Inputs
|
|
Description
|
|
September 30, 2011
|
|
(Level 1)
|
|
(Level 2)
|
|
(Level 3)
|
|
|
|
|
|
(Dollars in thousands)
|
|
Securities available-for-sale
|
|
|
|
$
|
|
|
$
|
129,206
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair Value Measurement at Reporting Date Using
|
|
|
|
|
|
Quoted Prices
|
|
|
|
|
|
|
|
|
|
in Active
|
|
Significant
|
|
|
|
|
|
|
|
Markets for
|
|
Other
|
|
Significant
|
|
|
|
|
|
Identical
|
|
Observable
|
|
Unobservable
|
|
|
|
|
|
Assets
|
|
Inputs
|
|
Inputs
|
|
Description
|
|
December 31, 2010
|
|
(Level 1)
|
|
(Level 2)
|
|
(Level 3)
|
|
|
|
|
|
(Dollars in thousands)
|
|
Securities available-for-sale
|
|
|
|
$
|
|
|
$
|
169,369
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Level 2 inputs for our securities available-for-sale are obtained from an independent third-party that uses a process that may incorporate current market prices, benchmark yields, broker/dealer quotes, issuer spreads, two-sided markets, benchmark securities, bids, offers, other reference data and industry and economic events that a market participant would be expected to use in valuing the securities. Not all of the inputs listed apply to each individual security at each measurement date. The independent third party assigns specific securities into an asset class for the purpose of assigning the applicable level of the fair value hierarchy used to value the securities. At September 30, 2011 and December 31, 2010, all of our securities available-for-sale were valued using Level 2 inputs.
We did not have any liabilities measured at fair value on a recurring basis at either period end.
19
Table of Contents
The following is a summary of the measurement attributes applicable to assets and liabilities that were measured at fair value on a non-recurring basis during the nine month period ended September 30, 2011 and the twelve month period ended December 31, 2010 and which remained outstanding at the end of each period:
|
|
|
|
Fair Value Measurement at Reporting Date Using
|
|
|
|
|
|
Quoted Prices
|
|
|
|
|
|
|
|
|
|
in Active
|
|
Significant
|
|
|
|
|
|
|
|
Markets for
|
|
Other
|
|
Significant
|
|
|
|
|
|
Identical
|
|
Observable
|
|
Unobservable
|
|
|
|
|
|
Assets
|
|
Inputs
|
|
Inputs
|
|
Description
|
|
September 30, 2011
|
|
(Level 1)
|
|
(Level 2)
|
|
(Level 3)
|
|
|
|
|
|
(Dollars in thousands)
|
|
Collateral-dependent impaired loans
|
|
|
|
$
|
|
|
$
|
23,045
|
|
$
|
|
|
Land held for sale
|
|
|
|
|
|
139
|
|
|
|
Foreclosed assets
|
|
|
|
|
|
17,426
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair Value Measurement at Reporting Date Using
|
|
|
|
|
|
Quoted Prices
|
|
|
|
|
|
|
|
|
|
in Active
|
|
Significant
|
|
|
|
|
|
|
|
Markets for
|
|
Other
|
|
Significant
|
|
|
|
|
|
Identical
|
|
Observable
|
|
Unobservable
|
|
|
|
|
|
Assets
|
|
Inputs
|
|
Inputs
|
|
Description
|
|
December 31, 2010
|
|
(Level 1)
|
|
(Level 2)
|
|
(Level 3)
|
|
|
|
|
|
(Dollars in thousands)
|
|
Collateral-dependent impaired loans
|
|
|
|
$
|
|
|
$
|
20,312
|
|
$
|
|
|
Land held for sale
|
|
|
|
|
|
139
|
|
|
|
Foreclosed assets
|
|
|
|
|
|
11,395
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The fair value measurements shown above were made to reduce cost-based measurements to fair value measurements at initial recognition or to adjust fair value based measurements subsequent to initial recognition due to changes in the circumstances of individual assets during the period. For collateral-dependent loans, the measurements reflect our belief that we will receive repayment solely from the liquidation of the underlying collateral. As a practical expedient, such loans may be valued by comparing the fair value of the collateral securing the loan with the loans carrying value. If the carrying value exceeds the fair value of the collateral, the excess is charged to the allowance for loan losses. If the fair value of the collateral exceeds the loans carrying amount, no adjustment is made, the loan continues to be carried at historical cost, and the loan is not included in the table.
The value of other real estate obtained through loan foreclosure, is adjusted, if needed, upon the acquisition of each property to the lower of the recorded investment in the loan or the fair value of the property as determined by a recently performed independent appraisal less the estimated costs to sell. Similarly, the fair value of repossessions is measured by reference to dealers quotes or other market information believed to reliably reflect the value of the specific property held. Immaterial adjustments may be made by management to reflect property-specific factors such as age or condition. Losses recognized when loans are initially transferred to or otherwise included in any of the categories shown above are reported as loan losses. Subsequent to initial recognition, changes in fair value measurements of other real estate and repossessions are included in other income or other expenses, as applicable.
We did not have any liabilities measured at fair value on a non-recurring basis at either period end.
Accounting standards require disclosure of the estimated fair value of certain on-balance sheet and off-balance sheet financial instruments and the methods and assumptions used to estimate their fair values. A financial instrument is defined as cash, evidence of an ownership interest in an entity, or an agreement that creates a contractual right or obligation to receive or deliver cash, or another financial instrument, owed by or to a second entity on potentially favorable or unfavorable terms. Affected financial instruments that are not carried at fair value on the Consolidated Balance Sheets are
20
Table of Contents
discussed below. Accordingly, these fair value disclosures provide only a partial estimate of the fair value of the Companys financial instruments..
For cash and due from banks, interest bearing deposits due from banks and federal funds sold, the carrying amount approximates fair value because these instruments generally mature in 90 days or less. The carrying amounts of accrued interest receivable or payable approximate fair values.
The fair value of held-to-maturity mortgage-backed securities issued by Government sponsored enterprises is estimated based on dealers quotes for the same or similar securities.
The fair value of FHLB stock is estimated at its cost because the FHLB historically has redeemed its outstanding stock at that value.
Fair values are estimated for loans using discounted cash flow analyses, based on interest rates currently offered for loans with similar terms and credit quality. We do not engage in originating, holding, guaranteeing, servicing or investing in loans where the terms of the loan product give rise to a concentration of credit risk.
The fair value of deposits with no stated maturity (noninterest bearing demand, interest bearing transaction accounts and savings) is estimated as the amount payable on demand, or carrying amount, as required by SFAS No. 157. The fair value of time deposits is estimated using a discounted cash flow calculation that applies rates currently offered to aggregate expected maturities.
The fair values of our short-term borrowings, if any, approximate their carrying amounts.
The fair values of fixed rate long-term debt instruments are estimated using discounted cash flow analyses, based on the borrowing rates currently in effect for similar borrowings. The fair values of variable rate long-term debt instruments are estimated at the carrying amount.
The following table presents the carrying amounts and fair values of our financial instruments:
|
|
September 30, 2011
|
|
December 31, 2010
|
|
|
|
Carrying
|
|
Estimated
|
|
Carrying
|
|
Estimated
|
|
|
|
Amount
|
|
Fair Value
|
|
Amount
|
|
Fair Value
|
|
|
|
(Dollars in thousands)
|
|
Financial assets
|
|
|
|
|
|
|
|
|
|
Cash and due from banks
|
|
$
|
1,260
|
|
$
|
1,260
|
|
$
|
1,711
|
|
$
|
1,711
|
|
Interest bearing deposits due from banks
|
|
78,767
|
|
78,767
|
|
39,171
|
|
39,171
|
|
Securities available-for-sale
|
|
129,206
|
|
129,206
|
|
169,369
|
|
169,369
|
|
Securities held-to-maturity
|
|
4,865
|
|
5,256
|
|
6,389
|
|
6,817
|
|
Federal Home Loan Bank stock
|
|
1,201
|
|
1,201
|
|
1,363
|
|
1,363
|
|
Loans, net
|
|
220,817
|
|
221,569
|
|
251,078
|
|
252,385
|
|
Accrued interest receivable
|
|
1,912
|
|
1,912
|
|
2,491
|
|
2,491
|
|
Financial liabilities
|
|
|
|
|
|
|
|
|
|
Deposits
|
|
419,274
|
|
420,927
|
|
445,310
|
|
446,763
|
|
Accrued interest payable
|
|
1,165
|
|
1,165
|
|
1,698
|
|
1,698
|
|
Short-term borrowings
|
|
|
|
|
|
5,000
|
|
5,000
|
|
Long-term debt
|
|
6,500
|
|
6,522
|
|
6,500
|
|
6,528
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The estimated fair values of off-balance-sheet financial instruments such as loan commitments and standby letters of credit are generally based upon fees charged to enter into similar agreements, taking into account the remaining terms of the agreements and the counterparties creditworthiness. The vast majority of the banking subsidiarys loan commitments do not involve the charging of a fee, and fees associated with outstanding standby letters of credit are not material. For loan commitments and standby letters of credit, the committed interest rates are either variable or approximate current interest rates offered for similar commitments. Therefore, the estimated fair values of these off-balance-sheet financial instruments are nominal.
The following is a summary of the notional or contractual amounts and estimated fair values of our off-balance sheet financial instruments:
21
Table of Contents
|
|
September 30, 2011
|
|
December 31, 2010
|
|
|
|
Notional/
|
|
Estimated
|
|
Notional/
|
|
Estimated
|
|
|
|
Contract
|
|
Fair
|
|
Contract
|
|
Fair
|
|
|
|
Amount
|
|
Value
|
|
Amount
|
|
Value
|
|
|
|
(Dollars in thousands)
|
|
Off-balance sheet commitments
|
|
|
|
|
|
|
|
|
|
Loan commitments
|
|
$
|
22,318
|
|
$
|
|
|
$
|
26,834
|
|
$
|
|
|
Standby letters of credit
|
|
1,221
|
|
|
|
869
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of September 30, 2011, we had no commitments to lend to customers who have loans that are included in troubled debt restructurings.
Other Expenses
Other expenses consisted of the following:
|
|
Period Ended September 30,
|
|
|
|
Three Months
|
|
Nine Months
|
|
|
|
2011
|
|
2010
|
|
2011
|
|
2010
|
|
|
|
(Dollars in thousands)
|
|
|
|
|
|
|
|
|
|
|
|
Salaries and employee benefits
|
|
$
|
1,184
|
|
$
|
1,205
|
|
$
|
3,602
|
|
$
|
3,528
|
|
Net occupancy expense
|
|
137
|
|
133
|
|
410
|
|
416
|
|
Furniture and equipment expense
|
|
93
|
|
95
|
|
266
|
|
281
|
|
Amortization of computer software
|
|
109
|
|
97
|
|
305
|
|
306
|
|
Debit card transaction expenses
|
|
90
|
|
120
|
|
331
|
|
343
|
|
FDIC insurance expense
|
|
231
|
|
233
|
|
695
|
|
866
|
|
Other expense
|
|
|
|
|
|
|
|
|
|
Stationery, printing and postage
|
|
71
|
|
88
|
|
233
|
|
250
|
|
Telephone
|
|
46
|
|
32
|
|
156
|
|
135
|
|
Advertising and promotion
|
|
42
|
|
54
|
|
135
|
|
111
|
|
Professional services
|
|
160
|
|
160
|
|
388
|
|
421
|
|
Directors compensation
|
|
48
|
|
49
|
|
131
|
|
127
|
|
Foreclosed assets costs and expenses, net
|
|
128
|
|
104
|
|
534
|
|
244
|
|
Other
|
|
118
|
|
120
|
|
434
|
|
410
|
|
Total
|
|
$
|
2,457
|
|
$
|
2,490
|
|
$
|
7,620
|
|
$
|
7,438
|
|
Pending Transaction
On October 31, 2011, our wholly-owned subsidiary bank, Community First Bank, entered into an amended definitive agreement to acquire Bank of Westminster, Westminster, South Carolina in an all cash transaction. Bank of Westminster is privately held and has one banking office with $26,226 in deposits and $28,179 in total assets as of September 30, 2011. The transaction is subject to approval by Bank of Westminster shareholders.
New Accounting Pronouncements
In May 2011, FASB updated ASC Topic 820 Fair Value Measurements to more closely align fair value measurement and disclosure requirements in U. S. Generally Accepted Accounting Principles (GAAP) with the requirements of International Financial Reporting Standards (IFRS). This Update changes the wording of some of the GAAP requirements, including clarifying the intent about the application of existing fair value measurement and disclosure requirements and expanding the disclosures required about fair value measurements. The amendments in the Update are effective for public entities for periods beginning after December 15, 2011 and are to be applied prospectively. Early application is not permitted for public entities. We have not yet determined the effect that implementing this guidance will have on our financial condition or results of operations.
In June 2011, FASB updated ASC Topic 220 Comprehensive Income to improve the comparability, consistency and transparency of financial reporting and to increase the prominence of items reported in other comprehensive income. The Update is also intended to facilitate convergence of GAAP and IFRS. The Update requires that all entities that report any items of comprehensive income in any period presented will 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
22
Table of Contents
income or in two separate but consecutive statements. The amendments are required for public entities for fiscal years and interim periods within those years beginning after December 31, 2011 and are to be applied retrospectively. Although early application is permitted, we do not plan to implement this Update until its mandatory effective date. Because this Update affects only presentation matters, it is not expected to have any effect on our financial condition or results of operations when implemented.
Other recent accounting standards that have been issued or proposed by the FASB or other standards-setting bodies are not expected to have a material impact on the Companys financial position, results of operations or cash flows.
CAUTIONARY NOTICE WITH RESPECT TO FORWARD-LOOKING STATEMENTS
This report contains forward-looking statements within the meaning of the securities laws. The Private Securities Litigation Reform Act of 1995 provides a safe harbor for forward-looking statements. In order to comply with the terms of the safe harbor, the Company notes that a variety of factors could cause the Companys actual results and experience to differ materially from the anticipated results or other expectations expressed in the Companys forward-looking statements.
All statements that are not historical facts are statements that could be forward-looking statements. You can identify these forward-looking statements through the use of words such as may, will, should, could, would, expect, anticipate, assume, indicate, contemplate, seek, plan, predict, target, potential, believe, intend, estimate, project, forecast, continue, or other similar words. Forward-looking statements include, but are not limited to, statements regarding the Companys future business prospects, revenues, working capital, liquidity, capital needs, interest costs, income, business operations and proposed services.
These forward-looking statements are based on current expectations, estimates and projections about the banking industry, managements beliefs, and assumptions made by management. Such information includes, without limitation, discussions as to estimates, expectations, beliefs, plans, strategies, and objectives concerning future financial and operating performance. These statements are not guarantees of future performance and are subject to risks, uncertainties and assumptions that are difficult to predict. Therefore, actual results may differ materially from those expressed or forecasted in such forward-looking statements. The risks and uncertainties include, but are not limited to:
·
future economic and business conditions;
·
lack of sustained growth and disruptions in the economies of the Companys market areas, including, but not limited to, declining real estate values and increasing levels of unemployment;
·
government monetary and fiscal policies;
·
the effects of changes in interest rates on the levels, composition and costs of deposits, loan demand, and the values of loan collateral, securities, and interest sensitive assets and liabilities;
·
the effects of credit rating downgrades on the values of investment securities issued or guaranteed by various governments and governmental agencies, including the United States of America;
·
the effects of competition from a wide variety of local, regional, national and other providers of financial, investment, and insurance services, as well as competitors that offer banking products and services by mail, telephone, computer and/or the Internet;
·
credit risks;
·
higher than anticipated levels of defaults on loans;
·
perceptions by depositors about the safety of their deposits;
·
capital adequacy;
·
the failure of assumptions underlying the establishment of the allowance for loan losses and other estimates, including the value of collateral securing loans;
·
ability to continue to weather the current economic downturn;
·
ability to realize anticipated tax benefits;
·
loss of consumer or investor confidence;
·
availability of liquidity sources;
·
the risks of opening new offices, including, without limitation, the related costs and time of building customer relationships and integrating operations as part of these endeavors and the failure to achieve expected gains, revenue growth and/or expense savings from such endeavors;
·
the risks related to acquiring other financial institutions;
·
changes in laws and regulations, including tax, banking and securities laws and regulations;
·
changes in the requirements of regulatory authorities;
·
changes in accounting policies, rules and practices;
23
Table of Contents
·
cost and difficulty of implementing changes in technology and products;
·
the effects of war or other conflicts, acts of terrorism or other catastrophic events that may affect general economic conditions and economic confidence; and
·
other factors and information described in this report and in any of the other reports that we file with the Securities and Exchange Commission under the Securities Exchange Act of 1934.
All forward-looking statements are expressly qualified in their entirety by this cautionary notice. We have no obligation, and do not undertake, to update, revise or correct any of the forward-looking statements after the date of this report. We have expressed our expectations, beliefs and projections in good faith and believe they have a reasonable basis. However, there is no assurance that these expectations, beliefs or projections will result or be achieved or accomplished.
Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations
(Dollar amounts, except per share data, are in thousands)
Changes in Financial Condition
During the first nine months of 2011, we focused on identifying and managing problem loans, more actively marketing foreclosed assets acquired by the Bank, and preparing for the anticipated merger of Community First Bank and Bank of Westminster. The unemployment rates in Oconee and Anderson counties continue to be elevated at 10.3% and 9.9%, respectively, for September 2011. These levels are lower than the June 2011 unemployment rates of 11.2% for Oconee County and 11.0% for Anderson County, primarily as a result of a smaller labor force in each county during the September measurement period. Despite the improvement in the unemployment rate, the number of employed persons decreased by 2,363 in the two-county area during the 2011 three month period.
Economic conditions are still weak in our market areas and our levels of nonaccrual and past due loans and holdings of foreclosed assets are elevated. Activity in the local real estate markets remains below normal and the values of real properties continue to be unusually low.
The low values of real estate directly affect the reported values of impaired loans that have real estate collateral. In many of these cases, the borrowers ability to repay the debt has diminished such that liquidation of the collateral represents the only viable source of repayment. In these instances, we charge-off any amount of the loans principal balance that exceeds the value of the collateral. We also charge-off the costs expected to be incurred in disposing of the property that would be unavailable to repay the debt, and any accrued but uncollected interest income, and we discontinue the accrual of future interest income. These actions tend to reduce the reported amounts of our capital, loans outstanding and the allowance for loan losses and have a detrimental effect on the Companys reported income both in the current period and on an ongoing basis.
The acquisition of other real estate owned through foreclosure and other properties through repossession may result in many of the same accounting consequences as those indicated previously for the recognition of impaired loans if the reductions in values have not been recognized previously. On May 9, 2011, The South Carolina Supreme Court ordered that any then-pending or future foreclosure cases related to residential properties could not proceed before going through a mediation program. Prior to initiating a foreclosure hearing on such properties, lenders are now required to send delinquent borrowers a notice of their right to foreclosure intervention, review all pertinent documents relating to the foreclosure, and legally establish that the borrower cannot qualify for a loan modification. Borrowers are allowed to opt out of intervention voluntarily. These new requirements have caused us to continue to report amounts as loans that might otherwise have been reported as foreclosed assets. Currently, we have suspended foreclosure actions on eighteen loans totaling $3,624, including one loan for $1,708.
Borrower demand for loans continues to be weak and the interest rates available for investments in securities remain at extremely low levels. Rates on longer-term government-issued securities are expected to decrease slightly over the next several months as a result of the Federal Reserves recently announced intention to purchase $400 billion of such securities. It is expected that this action will result in lower interest rates for other issuers long-term securities as well. Consequently, we are currently limited in our ability to profitably employ funds held and we are maintaining the interest rates we pay for deposits at low levels.
As of a result of the foregoing factors, we have used the proceeds of maturing and redeemed securities and loan payments received to fund the repayment of matured time deposits and reductions in other funding sources. Total assets decreased by approximately $29,023 during the first nine months of 2011 and the Companys leverage capital ratio increased from 8.8% as of December 31, 2010 to 9.3% as of September 30, 2011.
24
Table of Contents
We believe that our liquidity position continues to provide us with sufficient flexibility to fund loan requests or make investments in securities at acceptable yields, and to meet demands for deposit withdrawals by our customers. We also believe that our current exposure to interest rate risk is at an acceptable level.
Results of Operations
Three Months Ended September 30, 2011 and 2010
We recorded consolidated net income of $195 for the third quarter of 2011, compared with $386 for the third quarter of 2010. After deducting amounts applicable to preferred stock and not available to common shareholders, net income per common share, assuming dilution, was $.04 for the 2011 quarter and $.09 for the 2010 quarter. Net income per common share amounts for 2010 have been retroactively adjusted to reflect a five percent stock dividend effective December 16, 2010.
Net interest income for the 2011 third quarter was $3,447, an increase of $83, or 2.5%, over the 2010 third quarter amount. Total interest income for the 2011 third quarter was $898 lower than for the 2010 third quarter primarily due to lower average amounts of loans and investment securities. Total interest expense for the 2011 third quarter was $981 lower than for the same period of 2010 primarily due to lower interest rates paid for deposits.
The provision for loan losses for the third quarter of 2011 increased to $1,400, compared with $1,025 for the third quarter of 2010 due to continuing higher levels of net charge-offs, nonaccrual loans and other problem loans. These negative factors are the result of continuing weak economic conditions, especially with respect to lower valuations for commercial and residential real estate, and high levels of unemployment. Until the economic environment improves, we expect that relatively large provisions for loan losses will be needed.
Noninterest income for the third quarter of 2011 decreased by $28 from the same 2010 period primarily due to a $30 reduction in the amount of service charges on deposit accounts. Noninterest expenses for the 2011 period decreased by $33 from the 2010 amount. We continue to monitor discretionary expenses closely.
|
|
Summary Income Statement
|
|
|
|
(Dollars in thousands)
|
|
For the Three Months Ended September 30,
|
|
2011
|
|
2010
|
|
Dollar
Change
|
|
Percentage
Change
|
|
Interest income
|
|
$
|
4,645
|
|
$
|
5,543
|
|
$
|
(898
|
)
|
-16.2
|
%
|
Interest expense
|
|
1,198
|
|
2,179
|
|
(981
|
)
|
-45.0
|
%
|
Net interest income
|
|
3,447
|
|
3,364
|
|
83
|
|
2.5
|
%
|
Provision for loan losses
|
|
1,400
|
|
1,025
|
|
375
|
|
36.6
|
%
|
Noninterest income
|
|
640
|
|
668
|
|
(28
|
)
|
-4.2
|
%
|
Noninterest expenses
|
|
2,457
|
|
2,490
|
|
(33
|
)
|
-1.3
|
%
|
Income tax expense
|
|
35
|
|
131
|
|
(96
|
)
|
-73.3
|
%
|
Net income
|
|
$
|
195
|
|
$
|
386
|
|
$
|
(191
|
)
|
-49.5
|
%
|
Nine Months Ended September 30, 2011 and 2010
We recorded consolidated net income of $641 for the first nine months of 2011 compared with $992 for the first nine months of 2010. After deducting amounts applicable to preferred stock and not available to common stockholders, net income per common share, assuming dilution, was $.13 for the 2011 nine months and $.21 for the same period of 2010. No potentially dilutive stock options were outstanding at either September 30, 2011 or September 30, 2010. Net income per common share amounts for 2010 have been retroactively adjusted to reflect a five percent stock dividend effective December 16, 2010.
Net interest income for the first nine months of 2011 increased by $563, or 5.6%, over the 2010 amount primarily due to lower rates paid for interest bearing deposits. Total interest income decreased by $2,130 as a result of both lower average amounts of loans and investment securities and the effects of lower interest rates earned on those assets Total interest expense for the 2011 nine-month period was $2,693 less than for the same period of 2010 due to lower rates paid on deposits and lower average amounts of time deposits outstanding in the 2011 period.
25
Table of Contents
The provision for loan losses for the first nine months of 2011 is higher than for the same period of 2010 due to the continuing economic malaise and its related effects on both loan customers ability to repay their debts and on real estate collateral values. When repayment of a loan becomes primarily dependent on sale of the underlying collateral, we are required to adjust the net carrying value of the loan to no more than the fair value of the collateral, less estimated selling costs. These circumstances often result in our recognition of a loss, which is usually accomplished by our increasing the provision for loan losses. We provide for other loan losses according to changes in the amount of the required allowance for loan losses calculated according to the methodology discussed in our annual financial statements.
Noninterest income for the first nine months of 2011 decreased by $78, primarily as a result lower amounts of service charges on deposit accounts.
Noninterest expenses for the first nine months of 2011 increased by $182, primarily as a result of an increase of $74 in salaries and employee benefits and an increase of $290 in expenses for carrying foreclosed assets which were partially offset by a reduction of $171 in FDIC insurance expenses.
|
|
Summary Income Statement
|
|
|
|
(Dollars in thousands)
|
|
For the Nine Months Ended September 30,
|
|
2011
|
|
2010
|
|
Dollar
Change
|
|
Percentage
Change
|
|
Interest income
|
|
$
|
14,555
|
|
$
|
16,685
|
|
$
|
(2,130
|
)
|
-12.8
|
%
|
Interest expense
|
|
3,969
|
|
6,662
|
|
(2,693
|
)
|
-40.4
|
%
|
Net interest income
|
|
10,586
|
|
10,023
|
|
563
|
|
5.6
|
%
|
Provision for loan losses
|
|
4,100
|
|
3,275
|
|
825
|
|
25.2
|
%
|
Noninterest income
|
|
1,818
|
|
1,896
|
|
(78
|
)
|
-4.1
|
%
|
Noninterest expenses
|
|
7,620
|
|
7,438
|
|
182
|
|
2.4
|
%
|
Income tax expense
|
|
43
|
|
214
|
|
(171
|
)
|
-79.9
|
%
|
Net income
|
|
$
|
641
|
|
$
|
992
|
|
$
|
(351
|
)
|
-35.4
|
%
|
Net Interest Income
Three Months Ended September 30, 2011 and 2010
As shown in the following table, the average yield on interest earning assets decreased to 4.18% for the 2011 period from 4.46% for the same period of 2010, primarily because of shift in the mix of our earning assets. The lowest yielding interest-earning category (interest-bearing balances due from banks) increased by $23,029, or 55.1%, for the 2011 period over the same 2010 period while the 2011 average amount of all interest-earning assets decreased by $52,546, or 10.6%, from the total 2010 average interest-earning assets amount. The 2011 average amounts of the higher yielding securities and loan categories decreased by $44,145 and $31,429, respectively, from the average amounts of those categories outstanding in the same 2010 period. As a result, in the 2011 period, $64,817 of average interest-bearing balances due from banks yielding .21% made up 14.7% of average interest-earning assets compared with $41,788 of average interest-bearing balances due from banks yielding .27% making up 8.5% of average interest-earning assets in the comparable period of 2010. Some variable rate loans have floors that have prevented further declines in interest rates for those assets.
The average rate paid on interest-bearing liabilities declined to 1.26% for the 2011 period, compared with 2.01% for the 2010 period. Rates were reduced significantly with respect to time deposits, and the mix of our interest-bearing liabilities changed such that the lower-cost interest-bearing transaction accounts and savings categories now make up 25.3% of average interest-bearing liabilities compared with 18.0% for the prior-year period.
Because the rate paid fell more than the yield earned, both interest rate spread and net yield on earning assets were higher for the 2011 period when compared with the prior year period. However, the 2011 third quarter results for those measures are lower than for the 2011 second quarter when interest rate spread was 3.11% and net yield on earning assets was 3.30%.
26
Table of Contents
|
|
Average Balances, Yields and Rates
|
|
|
|
Three Months Ended September 30,
|
|
|
|
2011
|
|
2010
|
|
|
|
|
|
Interest
|
|
|
|
|
|
Interest
|
|
|
|
|
|
Average
|
|
Income/
|
|
Yields/
|
|
Average
|
|
Income/
|
|
Yields/
|
|
|
|
Balances
|
|
Expense
|
|
Rates (1)
|
|
Balances
|
|
Expense
|
|
Rates (1)
|
|
|
|
(Dollars in thousands)
|
|
Assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest-bearing balances due from banks
|
|
$
|
64,817
|
|
$
|
35
|
|
0.21
|
%
|
$
|
41,788
|
|
$
|
28
|
|
0.27
|
%
|
Securities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Taxable
|
|
126,901
|
|
945
|
|
2.95
|
%
|
168,778
|
|
1,258
|
|
2.96
|
%
|
Tax exempt (2)
|
|
16,248
|
|
165
|
|
4.03
|
%
|
18,516
|
|
188
|
|
4.03
|
%
|
Total investment securities
|
|
143,149
|
|
1,110
|
|
3.08
|
%
|
187,294
|
|
1,446
|
|
3.06
|
%
|
Other investments
|
|
1,243
|
|
2
|
|
0.64
|
%
|
1,244
|
|
1
|
|
0.32
|
%
|
Loans (2) (3) (4)
|
|
231,781
|
|
3,498
|
|
5.99
|
%
|
263,210
|
|
4,068
|
|
6.13
|
%
|
Total interest earning assets
|
|
440,990
|
|
4,645
|
|
4.18
|
%
|
493,536
|
|
5,543
|
|
4.46
|
%
|
Cash and due from banks
|
|
1,183
|
|
|
|
|
|
1,930
|
|
|
|
|
|
Allowance for loan losses
|
|
(5,749
|
)
|
|
|
|
|
(6,562
|
)
|
|
|
|
|
Valuation allowance - Available-for-sale securities
|
|
2,247
|
|
|
|
|
|
3,481
|
|
|
|
|
|
Premises and equipment
|
|
7,957
|
|
|
|
|
|
8,443
|
|
|
|
|
|
Other assets
|
|
32,345
|
|
|
|
|
|
24,717
|
|
|
|
|
|
Total assets
|
|
$
|
478,973
|
|
|
|
|
|
$
|
525,545
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities and shareholders equity
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest bearing deposits
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest bearing transaction accounts
|
|
$
|
77,604
|
|
$
|
74
|
|
0.38
|
%
|
$
|
56,690
|
|
$
|
77
|
|
0.54
|
%
|
Savings
|
|
18,130
|
|
22
|
|
0.48
|
%
|
20,578
|
|
22
|
|
0.42
|
%
|
Time deposits $100M and over
|
|
117,015
|
|
450
|
|
1.53
|
%
|
152,126
|
|
806
|
|
2.10
|
%
|
Other time deposits
|
|
158,578
|
|
587
|
|
1.47
|
%
|
193,587
|
|
1,204
|
|
2.47
|
%
|
Total interest bearing deposits
|
|
371,327
|
|
1,133
|
|
1.21
|
%
|
422,981
|
|
2,109
|
|
1.98
|
%
|
Long-term debt
|
|
6,500
|
|
65
|
|
3.97
|
%
|
6,500
|
|
70
|
|
4.27
|
%
|
Total interest bearing liabilities
|
|
377,827
|
|
1,198
|
|
1.26
|
%
|
429,481
|
|
2,179
|
|
2.01
|
%
|
Noninterest bearing demand deposits
|
|
50,257
|
|
|
|
|
|
43,418
|
|
|
|
|
|
Other liabilities
|
|
3,715
|
|
|
|
|
|
3,192
|
|
|
|
|
|
Shareholders equity
|
|
47,174
|
|
|
|
|
|
49,454
|
|
|
|
|
|
Total liabilities and shareholders equity
|
|
$
|
478,973
|
|
|
|
|
|
$
|
525,545
|
|
|
|
|
|
Interest rate spread
|
|
|
|
|
|
2.92
|
%
|
|
|
|
|
2.45
|
%
|
Net interest income and net yield on earning assets
|
|
|
|
$
|
3,447
|
|
3.10
|
%
|
|
|
$
|
3,364
|
|
2.70
|
%
|
Interest free funds supporting earning assets
|
|
$
|
63,163
|
|
|
|
|
|
$
|
64,055
|
|
|
|
|
|
(1) Yields and rates are annualized.
|
(2) Yields on tax exempt instruments have not been adjusted to a tax-equivalent basis.
|
(3) Nonaccrual loans are included in the average loan balances and income on such loans is recognized on a cash basis.
|
(4) Includes immaterial amounts of loan fees.
|
27
Table of Contents
Nine Months Ended September 30, 2011 and 2010
The yield on interest earning assets decreased to 4.26% for the 2011 period, compared with 4.49% for the 2010 period, primarily due to lower rates earned on investment securities. During the first nine months of 2011, we earned an average rate of 2.99% on our investment securities, compared with an average rate of 3.39% during the same period of 2010. Maturities, sales, calls and paydowns of securities in the nine months ended September 30, 2011 totaled $103,887 and purchases totaled $60,466. Generally, yields on the called, sold, matured and paid-down securities were higher than the yields we were able to obtain on subsequently purchased securities.
Rates paid for interest bearing liabilities during the 2011 nine month period were 71 basis points lower than for the 2010 nine month period. Rates paid for time deposits $100 and over were 42 basis points lower during the 2011 period and rates paid for other time deposits decreased by 104 basis points compared with the same 2010 period. The average amounts of time deposits outstanding during the 2011 period were $57,627, or 16.9%, less than in the 2010 period.
The interest rate spread for the 2011 nine month period was 2.91%, an increase of 48 basis points over the 2.43% spread for the 2010 period. Net yield on earning assets for the 2011 period was 3.10%, an increase of 40 basis points over the 2010 period. However, both 2011 nine-month measures are unchanged from the 2011 six-month measures reported previously.
The Federal Reserve Banks recent implementation of a program under which it will purchase up to $400 billion of longer term US Government securities is expected to result in lower long-term rates for virtually all types of term debt. Consequently, it is becoming increasingly more difficult for us to employ deposits profitably without incurring elevated levels of interest rate, liquidity and credit risk. In some cases, we may not have sufficient available resources to monitor and mitigate such risks and, therefore, we may choose not to participate in some activities that might be, but are not certain to be, beneficial. The reductions in assets and funding sources evident from a review of our Balance Sheets reflect our decision not to continue growth unless such growth increases our net interest income and overall profitability.
28
Table of Contents
|
|
Average Balances, Yields and Rates
|
|
|
|
Nine Months Ended September 30,
|
|
|
|
2011
|
|
2010
|
|
|
|
|
|
Interest
|
|
|
|
|
|
Interest
|
|
|
|
|
|
Average
|
|
Income/
|
|
Yields/
|
|
Average
|
|
Income/
|
|
Yields/
|
|
|
|
Balances
|
|
Expense
|
|
Rates (1)
|
|
Balances
|
|
Expense
|
|
Rates (1)
|
|
|
|
(Dollars in thousands)
|
|
Assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest-bearing balances due from banks
|
|
$
|
48,360
|
|
$
|
78
|
|
0.22
|
%
|
$
|
54,473
|
|
$
|
98
|
|
0.24
|
%
|
Securities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Taxable
|
|
148,153
|
|
3,177
|
|
2.87
|
%
|
156,916
|
|
3,875
|
|
3.30
|
%
|
Tax exempt (2)
|
|
16,874
|
|
517
|
|
4.10
|
%
|
19,133
|
|
584
|
|
4.08
|
%
|
Total investment securities
|
|
165,027
|
|
3,694
|
|
2.99
|
%
|
176,049
|
|
4,459
|
|
3.39
|
%
|
Other investments
|
|
1,303
|
|
7
|
|
0.72
|
%
|
1,285
|
|
3
|
|
0.31
|
%
|
Loans (2) (3) (4)
|
|
242,040
|
|
10,776
|
|
5.95
|
%
|
265,240
|
|
12,125
|
|
6.11
|
%
|
Total interest earning assets
|
|
456,730
|
|
14,555
|
|
4.26
|
%
|
497,047
|
|
16,685
|
|
4.49
|
%
|
Cash and due from banks
|
|
1,831
|
|
|
|
|
|
1,944
|
|
|
|
|
|
Allowance for loan losses
|
|
(5,761
|
)
|
|
|
|
|
(6,271
|
)
|
|
|
|
|
Valuation allowance - Available-for-sale securities
|
|
1,013
|
|
|
|
|
|
2,578
|
|
|
|
|
|
Premises and equipment
|
|
8,040
|
|
|
|
|
|
8,501
|
|
|
|
|
|
Other assets
|
|
30,466
|
|
|
|
|
|
23,495
|
|
|
|
|
|
Total assets
|
|
$
|
492,319
|
|
|
|
|
|
$
|
527,294
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities and shareholders equity
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest bearing deposits
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest bearing transaction accounts
|
|
$
|
77,246
|
|
$
|
255
|
|
0.44
|
%
|
$
|
55,231
|
|
$
|
244
|
|
0.59
|
%
|
Savings
|
|
26,548
|
|
75
|
|
0.38
|
%
|
28,862
|
|
79
|
|
0.37
|
%
|
Time deposits $100M and over
|
|
120,624
|
|
1,481
|
|
1.64
|
%
|
148,255
|
|
2,285
|
|
2.06
|
%
|
Other time deposits
|
|
162,572
|
|
1,966
|
|
1.62
|
%
|
192,568
|
|
3,835
|
|
2.66
|
%
|
Total interest bearing deposits
|
|
386,990
|
|
3,777
|
|
1.30
|
%
|
424,916
|
|
6,443
|
|
2.03
|
%
|
Long-term debt
|
|
6,500
|
|
192
|
|
3.95
|
%
|
7,451
|
|
219
|
|
3.93
|
%
|
Total interest bearing liabilities
|
|
393,490
|
|
3,969
|
|
1.35
|
%
|
432,367
|
|
6,662
|
|
2.06
|
%
|
Noninterest bearing demand deposits
|
|
49,269
|
|
|
|
|
|
44,258
|
|
|
|
|
|
Other liabilities
|
|
3,465
|
|
|
|
|
|
3,654
|
|
|
|
|
|
Shareholders equity
|
|
46,095
|
|
|
|
|
|
47,015
|
|
|
|
|
|
Total liabilities and shareholders equity
|
|
$
|
492,319
|
|
|
|
|
|
$
|
527,294
|
|
|
|
|
|
Interest rate spread
|
|
|
|
|
|
2.91
|
%
|
|
|
|
|
2.43
|
%
|
Net interest income and net yield on earning assets
|
|
|
|
$
|
10,586
|
|
3.10
|
%
|
|
|
$
|
10,023
|
|
2.70
|
%
|
Interest free funds supporting earning assets
|
|
$
|
63,240
|
|
|
|
|
|
$
|
64,680
|
|
|
|
|
|
(1) Yields and rates are annualized.
(2) Yields on tax exempt instruments have not been adjusted to a tax-equivalent basis.
(3) Nonaccrual loans are included in the average loan balances and income on such loans is recognized on a cash basis.
(4) Includes immaterial amounts of loan fees.
29
Table of Contents
Provision and Allowance for Loan Losses
The provision for loan losses was $1,400 for the third quarter of 2011 compared with $1,025 for the third quarter of 2010. For the first nine months of 2011, the provision for loan losses was $4,100, compared with $3,275 for the first nine months of 2010. At September 30, 2011, the allowance for loan losses was 2.52% of loans, compared with 2.24% at December 31, 2010 and 2.42% as of September 30, 2010.
For the first nine months of 2011, net charge-offs totaled $4,143, compared with $2,991 in net charge offs during the same period of 2010. The higher levels of charge-offs in the 2011 period reflect the continuing distressed conditions in our local economies, especially lower real estate values. No particular industries or groups of borrowers are disproportionately represented among the loans charged off. If local economic conditions and real estate values do not improve, it is likely that we will continue to experience elevated levels of both net charge-offs and provisions for loan losses. The activity in the allowance for loan losses is summarized in the table below:
|
|
Nine Months
Ended
September 30,
2011
|
|
Year Ended
December 31,
2010
|
|
Nine Months
Ended
September 30,
2010
|
|
|
|
(Dollars in thousands)
|
|
Allowance at beginning of period
|
|
$
|
5,756
|
|
$
|
6,052
|
|
$
|
6,052
|
|
Provision for loan losses
|
|
4,100
|
|
4,525
|
|
3,275
|
|
Net charge-offs
|
|
(4,143
|
)
|
(4,821
|
)
|
(2,991
|
)
|
Allowance at end of period
|
|
$
|
5,713
|
|
$
|
5,756
|
|
$
|
6,336
|
|
Allowance as a percentage of loans outstanding at period end
|
|
2.52
|
%
|
2.24
|
%
|
2.42
|
%
|
Loans at end of period
|
|
$
|
226,530
|
|
$
|
256,834
|
|
$
|
261,904
|
|
30
Table of Contents
Non-Performing and Potential Problem Loans
|
|
Nonaccrual
Loans
|
|
90 Days or
More Past Due
and Still
Accruing
|
|
Troubled
Debt
Restructurings
|
|
Total
Nonperforming
Loans
|
|
Percentage
of Total
Loans
|
|
|
|
(Dollars in thousands)
|
|
December 31, 2009
|
|
$
|
13,870
|
|
$
|
|
|
$
|
|
|
$
|
13,870
|
|
5.19
|
%
|
Net change
|
|
2,575
|
|
|
|
|
|
2,575
|
|
|
|
March 31, 2010
|
|
16,445
|
|
|
|
|
|
16,445
|
|
6.15
|
%
|
Net change
|
|
(603
|
)
|
|
|
|
|
(603
|
)
|
|
|
June 30, 2010
|
|
15,842
|
|
|
|
|
|
15,842
|
|
5.97
|
%
|
Net change
|
|
(880
|
)
|
|
|
2,988
|
|
2,108
|
|
|
|
September 30, 2010
|
|
14,962
|
|
|
|
2,988
|
|
17,950
|
|
6.85
|
%
|
Net change
|
|
1,382
|
|
|
|
2,469
|
|
3,851
|
|
|
|
December 31, 2010
|
|
16,344
|
|
|
|
5,457
|
|
21,801
|
|
8.49
|
%
|
Net change
|
|
4,244
|
|
|
|
7,049
|
|
11,293
|
|
|
|
March 31, 2011
|
|
20,588
|
|
|
|
12,506
|
|
33,094
|
|
13.36
|
%
|
Net change
|
|
(4,334
|
)
|
|
|
(5,336
|
)
|
(9,670
|
)
|
|
|
June 30, 2011
|
|
16,254
|
|
|
|
7,170
|
|
23,424
|
|
9.86
|
%
|
Net change
|
|
(2,737
|
)
|
|
|
(1,786
|
)
|
(4,523
|
)
|
|
|
September 30, 2011
|
|
$
|
13,517
|
|
$
|
|
|
$
|
5,384
|
|
$
|
18,901
|
|
8.34
|
%
|
As of September 30, 2011, troubled debt restructurings (TDRs) totaling $381 are included in the amount of nonaccrual loans or loans 90 days past due and still accruing, and excluded from the amount of troubled debt restructurings, in the table above.
Potential problem loans include loans, other than impaired loans, that management has identified as having possible credit problems sufficient to cast doubt upon the abilities of the borrowers to comply with the current repayment terms. Such loans are included in the amounts of Management Attention and Special Mention Loans included in the table captioned Internally Assigned Risk Grade included in the section captioned Loans in the Notes to Consolidated Financial Statements.
South Carolinas 11.0% (seasonally adjusted) unemployment rate as of September 2011 was the same as the 11.0% (seasonally adjusted) as of September 2010. The unemployment rates (not seasonally adjusted) in Oconee and Anderson Counties, South Carolina were 10.3% and 9.9%, respectively, as of September 2011 compared with 11.0% and 10.4%, respectively, as of September 2010. The unemployment rates for 2010 have been revised due to certain changes made in the calculations since they were first published by the Bureau of Labor Statistics. The prolonged period of high unemployment and generally poor economic conditions has caused many individuals and companies to deplete their cash reserves. When economic activity again becomes more robust and employment levels increase more broadly and on a more sustained basis, we expect that many of our customers will need to replenish those reserves before they can again repay their debts in an orderly manner. As a result, we believe that there will be a prolonged period during which the ability of some of our loan customers to repay their debts will be reduced, which could lead to higher amounts of nonaccrual, past due and potential problem loans and higher loan losses, all of which could result in higher provisions for loan losses.
Foreclosed Assets
During the first nine months of 2011, foreclosed assets increased by $6,031 to $17,426.
With respect to other real estate owned, we acquired twenty-six foreclosed real estate properties with current carrying values totaling $7,031 during the 2011 nine-month period. We sold seven foreclosed real estate properties that had carrying values of $720 for proceeds of $653, realizing net losses of $67. Net downward valuation adjustments totaled $45 during the nine-month period.
Foreclosed assets represent a significant challenge. In addition to their status as non-earning assets, the expenses of carrying these properties, particularly real estate, may be substantial. Such expenses are included in noninterest expenses
31
Table of Contents
and may include expenses for items such as property taxes, utilities, maintenance and repairs, and property owner fees. Consequently, we are dedicating more time and resources to our efforts to dispose of these assets in a prudent manner.
During the first nine months of 2011, we acquired eleven pieces of repossessed collateral which have carrying values of $83 and sold three pieces of repossessed collateral for proceeds of $175 with no gain or loss recognized. Net downward valuation adjustments totaled $143 during the nine month period.
Noninterest Income
Noninterest income totaled $640 for the third quarter of 2011, compared with $668 for the 2010 quarter. Service charges on deposit accounts were $30 lower in the 2011 period due to lower volumes of fee-related activity. Fees associated with debit cards increased by $12 over the 2010 third quarter amount due to higher usage of this payment option. However, we expect that debit card fees earned in future periods will probably decrease due to recently observed decreases in debit card usage.
For the nine months ended September 30, 2011, noninterest income totaled $1,818, compared with $1,896 for the same period of 2010. Service charges on deposit accounts in the 2011 period were $112 less than in the same period of 2010. Fees associated with debit cards were $43 higher in the 2011 period.
It is becoming increasingly difficult for us to increase, or in some cases to maintain, fee income at previous levels. Recent regulatory changes may limit our ability to establish fees on certain accounts and transaction types.
Noninterest Expenses
Noninterest expenses totaled $2,457 for the third quarter of 2011, compared with $2,490 for the third quarter of 2010. Deposit insurance expenses for the 2011 period were $2 less than for the same period of 2010 primarily due to lower amounts of insured deposits. Debit card transaction expenses were $30 less than for the 2010 period due to the effects on card usage of recent regulatory changes. Expenses for carrying foreclosed properties were $24 higher in the 2011 period because we hold more properties currently.
Noninterest expenses for the nine months ended September 30, 2011 totaled $7,620, compared with $7,438 for the same period of 2010. Salaries and employee benefits increased by $74 from the amount for 2010. Amounts assessed for FDIC insurance decreased by $171 because we have reduced our total assets and other elements of the deposit insurance assessment base. Expenses associated with foreclosed assets increased by $290 over the 2010 period because we now hold more properties and some of the properties have been held for a prolonged period of time.
Income Taxes
For the third quarter of 2011, we recorded income tax expense of $35, compared with income tax expense of $131for the same period of 2010. For the nine months ended September 30, 2011, income tax expense was $43, compared with income tax expense of $214 for the same period of 2010. The lower income tax expense in both 2011 periods resulted from lower amounts of taxable net income than in the same periods of 2010.
As of September 30, 2011, we have net deferred tax assets totaling $1,674. Approximately $554 is realizable from available carrybacks to prior years taxable income. Realization of the remaining $1,120 is dependent primarily on our ability to generate federal taxable income in the future. Based on our previous operating history and projection of taxable income for the next three years, we believe it is more likely than not that we will be able to realize these assets. Consequently, we have not provided a valuation allowance for these assets. However, forecasting necessarily requires that we make judgments and assumptions about uncertain future events. As more empirical evidence becomes available, or as other events occur that might cause us to revise our assumptions and judgments, it is possible that our forecasts could change and it might then be necessary for us to provide a valuation allowance by a charge to income tax expense to reduce the net deferred tax assets to an amount that we believe is more likely than not to be realized.
For purposes of calculating regulatory capital ratios as of September 30, 2011, each of the Company and the Bank excluded $1,554 of net deferred tax assets from capital. Generally, each entity is required to exclude from Tier 1 and Total capital the lesser of 10% of its total assets or the amount of deferred tax assets that exceeds the amount realizable from carryback years plus the amount realizable from federal taxable income forecasted for the next twelve months.
32
Table of Contents
Liquidity
Liquidity is the ability to meet current and future obligations through the liquidation or maturity of existing assets or the acquisition of additional liabilities. We manage both assets and liabilities to achieve appropriate levels of liquidity. Cash and short-term investments are our primary sources of asset liquidity. These funds provide a cushion against short-term fluctuations in cash flow from both deposits and loans. Securities available-for-sale are the principal source of secondary asset liquidity. However, the availability of this source is influenced by market conditions. Individual and commercial deposits are the primary source of funds for credit activities. We also have significant amounts of credit availability under our FHLB lines of credit and Federal Reserve Bank Discount Window facilities.
As of September 30, 2011, the ratio of loans to total deposits was 54.0%, compared with 57.7% as of December 31, 2010. We believe that liquidity sources are adequate to meet our operating needs.
Capital Resources
Our capital base increased by $2,014 since December 31, 2010 as the result of net income of $641 for the first nine months of 2011, plus a $1,491 change in net unrealized gains on available-for-sale securities, net of deferred income tax effects, less $118 dividends paid on preferred stock. Any unrealized losses on available-for-sale securities are not considered to be other than temporary. Our available-for-sale securities primarily consist of debt issuances of government-sponsored enterprises. Even though these instruments are not directly guaranteed by the U. S. Government, they are generally considered to be of high quality and default risk is believed to be remote. Therefore, the changes in market values are believed to be the result only of changes in market interest rates. We currently have both the intent and the ability to hold such securities until the market value recovers, including until maturity.
The Company and its banking subsidiary (the Bank) are subject to regulatory risk-based capital adequacy standards. Under these standards, bank holding companies and banks are required to maintain certain minimum ratios of capital to risk-weighted assets and average total assets. Under the provisions of the Federal Deposit Insurance Corporation Improvement Act of 1991 (FDICIA), federal bank regulatory authorities are required to implement prescribed prompt corrective actions upon the deterioration of the capital position of a bank. If the capital position of an affected institution were to fall below certain levels, increasingly stringent regulatory corrective actions are mandated.
The September 30, 2011 risk based capital ratios for the Company and the Bank are presented in the following table, compared with the well capitalized and minimum ratios under the regulatory definitions and guidelines:
|
|
|
|
Total
|
|
|
|
|
|
Tier 1
|
|
Capital
|
|
Leverage
|
|
Community First Bancorporation
|
|
16.0
|
%
|
17.3
|
%
|
9.3
|
%
|
Community First Bank
|
|
14.5
|
%
|
15.7
|
%
|
8.3
|
%
|
Minimum well-capitalized requirement
|
|
6.0
|
%
|
10.0
|
%
|
6.0
|
%
|
Minimum requirement
|
|
4.0
|
%
|
8.0
|
%
|
5.0
|
%
|
Off-Balance-Sheet Arrangements
In the normal course of business, the Bank is party to financial instruments with off-balance-sheet risk including commitments to extend credit and standby letters of credit. Such instruments have elements of credit risk in excess of the amount recognized in the balance sheet. The exposure to credit loss in the event of nonperformance by the other parties to the financial instruments for commitments to extend credit and standby letters of credit is represented by the contractual or notional amount of those instruments. Generally, we use the same credit policies when extending loan commitments and standby letters of credit as are used when we extend loans.
Following are the off-balance-sheet financial instruments whose contract amounts represent credit risk:
|
|
September 30, 2011
|
|
|
|
(Dollars in thousands)
|
|
Loan commitments
|
|
$
|
22,318
|
|
Standby letters of credit
|
|
1,221
|
|
|
|
|
|
|
33
Table of Contents
Loan commitments involve agreements to lend to a customer as long as there is no violation of any condition established in the contract. Commitments generally have fixed expiration dates or other termination clauses and some involve payment of a fee. Many of the commitments are expected to expire without being fully drawn; therefore, the total amount of loan commitments does not necessarily represent future cash requirements. Each customers creditworthiness is evaluated on a case-by-case basis. The amount of collateral obtained, if any, upon extension of credit is based on managements credit evaluation of the borrower. Collateral held varies but may include commercial and residential real properties, accounts receivable, inventory and equipment.
Standby letters of credit are conditional commitments to guarantee the performance of a customer to a third party. The credit risk involved in issuing standby letters of credit is the same as that involved in making loan commitments to customers. Many letters of credit will expire without being drawn upon and do not necessarily represent future cash requirements. The Bank receives fees for loan commitments and standby letters of credit. The amount of such fees was not material for either the nine months or three months ended September 30, 2011.
As described under Liquidity, management believes that its various sources of liquidity provide the resources necessary for the Bank to fund the loan commitments and to perform under standby letters of credit, if the need arises. Neither the Company nor the Bank is involved in other off-balance sheet contractual relationships or transactions that could result in liquidity needs or other commitments or significantly impact earnings.
Item 4T. Controls and Procedures
Based on the evaluation required by 17 C.F.R. Section 240.13a-15(b) or 240.15d-15(b) of the issuers disclosure controls and procedures (as defined in 17 C.F.R. Sections 240.13a-15(e) and 240.15d-15(e)), the issuers chief executive officer and chief financial officer concluded such controls and procedures, as of the end of the period covered by this report, were effective.
There has been no change in the Companys internal control over financial reporting during the most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, the Companys internal control over financial reporting.
34
Table of Contents
PART II OTHER INFORMATION
Item 6. - Exhibits
31.
|
|
Rule 13a-14(a)/15d-14(a) Certifications
|
|
|
|
32.
|
|
Certifications Pursuant to 18 U.S.C. Section 1350
|
|
|
|
101.INS*
|
|
XBRL Instance Document.
|
|
|
|
101.SCG*
|
|
XBRL Taxonomy Extension Schema.
|
|
|
|
101.CAL*
|
|
XBRL Taxonomy Extension Calculation Linkbase.
|
|
|
|
101.LAB*
|
|
XBRL Taxonomy Extension Label Linkbase.
|
|
|
|
101.ORE*
|
|
XBRL Taxonomy Extension Presentation Linkbase.
|
|
|
|
101.DEF*
|
|
XBRL Taxonomy Definition Linkbase.
|
* As provided in Rule 406T of Regulation S-T, this information and not filed for purposes of Sections 11 and 12 of the Securities Act of 1933 and Section 18 of the Securities Exchange Act of 1934.
35
Table of Contents
SIGNATURE
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.
|
|
COMMUNITY FIRST BANCORPORATION
|
|
|
|
November 14, 2011
|
|
/s/ Frederick D. Shepherd, Jr.
|
|
|
|
Date
|
|
Frederick D. Shepherd, Jr., Chief Executive Officer and Chief Financial Officer
|
36
Table of Contents
EXHIBIT INDEX
31.
|
|
Rule 13a-14(a)/15d-14(a) Certifications
|
|
|
|
32.
|
|
Certifications Pursuant to 18 U.S.C. Section 1350
|
|
|
|
101.INS*
|
|
XBRL Instance Document.
|
|
|
|
101.SCG*
|
|
XBRL Taxonomy Extension Schema.
|
|
|
|
101.CAL*
|
|
XBRL Taxonomy Extension Calculation Linkbase.
|
|
|
|
101.LAB*
|
|
XBRL Taxonomy Extension Label Linkbase.
|
|
|
|
101.ORE*
|
|
XBRL Taxonomy Extension Presentation Linkbase.
|
|
|
|
101.DEF*
|
|
XBRL Taxonomy Definition Linkbase.
|
* As provided in Rule 406T of Regulation S-T, this information and not filed for purposes of Sections 11 and 12 of the Securities Act of 1933 and Section 18 of the Securities Exchange Act of 1934.
37
Community First Bancorpo... (QX) (USOTC:CFOK)
Historical Stock Chart
From Jul 2024 to Aug 2024
Community First Bancorpo... (QX) (USOTC:CFOK)
Historical Stock Chart
From Aug 2023 to Aug 2024