UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
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x |
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Quarterly report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 |
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for the quarterly period ended September 30, 2011 | ||
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o |
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Transition report pursuant to Section 13 or 15(d) of the Exchange Act |
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for the transition period from to | ||
Commission File No. 000-28344
FIRST COMMUNITY CORPORATION
(Exact name of registrant as specified in its charter)
|
South Carolina |
|
57-1010751 |
|
(State of Incorporation) |
|
(I.R.S. Employer Identification) |
5455 Sunset Boulevard, Lexington, South Carolina 29072
(Address of Principal Executive Offices)
(803) 951-2265
(Registrant’s Telephone Number, Including Area Code)
(Former Name, Former Address and Former Fiscal Year, if Changed Since Last Report)
Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15 (d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. 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 (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes x No 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.
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Large accelerated filer o |
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Accelerated filer o |
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Non-accelerated filer o |
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Smaller reporting company x |
Indicate by check mark whether the registrant is 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 issuer’s classes of common equity, as of the latest practicable date: On November 9, 2011, 3,303,519 shares of the issuer’s common stock, par value $1.00 per share, were issued and outstanding.
|
Consolidated Statements of Changes in Shareholders’ Equity and Comprehensive Income |
|
Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations |
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Item 3. Quantitative and Qualitative Disclosures About Market Risk |
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Item 2. Unregistered Sales of Equity Securities and Use of Proceeds |
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EX-31.1 RULE 13A-14(A) CERTIFICATION OF PRINCIPAL EXECUTIVE OFFICER |
|
EX-31.2 RULE 13A-14(A) CERTIFICATION OF PRINCIPAL FINANCIAL OFFICER |
|
EX-32 SECTION 1350 CERTIFICATIONS |
FIRST COMMUNITY CORPORATION
|
|
|
September 30, |
|
|
| ||
|
|
|
2011 |
|
December 31, |
| ||
|
(Dollars in thousands, except par value) |
|
(Unaudited) |
|
2010 |
| ||
|
ASSETS |
|
|
|
|
| ||
|
Cash and due from banks |
|
$ |
9,465 |
|
$ |
7,114 |
|
|
Interest-bearing bank balances |
|
8,217 |
|
19,102 |
| ||
|
Federal funds sold and securities purchased under agreements to resell |
|
305 |
|
245 |
| ||
|
Investment securities - available for sale |
|
208,900 |
|
189,309 |
| ||
|
Other investments, at cost |
|
5,984 |
|
6,841 |
| ||
|
Loans held for sale |
|
5,195 |
|
— |
| ||
|
Loans |
|
324,233 |
|
329,954 |
| ||
|
Less, allowance for loan losses |
|
4,708 |
|
4,911 |
| ||
|
Net loans |
|
319,525 |
|
325,043 |
| ||
|
Property, furniture and equipment - net |
|
17,593 |
|
18,026 |
| ||
|
Bank owned life insurance |
|
10,877 |
|
10,773 |
| ||
|
Other real estate owned |
|
8,269 |
|
6,904 |
| ||
|
Intangible assets |
|
793 |
|
881 |
| ||
|
Other assets |
|
11,761 |
|
14,785 |
| ||
|
Total assets |
|
$ |
606,884 |
|
$ |
599,023 |
|
|
LIABILITIES |
|
|
|
|
| ||
|
Deposits: |
|
|
|
|
| ||
|
Non-interest bearing demand |
|
$ |
84,857 |
|
$ |
72,625 |
|
|
NOW and money market accounts |
|
139,462 |
|
123,604 |
| ||
|
Savings |
|
32,670 |
|
29,886 |
| ||
|
Time deposits less than $100,000 |
|
131,747 |
|
143,946 |
| ||
|
Time deposits $100,000 and over |
|
84,424 |
|
85,283 |
| ||
|
Total deposits |
|
473,160 |
|
455,344 |
| ||
|
Securities sold under agreements to repurchase |
|
16,927 |
|
12,686 |
| ||
|
Federal Home Loan Bank advances |
|
48,724 |
|
68,094 |
| ||
|
Junior subordinated debt |
|
15,464 |
|
15,464 |
| ||
|
Other borrowed money |
|
100 |
|
120 |
| ||
|
Other liabilities |
|
5,809 |
|
5,518 |
| ||
|
Total liabilities |
|
560,184 |
|
557,226 |
| ||
|
SHAREHOLDERS’ EQUITY |
|
|
|
|
| ||
|
Preferred stock, par value $1.00 per share, 10,000,000 shares authorized; 11,350 issued and outstanding |
|
11,111 |
|
11,035 |
| ||
|
Common stock, par value $1.00 per share; 10,000,000 shares authorized; issued and outstanding 3,303,519 at September 30, 2011, 3,270,135 at December 31, 2010 |
|
3,304 |
|
3,270 |
| ||
|
Common stock warrants issued |
|
509 |
|
509 |
| ||
|
Nonvested restricted stock |
|
(39 |
) |
— |
| ||
|
Additional paid in capital |
|
49,146 |
|
48,956 |
| ||
|
Accumulated deficit (loss) |
|
(18,374 |
) |
(19,732 |
) | ||
|
Accumulated other comprehensive income |
|
1,043 |
|
(2,241 |
) | ||
|
Total shareholders’ equity |
|
46,700 |
|
41,797 |
| ||
|
Total liabilities and shareholders’ equity |
|
$ |
606,884 |
|
$ |
599,023 |
|
See Notes to Consolidated Financial Statements
FIRST COMMUNITY CORPORATION
CONSOLIDATED STATEMENTS OF INCOME
|
|
|
Nine |
|
Nine |
| ||
|
|
|
Months Ended |
|
Months Ended |
| ||
|
|
|
September 30, |
|
September 30, |
| ||
|
|
|
2011 |
|
2010 |
| ||
|
(Dollars in thousands, except per share data) |
|
(Unaudited) |
|
(Unaudited) |
| ||
|
Interest income: |
|
|
|
|
| ||
|
Loans, including fees |
|
$ |
14,376 |
|
$ |
14,970 |
|
|
Taxable securities |
|
4,803 |
|
5,632 |
| ||
|
Non taxable securities |
|
51 |
|
168 |
| ||
|
Federal funds sold and securities purchased under resale agreements |
|
28 |
|
44 |
| ||
|
Other |
|
30 |
|
28 |
| ||
|
Total interest income |
|
19,288 |
|
20,842 |
| ||
|
Interest expense: |
|
|
|
|
| ||
|
Deposits |
|
3,557 |
|
4,860 |
| ||
|
Federal funds sold and securities sold |
|
|
|
|
| ||
|
under agreement to repurchase |
|
29 |
|
50 |
| ||
|
Other borrowed money |
|
2,001 |
|
2,277 |
| ||
|
Total interest expense |
|
5,587 |
|
7,187 |
| ||
|
Net interest income |
|
13,701 |
|
13,655 |
| ||
|
Provision for loan losses |
|
1,110 |
|
1,365 |
| ||
|
Net interest income after provision for loan losses |
|
12,591 |
|
12,290 |
| ||
|
Non-interest income: |
|
|
|
|
| ||
|
Deposit service charges |
|
1,376 |
|
1,421 |
| ||
|
Mortgage origination fees |
|
1,152 |
|
691 |
| ||
|
Investment advisory fees and non-deposit commissions |
|
531 |
|
416 |
| ||
|
Gain on sale of securities |
|
274 |
|
324 |
| ||
|
Gain (loss) on sale of other assets |
|
(109 |
) |
18 |
| ||
|
Fair value (loss) adjustments |
|
(185 |
) |
(644 |
) | ||
|
Other-than-temporary-impairment write-down on securities |
|
(54 |
) |
(799 |
) | ||
|
Loss on early extinguishment of debt |
|
(74 |
) |
— |
| ||
|
Other |
|
1,480 |
|
1,247 |
| ||
|
Total non-interest income |
|
4,391 |
|
2,674 |
| ||
|
Non-interest expense: |
|
|
|
|
| ||
|
Salaries and employee benefits |
|
7,002 |
|
6,610 |
| ||
|
Occupancy |
|
953 |
|
918 |
| ||
|
Equipment |
|
858 |
|
873 |
| ||
|
Marketing and public relations |
|
361 |
|
301 |
| ||
|
FDIC assessments |
|
681 |
|
735 |
| ||
|
Other real estate expense |
|
638 |
|
536 |
| ||
|
Amortization of intangibles |
|
466 |
|
466 |
| ||
|
Other |
|
2,807 |
|
2,597 |
| ||
|
Total non-interest expense |
|
13,766 |
|
13,036 |
| ||
|
Net income before tax |
|
3,216 |
|
1,928 |
| ||
|
Income taxes |
|
963 |
|
471 |
| ||
|
Net income |
|
$ |
2,253 |
|
$ |
1,457 |
|
|
Preferred stock dividends |
|
502 |
|
497 |
| ||
|
Net income available to common shareholders |
|
$ |
1,751 |
|
$ |
960 |
|
|
Basic earnings per common share |
|
$ |
0.53 |
|
$ |
0.29 |
|
|
Diluted earnings per common share |
|
$ |
0.53 |
|
$ |
0.29 |
|
See Notes to Consolidated Financial Statements
FIRST COMMUNITY CORPORATION
CONSOLIDATED STATEMENTS OF INCOME
|
|
|
Three |
|
Three |
| ||
|
|
|
Months Ended |
|
Months Ended |
| ||
|
|
|
September 30, |
|
September 30, |
| ||
|
|
|
2011 |
|
2010 |
| ||
|
(Dollars in thousands, except per share data) |
|
(Unaudited) |
|
(Unaudited) |
| ||
|
|
|
|
|
|
| ||
|
Interest income: |
|
|
|
|
| ||
|
Loans, including fees |
|
$ |
4,747 |
|
$ |
4,946 |
|
|
Taxable securities |
|
1,600 |
|
1,755 |
| ||
|
Non taxable securities |
|
18 |
|
91 |
| ||
|
Federal funds sold and securities purchased under resale agreements |
|
7 |
|
17 |
| ||
|
Other |
|
10 |
|
9 |
| ||
|
Total interest income |
|
6,382 |
|
6,818 |
| ||
|
Interest expense: |
|
|
|
|
| ||
|
Deposits |
|
1,114 |
|
1,555 |
| ||
|
Federal funds sold and securities sold |
|
|
|
|
| ||
|
under agreement to repurchase |
|
11 |
|
13 |
| ||
|
Other borrowed money |
|
629 |
|
767 |
| ||
|
Total interest expense |
|
1,754 |
|
2,335 |
| ||
|
Net interest income |
|
4,628 |
|
4,483 |
| ||
|
Provision for loan losses |
|
360 |
|
235 |
| ||
|
Net interest income after provision for loan losses |
|
4,268 |
|
4,248 |
| ||
|
Non-interest income: |
|
|
|
|
| ||
|
Deposit service charges |
|
440 |
|
459 |
| ||
|
Mortgage origination fees |
|
698 |
|
342 |
| ||
|
Investment advisory fees and non-deposit commissions |
|
218 |
|
82 |
| ||
|
Gain on sale of securities |
|
133 |
|
218 |
| ||
|
(Loss) on sale of other assets |
|
(18 |
) |
(10 |
) | ||
|
Fair value (loss) adjustments |
|
(60 |
) |
(201 |
) | ||
|
Other-than-temporary-impairment write-down on securities |
|
(50 |
) |
(440 |
) | ||
|
Loss on early extinguishment of debt |
|
(74 |
) |
— |
| ||
|
Other |
|
401 |
|
472 |
| ||
|
Total non-interest income |
|
1,688 |
|
922 |
| ||
|
Non-interest expense: |
|
|
|
|
| ||
|
Salaries and employee benefits |
|
2,493 |
|
2,305 |
| ||
|
Occupancy |
|
336 |
|
312 |
| ||
|
Equipment |
|
287 |
|
290 |
| ||
|
Marketing and public relations |
|
64 |
|
105 |
| ||
|
FDIC assessment |
|
176 |
|
323 |
| ||
|
Other real estate expense |
|
134 |
|
243 |
| ||
|
Amortization of intangibles |
|
156 |
|
155 |
| ||
|
Other |
|
912 |
|
911 |
| ||
|
Total non-interest expense |
|
4,558 |
|
4,644 |
| ||
|
Net income before tax |
|
1,398 |
|
526 |
| ||
|
Income taxes |
|
441 |
|
132 |
| ||
|
Net income |
|
$ |
957 |
|
$ |
394 |
|
|
Preferred stock dividends |
|
167 |
|
166 |
| ||
|
Net income available to common shareholders |
|
$ |
790 |
|
$ |
228 |
|
|
Basic earnings per common share |
|
$ |
0.24 |
|
$ |
0.07 |
|
|
Diluted earnings per common share |
|
$ |
0.24 |
|
$ |
0.07 |
|
See Notes to Consolidated Financial Statements
FIRST COMMUNITY CORPORATION
Consolidated Statement of Changes in Shareholders’ Equity and Comprehensive Income (Loss)
Nine Months ended September 30, 2011 and September 30, 2010
(Unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other |
|
|
| ||||||||
|
|
|
|
|
|
|
|
|
Common |
|
Additional |
|
Nonvested |
|
Retained |
|
Comprehensive |
|
|
| ||||||||
|
|
|
Preferred |
|
Shares |
|
Common |
|
Stock |
|
Paid-in |
|
Restricted |
|
Earnings |
|
Income |
|
|
| ||||||||
|
(Dollars in thousands) |
|
Stock |
|
Issued |
|
Stock |
|
Warrants |
|
Capital |
|
Stock |
|
(Deficit) |
|
(Loss) |
|
Total |
| ||||||||
|
Balance, December 31, 2009 |
|
$ |
10,939 |
|
3,252 |
|
$ |
3,252 |
|
$ |
509 |
|
$ |
48,873 |
|
$ |
(79 |
) |
$ |
(20,401 |
) |
$ |
(1,653 |
) |
$ |
41,440 |
|
|
Comprehensive income: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||
|
Net income |
|
|
|
|
|
|
|
|
|
|
|
|
|
1,457 |
|
|
|
1,457 |
| ||||||||
|
Other comprehensive income: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||
|
Unrealized gain during period on available-for-sale securities net of tax of $732 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,341 |
|
|
| ||||||||
|
Less: reclassification adjustment for gain included in net income, net of tax benefit $113 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(211 |
) |
|
| ||||||||
|
Reclassification adjustment for Other- than-temporary impairment included in income net of tax of $280 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
519 |
|
|
| ||||||||
|
Other comprehensive income |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,649 |
|
1,649 |
| ||||||||
|
Comprehensive income: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3,106 |
| ||||||||
|
Amortization of compensation on restricted stock |
|
|
|
|
|
|
|
|
|
|
|
79 |
|
|
|
|
|
79 |
| ||||||||
|
Dividends: Common ($0.12 per share) |
|
|
|
|
|
|
|
|
|
|
|
|
|
(391 |
) |
|
|
(391 |
) | ||||||||
|
Preferred |
|
72 |
|
|
|
|
|
|
|
|
|
|
|
(497 |
) |
|
|
(425 |
) | ||||||||
|
Dividend reinvestment plan |
|
|
|
14 |
|
14 |
|
|
|
66 |
|
|
|
|
|
|
|
80 |
| ||||||||
|
Balance, September 30, 2010 |
|
$ |
11,011 |
|
3,266 |
|
$ |
3,266 |
|
$ |
509 |
|
$ |
48,939 |
|
$ |
— |
|
$ |
(19,832 |
) |
$ |
(4 |
) |
$ |
43,889 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||
|
Balance, December 31, 2010 |
|
$ |
11,035 |
|
3,270 |
|
$ |
3,270 |
|
$ |
509 |
|
$ |
48,956 |
|
$ |
— |
|
$ |
(19,732 |
) |
$ |
(2,241 |
) |
$ |
41,797 |
|
|
Comprehensive income: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||
|
Net income |
|
|
|
|
|
|
|
|
|
|
|
|
|
2,253 |
|
|
|
2,253 |
| ||||||||
|
Other comprehensive income: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||
|
Unrealized gain during period on available-for-sale securities net of tax of $1,806 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3,427 |
|
|
| ||||||||
|
Less: reclassification adjustment for gain included in net income, net of tax benefit of $96 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(178 |
) |
|
| ||||||||
|
Reclassification adjustment for Other- than-temporary impairment included in income net of tax of $19 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
35 |
|
|
| ||||||||
|
Other comprehensive income |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3,284 |
|
3,284 |
| ||||||||
|
Comprehensive income: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
5,537 |
| ||||||||
|
Issuance of restricted stock |
|
|
|
23 |
|
23 |
|
|
|
133 |
|
(65 |
) |
|
|
|
|
91 |
| ||||||||
|
Amortization of compensation on restricted stock |
|
|
|
|
|
|
|
|
|
|
|
26 |
|
|
|
|
|
26 |
| ||||||||
|
Dividends: Common ($0.12 per share) |
|
|
|
|
|
|
|
|
|
|
|
|
|
(393 |
) |
|
|
(393 |
) | ||||||||
|
Preferred |
|
76 |
|
|
|
|
|
|
|
|
|
|
|
(502 |
) |
|
|
(426 |
) | ||||||||
|
Dividend reinvestment plan |
|
|
|
11 |
|
11 |
|
|
|
57 |
|
|
|
|
|
|
|
68 |
| ||||||||
|
Balance, September 30, 2011 |
|
$ |
11,111 |
|
3,304 |
|
$ |
3,304 |
|
$ |
509 |
|
$ |
49,146 |
|
$ |
(39 |
) |
$ |
(18,374 |
) |
$ |
1,043 |
|
$ |
46,700 |
|
See Notes to Consolidated Financial Statements
FIRST COMMUNITY CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
|
|
|
Nine months ended September 30, |
| ||||
|
(Dollars in thousands) |
|
2011 |
|
2010 |
| ||
|
Cash flows from operating activities: |
|
|
|
|
| ||
|
Net income |
|
$ |
2,253 |
|
$ |
1,457 |
|
|
Adjustments to reconcile net income to net cash provided in operating activities: |
|
|
|
|
| ||
|
Depreciation |
|
634 |
|
667 |
| ||
|
Premium amortization |
|
1,355 |
|
943 |
| ||
|
Provision for loan losses |
|
1,110 |
|
1,365 |
| ||
|
Writedowns of other real estate owned |
|
243 |
|
274 |
| ||
|
(Gain)loss on sale of other real estate owned |
|
109 |
|
(19 |
) | ||
|
Amortization of intangibles |
|
466 |
|
466 |
| ||
|
Gain on sale of securities |
|
(274 |
) |
(324 |
) | ||
|
Loss on early extinguishment of debt |
|
74 |
|
— |
| ||
|
Other-than-temporary-impairment on securities |
|
54 |
|
799 |
| ||
|
Net decrease in fair value option instruments and derivatives |
|
185 |
|
644 |
| ||
|
(Increase) decrease in other assets |
|
520 |
|
(591 |
) | ||
|
Increase in other liabilities |
|
292 |
|
574 |
| ||
|
Net cash provided in operating activities |
|
7,021 |
|
6,255 |
| ||
|
Cash flows from investing activities: |
|
|
|
|
| ||
|
Purchase of investment securities available-for-sale |
|
(91,464 |
) |
(100,532 |
) | ||
|
Maturity of investment securities available-for-sale |
|
28,919 |
|
30,933 |
| ||
|
Proceeds from sale of securities available-for-sale |
|
47,792 |
|
56,504 |
| ||
|
Purchase of investment securities held-to-maturity |
|
— |
|
(10 |
) | ||
|
Maturity of investment securities held-to-maturity |
|
— |
|
6,962 |
| ||
|
Decrease (increase) in loans |
|
(4,535 |
) |
7,428 |
| ||
|
Proceeds from sale of other real estate owned |
|
2,141 |
|
1,866 |
| ||
|
Purchase of property and equipment |
|
(211 |
) |
(127 |
) | ||
|
Proceeds from sale of land |
|
9 |
|
— |
| ||
|
Net cash provided (used) in investing activities |
|
(17,349 |
) |
3,024 |
| ||
|
Cash flows from financing activities: |
|
|
|
|
| ||
|
Increase in deposit accounts |
|
17,815 |
|
11,995 |
| ||
|
Increase (decrease) in securities sold under agreements to repurchase |
|
4,241 |
|
(4,793 |
) | ||
|
Decrease in other borrowings |
|
(20 |
) |
(44 |
) | ||
|
Advances from the FHLB |
|
1,500 |
|
— |
| ||
|
Repayment of advances FHLB |
|
(20,945 |
) |
(4,620 |
) | ||
|
Dividends paid: Common Stock |
|
(393 |
) |
(391 |
) | ||
|
Preferred Stock |
|
(502 |
) |
(497 |
) | ||
|
Dividend reinvestment plan |
|
158 |
|
79 |
| ||
|
Net cash provided from financing activities |
|
1,854 |
|
1,729 |
| ||
|
Net increase (decrease) in cash and cash equivalents |
|
(8,474 |
) |
11,008 |
| ||
|
Cash and cash equivalents at beginning of period |
|
26,461 |
|
20,844 |
| ||
|
Cash and cash equivalents at end of period |
|
$ |
17,987 |
|
$ |
31,852 |
|
|
Supplemental disclosure: |
|
|
|
|
| ||
|
Cash paid during the period for: |
|
|
|
|
| ||
|
Interest |
|
$ |
5,967 |
|
$ |
6,939 |
|
|
Income taxes |
|
$ |
— |
|
$ |
— |
|
|
Non-cash investing and financing activities: |
|
|
|
|
| ||
|
Unrealized gain on securities |
|
$ |
3,284 |
|
$ |
1,651 |
|
|
Transfer of loans to foreclosed property |
|
$ |
3,694 |
|
$ |
6,339 |
|
|
Transfer of HTM securities with OTTI to AFS securities |
|
$ |
— |
|
$ |
5,800 |
|
See Notes to Consolidated Financial Statements
First Community Corporation
Notes to Consolidated Financial Statements
Note 1 - Nature of Business and Basis of Presentation
First Community Corporation, a bank holding company registered under the Bank Holding Company Act of 1956, as amended (the “Company”), was incorporated under the laws of South Carolina in 1994 primarily to own and control all of the capital stock of First Community Bank, N.A. (the “Bank”), which commenced operations in August 1995. On October 1, 2004, the Company completed its acquisition of DutchFork Bancshares, Inc. and its wholly-owned subsidiary, Newberry Federal Savings Bank. During the second quarter of 2006, the Company completed its acquisition of DeKalb Bankshares, Inc., the holding company for The Bank of Camden. On September 15, 2008, the Company completed the acquisition of two financial planning and investment advisory firms, EAH Financial Group and Pooled Resources, LLC. The Company engages in a commercial banking business from our main office in Lexington, South Carolina and our 11 full-service offices located in Lexington (two), Forest Acres, Irmo, Cayce-West Columbia, Gilbert, Chapin, Northeast Columbia, Prosperity, Newberry and Camden. The Company offers a wide-range of traditional banking products and services for professionals and small-to medium-sized businesses, including consumer and commercial, mortgage, brokerage and investment, and insurance services. The Company also offers online banking to our customers. The Company’s stock trades on The NASDAQ Capital Market under the symbol FCCO.
The Bank expanded its residential mortgage business unit with the acquisition of the assets of Palmetto South Mortgage Corporation (“Palmetto South”), effective July 31, 2011. Palmetto South, which operates as a division of the Bank, offers mortgage loan products for home purchase or refinance in the South Carolina market area. The acquisition price will be paid during a three year earn out period with the actual amount calculated based on the achievement of certain profitability metrics. The earn out terms over the three year period provide for contingent consideration which ranges from $0 to $1.2 million based upon annual net income. Management anticipates the amount will be approximately $600 thousand based upon recent past operating results. The purchase price of operating assets was $22 thousand.
In the opinion of management, the accompanying unaudited consolidated balance sheets, the consolidated statements of income, the consolidated statements of changes in shareholders’ equity and comprehensive income (loss), and the consolidated statements of cash flows of the Company, present fairly in all material respects the Company’s financial position at September 30, 2011 and December 31, 2010, the Company’s results of operations for the nine and three months ended September 30, 2011 and 2010, and the Company’s cash flows for the nine months ended September 30, 2011 and 2010. The results of operations for the nine and three months ended September 30, 2011 are not necessarily indicative of the results that may be expected for the year ending December 31, 2011.
In the opinion of management, all adjustments necessary to fairly present the consolidated financial position and consolidated results of operations have been made. All such adjustments are of a normal, recurring nature. All significant intercompany accounts and transactions have been eliminated in consolidation. The consolidated financial statements and notes thereto are presented in accordance with the instructions for Form 10-Q. The information included in the Company’s 2010 Annual Report on Form 10-K should be referred to in connection with these unaudited interim financial statements.
Note 2 — Earnings Per Share
The following reconciles the numerator and denominator of the basic and diluted earnings per share computation:
|
|
|
Nine months |
|
Three months |
| ||||||||
|
|
|
ended September 30, |
|
ended September 30, |
| ||||||||
|
(In thousands, except price per share) |
|
2011 |
|
2010 |
|
2011 |
|
2010 |
| ||||
|
Numerator (Net income available to common shareholders) |
|
$ |
1,751 |
|
$ |
960 |
|
$ |
790 |
|
$ |
228 |
|
|
Denominator |
|
|
|
|
|
|
|
|
| ||||
|
Weighted average common shares outstanding for: |
|
|
|
|
|
|
|
|
| ||||
|
Basic earnings per share |
|
3,280 |
|
3,259 |
|
3,294 |
|
3,264 |
| ||||
|
Dilutive securities: |
|
|
|
|
|
|
|
|
| ||||
|
Stock options — Treasury stock method |
|
— |
|
— |
|
— |
|
— |
| ||||
|
Diluted earnings per share |
|
3,280 |
|
3,259 |
|
3,294 |
|
3,264 |
| ||||
|
The average market price used in calculating assumed number of shares |
|
$ |
6.45 |
|
$ |
6.02 |
|
$ |
6.19 |
|
$ |
5.55 |
|
At September 30, 2011, there were 77,450 outstanding options at an average exercise price of $19.07 and warrants for 196,000 shares at $8.69. None of the options or warrants has an exercise price below the average market price of $6.45 and $6.19 for the nine and three-month periods ended September 30, 2011, respectively, and therefore are not
deemed to be dilutive. At September 30, 2010 there were 190,256 outstanding options at an average exercise price of $13.28 and warrants for 196,000 shares at $8.69. None of the options or warrants has an exercise price below the average market price of $6.02 and $5.55 for the nine and three-month periods ended September 30, 2010, respectively, and therefore are not deemed to be dilutive.
Note 3 —Assets and Liabilities Measured at Fair Value
In connection with the adoption of the Fair Value Option, the Company adopted the requirements of the FASB ASC Fair Value Measurement Topic which defines fair value, establishes a framework for measuring fair value, and expands disclosures about fair value measurements. Fair value is defined as the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. The Fair Value Measurement Topic also establishes a fair value hierarchy which requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. The standard describes three levels of inputs that may be used to measure fair value:
|
Level l |
Quoted prices in active markets for identical assets or liabilities. |
|
|
|
|
Level 2 |
Observable inputs other than Level 1 prices such as quoted prices for similar assets or liabilities; quoted prices in markets that are not active; or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities. |
|
|
|
|
Level 3 |
Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities. Level 3 assets and liabilities include financial instruments whose value is determined using pricing models, discounted cash flow methodologies, or similar techniques, as well as instruments for which the determination of fair value requires significant management judgment or estimation. |
Note 3 —Assets and Liabilities Measured at Fair Value-continued
The following is a description of valuation methodologies used for assets and liabilities recorded at fair value on a recurring basis:
Investment Securities Available for Sale: Measurement is on a recurring basis based upon quoted market prices, if available. If quoted market prices are not available, fair values are measured using independent pricing models or other model-based valuation techniques such as the present value of future cash flows, adjusted for prepayment assumptions, projected credit losses, and liquidity. Level 1 securities include those traded on an active exchange or by dealers or brokers in active over-the-counter markets. Level 2 securities include mortgage-backed securities (“MBSs”) issued by government sponsored enterprises and private label MBSs. Generally these fair values are priced from established pricing models. Level 3 securities include corporate debt obligations and asset—backed securities that are less liquid or for which there is an inactive market.
Loans: Loans that are considered impaired are recorded at fair value on a non-recurring basis. Once a loan is considered impaired, measurement is based upon FASB ASC 310-10-35 “Loan Impairment”. The fair value is estimated using one of several methods, including collateral liquidation value, market value of similar debt and discounted cash flows. Those impaired loans not requiring a specific charge against the allowance represent loans for which the fair value of the expected repayments or collateral meet or exceed the recorded investment in the loan. At September 30, 2011, substantially all of the total impaired loans were evaluated based on the fair value of the underlying collateral. When the Company records the fair value based upon a current appraisal, the fair value measurement is considered a Level 2 measurement. When a current appraisal is not available or there is estimated further impairment, the measurement is considered a Level 3 measurement.
Other Real Estate Owned (“OREO”): OREO is carried at the lower of carrying value or fair value on a non-recurring basis. Fair value is based upon independent appraisals or management’s estimation of the collateral and is considered a Level 2 measurement. When a current appraisal is not available or there is estimated further impairment, the measurement is considered a Level 3 measurement.
Note 3 —Assets and Liabilities Measured at Fair Value - continued
Derivative Financial Instruments: Interest rate swaps and interest rate caps are carried at fair value and measured on a recurring basis. The measurement is based on valuation techniques including discounted cash flows analysis for each derivative. The analysis reflects the contractual remaining term of derivative, interest rates, volatility and expected cash payments. The measurement of the interest rate swap and cap are considered to be a Level 3 measurement.
The following tables reflect the changes in fair values for the nine and three-month periods ended September 30, 2011 and 2010 and where these changes are included in the income statement:
(Dollars in thousands)
|
|
|
Nine months ended |
|
Three months ended |
| ||||||||
|
|
|
2011 |
|
2010 |
|
2011 |
|
2010 |
| ||||
|
Description |
|
Non-interest |
|
Non-interest |
|
Non-interest |
|
Non-interest |
| ||||
|
Interest rate cap/swap |
|
$ |
(185 |
) |
$ |
(644 |
) |
$ |
(60 |
) |
$ |
(201 |
) |
|
Total |
|
$ |
(185 |
) |
$ |
(644 |
) |
$ |
(60 |
) |
$ |
(201 |
) |
The following table summarizes quantitative disclosures about the fair value for each category of assets carried at fair value as of September 30, 2011 and December 31, 2010 that are measured on a recurring basis. There were no liabilities carried at fair value as of September 30, 2011 or December 31, 2010 that are measured on a recurring basis.
(Dollars in thousands)
|
Description |
|
September 30, |
|
Quoted |
|
Significant |
|
Significant |
| ||||
|
Available for sale securities |
|
|
|
|
|
|
|
|
| ||||
|
Government sponsored enterprises |
|
$ |
2,289 |
|
$ |
— |
|
$ |
2,289 |
|
$ |
— |
|
|
Mortgage backed securities |
|
144,601 |
|
— |
|
144,601 |
|
— |
| ||||
|
Small Business Administration securities |
|
38,059 |
|
— |
|
38,059 |
|
— |
| ||||
|
State and local government |
|
20,585 |
|
— |
|
20,006 |
|
579 |
| ||||
|
Corporate and other securities |
|
3,366 |
|
925 |
|
2,441 |
|
— |
| ||||
|
|
|
208,900 |
|
925 |
|
207,396 |
|
579 |
| ||||
|
|
|
|
|
|
|
|
|
|
| ||||
|
Interest rate cap/swap |
|
(708 |
) |
— |
|
— |
|
(708 |
) | ||||
|
Total |
|
$ |
208,192 |
|
$ |
925 |
|
$ |
207,396 |
|
$ |
(129 |
) |
Note 3 —Assets and Liabilities Measured at Fair Value — continued
(Dollars in thousands)
|
Description |
|
December |
|
Quoted Prices |
|
Significant |
|
Significant |
| ||||
|
Available for sale securities |
|
|
|
|
|
|
|
|
| ||||
|
Government sponsored enterprises |
|
$ |
13,738 |
|
$ |
— |
|
$ |
13,738 |
|
$ |
— |
|
|
Mortgage-backed securities |
|
121,257 |
|
— |
|
121,257 |
|
— |
| ||||
|
Small Business Administration securities |
|
31,496 |
|
— |
|
31,496 |
|
— |
| ||||
|
State and local government |
|
19,055 |
|
— |
|
18,430 |
|
625 |
| ||||
|
Corporate and other securities |
|
3,763 |
|
1,118 |
|
2,463 |
|
182 |
| ||||
|
|
|
189,309 |
|
1,118 |
|
187,384 |
|
807 |
| ||||
|
|
|
|
|
|
|
|
|
|
| ||||
|
Interest rate cap/swap |
|
(778 |
) |
— |
|
— |
|
(778 |
) | ||||
|
Total |
|
$ |
188,531 |
|
$ |
1,118 |
|
$ |
187,384 |
|
$ |
29 |
|
The following tables reconcile the changes in Level 3 financial instruments for the nine and three months ended September 30, 2011, that are measured on a recurring basis.
|
(Dollars in thousands) |
|
State and local |
|
Corporate and other |
|
Interest rate |
| |||
|
Beginning Balance December 31, 2010 |
|
$ |
625 |
|
$ |
182 |
|
$ |
(778 |
) |
|
Total gains or losses (realized/unrealized) |
|
|
|
|
|
|
| |||
|
Included in earnings |
|
— |
|
(103 |
) |
(185 |
) | |||
|
Included in other comprehensive income |
|
— |
|
(79 |
) |
— |
| |||
|
Purchases, issuances, and settlements |
|
(46 |
) |
— |
|
255 |
| |||
|
Transfers in and/or out of Level 3 |
|
— |
|
— |
|
— |
| |||
|
Ending Balance September 30, 2011 |
|
$ |
579 |
|
$ |
— |
|
$ |
(708 |
) |
|
(Dollars in thousands) |
|
State and local |
|
Corporate and other |
|
Interest rate |
| |||
|
Beginning Balance June 30, 2011 |
|
$ |
579 |
|
$ |
99 |
|
$ |
(733 |
) |
|
Total gains or losses (realized/unrealized) |
|
|
|
|
|
|
| |||
|
Included in earnings |
|
— |
|
(99 |
) |
(60 |
) | |||
|
Included in other comprehensive income |
|
— |
|
— |
|
— |
| |||
|
Purchases, issuances, and settlements |
|
— |
|
— |
|
85 |
| |||
|
Transfers in and/or out of Level 3 |
|
— |
|
— |
|
— |
| |||
|
Ending Balance September 30, 2011 |
|
$ |
579 |
|
$ |
— |
|
$ |
(708 |
) |
Note 3 —Assets and Liabilities Measured at Fair Value — continued
The following tables summarize quantitative disclosures about the fair value for each category of assets carried at fair value as of September 30, 2011 and December 31, 2010 that are measured on a non-recurring basis. Goodwill and other intangible assets are measured on a non-recurring basis at least annually. The valuation is performed at September 30 of each year. There were no liabilities carried at fair value as of September 30, 2011 or December 31, 2010 that are measured on a non-recurring basis.
(Dollars in thousands)
|
Description |
|
September 30, |
|
Quoted Prices |
|
Significant |
|
Significant |
| ||||
|
Impaired loans: |
|
|
|
|
|
|
|
|
| ||||
|
Commercial & Industrial |
|
$ |
87 |
|
$ |
— |
|
$ |
87 |
|
$ |
— |
|
|
Real estate: |
|
|
|
|
|
|
|
|
| ||||
|
Mortgage-residential |
|
459 |
|
— |
|
459 |
|
— |
| ||||
|
Mortgage-commercial |
|
8,946 |
|
— |
|
8,946 |
|
— |
| ||||
|
Consumer: |
|
|
|
|
|
|
|
|
| ||||
|
Home equity |
|
7 |
|
— |
|
7 |
|
— |
| ||||
|
Other |
|
20 |
|
— |
|
20 |
|
— |
| ||||
|
Total impaired |
|
9,519 |
|
— |
|
9,519 |
|
— |
| ||||
|
Other real estate owned: |
|
|
|
|
|
|
|
|
| ||||
|
Construction |
|
2,207 |
|
— |
|
2,207 |
|
— |
| ||||
|
Mortgage-residential |
|
1,498 |
|
— |
|
1,498 |
|
— |
| ||||
|
Mortgage-commercial |
|
4,564 |
|
— |
|
4,564 |
|
— |
| ||||
|
Total other real estate owned |
|
8,269 |
|
— |
|
8,269 |
|
— |
| ||||
|
Total |
|
$ |
17,788 |
|
$ |
— |
|
$ |
17,788 |
|
$ |
— |
|
(Dollars in thousands)
|
Description |
|
December 31, |
|
Quoted Prices |
|
Significant |
|
Significant |
| ||||
|
Impaired loans: |
|
|
|
|
|
|
|
|
| ||||
|
Commercial & Industrial |
|
$ |
96 |
|
$ |
— |
|
$ |
96 |
|
$ |
— |
|
|
Real estate: |
|
|
|
|
|
|
|
|
| ||||
|
Mortgage-residential |
|
1,527 |
|
— |
|
1,527 |
|
— |
| ||||
|
Mortgage-commercial |
|
7,914 |
|
— |
|
7,914 |
|
— |
| ||||
|
Consumer: |
|
|
|
|
|
|
|
|
| ||||
|
Home equity |
|
38 |
|
— |
|
38 |
|
— |
| ||||
|
Other |
|
12 |
|
— |
|
12 |
|
— |
| ||||
|
Total impaired |
|
9,587 |
|
— |
|
9,587 |
|
— |
| ||||
|
Other real estate owned: |
|
|
|
— |
|
|
|
— |
| ||||
|
Construction |
|
2,331 |
|
— |
|
2,331 |
|
— |
| ||||
|
Mortgage-residential |
|
1,267 |
|
— |
|
1,267 |
|
— |
| ||||
|
Mortgage-commercial |
|
3,306 |
|
— |
|
3,306 |
|
— |
| ||||
|
Total other real estate owned |
|
6,904 |
|
— |
|
6,904 |
|
— |
| ||||
|
Total |
|
$ |
16,491 |
|
$ |
— |
|
$ |
16,491 |
|
$ |
— |
|
Note 4—Investment Securities
The amortized cost and estimated fair values of investment securities are summarized below:
AVAILABLE-FOR-SALE:
|
(Dollars in thousands) |
|
Amortized |
|
Gross |
|
Gross |
|
Fair Value |
| ||||
|
September 30, 2011: |
|
|
|
|
|
|
|
|
| ||||
|
Government sponsored enterprises |
|
$ |
2,284 |
|
$ |
5 |
|
$ |
— |
|
$ |
2,289 |
|
|
Mortgage-backed securities |
|
144,690 |
|
2,640 |
|
2,729 |
|
144,601 |
| ||||
|
Small Business Administration pools |
|
37,459 |
|
618 |
|
18 |
|
38,059 |
| ||||
|
State and local government |
|
19,511 |
|
1,074 |
|
— |
|
20,585 |
| ||||
|
Corporate and other securities |
|
3,429 |
|
53 |
|
116 |
|
3,366 |
| ||||
|
|
|
$ |
207,373 |
|
$ |
4,390 |
|
$ |
2,863 |
|
$ |
208,900 |
|
|
December 31, 2010: |
|
|
|
|
|
|
|
|
| ||||
|
Government sponsored enterprises |
|
$ |
13,793 |
|
$ |
44 |
|
$ |
99 |
|
$ |
13,738 |
|
|
Mortgage-backed securities |
|
124,113 |
|
1,558 |
|
4,414 |
|
121,257 |
| ||||
|
Small Business Administration pools |
|
31,451 |
|
135 |
|
90 |
|
31,496 |
| ||||
|
State and local government |
|
19,128 |
|
217 |
|
290 |
|
19,055 |
| ||||
|
Corporate and other securities |
|
4,311 |
|
244 |
|
792 |
|
3,763 |
| ||||
|
|
|
$ |
192,796 |
|
$ |
2,198 |
|
$ |
5,685 |
|
$ |
189,309 |
|
During the nine months ended September 30, 2011 and September 30, 2010, the Company received proceeds of $47.8 million and $56.5 million, respectively, from the sale of investment securities available-for-sale. Gross realized gains amounted to $2.3 million and gross realized losses amounted to $2.0 million for the nine months ended September 30, 2011. Gross realized gains amounted to $2.0 million and gross realized losses amounted to $1.7 million for the nine months ended September 30, 2010.
At September 30, 2011, corporate and other securities available-for-sale included the following at fair value: corporate bonds at $2.4 million, mutual funds at $898.6 thousand and Federal Home Loan Mortgage Corporation (the “FHLMC” or “Freddie Mac”) preferred stock of $26.2 thousand. At December 31 2010, corporate and other securities available-for-sale included the following at fair value: corporate bonds at $2.6 million, mutual funds at $883.1 thousand and FHLMC preferred stock of $234.6 thousand.
Note 4—Investment Securities - continued
During the nine and three months ended September 30, 2011 and 2010, the Company recorded OTTI losses on available-for-sale securities as follows:
|
|
|
Nine months ended |
|
Three months ended |
| ||||||||
|
(Dollars in thousands) |
|
Available- |
|
Total |
|
Available- |
|
Total |
| ||||
|
Total OTTI charge realized and unrealized |
|
$ |
262 |
|
$ |
262 |
|
$ |
191 |
|
$ |
191 |
|
|
OTTI recognized in other comprehensive income (non-credit component) |
|
208 |
|
208 |
|
141 |
|
141 |
| ||||
|
Net impairment losses recognized in earnings (credit component) |
|
$ |
54 |
|
$ |
54 |
|
$ |
50 |
|
$ |
50 |
|
|
|
|
Nine months ended |
|
Three months ended |
| ||||||||
|
(Dollars in thousands) |
|
Available- |
|
Total |
|
Available- |
|
Total |
| ||||
|
Total OTTI charge realized and unrealized |
|
$ |
1,558 |
|
$ |
1,558 |
|
$ |
440 |
|
$ |
440 |
|
|
OTTI recognized in other comprehensive income (non-credit component) |
|
759 |
|
759 |
|
— |
|
— |
| ||||
|
Net impairment losses recognized in earnings (credit component) |
|
$ |
799 |
|
$ |
799 |
|
$ |
440 |
|
$ |
440 |
|
Note 4—Investment Securities — continued
During 2011 and 2010, OTTIs occurred for which only a portion is attributed to credit loss and recognized in earnings. The remainder was reported in other comprehensive income. The following is an analysis of amounts relating to credit losses on debt securities recognized in earnings during the nine months ended September 30, 2011 and 2010.
|
|
|
2011 |
|
2010 |
| |||||
|
|
|
Available for |
|
Available for |
|
Held to |
| |||
|
(Dollars in thousands) |
|
Sale |
|
Sale |
|
Maturity |
| |||
|
|
|
|
|
|
|
|
| |||
|
Balance at beginning of period |
|
$ |
2,143 |
|
$ |
165 |
|
$ |
326 |
|
|
|
|
|
|
|
|
|
| |||
|
Other-than-temporary-impairment not previously recognized |
|
50 |
|
146 |
|
98 |
| |||
|
|
|
|
|
|
|
|
| |||
|
Additional increase for which an other-than-temporary impairment was previously recognized related to credit losses |
|
4 |
|
527 |
|
28 |
| |||
|
|
|
|
|
|
|
|
| |||
|
Other-than-temporary-impairment previously recognized on securities sold |
|
(1,284 |
) |
— |
|
— |
| |||
|
|
|
|
|
|
|
|
| |||
|
Realized losses during the period |
|
(177 |
) |
(73 |
) |
— |
| |||
|
Transfer to available-for-sale |
|
— |
|
452 |
|
(452 |
) | |||
|
Balance related to credit losses on debt securities at end of period |
|
$ |
736 |
|
$ |
1,217 |
|
$ |
— |
|
For the nine months ended September 30, 2011, there was one trust preferred security and one non-agency mortgage backed security in which $54 thousand of OTTI representing the credit loss was recognized in earnings. For the three months ended September 30, 2011, there was $50 thousand of OTTI recognized in earnings for one non-agency mortgage backed security. During the third quarter of 2011, the trust preferred security was sold and an additional $455 thousand loss was recorded in earnings. The Company uses a third party to obtain information about the structure in order to determine how the underlying cash flows will be distributed to each security. For the trust preferred security, cash flows were evaluated assuming no prepayments with continued defaults of 150 basis-points annually and no subsequent recoveries of previous or ongoing defaults.
In evaluating the non-agency MBSs, relevant assumptions such as prepayment rate, default rate and loss severity on a loan level basis are used in determining the expected recovery of the contractual cash flows. The assumptions are that all loans greater than 60 days delinquent will be resolved across a two-year period at loss severities based on location and category. The weighted average loss severity for the loans greater than 60 days delinquent is 58.9%. The balance of the underlying portfolio cash flows are evaluated using ongoing assumptions for loss severities, prepayment rates and default rates. The ongoing assumptions for average prepayment rate, default rate and severity used in the valuations were approximately 5.7%, 3.0%, and 49.8%, respectively. The underlying collateral on substantially all of these securities is fixed rate residential first mortgages located throughout the United States. The underlying collateral includes various percentages of owner-occupied, as well as investment related single-family, 2-4 family and condominium residential properties. The securities were purchased at various discounts to par value. Based on the assumptions used in valuing the securities, the Company believes the existing discount and remaining subordinated collateral provide coverage against future credit losses on the downgraded securities for which no OTTI has been recognized.
Note 4—Investment Securities — continued
The following table shows gross unrealized losses and fair values, aggregated by investment category and length of time that individual securities have been in a continuous loss position at September 30, 2011and December 31, 2010.
|
|
|
Less than 12 months |
|
12 months or more |
|
Total |
| ||||||||||||
|
(Dollars in thousands) |
|
Fair Value |
|
Unrealized |
|
Fair Value |
|
Unrealized |
|
Fair Value |
|
Unrealized |
| ||||||
|
Available-for-sale securities: |
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
|
US Treasury and Government sponsored enterprises |
|
$ |
— |
|
$ |
— |
|
$ |
— |
|
$ |
— |
|
$ |
— |
|
$ |
— |
|
|
Government Sponsored Enterprise mortgage-backed securities |
|
27,771 |
|
257 |
|
3,011 |
|
38 |
|
30,782 |
|
295 |
| ||||||
|
Small Business Administration pools |
|
7,079 |
|
18 |
|
— |
|
— |
|
7,079 |
|
18 |
| ||||||
|
Non-agency mortgage-backed securities |
|
1,114 |
|
18 |
|
13,596 |
|
2,416 |
|
14,710 |
|
2,434 |
| ||||||
|
Corporate bonds and other |
|
1,011 |
|
40 |
|
1,421 |
|
76 |
|
2,432 |
|
116 |
| ||||||
|
State and local government |
|
— |
|
— |
|
— |
|
— |
|
— |
|
— |
| ||||||
|
Total |
|
$ |
36,975 |
|
$ |
333 |
|
$ |
18,028 |
|
$ |
2,530 |
|
$ |
55,003 |
|
$ |
2,863 |
|
|
|
|
Less than 12 months |
|
12 months or more |
|
Total |
| ||||||||||||
|
(Dollars in thousands) |
|
Fair Value |
|
Unrealized |
|
Fair Value |
|
Unrealized |
|
Fair Value |
|
Unrealized |
| ||||||
|
Available-for-sale securities: |
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
|
US Treasury and Government sponsored enterprises |
|
$ |
5,652 |
|
$ |
99 |
|
$ |
— |
|
$ |
— |
|
$ |
5,652 |
|
$ |
99 |
|
|
Government Sponsored Enterprise mortgage-backed securities |
|
32,416 |
|
402 |
|
780 |
|
1 |
|
33,196 |
|
403 |
| ||||||
|
Small Business Administration pools |
|
5,355 |
|
90 |
|
— |
|
— |
|
5,355 |
|
90 |
| ||||||
|
Non-agency mortgage-backed securities |
|
1,081 |
|
29 |
|
36,065 |
|
3,982 |
|
37,146 |
|
4,011 |
| ||||||
|
Corporate bonds and other |
|
59 |
|
1 |
|
1,585 |
|
791 |
|
1,644 |
|
792 |
| ||||||
|
State and local government |
|
8,909 |
|
290 |
|
— |
|
— |
|
8,909 |
|
290 |
| ||||||
|
Total |
|
$ |
53,472 |
|
$ |
911 |
|
$ |
38,430 |
|
$ |
4,774 |
|
$ |
91,902 |
|
$ |
5,685 |
|
Government Sponsored Enterprise, Mortgage-Backed Securities: Beginning in 2008 and continuing through the first nine months of 2011, the bond markets and many institutional holders of bonds have come under a great deal of stress partially as a result of increasing delinquencies in the sub-prime mortgage lending market. At September 30, 2011, the Bank owns MBSs issued by government sponsored entities (GSEs) including collateralized mortgage obligations (CMOs) with a book value of $127.0 million and approximate fair value of $129.3 million. Current economic conditions have impacted MBSs issued by GSEs such as the FHLMC and the Federal National Mortgage Association (the “FNMA” or “Fannie Mae”). These entities have experienced increasing delinquencies in the underlying loans that make up the MBSs and CMOs. As of September 30, 2011 and December 31, 2010, all of the MBSs issued by GSEs are classified as “Available for Sale”. As of September 30, 2011 and December 31, 2010, unrealized losses amounted to $295 thousand and $403 thousand, respectively. The contractual cash flows of the investments are guaranteed by the GSE. Accordingly, it is expected that the securities would not be settled at a price less than the amortized cost of the Company’s investment. Because the Company has the ability and intent to hold these investments until a recovery of fair value, which may be maturity, the Company does not consider the investments to be OTTI at September 30, 2011.
Note 4—Investment Securities - continued
Non-agency mortgage —backed securities: The Company also holds private label mortgage-backed securities (PLMBSs), including CMOs, at September 30, 2011 with an amortized cost of $17.7 million and approximate fair value of $15.3 million. Although these are not classified as sub-prime obligations or considered the “high risk” tranches, the majority of “structured” investments within all credit markets have been impacted by volatility and credit concerns and economic stresses beginning in 2008 and continuing through the first nine months of 2011. The result has been that the market for these investments is less liquid and the spread as compared to alternative investments has widened dramatically. During the second quarter of 2008, the Company implemented a leverage strategy whereby we acquired approximately $63.2 million in certain non-agency MBSs and CMOs. All of the mortgage assets acquired in this transaction were classified as prime or ALT-A securities and represented the senior or super-senior tranches of the securities. The assets acquired as part of this strategy were classified as held-to-maturity in the investment portfolio. Due to the significant spreads on these securities, they were all purchased at discounts. A detailed analysis of each of the CMO pools included in this leverage transaction, as well as privately held CMOs held previously in the available-for-sale portfolio, have been analyzed by reviewing underlying loan delinquencies, collateral value and resulting credit support. These securities have continued to experience increasing delinquencies in the underlying loans that make up the MBSs and CMOs. Management monitors each of these pools on a quarterly basis to identify any deterioration in the credit quality, collateral values and credit support underlying the investments.
For the three and nine months ended September 30, 2011, $50 thousand and $54 thousand in OTTI charges were recorded in earnings for the PLMBS portfolio, respectively. For the three and nine months ended September 30, 2010, $440 thousand and $799 thousand in OTTI charges were recorded in earnings, respectively. As prescribed by FASB ASC 320-10-65, the Company has recognized impairment charges in earnings for the amounts related to credit losses and amounts related to non-credit losses have been recognized in other comprehensive income. The credit losses were estimated by projecting the expected cash flows estimating prepayment speeds, increasing defaults and collateral loss severities. The credit loss portion of the impairment charge represents the difference between the present value of the expected cash flows and the amortized cost basis of the securities.
The following table summarizes as of September 30, 2011 the number of CUSIPs, par value, carrying value and fair value of the non-agency mortgage-backed/CMOs securities by credit rating. The credit rating reflects the lowest credit rating by any major rating agency.
(Dollars in thousands)
|
Credit |
|
Number |
|
Par |
|
Amortized |
|
Fair |
| |||
|
AAA |
|
8 |
|
$ |
2,359 |
|
$ |
2,359 |
|
$ |
2,227 |
|
|
AA |
|
1 |
|
384 |
|
384 |
|
384 |
| |||
|
Aa2 |
|
1 |
|
90 |
|
90 |
|
89 |
| |||
|
Aa3 |
|
1 |
|
500 |
|
500 |
|
485 |
| |||
|
A |
|
1 |
|
362 |
|
362 |
|
361 |
| |||
|
Below Investment Grade |
|
11 |
|
16,195 |
|
13,998 |
|
11,726 |
| |||
|
Total |
|
23 |
|
$ |
19,890 |
|
$ |
17,693 |
|
$ |
15,272 |
|
During the nine months ended September 30, 2011, the Company sold 14 non-agency MBSs with a total book value of approximately $29.8 million. Ten of these securities in the total amount of $21.3 million were rated below investment grade by the rating agencies with the other four being rated above investment grade. Four of these securities with a book value of approximately $3.8 million, with $3.6 million below investment grade, were sold in the second quarter of 2011, and seven securities with a book value of approximately $26.0 million, with $17.7 million rated below investment grade, were sold in the first quarter of 2011. The sales of these non-agency MBSs have served to significantly reduce the level of securities on the Company’s balance sheet that are rated below investment grade.
Note 4—Investment Securities — continued
Corporate Bonds: During the nine months ended September 30, 2011 and 2010, the Company recorded $4.0 thousand and $1.1 million in OTTI charges on a preferred term security, respectively. During the third quarter of 2011, the Company sold this security and recorded an additional realized loss of $455 thousand. This loss was offset by the sale of two municipal bonds with a recorded gain of $488 thousand. The Company’s unrealized loss on investments in corporate bonds relates to bonds with three different issuers. The economic conditions beginning in 2008 and continuing into the first nine months of 2011 have had a significant impact on all corporate debt obligations. As a result, the spreads on all of the securities have widened dramatically and the liquidity of many of these investments has been negatively impacted. One of these bonds is rated Aa2 by Moody (investment grade) and another bond is rated A2 by Moody (investment grade). The third bond is below investment grade and rated Ba1 by Moody and BBB- by Fitch with a carrying value of $998 thousand and a fair value of $946 thousand and matures in July 2014. All of the corporate bonds held by the Company are reviewed on a quarterly basis to identify downgrades by rating agencies as well as deterioration of the underlying collateral or the issuer’s ability to service the debt obligation. The Company does not consider these investments to be OTTI at September 30, 2011.
Small Business Administration Pools: These pools are guaranteed pass-thru with the full faith and credit of the United States government. Because the Company has the ability and intent to hold these investments until a recovery of fair value, which may be maturity, the Company does not consider the investments to be OTTI at September 30, 2011.
State and Local Governments and Other: Unrealized losses on these investments are attributable to increases in interest rates, rather than credit quality. As of September 30, 2011, there were no investments in this category with unrealized losses.
The amortized cost and fair value of investment securities at September 30, 2011, by contractual maturity, are as follows. Expected maturities differ from contractual maturities because borrowers may have the right to call or prepay the obligations with or without prepayment penalties. MBSs are based on average life at estimated prepayment speeds.
|
|
|
Available-for-sale |
| ||||
|
(Dollars in thousands) |
|
Amortized |
|
Fair |
| ||
|
Due in one year or less |
|
$ |
5,432 |
|
$ |
4,958 |
|
|
Due after one year through five years |
|
101,111 |
|
101,462 |
| ||
|
Due after five years through ten years |
|
81,894 |
|
82,536 |
| ||
|
Due after ten years |
|
18,936 |
|
19,944 |
| ||
|
|
|
$ |
207,373 |
|
$ |
208,900 |
|
Note 5—Loans
Loans summarized by category as of September 30, 2011 and December 31, 2010 are as follows:
|
|
|
September 30, |
|
December 31, |
| ||
|
(Dollars in thousands) |
|
2011 |
|
2010 |
| ||
|
Commercial, financial and agricultural |
|
$ |
20,077 |
|
$ |
20,555 |
|
|
Real estate: |
|
|
|
|
| ||
|
Construction |
|
9,045 |
|
10,540 |
| ||
|
Mortgage-residential |
|
40,146 |
|
46,684 |
| ||
|
Mortgage-commercial |
|
221,365 |
|
218,298 |
| ||
|
Consumer: |
|
|
|
|
| ||
|
Home equity |
|
27,958 |
|
27,747 |
| ||
|
Other |
|
5,642 |
|
6,130 |
| ||
|
Total |
|
$ |
324,233 |
|
$ |
329,954 |
|
Note 5—Loans-continued
At September 30, 2011, there were $5.2 million of residential mortgage loans held for sale at fair value. These loans are originated with firm purchase commitments from various investors at the time the loans are closed. Generally, funds are received and the loans are transferred to the investors within three to seven business days.
Activity in the allowance for loan losses for the nine months and three months ended September 30, 2011 and 2010 was as follows:
|
|
|
Nine months ended |
| ||||
|
|
|
September 30, |
|
September 30, |
| ||
|
(Dollars in thousands) |
|
2011 |
|
2010 |
| ||
|
Balance at the beginning of period |
|
$ |
4,911 |
|
$ |
4,854 |
|
|
Provision for loan losses |
|
1,110 |
|
1,365 |
| ||
|
Charged off loans |
|
(1,368 |
) |
(1,481 |
) | ||
|
Recoveries |
|
55 |
|
103 |
| ||
|
Balance at end of period |
|
$ |
4,708 |
|
$ |
4,841 |
|
|
|
|
Three months ended |
| ||||
|
|
|
September 30, |
|
September 30, |
| ||
|
(Dollars in thousands) |
|
2011 |
|
2010 |
| ||
|
Balance at the beginning of period |
|
$ |
4,716 |
|
$ |
4,838 |
|
|
Provision for loan losses |
|
360 |
|
235 |
| ||
|
Charged off loans |
|
(388 |
) |
(282 |
) | ||
|
Recoveries |
|
20 |
|
50 |
| ||
|
Balance at end of period |
|
$ |
4,708 |
|
$ |
4,841 |
|
Note 5—Loans-continued
The detailed activity in the allowance for loan losses and the recorded investment in loans receivable as of and for the three months ended September 30, 2011 and the year ended December 31, 2010 is as follows:
|
|
|
|
|
|
|
Real estate |
|
Real estate |
|
|
|
|
|
|
|
|
| ||||||||
|
|
|
|
|
Real estate |
|
Mortgage |
|
Mortgage |
|
Consumer |
|
Consumer |
|
|
|
|
| ||||||||
|
(Dollars in thousands) |
|
Commercial |
|
Construction |
|
Residential |
|
Commercial |
|
Home equity |
|
Other |
|
Unallocated |
|
Total |
| ||||||||
|
2011 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||
|
Allowance for loan losses: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||
|
Beginning balance December 31, 2010 |
|
$ |
681 |
|
$ |
905 |
|
$ |
465 |
|
$ |
1,404 |
|
$ |
325 |
|
$ |
88 |
|
$ |
1,043 |
|
$ |
4,911 |
|
|
Charge-offs |
|
239 |
|
— |
|
142 |
|
683 |
|
247 |
|
57 |
|
— |
|
1,368 |
| ||||||||
|
Recoveries |
|
27 |
|
— |
|
4 |
|
— |
|
4 |
|
20 |
|
— |
|
55 |
| ||||||||
|
Provisions |
|
(153 |
) |
(521 |
) |
127 |
|
862 |
|
409 |
|
(3 |
) |
389 |
|
1,110 |
| ||||||||
|
Ending balance September 30, 2011 |
|
$ |
316 |
|
$ |
384 |
|
$ |
454 |
|
$ |
1,583 |
|
$ |
491 |
|
$ |
48 |
|
$ |
1,432 |
|
$ |
4,708 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||
|
Ending balances: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||
|
Individually evaluated for impairment |
|
$ |
— |
|
$ |
— |
|
$ |
— |
|
$ |
— |
|
$ |
— |
|
$ |
— |
|
$ |
— |
|
$ |
— |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||
|
Collectively evaluated for impairment |
|
316 |
|
384 |
|
454 |
|
1,583 |
|
491 |
|
48 |
|
1,432 |
|
4,708 |
| ||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||
|
Loans receivable: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||
|
Ending balance-total |
|
$ |
20,077 |
|
9,045 |
|
$ |
40,146 |
|
$ |
221,365 |
|
$ |
27,958 |
|
$ |
5,642 |
|
— |
|
$ |
324,233 |
| ||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||
|
Ending balances: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||
|
Individually evaluated for impairment |
|
87 |
|
— |
|
459 |
|
8,946 |
|
7 |
|
20 |
|
— |
|
9,519 |
| ||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||
|
Collectively evaluated for impairment |
|
$ |
19,990 |
|
$ |
9,045 |
|
$ |
39,687 |
|
$ |
212,419 |
|
$ |
27,951 |
|
$ |
5,622 |
|
$ |
— |
|
$ |
314,714 |
|
Note 5—Loans-continued
|
|
|
|
|
|
|
Real estate |
|
Real estate |
|
|
|
|
|
|
|
|
| ||||||||
|
|
|
|
|
Real estate |
|
Mortgage |
|
Mortgage |
|
Consumer |
|
Consumer |
|
|
|
|
| ||||||||
|
(Dollars in thousands) |
|
Commercial |
|
Construction |
|
Residential |
|
Commercial |
|
Home equity |
|
Other |
|
Unallocated |
|
Total |
| ||||||||
|
2010 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||
|
Allowance for loan losses: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||
|
Beginning balance December 31, 2009 |
|
$ |
634 |
|
$ |
1,331 |
|
$ |
138 |
|
$ |
1,522 |
|
$ |
105 |
|
$ |
127 |
|
$ |
997 |
|
$ |
4,854 |
|
|
Charge-offs |
|
125 |
|
— |
|
512 |
|
984 |
|
186 |
|
141 |
|
— |
|
1,948 |
| ||||||||
|
Recoveries |
|
31 |
|
— |
|
7 |
|
38 |
|
9 |
|
42 |
|
— |
|
127 |
| ||||||||
|
Provisions |
|
141 |
|
(426 |
) |
832 |
|
828 |
|
397 |
|
60 |
|
46 |
|
1,878 |
| ||||||||
|
Ending balance December 31, 2010 |
|
$ |
681 |
|
$ |
905 |
|
$ |
465 |
|
$ |
1,404 |
|
$ |
325 |
|
$ |
88 |
|
$ |
1043 |
|
$ |
4,911 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||
|
Ending balances: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||
|
Individually evaluated for impairment |
|
$ |
— |
|
$ |
— |
|
$ |
— |
|
$ |
96 |
|
$ |
— |
|
$ |
— |
|
$ |
— |
|
$ |
96 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||
|
Collectively evaluated for impairment |
|
681 |
|
905 |
|
465 |
|
1,308 |
|
325 |
|
88 |
|
1,043 |
|
4,815 |
| ||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||
|
Loans receivable: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||
|
Ending balance-total |
|
$ |
20,555 |
|
$ |
10,540 |
|
$ |
46,684 |
|
$ |
218,298 |
|
$ |
27,747 |
|
$ |
6,130 |
|
$ |
— |
|
$ |
329,954 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||
|
Ending balances: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||
|
Individually evaluated for impairment |
|
96 |
|
— |
|
1,527 |
|
7,914 |
|
38 |
|
12 |
|
— |
|
9,587 |
| ||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||
|
Collectively evaluated for impairment |
|
$ |
20,459 |
|
$ |
10,540 |
|
$ |
45,157 |
|
$ |
210,384 |
|
$ |
27,709 |
|
$ |
6,118 |
|
$ |
— |
|
$ |
320,367 |
|
Loans outstanding to bank directors, executive officers and their related business interests amounted to $10.4 million and $10.9 million at September 30, 2011 and September 30, 2010, respectively. Repayments on these loans during the nine months ended September 30, 2011 were $1.3 million and loans made amounted to $808 thousand. Repayments on these loans during the nine months ended September 30, 2010 were $1.7 million and loans made amounted to $5.6 million. Related party loans are made on substantially the same terms, including interest rates and collateral, as those prevailing at the time for comparable transactions with unrelated persons and generally do not involve more than the normal risk of collectability.
Note 5—Loans-continued
The following table presents at September 30, 2011 and December 31, 2010 loans individually evaluated and considered impaired under FAS ASC 310 “Accounting by Creditors for Impairment of a Loan.” Impairment includes performing troubled debt restructurings.
|
|
|
September 30, |
|
December 31, |
| ||
|
(Dollars in thousands) |
|
2011 |
|
2010 |
| ||
|
Total loans considered impaired |
|
$ |
9,519 |
|
$ |
9,587 |
|
|
Loans considered impaired for which there is a related allowance for loan loss: |
|
|
|
|
| ||
|
Outstanding loan balance |
|
— |
|
378 |
| ||
|
Related allowance |
|
— |
|
96 |
| ||
|
Loans considered impaired and previously written down to fair value |
|
9,519 |
|
9,209 |
| ||
|
Average impaired loans |
|
9,894 |
|
10,576 |
| ||
The following tables, by loan category, present at September 30, 2011 and December 31, 2010 loans individually evaluated and considered impaired under FAS ASC 310 “Accounting by Creditors for Impairment of a Loan.” Impairment includes performing troubled debt restructurings.
|
|
|
|
|
Unpaid |
|
|
|
Average |
|
Interest |
| |||||
|
(Dollars in thousands) |
|
Recorded |
|
Principal |
|
Related |
|
Recorded |
|
Income |
| |||||
|
September 30, 2011 |
|
Investment |
|
Balance |
|
Allowance |
|
Investment |
|
Recognized |
| |||||
|
With no allowance recorded: |
|
|
|
|
|
|
|
|
|
|
| |||||
|
Commercial |
|
$ |
87 |
|
$ |
94 |
|
$ |
— |
|
$ |
96 |
|
$ |
2 |
|
|
Real estate: |
|
|
|
|
|
|
|
|
|
|
| |||||
|
Construction |
|
— |
|
— |
|
— |
|
— |
|
— |
| |||||
|
Mortgage-residential |
|
459 |
|
474 |
|
— |
|
479 |
|
3 |
| |||||
|
Mortgage-commercial |
|
8,946 |
|
9,196 |
|
— |
|
9,279 |
|
297 |
| |||||
|
Consumer: |
|
|
|
|
|
|
|
|
|
|
| |||||
|
Home Equity |
|
7 |
|
7 |
|
— |
|
10 |
|
— |
| |||||
|
Other |
|
20 |
|
20 |
|
— |
|
30 |
|
1 |
| |||||
|
|
|
|
|
|
|
|
|
|
|
|
| |||||
|
With an allowance recorded: |
|
|
|
|
|
|
|
|
|
|
| |||||
|
Commercial |
|
— |
|
— |
|
— |
|
— |
|
— |
| |||||
|
Real estate: |
|
|
|
|
|
|
|
|
|
|
| |||||
|
Construction |
|
— |
|
— |
|
— |
|
— |
|
— |
| |||||
|
Mortgage-residential |
|
— |
|
— |
|
— |
|
— |
|
— |
| |||||
|
Mortgage-commercial |
|
— |
|
— |
|
— |
|
— |
|
— |
| |||||
|
Consumer: |
|
|
|
|
|
|
|
|
|
|
| |||||
|
Home Equity |
|
— |
|
— |
|
— |
|
— |
|
— |
| |||||
|
Other |
|
— |
|
— |
|
— |
|
— |
|
— |
| |||||
|
|
|
|
|
|
|
|
|
|
|
|
| |||||
|
Total: |
|
|
|
|
|
|
|
|
|
|
| |||||
|
Commercial |
|
$ |
87 |
|
$ |
94 |
|
$ |
— |
|
$ |
96 |
|
$ |
2 |
|
|
Real estate: |
|
|
|
|
|
|
|
|
|
|
| |||||
|
Construction |
|
— |
|
— |
|
— |
|
— |
|
— |
| |||||
|
Mortgage-residential |
|
459 |
|
474 |
|
— |
|
479 |
|
3 |
| |||||
|
Mortgage-commercial |
|
8,946 |
|
9,196 |
|
— |
|
9,279 |
|
297 |
| |||||
|
Consumer: |
|
|
|
|
|
|
|
|
|
|
| |||||
|
Home Equity |
|
7 |
|
7 |
|
— |
|
10 |
|
— |
| |||||
|
Other |
|
20 |
|
20 |
|
— |
|
30 |
|
1 |
| |||||
|
|
|
$ |
9,519 |
|
$ |
9,791 |
|
$ |
— |
|
$ |
9,894 |
|
$ |
303 |
|
The Company determined that all specific reserves for impaired loans were confirmed losses and were charged-off against outstanding loan balances during the nine months ended September 30, 2011.
Note 5—Loans-continued
|
|
|
|
|
Unpaid |
|
|
|
Average |
|
Interest |
| |||||
|
(Dollars in thousands) |
|
Recorded |
|
Principal |
|
Related |
|
Recorded |
|
Income |
| |||||
|
December 31, 2010 |
|
Investment |
|
Balance |
|
Allowance |
|
Investment |
|
Recognized |
| |||||
|
With no allowance recorded: |
|
|
|
|
|
|
|
|
|
|
| |||||
|
Commercial |
|
$ |
96 |
|
$ |
96 |
|
$ |
— |
|
$ |
108 |
|
$ |
4 |
|
|
Real estate: |
|
|
|
|
|
|
|
|
|
|
| |||||
|
Construction |
|
— |
|
— |
|
— |
|
— |
|
— |
| |||||
|
Mortgage-residential |
|
1,527 |
|
1,835 |
|
— |
|
1,853 |
|
20 |
| |||||
|
Mortgage-commercial |
|
7,536 |
|
8,077 |
|
— |
|
8,180 |
|
272 |
| |||||
|
Consumer: |
|
|
|
|
|
|
|
|
|
|
| |||||
|
Home Equity |
|
38 |
|
38 |
|
— |
|
40 |
|
— |
| |||||
|
Other |
|
12 |
|
12 |
|
— |
|
14 |
|
— |
| |||||
|
|
|
|
|
|
|
|
|
|
|
|
| |||||
|
With an allowance recorded: |
|
|
|
|
|
|
|
|
|
|
| |||||
|
Commercial |
|
— |
|
— |
|
— |
|
— |
|
— |
| |||||
|
Real estate: |
|
|
|
|
|
|
|
|
|
|
| |||||
|
Construction |
|
— |
|
— |
|
— |
|
— |
|
— |
| |||||
|
Mortgage-residential |
|
— |
|
— |
|
— |
|
— |
|
— |
| |||||
|
Mortgage-commercial |
|
378 |
|
378 |
|
96 |
|
381 |
|
27 |
| |||||
|
Consumer: |
|
|
|
|
|
|
|
|
|
|
| |||||
|
Home Equity |
|
— |
|
— |
|
— |
|
— |
|
— |
| |||||
|
Other |
|
— |
|
— |
|
— |
|
— |
|
— |
| |||||
|
|
|
|
|
|
|
|
|
|
|
|
| |||||
|
Total: |
|
|
|
|
|
|
|
|
|
|
| |||||
|
Commercial |
|
96 |
|
96 |
|
— |
|
108 |
|
4 |
| |||||
|
Real estate: |
|
|
|
|
|
|
|
|
|
|
| |||||
|
Construction |
|
— |
|
— |
|
— |
|
— |
|
— |
| |||||
|
Mortgage-residential |
|
1,527 |
|
1,835 |
|
— |
|
1,853 |
|
20 |
| |||||
|
Mortgage-commercial |
|
7,914 |
|
8,455 |
|
96 |
|
8,561 |
|
299 |
| |||||
|
Consumer: |
|
|
|
|
|
|
|
|
|
|
| |||||
|
Home Equity |
|
38 |
|
38 |
|
— |
|
40 |
|
— |
| |||||
|
Other |
|
12 |
|
12 |
|
— |
|
14 |
|
— |
| |||||
|
|
|
$ |
9,587 |
|
$ |
10,436 |
|
$ |
96 |
|
$ |
10,576 |
|
$ |
323 |
|
The Company categorizes loans into risk categories based on relevant information about the ability of borrowers to service their debt, including: current financial information, historical payment experience, credit documentation, public information, and current economic trends, among other factors. The Company analyzes loans individually by classifying the loans as to credit risk. This analysis is performed on a monthly basis. The Company uses the following definitions for risk ratings:
Special Mention. Loans classified as special mention have a potential weakness that deserves management’s close attention. If left uncorrected, these potential weaknesses may result in deterioration of the repayment prospects for the loan or of the institution’s credit position at some future date. Special mention assets are not adversely classified and do not expose an institution to sufficient risk to warrant adverse classification.
Substandard. Loans classified as substandard are inadequately protected by the current net worth and paying capacity of the obligor or of the collateral pledged, if any. Loans so classified have a well-defined weakness or weaknesses that jeopardize the liquidation of the debt. They are characterized by the distinct possibility that the institution will sustain some loss if the deficiencies are not corrected.
Doubtful. Loans classified as doubtful have all the weaknesses inherent in those classified as substandard, with the added characteristic that the weaknesses make collection or liquidation in full, on the basis of currently existing facts, conditions, and values, highly questionable and improbable.
Note 5—Loans-continued
Loans not meeting the criteria above that are analyzed individually as part of the above described process are considered to be pass rated loans. As of September 30, 2011 and December 31, 2010, and based on the most recent analysis performed, the risk category of loans by class of loans is shown in the table below. As of September 30, 2011 and December 31, 2010, no loans were classified as doubtful.
|
(Dollars in thousands) |
|
|
|
Special |
|
|
|
|
|
|
| |||||
|
September 30, 2011 |
|
Pass |
|
Mention |
|
Substandard |
|
Doubtful |
|
Total |
| |||||
|
Commercial, financial & agricultural |
|
$ |
19,177 |
|
$ |
551 |
|
$ |
349 |
|
$ |
— |
|
$ |
20,077 |
|
|
Real estate: |
|
|
|
|
|
|
|
|
|
|
| |||||
|
Construction |
|
3,961 |
|
— |
|
5,084 |
|
— |
|
9,045 |
| |||||
|
Mortgage — residential |
|
39,123 |
|
213 |
|
810 |
|
— |
|
40,146 |
| |||||
|
Mortgage — commercial |
|
199,554 |
|
10,426 |
|
11,385 |
|
— |
|
221,365 |
| |||||
|
Consumer: |
|
|
|
|
|
|
|
|
|
|
| |||||
|
Home Equity |
|
27,649 |
|
40 |
|
269 |
|
— |
|
27,958 |
| |||||
|
Other |
|
5,572 |
|
48 |
|
22 |
|
— |
|
5,642 |
| |||||
|
Total |
|
$ |
295,036 |
|
$ |
11,278 |
|
$ |
17,919 |
|
$ |
— |
|
$ |
324,233 |
|
|
(Dollars in thousands) |
|
Special |
|
|
|
|
|
|
|
|
| |||||
|
December 31, 2010 |
|
Pass |
|
Mention |
|
Substandard |
|
Doubtful |
|
Total |
| |||||
|
Commercial, financial & agricultural |
|
$ |
19,722 |
|
$ |
232 |
|
$ |
602 |
|
$ |
— |
|
$ |
20,556 |
|
|
Real estate: |
|
|
|
|
|
|
|
|
|
|
| |||||
|
Construction |
|
5,111 |
|
— |
|
5,429 |
|
— |
|
10,540 |
| |||||
|
Mortgage — residential |
|
44,815 |
|
— |
|
1,869 |
|
— |
|
46,684 |
| |||||
|
Mortgage — commercial |
|
196,153 |
|
8,270 |
|
13,874 |
|
— |
|
218,297 |
| |||||
|
Consumer: |
|
|
|
|
|
|
|
|
|
|
| |||||
|
Home Equity |
|
27,501 |
|
100 |
|
146 |
|
— |
|
27,747 |
| |||||
|
Other |
|
6,124 |
|
6 |
|
— |
|
— |
|
6,130 |
| |||||
|
Total |
|
$ |
299,426 |
|
$ |
8,608 |
|
$ |
21,920 |
|
$ |
— |
|
$ |
329,954 |
|
A delinquent loan is generally placed in nonaccrual status when it becomes 90 days or more past due. At the time a loan is placed in nonaccrual status, all interest, which has been accrued on the loan but remains unpaid is reversed and deducted from earnings as a reduction of reported interest income. No additional interest is accrued on the loan balance until the collection of both principal and interest becomes reasonably certain. At September 30, 2011 and December 31, 2010, nonaccrual loans totaled $3.4 million and $5.9 million, respectively.
Troubled debt restructurings (“TDRs”) are loans which have been restructured from their original contractual terms and include concessions that would not otherwise have been granted outside of the financial difficulty of the borrower. Concessions can relate to the contractual interest rate, maturity date, or payment structure of the note. As part of our workout plan for individual loan relationships, we may restructure loan terms to assist borrowers facing challenges in the current economic environment. The purpose of a TDR is to facilitate ultimate repayment of the loan. TDRs included in impaired loans at September 30, 2011 and December 31, 2010 amounted to $7.9 million and $4.4 million, respectively.
Our policy with respect to accrual of interest on loans restructured in a TDR follows relevant supervisory guidance. That is, if a borrower has demonstrated performance under the previous loan terms and shows capacity to perform under the restructured loan terms; continued accrual of interest at the restructured interest rate is likely. If a borrower was materially delinquent on payments prior to the restructuring but shows capacity to meet the restructured loan terms, the loan will likely continue as nonaccrual going forward. Lastly, if the borrower does not perform under the restructured terms, the loan is placed on nonaccrual status. TDRs in nonaccrual status at September 30, 2011 and December 31, 2010 amounted to $1.8 million and $696 thousand, respectively.
Note 5—Loans-continued
We will continue to closely monitor these loans and will cease accruing interest on them if management believes that the borrowers may not continue performing based on the restructured note terms. If, after previously being classified as a TDR, a loan is restructured a second time, then that loan is automatically placed on nonaccrual status. Our policy with respect to nonperforming loans requires the borrower to make a minimum of six consecutive payments in accordance with the loan terms before that loan can be placed back on accrual status. Further, the borrower must show capacity to continue performing into the future prior to restoration of accrual status. To date, we have not restored any nonaccrual loan classified as a TDR to accrual status. We believe that all of our modified loans meet the definition of a TDR.
There were no loans greater than ninety days delinquent and still accruing interest at September 30, 2011. Loans greater than ninety days delinquent and still accruing interest at December 31, 2010 amounted to $373 thousand.
The following tables, by loan category, present loans past due and in non-accrual status as of September 30, 2011 and December 31, 2010:
|
(Dollars in thousands) |
|
30-59 |
|
60-89 |
|
Greater |
|
Nonaccrual |
|
Total |
|
Current |
|
Total |
| |||||||
|
Commercial |
|
$ |
128 |
|
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