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Table of Contents

 

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, DC  20549

 

FORM 10-Q

 

(MARK ONE)

 

x

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

 

For the Quarterly Period Ended September 30, 2010

 

OR

 

o

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the transition period from                    to                     

 

Commission File Number:  000-50407

 

FREDERICK COUNTY BANCORP, INC.

(Exact name of registrant as specified in its charter)

 

Maryland

 

20-0049496

(State of other jurisdiction of

 

(I.R.S. Employer

incorporation or organization)

 

Identification No.)

 

9 North Market Street

Frederick, Maryland 21701

(Address of registrant’s principal executive offices)

 

301.620.1400

(Registrant’s telephone number, including area code)

 

N/A

(Former name, former address and former fiscal year, if changed since last report)

 

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.  x Yes  o No

 

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§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).  o Yes  o No

 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting company.  See definition of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

 

Large accelerated filer o

 

Accelerated filer o

 

 

 

Non-accelerated filer o

 

Smaller reporting company x

 

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).  o Yes  x No

 

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practical date.  There were 1,469,364 shares of Common Stock outstanding as of October 31, 2010.

 

 

 



Table of Contents

 

FREDERICK COUNTY BANCORP, INC. AND SUBSIDIARY

TABLE OF CONTENTS

 

PART I

FINANCIAL INFORMATION

 

Item 1.

Financial Statements (Unaudited)

 

 

 

Consolidated Balance Sheets, September 30, 2010 and December 31, 2009

 

 

 

Consolidated Statements of Income, Three and Nine Months Ended September 30, 2010 and 2009

 

 

 

Consolidated Statements of Changes in Shareholders’ Equity, Three and Nine Months Ended September 30, 2010 and 2009

 

 

 

Consolidated Statements of Cash Flows, Nine Months Ended September 30, 2010 and 2009

 

 

 

Notes to Unaudited Consolidated Financial Statements

 

 

Item 2.

Management’s Discussion and Analysis of Financial Condition and Results of Operations

 

 

Item 3.

Quantitative and Qualitative Disclosures about Market Risk

 

 

Item 4T.

Controls and Procedures

 

 

PART II

OTHER INFORMATION

 

 

Item 1.

Legal Proceedings

 

 

Item 1A.

Risk Factors

 

 

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

 

 

Item 3.

Defaults upon Senior Securities

 

 

Item 4.

Removed and Reserved

 

 

Item 5.

Other Information

 

 

Item 6.

Exhibits

 

 

 

Signatures

 

2



Table of Contents

 

Frederick County Bancorp, Inc. and Subsidiaries

Consolidated Balance Sheets

 

 

 

September 30,

 

December 31,

 

(dollars in thousands)

 

2010

 

2009

 

 

 

(unaudited)

 

 

 

 

 

 

 

 

 

ASSETS

 

 

 

 

 

Cash and due from banks

 

$

1,485

 

$

1,447

 

Federal funds sold

 

1,400

 

938

 

Interest-bearing deposits in other banks

 

26,900

 

9,729

 

Cash and cash equivalents

 

29,785

 

12,114

 

Investment securities available-for-sale at fair value

 

42,015

 

24,077

 

Restricted stock

 

1,521

 

1,566

 

Loans

 

218,602

 

214,943

 

Less: Allowance for loan losses

 

(3,528

)

(3,127

)

Net loans

 

215,074

 

211,816

 

Bank premises and equipment

 

4,964

 

4,997

 

Other assets

 

4,068

 

3,989

 

Total assets

 

$

297,427

 

$

258,559

 

 

 

 

 

 

 

LIABILITIES AND SHAREHOLDERS’ EQUITY

 

 

 

 

 

 

 

 

 

 

 

Liabilities

 

 

 

 

 

Deposits:

 

 

 

 

 

Noninterest-bearing deposits

 

$

40,060

 

$

38,199

 

Interest-bearing deposits

 

216,322

 

181,113

 

Total deposits

 

256,382

 

219,312

 

Short-term borrowings

 

300

 

500

 

Long-term borrowings

 

10,000

 

10,000

 

Junior subordinated debentures

 

6,186

 

6,186

 

Accrued interest and other liabilities

 

1,193

 

811

 

Total liabilities

 

274,061

 

236,809

 

 

 

 

 

 

 

Shareholders’ Equity

 

 

 

 

 

Common stock, per share par value $0.01; 10,000,000 shares authorized; 1,469,364 and 1,461,802 shares issued and outstanding

 

15

 

15

 

Additional paid-in capital

 

15,013

 

14,702

 

Retained earnings

 

7,875

 

6,987

 

Accumulated other comprehensive income

 

463

 

46

 

Total shareholders’ equity

 

23,366

 

21,750

 

Total liabilities and shareholders’ equity

 

$

297,427

 

$

258,559

 

 

The accompanying notes are an integral part of these unaudited consolidated financial statements.

 

3



Table of Contents

 

Frederick County Bancorp, Inc. and Subsidiaries

Consolidated Statements of Income (Unaudited)

 

 

 

Three Months Ended

 

Nine Months Ended

 

(dollars in thousands, except per share amounts)

 

September 30,
2010

 

September 30,
2009

 

September 30,
2010

 

September 30,
2009

 

Interest income:

 

 

 

 

 

 

 

 

 

Interest and fees on loans

 

$

3,392

 

$

3,305

 

$

10,059

 

$

9,748

 

Interest and dividends on investment securities:

 

 

 

 

 

 

 

 

 

Interest — taxable

 

218

 

115

 

491

 

443

 

Interest — tax exempt

 

76

 

58

 

235

 

174

 

Dividends

 

12

 

13

 

37

 

36

 

Interest on federal funds sold

 

1

 

1

 

2

 

2

 

Other interest income

 

18

 

16

 

42

 

37

 

Total interest income

 

3,717

 

3,508

 

10,866

 

10,440

 

Interest expense:

 

 

 

 

 

 

 

 

 

Interest on deposits

 

825

 

1,087

 

2,376

 

3,501

 

Interest on short-term borrowings

 

4

 

3

 

15

 

3

 

Interest on long-term borrowings

 

117

 

117

 

346

 

346

 

Interest on junior subordinated debentures

 

101

 

101

 

303

 

303

 

Total interest expense

 

1,047

 

1,308

 

3,040

 

4,153

 

Net interest income

 

2,670

 

2,200

 

7,826

 

6,287

 

Provision for loan losses

 

410

 

275

 

1,010

 

875

 

Net interest income after provision for loan losses

 

2,260

 

1,925

 

6,816

 

5,412

 

Noninterest income:

 

 

 

 

 

 

 

 

 

Securities gains

 

1

 

 

85

 

117

 

Loss on sale of foreclosed properties

 

 

(5

)

 

(37

)

Service fees

 

100

 

98

 

284

 

267

 

Other operating income

 

49

 

50

 

149

 

155

 

Total noninterest income

 

150

 

143

 

518

 

502

 

Noninterest expense:

 

 

 

 

 

 

 

 

 

Salaries and employee benefits

 

1,201

 

917

 

3,540

 

2,807

 

Occupancy and equipment expenses

 

307

 

318

 

934

 

977

 

Other operating expenses

 

531

 

453

 

1,474

 

1,369

 

Total noninterest expense

 

2,039

 

1,688

 

5,948

 

5,153

 

Income before provision for income taxes

 

371

 

380

 

1,386

 

761

 

Provision for income tax expense

 

129

 

121

 

498

 

218

 

Net income

 

$

242

 

$

259

 

$

888

 

$

543

 

Basic earnings per share

 

$

0.16

 

$

0.18

 

$

0.60

 

$

0.37

 

Diluted earnings per share

 

$

0.16

 

$

0.18

 

$

0.60

 

$

0.37

 

Basic weighted average number of shares outstanding

 

1,473,258

 

1,460,900

 

1,469,011

 

1,460,835

 

Diluted weighted average number of shares outstanding

 

1,488,820

 

1,469,858

 

1,481,562

 

1,475,909

 

 

The accompanying notes are an integral part of these unaudited consolidated financial statements.

 

4



Table of Contents

 

Frederick County Bancorp, Inc. and Subsidiaries

Consolidated Statement of Changes in Shareholders’ Equity (Unaudited)

 

Three Months Ended September 30,

 

(dollars in thousands)

 

Shares
Outstanding

 

Common
Stock

 

Additional
Paid-in

Capital

 

Retained
Earnings

 

Accumulated
Other
Comprehensive
Income
(Loss)

 

Total
Shareholders’
Equity

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance, July 1, 2009

 

1,460,802

 

$

15

 

$

14,690

 

$

6,223

 

$

19

 

$

20,947

 

Comprehensive income:

 

 

 

 

 

 

 

 

 

 

 

 

 

Net income

 

 

 

 

 

 

 

259

 

 

 

259

 

Changes in net unrealized gains (losses) on securities available for sale, net of income taxes of $168

 

 

 

 

 

 

 

 

 

258

 

258

 

Reclassification adjustment for (gains) losses realized, net of income taxes of $46

 

 

 

 

 

 

 

 

 

(71

)

(71

)

Total Comprehensive income

 

 

 

 

 

 

 

 

 

 

 

446

 

Shares issued under stock option transactions

 

1,000

 

 

 

10

 

 

 

 

 

10

 

Balance, September 30, 2009

 

1,461,802

 

$

15

 

$

14,700

 

$

6,482

 

$

206

 

$

21,403

 

Balance, July 1, 2010

 

1,474,482

 

$

15

 

$

15,015

 

$

7,633

 

$

291

 

$

22,954

 

Comprehensive income:

 

 

 

 

 

 

 

 

 

 

 

 

 

Net income

 

 

 

 

 

 

 

242

 

 

 

242

 

Changes in net unrealized gains (losses) on securities available for sale, net of income taxes of $145

 

 

 

 

 

 

 

 

 

223

 

223

 

Reclassification adjustment for (gains) losses realized, net of income taxes of $33

 

 

 

 

 

 

 

 

 

(51

)

(51

)

Total Comprehensive income

 

 

 

 

 

 

 

 

 

 

 

414

 

Shares repurchased under stock repurchase transactions

 

(5,118

)

 

 

(62

)

 

 

 

 

(62

)

Compensation expense from stock option transactions

 

 

 

 

 

51

 

 

 

 

 

51

 

Excess tax benefit from equity-based awards

 

 

 

 

 

9

 

 

 

 

 

9

 

Balance, September 30, 2010

 

1,469,364

 

$

15

 

$

15,013

 

$

7,875

 

$

463

 

$

23,366

 

 

5



Table of Contents

 

Frederick County Bancorp, Inc. and Subsidiaries

Consolidated Statement of Changes in Shareholders’ Equity (Unaudited)

 

Nine Months Ended September 30,

 

(dollars in thousands)

 

Shares
Outstanding

 

Common
Stock

 

Additional
Paid-in

Capital

 

Retained
Earnings

 

Accumulated
Other
Comprehensive
Income
(Loss)

 

Total
Shareholders’
Equity

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance, January 1, 2009

 

1,460,802

 

$

15

 

$

14,690

 

$

5,939

 

$

(32

)

$

20,612

 

Comprehensive income:

 

 

 

 

 

 

 

 

 

 

 

 

 

Net income

 

 

 

 

 

 

 

543

 

 

 

543

 

Changes in net unrealized gains (losses) on securities available for sale, net of income taxes of $201

 

 

 

 

 

 

 

 

 

309

 

309

 

Reclassification adjustment for (gains) losses realized, net of income taxes of $46

 

 

 

 

 

 

 

 

 

(71

)

(71

)

Total Comprehensive income

 

 

 

 

 

 

 

 

 

 

 

781

 

Shares issued under stock option transactions

 

1,000

 

 

 

10

 

 

 

 

 

10

 

Balance, September 30, 2009

 

1,461,802

 

$

15

 

$

14,700

 

$

6,482

 

$

206

 

$

21,403

 

Balance, January 1, 2010

 

1,461,802

 

$

15

 

$

14,702

 

$

6,987

 

$

46

 

$

21,750

 

Comprehensive income:

 

 

 

 

 

 

 

 

 

 

 

 

 

Net income

 

 

 

 

 

 

 

888

 

 

 

888

 

Changes in net unrealized gains (losses) on securities available for sale, net of income taxes of $305

 

 

 

 

 

 

 

 

 

468

 

468

 

Reclassification adjustment for (gains) losses realized, net of income taxes of $33

 

 

 

 

 

 

 

 

 

(51

)

(51

)

Total Comprehensive income

 

 

 

 

 

 

 

 

 

 

 

1,305

 

Shares repurchased under stock repurchase transactions

 

(5,118

)

 

 

(62

)

 

 

 

 

(62

)

Shares issued under stock option transactions

 

12,680

 

 

 

127

 

 

 

 

 

127

 

Compensation expense from stock option transactions

 

 

 

 

 

204

 

 

 

 

 

204

 

Excess tax benefit from equity-based awards

 

 

 

 

 

42

 

 

 

 

 

42

 

Balance, September 30, 2010

 

1,469,364

 

$

15

 

$

15,013

 

$

7,875

 

$

463

 

$

23,366

 

 

6



Table of Contents

 

Frederick County Bancorp, Inc. and Subsidiaries

Consolidated Statements of Cash Flows (Unaudited)

 

 

 

Nine Months Ended September 30,

 

(dollars in thousands)

 

2010

 

2009

 

Cash flows from operating activities:

 

 

 

 

 

Net income

 

$

888

 

$

543

 

Adjustments to reconcile net income to net cash provided by operating activities:

 

 

 

 

 

Depreciation and amortization

 

225

 

245

 

Deferred income benefits

 

(168

)

(10

)

Provision for loan losses

 

1,010

 

875

 

Securities gains

 

(85

)

(117

)

Net premium amortization on investment securities

 

253

 

14

 

Stock option compensation expense

 

204

 

 

Loss on sale of foreclosed properties

 

 

37

 

Decrease in accrued interest and other assets

 

89

 

251

 

Increase (decrease) in accrued interest and other liabilities

 

110

 

(84

)

Net cash provided by operating activities

 

2,526

 

1,754

 

Cash flows from investing activities:

 

 

 

 

 

Purchases of investment securities available for sale

 

(26,881

)

(8,784

)

Proceeds from sales of investment securities available for sale

 

4,195

 

4,115

 

Proceeds from maturities, prepayments and calls investment securities available for sale

 

5,269

 

2,454

 

Net redemptions of restricted stock

 

45

 

33

 

Net increase in loans

 

(4,268

)

(749

)

Purchases of bank premises and equipment

 

(192

)

(70

)

Proceeds from sale of foreclosed properties

 

 

484

 

Net cash used in investing activities

 

(21,832

)

(2,517

)

Cash flows from financing activities:

 

 

 

 

 

Net increase in NOW, money market accounts, savings accounts and noninterest-bearing deposits

 

17,123

 

26,544

 

Net increase (decrease) in time deposits

 

19,947

 

(15,641

)

Net (decrease) increase in short-term borrowings

 

(200

)

500

 

Proceeds from issuance of common stock

 

127

 

10

 

Repurchase of common stock

 

(62

)

 

Excess tax benefit from equity-based awards

 

42

 

 

Net cash provided by financing activities

 

36,977

 

11,413

 

Net increase in cash and cash equivalents

 

17,671

 

10,650

 

Cash and cash equivalents — beginning of period

 

12,114

 

16,055

 

Cash and cash equivalents — end of period

 

$

29,785

 

$

26,705

 

Supplemental cash flow disclosures:

 

 

 

 

 

Interest paid

 

$

3,051

 

$

4,185

 

Income taxes paid

 

$

584

 

$

250

 

Foreclosed properties acquired in settlement of loans

 

$

 

$

654

 

 

The accompanying notes are an integral part of these unaudited consolidated financial statements.

 

7



Table of Contents

 

FREDERICK COUNTY BANCORP, INC.

 

Notes to Unaudited Consolidated Financial Statements

 

Note 1.  General:

 

Frederick County Bancorp, Inc. (the “Bancorp”), the parent company for its wholly-owned subsidiary Frederick County Bank (the “Bank” and together with Bancorp, the “Company”), was organized in September 2003. The Bank was incorporated under the laws of the state of Maryland in August 2000 and commenced banking operations in October 2001.  The Bank provides its customers with various banking services.  The Bank offers various loan and deposit products to its customers.  The Bank’s customers include individuals and commercial enterprises within its principal market area consisting of Frederick County, Maryland.  Additionally, the Bank maintains correspondent banking relationships and transacts daily federal funds sales on an unsecured basis with regional correspondent banks.  Note 4 discusses the types of securities the Bank purchases.  Note 5 discusses the types of lending in which the Bank engages.  The Bank does not have any significant concentrations to any one industry or customer.  Bancorp also has a subsidiary trust, established to issue trust preferred securities, and two subsidiaries established to hold foreclosed properties.  The two subsidiaries established to hold foreclosed properties are known as FCB Holdings, Inc. (a direct subsidiary of Bancorp) and FCB Hagerstown, LLC (an indirect subsidiary of Bancorp).  See Note 7 for additional disclosures related to the subsidiary trust.

 

The accompanying unaudited consolidated financial statements of the Company have been prepared in accordance with accounting principles generally accepted in the United States of America for interim financial information, the instructions for Form 10-Q, Regulation S-X, and general practices within the banking industry.  Accordingly, they do not include all of the information and disclosures required by generally accepted accounting principles for complete financial statements.  These statements should be read in conjunction with the consolidated financial statements and accompanying footnotes included in the Company’s 2009 Annual Report on Form 10-K.  In the opinion of management, all adjustments, consisting of normal recurring adjustments, considered necessary for a fair presentation have been included.  The results shown in this interim report are not necessarily indicative of results to be expected for any other period or for the full year ending December 31, 2010.

 

The preparation of financial statements requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period.  These estimates and assumptions are based on information available as of the date of the consolidated financial statements and could differ from actual results.

 

Recent Accounting Pronouncements

 

In June 2009, the Financial Accounting Standards Board (“FASB”) issued new guidance under ASC Topic 860 Transfers and Servicing, also known as Accounting Standards Update (“ASU”) 2009-16, for guidance on the transfer and servicing of financial assets.  This guidance eliminates the concept of a “qualifying special-purpose entity” from the original accounting guidance and removes the exception from applying FASB guidance on consolidation of variable interest entities, to qualifying special-purpose entities.  This guidance is effective at the beginning of a reporting entity’s first fiscal year that begins after November 15, 2009.  The Company adopted this guidance on January 1, 2010 and it did not have a material impact on the Company’s consolidated financial condition or results of operations.

 

In June 2009, the FASB issued new guidance under ASC Topic 810 Consolidation, also known as ASU 2009-17, for guidance on the consolidation of variable interest entities.  This amends the original guidance, to require an enterprise to perform an analysis to determine whether the enterprise’s variable interest or interests give it a controlling financial interest in a variable interest entity (VIE).  This analysis identifies the primary beneficiary of a VIE as the enterprise that has both (a) the power to direct the activities of a VIE that most significantly impact the entity’s economic performance, and (b) the obligation to absorb losses of the entity that could potentially be significant to the VIE.  Additionally, this new guidance requires an enterprise to assess whether it has an implicit financial responsibility to ensure that a VIE operates as designed when determining it has the power to direct the activities of the VIE that most significantly impact the entity’s economic performance.  It is effective at the beginning of a company’s first fiscal year that begins after November 15, 2009.  The Company adopted this guidance on January 1, 2010 and it did not have a material impact on the Company’s consolidated financial condition or results of operations.

 

In January 2010, the FASB issued new guidance under ASC Topic 820 Fair Value Measurements and Disclosures, also known as ASU 2010-06, to improve disclosures about fair value measurements.  The guidance requires entities to disclose separately the amounts of significant transfers in and out of Level 1 and Level 2 fair value measurements and describe the reasons for the same.  It also requires Level 3 reconciliation to be presented on a gross basis disclosing purchases, sales, issuances and settlements separately.  The guidance is effective for interim and annual financial periods beginning after December 15, 2009 except for gross basis presentation for Level 3 reconciliation, which is effective for interim and annual periods beginning after December 15, 2010.  The disclosure requirements effective for interim and annual financial periods beginning after December 15, 2009 have been adopted for

 

8



Table of Contents

 

the interim period ended March 31, 2010.

 

9



Table of Contents

 

In July 2010, the FASB issued new guidance under ASC Topic Receivables - Disclosures about the Credit Quality of Financing Receivables and the Allowance for Credit Losses” also known as ASU 2010-20.  The guidance requires entities to provide disclosures designed to facilitate financial statement users’ evaluation of (i) the nature of credit risk inherent in the entity’s portfolio of financing receivables, (ii) how that risk is analyzed and assessed in arriving at the allowance for credit losses and (iii) the changes and reasons for those changes in the allowance for credit losses.  Disclosures must be disaggregated by portfolio segment, the level at which an entity develops and documents a systematic method for determining its allowance for credit losses, and class of financing receivable, which is generally a disaggregation of portfolio segment.  The required disclosures include, among other things, a roll forward of the allowance for credit losses as well as information about modified, impaired, non-accrual and past due loans and credit quality indicators.  ASU 2010-20 will be effective for the Company’s financial statements as of December 31, 2010, as it relates to disclosures required as of the end of a reporting period.  Disclosures that relate to activity during a reporting period will be required for the Company’s financial statements that include periods beginning on or after January 1, 2011.

 

Note 2. Earnings Per Share:

 

Earnings per share (“EPS”) are disclosed as basic and diluted.  Basic EPS is generally computed by dividing net income by the weighted-average number of common shares outstanding for the period, whereas diluted EPS essentially reflects the potential dilution in basic EPS that could occur if other contracts to issue common stock were exercised.

 

 

 

Three Months Ended
September 30,

 

Nine Months Ended
September 30,

 

(dollars in thousands, except per share amounts)

 

2010

 

2009

 

2010

 

2009

 

Net income

 

$

242

 

$

259

 

$

888

 

$

543

 

Basic earnings per share

 

$

0.16

 

$

0.18

 

$

0.60

 

$

0.37

 

Diluted earnings per share

 

$

0.16

 

$

0.18

 

$

0.60

 

$

0.37

 

Basic weighted average number of shares outstanding

 

1,473,258

 

1,460,900

 

1,469,011

 

1,460,835

 

Effect of dilutive securities — stock options

 

15,562

 

8,958

 

12,551

 

15,074

 

Diluted weighted average number of shares outstanding

 

1,488,820

 

1,469,858

 

1,481,562

 

1,475,909

 

Anti-dilutive securities outstanding

 

118,700

 

 

121,700

 

 

 

Note 3.  Employee Stock Option Plan:

 

The Company maintains an Employee Stock Option Plan that provides for grants of incentive and non-incentive stock options.  This plan has been presented to and approved by the Company’s shareholders.  There were 118,700 stock options granted in April 2010 and 3,000 stock options granted in December 2009.  All prior grants were fully vested and exercisable as of December 31, 2003.  The Company recognizes the cost of employee services received in exchange for an award of equity investment based on the grant-date fair value of the award.  That cost is recognized over the vesting period of the award.  Stock-based compensation expense related to stock options for the three and nine-month periods ended September 30, 2010 was $51 thousand and $204 thousand, respectively, whereas, no stock-based compensation was recognized in either the three or nine-month periods ended September 30, 2009.  As of September 30, 2010, there was $179 thousand of total unrecognized compensation cost related to non-vested stock options that will be expensed over the period October 1, 2010 through April 30, 2012.

 

The weighted-average fair value of options granted in the nine months ended September 30, 2010 and the year ended December 31, 2009 was $3.17 and $2.97, respectively, and was estimated at the date of grant using the Black-Scholes Option Pricing Model with the following weighted average assumptions.

 

 

 

September 30,

 

December 31,

 

 

 

2010

 

2009

 

Risk free interest rate of return

 

3.80

%

3.85

%

Expected option life (months)

 

60

 

120

 

Expected volatility

 

25

%

25

%

Expected dividends

 

%

2.50

%

 

The risk-free interest rate is based on the U.S. Treasury yield curve in effect at the time of the grant.  The expected life is based on historical experience.  The expected volatility is based on historic volatility.  The dividend yield assumption is based on the Company’s expectation of dividend payouts.

 

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The following is a summary of stock option transactions during the nine months ended September 30, 2010.

 

 

 

Options Issued
and Outstanding

 

Weighted-Average
Exercise Price

 

Balance at January 1, 2010

 

129,810

 

$

10.02

 

Exercised

 

12,680

 

10.00

 

Granted

 

118,700

 

11.35

 

Balance at September 30 , 2010

 

235,830

 

$

10.57

 

Exercisable at September 30, 2010

 

150,640

 

$

10.32

 

 

Note 4.  Investment Portfolio:

 

The following tables set forth certain information regarding the Company’s investment portfolio at September 30, 2010 and December 31, 2009:

 

Available-for-sale portfolio

 

September 30, 2010

 

(dollars in thousands)

 

Amortized
Cost

 

Gross
Unrealized
Gains

 

Gross
Unrealized
Losses

 

Estimated
Fair
Value

 

Average
Yield

 

U.S. Treasury and other U.S. government agencies and corporations:

 

 

 

 

 

 

 

 

 

 

 

Due after one year through five years

 

$

431

 

$

27

 

$

 

$

458

 

4.82

%

Due after five years through ten years

 

872

 

30

 

 

902

 

2.82

%

 

 

1,303

 

57

 

 

1,360

 

 

 

State and political subdivisions:

 

 

 

 

 

 

 

 

 

 

 

Due after five years through ten years

 

2,095

 

52

 

 

2,147

 

5.36

%

Due after ten years

 

7,007

 

285

 

 

7,292

 

5.74

%

 

 

9,102

 

337

 

 

9,439

 

 

 

Mortgage-backed debt securities

 

30,545

 

418

 

47

 

30,916

 

3.08

%

Equity securities

 

300

 

 

 

300

 

%

 

 

$

41,250

 

$

812

 

$

47

 

$

42,015

 

3.64

%

 

December 31, 2009

 

(dollars in thousands)

 

Amortized
Cost

 

Gross
Unrealized
Gains

 

Gross
Unrealized
Losses

 

Estimated
Fair
Value

 

Average
Yield

 

U.S. Treasury and other U.S. government agencies and corporations:

 

 

 

 

 

 

 

 

 

 

 

Due within one year

 

$

490

 

$

3

 

$

 

$

493

 

4.46

%

Due after one year through five years

 

1,391

 

29

 

5

 

1,415

 

4.03

%

Due after five years through ten years

 

497

 

29

 

 

526

 

5.00

%

 

 

2,378

 

61

 

5

 

2,434

 

 

 

State and political subdivisions:

 

 

 

 

 

 

 

 

 

 

 

Due after five years through ten years

 

910

 

2

 

3

 

909

 

5.47

%

Due after ten years

 

6,935

 

35

 

28

 

6,942

 

5.90

%

 

 

7,845

 

37

 

31

 

7,851

 

 

 

Mortgage-backed debt securities

 

13,478

 

83

 

69

 

13,492

 

3.63

%

Equity securities

 

300

 

 

 

300

 

%

 

 

$

24,001

 

$

181

 

$

105

 

$

24,077

 

4.38

%

 

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Continuous unrealized
losses existing for less than
12 months

 

Continuous unrealized
losses existing for 12
months and greater

 

Total

 

September 30, 2010
(dollars in thousands)

 

Estimated
Fair

Value

 

Unrealized
Losses

 

Estimated
Fair

Value

 

Unrealized
Losses

 

Estimated
Fair

Value

 

Unrealized
Losses

 

Mortgage-backed debt securities

 

$

8,678

 

$

47

 

$

 

$

 

$

8,678

 

$

47

 

Total temporarily impaired securities

 

$

8,678

 

$

47

 

$

 

$

 

$

8,678

 

$

47

 

 

 

 

Continuous unrealized
losses existing for less than
12 months

 

Continuous unrealized
losses existing for 12
months and greater

 

Total

 

December 31, 2009
(dollars in thousands)

 

Estimated
Fair

Value

 

Unrealized
Losses

 

Estimated
Fair

Value

 

Unrealized
Losses

 

Estimated
Fair

Value

 

Unrealized
Losses

 

U.S. Treasury and other U.S. government agencies and corporations

 

$

870

 

$

5

 

$

 

$

 

$

870

 

$

5

 

State and political subdivisions

 

4,112

 

28

 

152

 

3

 

4,264

 

31

 

Mortgage-backed debt securities

 

7,233

 

69

 

 

 

7,233

 

69

 

Total temporarily impaired securities

 

$

12,215

 

$

102

 

$

152

 

$

3

 

$

12,367

 

$

105

 

 

Management systematically evaluates investment securities for other-than-temporary declines in fair value on a quarterly basis.  This analysis requires management to consider various factors, which include (1) duration and magnitude of the decline in value, (2) the financial condition of the issuer or issuers and (3) the structure of the security. An impairment loss is recognized in earnings only when: (1) we intend to sell the debt security; (2) it is more likely than not that we will be required to sell the security before recovery of its amortized cost basis; or (3) we do not expect to recover the entire amortized cost basis of the security.  In situations where we intend to sell or when it is more likely than not that we will be required to sell the security, the entire impairment loss must be recognized in earnings.  In all other situations, only the portion of the impairment loss representing the credit loss must be recognized in earnings, with the remaining portion being recognized in shareholders’ equity as a component of other comprehensive income, net of deferred taxes.  Credit loss is determined by calculating the present value of future cash flows of the security compared to the amortized cost of the security.  Realized gains or losses on the sale of investment and mortgage-backed securities are reported in earnings and determined using the amortized cost of the specific security sold.

 

Restricted Stock

 

The following table shows the amounts of restricted stock as of September 30, 2010 and December 31, 2009:

 

 

 

September 30,

 

December 31,

 

(dollars in thousands)

 

2010

 

2009

 

Federal Home Loan Bank of Atlanta

 

$

907

 

$

952

 

Federal Reserve Bank

 

574

 

574

 

Atlantic Central Bankers Bank

 

40

 

40

 

 

 

$

1,521

 

$

1,566

 

 

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Note 5.  Loans and Allowance for Loan Losses:

 

Loans consist of the following:

 

 

 

September 30,

 

% of

 

December 31,

 

% of

 

(dollars in thousands)

 

2010

 

Loans

 

2009

 

Loans

 

Real estate loans:

 

 

 

 

 

 

 

 

 

Construction and land development

 

$

22,050

 

10

%

$

15,726

 

7

%

Mortgage loans:

 

 

 

 

 

 

 

 

 

Secured by 1 to 4 family residential properties

 

38,176

 

17

%

36,369

 

17

%

Secured by multi-family (5 or more) residential properties

 

11,615

 

5

%

12,348

 

6

%

Secured by commercial properties

 

109,109

 

50

%

106,378

 

49

%

Secured by farm land

 

7,827

 

4

%

6,995

 

3

%

Total mortgage loans

 

166,727

 

76

%

162,090

 

75

%

Loans to farmers

 

76

 

%

46

 

%

Commercial and industrial loans

 

28,040

 

13

%

35,351

 

17

%

Loans to individuals for household, family and other personal expenditures

 

1,709

 

1

%

1,730

 

1

%

 

 

218,602

 

100

%

214,943

 

100

%

Less allowance for loan losses

 

(3,528

)

 

 

(3,127

)

 

 

Net loans

 

$

215,074

 

 

 

$

211,816

 

 

 

 

Transactions in the allowance for loan losses are summarized as follows:

 

 

 

Three Months Ended
September 30,

 

Nine Months Ended
September 30,

 

(dollars in thousands)

 

2010

 

2009

 

2010

 

2009

 

Average total loans outstanding during period

 

$

218,681

 

$

208,906

 

$

216,775

 

$

209,434

 

Balance at beginning of period

 

$

3,139

 

$

3,038

 

$

3,127

 

$

3,120

 

Recoveries of loans previously charged-off

 

82

 

 

86

 

4

 

Loans charged-off (construction)

 

(103

)

 

(103

)

 

Loans charged-off (commercial and industrial)

 

 

(72

)

 

(298

)

Loans charged-off (commercial real estate)

 

 

(31

)

(500

)

(479

)

Loans charged-off (residential real estate)

 

 

 

(92

)

 

Loans charged-off (consumer)

 

 

 

 

(12

)

Net charge-offs

 

(21

)

(103

)

(609

)

(785

)

Provision charged to operating expenses

 

410

 

275

 

1,010

 

875

 

Balance at end of period

 

$

3,528

 

$

3,210

 

$

3,528

 

$

3,210

 

Ratios of net charge-offs to average loans

 

0.01

%

0.05

%

0.28

%

0.37

%

 

The Company’s charge-off policy states after all collection efforts have been exhausted and the loan is deemed to be a loss, it will be charged to the Company’s established allowance for loan losses.  Consumer loans subject to the Uniform Retail Credit Classification are charged-off as follows (a) closed end loans are charged-off no later than 120 days after becoming delinquent, (b) consumer loans to borrowers who subsequently declare bankruptcy, where the Company is an unsecured creditor, are charged-off within 60 days of receipt of the notification from the bankruptcy court, (c) fraudulent loans are charged-off within 90 days of discovery and (d) death of a borrower will cause a charge-off to be incurred at such time an actual loss is determined.  All other types of loans are generally evaluated for loss potential at the 90th day past due threshold, and any loss is recognized no later than the 120th day past due threshold; each loss is evaluated on its specific facts regarding the appropriate timing to recognize the loss.

 

The Company does not normally engage in partial charge-offs and has not incurred any in the nine months ended September 30, 2010.

 

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Note 6.   Deposits

 

The following table provides a summary of the Company’s deposit base at the dates indicated.

 

 

 

September 30,

 

December 31,

 

(dollars in thousands)

 

2010

 

2009

 

Noninterest-bearing demand deposits

 

$

40,060

 

$

38,199

 

Interest-bearing demand deposits:

 

 

 

 

 

NOW accounts

 

14,974

 

12,366

 

Money market accounts

 

67,149

 

54,886

 

Savings accounts

 

5,226

 

4,835

 

Certificates of deposit:

 

 

 

 

 

$100,000 or more

 

53,977

 

42,752

 

Less than $100,000

 

74,996

 

66,274

 

Total deposits

 

$

256,382

 

$

219,312

 

 

Note 7. Trust preferred securities/junior subordinated debentures and other long-term borrowings:

 

In December 2006, Bancorp completed the private placement of an aggregate of $6,000,000 of trust preferred securities through FCBI Statutory Trust I (the “Trust”), a newly formed trust subsidiary organized under Connecticut law, of which Bancorp owns all of the common securities of $186 thousand. The principal asset of the Trust is a similar amount of Bancorp’s junior subordinated debentures. The junior subordinated debentures bear interest at a fixed rate of 6.5375% until December 15, 2011, at which time the interest rate becomes a variable rate, adjusted quarterly, equal to 163 basis points over three-month LIBOR. The junior subordinated debentures mature on December 15, 2036, and may be redeemed at par, at Bancorp’s option, on any interest payment date commencing December 15, 2011. The securities are redeemable prior to December 15, 2011, at a premium ranging up to 103.525% of the principal amount thereof, upon the occurrence of certain regulatory or legal events. The obligations of Bancorp with respect to the Trust’s preferred securities constitute a full and unconditional guarantee by Bancorp of Trust’s obligations with respect to the trust preferred securities to the extent set forth in the related guarantee. Subject to certain exceptions and limitations, Bancorp may elect from time to time to defer interest payments on the junior subordinated debentures, resulting in a deferral of distribution payments on the related trust preferred securities.   If the Company defers interest payments on the junior subordinated debentures, or otherwise is in default of the obligations, the Company would be prohibited from making dividend payments to its shareholders.

 

The trust preferred securities may be included in Tier 1 capital for regulatory capital adequacy purposes up to 25% of Tier 1 capital, net of goodwill after its inclusion. The portion of the trust preferred securities not qualifying as Tier 1 capital may be included as part of total qualifying capital in Tier 2 capital, subject to limitation.

 

At September 30, 2010 and December 31, 2009, the Company had $10,000,000 in borrowings under its credit facility from the Federal Home Loan Bank of Atlanta (“FHLB”).  Both are in the amount of $5,000,000 with the first being a 4.56% fixed rate advance that matures on April 27, 2012 and the second being a 4.56% convertible advance with a maturity date of September 4, 2012, unless called on September 4, 2010 by the FHLB.  Outstanding advances are secured by collateral consisting of a blanket lien on qualifying loans in the Bank’s residential mortgage loan portfolio and certain commercial real estate loans.

 

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Note 8.  Noninterest Expense:

 

Noninterest expense consists of the following:

 

 

 

Three Months Ended
September 30, 2010

 

Nine Months Ended
September 30, 1010

 

(dollars in thousands)

 

2010

 

2009

 

2010

 

2009

 

 

 

 

 

 

 

 

 

 

 

Salaries

 

$

1,027

 

$

817

 

$

3,005

 

$

2,445

 

Bonus

 

 

 

5

 

 

Deferred Personnel Costs

 

(11

)

(20

)

(45

)

(53

)

Payroll Taxes

 

65

 

54

 

210

 

179

 

Employee Insurance

 

69

 

55

 

207

 

173

 

Other Employee Benefits

 

51

 

11

 

158

 

63

 

Depreciation

 

74

 

80

 

226

 

245

 

Rent

 

100

 

96

 

300

 

290

 

Utilities

 

22

 

24

 

76

 

77

 

Repairs and Maintenance

 

52

 

59

 

160

 

183

 

ATM Expense

 

21

 

25

 

66

 

79

 

Other Occupancy and Equipment Expenses

 

38

 

34

 

106

 

103

 

Postage and Supplies

 

16

 

17

 

47

 

50

 

Data Processing

 

90

 

102

 

276

 

310

 

Advertising and Promotion

 

46

 

50

 

188

 

122

 

FDIC insurance

 

100

 

80

 

274

 

321

 

Legal

 

24

 

6

 

46

 

23

 

Insurance

 

16

 

13

 

44

 

34

 

Consulting

 

8

 

2

 

17

 

19

 

Courier

 

4

 

4

 

13

 

12

 

Audit Fees

 

48

 

45

 

144

 

141

 

Other

 

179

 

134

 

425

 

337

 

 

 

$

2,039

 

$

1,688

 

$

5,948

 

$

5,153

 

 

Note 9.  401(k) Profit Sharing Plan:

 

The Company has a Section 401(k) profit sharing plan covering employees meeting certain eligibility requirements as to minimum age and years of service.  Employees may make voluntary contributions to the Plan through payroll deductions on a pre-tax basis.  The Company has the discretion to make matching contributions of 100% of the employee’s contributions up to 4% of the employee’s salary.  A participant’s account under the Plan, together with investment earnings thereon, is normally distributable, following retirement, death, disability or other termination of employment, in a single lump-sum payment.

 

The Company made matching contributions of $42 thousand for the three months ended September 30, 2010, but no matching contributions for the same period in 2009.  For the nine months ended September 30, 2010 and 2009, the Company made matching contributions of $126 thousand and $30 thousand, respectively.

 

Note 10.  Shareholders’ Equity:

 

Capital:

 

The Company and the Bank are subject to various regulatory capital requirements administered by the federal banking agencies.  Failure to meet minimum capital requirements can initiate certain mandatory - and possibly additional discretionary - actions by regulators that, if undertaken, could have a direct material effect on the Company’s consolidated financial statements.  Under capital adequacy guidelines and the regulatory framework for prompt corrective action, the Company, once it exceeds $500 million in assets, and the Bank must meet specific capital guidelines that involve quantitative measures of the Company’s and the Bank’s assets, liabilities, and certain off-balance-sheet items as calculated under regulatory accounting practices.  The Company’s and the Bank’s capital amounts and classification are also subject to qualitative judgments by the regulators about components, risk weightings, and other factors.

 

Quantitative measures established by regulation to ensure capital adequacy require the Company and the Bank to maintain minimum amounts and ratios (set forth in the following table) of total and Tier 1 capital (as defined in the regulations) to risk-weighted assets (as defined), and Tier 1 capital (as defined) to average assets (as defined).  Management believes that the Company and the Bank met all

 

15



Table of Contents

 

capital adequacy requirements to which they are subject as of September 30, 2010.

 

As of September 30, 2010, the most recent notification from the regulatory agency categorized the Bank as well capitalized under the regulatory framework for prompt corrective action.  To be categorized as well capitalized the Bank must maintain minimum total risk-based, Tier 1 risk-based, and Tier 1 leverage ratios as set forth in the table.  There are no conditions or events since that notification which management believes have changed the Bank’s category.

 

The Company’s and the Bank’s actual capital amounts and ratios at September 30, 2010 and December 31, 2009 are presented in the following tables.

 

 

 

 

 

 

 

 

 

 

 

Minimum To Be Well

 

 

 

 

 

 

 

 

 

 

 

Capitalized Under

 

 

 

 

 

 

 

For Capital

 

Prompt Corrective

 

September 30, 2010

 

Actual

 

Adequacy Purposes

 

Action Provisions

 

(dollars in thousands)

 

Amount

 

Ratio

 

Amount

 

Ratio

 

Amount

 

Ratio

 

Tier 1 Capital

 

 

 

 

 

 

 

 

 

 

 

 

 

To Risk-Weighted Assets

 

 

 

 

 

 

 

 

 

 

 

 

 

Company

 

$

28,903

 

12.33

%

$

9,376

 

4.00

%

N/A

 

N/A

 

Bank

 

$

28,085

 

12.03

%

$

9,336

 

4.00

%

$

14,004

 

6.00

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total Capital

 

 

 

 

 

 

 

 

 

 

 

 

 

To Risk-Weighted Assets

 

 

 

 

 

 

 

 

 

 

 

 

 

Company

 

$

31,840

 

13.58

%

$

18,752

 

8.00

%

N/A

 

N/A

 

Bank

 

$

31,010

 

13.29

%

$

18,672

 

8.00

%

$

23,340

 

10.00

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Tier 1 Capital

 

 

 

 

 

 

 

 

 

 

 

 

 

To Average Assets

 

 

 

 

 

 

 

 

 

 

 

 

 

Company

 

$

28,903

 

9.69

%

$

11,927

 

4.00

%

N/A

 

N/A

 

Bank

 

$

28,085

 

9.46

%

$

11,881

 

4.00

%

$

14,851

 

5.00

%

 

 

 

 

 

 

 

 

 

 

 

Minimum To Be Well

 

 

 

 

 

 

 

 

 

 

 

Capitalized Under

 

 

 

 

 

 

 

For Capital

 

Prompt Corrective

 

December 31, 2009

 

Actual

 

Adequacy Purposes

 

Action Provisions

 

(dollars in thousands)

 

Amount

 

Ratio

 

Amount

 

Ratio

 

Amount

 

Ratio

 

Tier 1 Capital

 

 

 

 

 

 

 

 

 

 

 

 

 

To Risk-Weighted Assets

 

 

 

 

 

 

 

 

 

 

 

 

 

Company

 

$

27,704

 

11.81

%

$

9,384

 

4.00

%

N/A

 

N/A

 

Bank

 

$

26,987

 

11.55

%

$

9,344

 

4.00

%

$

14,016

 

6.00

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total Capital

 

 

 

 

 

 

 

 

 

 

 

 

 

To Risk-Weighted Assets

 

 

 

 

 

 

 

 

 

 

 

 

 

Company

 

$

30,636

 

13.06

%

$

18,767

 

8.00

%

N/A

 

N/A

 

Bank

 

$

29,907

 

12.80

%

$

18,688

 

8.00

%

$

23,360

 

10.00

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Tier 1 Capital

 

 

 

 

 

 

 

 

 

 

 

 

 

To Average Assets

 

 

 

 

 

 

 

 

 

 

 

 

 

Company

 

$

27,704

 

10.53

%

$

10,522

 

4.00

%

N/A

 

N/A

 

Bank

 

$

26,987

 

10.24

%

$

10,545

 

4.00

%

$

13,181

 

5.00

%

 

On June 26, 2007, the Company authorized the repurchase of up to 146,000 shares of its common stock, for an aggregate expenditure of not more than $4.5 million, through September 30, 2012, or earlier termination of the program by the Board of Directors.  Repurchases, if any, by the Company pursuant to this authorization are expected to enable the Company to repurchase its shares at an attractive price, and to provide a source of liquidity for the Company’s shares.  As of September 30, 2010, there have been 5,118 shares repurchased by the Company at an average price of $12.10.

 

Note 11.  Fair Value Measurements

 

The Company follows the guidance issued by the FASB under ASC Topic 825 Financial Instruments regarding fair value

 

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measurements and disclosures topic.  This guidance permits entities to measure many financial instruments and certain other items at fair value.  The objective is to improve financial reporting by providing entities with the opportunity to mitigate volatility in reported earnings caused by measuring related assets and liabilities differently without having to apply complex hedge accounting provisions.  The election to use the fair value option is available when an entity first recognizes a financial asset or financial liability or upon entering into a Company commitment.  Subsequent changes must be recorded in earnings.  The Company has yet to apply the fair value option to any assets or liabilities.  This guidance clarifies that fair value is an exit price, representing the amount that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants.  Under this guidance, fair value measurements are not adjusted for transaction costs.  This guidance establishes a fair value hierarchy that prioritizes the inputs to valuation techniques used to measure fair value.  The hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (Level 1 measurements) and the lowest priority to unobservable inputs (Level 3 measurements).  The three levels of the fair value hierarchy under this guidance are described below.

 

Level 1

 

Valuations for assets and liabilities traded in active exchange markets.  Valuations are obtained from readily available pricing sources for market transactions involving identical assets or liabilities.

 

 

 

Level 2

 

Valuations for assets and liabilities traded in less active dealer or broker markets.  Valuations are obtained from third party pricing services for identical or comparable assets or liabilities which use observable inputs other than Level 1 prices, such as quoted prices for similar assets or liabilities; quoted prices in active 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.

 

A financial instrument’s level within the fair value hierarchy is based on the lowest level of input that is significant to the fair value measurement.

 

The types of instruments valued based on quoted market prices in active markets include most U.S. government and agency securities, liquid mortgage products, active listed equities and most money market securities.  Such instruments are generally classified within Level 1 or Level 2 of the fair value hierarchy.  As required by fair value measurement and disclosures guidance, the Company does not adjust the quoted price for such instruments.

 

The types of instruments valued based on quoted prices in markets that are not active, broker or dealer quotations, or alternative pricing sources with reasonable levels of price transparency include most investment-grade and high-yield corporate bonds, less liquid mortgage products, less liquid equities, state, municipal and provincial obligations.  Such instruments are generally classified within Level 2 of the fair value hierarchy.

 

Level 3 is for positions that are not traded in active markets or are subject to transfer restrictions, valuations are adjusted to reflect illiquidity and/or non-transferability, and such adjustments are generally based on available market evidence.  In the absence of such evidence, management’s best estimate is used.

 

Impaired loans are evaluated and valued at the time the loan is identified as impaired, at the lower of cost or market value.  Market value is measured based on the value of the collateral securing these loans and is classified at a Level 3 in the fair value hierarchy.  Collateral may be real estate and/or business assets including equipment, inventory and/or accounts receivable.  The value of real estate collateral is determined based on appraisal by qualified licensed appraisers hired by the Company.  The value of business equipment, inventory and accounts receivable collateral is based on the net book value on the business’ financial statements and, if necessary, discounted based on management’s review and analysis.  Appraised and reported values may be discounted based on management’s historical knowledge, changes in market conditions from the time of valuation, and/or management’s expertise and knowledge of the client and client’s business.  Impaired loans are reviewed and evaluated on at least a quarterly basis for additional impairment and adjusted accordingly, based on the same factors identified above.

 

The following table sets forth the Company’s financial assets and liabilities that were accounted for or disclosed at fair value on a recurring basis as of September 30, 2010.

 

 

 

 

 

 

 

Significant

 

 

 

 

 

Carrying

 

 

 

Other

 

Significant

 

 

 

Value

 

Quoted

 

Observable

 

Unobservable

 

 

 

(Fair

 

Prices

 

Inputs

 

Inputs

 

(dollars in thousands)

 

Value)

 

(Level 1)

 

(Level 2)

 

(Level 3)

 

Securities available for sale

 

$

42,015

 

$

 

$

42,015

 

$

 

 

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Table of Contents

 

The following table sets forth the Company’s financial assets and liabilities that were accounted for or disclosed at fair value on a nonrecurring basis as of September 30, 2010.

 

 

 

 

 

 

 

Significant

 

 

 

 

 

Carrying

 

 

 

Other

 

Significant

 

 

 

Value

 

Quoted

 

Observable

 

Unobservable

 

 

 

(Fair

 

Prices

 

Inputs

 

Inputs

 

(dollars in thousands)

 

Value)

 

(Level 1)

 

(Level 2)

 

(Level 3)

 

Impaired loans:

 

 

 

 

 

 

 

 

 

Construction

 

$

2,275

 

$

 

$

 

$

2,275

 

Commercial real estate

 

11,122

 

 

 

11,122

 

Commercial and industrial

 

4,547

 

 

 

4,547

 

Residential real estate

 

717

 

 

 

717

 

Total impaired loans

 

$

18,661

 

$

 

$

 

$

18,661

 

Foreclosed properties

 

$

495

 

$

 

$

 

$

495

 

 

The following table provides a reconciliat