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Table of Contents

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

 

FORM 10-Q

 

 

Quarterly Report pursuant to Section 13 or 15(d) of

the Securities Exchange Act of 1934

for the quarterly period ended June 30, 2011

Commission File No. – 000-49787

 

 

BOTETOURT BANKSHARES, INC.

(Exact name of the registrant as specified in its charter)

 

 

 

Virginia   54-1867438

(State or other jurisdiction of

incorporation or organization)

 

(I.R.S. Employer

Identification No.)

19747 Main Street, Buchanan, VA 24066

(Address of principal executive offices)

(540) 591-5000

(Registrant’s telephone number, including area code)

 

 

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

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).    Yes  x    No  ¨

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

 

Large accelerated filer   ¨    Accelerated filer   ¨
Non-accelerated filer   ¨  (Do not check if a smaller reporting company)    Smaller reporting company   x

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

The number of shares outstanding of the Registrant’s Common Stock, $1 Par Value, as of August 9, 2011 was 1,251,922.

 

 

 


Table of Contents

Botetourt Bankshares, Inc.

Form 10-Q

Index

 

 

 

Part I Financial Information   
Item 1.    Financial Statements   

The consolidated financial statements of Botetourt Bankshares, Inc. (the “Company”) are set forth in the following pages.

  

Consolidated Balance Sheets as of June 30, 2011 and December 31, 2010

     2   

Consolidated Statements of Operations for the Six and Three Months Ended June 30, 2011 and 2010

     3   

Consolidated Statements of Cash Flows for the Six Months Ended June 30, 2011 and 2010

     4   

Notes to Consolidated Financial Statements

     5-18   
Item 2.    Management’s Discussion and Analysis of Financial Condition and Results of Operations      19-23   
Item 3.    Quantitative and Qualitative Disclosures About Market Risk      23   
Item 4.    Controls and Procedures      23   
Part II Other Information   
Item 1.    Legal Proceedings      24   
Item 1A.    Risk Factors      24   
Item 2.    Unregistered Sales of Equity Securities and Use of Proceeds      24   
Item 3.    Defaults Upon Senior Securities      24   
Item 4.    (Removed and Reserved)      24   
Item 5.    Other Information      24   
Item 6.    Exhibits      24-25   
Signatures      26   
Certifications      27   


Table of Contents

Cautionary Statement Regarding Forward-Looking Statements

Certain information in this report may include “forward-looking statements” as defined by federal securities law. These forward-looking statements contain the Company’s expectations, plans, future financial performance, and other statements that are not historical facts. Although the Company believes that its assumptions regarding these forward-looking statements are based on reasonable assumptions, actual results could differ materially. The forward-looking statements involve known and unknown risks including, but not limited to, the following factors:

 

   

Changes in general local, regional and national economic and business conditions in the Company’s market area, including downturns in certain industries

 

   

Competitive pressures limiting the ability to continue to attract low cost core deposits to fund asset growth

 

   

Changes in banking laws, compliance, and the regulatory climate of the Company

 

   

Changes in interest rates and the management of interest rate risk

 

   

Demand for banking services, both lending and deposit products, in our market area

 

   

Risks inherent in making loans such as repayment risks and fluctuating collateral values

 

   

Changes in loan quality, delinquencies and defaults by our borrowers

 

   

Further decline in the market value of real estate in the Company’s markets

 

   

Attraction and retention of key personnel, including the Company’s management team

 

   

Changes in technology, product delivery channels, and end user demands and acceptance

 

   

Changes in consumer spending, borrowings, and savings habits

 

   

The soundness of other financial institutions

 

   

Government intervention in the U.S. financial system

 

   

Changes in accounting principles, policies, and guidelines

These risks and inherent uncertainties should be considered in evaluating forward-looking statements contained in this report. We caution readers not to place undue reliance on those statements, which are specific as of the date of the report.


Table of Contents

 

Part I. Financial Information

Item 1. Financial Statements

Botetourt Bankshares, Inc.

Consolidated Balance Sheets

June 30, 2011 and December 31, 2010

 

 

 

     (Unaudited)
June  30,

2011
    (Audited)
December 31,
2010
 

Assets

    

Cash and due from banks

   $ 7,202,071      $ 6,232,356   

Interest-bearing deposits with banks

     22,215,351        12,190,985   

Federal funds sold

     1,178,000        1,728,000   
  

 

 

   

 

 

 

Total cash and cash equivalents

     30,595,422        20,151,341   

Time deposits with banks

     250,000        500,000   

Investment securities available for sale

     13,714,252        15,042,933   

Investment securities held to maturity (fair value approximates $100,000 in 2010)

     —          100,000   

Restricted equity securities

     558,700        581,000   

Loans, net of allowance for loan losses of $6,792,836 at June 30, 2011 and $5,147,790 at December 31, 2010

     251,582,538        257,557,882   

Property and equipment, net

     7,478,326        7,661,323   

Accrued income

     1,170,886        1,338,662   

Foreclosed assets

     4,224,850        1,850,665   

Other assets

     5,201,548        4,700,925   
  

 

 

   

 

 

 

Total assets

   $ 314,776,522      $ 309,484,731   
  

 

 

   

 

 

 

Liabilities and Stockholders’ Equity

    

Liabilities

    

Noninterest-bearing deposits

   $ 36,220,275      $ 33,006,463   

Interest-bearing deposits

     251,539,441        248,041,302   
  

 

 

   

 

 

 

Total deposits

     287,759,716        281,047,765   

Accrued interest payable

     495,568        520,373   

Other liabilities

     1,973,237        2,051,912   
  

 

 

   

 

 

 

Total liabilities

     290,228,521        283,620,050   
  

 

 

   

 

 

 

Commitments and contingencies

     —          —     

Stockholders’ equity

    

Common stock, $1.00 par value; 2,500,000 shares authorized; 1,251,922 issued and outstanding at June 30, 2011 and 1,250,375 shares issued and outstanding at December 31, 2010

     1,251,922        1,250,375   

Additional paid-in capital

     1,702,164        1,687,446   

Retained earnings

     22,194,475        23,692,067   

Accumulated other comprehensive loss

     (600,560     (765,207
  

 

 

   

 

 

 

Total stockholders’ equity

     24,548,001        25,864,681   
  

 

 

   

 

 

 

Total liabilities and stockholders’ equity

   $ 314,776,522      $ 309,484,731   
  

 

 

   

 

 

 

See Notes to Consolidated Financial Statements

 

2


Table of Contents

 

Botetourt Bankshares, Inc.

Consolidated Statements of Operations

For the Six and Three Months ended June 30, 2011 and 2010 (Unaudited)

 

 

 

    

Six Months Ended

June 30,

    

Three Months Ended

June 30,

 
     2011     2010      2011     2010  

Interest income

         

Loans and fees on loans

   $ 7,362,962      $ 7,840,864       $ 3,732,094      $ 3,871,138   

Federal funds sold

     890        4,665         510        2,615   

Investment securities:

         

Taxable

     103,967        187,417         47,752        94,009   

Exempt from federal income tax

     108,923        115,670         49,024        57,663   

Dividend income

     2,522        870         1,381        786   

Deposits with banks

     16,947        5,018         10,899        3,563   
  

 

 

   

 

 

    

 

 

   

 

 

 

Total interest income

     7,596,211        8,154,504         3,841,660        4,029,774   
  

 

 

   

 

 

    

 

 

   

 

 

 

Interest expense

         

Deposits

     2,115,514        2,652,272         1,049,367        1,281,660   
  

 

 

   

 

 

    

 

 

   

 

 

 

Total interest expense

     2,115,514        2,652,272         1,049,367        1,281,660   
  

 

 

   

 

 

    

 

 

   

 

 

 

Net interest income

     5,480,697        5,502,232         2,792,293        2,748,114   

Provision for loan losses

     4,125,000        1,225,000         2,610,000        655,000   
  

 

 

   

 

 

    

 

 

   

 

 

 

Net interest income after provision for loan losses

     1,355,697        4,277,232         182,293        2,093,114   
  

 

 

   

 

 

    

 

 

   

 

 

 

Noninterest income

         

Service charges on deposit accounts

     352,931        318,176         179,498        153,190   

Mortgage origination fees

     74,340        85,623         43,158        51,093   

Net realized gain on sale of AFS securities

     2,650        1,075         2,650        —     

Other income

     595,304        566,108         295,631        285,175   
  

 

 

   

 

 

    

 

 

   

 

 

 

Total noninterest income

     1,025,225        970,982         520,937        489,458   
  

 

 

   

 

 

    

 

 

   

 

 

 

Noninterest expense

         

Salaries and employee benefits

     2,333,495        2,327,706         1,152,469        1,150,225   

Occupancy and equipment expense

     421,892        482,230         219,144        244,207   

Foreclosed assets, net

     303,879        79,209         234,184        32,881   

Other expense

     1,584,811        1,565,799         821,388        804,292   
  

 

 

   

 

 

    

 

 

   

 

 

 

Total noninterest expense

     4,644,077        4,454,944         2,427,185        2,231,605   
  

 

 

   

 

 

    

 

 

   

 

 

 

Income (loss) before income taxes

     (2,263,155     793,270         (1,723,955     350,967   

Income tax expense (benefit)

     (815,577     221,333         (599,856     95,181   
  

 

 

   

 

 

    

 

 

   

 

 

 

Net income (loss)

   $ (1,447,578   $ 571,937       $ (1,124,099   $ 255,786   
  

 

 

   

 

 

    

 

 

   

 

 

 

Basic earnings (loss) per share

   $ (1.16   $ 0.46       $ (0.90   $ 0.21   
  

 

 

   

 

 

    

 

 

   

 

 

 

Diluted earnings (loss) per share

   $ (1.16   $ 0.46       $ (0.90   $ 0.21   
  

 

 

   

 

 

    

 

 

   

 

 

 

Dividends declared per share

   $ 0.04      $ 0.16       $ —        $ 0.08   
  

 

 

   

 

 

    

 

 

   

 

 

 

Basic weighted average shares outstanding

     1,251,273        1,247,082         1,251,671        1,247,570   
  

 

 

   

 

 

    

 

 

   

 

 

 

Diluted weighted average shares outstanding

     1,251,273        1,247,082         1,251,671        1,247,570   
  

 

 

   

 

 

    

 

 

   

 

 

 

See Notes to Consolidated Financial Statements

 

3


Table of Contents

 

Botetourt Bankshares, Inc.

Consolidated Statements of Cash Flows

For the Six and Three Months ended June 30, 2011 and 2010 (Unaudited)

 

 

 

    

Six Months

Ended June 30,

 
     2011     2010  

Cash flows from operating activities

    

Net income (loss)

   $ (1,447,578   $ 571,937   

Adjustments to reconcile net income (loss) to net cash provided by operations:

    

Depreciation and amortization

     291,568        338,064   

Net amortization of securities premiums/(accretion) discounts

     9,758        (2,488

Provision for loan losses

     4,125,000        1,225,000   

Deferred income taxes

     (456,082     (55,536

Net realized losses on sales of assets

     11,119        14,680   

Write down of other real estate owned

     211,460        42,700   

Changes in assets and liabilities:

    

Accrued income

     167,776        26,985   

Other assets

     (101,302     154,314   

Accrued interest payable

     (24,805     (107,529

Other liabilities

     (163,492     (118,469
  

 

 

   

 

 

 

Net cash provided by operating activities

     2,623,422        2,089,658   
  

 

 

   

 

 

 

Cash flows from investing activities

    

Purchases of investment securities – available for sale

     (2,500,000     (4,879,138

Redemptions of restricted equity securities

     22,300        —     

Maturity of investment securities – held to maturity

     100,000        —     

Maturity of investment securities – available for sale

     3,803,388        6,120,000   

Sale of investment securities – available for sale

     267,650        216,075   

Net decrease in time deposits with banks

     250,000        —     

Net increase in loans

     (1,157,841     (2,899,384

Purchases of properties and equipment

     (74,110     (42,973

Proceeds from sales of properties and equipment

     23,400        20,500   

Proceeds from sales of foreclosed assets

     407,671        615,405   
  

 

 

   

 

 

 

Net cash provided (used) by investing activities

     1,142,458        (849,515
  

 

 

   

 

 

 

Cash flows from financing activities

    

Net increase in noninterest-bearing deposits

     3,213,812        2,600,853   

Net increase in interest-bearing deposits

     3,498,139        5,662,440   

Dividends paid

     (50,015     (199,447

Common stock issued

     16,265        29,946   
  

 

 

   

 

 

 

Net cash provided by financing activities

     6,678,201        8,093,792   
  

 

 

   

 

 

 

Net increase in cash and due from banks

     10,444,081        9,333,935   

Cash and cash equivalents, beginning

     20,151,341        16,574,586   
  

 

 

   

 

 

 

Cash and cash equivalents, ending

   $ 30,595,422      $ 25,908,521   
  

 

 

   

 

 

 

Supplemental disclosures of cash flow information:

    

Interest paid

   $ 2,140,319      $ 2,759,801   
  

 

 

   

 

 

 

Income taxes paid

   $ —        $ 260,000   
  

 

 

   

 

 

 

Supplemental schedule of noncash investing activities:

    

Other real estate acquired in settlement of loans

   $ 3,376,425      $ 1,814,710   
  

 

 

   

 

 

 

Loans originated from disposition of other real estate

   $ 368,240      $ 463,500   
  

 

 

   

 

 

 

See Notes to Consolidated Financial Statements

 

4


Table of Contents

Botetourt Bankshares, Inc.

Notes to Consolidated Financial Statements

June 30, 2011 (Unaudited)

Note 1. Organization and Summary of Significant Accounting Policies

Organization

Botetourt Bankshares, Inc., (the “Company”) was incorporated as a Virginia corporation on January 17, 1997 and is the holding company for Bank of Botetourt (the “Bank”). The Bank was acquired by the Company on September 30, 1997. Bank of Botetourt was founded in 1899 and currently serves Botetourt, Roanoke, Rockbridge, and Franklin Counties, Virginia and surrounding areas through ten banking offices. As an FDIC-insured, state-chartered bank, the Bank is subject to regulation by the Commonwealth of Virginia’s Bureau of Financial Institutions and the Federal Deposit Insurance Corporation. The Company is subject to supervision by the Federal Reserve.

The consolidated financial statements as of June 30, 2011 and for the periods ended June 30, 2011 and 2010 have been prepared by Botetourt Bankshares, Inc., without audit pursuant to the rules and regulations of the Securities and Exchange Commission. In the opinion of management, the information furnished in the interim consolidated financial statements reflects all adjustments necessary to present fairly the Company’s consolidated financial position, results of operations, and cash flows for such interim periods. These consolidated financial statements should be read in conjunction with the Company’s audited financial statements and the notes as of December 31, 2010, included in the Company’s Form 10-K for the fiscal year ended December 31, 2010. The balance sheet as of December 31, 2010 was extracted from the Form 10-K for the year ended December 31, 2010.

Interim financial performance is not necessarily indicative of performance for the full year.

The accounting and reporting policies of the Company and its subsidiaries follow generally accepted accounting principles and general practices within the financial services industry.

Principles of Consolidation

The consolidated financial statements include the accounts of the Company and its subsidiaries. All significant intercompany transactions and balances have been eliminated in consolidation.

Use of Estimates

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. Actual results could differ from those estimates.

Reclassification

Certain reclassifications have been made to the prior year’s financial statements to place them on a comparable basis with the current year. Net income and stockholders’ equity previously reported were not affected by these reclassifications.

Subsequent Events

The Company evaluated events and transactions for potential recognition or disclosure in our financial statements through the date the financial statements were issued.

Note 2. Cash and Cash Equivalents

For the purpose of presentation in the consolidated statements of cash flows, cash and cash equivalents are defined as those amounts included in the balance sheet caption “cash and due from banks, interest-bearing deposits with banks, and federal funds sold.” As a condition of our correspondent bank agreement, the Bank is also required to maintain a target balance. The target balance as of June 30, 2011 was $3,550,000.

 

5


Table of Contents

Note 3. Investment Securities

Debt and equity securities have been classified in the consolidated balance sheets according to management’s intent. The carrying amount of securities and their approximate fair values at June 30, 2011 and December 31, 2010 are as follows:

 

     Amortized
Cost
     Unrealized
Gains
     Unrealized
Losses
     Fair
Value
 

June 30, 2011

           

Available for sale:

           

Government-sponsored enterprises

   $ 6,009,820       $ 42,210       $ 3,000       $ 6,049,030   

State and municipal securities

     7,383,231         246,569         11,803         7,617,997   

Corporate securities

     1         47,224         —           47,225   
  

 

 

    

 

 

    

 

 

    

 

 

 
   $ 13,393,052       $ 336,003       $ 14,803       $ 13,714,252   
  

 

 

    

 

 

    

 

 

    

 

 

 

December 31, 2010

           

Available for sale:

           

Government-sponsored enterprises

   $ 6,183,971       $ 21,082       $ 70,100       $ 6,134,953   

State and municipal securities

     8,787,227         153,948         85,351         8,855,824   

Corporate securities

     1         52,155         —           52,156   
  

 

 

    

 

 

    

 

 

    

 

 

 
   $ 14,971,199       $ 227,185       $ 155,451       $ 15,042,933   
  

 

 

    

 

 

    

 

 

    

 

 

 

Held to maturity:

           

State and municipal securities

     100,000         —           —           100,000   
  

 

 

    

 

 

    

 

 

    

 

 

 
   $ 100,000       $ —         $ —         $ 100,000   
  

 

 

    

 

 

    

 

 

    

 

 

 

Government-sponsored enterprises, commonly referred to as U.S. Agencies, include investments in Federal Farm Credit Banks, Federal Home Loan Banks, and Federal National Mortgage Association bonds.

Investment securities with amortized cost of approximately $500,000 were pledged as collateral on public deposits and for other purposes as required or permitted by law at June 30, 2011 and December 31, 2010.

Gains and losses on the sale of investment securities are recorded on the trade date and are determined using the specific identification method. Proceeds on the sale of investment securities amounted to $267,650 for the six months ended June 30, 2011 and $216,075 for the six months ended June 30, 2010. Gross realized gains amounted to $2,650 for the period ended June 30, 2011 and $1,075 for the period ended June 30, 2010.

The scheduled maturities of securities available for sale at June 30, 2011 are shown below. Actual expected maturities may differ from contractual maturities because issuers may have the right to call or prepay obligations.

 

     Available for Sale  
     Amortized
Cost
     Fair
Value
 

Due in one year or less

   $ 715,068       $ 723,746   

Due after one year through five years

     8,078,130         8,231,027   

Due after five years through ten years

     4,599,853         4,712,254   

Due after ten years

     1         47,225   
  

 

 

    

 

 

 
   $ 13,393,052       $ 13,714,252   
  

 

 

    

 

 

 

 

6


Table of Contents

Note 3. Investment Securities, continued

 

The following tables detail unrealized losses in and related fair values of the Bank’s investment securities portfolio. This information is aggregated by the length of time that individual securities have been in a continuous unrealized loss position as of June 30, 2011 and December 31, 2010.

 

     Less Than 12 Months      12 Months or More      Total  
     Fair
Value
     Unrealized
Losses
     Fair
Value
     Unrealized
Losses
     Fair
Value
     Unrealized
Losses
 

June 30, 2011

                 

Government-sponsored enterprises

   $ 1,497,000       $ 3,000       $ —         $ —         $ 1,497,000       $ 3,000   

State and municipal securities

     1,069,306         11,803         —           —           1,069,306         11,803   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total temporarily impaired securities

   $ 2,566,306       $ 14,803       $ —         $ —         $ 2,566,306       $ 14,803   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 
     Less Than 12 Months      12 Months or More      Total  
     Fair
Value
     Unrealized
Losses
     Fair
Value
     Unrealized
Losses
     Fair
Value
     Unrealized
Losses
 

December 31, 2010

                 

Government-sponsored enterprises

   $ 2,223,288       $ 70,100       $ —         $ —         $ 2,223,288       $ 70,100   

State and municipal securities

     3,705,217         85,351         —           —           3,705,217         85,351   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total temporarily impaired securities

   $ 5,928,505       $ 155,451       $ —         $ —         $ 5,928,505       $ 155,451   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Management considers the nature of the investment, the underlying causes of the decline in market value, the magnitude and duration of the decline in market value and other evidence, on a security by security basis, in determining if the decline in market value is other than temporary. The Company believes that gross unrealized losses as of June 30, 2011 and December 31, 2010, which are comprised of 7 and 21 investment securities respectively, represent a temporary impairment given the credit ratings on these investment securities and the short duration of the unrealized loss. The gross unrealized losses reported relate to investment securities issued by Government-sponsored enterprises and various state and municipal securities. Total gross unrealized losses, which represent 0.11% of the amortized cost basis of the Company’s total investment securities, resulted from changes in interest rates due to market conditions and not due to the credit quality of the investment securities.

Restricted equity securities, which are carried at cost, consist of investments in stock of the Federal Home Loan Bank of Atlanta (“FHLB”), and CBB Financial Corp., which are upstream correspondents of the Bank. The FHLB requires financial institutions to make equity investments in the FHLB in order to borrow from it. The Bank is required to hold that stock so long as it borrows from the FHLB. Both the Bank’s stock in CBB Financial Corp. and the FHLB are restricted in the fact that the stock may only be repurchased by the issuer. Management also considers these investments when testing for impairment. On a quarterly basis, management reviews both institutions’ capital adequacy to ensure they meet regulatory minimum requirements. Bank management does not believe any unrealized losses associated with investments in these institutions to be anything other than temporary.

Note 4. Loans Receivable

The Company segments its loan portfolio to capture the nature of credit risk inherent in its loans receivable. The major segmented components of loans at June 30, 2011 and December 31, 2010 are as follows (in thousands):

 

     June 30,
2011
    December 31,
2010
 

Commercial

   $ 17,144      $ 18,910   

Commercial Real Estate

     90,625        90,665   

Consumer

     11,868        11,758   

Residential – Prime

     122,632        127,669   

Agricultural & Raw Land

     16,106        13,704   
  

 

 

   

 

 

 
     258,375        262,706   

Allowance for loan losses

     (6,793     (5,148
  

 

 

   

 

 

 
   $ 251,582      $ 257,558   
  

 

 

   

 

 

 

 

7


Table of Contents

Note 4. Loans Receivable, continued

 

Loans receivable include $53,000 and $89,000 in overdraft demand deposit accounts at June 30, 2011 and December 31, 2010, respectively.

Note 5. Allowance for Loan Losses

The following table presents activity in the allowance for credit losses for the six months ended June 30, 2011 on a portfolio segment basis. Information for prior periods was not required to be retrospectively applied or restated. Therefore certain information for prior periods is presented in a different format than the one used for 2011. Allocation of a portion of the allowance to one category of loans does not preclude its availability to absorb losses in other categories.

 

     Commercial     Commercial
Real Estate
    Consumer     Residential
Prime
    Agricultural
& Raw Land
     Total  

Allowance for loan losses

             

Balance, January 1, 2011

   $ 327,341      $ 1,640,142      $ 222,432      $ 2,891,175      $ 66,700       $ 5,147,790   

Charge-offs

     (39,992     (499,689     (47,187     (1,928,551     —           (2,515,419

Recoveries

     —          24,657        7,183        3,625        —           35,465   

Provisions

     124,718        667,478        47,371        3,251,025        34,408         4,125,000   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

    

 

 

 

Balance, June 30, 2011

   $ 412,067      $ 1,832,588      $ 229,799      $ 4,217,274      $ 101,108       $ 6,792,836   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

    

 

 

 

Balance, January 1, 2010

              $ 3,947,025   

Provision charged to expense

                1,225,000   

Recoveries of amounts charged off

                40,000   

Amounts charged off

                (1,769,273
             

 

 

 

Balance, June 30, 2010

              $ 3,442,752   
             

 

 

 

June 30, 2011

             

Allowance for loan losses ending balances

             

Individually evaluated for impairment

   $ 181,267      $ 746,087      $ —        $ 2,274,174      $ 24,186       $ 3,225,714   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

    

 

 

 

Collectively evaluated for impairment

   $ 230,800      $ 1,086,500      $ 229,800      $ 1,943,100      $ 76,922       $ 3,567,122   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

    

 

 

 

Loans receivable:

             

Ending balance - total

   $ 17,144,362      $ 90,624,495      $ 11,868,257      $ 122,631,789      $ 16,106,471       $ 258,375,374   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

    

 

 

 

Ending balances:

             

Individually evaluated for impairment

   $ 1,236,105      $ 8,823,854      $ 20,863      $ 15,700,874      $ 762,186       $ 26,543,882   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

    

 

 

 

Collectively evaluated for impairment

   $ 15,908,257      $ 81,800,641      $ 11,847,394      $ 106,930,915      $ 15,344,285       $ 231,831,492   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

    

 

 

 

December 31, 2010

             

Allowance for loan losses ending balances

             

Individually evaluated for impairment

   $ 72,541      $ 724,842      $ —        $ 1,336,774      $ —         $ 2,134,157   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

    

 

 

 

Collectively evaluated for impairment

   $ 254,800      $ 915,300      $ 222,432      $ 1,554,401      $ 66,700       $ 3,013,633   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

    

 

 

 

Loans receivable

             

Ending balance - total

   $ 18,910,125      $ 90,664,395      $ 11,758,153      $ 127,669,321      $ 13,703,678       $ 262,705,672   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

    

 

 

 

Ending balances:

             

Individually evaluated for impairment

   $ 460,066      $ 8,870,708      $ —        $ 16,437,447      $ 599,969       $ 26,368,190   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

    

 

 

 

Collectively evaluated for impairment

   $ 18,450,059      $ 81,793,687      $ 11,758,153      $ 111,231,874      $ 13,103,709       $ 236,337,482   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

    

 

 

 

 

8


Table of Contents

Note 5. Allowance for Loan Losses, continued

 

The following table presents impaired loans in the segmented portfolio categories as of June 30, 2011 and December 31, 2010. The recorded investment is defined as the original amount of the loan, net of any deferred costs and fees, less any principal reductions and direct charge-offs.

 

     Recorded
Investment
     Unpaid
Principal
Balance
     Related
Allowance
     Average
Recorded
Investment
     Interest
Income
Recognized
 

June 30, 2011

              

With no related allowance recorded:

              

Commercial

   $ 638,698       $ 638,181       $ —         $ 611,321       $ 1,476   

Commercial Real Estate

     5,551,681         5,552,015         —           6,229,179         100,638   

Residential - Prime

     8,563,995         8,564,838         —           10,922,083         268,936   

Consumer

     20,900         20,863         —           3,483         910   

Agricultural & Raw Land

     162,971         162,971         —           492,091         3,463   

With an allowance recorded:

              

Commercial

   $ 598,436       $ 597,924       $ 181,267       $ 245,437       $ 1,423   

Commercial Real Estate

     3,271,946         3,271,839         746,087         2,405,878         58,090   

Residential - prime

     7,133,918         7,136,036         2,274,174         5,784,943         74,897   

Agricultural & Raw Land

     599,215         599,215         24,186         119,843         12,774   

Total:

              

Commercial

   $ 1,237,134       $ 1,236,105       $ 181,267       $ 856,758       $ 2,899   

Commercial Real Estate

     8,823,627         8,823,854         746,087         8,635,057         158,728   

Residential - Prime

     15,697,913         15,700,874         2,274,174         16,707,026         343,833   

Consumer

     20,900         20,863         —           3,483         910   

Agricultural & Raw Land

     762,186         762,186         24,186         611,934         16,237   

December 31, 2010

              

With no related allowance recorded:

              

Commercial

   $ —         $ —         $ —         $ 221,963       $ —     

Commercial Real Estate

     6,035,073         6,034,870         —           3,441,580         366,095   

Residential - Prime

     10,892,080         10,894,976         —           9,717,616         279,079   

Agricultural & Raw Land

     599,969         599,969         —           722,197         19,691   

With an allowance recorded:

              

Commercial

   $ 460,066       $ 460,066       $ 72,541       $ 683,174       $ —     

Commercial Real Estate

     2,835,739         2,835,838         724,842         1,494,664         110,159   

Residential - prime

     5,538,233         5,542,471         1,336,774         3,777,164         387,956   

Total:

              

Commercial

   $ 460,066       $ 460,066       $ 72,541       $ 905,137       $ —     

Commercial Real Estate

     8,870,812         8,870,708         724,842         4,936,244         476,254   

Residential - Prime

     16,430,313         16,437,447         1,336,774         13,494,780         667,035   

Agricultural & Raw Land

     599,969         599,969         —           722,197         19,691   

 

9


Table of Contents

Note 5. Allowance for Loan Losses, continued

 

A loan is considered past due if the required principal and interest payment has not been received as of the due date. The following schedule is an aging of past due loans receivable by portfolio segment as of June 30, 2011 and December 31, 2010.

June 30, 2011

 

     30-59 Days
Past Due
     60-89 Days
Past Due
     90 Days Plus
Past Due
     Total
Past Due
     Current      Total
Loans
Receivable
     Recorded
Investment

> 90 Days
and
Accruing
 

Commercial

   $ 595,991       $ 7,050       $ 727,989       $ 1,331,030       $ 15,813,332       $ 17,144,362       $ 48,444   

Commercial Real Estate

     1,698,894         1,216,813         5,292,977         8,208,683         82,415,812         90,624,495         1,868,011   

Consumer

     169,043         48,190         4,660         221,893         11,646,364         11,868,257         3,473   

Residential – Prime

     2,560,574         1,810,456         10,309,352         14,680,383         107,951,406         122,631,789         1,983,410   

Agricultural & Raw Land

     —           36,513         —           36,513         16,069,958         16,106,471         —     
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total

   $ 5,024,502       $ 3,119,022       $ 16,334,978       $ 24,478,502       $ 233,896,872       $ 258,375,374       $ 3,903,338   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

December 31, 2010

 

     30-59 Days
Past Due
     60-89 Days
Past Due
     90 Days Plus
Past Due
     Total
Past Due
     Current      Total
Loans
Receivable
     Recorded
Investment

> 90 Days
and
Accruing
 

Commercial

   $ 105,853       $ —         $ 460,066       $ 565,919       $ 18,344,206       $ 18,910,125       $ —     

Commercial Real Estate

     1,046,709         1,398,370         3,584,896         6,029,975         84,634,420         90,664,395         2,899,837   

Consumer

     202,065         55,450         33,108         290,623         11,467,530         11,758,153         —     

Residential – Prime

     4,669,092         1,539,408         9,901,533         16,110,033         111,559,288         127,669,321         2,364,886   

Agricultural & Raw Land

     —           72,000         37,411         109,411         13,594,267         13,703,678         37,324   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total

   $ 6,023,719       $ 3,065,228       $ 14,017,014       $ 23,105,961       $ 239,599,711       $ 262,705,672       $ 5,302,047   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Loans are generally placed in nonaccrual status when the collection of principal and interest is 90 days or more past due, unless the obligation is both well-secured and in the process of collection. When interest accrual is discontinued, all unpaid accrued interest is reversed. Payments on nonaccrual loans are applied to the principal balance. No interest income was recognized on impaired loans subsequent to the nonaccrual status designation. A loan is returned to accrual status when the borrower makes consistent payments according to contractual terms and future payments are reasonably assured. The following is a schedule of loans receivable, by portfolio segment, on nonaccrual status as of June 30, 2011 and December 31, 2010.

 

     June 30,
2011
     December 31,
2010
 

Commercial

   $ 1,151,341       $ 460,066   

Commercial Real Estate

     4,077,360         1,228,021   

Consumer

     —           17,244   

Residential – Prime

     8,531,008         7,218,796   
  

 

 

    

 

 

 

Total

   $ 13,759,709       $ 8,924,127   
  

 

 

    

 

 

 

The Company uses several metrics as credit quality indicators of current or potential risks as part of the ongoing monitoring of the credit quality of the its loan portfolio. The credit quality indicators are periodically reviewed and updated on a case-by-case basis. The Company uses the following definitions for the internal risk rating grades, listed from the least risk to the highest risk.

Excellent: The borrower is typically a long established, well seasoned company with a significant market position. It possesses unquestioned asset quality, liquidity, and excellent sales and earnings trends. Leverage, if present, is well below industry norms. Borrower appears to have capacity to meet all of its obligations under almost any circumstances. The borrowing entity’s management has extensive experience and depth.

Good: The borrower demonstrates a strong and liquid financial condition based upon current financial information and qualifies to borrow on an unsecured basis under most circumstances. If borrowing is secured, collateral is readily marketable and amply margined. Repayment sources are well defined and more than adequate. Credit checks and prior lending experiences with the company, if any, are fully satisfactory. The borrower’s cash flow comfortably exceeds total current obligations.

 

10


Table of Contents

Note 5. Allowance for Loan Losses, continued

 

Satisfactory: The borrower provides current financial information reflecting a satisfactory financial condition and reasonable debt service capacity. If borrowing is secured, collateral is marketable, adequately margined at the present time, and expected to afford coverage to maturity. Repayment understandings are documented, sources are considered adequate, and repayment terms are appropriate. Credit checks and prior experience, if any, are satisfactory. The borrower is usually established and is attractive to other financial institutions. The borrower’s balance sheet is stable and sales and earnings are steady and predictable.

Acceptable: While clearly an acceptable credit risk to the Company, the borrower will generally demonstrate a higher leveraged, less liquid balance sheet and capacity to service debt, while steady, may be less well-defined. Repayment terms may not be appropriate for individual transactions. Borrower is generally acceptable to other financial institutions; however, secured borrowing is the norm. Collateral marketability and margin are acceptable at the present time but may not continue to be so. Credit checks or prior experience, if any, reveals some, but not serious, slowness in paying. If a business, its management experience may be limited or have less depth than a Satisfactory borrower. Sensitivity to economic or credit cycles exists, and staying power could be a problem.

Special Mention: While loans to a borrower in this rating category are currently protected (no loss of principal or interest envisioned), they may pose undue or unwarranted credit risks if weaknesses are not checked or corrected. Weaknesses may be limited to one or several trends or developments. Weaknesses may include one or more of the following: a potentially over-extended financial condition, a questionable repayment program, an uncertain level of continuing employment or income, inadequate or deteriorating collateral, inadequate or untimely financial information, management competence or succession issues, a high degree of vulnerability to outside forces.

Substandard: Assets in this category are inadequately protected by the current creditworthiness and paying capacity of the obligor or of the collateral pledged, if any. Assets so classified have a well-defined weakness or weakness that jeopardizes the liquidation of the debt. They are characterized by the distinct possibility that the company will sustain some loss if the deficiencies are not corrected. Nonaccrual loans, reduced-earnings loans, and loans to borrowers engaged in bankruptcy proceedings are automatically rated Substandard or lower.

Doubtful: A loan rated Doubtful has all of the weaknesses inherent in one rated Substandard with the added characteristic that the weakness may make collection or liquidation in full, on the basis of currently existing facts, highly improbable. A Doubtful rating generally is used when the amount of loss can be projected and that projection exceeds one-third of the balance of outstanding debt but does not exceed two-thirds of that balance. A Doubtful rating is generally applied when the likelihood of significant loss is high.

Loss: A Loss rating should be applied when the borrower’s outstanding debt is considered uncollectible or of such little value that its continuance as bankable asset is not warranted. This rating does not suggest that there is absolutely no recovery or salvage value, but that it is not practical or desirable to defer writing off the debt even though a partial recovery may be affected in the future. The Company had no loans assigned a Loss rating at June 30, 2011 or December 31, 2010.

For the consumer segment of the loan portfolio, the Company uses the following definitions:

Nonperforming: Loans on nonaccrual status plus loans greater than ninety days past due still accruing interest.

Performing: All current loans plus loans less than ninety days past due.

 

11


Table of Contents

Note 5. Allowance for Loan Losses, continued

 

The following is a schedule of the credit quality of loans receivable, by portfolio segment, as of June 30, 2011 and December 31, 2010.

June 30, 2011

 

     Commercial      Commercial
Real Estate
     Residential -
Prime
     Agricultural
& Raw Land
 

Internal Risk Rating Grades:

           

Satisfactory or better

   $ 10,335,156       $ 45,749,181       $ 60,589,582       $ 6,313,396   

Acceptable

     4,880,585         32,444,805         37,531,820         8,913,906   

Special Mention

     513,710         3,500,055         2,811,449         —     

Substandard

     1,414,911         8,930,454         21,698,938         879,169   
  

 

 

    

 

 

    

 

 

    

 

 

 

Total

   $ 17,144,362       $ 90,624,495       $ 122,631,789       $ 16,106,471   
  

 

 

    

 

 

    

 

 

    

 

 

 

 

     Consumer  

Internal Risk Rating Grades:

  

Performing

   $ 11,864,788   

Nonperforming

     3,469   
  

 

 

 

Total

   $ 11,868,257   
  

 

 

 

December 31, 2010

 

     Commercial      Commercial
Real Estate
     Residential -
Prime
     Agricultural
& Raw Land
 

Internal Risk Rating Grades:

           

Satisfactory or better

   $ 10,743,831       $ 44,410,458       $ 62,905,204       $ 7,307,866   

Acceptable

     5,920,642         33,882,816         36,074,178         5,442,991   

Special Mention

     1,437,766         4,652,366         8,948,399         72,000   

Substandard

     807,886         7,718,755         19,741,540         880,821   
  

 

 

    

 

 

    

 

 

    

 

 

 

Total

   $ 18,910,125       $ 90,664,395       $ 127,669,321       $ 13,703,678   
  

 

 

    

 

 

    

 

 

    

 

 

 

 

     Consumer  

Internal Risk Rating Grades:

  

Performing

   $ 11,725,045   

Nonperforming

     33,108   
  

 

 

 

Total

   $ 11,758,153   
  

 

 

 

Note 6. Earnings (Loss) Per Share

Basic earnings (loss) per share is computed by dividing income available to common stockholders by the weighted-average number of common shares outstanding for the period. Diluted net income (loss) per share reflects the potential dilution that could occur if option contracts to issue common stock were exercised or converted into common stock or resulted in the issuance of common stock that then shared in the earnings of the Company. The Company has no potentially dilutive securities outstanding. Therefore, the number of shares for basic and diluted earnings per share were 1,251,273, for the six months-ended June 30, 2011 and 1,247,082, for the six months-ended June 30, 2010. The number of shares for basic and diluted earnings per share were 1,251,671, for the three months-ended June 30, 2011 and 1,247,570, for the three months-ended June 30, 2010.

 

12


Table of Contents

Note 7. Comprehensive Income (Loss)

A summary of comprehensive income (loss) is as follows:

 

    

Six Months

Ended June 30,

 
     2011     2010  

Net income (loss)

   $ (1,447,578   $ 571,937   

Other comprehensive income (loss):

    

Net change in unrealized appreciation on investment securities available for sale, net of taxes $(85,719) in 2011 and $(10,686) in 2010

     166,396        20,744   

Reclassified securities gains realized, net of taxes $901 in 2011 and $365 in 2010

     (1,749     (710
  

 

 

   

 

 

 

Total comprehensive income (loss)

   $ (1,282,931   $ 591,971   
  

 

 

   

 

 

 

Note 8. Commitments and Contingencies

Financial Instruments with Off-Balance-Sheet Risk

The Bank is party to financial instruments with off-balance-sheet risk in the normal course of business to meet the financing needs of its customers. These financial instruments include commitments to extend credit and standby letters of credit. These instruments involve, to varying degrees, credit risk in excess of the amount recognized in the consolidated balance sheets.

The Bank’s exposure to credit loss in the event of nonperformance by the other party to the financial instrument for commitments to extend credit and standby letters of credit is represented by the contractual amount of those instruments. The Bank uses the same credit policies in making commitments and conditional obligations as for on-balance-sheet instruments. A summary of the Bank’s commitments at June 30, 2011 and December 31, 2010 is as follows:

 

     2011      2010  

Commitments to extend credit

   $ 35,216,000       $ 33,502,000   

Letters of credit

     2,508,000         2,689,000   
  

 

 

    

 

 

 
   $ 37,724,000       $ 36,191,000   
  

 

 

    

 

 

 

Commitments to extend credit are agreements to lend to a customer as long as there is no violation of any condition established in the contract. Commitments generally have fixed expiration dates or other termination clauses and may require payment of a fee. Since many of the commitments are expected to expire without being drawn upon, the total commitment amounts do not necessarily represent future cash requirements.

Note 9. Benefit Plans

Stock-Based Compensation

The Company adopted the 2009 Incentive Stock Plan (“2009 Incentive Plan”) that provides for restricted stock grants and options up to 50,000 shares for key employees of the Company, to be issued at no less than the current market price at the time of the grant or option. The maximum number of shares with respect to which awards may be granted in any calendar year is 15,000 shares. The plan expires May 13, 2019 unless all shares are granted prior to the expiration date. No restricted stock grants or options have been granted under this plan.

 

13


Table of Contents

Note 9. Benefit Plans, continued

 

Defined Benefit Pension Plan

The Company has a qualified noncontributory, Defined Benefit Pension Plan which covers substantially all of its employees. The components of net periodic benefit cost related to the Defined Benefit Pension Plan for the six and three months ended June 30 are as follows:

 

     Pension Benefits
Six Months Ended
June 30,
    Pension Benefits
Three Months Ended
June 30,
 
     2011     2010     2011     2010  

Service cost

   $ 130,928      $ 115,580      $ 65,464      $ 57,790   

Interest cost

     107,648        130,716        53,824        65,358   

Expected return on plan assets

     (114,636     (153,954     (57,318     (76,977

Amortization of net obligation at transition

     —          —          —          —     

Amortization of prior service cost

     394        766        197        383   

Amortization of net loss

     18,552        8,296        9,276        4,148   
  

 

 

   

 

 

   

 

 

   

 

 

 

Net periodic benefit cost

   $ 142,886      $ 101,404      $ 71,443      $ 50,702   
  

 

 

   

 

 

   

 

 

   

 

 

 

Employer Contributions

The Company paid a $300,000 contribution to the Defined Pension Plan during the first quarter of 2011. No additional contributions are expected in 2011.

Note 10. Fair Value

Generally accepted accounting principles (“GAAP”) provides a framework for measuring and disclosing fair value and requires disclosures about the fair value of assets and liabilities recognized in the balance sheet in periods subsequent to initial recognition, whether the measurements are made on a recurring basis (for example, available for sale investment securities) or on a nonrecurring basis (for example, impaired loans).

Assets and Liabilities Recorded at Fair Value on a Recurring Basis

There were no significant transfers to or from Levels 1 and 2 during the reporting period ended June 30, 2011. The table below presents the recorded amount of assets and liabilities measured at fair value on a recurring basis.

 

(In Thousands)                            

June 30, 2011

   Total      Level 1      Level 2      Level 3  

Investment securities available for sale:

           

Government-sponsored enterprises

   $ 6,049       $ —         $ 6,049       $ —     

State and municipal securities

     7,618         —           7,618         —     

Corporate securities

     47         47         —           —     
  

 

 

    

 

 

    

 

 

    

 

 

 

Total assets at fair value

   $ 13,714       $ 47       $ 13,667       $ —     
  

 

 

    

 

 

    

 

 

    

 

 

 
(In Thousands)                            

December 31, 2010

   Total      Level 1      Level 2      Level 3  

Investment securities available for sale:

           

Government-sponsored enterprises

   $ 6,135       $ —         $ 6,135       $ —     

State and municipal securities

     8,856         —           8,856         —     

Corporate securities

     52         52         —           —     
  

 

 

    

 

 

    

 

 

    

 

 

 

Total assets at fair value

   $ 15,043       $ 52       $ 14,991       $ —     
  

 

 

    

 

 

    

 

 

    

 

 

 

 

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Note 10. Fair Value, continued

 

Assets and Liabilities Recorded at Fair Value on a Nonrecurring Basis

The Company may be required from time to time, to measure certain assets at fair value on a nonrecurring basis. These include assets that are measured at the lower of cost or market that were recognized at fair value below cost at the end of the period. Assets measured at fair value on a nonrecurring basis are included in the table below.

 

(In Thousands)

June 30, 2011

   Total      Level 1      Level 2      Level 3  

Impaired loans:

           

Commercial

   $ 416       $ —         $ —         $ 416   

Commercial Real Estate

     2,526         —           1,888         638   

Residential - Prime

     4,862         —           3,913         949   

Agricultural & Raw Land

     575         —           575         —     
  

 

 

    

 

 

    

 

 

    

 

 

 

Total Impaired Loans

     8,379         —           6,376         2,003   

Other real estate owned

     4,225         —           4,225         —     
  

 

 

    

 

 

    

 

 

    

 

 

 

Total assets at fair value

   $ 12,604       $ —         $ 10,601       $ 2,003   
  

 

 

    

 

 

    

 

 

    

 

 

 

(In Thousands)

December 31, 2010

   Total      Level 1      Level 2      Level 3  

Impaired loans:

           

Commercial

   $ 387       $ —         $ 387       $ —     

Commercial Real Estate

     2,111         —           368         1,743   

Residential - Prime

     4,206         —           1,823         2,383   

Agricultural & Raw Land

     —           —           —           —     
  

 

 

    

 

 

    

 

 

    

 

 

 

Total Impaired Loans

     6,704         —           2,578         4,126   

Other real estate owned

     1,851         —           1,851         —     
  

 

 

    

 

 

    

 

 

    

 

 

 

Total assets at fair value

   $ 8,555       $ —         $ 4,429       $ 4,126   
  

 

 

    

 

 

    

 

 

    

 

 

 

Transfers into Level 3 during the quarter ended June 30, 2011 were related to management adjustments to third party appraisals. Management estimated the fair value of these loans to be further impaired and below the appraised value, resulting in no observable market price. For the six months ended June 30, the changes in Level 3 assets measured at fair value on a recurring basis are summarized as follows (dollars in thousands):

 

     Six Months Ended
June 30,
 
     2011     2010  
     Impaired
Loans
    Impaired
Loans
 

Balance, January 1

   $ 4,126      $ 293   

Included in earnings

     (1,553     (178

Transfers into Level 3

     2,013        1,337   

Transfer out of Level 3

     (2,583     (715

Principal reductions

     —          (111
  

 

 

   

 

 

 

Balance, June 30

   $ 2,003      $ 626   
  

 

 

   

 

 

 

Transfers from Level 3 to Level 2 during the quarter resulted after the receipt of updated appraisals to determine loss exposure on certain impaired loans. The Company has no liabilities carried at fair value or measured at fair value on a recurring or nonrecurring basis.

 

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Note 10. Fair Value, continued

 

The estimated fair values of the Company’s financial instruments are as follows (dollars in thousands):

 

     June 30, 2011      December 31, 2010  
     Carrying
Amount
     Fair
Value
     Carrying
Amount
     Fair
Value
 

Financial assets

           

Cash and due from banks

   $ 7,202       $ 7,202       $ 6,232       $ 6,232   

Interest-bearing deposits with banks

     22,465         22,465         12,691         12,691   

Federal funds sold

     1,178         1,178         1,728         1,728   

Investment securities, available for sale

     13,714         13,714         15,043         15,043   

Investment securities, held to maturity

     —           —           100         100   

Restricted equity securities

     559         559         581         581   

Loans, net

     251,583         249,502         257,558         256,398   

Accrued interest receivable

     1,171         1,171         1,339         1,339   

Financial liabilities

           

Deposits

     287,760         290,950         281,048         284,726   

Accrued interest payable

     496         496         520         520   

Unused commitments

     —           —           —           —     

The following methods and assumptions were used by the Company in estimating its fair value disclosures for financial instruments:

Cash and due from banks: The carrying amounts reported in the balance sheet for cash and due from banks approximate their fair values.

Interest-bearing deposits with banks and federal funds sold: The carrying amounts of interest–bearing deposits with banks and federal funds sold approximate their fair values.

Securities: Fair values for securities, excluding restricted equity securities, are based on quoted market prices, where available. If quoted market prices are not available, fair values are based on quoted market prices of comparable instruments. The carrying values of restricted equity securities approximate fair values.

Loans receivable: For variable-rate loans that reprice frequently and with no significant change in credit risk, fair values are based on carrying amounts. The fair values for other loans are estimated using discounted cash flow analysis, based on interest rates currently being offered for loans with similar terms to borrowers of similar credit quality. Loan fair value estimates include judgments regarding future expected loss experience and risk characteristics. Fair values for impaired loans are estimated using discounted cash flow analysis or underlying collateral values, where applicable. The carrying amount of accrued interest receivable approximates its fair value.

Deposit liabilities: The fair values disclosed for demand and savings deposits are, by definition, equal to the amount payable on demand at the reporting date. The fair values for certificates of deposit are estimated using a discounted cash flow calculation that applies interest rates currently being offered on certificates to a schedule of aggregated contractual maturities on such time deposits. The carrying amount of accrued interest payable approximates fair value.

Note 11. Dividend Reinvestment and Stock Purchase Plan

The Company maintains a Dividend Reinvestment and Stock Purchase Plan (“DRIP”) which provides for the issuance of up to 200,000 shares of common stock. The purchase price of shares acquired through the DRIP is recommended by the Dividend Reinvestment Plan Committee (“Committee”) of the Company and approved by the Board of Directors. In determining the purchase price per share, the Committee considers book value of the common stock of the Company, relationship between traded price and book value, known recent trades, and any additional information the Committee deems appropriate.

 

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Note 11. Dividend Reinvestment and Stock Purchase Plan, continued

 

The following is a summary of the shares of common stock issued from dividends reinvested and optional cash purchases.

 

     2011      2010  
     Shares      Purchase Price      Shares      Purchase Price  

First Quarter

     1,061       $ 10.75         968       $ 15.50   

Second Quarter

     486         10.00         964         15.50   
  

 

 

    

 

 

    

 

 

    

 

 

 

Total Shares Issued

     1,547            1,932      
  

 

 

       

 

 

    

Note 12. Recent Accounting Pronouncements and Future Accounting Considerations

The following is a summary of recent authoritative announcements.

In July 2010, the Receivables topic of the Accounting Standards Codification (“ASC”) was amended by Accounting Standards Update (“ASU”) 2010-20 to require expanded disclosures related to a company’s allowance for credit losses and the credit quality of its financing receivables. The amendments require the allowance disclosures to be provided on a disaggregated basis. The Company is required to include these disclosures in their interim and annual financial statements. See Note 4 and Note 5.

Disclosures about Troubled Debt Restructurings (“TDRs”) required by ASU 2010-20 were deferred by the Financial Accounting Standards Board (“FASB”) in ASU 2011-01 issued in January 2011. In April 2011 FASB issued ASU 2011-02 to assist creditors with their determination of when a restructuring is a TDR. The determination is based on whether the restructuring constitutes a concession and whether the debtor is experiencing financial difficulties as both events must be present.

Disclosures related to TDRs under ASU 2010-20 will be effective for reporting periods beginning after June 15, 2011.

In April 2011, the criteria used to determine effective control of transferred assets in the Transfers and Servicing topic of the ASC was amended by ASU 2011-03. The requirement for the transferor to have the ability to repurchase or redeem the financial assets on substantially the agreed terms and the collateral maintenance implementation guidance related to that criterion were removed from the assessment of effective control. The other criteria to assess effective control were not changed. The amendments are effective for the Company beginning January 1, 2012 but are not expected to have a material effect on the financial statements.

ASU 2011-04 was issued in May 2011 to amend the Fair Value Measurement topic of the ASC by clarifying the application of existing fair value measurement and disclosure requirements and by changing particular principles or requirements for measuring fair value or for disclosing information about fair value measurements. The amendments will be effective for the Company beginning January 1, 2012 but are not expected to have a material effect on the financial statements.

The Comprehensive Income topic of the ASC was amended in June 2011. The amendment eliminates the option to present other comprehensive income as a part of the statement of changes in stockholders’ equity. The amendment requires consecutive presentation of the statement of net income and other comprehensive income and requires an entity to present reclassification adjustments from other comprehensive income to net income on the face of the financial statements. The amendments will be applicable to the Company on January 1, 2012 and will be applied retrospectively.

Other accounting standards that have been issued or proposed by the FASB or other standards-setting bodies are not expected to have a material impact on the Company’s financial position, results of operations or cash flows.

 

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Note 13. Subsequent Events

Borrowings

On July 13, 2011, the Board of Directors of the Bank of Botetourt, a wholly owned subsidiary of Botetourt Bankshares, Inc., approved the issuance of up to an aggregate of $5.0 million of subordinated notes (the “Notes”), on a private placement basis. The Notes are available for investment effective August 1, 2011. Bank of Botetourt expects to utilize most of the net proceeds from the sale of the Notes for various bank purposes and to strengthen the Bank’s capital position. The Notes are intended to qualify as Tier II capital for regulatory purposes. The terms of the Notes have been finalized since the filing on the Form 8-K on July 18, 2011 and are filed as Exhibit 99.

 

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Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

General

The following discussion provides information about the major components of the results of operations and financial condition of the Company. This discussion and analysis should be read in conjunction with the Consolidated Financial Statements and Notes to Consolidated Financial Statements included in this report.

Critical Accounting Policy

For a discussion of the Company’s critical accounting policies, see the Company’s Annual Report on Form 10-K for the year ended December 31, 2010.

Results of Operations

The net loss for the six months ended June 30, 2011 amounted to $(1,447,578) compared to net income of $571,937 for the same period last year, representing a decrease of $2,019,515 or 353.10%. Both basic and diluted earnings per share decreased $1.62 from $0.46 at June 30, 2010 to $(1.16) at June 30, 2011. The decrease in net income and earnings per share is primarily due to a higher provision for loan losses.

Interest-earning assets decreased $1,022,187 to $296,291,677 at June 30, 2011 from $297,313,864 at June 30, 2010. Total interest income decreased in the first six months of 2011 as compared to the first six months of 2010 due primarily to a decrease in fees on loans, a decrease in investment income resulting from lower interest rates earned on a smaller investment portfolio, and a decrease in earnings on federal funds sold. The decrease was partially offset with interest earned on deposits at correspondent banks and dividend income. Interest-bearing liabilities decreased $3,256,351 to $251,539,441 at June 30, 2011 from $254,795,792 at June 30, 2010. Interest expense decreased during the period due to interest-bearing deposits repricing at lower interest rate levels. Net interest income for the six months ended June 30, 2011 remained stable, only slightly decreasing by $21,535 compared to the same time period in 2010.

The provision for loan losses was $4,125,000 for the six months ended June 30, 2011 and $1,225,000 for the six months ended June 30, 2010. Bank management increased the provision for loan losses in 2011 in response to continuing high levels of impaired loans and loan delinquencies, a stale local real estate and housing market, especially in the Smith Mountain Lake portion of our service area, the slow pace of the economic recovery, and other general economic and industry uncertainties. Given the current economic climate in which we operate and to ensure the most relevant data is being used in the allowance for loan losses estimation model, the model’s historical loss period, including the current year, is three years. (A more detailed description of that model can be found under “Allowance for Loan Losses” in the Company’s Form 10-K, filed March 29, 2011.) Impaired loans remain at higher levels than in normal economic times. The loss exposure related to the underlying collateral values of collateral dependent loans was estimated by management based on current and adjusted appraisals, including an estimate for selling costs, should foreclosure sales be necessary. Management also performed discounted cash flow analysis on non-collateral dependent loans. The general component of the model provides for potential losses from non-impaired loans based on historical loss experience and other factors, including an internal analysis of economic trends. For the unallocated component, economic statistical data is obtained from a professional third party vendor, the Federal Reserve Bank, and other appropriate public domain sources. The economic data is reviewed, interpreted, and applied to our loan portfolio to quantify the financial impact of current and forecasted economic trends of loans in our portfolio. The results of the estimated losses on specific loans combined with the general or unallocated component represents management’s estimate of the amount adequate to provide for potential losses inherent in the loan portfolio. Management continually evaluates the adequacy of the loan loss reserve and believes the provision and the resulting allowance for loan losses are adequate and appropriate for the current overall risk in the portfolio. However, should economic conditions stagnate or worsen, especially if real estate sales slow or depreciation of real estate values continues, our customer base in this sector may continue to struggle, potentially necessitating increases to the allowance for loan losses.

Net charge-offs for the six months ended June 30, 2011 amounted to $2,480,000 compared to $1,729,000 for the same time period in 2010. The net charge-offs in 2011 are the result of problem loans primarily for residential properties, commercial real estate, and investment rental properties associated with multiple borrowers. These loans were previously identified as impaired with specific reserve amounts. The negative trend in charge-offs will likely continue in 2011 until the economy, sustained by stable real estate values, increased volume of sales activity, and stronger employment, significantly improves. These charge-off trends are considered in the quarterly review of the allowance for loan losses and have a negative impact on the allowance for loan losses as they reduce the levels of reserves and increase historical loss experience which is an input to the calculation of general reserves.

 

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Noninterest income increased by 5.59% to $1,025,225 for the six months ended June 30, 2011 compared to $970,982 for the six months ended June 30, 2010. The increase is primarily attributed to income generated from service charges on deposit accounts such as overdraft fees and debit and credit card related income, offset by a slight decrease in mortgage origination fees. For the six months ended June 30, 2011, noninterest expense increased by $189,133 or 4.25%, to $4,644,077 compared to $4,454,944 at June 30, 2010. The increase is primarily a result of an increase in expenses related to foreclosed assets.

The net loss for the three months ended June 30, 2011 was $(1,124,099) compared to net income of $255,786 for the same period last year, representing a decrease of $1,379,885 or 539.47%. Both basic and diluted earnings per share decreased $1.11 from $0.21 at June 30, 2010 to $(0.90) at June 30, 2011. The decrease in net income is primarily attributable to a higher provision for loan losses. Total interest income decreased during the three month period compared to the same three month period in 2010 due primarily to a decrease in income generated from earning assets, such as loans and investment securities earning lower interest rates. However, the decrease in interest income was more than offset by lower interest expense as interest-bearing deposit liabilities repriced at lower interest rates. The combined effect resulted in net interest income increasing by $44,179 in the three months ended June 30, 2011 as compared to the same period in 2010.

Following management’s second quarter evaluation of the allowance for loan losses, we recorded a provision for credit losses of $2,610,000 for the quarter ended June 30, 2011 compared with $655,000 for the quarter ended June 30, 2010. The increase in the provision was required by the increased loss exposure related to the decreases in underlying collateral values of certain impaired loans and a higher provision for the general component of the model to cover potential losses from non-impaired loans based on historic loss experience. In addition, during the quarter, management reviewed its process for estimating selling costs of impaired loans. Management transitioned the model to base the sales cost estimate on recent historical sales experience.

Noninterest income increased by $31,479 or 6.43% for the three months ended June 30, 2011 compared to the same quarter in the previous year. The increase is primarily attributable to income derived from service charges on deposit accounts and debit and credit card related income, partially offset by a decrease in mortgage origination fees. Noninterest expense for the three months ended June 30, 2011 increased by $195,580 or 8.76% over the same quarter in the previous year. The increase is attributable to expenses related to foreclosed assets.

Financial Condition

Overall loan demand has been soft in our operating markets during 2011. Total loans decreased $4,330,298 during the six months ended June 30, 2011. Deposits increased by $6,711,951. The decrease in loans combined with the increase in deposits increased liquid funds by $9,474,366, which were held as interest-bearing deposits with banks and federal funds sold. At June 30, 2011 federal funds sold and interest-bearing deposits with banks amounted to $23,393,351 compared to $13,918,985 at December 31, 2010. Investment securities, including restricted equity securities, decreased $1,450,981 as a result of maturing, called or redeemed investment securities. Given the current interest rate environment and investment opportunities, management elected to invest primarily in the overnight market, rather than longer-term investments. Total assets increased by $5,291,791 from $309,484,731 at December 31, 2010 to $314,776,522 at June 30, 2011.

Stockholders’ equity totaled $24,548,001 at June 30, 2011 compared to $25,864,681 at December 31, 2010. The $1,316,680 decrease during the period was the result of the net loss for the six months, dividends paid, offset by an increase in the market value of securities that are classified as available for sale and common stock issued under the Dividend Reinvestment and Stock Purchase Plan.

Non-Performing Assets

Non-performing assets, which consist of nonaccrual loans and foreclosed properties, were $17,984,559 at June 30, 2011 and $10,774,792 at December 31, 2010. The increase is primarily due to the overall increase in nonaccrual loans discussed below. Although this represents a substantial increase in nonperforming assets, we believe most of these loans are secured by collateral that are currently adequate to mitigate loss exposure.

 

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Nonaccrual loans were $13.8 million at June 30, 2011 and $8.9 million at December 31, 2010. The new additions to nonaccrual loans during the second quarter of 2011 amounted to $1.9 million and were primarily comprised of loans to businesses in the commercial and commercial real estate loan segments of our portfolio. The increase in nonaccrual loans resulted in the reversal of approximately $57,700 of previously recognized interest income. In addition, total nonaccrual loan balances have significantly increased our nonearning assets, which will continue to have an adverse financial impact on the Bank in the form of foregone interest income until the loans are removed from nonaccrual status. A loan is removed from nonaccrual status when it is deemed a loss and appropriately charged to the allowance or when it begins performing consistently, normally for six months, according to contractual terms. Many of these loans that became nonaccrual in 2011 were already on our watch list but were performing under the original or revised loan terms. In the second quarter, a number of borrowers failed to satisfy loan requirements, meet commitments previously made to Bank management, or otherwise failed to perform, resulting in the loans being placed on nonaccrual status.

Loans, including troubled debt restructurings, are generally placed in nonaccrual status when the collection of principal and interest is 90 days or more past due, unless the obligation is both well-secured and in the process of collection. A loan that is placed as nonaccrual does not mean that we will not recover much of or all the principal balance due. In most cases, we have a secured interest in collateral, such as real property or equipment. Sales of the collateral will not always cover the full loan amount, but it should offset much of this risk. We recognize the real estate collateral may be difficult to timely liquidate at desired values in the current economic climate. Additionally, the sale of our collateral could be a slow process and further hampered by the sales efforts of other lenders in the same market.

A loan is considered impaired if it is probable that the Bank will be unable to collect all amounts due under the contractual terms of the loan agreement. Impaired loans amounted to $26.5 million at June 30, 2011 compared to $26.4 million at December 31, 2010. The review of our loan portfolio in the second quarter of 2011 identified additional credits as impaired, slightly increasing the overall balance of impaired loans. The specific reserve component of the allowance for loan losses increased by $1.1 million from December 31, 2010 to June 30, 2011. Loss exposure at June 30, 2011 increased after obtaining current appraisals on collateral securing a significant number of impaired loans in the portfolio and estimating selling costs of impaired loans based on historical experience. At June 30, 2011, $3.2 million, or 47.1%, of the $6.8 million total allowance for loan losses was allocated for the loss exposure related to impaired loans. Management will continue to monitor the performance of loan repayments by borrowers who may be unable to pay according to contractual terms. We will take appropriate action, including identifying loss exposure and allocating specific reserves, when deemed necessary.

Foreclosed assets consisted of seventeen properties totaling $4,224,850 at June 30, 2011. Each quarter, management evaluates the carrying value of these properties to determine if write-downs to lower market values are warranted. During the second quarter of 2011, the bank recorded a write-down on foreclosed properties in the amount of $148,855. Also during the second quarter, the Bank foreclosed on eleven properties and sold three foreclosed properties. The sales of these properties resulted in a net gain of $4,376. All foreclosed properties are currently being marketed for sale, and no additional material loss is anticipated. The Bank had no loans secured by 1-4 family residential properties in the process of formal foreclosure at June 30, 2011.

The Bank continues to make a conscious effort to attempt work-out loan scenarios with past due customers. In some cases, loan restructuring is appropriate. Bank management has procedures and processes in place to identify, monitor, and report troubled debt restructurings. At June 30, 2011, troubled debt restructurings totaled $5.6 million, and were spread among all loan categories. In no case was principal forgiven. However, in certain instances, principal payments have been deferred. Interest rates on a majority of these loans were at prevailing market rates, with only minor concessions given on interest rate reductions from the original terms. At June 30, 2011, $2.8 million of troubled debt restructurings were on nonaccrual status. Bank management supports a philosophy of working with its customers during this phase of the economic cycle to pursue plausible options. We have had some general success with these efforts in the past, although currently these efforts are producing mixed results, and more work-out loans have defaulted. A significant number of our employees continue to be focused on our asset quality issues.

 

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Capital Requirements

The Company (on a consolidated basis) and the Bank are subject to various regulatory capital requirements administered by 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 and the Bank’s financial statements. Under capital adequacy guidelines and the regulatory framework for prompt corrective action, the Company and the Bank must meet specific capital guidelines that involve quantitative measures of their assets, liabilities, and certain off-balance sheet items as calculated under regulatory accounting practices. The 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 of total and Tier 1 capital to risk-weighted assets, and of Tier 1 capital to average assets, as all those terms are defined in the regulations. By definition, Tier 1 capital is comprised of common equity, retained earnings and qualifying perpetual preferred stock, less certain intangibles.

At June 30, 2011, the Bank’s Tier 1 risk-based capital ratio (Tier 1 capital divided by risk-weighted average assets) was 10.2% compared to 10.6% at December 31, 2010. The Company’s risk-based capital ratio (Tier 1 capital divided by risk-weighted average assets) was 10.2% at June 30, 2011 and 10.6% at December 31, 2010. Each of these ratios exceeded the required regulatory minimum ratio of 4.0%.

At June 30, 2011, the Bank’s total risk based capital ratio (total risk based capital divided by total risk-weighted assets) was 11.4% compared to 11.8% at December 31, 2010. The Company’s total risk based capital ratio (total risk based capital divided by total risk-weighted assets) was 11.4% at June 30, 2011 compared to 11.9% at December 31, 2010. Each of these ratios exceeded the required regulatory minimum ratio of 8.0%.

At June 30, 2011, the Bank’s leverage ratio (Tier 1 capital divided by quarterly average assets) was 8.0% compared to 8.3% at December 31, 2010. At June 30, 2011, the Company’s leverage ratio (Tier 1 capital divided by quarterly average assets) was 8.0% compared to 8.4% at December 31, 2010. Each of these ratios exceeded the required regulatory minimum ratio of 4.0%.

Management believes, as of June 30, 2011, that the Company and the Bank met all capital adequacy requirements to which we are subject.

Liquidity

One of the principal goals of the Bank’s asset and liability management strategy is to maintain adequate liquidity. Liquidity is the ability to convert assets to cash to fund depositors’ withdrawals or borrowers’ loans without significant loss. During 2011 the Bank’s liquidity has increased given soft loan demand, investments called prior to maturity, and an increase in deposits. With limited attractive investment opportunities, the Bank’s interest-bearing deposits with banks was $22.2 million at June 30, 2011 compared to $12.2 million at December 31, 2010, as the Bank held funds with the Federal Reserve Bank of Richmond to earn interest income on excess reserves. The Bank uses cash and federal funds sold to meet its daily funding needs. When our funding needs are met through holdings of excess cash and federal funds, earnings are mildly reduced as higher-yielding investments are foregone in the interest of enhanced liquidity. Therefore management determines, based on such items as loan demand and deposit activity, an appropriate level of cash and federal funds sold and seeks to maintain adequate liquidity.

Federal funds lines and repurchase agreement lines available from correspondent banks totaled $18.0 million at June 30, 2011 and December 31, 2010. There were no material changes in the Company’s volume of secondary liquidity sources at June 30, 2011. There was no balance outstanding on these lines at June 30, 2011 or December 31, 2010.

The secondary liquidity source for both short-term and long-term borrowings consists of a $14.4 million secured line of credit from the Federal Home Loan Bank at June 30, 2011 compared to $12.9 million at December 31, 2010. The $1.5 million increase is due to the identification and pledging of additional loans in our portfolio to serve as eligible collateral. Any borrowings from the Federal Home Loan Bank are secured by a blanket collateral agreement on a pledged portion of the Bank’s 1-to-4 family residential real estate loans, multifamily mortgage loans, and commercial mortgage collateral. At June 30, 2011, a $6.0 million letter of credit in favor of the Commonwealth of Virginia – Treasury Board, to secure public deposits, was utilized from this line of credit, leaving approximately $8.4 million of available credit for secondary liquidity needs. Advancing the maximum available credit could require the pledging of additional collateral. No balance was outstanding on this line at June 30, 2011 or December 31, 2010.

 

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The Bank has an approved $1.0 million Discount Window facility at the Federal Reserve Bank of Richmond as part of its Contingency Liquidity Plan. No balance was outstanding on this line at June 30, 2011 or December 31, 2010.

The Bank is a participating institution in the Certificate of Deposit Account Registry Service (“CDARS”). CDARS is a technology based service that the Bank can incorporate into its traditional product offering. The service uses a web based application that allows participating institutions across the country to swap, sell, or buy deposits from other members. The CDARS program can be used to attract new deposits, diversify our funding sources, and manage liquidity.

The Bank’s investment portfolio also serves as a source of liquidity. The primary objectives of the investment portfolio are to satisfy liquidity requirements, maximize income on portfolio assets, and supply collateral required to secure public funds deposits. As investment securities mature, the proceeds are either held as excess balance deposits at the Federal Reserve Bank, reinvested in federal funds sold, fund loan demand or deposit withdrawal fluctuations, or reinvested in similar investment securities. The majority of investment security transactions consist of replacing securities that have been called or matured. The Bank keeps a majority of its investment portfolio in unpledged assets that have less than a five year average life to maturity. These investments are a source of liquid funds as they can be sold in any interest rate environment without causing significant harm to the current period’s results of operations.

Management believes that the Company maintains overall liquidity sufficient to satisfy its depositors’ requirements and meet its customers’ credit needs.

 

Item 3. Quantitative and Qualitative Disclosures About Market Risk

Not applicable.

 

Item 4. Controls and Procedures

As of the end of the period covered by this report, we carried out an evaluation, under the supervision and with the participation of the Company’s management, including the Company’s Chief Executive Officer and Chief Financial Officer, of the effectiveness of the design and operation of our disclosure controls and procedures pursuant to Rule 13a-15 under the Securities Exchange Act of 1934. Based upon that evaluation, the Company’s Chief Executive Officer and Chief Financial Officer concluded that its disclosure controls and procedures are effective in timely alerting them to material information relating to the Company (including its consolidated subsidiaries) required to be included in its periodic filings with the Securities and Exchange Commission.

The Company’s management is also responsible for establishing and maintaining adequate internal control over financial reporting. There were no changes in the Company’s internal control over financial reporting that occurred during the Company’s last fiscal quarter that materially affected, or are reasonably likely to materially affect, internal control over financial reporting.

 

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PART II.

OTHER INFORMATION

 

Item 1. Legal Proceedings

In the normal course of business, the Company is involved in various legal proceedings. Management believes that the ultimate resolution of these proceedings will not have a material effect on the Company’s financial position, liquidity, or results of operations.

 

Item 1A. Risk Factors

Not applicable.

 

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

Not applicable.

 

Item 3. Defaults Upon Senior Securities

Not applicable.

 

Item 4. (Removed and Reserved)

 

Item 5. Other Information

None.

 

Item 6. Exhibits

The following is a list of all exhibits filed or incorporated by reference as part of this Report on Form 10-Q.

 

 3(i).1

   Restated Articles of Incorporation filed on the Form 10-K on March 29, 2011

3(ii).1

   Amended and restated Bylaws filed on the Form 8-K on October 14, 2008.

   10.41,2

   Change In Control Agreement filed as Exhibit 10.4 on the Form 10-SB 12G on April 30, 2002. Terminated effective November 30, 2010

   10.51

   Defined Benefit Plan filed as Exhibit 10.5 on the Form 10-SB 12G on April 30, 2002

   10.61,2

   Employment Agreement filed as Exhibit 10.6 on the Form 8-K on January 5, 2010

   10.71

   2009 Incentive Stock Plan filed as Appendix B on the Schedule 14A on March 27, 2009

   10.81

   Dividend Reinvestment and Stock Purchase Plan filed on the Form S-3D on September 10, 2009. Replaced by Amendment No. 1 to Form S-3 filed January 11, 2011, referenced in Exhibit 10.14

   10.91,2

   Employment Agreement filed as Exhibit 10.9 on the Form 8-K on November 30, 2010

   10.101,2

   Employment Agreement filed as Exhibit 10.10 on the Form 8-K on November 30, 2010

   10.111,2

   Noncompete and Change of Control Agreement filed as Exhibit 10.11 on the Form 8-K on November 30, 2010

   10.121,2

   Confidentiality and Change of Control Agreement filed as Exhibit 10.12 on the Form 8-K on November 30, 2010

   10.131

   2011 Annual Executive Bonus Plan filed as Exhibit 10.13 on the Form 8-K on November 30, 2010

   10.141

   The Amended Dividend Reinvestment and Stock Purchase Plan as filed in Amendment No. 1 to Form S-3 January 11, 2011

 

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   31.1

   Certification of Chief Executive Officer pursuant to Rule 13 a-14(a) under the Securities Exchange Act of 1934

   31.2

   Certification of Chief Financial Officer pursuant to Rule 13 a-14(a) under the Securities Exchange Act of 1934

   32.1

   Certification of Chief Executive Officer and Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

   99.1

   Subordinated Note Payable Series A (included in this filing)

   99.2

   Subordinated Note Payable Series B (included in this filing)

   99.3

   Preliminary Term Sheet of the Subordinated Notes Payable (included in this filing)

 101

   Interactive Data File

 

1 

Incorporated by Reference

2 

Designates a Management Contract

 

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SIGNATURES

Pursuant to the requirements of the Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

 

  Botetourt Bankshares, Inc.
Date: August 9, 2011     By:  

/s/ H. Watts Steger, III

      H. Watts Steger, III
      Chief Executive Officer
Date: August 9, 2011     By:  

/s/ Michelle A. Crook

      Michelle A. Crook
      Chief Financial Officer

 

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