Attached files

file filename
EX-31.1 - EX-31.1 - FNCB Bancorp, Inc.a11-23880_2ex31d1.htm
EX-31.2 - EX-31.2 - FNCB Bancorp, Inc.a11-23880_2ex31d2.htm
EX-32.1 - EX-32.1 - FNCB Bancorp, Inc.a11-23880_2ex32d1.htm

Table of Contents

 

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C.  20549

 


 

FORM 10-Q/A

 

Amendment No. 1

 

(Mark One)

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

 

For the quarterly period ended June 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 No. 000-53869

 

FIRST NATIONAL COMMUNITY BANCORP, INC.

(Exact Name of Registrant as Specified in Its Charter)

 

Pennsylvania

 

23-2900790

(State or Other Jurisdiction

of Incorporation or Organization)

 

(I.R.S. Employer

Identification No.)

 

 

 

102 E. Drinker St., Dunmore, PA

 

18512

(Address of Principal Executive Offices)

 

(Zip Code)

 

Registrant’s telephone number, including area code    (570) 346-7667

 

 

(Former Name, Former Address and Former Fiscal Year, if Changed Since Last Report)

 

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

 

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).  YES o  NO o

 

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

 

Large Accelerated Filer o

 

Accelerated Filer x

 

 

 

Non-Accelerated Filer o

 

Smaller reporting company o

 

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

 

Indicate the number of shares outstanding of each of the issuer’s classes of common stock as of the latest practicable date:

 

Common Stock, $1.25 par value

 

16,441,319 shares

(Title of Class)

 

(Outstanding at November 29, 2011)

 

 

 



Table of Contents

 

FIRST NATIONAL COMMUNITY BANCORP, INC.

 

TABLE OF CONTENTS

 

 

 

Page
No.

 

 

 

 

Explanatory Note

3

 

 

PART I
FINANCIAL INFORMATION

 

 

 

Item 1.

Financial Statements

 

 

 

 

 

Consolidated Balance Sheets as of June 30, 2010 and December 31, 2009 (unaudited)

4

 

 

 

 

Consolidated Statements of Operations for the Three and Six Months Ended June 30, 2010 and 2009 (unaudited)

5

 

Consolidated Statements of Cash Flows for the Six Months Ended June 30, 2010 and 2009 (unaudited)

6

 

Consolidated Statements of Changes in Shareholders’ Equity for the Six Months Ended June 30, 2010 and 2009 (unaudited)

7

 

Notes to Consolidated Financial Statements

8

`

 

 

Item 2.

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

39

 

 

 

Item 3.

Quantitative and Qualitative Disclosures about Market Risk

63

 

 

 

Item 4.

Controls and Procedures

63

 

 

 

PART II
OTHER INFORMATION

 

 

 

 

Item 1.

Legal Proceedings

64

 

 

 

Item 1A.

Risk Factors

64

 

 

 

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

64

 

 

 

Item 3.

Defaults Upon Senior Securities

64

 

 

 

Item 4.

[Removed and Reserved]

64

 

 

 

Item 5.

Other Information

64

 

 

 

Item 6.

Exhibits

64

 

 

 

Signatures

 

65

 

2



Table of Contents

 

EXPLANATORY NOTE

 

This Amendment No. 1 (“Amendment”) on Form 10-Q/A to the Quarterly Report on Form 10-Q of First National Community Bancorp, Inc.  (the “Company”) for the quarterly period ended June 30, 2010, filed with the Securities and Exchange Commission (“SEC”) on August 9, 2010 (the “Original Report”) is being filed to revise and restate the Company’s consolidated financial statements for the three and six month period ended June 30, 2010 that were filed with the Original Report to correct certain information and to address the impact of such changes on other disclosures included in the Original Report.  The Company has previously advised that the financial statements for June 30, 2010 included in the Original Report should no longer be relied upon.

 

In particular, this Amendment:

 

·                  amends and restates in their entirety the consolidated financial statements of the Company, and the notes thereto, included in Item 1 hereof, to appropriately reflect (i) the accounting for and timing of charges related to other than temporary impairment (OTTI) of the collateralized debt obligations in the Company’s securities investment portfolio, (ii) the determination of the Company’s provision and allowance for loan and lease losses, (iii) the provision for off-balance sheet commitments, (iv) the accounting for deferred loan fees and costs, (v) the related effect on the Company’s deferred tax assets and valuation allowance and (vi) other miscellaneous accounting issues;

·                  amends and revises Management’s Discussion and Analysis of Financial Condition and Results of Operations to reflect the restated consolidated financial statements;

·                  revises the disclosures regarding, and management’s assessment of, the Company’s disclosure controls and procedures and internal control over financial reporting to reflect current management’s determination that material weaknesses in such controls existed at June 30, 2010;

·                  provides additional disclosure regarding non-performing assets, including those loans extended to insiders or affiliates thereof;

·                  provides information relating to the Company’s and Bank’s regulatory orders entered into after the date of the Original Report to provide context for the amendments included in this document; and

·                  revises and corrects disclosure in response to comments from the SEC.

 

Other than as noted above, the Company is not required to and has not updated any forward-looking statements previously included in the Original Report. The Company has made no attempt in this Amendment to modify or update the disclosures presented in the Original Report other than as noted above.  Other than as noted above or reflected in this Explanatory Note, this Amendment does not reflect events occurring after the filing of the Original Report except to the extent information learned after the Original Report was filed relates to periods prior to June 30, 2010.  This Amendment is being filed in conjunction with amendments to the Company’s annual report on Form 10-K/A for the annual period ended December 31, 2009 and to its quarterly report on Form 10-Q/A for the quarterly period ended March 31, 2010.  The Company plans to file shortly its annual report on Form 10-K for the year ended December 31, 2010 and its quarterly reports on Form 10-Q for the quarterly periods ended September 30, 2010, March 31, 2010, June 30, 2011 and September 30, 2011.  This Amendment should be read in conjunction with all such filings and all such filings should be read in their entirety.

 

As indicated above, the Company has restated its financial statements for the quarter ended June 30, 2010. The Company has also restated its financial statements for the year ended December 31, 2009 and for the quarter ended March 31, 2010.  Unless otherwise indicated, the discussion in this Amendment gives effect to these restatements of the Company’s financial statements.

 

In the first half of 2011, the Company received document subpoenas from the SEC.  The information requested generally relates to disclosure and financial reporting by the Company and the restatement of the Company’s financial statements for the year ended December 31, 2009, and the quarters ended March 31, 2010 and June 30, 2010.  The Company is cooperating with the SEC in this matter.

 

Readers should review the risk factors described in other documents that the Company files or furnishes, from time to time, with the SEC, including Annual Reports to Shareholders, Annual Reports filed on Form 10-K, Form 10-Q and other current reports filed or furnished on Form 8-K and any amendments to such reports.

 

3



Table of Contents

 

PART I Financial Information

 

Item 1 – Financial Statements

 

FIRST NATIONAL COMMUNITY BANCORP, INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS (unaudited)

 

(in thousands, except for share data)

 

June 30, 2010
(as restated)

 

December 31, 2009
(as restated)

 

 

 

(Unaudited)

 

 

 

Assets

 

 

 

 

 

Cash and cash equivalents:

 

 

 

 

 

Cash and due from banks

 

$

21,795

 

$

24,189

 

Federal funds sold

 

60,925

 

62,175

 

Total cash and cash equivalents

 

82,720

 

86,364

 

Securities:

 

 

 

 

 

Available-for-sale, at fair value

 

253,006

 

252,946

 

Held-to-maturity, at cost (fair value $1,869 and $1,788)

 

1,946

 

1,899

 

Loans held for sale

 

119

 

 

Loans, net of allowance for loan and lease losses of $27,378 and $22,458

 

862,327

 

917,516

 

Bank premises and equipment

 

20,619

 

20,667

 

Accrued interest receivable

 

3,907

 

4,245

 

Intangible assets

 

1,731

 

1,794

 

Other assets

 

79,830

 

80,901

 

Total Assets

 

$

1,306,205

 

$

1,366,332

 

Liabilities

 

 

 

 

 

Deposits:

 

 

 

 

 

Demand

 

$

75,745

 

$

85,370

 

Interest-bearing demand

 

340,516

 

352,631

 

Savings

 

95,682

 

86,455

 

Time ($100,000 and over)

 

227,300

 

238,839

 

Other time

 

282,539

 

308,313

 

Total deposits

 

1,021,782

 

1,071,608

 

FHLB advances

 

175,576

 

183,830

 

Subordinated debentures

 

25,000

 

23,100

 

Junior subordinated debentures

 

10,310

 

10,310

 

Other debt

 

206

 

227

 

Accrued interest payable

 

2,704

 

3,064

 

Other liabilities

 

10,385

 

11,109

 

Total liabilities

 

1,245,963

 

1,303,248

 

Shareholders’ Equity

 

 

 

 

 

Common shares ($1.25 par)

 

 

 

 

 

Authorized: 50,000,000 shares as of June 30, 2010 and December 31, 2009
Issued and outstanding: 16,315,605 shares at June 30, 2010 and 16,289,970 shares at December 31, 2009

 

20,395

 

20,362

 

Additional paid-in capital

 

61,271

 

61,190

 

Retained earnings

 

(12,182

)

(6,162

)

Accumulated other comprehensive loss

 

(9,242

)

(12,306

)

Total shareholders’ equity

 

60,242

 

63,084

 

Total Liabilities and Shareholders’ Equity

 

$

1,306,205

 

$

1,366,332

 

 

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

 

4



Table of Contents

 

FIRST NATIONAL COMMUNITY BANCORP, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS (unaudited)

 

 

 

Three Months ended

 

Six Months ended

 

 

 

June 30,

 

June 30,

 

 

 

2010

 

2009

 

2010

 

2009

 

 

 

(as restated)

 

 

 

(as restated)

 

 

 

 

 

(dollars in thousands, except share data)

 

Interest income

 

 

 

 

 

 

 

 

 

Interest and fees on loans

 

$

11,486

 

$

13,039

 

$

23,618

 

26,397

 

Interest and dividends on securities:

 

 

 

 

 

 

 

 

 

U.S. Treasury and government agencies

 

1,305

 

1,614

 

2,797

 

3,419

 

State and political subdivisions

 

1,391

 

1,253

 

2,791

 

2,473

 

Other securities

 

176

 

423

 

275

 

890

 

Total interest and dividends on securities

 

2,872

 

3,290

 

5,863

 

6,782

 

Interest on federal funds sold

 

31

 

13

 

67

 

13

 

Total interest income

 

14,389

 

16,342

 

29,548

 

33,192

 

Interest expense

 

 

 

 

 

 

 

 

 

Interest-bearing demand

 

863

 

814

 

1,895

 

1,539

 

Savings

 

128

 

142

 

257

 

262

 

Time ($100,000 and over)

 

881

 

1,211

 

1,812

 

2,235

 

Other time

 

1,794

 

2,155

 

3,734

 

4,431

 

Interest on FHLB Advances

 

1,347

 

1,762

 

2,798

 

3,661

 

Interest on subordinated debentures

 

569

 

 

1,108

 

 

Interest on junior subordinated debentures

 

51

 

75

 

101

 

166

 

Interest on other debt

 

 

4

 

 

52

 

Total interest expense

 

5,633

 

6,163

 

11,705

 

12,346

 

Net interest income before provision for loan and lease losses

 

8,756

 

10,179

 

17,843

 

20,846

 

Provision for loan and lease losses

 

4,574

 

7,250

 

9,682

 

9,710

 

Net interest income after provision for loan and lease losses

 

4,182

 

2,929

 

8,161

 

11,136

 

Other income (loss)

 

 

 

 

 

 

 

 

 

Service charges

 

647

 

722

 

1,296

 

1,410

 

Net gain (loss) on the sale of securities

 

(21

)

298

 

1,175

 

825

 

Gross other-than-temporary impairment (“OTTI”) losses

 

(10,265

)

(11,722

)

(11,173

)

(11,722

)

Portion of loss recognized in OCI (before taxes)

 

7,709

 

11,340

 

8,271

 

11,340

 

Net impairment losses recognized in earnings

 

(2,556

)

(382

)

(2,902

)

(382

)

Net gain on the sale of loans

 

155

 

462

 

403

 

1,007

 

Net loss on the sale of other real estate

 

48

 

 

48

 

 

Net gain on the sale of other assets

 

28

 

 

28

 

 

Other

 

827

 

584

 

1,661

 

1,247

 

Total other income

 

(872

)

1,684

 

1,709

 

4,107

 

Other expenses

 

 

 

 

 

 

 

 

 

Salaries and employee benefits

 

3,229

 

2,984

 

6,337

 

6,316

 

Occupancy expense

 

517

 

544

 

1,164

 

1,159

 

Equipment expense

 

454

 

467

 

886

 

922

 

Advertising expense

 

214

 

240

 

333

 

480

 

Data processing expense

 

495

 

430

 

982

 

866

 

FDIC assessment

 

502

 

1,192

 

971

 

1,432

 

Bank shares tax

 

255

 

215

 

510

 

432

 

Expenses of other real estate

 

1,224

 

42

 

1,359

 

42

 

Legal expense

 

133

 

123

 

281

 

170

 

Other operating expenses

 

1,482

 

1,106

 

3,067

 

2,201

 

Total other expenses

 

8,505

 

7,343

 

15,890

 

14,020

 

Income (loss) before income taxes

 

(5,195

)

(2,730

)

(6,020

)

1,223

 

Provision (credit) for income taxes

 

 

(514

)

 

201

 

Net income (loss)

 

(5,195

)

(2,216

)

(6,020

)

1,022

 

Earnings (Loss) Per Share

 

 

 

 

 

 

 

 

 

Basic

 

$

(0.32

)

$

(0.14

)

$

(0.37

)

$

0.06

 

Diluted

 

$

(0.32

)

$

(0.14

)

$

(0.37

)

$

0.06

 

Cash Dividends Declared per Common Share

 

$

 

$

0.02

 

$

 

$

0.13

 

Weighted average number of outstanding shares

 

 

 

 

 

 

 

 

 

Basic

 

16,306,670

 

16,158,640

 

16,300,515

 

16,111,808

 

Diluted

 

16,306,670

 

16,158,640

 

16,300,515

 

16,155,745

 

 

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

 

5


 


Table of Contents

 

FIRST NATIONAL COMMUNITY BANCORP, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS (unaudited)

 

For The Six Months Ended June 30, (in thousands)

 

2010

 

2009

 

 

 

(as restated)

 

 

 

 

 

 

 

 

 

INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS:

 

 

 

 

 

CASH FLOWS FROM OPERATING ACTIVITIES:

 

 

 

 

 

Interest received

 

$

28,483

 

$

32,195

 

Fees and commissions received

 

2,955

 

2,719

 

Interest paid

 

(12,065

)

(13,414

)

Cash paid to suppliers and employees

 

(14,027

)

(16,000

)

Income taxes (paid)/refunded

 

2,866

 

(1,861

)

NET CASH PROVIDED BY OPERATING ACTIVITIES

 

8,212

 

3,639

 

 

 

 

 

 

 

CASH FLOWS FROM INVESTING ACTIVITIES:

 

 

 

 

 

Securities available for sale:

 

 

 

 

 

Proceeds from sales

 

25,548

 

12,378

 

Proceeds from calls, paydowns and maturities

 

17,502

 

22,531

 

Purchases

 

(39,105

)

(11,371

)

Net (decrease)/increase in loans to customers

 

40,916

 

(1,754

)

Capital expenditures

 

(628

)

(434

)

NET CASH PROVIDED BY INVESTING ACTIVITIES

 

44,233

 

21,350

 

 

 

 

 

 

 

CASH FLOWS FROM FINANCING ACTIVITIES:

 

 

 

 

 

Net decrease in demand deposits, money market demand, NOW accounts and savings accounts

 

(12,514

)

(4,562

)

Net decrease in certificates of deposit

 

(37,313

)

46,603

 

Proceeds from issuance of subordinated debentures

 

1,900

 

 

Net decrease in borrowed funds

 

(8,274

)

(24,386

)

Proceeds from issuance of common shares, net of share issuance costs

 

112

 

1,106

 

Cash dividends paid

 

 

(2,087

)

NET CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES

 

(56,089

)

16,674

 

 

 

 

 

 

 

NET DECREASE IN CASH AND CASH EQUIVALENTS

 

(3,644

)

41,663

 

 

 

 

 

 

 

CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD

 

86,364

 

18,171

 

 

 

 

 

 

 

CASH AND CASH EQUIVALENTS AT END OF PERIOD

 

$

82,720

 

$

59,834

 

 

 

 

 

 

 

 

 

RECONCILIATION OF NET INCOME (LOSS) TO NET CASH PROVIDED BY OPERATING ACTIVITIES:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net income (loss)

 

$

(6,020

)

$

1,022

 

 

 

 

 

 

 

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

 

 

 

 

 

Amortization and accretion, net

 

(1,402

)

(1,921

)

Equity in trust

 

(2

)

(3

)

Depreciation and amortization

 

881

 

907

 

Provision for loan and lease loss

 

9,682

 

9,710

 

Provision for off balance sheet

 

30

 

 

Provision/(benefit) for deferred taxes

 

2,137

 

(112

)

Gain on sale of loan

 

(402

)

(1,007

)

Gain on sale of securities

 

(1,175

)

(825

)

Loss on sale of other assets

 

820

 

 

Impairment losses on investment securities

 

2,902

 

382

 

Increase/(decrease) in taxes payable

 

 

(1,692

)

Decrease in interest receivable

 

339

 

924

 

Increase/(decrease) in interest payable

 

(360

)

(1,068

)

Increase in prepaid expenses and other assets

 

1,310

 

(2,576

)

Decrease in accrued expenses and other liabilities

 

(528

)

(102

)

 

 

 

 

 

 

Total adjustments

 

14,232

 

2,617

 

 

 

 

 

 

 

NET CASH PROVIDED BY OPERATING ACTIVITIES

 

$

8,212

 

$

3,639

 

 

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

 

6



Table of Contents

 

FIRST NATIONAL COMMUNITY BANCORP, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY (unaudited)

 

 

 

COMPREHENSIVE

 

COMMON SHARES

 

ADD’L
PAID-IN

 

RETAINED

 

ACCUMULATED
OTHER
COMPREHENSIVE

 

 

 

 

 

INCOME (LOSS)

 

SHARES

 

AMOUNT

 

CAPITAL

 

EARNINGS

 

INCOME/(LOSS)

 

TOTAL

 

Balances, December 31, 2008

 

 

 

16,047,928

 

$

20,060

 

$

59,591

 

$

40,892

 

$

(20,201

)

$

100,342

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Comprehensive income:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net income for the period

 

$

1,022

 

 

 

 

 

 

 

1,022

 

 

 

1,022

 

Other comprehensive income, net of tax:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Unrealized loss on securities available for sale, net of deferred tax benefit of $358

 

(666

)

 

 

 

 

 

 

 

 

 

 

 

 

Reclassification adjustment for gain or loss included in income (tax effect of $155)

 

288

 

 

 

 

 

 

 

 

 

 

 

 

 

Total other comprehensive loss, net of tax

 

(378

)

 

 

 

 

 

 

 

 

(378

)

(378

)

Comprehensive income

 

$

644

 

 

 

 

 

 

 

 

 

(378

)

644

 

Share-based compensation - Stock Option Plans

 

 

 

 

 

 

 

159

 

 

 

 

 

159

 

Issuance of common shares through dividend reinvestment

 

 

 

131,635

 

164

 

942

 

 

 

 

 

1,106

 

Cash dividends paid, $0.11 per share

 

 

 

 

 

 

 

 

 

(2,087

)

 

 

(2,087

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balances, June 30, 2009

 

 

 

16,179,563

 

$

20,224

 

$

60,692

 

$

39,827

 

$

(20,579

)

$

100,164

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balances, December 31, 2009 (as restated)

 

 

 

16,289,970

 

$

20,362

 

$

61,190

 

$

(6,162

)

$

(12,306

)

$

63,084

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Comprehensive income:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net income for the period

 

$

(6,020

)

 

 

 

 

 

 

(6,020

)

 

 

(6,020

)

Other comprehensive income, net of tax:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Unrealized gain on securities available for sale net of deferred taxes of $10,886

 

20,220

 

 

 

 

 

 

 

 

 

 

 

 

 

Noncredit related losses on securities not expected to be sold, net of deferred tax benefit of $9,649

 

(17,920

)

 

 

 

 

 

 

 

 

 

 

 

 

Reclassification adjustment for gain or loss included in income (tax effect of $411)

 

764

 

 

 

 

 

 

 

 

 

 

 

 

 

Total other comprehensive income, net of tax

 

3,064

 

 

 

 

 

 

 

 

 

3,064

 

3,064

 

Comprehensive (Loss)

 

$

(2,956

)

 

 

 

 

 

 

 

 

3,064

 

(2,956

)

Proceeds from issuance of Common Shares through dividend reinvestment

 

 

 

25,635

 

33

 

81

 

 

 

 

 

114

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balances, June 30, 2010 (as restated)

 

 

 

16,315,605

 

$

20,395

 

$

61,271

 

$

(12,182

)

$

(9,242

)

$

60,242

 

 

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

 

7



Table of Contents

 

FIRST NATIONAL COMMUNITY BANCORP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

 

Notes to Consolidated Financial Statements

 

Note 1.   Basis of Presentation

 

The consolidated financial statements of the Company include the accounts of its bank subsidiary, First National Community Bank and its wholly-owned subsidiaries. All inter-company transactions and balances have been eliminated. The accounting and reporting policies of the Company conform to U.S. Generally Accepted Accounting Principles (“GAAP”) and general practices within the financial services industry. Certain prior period amounts have been reclassified to conform to the current presentation. In accordance with current accounting guidance, the Company has evaluated subsequent events for potential recognition and/or disclosure in the consolidated financial statements and accompanying notes included thereto through the date the financial statements were filed.  In the opinion of management, all adjustments necessary to a fair statement of the results for the quarterly period ended June 30, 2010 have been included.

 

In preparing the consolidated financial statements, management has made estimates and assumptions that affect the reported amounts of assets and liabilities as of the date of the consolidated balance sheets and results of operations for the periods indicated. Actual results could differ significantly from those estimates. Material estimates that are particularly susceptible to change are the allowance for loan and lease losses (“ALLL”), security valuations, the evaluation of deferred income taxes, and the evaluation of intangibles (which includes core deposits and loan servicing rights) and investment securities for impairment. The current economic environment has increased the degree of uncertainty inherent in these material estimates.

 

On July 1, 2009, the Accounting Standards Codification (“ASC”) became the Financial Accounting Standards Board’s (the “FASB”) officially recognized source of authoritative U.S. GAAP applicable to all public and non-public non-governmental entities, superseding all existing FASB, American Institute of Certified Public Accountants (“AICPA”), Emerging Issues Task Force (“EITF”) and related literature. Rules and interpretive releases of the SEC under authority of federal securities laws are also sources of authoritative guidance for SEC registrants. All other accounting literature is considered non-authoritative. The issuance of the ASC affects the way companies refer to U.S. GAAP in financial statements and other disclosures. See the “New Authoritative Accounting Guidance” section below for a description of recent accounting pronouncements including the dates of adoption and the effect on the results of operations and financial condition.

 

Certain reclassifications have been made to the prior year’s consolidated financial statements that conform to the current year’s presentation. Such reclassifications had no impact on net income.

 

These financial statements should be read in conjunction with the consolidated financial statements and notes thereto included in the Company’s December 31, 2009 audited financial statements filed on Form 10-K/A and the Company’s March 31, 2010 unaudited financial statements filed on Form 10-Q/A. Additionally, the Company plans to file shortly its annual report on Form 10-K for the year ended December 31, 2010 and its quarterly reports on Form 10-Q for the quarterly periods ended September 30, 2010, March 31, 2011, June 30, 2011 and September 30, 2011. This Amendment should also be read in conjunction with all such filings and all such filings should be read in their entirety.

 

Note 2.   Restatement of Consolidated Financial Statements

 

The Company concluded that it would revise its financial statements to properly account for its ALLL, the provision for off-balance sheet commitments, OTTI of the Company’s securities portfolio, deferred loan fees and costs, goodwill impairment charge and the accounting for the deferred tax asset.

 

The Company has revised its financial statements from those included in the Original Report as follows:

 

·                  Impaired loans, previously reflected as an increase to the specific component of the ALLL, have been charged off and the reserve reduced, resulting in a reduction in the loan balance and an increase to the provision for loan and lease losses. The general reserve component of the ALLL, previously based on one aggregated pool of unimpaired loans, was increased after assigning these loans to one of the three pools of “Pass,” “Special Mention” or “Accruing and Substandard” and applying  historical loss factors and varied qualitative factor basis point allocations based on the risk profile in each pool to determine the appropriate reserve related to those loans. The general reserve component of the ALLL also increased based on higher historical loss experience resulting from the increased loan charge offs for impaired loans.

·                  The reserve for off-balance sheet commitments was previously calculated using all commitments and assumed that these commitments would be fully funded. This methodology was revised to provide a reserve on letters of credit and construction

 

8



Table of Contents

 

commitments. In addition, individual analyses were performed on the aforementioned commitments to borrowers considered to be impaired. Based on these changes, the reserve for off-balance sheet commitments was reduced.

·                  OTTI with respect to our PreTSLs, previously calculated assuming that 50% of issuers who deferred would recover within two years and in reliance on one expected default rate for all issuers and on fair market value data obtained from two outside service providers, including a third party that had sold the Company the PreTSLs included in the securities portfolio, was recalculated using cash flow models assuming specific deferred issuers of securities default immediately, using default rates specific to each bank issuer based on an analysis of its financial trends, and employing certain assumptions in determining the fair value of the securities. The change in methodology resulted in an additional impairment charge through earnings for the six months ending June 30, 2010.

·                  The Company also reduced OTTI by $4.9 million on PreTSL and PLCMO securities, the issuers of which defaulted or deferred payments between January 1, 2010 and June 30, 2010, after the Company reviewed its subsequent events analysis and determined that these events reflected issuer credit impairments that existed as of the fourth quarter of 2009. As such, those charges were reflected in the restated financial statements for the year ended December 31, 2009 in the Amended 2009 For 10-K.

·                  Additional loan fees and costs were capitalized and amortized after the Company determined that it had not capitalized a sufficient portion of loan fees and costs and had not done so consistently by loan type.

·                  In response to the significant loss reported by the Company in 2009 and the reduction in the market capitalization of the Company’s common shares, the Company’s goodwill was evaluated for impairment as of December 31, 2009 and, as a result of the analysis, $8.1 million of goodwill that arose in connection with the Company’s acquisition of its Honesdale, PA branch was charged off as of December 31, 2009.

·                  Recorded adjustments to the income tax benefit and the deferred tax asset and related reserve to reflect the changes to the financial statements.

 

The following tables set forth the consolidated restated financial statements for the quarterly period ended June 30, 2010 previously filed in its Original Report.

 

The following is a summary of the adjustments to the Company’s previously filed consolidated balance sheets as of June 30, 2010:

 

9



Table of Contents

 

FIRST NATIONAL COMMUNITY BANCORP, INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS (unaudited)

 

 

 

June 30, 2010

 

Adjustments

 

Reclassifications

 

June 30, 2010

 

(in thousands)

 

As Reported

 

Increase (Decrease)

 

Increase (Decrease)

 

As Restated

 

Assets

 

 

 

 

 

 

 

 

 

Cash and cash equivalents:

 

 

 

 

 

 

 

 

 

Cash and due from banks

 

$

21,795

 

 

 

 

 

$

21,795

 

Federal funds sold

 

60,925

 

 

 

 

 

60,925

 

Total cash and cash equivalents

 

82,720

 

 

 

 

 

82,720

 

Securities:

 

 

 

 

 

 

 

 

 

Available-for-sale, at fair value (b) (c) (h)

 

260,266

 

$

(7,260

)

 

 

253,006

 

Held-to-maturity, at cost (fair value $1,869 on June 30, 2010 and $1,788 on December 31, 2009) (q)

 

1,945

 

1

 

 

 

1,946

 

Federal Reserve Bank and FHLB Stock, at cost (i)

 

12,115

 

 

 

$

(12,115

)

 

Loans held for sale (r)

 

 

119

 

 

 

119

 

Loans, net of allowance for loan and lease losses of $27,378 and $22,458 (d) (e) (g) (f)

 

874,103

 

(11,776

)

 

 

862,327

 

Accrued interest receivable (c) (n)

 

 

148

 

3,759

 

3,907

 

Bank premises and equipment (q)

 

20,620

 

(1

)

 

 

20,619

 

Intangible assets (k)

 

9,865

 

(8,134

)

 

 

1,731

 

Other assets (i) (j) (n)

 

77,904

 

(6,430

)

8,356

 

79,830

 

Total Assets

 

$

1,339,538

 

$

(33,333

)

$

 

$

1,306,205

 

 

 

 

 

 

 

 

 

 

 

Liabilities

 

 

 

 

 

 

 

 

 

Deposits:

 

 

 

 

 

 

 

 

 

Demand (q)

 

$

75,743

 

$

2

 

 

 

$

75,745

 

Interest-bearing demand (q)

 

340,515

 

1

 

 

 

340,516

 

Savings

 

95,682

 

 

 

 

 

95,682

 

Time ($100,000 and over) (q)

 

227,302

 

(2

)

 

 

227,300

 

Other time (q)

 

282,537

 

2

 

 

 

282,539

 

Total deposits

 

1,021,779

 

3

 

 

1,021,782

 

Borrowed funds (l)

 

186,093

 

 

(186,093

)

 

FHLB advances (l)

 

 

 

175,576

 

175,576

 

Subordinated debentures

 

25,000

 

 

 

25,000

 

Junior subordinated debentures (l)

 

 

 

10,310

 

10,310

 

Other debt (l) (q)

 

 

(1

)

207

 

206

 

Accrued interest payable (o)

 

 

 

2,704

 

2,704

 

Other liabilities (o) (m) (a)

 

13,175

 

(86

)

(2,704

)

10,385

 

Total Liabilities

 

1,246,047

 

(84

)

 

1,245,963

 

Shareholders’ Equity

 

 

 

 

 

 

 

 

 

Common stock, ($1.25 par)

 

 

 

 

 

 

 

 

 

Authorized 50,000,000 shares as of June 30, 2010
Issued and outstanding 16,315,605 shares at June 30, 2010 and 16,289,970 shares at December 31, 2009

 

20,395

 

 

 

 

 

20,395

 

Additional paid-in capital (q)

 

61,270

 

1

 

 

 

61,271

 

Retained earnings (p) 

 

27,063

 

(39,245

)

 

(12,182

)

Accumulated other comprehensive loss (h)

 

(15,237

)

5,995

 

 

 

(9,242

)

Total Shareholders’ Equity

 

93,491

 

(33,249

)

 

60,242

 

Total Liabilities and Shareholders’ Equity

 

$

1,339,538

 

$

(33,333

)

$

 

$

1,306,205

 

 

10



Table of Contents

 


(a)         Change in reserve for off-balance sheet commitments after change in methodology.

(b)         Additional OTTI recorded on available-for-sale securities.

(c)          Reversal of interest capitalized for payments in-kind.

(d)         Allowance for impaired loan and lease losses recorded after change in methodology.

(e)          Additional charge-offs recorded on loans.

(f)           To record loan fees and costs in accordance with ASC 310 Receivables.

(g)          Amortization of loan fees and costs in accordance with ASC 310 Receivables.

(h)         Reversal of Other Comprehensive Income for those securities where additional OTTI was recognized.

(i)             Reclassification of FHLB and FRB stock from Securities to Other Assets.

(j)            Record benefit for income taxes.

(k)         Adjust for the write-down of goodwill recorded in the restatement of 2009 results.

(l)             Reclassification of FHLB advances, junior subordinated debentures and other debt from borrowed funds.

(m)     Adjustment to accrued expenses.

(n)         Reclassification of accrued interest receivable from other assets.

(o)         Reclassification of accrued interest payable from other liabilities.

(p)         Reduction in retained earnings as a result of the net loss in the restated 2009 results as well as various adjustment entries booked as a result of the prior year and current quarter restatements.

(q)         Adjustment for rounding.

(r)            Reclassification of loans held for sale from other assets to properly present loans held for sale.

 

The following is a summary of the adjustments to our previously issued consolidated statements of operations for the three and six months ended June 30, 2010:

 

11



Table of Contents

 

FIRST NATIONAL COMMUNITY BANCORP, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS (unaudited)

 

12



Table of Contents

 

 

 

Three months Ended

 

 

 

June 30, 2010
As Reported

 

Adjustments
Increase/(Decrease)

 

Reclassifications
Increase/(Decrease)

 

June 30, 2010
(As Restated)

 

 

 

(dollars in thousands, except share data)

 

Interest Income

 

 

 

 

 

 

 

 

 

Interest and fees on loans (g) (h)

 

$

11,542

 

$

(56

)

 

 

$

11,486

 

Interest and dividends on securities:

 

 

 

 

 

 

 

 

 

US Treasury and government agencies

 

1,305

 

 

 

 

 

1,305

 

State and political subdivisions

 

1,391

 

 

 

 

 

1,391

 

Other securities (p)

 

180

 

(4

)

 

 

176

 

Total interest and dividends on securities

 

2,876

 

(4

)

 

2,872

 

 

 

 

 

 

 

 

 

 

 

Interest on federal funds sold

 

31

 

 

 

 

 

31

 

Total interest income

 

14,449

 

(60

)

 

14,389

 

Interest Expense

 

 

 

 

 

 

 

 

 

Interest bearing demand

 

863

 

 

 

 

 

863

 

Savings

 

128

 

 

 

 

 

128

 

Time ($100,000 and over)

 

881

 

 

 

 

 

881

 

Other time

 

1,794

 

 

 

 

 

1,794

 

Total deposits

 

3,666

 

 

 

3,666

 

Borrowed funds interest expense (l)

 

1,400

 

 

 

(1,400

)

 

Interest on FHLB advances (l)

 

 

 

 

1,347

 

1,347

 

Interest on subordinated debentures (e)

 

568

 

 

 

1

 

569

 

Interest on junior subordinated debentures (l)

 

 

 

 

51

 

51

 

Interest on other debt (l)

 

 

 

 

 

Total interest expense

 

5,634

 

 

(1

)

5,633

 

Net interest income before provision for loan and lease losses

 

8,815

 

(60

)

1

 

8,756

 

 

 

 

 

 

 

 

 

 

 

Provision for loan and lease losses (d)

 

4,960

 

(386

)

 

 

4,574

 

Net interest income (loss) after provision for loan and lease losses

 

3,855

 

326

 

1

 

4,182

 

Other income

 

 

 

 

 

 

 

 

 

Service charges (e)

 

646

 

1

 

 

 

647

 

Net gain on the sale of securities

 

(21

)

 

 

 

 

(21

)

Gross other-than-temporary impairment (“OTTI”) losses (b)

 

(3,611

)

(6,654

)

 

 

(10,265

)

Portion of loss recognized in OCI (before taxes) (b)

 

2,924

 

4,785

 

 

 

7,709

 

Net impairment losses recognized in earnings (b)

 

(687

)

(1,869

)

 

(2,556

)

Net gain on the sale of loans (c) (q)

 

159

 

24

 

(28

)

155

 

Net gain on the sale of other real estate (r)

 

(848

)

 

 

896

 

48

 

Net gain on the sale of other assets (q)

 

 

 

 

28

 

28

 

Other (n) (f)

 

655

 

47

 

125

 

827

 

Total other income

 

(96

)

(1,797

)

1,021

 

(872

)

Other expenses

 

 

 

 

 

 

 

 

 

Salaries and employee benefits (f) (g)

 

3,283

 

(179

)

125

 

3,229

 

Occupancy expense (i) (m)

 

1,013

 

(42

)

(454

)

517

 

Equipment expense (i)

 

 

 

 

454

 

454

 

Advertising expense (m)

 

225

 

(11

)

 

 

214

 

Data processing expense (e)

 

496

 

(1

)

 

 

495

 

FDIC assessment

 

502

 

 

 

 

 

502

 

Bank shares tax

 

255

 

 

 

 

 

255

 

Expense of other real estate owned (r) (m)

 

343

 

(15

)

896

 

1,224

 

Legal expenses (k) (m)

 

 

(40

)

173

 

133

 

Provision for off-balance sheet commitments (a)

 

(322

)

322

 

 

 

Other operating expenses (n) (o) (e) (k)

 

1,654

 

1

 

(173

)

1,482

 

Total other expenses

 

7,449

 

35

 

1,021

 

8,505

 

Income (loss) before income taxes

 

(3,690

)

(1,506

)

 

 

(5,195

)

Provision (credit) for income taxes (j)

 

(1,941

)

1,941

 

 

 

 

Net (loss)

 

$

(1,749

)

$

(3,447

)

$

 

$

(5,195

)

 

 

 

 

 

 

 

 

 

 

LOSS PER SHARE:

 

 

 

 

 

 

 

 

 

Basic

 

$

(0.11

)

$

(0.21

)

 

 

$

(0.32

)

Diluted

 

$

(0.11

)

$

(0.21

)

 

 

$

(0.32

)

 

 

 

 

 

 

 

 

 

 

WEIGHTED AVERAGE NUMBER OF SHARES OUTSTANDING:

 

 

 

 

 

 

 

 

 

Basic

 

16,306,670

 

 

 

 

 

16,306,670

 

Diluted

 

16,306,670

 

 

 

 

 

16,306,670

 

 

13



Table of Contents

 

 

 

Six Months Ended

 

 

 

June 30, 2010
As Reported

 

Adjustments
Increase/(Decrease)

 

Reclassifications
Increase/(Decrease)

 

June 30, 2010
(As Restated)

 

 

 

(dollars in thousands, except share data)

 

Interest Income

 

 

 

 

 

 

 

 

 

Interest and fees on loans (g) (h)

 

$

23,730

 

$

(112

)

 

 

$

23,618

 

Interest and dividends on securities:

 

 

 

 

 

 

 

 

 

US Treasury and government agencies

 

2,797

 

 

 

 

 

2,797

 

State and political subdivisions

 

2,791

 

 

 

 

 

2,791

 

Other securities (p)

 

361

 

(86

)

 

 

275

 

Total interest and dividends on securities

 

5,949

 

(86

)

 

5,863

 

Interest on federal funds sold

 

67

 

 

 

 

 

67

 

Total interest income

 

29,746

 

(198

)

 

29,548

 

Interest Expense

 

 

 

 

 

 

 

 

 

Interest bearing demand

 

1,895

 

 

 

 

 

1,895

 

Savings

 

257

 

 

 

 

 

257

 

Time ($100,000 and over)

 

1,812

 

 

 

 

 

1,812

 

Other time

 

3,734

 

 

 

 

 

3,734

 

Total deposits

 

7,698

 

 

 

 

7,698

 

Borrowed funds interest expense (l)

 

2,901

 

(1

)

(2,900

)

 

Interest on FHLB advances (l)

 

 

 

 

2,798

 

2,798

 

Interest on subordinated debentures (e)

 

1,107

 

 

 

1

 

1,108

 

Interest on junior subordinated debentures (l)

 

 

 

 

101

 

101

 

Interest on other debt (l)

 

 

 

 

 

 

 

 

Total interest expense

 

11,706

 

(1

)

 

11,705

 

Net interest income before provision for loan and lease losses

 

18,040

 

(197

)

 

17,843

 

Provision for loan and lease losses (d)

 

7,762

 

1,920

 

 

 

9,682

 

Net interest income (loss) after provision for loan and lease losses

 

10,278

 

(2,117

)

 

8,161

 

 

 

 

 

 

 

 

 

 

 

Other income

 

 

 

 

 

 

 

 

 

Service charges (e)

 

1,296

 

 

 

 

 

1,296

 

Net gain on the sale of securities

 

1,175

 

 

 

 

 

1,175

 

Gross other-than-temporary impairment (“OTTI”) losses (b)

 

(28,504

)

12,889

 

 

 

(15,615

)

Portion of loss recognized in OCI (before taxes) (b)

 

26,902

 

(14,189

)

 

 

12,713

 

Net impairment losses recognized in earnings (b)

 

(1,602

)

(1,300

)

 

(2,902

)

Net gain on the sale of loans (c) (q)

 

432

 

(1

)

(28

)

403

 

Net gain on the sale of other real estate (r)

 

(848

)

 

 

896

 

48

 

Net gain on the sale of other assets (q)

 

 

0

 

28

 

28

 

Other (f) (n)

 

1,311

 

95

 

255

 

1,661

 

Total other income

 

1,764

 

(1,206

)

1,151

 

1,709

 

Other expenses

 

 

 

 

 

 

 

 

 

Salaries and employee benefits (f) (g)

 

6,403

 

(322

)

256

 

6,337

 

Occupancy expense (i) (m)

 

2,080

 

(30

)

(886

)

1,164

 

Equipment expense (i)

 

 

 

 

886

 

886

 

Advertising expense (m)

 

450

 

(117

)

 

 

333

 

Data processing expense (e)

 

983

 

(1

)

 

 

982

 

FDIC assessment

 

971

 

 

 

 

 

971

 

Bank shares tax

 

510

 

 

 

 

 

510

 

Expense of other real estate (r) (m)

 

463

 

 

 

896

 

1,359

 

Legal expenses (k) (m)

 

 

(15

)

296

 

281

 

Provision for off-balance sheet commitments (a)

 

(1,353

)

1,353

 

 

 

 

Other operating expenses (n) (o) (e) (k)

 

3,324

 

38

 

(295

)

3,067

 

Total other expenses

 

13,831

 

906

 

1,153

 

15,890

 

Income (loss) before income taxes

 

(1,789

)

(4,229

)

(2

)

(6,020

)

Provision (credit) for income taxes (j)

 

(1,998

)

1,998

 

 

 

Net income (loss)

 

$

209

 

$

(6,227)

 

$

(2

)

$

(6,020

)

 

 

 

 

 

 

 

 

 

 

LOSS PER SHARE:

 

 

 

 

 

 

 

 

 

Basic

 

$

0.01

 

$

(0.38

)

 

 

$

(0.37

)

Diluted

 

$

0.01

 

$

(0.38

)

 

 

$

(0.37

)

 

 

 

 

 

 

 

 

 

 

WEIGHTED AVERAGE NUMBER OF SHARES OUTSTANDING

 

 

 

 

 

 

 

 

 

Basic

 

16,300,515

 

 

 

 

 

16,300,515

 

Diluted

 

16,638,884

 

(338,369

)

 

 

16,300,515

 

 

14



Table of Contents

 


(a)          Change in reserve for off-balance sheet commitments after change in methodology.

(b)         Adjustment to increase OTTI recorded on available-for-sale securities as a result of change in methodology.

(c)          Adjustment related to the gain booked on Loans, held for sale.

(d)         Provision for loan and lease losses adjusted after change in methodology.

(e)          Adjustment for rounding.

(f)            Reclassification of Bank Owned Life Insurance Income from expense to income.

(g)         To record loan fees and costs in accordance with ASC 310 Receivables.

(h)         Amortization of loan fees and costs in accordance with ASC 310 Receivables.

(i)             Reclassification of Equipment expense from being included in Occupancy expense.

(j)             Reverse income tax benefit.

(k)          Reclassification of Legal expense from being included in other operating expenses.

(l)             Reclassification of interest on borrowed funds to interest on FHLB advances, interest on junior subordinated debentures, and interest on other debt.

(m)       To adjust and reduce expense related to an over accrual.

(n)         Reclassification of mortgage servicing rights amortization expense from being netted against loan servicing fee income.

(o)         Reclassification of provision for off balance sheet commitments to other operating expenses.

(p)         Reversal of accrued interest on Pooled Trust Preferred Securities.

(q)   Reclassification of Gain on sale of other assets from gain on sale of loans.

(r)   Reclassification of OREO valuation write-downs.

 

Note 3.   New Authoritative Accounting Guidance

 

On January 1, 2010, the Company adopted the provisions of the Accounting Standards Codification (“ASC”) Topic 860-10-50, Transfers and Servicing - Overall-Disclosures as updated by Accounting Standards Update (“ASU”) 2009-16, Accounting for Transfers of Financial Assets. The standard enhances the reporting for transfers of financial assets, including securitization transactions.  It also requires companies to report where they have continuing exposure to the risks related to transferred financial assets and eliminates the concept of a “qualifying special-purpose entity.”  In addition, it changes the requirements for derecognizing financial assets and requires additional disclosures about all continuing involvements with transferred financial assets, including information about gains and losses resulting from transfers during the period.  This standard also requires additional year-end and interim disclosures. The standard must be applied to transfers that occurred before and after its effective date. The adoption of ASC Topic 860-10-50 had no impact on the Company’s financial statements.

 

On January 1, 2010, the Company adopted ASC topic 810-10-50, Consolidation-Overall-Disclosures as amended by ASU 2009-17, Consolidation Improvements to Financial Reporting by Enterprises Involved with Variable Interest Entities, to change how a company determines when an entity that is insufficiently capitalized or is not controlled through voting (or similar rights) should be consolidated.  The determination of whether a company is required to consolidate an entity is based on, among other things, an entity’s purpose and design and a company’s ability to direct the activities of the entity that most significantly impact the entity’s economic performance.  This standard also requires additional disclosures about the reporting entity’s involvement with variable-interest entities and any significant changes in risk exposure due to that involvement as well as its effect on the entity’s financial statements.  The standard also requires additional year-end and interim disclosures.  In February 2010, ASU 2010-10, Consolidation: Amendments for Certain Investment Funds was issued which provides an indefinite deferral of ASC topic 810-10 for certain entities.  Entities that meet the criteria for deferral of consolidation guidance are still required to provide disclosures required by the topic.  The update also clarifies how a related party’s interests in an entity should be considered when evaluating the criteria for determining whether a decision maker or service provider fee represents a variable interest.  It clarifies that a quantitative calculation should not be the only basis for evaluating whether a decision maker’s or service provider’s fee is a variable interest. The adoption of ASC Topic 810-10-50 had no impact on the Company’s financial statements.

 

In January 2010, a clarification ASU 2010-06, Fair Value and Disclosures, Improving Disclosures about Fair Value Measurements was issued for ASC topic 820-10-50, Fair Value Measurements and Disclosures.   The amendments in ASU 2010-06 require companies to provide a separate disclosure for transfers in and out of Levels 1 and 2, including a description of the reasons for the transfer.  The amendments also require companies to report activity in Level 3 fair value measurements on a gross basis, including information about purchases, sales, issuances and settlements.  The amendments also clarify existing disclosures related to disaggregated reporting, model inputs and valuation techniques.  The new disclosures are effective for the first quarter of 2010, except for the gross reporting of Level 3 activity, which is effective beginning the first quarter of 2011. These amendments resulted in additional disclosures in our interim and annual reports. The applicable new disclosures have been included in Note 8.

 

15



Table of Contents

 

Note 4.   Regulatory Matters

 

The Company is 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 adverse effect on the Company’s financial statements.  Under capital adequacy guidelines and the regulatory framework for prompt corrective action, specific capital guidelines that involve quantitative measures of assets, liabilities, and certain off-balance sheet items as calculated under regulatory accounting practices must be met.  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 to maintain minimum amounts and ratios (set forth in the table below) of total and Tier I capital (as defined in the regulations) to risk-weighted assets (as defined), and of Tier I capital (as defined) to average assets (as defined).

 

Currently, the Company’s and the Bank’s actual capital positions and ratios as of June 30, 2010 and December 31, 2009 are presented in the following table:

 

CAPITAL ANALYSIS

(in thousands)

 

 

 

June 30,
2010
(as restated)

 

December 31,
2009
(as restated)

 

Company

 

 

 

 

 

Tier I Capital:

 

 

 

 

 

Total Tier I Capital

 

$

78,509

 

$

84,365

 

Tier II Capital:

 

 

 

 

 

Subordinated notes

 

25,000

 

23,100

 

Allowable portion of allowance for loan and lease losses

 

13,594

 

14,594

 

Total Tier II Capital

 

38,594

 

37,694

 

Total Risk-Based Capital

 

117,103

 

122,059

 

Total Risk-Weighted Assets

 

$

1,072,189

 

$

1,158,157

 

 

 

 

 

 

 

Bank

 

 

 

 

 

Tier I Capital:

 

 

 

 

 

Total Tier I Capital

 

$

100,708

 

$

103,453

 

Tier II Capital:

 

 

 

 

 

Allowable portion of allowance for loan and lease losses

 

13,589

 

14,590

 

Total Tier II Capital

 

13,589

 

14,590

 

Total Risk-Based Capital

 

114,297

 

118,043

 

Total Risk-Weighted Assets

 

$

1,071,842

 

$

1,157,823

 

 

 

 

Actual

 

For Capital
Adequacy Purposes

 

To Be Well
Capitalized
Under Prompt
Corrective
Action Provision

 

As of June 30, 2010: (as restated)

 

Amount

 

Ratio

 

Amount