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EX-32 - EXHIBIT 32 - ALLIANCE BANKSHARES CORPd296256dex32.htm
EX-31.1 - EXHIBIT 31.1 - ALLIANCE BANKSHARES CORPd296256dex311.htm
EX-31.2 - EXHIBIT 31.2 - ALLIANCE BANKSHARES CORPd296256dex312.htm
EX-23.1 - EXHIBIT 23.1 - ALLIANCE BANKSHARES CORPd296256dex231.htm

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

 

FORM 10-K/A

(Amendment No. 1)

(Mark One)

 

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

For the fiscal year ended December 31, 2011

 

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

For the transition period from                     to                    

Commission file number: 000-49976

 

 

ALLIANCE BANKSHARES CORPORATION

(Exact name of registrant as specified in its charter)

 

VIRGINIA   46-0488111

(State or other jurisdiction of

incorporation or organization)

 

(I.R.S. Employer

Identification No.)

14200 Park Meadow Drive, Suite 200 South, Chantilly, Virginia 20151

(Address of principal executive offices) (Zip Code)

(703) 814-7200

(Registrant’s telephone number, including area code)

Securities registered pursuant to Section 12(b) of the Act:

 

Common Stock, $4.00 par value per share

 

The NASDAQ Stock Market LLC

Title of each class   Name of each exchange on which registered

Securities registered pursuant to Section 12(g) of the Act:

None

 

 

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.    Yes  ¨    No  x

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or 15(d) of the Act.    Yes  ¨    No  x

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  ¨

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 the registrant was required to submit and post such files).    x  Yes    ¨  No

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (§ 229.405 of this chapter) is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K.  x

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 Act).    Yes  ¨    No  x

The aggregate market value of Alliance Bankshares Corporation common stock held by non-affiliates as of June 30, 2011 was $23,855,189 based on the closing sale price of $4.90 per common share.

The number of shares of common stock outstanding as of April 10, 2012 was 5,109,969.

 

 

DOCUMENTS INCORPORATED BY REFERENCE

The information required by Part III of this report will be included in an amendment to this annual report on Form 10-K filed on or before April 30, 2012.

 

 

 


EXPLANATORY NOTE

This Amendment No. 1 on Form 10-K/A (the “Amendment”) amends Alliance Bankshares Corporation’s (“Bankshares”) Annual Report on Form 10-K for the fiscal year ended December 31, 2011, originally filed with the Securities and Exchange Commission (the “SEC”) on April 17, 2012 (the “Original Filing”). Bankshares is filing the Amendment solely for the purpose of updating (i) the Report of Independent Registered Public Accounting Firm in Item 8, Financial Statements and Supplementary Data, to reflect changes in language provided by Yount Hyde & Barbour, P.C. and (ii) the Exhibit 23 auditor’s consent to correct a typographical error in the file number of one of the registration statements referenced therein. No attempt has been made in this Amendment to modify or update other disclosures presented in the Original Filing. This Amendment does not reflect events occurring after the date of the filing of the Original Filing or modify or update disclosures, including the exhibits to the Original Filing, affected by subsequent events.

In addition, as required by Rule 12b-15 under the Securities Exchange Act of 1934, as amended (the “Exchange Act”), new certifications by our principal executive officer and principal financial officer are filed as exhibits to the Amendment under Item 15 of Part IV hereof.

 

2


Item 8. Financial Statements and Supplementary Data

Alliance Bankshares Corporation

Consolidated Financial Statements

For the Years Ended December 31, 2011 and 2010

With Report of Independent Registered Public Accounting Firm

 

3


LOGO

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Board of Directors and Shareholders

Alliance Bankshares Corporation

Chantilly, Virginia

We have audited the accompanying consolidated balance sheets of Alliance Bankshares Corporation and subsidiaries as of December 31, 2011 and 2010, and the related consolidated statements of operations, changes in shareholders’ equity, and cash flows for the years then ended. These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements based on our audits.

We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. Our audits included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Alliance Bankshares Corporation and subsidiaries as of December 31, 2011 and 2010, and the results of their operations and their cash flows for the years then ended, in conformity with U.S. generally accepted accounting principles.

/s/ Yount, Hyde & Barbour, P.C.

Winchester, Virginia

April 17, 2012

 

4


Alliance Bankshares Corporation

Consolidated Balance Sheets

December 31, 2011 and 2010

(Dollars in thousands, except per share amounts)

 

     2011     2010  

ASSETS

    

Cash and due from banks

   $ 45,837      $ 24,078   

Federal funds sold

     16,567        17,870   

Trading securites, at fair value

     596        2,075   

Investment securites available-for-sale, at fair value

     123,463        135,852   

Restricted stock, at cost

     4,772        6,355   

Loans, net of allowance for loan losses of $5,393 and $5,281

     301,483        327,029   

Premises and equipment, net

     1,415        1,584   

Other real estate owned

     3,748        4,627   

Accrued interest and other assets

     8,602        19,041   
  

 

 

   

 

 

 

TOTAL ASSETS

   $ 506,483      $ 538,511   
  

 

 

   

 

 

 

LIABILITIES AND SHAREHOLDERS’ EQUITY

    

LIABILITIES:

    

Non-interest bearing deposits

   $ 112,450      $ 124,639   

Savings and NOW deposits

     51,475        56,569   

Money market deposits

     23,370        25,524   

Time deposits

     193,148        200,211   
  

 

 

   

 

 

 

Total deposits

     380,443        406,943   

Repurchase agreements

     40,420        43,153   

Federal Home Loan Bank advances ($29,350 and $26,208 at fair value)

     44,350        41,208   

Trust Preferred Capital Notes

     10,310        10,310   

Other liabilities

     2,838        3,212   

Commitments and contingent liabilities

     —          —     
  

 

 

   

 

 

 

Total liabilities

     478,361        504,826   
  

 

 

   

 

 

 

SHAREHOLDERS’ EQUITY:

    

Common stock, $4 par value; 15,000,000 shares authorized; 5,109,969 and 5,106,819 shares issued and outstanding at December 31, 2011 and 2010

     20,440        20,427   

Capital surplus

     25,915        25,857   

Retained (deficit)

     (18,269     (12,311

Accumulated other comprehensive income (loss), net

     36        (288
  

 

 

   

 

 

 

Total shareholders’ equity

     28,122        33,685   
  

 

 

   

 

 

 

TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY

   $ 506,483      $ 538,511   
  

 

 

   

 

 

 

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

 

5


Alliance Bankshares Corporation

Consolidated Statements of Operations

For the Years Ended December 31, 2011 and 2010

(Dollars in thousands, except per share amounts)

 

     2011     2010  

INTEREST INCOME:

    

Loans

   $ 18,073      $ 20,476   

Investment securities

     3,513        6,084   

Trading securities

     67        214   

Federal funds sold

     53        64   
  

 

 

   

 

 

 

Total interest income

     21,706        26,838   
  

 

 

   

 

 

 

INTEREST EXPENSE:

    

Savings and NOW deposits

     124        216   

Time deposits

     3,671        5,577   

Money market deposits

     178        270   

Repurchase agreements

     238        354   

FHLB advances

     1,042        1,134   

Trust preferred capital notes

     380        367   
  

 

 

   

 

 

 

Total interest expense

     5,633        7,918   
  

 

 

   

 

 

 

Net interest income

     16,073        18,920   

Provision for loan losses

     1,549        1,753   
  

 

 

   

 

 

 

Net interest income after provision for loan losses

     14,524        17,167   
  

 

 

   

 

 

 

OTHER INCOME:

    

Deposit account service charges

     151        220   

Net gain on sale of available-for-sale securities

     3,372        2,237   

Fair value adjustments

     (3,132     (511

Other operating income

     299        213   
  

 

 

   

 

 

 

Total other income

     690        2,159   
  

 

 

   

 

 

 

OTHER EXPENSES:

    

Salaries and employee benefits

     5,355        6,906   

Occupancy expense

     2,309        2,663   

Equipment expense

     632        772   

Other Real Estate Owned expense

     454        841   

Merger Expenses

     1,158        —     

Operating expenses

     6,300        7,095   
  

 

 

   

 

 

 

Total other expenses

     16,208        18,277   
  

 

 

   

 

 

 

Income (loss) before income taxes

     (994     1,049   

Income tax expense

     4,964        344   
  

 

 

   

 

 

 

NET INCOME (LOSS)

   $ (5,958   $ 705   
  

 

 

   

 

 

 

Net income (loss) per common share, basic

   $ (1.17   $ 0.14   
  

 

 

   

 

 

 

Net income (loss) per common share, diluted

   $ (1.17   $ 0.14   
  

 

 

   

 

 

 

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

 

6


Alliance Bankshares Corporation

Consolidated Statements of Changes in Shareholders’ Equity

For the Years Ended December 31, 2011 and 2010

(Dollars in thousands)

 

     Common
Stock
     Capital
Surplus
    Retained
(Deficit)
    Acccumulated
Other
Comprehensive
Income (Loss)
    Comprehensive
Income

(Loss)
    Total
Share-
holders’
Equity
 

BALANCE, DECEMBER 31, 2009

   $ 20,427       $ 25,835      $ (13,016   $ (112     $ 33,134   
  

 

 

    

 

 

   

 

 

   

 

 

     

 

 

 

Comprehensive income

             

Net income

     —           —          705        —        $ 705        705   

Other comprehensive (loss) net of tax:

             

Unrealized holding gains on securities available-for-sale, net of tax of $670

     —           —          —          —          1,300        —     

Less: reclassification adjustment, net income taxes of ($761)

     —           —          —          —          (1,476     —     
           

 

 

   

Other comprehensive (loss), net of tax

     —           —          —          (176   $ (176     (176
           

 

 

   

Total comprehensive income

     —           —          —          —        $ 529        —     
           

 

 

   

Stock-based compensation expense

     —           22        —          —            22   
  

 

 

    

 

 

   

 

 

   

 

 

     

 

 

 

BALANCE, DECEMBER 31, 2010

   $ 20,427       $ 25,857      $ (12,311   $ (288     $ 33,685   
  

 

 

    

 

 

   

 

 

   

 

 

     

 

 

 

Comprehensive (loss)

             

Net loss

     —           —          (5,958     —        $ (5,958     (5,958

Other comprehensive income, net of tax:

             

Unrealized holding gains on securities available-for-sale, net of tax of $1,314

     —           —          —          —          2,550        —     

Less: reclassification adjustment, net income taxes of ($1,146)

     —           —          —          —          (2,226     —     
           

 

 

   

Other comprehensive income , net of tax

     —           —          —          324      $ 324        324   
           

 

 

   

Total comprehensive (loss)

     —           —          —          —        $ (5,634     —     
           

 

 

   

Exercise of stock options

     13         (5     —          —            8   
             

Stock-based compensation expense

     —           63        —          —            63   
  

 

 

    

 

 

   

 

 

   

 

 

     

 

 

 

BALANCE, DECEMBER 31, 2011

   $ 20,440       $ 25,915      $ (18,269   $ 36        $ 28,122   
  

 

 

    

 

 

   

 

 

   

 

 

     

 

 

 

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

 

7


Alliance Bankshares Corporation

Consolidated Statements of Cash Flows

For the Years Ended December 31, 2011 and 2010

(Dollars in thousands)

 

      2011     2010  

CASH FLOWS FROM OPERATING ACTIVITIES:

    

Net income (loss)

   $ (5,958   $ 705   

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

    

Depreciation, amortization and accretion

     1,530        1,074   

Gain (loss) on disposal of fixed assets

     (20     9   

Provision for loan losses

     1,549        1,753   

Losses and valuation adjustments on Other Real Estate Owned

     354        358   

Proceeds from sale of loans held for sale

     —          1,983   

Stock-based compensation expense

     63        22   

Net (gain) on sale of securities available-for-sale

     (3,372     (2,237

Fair value adjustments

     3,132        511   

Deferred tax expense

     4,964        344   

Changes in assets and liabilities affecting operations:

    

Accrued interest and other assets

     4,783        2,934   

Other liabilities

     (374     280   
  

 

 

   

 

 

 

Net cash provided by operating activities

     6,651        7,736   
  

 

 

   

 

 

 

CASH FLOWS FROM INVESTING ACTIVITIES:

    

Net change in federal funds sold

     1,303        (14,900

Purchase of securities available-for-sale

     (162,134     (99,880

Proceeds from sale of securities available-for-sale

     166,591        92,953   

Paydowns on securities available-for-sale

     10,881        17,675   

Net change in trading securities

     2,012        5,324   

Net change in restricted stock

     1,583        (37

Net change in loan portfolio

     23,563        23,006   

Proceeds from sale of fixed assets

     36        —     

Proceeds from sale of Other Real Estate Owned

     959        4,918   

Capital improvements on Other Real Estate Owned

     —          (55

Purchase of premises and equipment

     (461     (231
  

 

 

   

 

 

 

Net cash provided by investing activities

     44,333        28,773   
  

 

 

   

 

 

 

CASH FLOWS FROM FINANCING ACTIVITIES:

    

Net change in cash (expended on):

    

Non-interest bearing deposits

     (12,189     31,793   

Savings and NOW deposits

     (5,094     2,952   

Money market deposits

     (2,154     3,062   

Time deposits

     (7,063     (62,772

Repurchase agreements

     (2,733     (4,137

Proceeds from exercise of stock options

     8        —     

FHLB advances

     —          (10,000
  

 

 

   

 

 

 

Net cash (used in) financing activities

     (29,225     (39,102
  

 

 

   

 

 

 

NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS

     21,759        (2,593

CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR

     24,078        26,671   
  

 

 

   

 

 

 

CASH AND CASH EQUIVALENTS, END OF YEAR

   $ 45,837      $ 24,078   
  

 

 

   

 

 

 

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

 

8


Alliance Bankshares Corporation

Notes To Consolidated Financial Statements

 

1.   NATURE OF BUSINESS

Alliance Bankshares Corporation (Bankshares or Company) is a bank holding company that conducts substantially all its operations through its subsidiaries. Alliance Bank Corporation (the Bank) is state-chartered and a member of the Federal Reserve System. The Bank places special emphasis on serving the needs of individuals, small and medium size businesses and professional concerns in the greater Washington D.C. Metropolitan region, primarily in the Northern Virginia submarket.

On November 15, 2005, the Bank formed Alliance Insurance Agency (AIA) through the acquisition of Danaher Insurance Agency. AIA was a wholly-owned subsidiary of the Bank and sold a wide array of insurance and financial products. In 2006 and 2007, AIA acquired two additional insurance agencies. The combined AIA operations offered insurance products in the Alliance trade area. On December 29, 2009, the Bank sold AIA and no longer offers insurance products.

On June 26, 2003, Alliance Virginia Capital Trust I (Trust), a Delaware statutory trust and a subsidiary of Alliance Bankshares Corporation, was formed for the purpose of issuing Bankshares’ trust preferred debt.

 

2.   SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Basis of presentation and consolidation – The consolidated financial statements include the accounts of Alliance Bankshares Corporation, Alliance Virginia Capital Trust I and Alliance Bank Corporation. In consolidation all significant inter-company accounts and transactions have been eliminated. The subordinated debt of the trust is reflected as a liability of Bankshares.

Business – The Bank is a state-chartered commercial bank. Our main business line is commercial banking. We provide services and products to clients located in the greater Washington, D.C. Metropolitan region, primarily in the Northern Virginia area.

Use of estimates – In preparing consolidated financial statements in conformity with accounting principles generally accepted in the United States of America, management is required to make estimates and assumptions that affect the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. Material estimates that are particularly susceptible to significant change in the near term relate to the determination of the allowance for loan losses, fair value of financial assets and liabilities, other-than-temporary impairment of securities, valuation of deferred income taxes and proper valuation of other real estate owned.

Cash and cash equivalents – For the purposes of the consolidated Statements of Cash Flows, Bankshares has defined cash and cash equivalents as those amounts included in the balance sheet caption “Cash and due from banks.”

Trading activities – Bankshares previously engaged in trading activities. Securities that are held principally for resale in the near term are recorded in the trading securities account at fair value with changes in fair value recorded in earnings. Interest and dividends are included in net interest income.

Securities – Investments in debt and equity securities with readily determinable fair values are classified as either held to maturity, available for sale, or trading, based on management’s intent. Available for sale securities are carried at estimated fair value with the corresponding unrealized gains and losses excluded from earnings and reported in other comprehensive income. Gains or losses are recognized in earnings on the trade date using the amortized cost of the specific security sold. Purchase premiums and discounts are recognized in interest income using the interest method over the terms of the securities.

 

9


Alliance Bankshares Corporation

Notes To Consolidated Financial Statements

 

Impairment of securities occurs when the fair value of a security is less than its amortized cost. For debt securities, impairment is considered other-than-temporary and recognized in its entirety in net income if either (a) the Company intends to sell the security or (b) it is more-likely-than-not that the Company will be required to sell the security before recovery of its amortized cost basis. If, however, the Company does not intend to sell the security and it is not more-likely-than-not that it will be required to sell the security before recovery, it must determine what portion of the impairment is attributable to a credit loss, which occurs when the amortized cost basis of the security exceeds the present value of the cash flows expected to be collected from the security. If there is no credit loss, there is no other-than-temporary impairment. If there is a credit loss, other-than-temporary impairment exists, and the credit loss must be recognized in net income and the remaining portion of impairment must be recognized in other comprehensive income. For equity securities, impairment is considered to be other-than-temporary based on the Company’s ability and intent to hold the investment until a recovery of fair value. Other-than-temporary impairment of an equity security results in a write-down that must be included in net income.

The Company regularly reviews each investment security for other-than-temporary impairment based on criteria that include the extent to which cost exceeds market price, the duration of that market decline, the financial health of and specific prospects for the issuer, the best estimate of the present value of cash flows expected to be collected from debt securities, the Company’s intention with regard to holding the security to maturity and the likelihood that it would be required to sell the security before recovery.

Fair Value Accounting – Fair values of financial instruments are estimated using relevant market information and other assumptions. Fair value estimates involve uncertainties and matters of significant judgment regarding interest rates, credit risk, prepayments, and other factors, especially in the absence of broad markets for particular items. Changes in assumptions or in market conditions could significantly affect the estimates.

Accounting Standards Codification (ASC) 820-10-20, “Fair Value Accounting”, states that valuation techniques consistent with the market approach, income approach and/or cost approach should be used to measure fair value. Unobservable inputs should reflect the reporting entity’s own assumptions about the assumptions that market participants would use in pricing the asset or the liability. As of December 31, 2011, Bankshares utilized a more advanced model to estimate the fair value of the FHLB advance accounted for under fair value accounting. For the year ended December 31, 2011, there was a negative $3.1 million adjustment to the fair value of the FHLB advance, driven by the decrease in interest rates during the period, and the change in accounting estimate.

Loans – The Bank grants mortgage, commercial and consumer loans to customers. A substantial portion of the loan portfolio is represented by loans throughout the Washington, D.C. metropolitan area. The ability of the Bank’s debtors to honor their contracts is dependent upon the real estate and general economic conditions of the lending area.

Loans that management has the intent and ability to hold for the foreseeable future or until maturity or pay-off generally is reported at their outstanding unpaid principal balances adjusted for charge-offs, the allowance for loan losses, and any deferred fees or costs on originated loans. Interest income is accrued on the unpaid principal balance. Loan origination fees, net of certain direct origination costs, are deferred and recognized as an adjustment of the related loan yield using the interest method over the life of the loan or currently upon the sale or repayment of a loan.

The accrual of interest on mortgage and commercial loans is discontinued at the time the loan is 90 days delinquent unless the credit is well-secured and in process of collection. Consumer loans are typically charged off after 90 days past due. In all cases, loans are placed on nonaccrual or charged-off at an earlier date if collection of principal or interest is considered doubtful.

 

10


Alliance Bankshares Corporation

Notes To Consolidated Financial Statements

 

All interest accrued but not collected for loans that are placed on nonaccrual or charged off is reversed against interest income. The interest on these loans is accounted for on the cash-basis or cost-recovery method, until qualifying for return to accrual. Loans are returned to accrual status when all the principal and interest amounts contractually due are brought current and future payments are reasonably assured.

Allowance for loan losses – The allowance for loan losses is an estimate of the losses that may be sustained in the loan portfolio. Loan losses are charged against the allowance when management believes the inability to collect the loan has been confirmed. All classes of loans are typically charged-off no later than 180 days past due unless they are well secured and in the process of collection. In all cases, loans are placed on nonaccrual or charged-off at an earlier date if collection of principal or interest is considered doubtful.

Subsequent recoveries, if any, are credited to the allowance. The allowance is evaluated on a regular basis, not less than quarterly, by management. This evaluation is inherently subjective, as it requires estimates that are susceptible to significant revisions as more information becomes available.

The allowance represents an estimate that, in management’s judgment, will be adequate to absorb any losses on existing loans that may become uncollectible. Management’s judgment in determining the level of the allowance is based on evaluations of the collectability of loans while taking into consideration such factors as trends in delinquencies and charge-offs, changes in the nature and volume of the loan portfolio, current economic conditions that may affect a borrower’s ability to repay and the value of collateral, overall portfolio quality and review of specific potential losses. This evaluation is inherently subjective, as it requires estimates that are susceptible to significant revision as more information becomes available. The evaluation also considers the following risk characteristics of each loan segment:

Real estate residential mortgage loans and equity lines of credit carry risks associated with the continued credit-worthiness of the borrower and changes in the value of the collateral.

Real estate construction loans carry risks that the project will not be finished according to schedule, the project will not be finished according to budget and the value of the collateral, at any point in time, may be less than the principal amount of the loan. Construction loans also bear the risk that the general contractor, who may or may not be a loan customer, may be unable to finish the construction project as planned because of financial pressure unrelated to the project.

Commercial business and commercial real estate loans carry risks associated with the successful operation of a business or a real estate project, in addition to other risks associated with the ownership of real estate, because the repayment of these loans may be dependent upon the profitability and cash flows of the business or project. In addition, there is risk associated with the value of collateral other than real estate which may depreciate over time and cannot be appraised with as much precision.

Consumer loans carry risks associated with the continued credit-worthiness of the borrower and the value of the collateral (e.g., rapidly-depreciating assets such as automobiles), or lack thereof. Consumer loans are more likely than real estate loans to be immediately adversely affected by job loss, divorce, illness or personal bankruptcy.

 

11


Alliance Bankshares Corporation

Notes To Consolidated Financial Statements

 

Our allowance for loan losses has two basic components: the specific allowance for impaired credits and the general allowance based on relevant risk factors. Each of these components is determined based upon estimates that can and do change when the actual events occur.

The specific allowance is used to individually allocate an allowance for loans identified as impaired. Impairment testing includes consideration of the borrower’s overall financial condition, resources and payment record, support available from financial guarantors and the fair market value of the collateral. For collateral dependent loans, an updated appraisal will be ordered if a current one is not on file. Appraisals are performed by independent third-party appraisers with relevant industry experience. Adjustments to the appraised value may be made based on recent sales of like properties or general market conditions when appropriate. These factors are combined to estimate the probability and severity of inherent losses. When impairment is identified, a specific reserve is established based on Bankshares’ calculation of the loss embedded in the individual loan. Bankshares does not separately identify individual consumer and residential loans for impairment testing unless loans become 60 days or more past due.

The general component is the largest component of the total allowance and is determined by aggregating un-criticized loans by loan type based on common purpose, collateral, repayment source or other credit characteristics. We then apply allowance factors, which in the judgment of management represent the expected losses over the life of the loans. In determining those factors, we consider the following: (1) delinquencies and overall risk ratings, (2) loss history, (3) trends in volume and terms of loans, (4) effects of changes in lending policy, (5) the experience and depth of the borrowers’ management, (6) national and local economic trends, (7) concentrations of credit by individual credit size and by class of loans, (8) quality of loan review system and (9) the effect of external factors (e.g., regulatory requirements).

The characteristics of the loan ratings are as follows:

Pass rated loans are to persons or business entities with an acceptable financial condition, appropriate collateral margins, appropriate cash flow to service the existing loans, and an appropriate leverage ratio. The borrower has paid all obligations as agreed and it is expected that this type of payment history will continue. When necessary, acceptable personal guarantors support the loan.

Special mention loans have a specific defined weakness in the borrower’s operations and the borrower’s ability to generate positive cash flow on a sustained basis. The borrower’s recent payment history is characterized by late payments. Bankshares risk exposure is mitigated by collateral supporting the loan. The collateral is considered to be well-managed, well maintained, accessible and readily marketable.

Substandard loans are considered to have specific and well-defined weaknesses that jeopardize the viability of Bankshares credit extension. The payment history for the loan has been inconsistent and the expected or projected primary repayment source may be inadequate to service the loan. The estimated net liquidation value of the collateral pledged and/or ability of the personal guarantor(s) to pay the loan may not adequately protect Bankshares. There is a distinct possibility that Bankshares will sustain some loss if the deficiencies associated with the loan are not corrected in the near term. A substandard loan would not automatically meet our definition of impaired unless the loan is significantly past due and the borrower’s performance and financial condition provide evidence that it is probable that Bankshares will be unable to collect all amounts due. Substandard non-accrual loans have the same characteristics as substandard loans; however they have a non-accrual classification.

 

12


Alliance Bankshares Corporation

Notes To Consolidated Financial Statements

 

Doubtful rated loans have all the weakness inherent in a loan that is classified as substandard but with the added characteristic that the weaknesses make collection or liquidation in full, on the basis of currently existing facts, conditions, and values, highly questionable and improbable. The possibility of loss is extremely high.

Loss rated loans are not considered collectible under normal circumstances and there is no realistic expectation for any future payment on the loan. Loss rated loans are fully charged off.

A loan is considered impaired when, based on current information and events, it is probable that Bankshares will be unable to collect the scheduled payments of principal or interest when due according to the contractual terms of the loan agreement. Management reviews commercial, construction and real estate loans on the internal watch list as well as loans greater than $250,000 for impairment at least quarterly. Consumer and residential real estate loans are not individually reviewed for impairment unless they are 60 days or more past due on principal and/or interest payments. Factors considered by management in determining impairment include payment status, collateral value, and the probability of collecting scheduled payments when due. Management determines the significance of payment delays and payment shortfalls taking into consideration all of the circumstances surrounding the loan and the borrower, including the length of the delay, the reason for the delay, the borrower’s prior payment history, and the amount of the shortfall in relation to the principal and interest owed. Impairment is measured on a loan level basis by either the present value of expected future cash flows discounted at the loan’s effective interest rate, the loan’s obtainable market price, or the fair value of the collateral if the loan is collateral dependent. These factors are combined to estimate the probability and severity of inherent loss. When impairment is identified, a specific reserve may be established based on Bankshares’ calculation of the loss embedded in the individual loan. If an impaired loan is 90 days or more past due or if the collection of interest or principal is doubtful, the loan will be placed on nonaccrual status. Any payments received from the borrower will be accounted for on a cash basis.

Troubled Debt Restructurings – In situations where, for economic or legal reasons related to a borrower’s financial condition, management may grant a concession to the borrower that it would not otherwise consider, the related loan is classified as a troubled debt restructuring (TDR). Management strives to identify borrowers in financial difficulty early and work with them to modify their loan to more affordable terms before their loan reaches nonaccrual status. These modified terms may include rate reductions, principal forgiveness, payment forbearance and other actions intended to minimize the economic loss and to avoid foreclosure or repossession of the collateral. In cases where borrowers are granted new terms that provide for a reduction of either interest or principal, management measures any impairment on the restructuring as noted above for impaired loans. As of December 31, 2011, there were $1.2 million of loans classified as TDRs of which $257 thousand were classified as non-accrual. There was $212 thousand in loans classified as TDRs as of December 31, 2010.

Premises and equipment – Furniture and equipment are stated at cost less accumulated depreciation and amortization and are depreciated over their estimated useful lives ranging from three to ten years. Leasehold improvements are amortized over the lives of the respective leases or the estimated useful life of the leasehold improvement, whichever is less. Depreciation and amortization are recorded on the straight-line method.

Costs of maintenance and repairs are charged to expense as incurred. Costs of replacing structural parts of major units are considered individually and are expensed or capitalized as the facts dictate.

 

13


Alliance Bankshares Corporation

Notes To Consolidated Financial Statements

 

Foreclosed assets or Other Real Estate Owned (OREO) – Assets acquired through, or in lieu of, loan foreclosure are held for sale and are initially recorded at fair value, less cost to sell at the date of foreclosure, establishing a new cost basis. Subsequent to foreclosure, valuations are periodically performed by management and the assets are carried at the lower of carrying amount or fair value less cost to sell. Revenue and expenses from operations and changes in the underlying valuation are included in Other Real Estate Owned Expense in the Consolidated Statements of Operations

Income taxes – Bankshares uses the liability (or balance sheet) approach in financial accounting and reporting for income taxes. Deferred income tax assets and liabilities are computed annually for differences between the financial statement and tax bases of assets and liabilities that will result in taxable or deductible amounts in the future. Valuation allowances are established when necessary to reduce deferred tax assets to the amount expected to be realized. Income tax expense is the tax payable or refundable for the period plus or minus the change during the period in deferred tax assets and liabilities.

When tax returns are filed, it is highly certain that some positions taken would be sustained upon examination by the taxing authorities, while others are subject to uncertainty about the merits of the position taken or the amount of the position that would be ultimately sustained. The benefit of a tax position is recognized in the financial statements in the period during which, based on all available evidence, management believes it is more likely than not that the position will be sustained upon examination, including the resolution of appeals or litigation processes, if any. Tax positions taken are not offset or aggregated with other positions. Tax positions that meet the more-likely-than-not recognition threshold are measured as the largest amount of tax benefit that is more than 50 percent likely of being realized upon settlement with the applicable taxing authority. The portion of the benefits associated with tax positions taken that exceeds the amount measured as described above is reflected as a liability for unrecognized tax benefits in the accompanying Consolidated Balance Sheets along with any associated interest and penalties that would be payable to the taxing authorities upon examination.

Interest and penalties associated with unrecognized tax benefits are classified as additional income taxes in the Consolidated Statements of Operations.

Repurchase agreements – The Bank routinely enters into repurchase agreements with customers. As part of the repurchase agreements, the Bank uses marketable investment securities from its investment portfolio as collateral for the customer agreements. The repurchase agreements bear interest at a current market rate.

Stock-based compensation – ASC 718-10, “Stock Compensation”, requires companies to recognize the cost of employee services received in exchange for awards of equity instruments, such as stock options and non-vested shares, based on the fair value of those awards at the date of grant. Compensation cost has been measured using the fair value of an award on the grant date and is recognized over the service period, which is usually the vesting period.

Included within salaries and employee benefits expense for the years ended December 31, 2011 and 2010, is $63 thousand and $22 thousand of stock-based compensation, respectively. As of December 31, 2011 and December 31, 2010, there was $82 thousand and $179 thousand, respectively, of total unrecognized compensation expense, related to stock options, which will be recognized over the remaining requisite service period ending December 31, 2014. For the year ended December 31, 2011, the weighted-average remaining contractual life is 4.8 years.

Stock option compensation expense is the estimated fair value of options granted amortized on a straight-line basis over the requisite service period for each separately vesting portion of the award. The fair value of each grant is estimated at the grant date using the Black-Scholes option-pricing model. There were no grants of stock options in 2011.

 

14


Alliance Bankshares Corporation

Notes To Consolidated Financial Statements

 

Earnings (loss) per share – Basic earnings (loss) per share represents income available to common shareholders divided by the weighted-average number of common shares outstanding during the period. Diluted earnings (loss) per share reflect additional common shares that would have been outstanding if dilutive potential common shares had been issued, as well as any adjustment to income that would result from the assumed issuance. Potential common shares that may be issued by Bankshares relate solely to outstanding stock options and are determined using the treasury method.

Off-balance-sheet instruments – In the ordinary course of business, Bankshares, through its banking subsidiary, has entered into off-balance-sheet financial instruments consisting of commitments to extend credit, commercial letters of credit, standby letters of credit and rate lock commitments. Such financial instruments are recorded in the financial statements when they are funded or related fees are incurred or received.

Advertising and marketing expense – Advertising and marketing costs are expensed as incurred. Advertising and marketing costs for the years ended December 31, 2011 and 2010 were $76 and, $77 thousand, respectively.

Transfers of Financial Assets – Transfers of financial assets are accounted for as sales when control over the assets has been surrendered. Control over transferred assets is deemed to be surrendered when (1) the assets have been isolated from the Bank – put presumptively beyond reach of the transferor and its creditors, even in bankruptcy or other receivership, (2) the transferee obtains the right (free of conditions that constrain it from taking advantage of that right) to pledge or exchange the transferred assets, and (3) the Bank does not maintain effective control over the transferred assets through an agreement to repurchase them before their maturity or the ability to unilaterally cause the holder to return specific assets.

Reclassifications – there were no reclassifications in the current year.

Recent Accounting Pronouncements – In July 2010, the FASB issued ASU 2010-20, “Receivables (Topic 310) – Disclosures about the Credit Quality of Financing Receivables and the Allowance for Credit Losses.” The new disclosure guidance significantly expands the existing requirements and has led to greater transparency into an entity’s exposure to credit losses from lending arrangements. The extensive new disclosures of information as of the end of a reporting period became effective for both interim and annual reporting periods ending on or after December 15, 2010. Specific disclosures regarding activity that occurred before the issuance of the ASU, such as the allowance roll forward and modification disclosures has been required for periods beginning on or after December 15, 2010. Bankshares has included the required disclosures in its consolidated financial statements. The adoption of the new guidance did not have a material impact on Bankshares’ consolidated financial statements

In December 2010, the FASB issued ASU 2010-29, “Business Combinations (Topic 805) – Disclosure of Supplementary Pro Forma Information for Business Combinations.” The guidance requires pro forma disclosure for business combinations that occurred in the current reporting period as though the acquisition date for all business combinations that occurred during the year had been as of the beginning of the annual reporting period. If comparative financial statements are presented, the pro forma information should be reported as though the acquisition date for all business combinations that occurred during the current year had been as of the beginning of the comparable prior annual reporting period. ASU 2010-29 is effective for business combinations for which the acquisition date is on or after the beginning of the first annual reporting period beginning on or after December 15, 2010. Early adoption is permitted. The adoption of the new guidance did not have a material impact on Bankshares’ consolidated financial statements.

 

15


Alliance Bankshares Corporation

Notes To Consolidated Financial Statements

 

The Securities Exchange Commission (SEC) issued Final Rule No. 33-9002, “Interactive Data to Improve Financial Reporting.” The rule requires companies to submit financial statements in extensible business reporting language (XBRL) format with their SEC filings on a phased-in schedule. Large accelerated filers and foreign large accelerated filers using U.S. generally accepted accounting principles (GAAP) were required to provide interactive data reports starting with their first quarterly report for fiscal periods ending on or after June 15, 2010. All remaining filers were required to provide interactive data reports starting with their first quarterly report for fiscal periods ending on or after June 15, 2011. Bankshares has submitted financial statements in extensible business reporting language (XBRL) format with their SEC filings in accordance with the phased-in schedule.

In March 2011, the SEC issued Staff Accounting Bulletin (SAB) 114. This SAB revises or rescinds portions of the interpretive guidance included in the codification of the Staff Accounting Bulletin Series. This update is intended to make the relevant interpretive guidance consistent with current authoritative accounting guidance issued as a part of the FASB’s Codification. The principal changes involve revision or removal of accounting guidance references and other conforming changes to ensure consistency of referencing through the SAB Series. The effective date for SAB 114 was March 28, 2011. The adoption of the new guidance did not have a material impact on the Bankshares’ consolidated financial statements.

In January 2011, the FASB issued ASU 2011-01, “Receivables (Topic 310) – Deferral of the Effective Date of Disclosures about Troubled Debt Restructurings.” The amendments in this ASU temporarily delayed the effective date of the disclosures about troubled debt restructurings in Update 2010-20 for public entities. The delay was intended to allow the FASB time to complete its deliberations on what constitutes a troubled debt restructuring. The effective date of the new disclosures about troubled debt restructurings for public entities and the guidance for determining what constitutes a troubled debt restructuring was effective for interim and annual periods ending after June 15, 2011. Bankshares has adopted ASU 2011-01 and included the required disclosures in its consolidated financial statements.

In April 2011, the FASB issued ASU 2011-02, “Receivables (Topic 310) – A Creditor’s Determination of Whether a Restructuring Is a Troubled Debt Restructuring.” The amendments in this ASU clarify the guidance on a creditor’s evaluation of whether it has granted a concession to a debtor. They also clarify the guidance on a creditor’s evaluation of whether a debtor is experiencing financial difficulty. The amendments in this ASU are effective for the first interim or annual period beginning on or after June 15, 2011. Retrospective application to the beginning of the annual period of adoption for modifications occurring on or after the beginning of the annual adoption period is required. As a result of applying these amendments, an entity may identify receivables that are newly considered to be impaired. For purposes of measuring impairment of those receivables, an entity should apply the amendments prospectively for the first interim or annual period beginning on or after June 15, 2011. Bankshares has adopted ASU 2011-02 and included the required disclosures in its consolidated financial statements.

In April 2011, the FASB issued ASU 2011-03, “Transfers and Servicing (Topic 860) – Reconsideration of Effective Control for Repurchase Agreements.” The amendments in this ASU remove from the assessment of effective control (1) the criterion requiring the transferor to have the ability to repurchase or redeem the financial assets on substantially the agreed terms, even in the event of default by the transferee and (2) the collateral maintenance implementation guidance related to that criterion. The amendments in this ASU are

 

16


Alliance Bankshares Corporation

Notes To Consolidated Financial Statements

 

effective for the first interim or annual period beginning on or after December 15, 2011. The guidance should be applied prospectively to transactions or modifications of existing transactions that occur on or after the effective date. Early adoption was not permitted. The adoption of the new guidance did not have a material impact on Bankshares consolidated financial statements.

In May 2011, the FASB issued ASU 2011-04, “Fair Value Measurement (Topic 820) – Amendments to Achieve Common Fair Value Measurement and Disclosure Requirements in U.S. GAAP and IFRSs.” This ASU is the result of joint efforts by the FASB and International Accounting Standards Board (IASB) to develop a single, converged fair value framework on how (not when) to measure fair value and what disclosures to provide about fair value measurements. The ASU is largely consistent with existing fair value measurement principles in U.S. GAAP (Topic 820), with many of the amendments made to eliminate unnecessary wording differences between U.S. GAAP and International Financial Reporting Standards (IFRS). The amendments are effective for interim and annual periods beginning after December 15, 2011 with prospective application. Early application was not permitted. Bankshares is currently assessing the impact that ASU 2011-04 will have on its consolidated financial statements.

In June 2011, the FASB issued ASU 2011-05, “Comprehensive Income (Topic 220) – Presentation of Comprehensive Income.” The objective of this ASU is to improve the comparability, consistency and transparency of financial reporting and to increase the prominence of items reported in other comprehensive income by eliminating the option to present components of other comprehensive income as part of the statement of changes in shareholders’ equity. The amendments require that all non-owner changes in shareholders’ equity be presented either in a single continuous statement of comprehensive income or in two separate but consecutive statements. The single statement of comprehensive income should include the components of net income, a total for net income, the components of other comprehensive income, a total for other comprehensive income, and a total for comprehensive income. In the two-statement approach, the first statement should present total net income and its components followed consecutively by a second statement that should present all the components of other comprehensive income, a total for other comprehensive income, and a total for comprehensive income. The amendments do not change the items that must be reported in other comprehensive income, the option for an entity to present components of other comprehensive income either net of related tax effects or before related tax effects, or the calculation or reporting of earnings per share. The amendments in this ASU should be applied retrospectively. The amendments are effective for fiscal years and interim periods within those years beginning after December 15, 2011. Early adoption was permitted because compliance with the amendments was already permitted. The amendments do not require transition disclosures. The adoption of the new guidance did not have a material impact on Bankshares consolidated financial statements.

In August 2011, the SEC issued Final Rule No. 33-9250, “Technical Amendments to Commission Rules and Forms related to the FASB’s Accounting Standards Codification.” The SEC has adopted technical amendments to various rules and forms under the Securities Act of 1933, the Securities Exchange Act of 1934, and the Investment Company Act of 1940. These revisions were necessary to conform those rules and forms to the FASB Accounting Standards Codification. The technical amendments include revision of certain rules in Regulation S-X, certain items in Regulation S-K, and various rules and forms prescribed under the Securities Act, Exchange Act and Investment Company Act. The Release was effective as of August 12, 2011. The adoption of the new guidance did not have a material impact on Bankshares’ consolidated financial statements.

 

17


Alliance Bankshares Corporation

Notes To Consolidated Financial Statements

 

In December 2011, the FASB issued ASU 2011-11, “Balance Sheet (Topic 210) – Disclosures about Offsetting Assets and Liabilities.” This ASU requires entities to disclose both gross information and net information about instruments and transactions eligible for offset in the balance sheet and instruments and transactions subject to an agreement similar to a master netting arrangement. An entity is required to apply the amendments for annual reporting periods beginning on or after January 1, 2013, and interim periods within those annual periods. An entity should provide the disclosures required by those amendments retrospectively for all comparative periods presented. Bankshares is currently assessing the impact that ASU 2011-11 will have on its consolidated financial statements.

In December 2011, the FASB issued ASU 2011-12, “Comprehensive Income (Topic 220) – Deferral of the Effective Date for Amendments to the Presentation of Reclassifications of Items out of Accumulated Other Comprehensive Income in Accounting Standards Update No. 2011-05.” The amendments are being made to allow the FASB time to redeliberate whether to present on the face of the financial statements the effects of reclassifications out of accumulated other comprehensive income on the components of net income and other comprehensive income for all periods presented. While the Board is considering the operational concerns about the presentation requirements for reclassification adjustments and the needs of financial statement users for additional information about reclassification adjustments, entities should continue to report reclassifications out of accumulated other comprehensive income consistent with the presentation requirements in effect before ASU 2011-05. All other requirements in ASU 2011-05 are not affected by ASU 2011-12, including the requirement to report comprehensive income either in a single continuous financial statement or in two separate but consecutive financial statements. Public entities should apply these requirements for fiscal years, and interim periods within those years, beginning after December 15, 2011. The adoption of the new guidance did not have a material impact on Bankshares consolidated financial statements.

 

3.   DISPOSTION OF AIA

On December 29, 2009, the Bank entered into and closed on a Stock Purchase Agreement (Agreement) between the Bank as the seller and a group of former AIA executives. The Agreement provides for the purchase of all of the issued and outstanding shares (Shares) of AIA, a wholly-owned insurance agency subsidiary of the Bank. Pursuant to the Agreement, AIA sold the Shares for a total purchase price of $5,025,000. At closing, the Bank received $3,750,000 in cash and closing credits, with the remainder of the purchase price payable pursuant to promissory notes that do not bear interest (Notes), as follows: (1) $650,000 pursuant to the terms of one promissory note that was due and payable in full on February 15, 2011, and (2) $625,000 pursuant to the terms of five promissory notes in the original principal amount of $125,000 each, which are due and payable on February 15, 2011, 2012, 2013, 2014 and 2015, respectively. The Notes contain usual and customary conditions and are secured by a pledge of 9,800 of the 10,000 shares sold at closing.

The $650,000 promissory note due and payable on February 15, 2011 was refinanced as a commercial loan in the normal course of business. This note was paid in full. We received a payment of $90,000 and $83,000 in full satisfaction for the promissory notes due on February 15, 2011 and 2012 respectively. The payment of $90,000 was based on certain performance metrics realized in the ordinary course of business. We established an allowance of $140,000 in 2010 against the remaining promissory notes due through February 2015.

 

18


Alliance Bankshares Corporation

Notes To Consolidated Financial Statements

 

The results of the operations and the loss on the sale were reported as discontinued operations in the 2009 and 2010 financial statements.

 

4.   FAIR VALUE MEASUREMENTS

Bankshares uses fair value measurements to record fair value adjustments to certain assets and liabilities and to determine fair value disclosures. In accordance with the Fair Value Measurements and Disclosures topic of Financial Accounting Standards Board (FASB), ASC 820-10, the fair value of a financial instrument is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. Fair value is best determined based upon quoted market prices. However, in many instances, there are no quoted market prices for Bankshares’ various financial instruments. In cases where quoted market prices are not available, fair values are based on estimates using present value or other valuation techniques. Those techniques are significantly affected by the assumptions used, including the discount rate and estimates of future cash flows. Accordingly, the fair value estimates may not be realized in an immediate settlement of the instrument.

The fair value guidance provides a consistent definition of fair value, which focuses on exit price in an orderly transaction (that is, not a forced liquidation or distressed sale) between market participants at the measurement date under current market conditions. If there has been a significant decrease in the volume and level of activity for the asset or liability, a change in valuation technique or the use of multiple valuation techniques may be appropriate. In such instances, determining the price at which willing market participants would transact at the measurement date under current market conditions depends on the facts and circumstances and requires the use of significant judgment. The fair value is a reasonable point within the range that is most representative of fair value under current market conditions.

Fair Value Hierarchy

In accordance with this guidance, Bankshares groups its financial assets and liabilities generally measured at fair value in three levels, based on the markets in which the assets and liabilities are traded and the reliability of the assumptions used to determine fair value.

 

   

Level 1 — Valuation is based upon quoted prices for identical instruments traded in active markets.

 

   

Level 2 — Valuation is based on observable inputs including quoted prices in active markets for similar assets and liabilities, quoted prices for identical or similar assets and liabilities in less active markets, and model-based valuation techniques for which significant assumptions can be derived primarily from or corroborated by observable data in the market.

 

   

Level 3 — Valuation is generated from model-based techniques that use significant assumptions not observable in the market. These unobservable assumptions reflect Bankshares’ own estimates of assumptions that market participants would use in pricing the asset or liability. Valuation techniques include use of option pricing models, discounted cash flow models and similar techniques.

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

 

19


Alliance Bankshares Corporation

Notes To Consolidated Financial Statements

 

The following describes the valuation techniques used by Bankshares to measure certain financial assets and liabilities recorded at fair value on a recurring basis in the financial statements:

Trading and Available-for-Sale Securities – Trading and available-for-sale securities are recorded at fair value on a recurring basis. Fair value measurement is based upon quoted market prices, when available (Level 1). If quoted market prices are not available, fair values are measured utilizing independent valuation techniques of identical or similar securities for which significant assumptions are derived primarily from or corroborated by observable market data. Third party vendors compile prices from various sources and may determine the fair value of identical or similar securities by using pricing models that consider observable market data (Level 2). Financial assets and liabilities that are traded infrequently have values based on prices or valuation techniques that require inputs that are both unobservable and significant to the overall fair value measurement. These inputs reflect management’s own view about the assumptions that market participants would use in pricing the asset or liability (Level 3). As a result, some of Bankshares’ securities are hand priced using customary spreads over similar maturity treasury instruments.

FHLB Advances – Under the fair value accounting standards, certain liabilities can be carried at fair value. The designated instruments are recorded on a fair value basis at the time of issuance. As of December 31, 2011, Bankshares had one wholesale liability as a fair value instrument: a long-term Federal Home Loan Bank (FHLB) advance. Wholesale instruments are designated as either Level 2 or Level 3 under the ASC 820-10 fair value hierarchy. Level 2 liabilities are based on quoted market prices using independent valuation techniques for similar instruments with like characteristics. This information is deemed to be observable market data. Level 3 liabilities are financial instruments that are difficult to value due to dysfunctional, distressed markets or lack of actual trading volume. Management gathers certain data to value the instrument, including swap curves, conversion swaptions and discounted cash flows. These data points are modeled to reflect the estimate of the fair value of the liability.

 

20


Alliance Bankshares Corporation

Notes To Consolidated Financial Statements

 

The following tables present the balances of financial assets and liabilities measured at fair value on a recurring basis as of December 31, 2011 and 2010:

 

     Fair Value Measurements at December 31, 2011  

Descriptions

   Fair Value      Quoted
Prices in
Active
Markets
(Level 1)
     Significant
Other
Observable
Inputs
(Level 2)
     Significant
Other
Unobservable
Inputs

(Level 3)
     Total
Changes in
Fair Value
Included
in YTD
Results
 
     (Dollars in thousands)  

Assets:

              

Trading securities - PCMOs

   $ 596       $ —         $ 596       $ —         $ 10   

Available-for-sale securities:

              

U.S. government treasuries

     71,115         71,115         —           —           —     

U.S. government corporations and agencies

     9,751         —           9,751         —           —     

U.S. government CMOs

     31,038         —           31,038         —           —     

U.S. government agency MBS

     7,698         —           7,698         —           —     

PCMOs

     950         —           950         —           —     

Municipal securities

     2,911         —           2,911            —     

Liabilities:

              

FHLB advance

     29,350         —           —           29,350         (3,142
              

 

 

 
               $ (3,132
              

 

 

 
     Fair Value Measurements at December 31, 2010  

Descriptions

   Fair Value      Quoted
Prices in
Active
Markets
(Level 1)
     Significant
Other
Observable
Inputs
(Level 2)
     Significant
Other
Unobservable
Inputs

(Level 3)
     Total
Changes in
Fair Value
Included
in YTD
Results
 
     (Dollars in thousands)  

Assets:

              

Trading securities - PCMOs

   $ 2,075       $ —         $ —         $ 2,075       $ (87

Available-for-sale securities:

              

U.S. government treasuries

     —           —           —           —           —     

U.S. government corporations and agencies

     51,763         —           25,773         25,990         —     

U.S. government CMOs

     22,576         —           22,576         —           —     

U.S. government agency MBS

     14,805         —           14,805         —           —     

PCMOs

     17,621         —           —           17,621         —     

Municipal securities

     29,087         —           29,087         —           —     

Liabilities:

              

Brokered certificates of deposit

     —           —           —           —           23   

FHLB advance

     26,208         —           —           26,208         (447
              

 

 

 
               $ (511
              

 

 

 

 

21


Alliance Bankshares Corporation

Notes To Consolidated Financial Statements

 

The following tables present the activity in Level 3 fair value measurements for the years ended December 31, 2011 and December 31, 2010:

 

Fair Value Measurements Using

Significant Unobservable Inputs

(Level 3)

 
(Dollars in thousands)  
     Trading
Securities
    FHLB Advances      AFS Securities  

Beginning balance, January 1, 2011

   $ 2,075      $ 26,208       $ 43,611   

Transfers into (out of) Level 3

     (596     —           (26,940

Sales, maturities or calls

     (1,489     —           (16,286

Realized gains (losses) on assets

     10        —           170   

Realized (gains) losses on liabilities

     —          3,142         —     

Unrealized gains (losses) on assets

     —          —           (555
  

 

 

   

 

 

    

 

 

 

Ending balance, December 31, 2011

   $ —        $ 29,350       $ —     
  

 

 

   

 

 

    

 

 

 

Fair Value Measurements Using

Significant Unobservable Inputs

(Level 3)

 
(Dollars in thousands)  
     Trading
Securities
    FHLB Advances      AFS Securities  

Beginning balance, January 1, 2010

   $ 7,460      $ 25,761       $ 71,862   

Transfers into Level 3

     —          —           —     

Sales, maturities or calls

     (5,298     —           (58,942

Realized gains (losses) on assets

     (87     —           1,103   

Realized (gains) losses on liabilities

     —          447         —     

Unrealized gains (losses) on assets

     —          —           263   

Purchases

     —          —           29,325   
  

 

 

   

 

 

    

 

 

 

Ending balance, December 31, 2010

   $ 2,075      $ 26,208       $ 43,611   
  

 

 

   

 

 

    

 

 

 

For the assets and liabilities selected for fair value accounting where available, management obtained pricing on each instrument from independent third parties who relied upon pricing models using widely available and industry standard yield curves. At December 31, 2011, the securities previously carried at level three were moved to level two due to the fact that the pricing was identical to the normal market price. Management will continue to monitor these instruments. Changes in fair values associated with fluctuations in market values reported above are reported as fair value adjustments on the Consolidated Statements of Operations.

 

22


Alliance Bankshares Corporation

Notes To Consolidated Financial Statements

 

Certain financial and nonfinancial assets are measured at fair value on a nonrecurring basis in accordance with GAAP. Adjustments to the fair value of these assets usually result from the application of lower-of-cost-or-market accounting or write-downs of individual assets.

The following describes the valuation techniques used by Bankshares to measure certain financial and nonfinancial assets recorded at fair value on a nonrecurring basis in the financial statements:

Impaired Loans – Loans are designated as impaired when, in the judgment of management based on current information and events, it is probable that all amounts due according to the contractual terms of the loan agreement will not be collected. The measurement of loss associated with impaired loans can be based on either the observable market price of the loan or the fair value of the underlying collateral, if any. Collateral may be in the form of real estate or business assets including equipment, inventory, and accounts receivable. The vast majority of the collateral is real estate. The value of real estate collateral is determined utilizing an income or market valuation approach based on an appraisal conducted by an independent, licensed appraiser using observable market data (Level 2). However, if the collateral is a house or building in the process of construction or if an appraisal of the real estate property is over two years old, then the fair value is considered to be Level 3. Impaired loans allocated to the allowance for loan losses are measured at fair value on a nonrecurring basis. Any fair value adjustments are recorded in the period incurred as provision for loan losses on the Consolidated Statements of Operations.

Other Real Estate Owned (OREO) – OREO is measured at fair value using an income or market valuation approach based on an appraisal conducted by an independent, licensed appraiser using observable market data (Level 2). However, if an appraisal of the real estate property is over two years old, then the fair value is considered to be Level 3. Any fair value adjustments are recorded in the period recognized as Other Real Estate Owned expense in the Consolidated Statements of Operations.

 

23


Alliance Bankshares Corporation

Notes To Consolidated Financial Statements

 

The following tables summarize Bankshares’ assets that were measured at fair value on a non-recurring basis during the period:

 

     Carrying Value at December 31, 2011  

Description

   Carrying
Value
     Quoted
Prices in
Active
Markets
(Level 1)
     Significant
Other
Observable
Inputs
(Level 2)
     Significant
Other
Unobservable
Inputs

(Level 3)
 
     (Dollars in thousands)  

Assets:

           

Impaired loans, net of valuation allowance

   $ 6,760       $ —         $ 6,760       $ —     

OREO

   $ 3,748       $ —         $ 2,275       $ 1,473   
     Carrying Value at December 31, 2010  

Description

   Carrying
Value
     Quoted
Prices in
Active
Markets
(Level 1)
     Significant
Other
Observable
Inputs
(Level 2)
     Significant
Other
Unobservable
Inputs

(Level 3)
 
     (Dollars in thousands)  

Assets:

           

Impaired loans, net of valuation allowance

   $ 3,124       $ —         $ 3,124       $ —     

OREO

   $ 4,627       $ —         $ 4,627       $ —     

The following describes the valuation techniques used by Bankshares to measure certain financial assets and liabilities not previously described in this note that are not recorded at fair value on a recurring basis in the financial statements:

Cash, Due from Banks and Federal Funds Sold – For these short-term instruments, the carrying amount is a reasonable estimate of fair value.

Loans Receivable – For variable-rate loans that reprice frequently and with no significant change in credit risk, fair values are based on carrying values. Fair values for certain mortgage loans (e.g., one-to-four family residential), credit card loans, and other consumer loans are based on quoted market prices of similar loans sold in conjunction with securitization transactions, adjusted for differences in loan characteristics. Fair values for other loans (e.g., commercial real estate and investment property mortgage loans, commercial and industrial loans) are estimated using discounted cash flow analyses, using interest rates currently being offered for loans with similar terms to borrowers of similar credit quality. Fair values for nonperforming loans are estimated using discounted cash flow analyses or underlying collateral values, where applicable.

 

24


Alliance Bankshares Corporation

Notes To Consolidated Financial Statements

 

Restricted Stock – Restricted investments in correspondent banks are carried at cost based on the underlying redemption provisions of the instruments and therefore are not included in the fair value disclosures.

Accrued Interest – The carrying amounts of accrued interest approximate fair value.

Deposit Liabilities – The fair values disclosed for demand deposits (e.g., interest and noninterest checking, statement savings, and certain types of money market accounts) are, by definition, equal to the amount payable on demand at the reporting date (i.e., their carrying amounts). The carrying amounts of variable-rate, fixed-term money market accounts and certificates of deposit approximate their fair values at the reporting date. Fair values for fixed-rate 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 expected monthly maturities on time deposits.

Short-Term Borrowings – The carrying amounts of federal funds purchased, borrowings under repurchase agreements, and other short-term borrowings maturing within ninety days approximate their fair values. Fair values of other short-term borrowings are estimated using discounted cash flow analyses based on Bankshares’ current incremental borrowing rates for similar types of borrowing arrangements.

Trust Preferred Capital Notes – The fair value of Bankshares’ Trust Preferred Capital Notes, which are discussed in Note 12, is estimated using discounted cash flow analyses based on Bankshares’ current incremental borrowing rates for similar types of borrowing arrangements.

Off-Balance-Sheet Financial Instruments – The fair value of commitments to extend credit is estimated using the fees currently charged to enter into similar agreements, taking into account the remaining terms of the agreements and the present creditworthiness of the counterparties. For fixed-rate loan commitments, fair value also considers the difference between current levels of interest rates and the committed rates. The fair value of standby letters of credit is based on fees currently charged for similar agreements or on the estimated cost to terminate them or otherwise settle the obligations with the counterparties at the reporting date. Fair value of off-balance sheet financial commitments are considered immaterial and are therefore not included in the table below.

 

25


Alliance Bankshares Corporation

Notes To Consolidated Financial Statements

 

The following table reflects the fair value of financial instruments for the years ended December 31, 2011 and December 31, 2010:

 

     December 31, 2011      December 31, 2010  
     Carrying
Amount
     Fair
Value
     Carrying
Amount
     Fair
Value
 
     (Dollars in thousands)  

Financial assets:

           

Cash and due from banks

   $ 45,837       $ 45,837       $ 24,078       $ 24,078   

Federal funds sold

     16,567         16,567         17,870         17,870   

Trading securities

     596         596         2,075         2,075   

Available-for-sale securities

     123,463         123,463         135,852         135,852   

Loans, net

     301,483         297,163         327,029         324,164   

Accrued interest receivable

     1,815         1,815         2,758         2,758   

Financial liabilities:

           

Noninterest-bearing deposits

   $ 112,450       $ 112,450       $ 124,639       $ 124,639   

Interest-bearing deposits

     267,993         268,691         282,304         264,176   

Short-term borrowings

     40,420         40,420         43,153         43,148   

FHLB advances

     15,000         15,000         15,000         15,000   

FHLB advances, at fair value

     29,350         29,350         26,208         26,208   

Trust Preferred Capital Notes

     10,310         10,310         10,310         10,310   

Accrued interest payable

     1,155         1,155         976         976   

 

5.   TRADING SECURITIES

The following table reflects the remaining trading securities accounted for on a fair value basis and the effective yield of the instruments as of the dates indicated:

 

     December 31, 2011     December 31, 2010  
     (Dollars in thousands)  
     Fair Value      Yield     Fair Value      Yield  

Trading securities:

          

PCMOs

     596         5.44     2,075         5.32
  

 

 

    

 

 

   

 

 

    

 

 

 

Total trading securities

   $ 596         5.44   $ 2,075         5.32
  

 

 

    

 

 

   

 

 

    

 

 

 

At December 31, 2011 and 2010, none of the trading securities were pledged. Proceeds from sales and calls of trading securities were $1.2 million and $5.3 million for the years ended December 31, 2011 and 2010, respectively.

 

26


Alliance Bankshares Corporation

Notes To Consolidated Financial Statements

 

6.   INVESTMENT SECURITIES

The amortized cost, unrealized holding gains and losses, and the fair value of investment securities at December 31, 2011 are summarized as follows:

 

     Amortized
Cost
     Unrealized     Fair
Value
 
        Gains      Losses    
     (Dollars in thousands)  

Available-for-sale securities:

          

U.S. treasuries

   $ 71,119       $ —         $ (4   $ 71,115   

U.S. government corporations and agencies

     9,737         35         (21     9,751   

U.S. government agency CMOs

     30,893         195         (50     31,038   

U.S. government agency MBS

     7,672         26         —          7,698   

PCMOs

     1,005         —           (55     950   

Municipal securities

     2,982         70         (141     2,911   
  

 

 

    

 

 

    

 

 

   

 

 

 

Total available-for-sale securities

   $ 123,408       $ 326       $ (271   $ 123,463   
  

 

 

    

 

 

    

 

 

   

 

 

 

The amortized cost, unrealized holding gains and losses, and the fair value of investment securities at December 31, 2010 are summarized as follows:

 

     Amortized
Cost
     Unrealized     Fair
Value
 
        Gains      Losses    
     (Dollars in thousands)  

Available-for-sale securities:

          

U.S. government corporations and agencies

   $ 51,684       $ 657       $ (578   $ 51,763   

U.S. government CMOs

     22,185         596         (205     22,576   

U.S. government agency MBS

     14,587         218         —          14,805   

PCMOs

     17,180         468         (27     17,621   

Municipal securities

     30,653         201         (1,767     29,087   
  

 

 

    

 

 

    

 

 

   

 

 

 

Total available-for-sale securities

   $ 136,289       $ 2,140       $ (2,577   $ 135,852   
  

 

 

    

 

 

    

 

 

   

 

 

 

There were no held-to-maturity investments as of December 31, 2011 or 2010.

The amortized cost and fair value of available-for-sale securities as of December 31, 2011, by contractual maturity, are shown below. Expected maturities may differ from contractual maturities because issuers may have the right to call or prepay obligations without any penalties.

 

27


Alliance Bankshares Corporation

Notes To Consolidated Financial Statements

 

     Amortized Cost      Fair Value  
     (Dollars in thousands)  

Due within one year

   $ 71,119       $ 71,115   

Due after ten years

     52,289         52,348   
  

 

 

    

 

 

 

Total

   $ 123,408       $ 123,463   
  

 

 

    

 

 

 

Proceeds from sales and calls of securities available for sale were $166.6 million and $93.0 million for the years ended December 31, 2011 and 2010, respectively. Gross gains of $4.2 million and $2.3 million and gross losses of $784 thousand and $45 thousand were realized on these sales during 2011 and 2010, respectively. The tax provision applicable to the net realized gain amounted to $1.1 million and $761 thousand, respectively.

At December 31, 2011 and 2010, available-for-sale securities with a carrying value of $111.1 million and $119.8 million, respectively, were pledged to secure repurchase agreements, Federal Home Loan Bank advances, and public deposits and for other purposes required or permitted by law.

The following tables present the aggregate amount of unrealized loss in investment securities as of December 31, 2011 and 2010. The aggregate is determined by summation of all the related securities that have a continuous loss at year end, and the length of time that the loss has been unrealized is shown by terms of “less than 12 months” and “12 months or more.” The fair value is the approximate market value as of year-end.

 

           December 31, 2011
12 months or more
       
     Less than 12 months       Total  
     Fair
Value
     Unrealized
Loss
    Fair
Value
     Unrealized
Loss
    Fair
Value
     Unrealized
Loss
 
           (Dollars in thousands)               

U.S. treasuries

   $ 71,115       $ (4   $ —         $ —        $ 71,115       $ (4

U.S. government corporations and agencies

     3,327         (21     —           —          3,327         (21

U.S. government agency CMOs

     7,401         (50     —           —          7,401         (50

PCMOs

     —           —          950         (55     950         (55

Municipal securities

     526         (4     525         (137     1,051         (141
  

 

 

    

 

 

   

 

 

    

 

 

   

 

 

    

 

 

 

Total temporarily impaired investment securities:

   $ 82,369       $ (79   $ 1,475       $ (192   $ 83,844       $ (271
  

 

 

    

 

 

   

 

 

    

 

 

   

 

 

    

 

 

 

 

28


Alliance Bankshares Corporation

Notes To Consolidated Financial Statements

 

           December 31, 2010
12 months or more
       
     Less than 12 months       Total  
     Fair
Value
     Unrealized
Loss
    Fair
Value
     Unrealized
Loss
    Fair
Value
     Unrealized
Loss
 
                  (Dollars in thousands)               

U.S. government corporations and agencies

   $ 25,195       $ (578   $ —         $ —        $ 25,195       $ (578

U.S. government agency CMOs

     7,252         (205     —           —          7,252         (205

PCMOs

     4,103         (27     —           —          4,103         (27

Municipal securities

     19,862         (1,112     1,966         (655     21,828         (1,767
  

 

 

    

 

 

   

 

 

    

 

 

   

 

 

    

 

 

 

Total temporarily impaired investment securities:

   $ 56,412       $ (1,922   $ 1,966       $ (655   $ 58,378       $ (2,577
  

 

 

    

 

 

   

 

 

    

 

 

   

 

 

    

 

 

 

Bankshares’ investment security portfolio is primarily comprised of U.S. Treasury Notes and fixed rate bonds, whose prices move inversely with interest rates. At the end of any accounting period, the portfolio may have both unrealized gains and losses. Unrealized losses within Bankshares’ portfolio typically occur as market interest rates rise. Such unrealized losses are considered temporary in nature. Under ASC 320-10-35, Debt and Equity Securities Recognition and Presentation of Other-Than-Temporary Impairments, an impairment is considered “other than temporary” if any of the following conditions are met: Bankshares intends to sell the security, it is more likely than not that Bankshares will be required to sell the security before recovery of its amortized cost basis, or Bankshares does not expect to recover the security’s entire amortized cost basis (even if Bankshares does not intend to sell). In the event that a security would suffer impairment for a reason that was “other than temporary,” Bankshares would be expected to write down the security’s value to its new fair value, and the amount of the write-down would be included in earnings as a realized loss. As of December 31, 2011 and 2010, management does not consider any of the unrealized losses to be other-than-temporarily impaired and no impairment charges have been recorded.

There are a total of 27 investment securities totaling $83.8 million that have an unrealized loss and are considered temporarily impaired as of December 31, 2011. Management believes the unrealized losses noted in the table above are a result of current market conditions and interest rates, and do not reflect on the ability of the issuers to repay the obligations. Approximately $81.8 million or 97.6% of the investment securities with an unrealized loss are backed by U.S. Government Agencies or Corporations and other forms of underlying collateral.

Bankshares’ investment in FHLB stock totaled $3.4 million at December 31, 2011. FHLB stock is generally viewed as a long term investment and as a restricted investment security which is carried at cost, because there is no market for the stock other than the FHLBs or member institutions. Therefore, when evaluating FHLB stock for impairment, its value is based on ultimate recoverability of the par value rather than by recognizing temporary declines in value. Bankshares does not consider this investment to be other than temporarily impaired as of December 31, 2011 and no impairment has been recognized. FHLB stock is included in restricted stock on the Consolidated Balance Sheets.

 

29


Alliance Bankshares Corporation

Notes To Consolidated Financial Statements

 

7.   LOANS

The following table summarizes the composition of the loan portfolio by dollar amount and percentage as of the dates indicated:

 

           December 31,        
     2011     2010  
     Amount     Percentage     Amount     Percentage  
           (Dollars in thousands)        

Real estate:

        

Residential real estate

   $ 101,248        33.0   $ 110,862        33.4

Commercial real estate

     137,610        44.8     146,222        44.0

Construction/land

     39,176        12.8     43,017        12.9
  

 

 

   

 

 

   

 

 

   

 

 

 

Total real estate

     278,034        90.6     300,101        90.3

Commercial and industrial

     26,820        8.7     27,517        8.3

Consumer

     2,022        0.7     4,692        1.4
  

 

 

   

 

 

   

 

 

   

 

 

 

Gross loans

     306,876        100.0     332,310        100.0
    

 

 

     

 

 

 

Less: allowance for loan losses

     (5,393       (5,281  
  

 

 

     

 

 

   

Net loans

   $ 301,483        $ 327,029     
  

 

 

     

 

 

   

As of December 31, 2011 and 2010, there were $25 thousand and $894 thousand respectively in checking account overdrafts that were reclassified on the Consolidated Balance Sheets as loans.

 

30


Alliance Bankshares Corporation

Notes To Consolidated Financial Statements

 

The following tables represent the credit quality of assets by class:

 

     Credit Quality Asset By Class
As Of December 31, 2011
 
     (Dollars in thousands)  

INTERNAL RISK RATING GRADES

   Pass      Watch      Special
Mention
     Substandard      Doubtful      Loss      Total Loans  

Risk Rating Number1

     1 to 5         6         7         8         9         10      
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Commercial and industrial

   $ 23,901       $ 927       $ 224       $ 1,768       $ —         $ —         $ 26,820   

Commercial real estate

                    

Owner occupied

     63,192         625         1,742         2,610         —           —           68,169   

Non-owner occupied

     60,069         1,231         8,141         —           —           —           69,441   

Construction/land

                    

Residential construction

     9,356         175         599         3,753         876         —           14,759   

Other construction & land

     16,018         —           1,662         5,837         900         —           24,417   

Residential real estate

                    

Equity Lines

     27,311         430         718         95         552         —           29,106   

Single family

     56,134         4,876         —           5,347         —           —           66,357   

Multifamily

     5,785         —           —           —           —           —           5,785   

Consumer—non real estate

     1,836         —           186         —           —           —           2,022   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Totals

   $ 263,602       $ 8,264       $ 13,272       $ 19,410       $ 2,328       $ —         $ 306,876   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 
     Credit Quality Asset By Class
As Of December 31, 2010
(Dollars in thousands)
 

INTERNAL RISK RATING GRADES

   Pass      Watch      Special
Mention
     Substandard      Doubtful      Loss      Total Loans  

Risk Rating Number1

     1 to 5         6         7         8         9         10      
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Commercial and industrial

   $ 24,539       $ 437       $ 734       $ 1,807       $ —         $ —         $ 27,517   

Commercial real estate

                    

Owner occupied

     73,834         634         2,074         3,273         —           —           79,815   

Non-owner occupied

     59,757         2,732         3,918         —           —           —           66,407   

Construction/land

                    

Residential

     17,483         1,553         —           3,300         872         —           23,208   

Commercial

     7,723         1,633         1,492         8,961         —           —           19,809   

Residential real estate

                    

Equity Lines

     43,266         958         348         397         —           —           44,969   

Single family

     45,520         6,627         3,312         5,846         —           —           61,305   

Multifamily

     4,588         —           —           —           —           —           4,588   

Consumer—non real estate

     4,501         —           —           191         —           —           4,692   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Totals

   $ 281,211       $ 14,574       $ 11,878       $ 23,775       $ 872       $ —         $ 332,310   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

 

1 

Internal risk ratings of pass (rating numbers 1 to 5) and watch (rating number 6) are deemed to be unclassified assets. Internal risk ratings of special mention (rating number 7), substandard (rating number 8), doubtful (rating number 9) and loss (rating number 10) are deemed to be classified assets.

 

 

31


Alliance Bankshares Corporation

Notes To Consolidated Financial Statements

 

The following table sets forth the aging and non-accrual loans by class for December 31, 2011:

 

     Aging and Non-accrual Loans By Class
As of December 31, 2011
 
     (Dollars in thousands)  
     30-59 Days
Past Due
     60-89 Days
Past Due
     90 Days or More
Past Due
     Total
Past Due
     Current      90-days
Past Due
and Still
Accruing
     Non-accrual
Loans
 

Commercial and industrial

   $ 1,228       $ 367       $ —         $ 1,595       $ 25,225       $ —         $ 977   

Commercial real estate

                    

Owner occupied

     121         —           2,610         2,731         65,438         —           2,610   

Non-owner occupied

     —           992         —           992         68,449         —           —     

Construction/land

                    

Residential construction

     —           —           540         540         14,219         —           540   

Other construction & land

     —           1,225         5,988         7,213         17,204         —           7,139   

Residential real estate

                    

Equity Lines

     304         33         184         521         28,585         —           236   

Single Family

     74         29         1,733         1,836         64,521         —           1,762   

Multifamily

     —           —           —           —           5,785         —           —     

Consumer -non real estate

     186         —           —           186         1,836         —           —     
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total loans

   $ 1,913       $ 2,646       $ 11,055       $ 15,614       $ 291,262       $ —         $ 13,264   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 
     Aging and Non-accrual Loans By Class
As of December 31, 2010
 
     (Dollars in thousands)  
     30-59 Days
Past Due
     60-89 Days
Past Due
     90 Days or More
Past Due
     Total
Past Due
     Current      90-days
Past Due
and Still
Accruing
     Non-accrual
Loans
 

Commerical and industrial

   $ 718       $ —         $ —         $ 718       $ 26,799       $ —         $ —     

Commercial real estate

                    

Owner occupied

     1,992         —           291         2,283         77,532         —           291   

Non-owner occupied

     328         —           —           328         66,079         —           —     

Construction/land

                    

Residential

     2,585         —           1,128         3,713         19,495         256         872   

Commercial

     1,859         1,917         —           3,776         16,033         —           —     

Residential real estate

                    

Equity Lines

     427         —           —           427         44,541         —           —     

Single Family

     5,608         —           478         6,086         55,220         —           740   

Multifamily

     —           —           —           —           4,588         —           —     

Consumer -non real estate

     —           91         —           91         4,601         —           —     
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total loans

   $ 13,517       $ 2,008       $ 1,897       $ 17,422       $ 314,888       $ 256       $ 1,903   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

 

32


Alliance Bankshares Corporation

Notes To Consolidated Financial Statements

 

8.   ALLOWANCE FOR LOAN LOSSES

The following table summarizes activity in the allowance for loan losses for the year ended December 31:

 

     2011     2010  
     (Dollars in thousands)  

Balance, beginning of year

   $ 5,281      $ 5,619   

Provision for loan losses

     1,549        1,753   

Loans charged off

     (1,702     (2,239

Recoveries of loans charged off

     265        148   
  

 

 

   

 

 

 

Net charge-offs

     (1,437     (2,091
  

 

 

   

 

 

 

Balance, end of year

   $ 5,393      $ 5,281   
  

 

 

   

 

 

 

The following table represents the allocation of allowance for loan losses by segment:

 

     Allowance for Loan Losses
As of December 31, 2011
 
     (Dollars in thousands)  
     Commercial
and
Industrial
    Commercial
Real Estate
    Construction
Land
    Residential
Real Estate
    Consumer     Total  

Beginning Balance:

   $ 463      $ 1,420      $ 700      $ 2,613      $ 85      $ 5,281   

Charge-offs

     (10     (173     (404     (1,044     (71     (1,702

Recoveries

     116        9        —          134        6        265   

Provision

     (359     252        1,512        123        21        1,549   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Ending Balance:

   $ 210      $ 1,508      $ 1,808      $ 1,826      $ 41      $ 5,393   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Individually evaluated for impairment

   $ —        $ 135      $ 1,376      $ 760      $ —        $ 2,271   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Collectively evaluated for impairment

   $ 210      $ 1,373      $ 432      $ 1,066      $ 41      $ 3,122   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Loans:

            

Ending Balance:

   $ 26,820      $ 137,610      $ 39,176      $ 101,248      $ 2,022      $ 306,876   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Individually evaluated for impairment

   $ 977      $ 2,610      $ 7,678      $ 1,999      $ —        $ 13,264   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Collectively evaluated for impairment

   $ 25,843      $ 135,000      $ 31,498      $ 99,249      $ 2,022      $ 293,612   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

33


Alliance Bankshares Corporation

Notes To Consolidated Financial Statements

 

     Allowance for Loan Losses
As of December 31, 2010
 
     (Dollars in thousands)  
     Commercial &
Industrial
     Commercial
Real Estate
     Construction
Land
     Residential
Real Estate
     Consumer      Total  

Ending Balance:

   $ 463       $ 1,420       $ 700       $ 2,613       $ 85       $ 5,281   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Individually evaluated for impairment

   $ —         $ 77       $ 696       $ 100       $ —         $ 873   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Collectively evaluated for impairment

   $ 463       $ 1,343       $ 4       $ 2,513       $ 85       $ 4,408   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Loans:

                 

Ending Balance:

   $ 27,517       $ 146,222       $ 43,017       $ 110,862       $ 4,692       $ 332,310   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Individually evaluated for impairment

   $ —         $ 291       $ 3,272       $ 740       $ —         $ 4,303   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Collectively evaluated for impairment

   $ 27,517       $ 145,931       $ 39,745       $ 110,122       $ 4,692       $ 328,007   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

 

34


Alliance Bankshares Corporation

Notes To Consolidated Financial Statements

 

The following tables represent specific allocation for impaired loans by class:

 

     Specific Allocation for Impaired Loans by Class
As of December 31, 2011
 
     Recorded
Investment
     Unpaid
Principal
Balance
     Related
Allowance
     Average
Recorded
Investment
     Interest
Income
Recognized
 
     (Dollars in thousands)  

With no related allowance:

              

Commercial & Industrial

   $ 977       $ 1,033       $ —         $ 1,037       $ 15   

Commercial Real Estate

              

Owner occupied

     —           —           —           —           —     

Non-owner occupied

     —           —           —           —           —     

Construction/Land

              

Residential

     —           —           —           —           —     

Other construction & land

     2,293         2,293         —           2,199         87   

Residential real estate

              

Single family

     963         963         —           968         37   

With an allowance recorded:

              

Commercial & Industrial

     —           —           —           —           —     

Commercial real estate

              

Owner occupied

     2,610         2,669         135         2,311         20   

Non-owner occupied

     —           —           —           —           —     

Construction/Land

              

Residential

     540         546         259         546         —     

Other construction & land

     4,845         5,049         1,118         5,436         53   

Residential Real Estate

              

Single family

     1,036         1,039         759         1,041         22   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total:

   $ 13,264       $ 13,592       $ 2,271       $ 13,538       $ 234   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

 

35


Alliance Bankshares Corporation

Notes To Consolidated Financial Statements

 

     Specific Allocation for Impaired Loans by Class
As of December 31, 2010
 
     Recorded
Investment
     Unpaid
Principal
Balance
     Related
Allowance
     Average
Recorded
Investment
     Interest
Income
Recognized
 
     (Dollars in thousands)  

With no related allowance:

              

Residential real estate:

              

Single Family

   $ 306       $ 322       $ —         $ 320       $ 9   

With an allowance recorded:

              

Commercial real estate

              

Owner occupied

     291         291         77         293         20   

Non-owner occupied

     —           —           —           —           —     

Construction/Land

              

Residential

     3,272         3,428         696         3,353         197   

Commercial

     —           —           —           —           —     

Residential real estate

              

Single family

     434         457         100         434         —     
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total:

   $ 4,303       $ 4,498       $ 873       $ 4,400       $ 226   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

There were no non-accrual loans excluded from impaired loan disclosures as of December 31, 2011 and 2010. No additional funds are committed to be advanced in connection with impaired loans. At December 31, 2011, there were $1.2 million of loans classified as troubled debt restructured loans of which $257 thousand was classified as non-accrual. There were $212 thousand at December 31, 2010. Of the $1.2 million in troubled debt restructured at December 31, 2011, loans totaling $1.2 thousand are in compliance with the terms of the notes and a loan totaling $257 thousand is in nonaccrual status. The following table reflects loan modifications classified as TDR’s for the year ended of December 31, 2011.

 

     Modifications  
     For the Year Ended December 31, 2011  
     (Dollars in thousands)  
     Number of
Contracts
     Pre-Modification
Outstanding
Recorded
Investment
     Post-Modification
Outstanding
Recorded Investment
 

Troubled debt restructurings

        

Residential Real Estate-Single family

     6       $ 1,213       $ 1,213   
  

 

 

    

 

 

    

 

 

 

 

36


Alliance Bankshares Corporation

Notes To Consolidated Financial Statements

 

TDR payment defaults during the year ended December 31, 2011 were as follows:

 

     For the Year Ended December 31, 2011  
     Number of
Contracts
     Recorded
Investment
 
     (Dollars in thousands)  

Troubled debt restructurings that subsequently defaulted

     

Residential Real Estate- Single family

     1       $ 257   
  

 

 

    

 

 

 

Total

     1       $ 257   
  

 

 

    

 

 

 

For purposes of this disclosure, a TDR payment default occurs when, within 12 months of the original TDR modification, either the TDR is placed in nonaccrual status or a charge-off has occurred.

 

9.   OTHER REAL ESTATE OWNED

The table below reflects changes in Other Real Estate Owned (OREO) for the periods indicated:

 

     For the Year Ended December 31,  
     2011     2010  
     (Dollars in thousands)  

Balance, beginning of year

   $ 4,627      $ 7,875   

Properties acquired at foreclosure

     434        1,973   

Capital improvements on foreclosed properties

     —          55   

Sales on foreclosed properties

     (959     (4,918

Valuation adjustments

     (354     (358
  

 

 

   

 

 

 

Balance, end of year

   $ 3,748      $ 4,627   
  

 

 

   

 

 

 

The table below reflects expenses applicable to OREO for the periods indicated:

 

     For the Year Ended December 31,  
     2011      2010  
     (Dollars in thousands)  

Net loss on sales of OREO

   $ 12       $ 303   

Valuation adjustments

     354         358   

Operating expenses

     88         180   
  

 

 

    

 

 

 

Total OREO related expenses

   $ 454       $ 841   
  

 

 

    

 

 

 

 

37


Alliance Bankshares Corporation

Notes To Consolidated Financial Statements

 

10.   PREMISES AND EQUIPMENT

Premises and equipment are summarized as follows at December 31:

 

     2011     2010  
     (Dollars in thousands)  

Leasehold improvements

   $ 1,783      $ 1,742   

Furniture, fixtures and equipment

     6,003        5,667   
  

 

 

   

 

 

 
     7,786        7,409   

Less: accumulated depreciation and amortization

     (6,371     (5,825
  

 

 

   

 

 

 

Premises and equipment, net

   $ 1,415      $ 1,584   
  

 

 

   

 

 

 

Depreciation and amortization charged to operations in 2011 and 2010 totaled $614 thousand and $695 thousand, respectively.

 

11.   FEDERAL HOME LOAN BANK ADVANCES

Bankshares has two advances from the FHLB: one fixed rate advance and one floating rate advance. At December 31, 2011 and December 31, 2010, the FHLB advance accounted for on a fair value basis had a value of $29.4 and $26.2 million, respectively, and matures in 2021. The weighted average interest rate on the long-term FHLB advance accounted for on a fair value basis was 3.985% at December 31, 2011 and December 31, 2010. The par value of the FHLB advance accounted for on a fair value basis was $25.0 million at December 31, 2011 and December 31, 2010. The negative adjustment of $3.1 million in 2011, was due to lower market rates and management electing to use a more advanced model in valuing the FHLB advance starting in the third quarter of 2011.

At December 31, 2011 and December 31, 2010, there was one FHLB advance accounted for on a cost basis. Bankshares entered into this floating rate advance in the first quarter of 2010 for $15.0 million. The advance matures in 2012 and the interest rate at December 31, 2011 and December 31, 2010 was 0.379% and 0.184%, respectively. The weighted average interest rate for both FHLB advances outstanding is 3.07%.

 

12.   TRUST PREFERRED CAPITAL SECURITIES OF SUBSIDIARY TRUST

On June 30, 2003, Bankshares’ wholly-owned Delaware statutory business trust privately issued $10.0 million face amount of the Trust’s floating rate trust preferred capital securities (Trust Preferred Capital Notes) in a pooled trust preferred capital securities offering. The trust issued $310 thousand in common equity to Bankshares. Simultaneously, the trust used the proceeds of the sale to purchase $10.3 million principal amount of Bankshares’ floating rate junior subordinated debentures due 2033 (Subordinated Debentures). Both the Trust Preferred Capital Notes and the Subordinated Debentures are callable at any time. The Subordinated Debentures are an unsecured obligation of Bankshares and are junior in right of payment to all present and future senior indebtedness of Bankshares. The Trust Preferred Capital Notes are guaranteed by Bankshares on a subordinated basis. The Trust Preferred Capital Notes are presented in the Consolidated Balance Sheets of Bankshares under the caption “Trust preferred capital notes.” Bankshares records distributions payable on the Trust Preferred Capital Notes as an interest

 

38


Alliance Bankshares Corporation

Notes To Consolidated Financial Statements

 

expense in its Consolidated Statements of Operations. The interest rate associated with the Trust Preferred Capital Notes is three month LIBOR plus 3.15% subject to quarterly interest rate adjustments. Under the indenture governing the Trust Preferred Capital Notes, Bankshares has the right to defer payments of interest for up to twenty consecutive quarterly periods. Beginning with the quarter ended September 30, 2009 and through December 31, 2011, Bankshares elected to defer the interest payments as permitted under the indenture. The interest deferred under the indenture compounds quarterly at the interest rate then in effect. As of December 31, 2011, the total amount of deferred and compounded interest owed under the indenture is $953 thousand. The base interest rate as of December 31, 2011 was 3.70% and as of December 31, 2010 was 3.45%.

All or a portion of the Trust Preferred Capital Notes may be included in the regulatory computation of capital adequacy as Tier 1 capital. Under the current guidelines, Tier 1 capital may include up to 25% of shareholders’ equity excluding accumulated other comprehensive income (loss) in the form of Trust Preferred Capital Notes. At December 31, 2011 and December 31, 2010, the entire amount was considered Tier 1 capital.

 

13.   INCOME TAXES

Allocation of federal and state income taxes between current and deferred portions is as follows:

 

     2011      2010  
     (Dollars in thousands)  

Current

   $ —         $ —     

Deferred tax

     4,964         344   
  

 

 

    

 

 

 

Income tax expense

   $ 4,964       $ 344   
  

 

 

    

 

 

 

The reasons for the differences between the statutory federal income tax rate and the effective tax rate are summarized as follows:

 

     2011     2010  
     (Dollars in thousands)  

Computed at the expected statutory rate

   $ (338   $ 357   

Tax exempt income, net

     (56     (109

Other

     67        96   

Change in valuation allowance

     5,291        —     
  

 

 

   

 

 

 

Income tax expense

   $ 4,964      $ 344   
  

 

 

   

 

 

 

 

39


Alliance Bankshares Corporation

Notes To Consolidated Financial Statements

 

Deferred Taxes. Bankshares has recorded a deferred tax asset (DTA) as of December 31, 2011 and 2010. In accordance with ASC 740-10, Income Taxes (formerly SFAS No. 109, Accounting for Income Taxes), deferred tax assets are to be reduced by a valuation allowance if, based on the weight of available evidence, it is more likely than not that some portion or all of the deferred tax assets will not be realized. The future realization of the tax benefit generated by net operating losses depends upon the existence of sufficient taxable income within the applicable carryback and carry forward periods. Bankshares periodically assesses the need to establish, increase, or decrease a valuation allowance for deferred tax assets.

Bankshares performed an analysis to determine if a valuation allowance for deferred tax assets was necessary. Our analysis reviewed various forms of positive and negative evidence in determining whether a valuation allowance is necessary and if so to what degree a valuation allowance is warranted. The three year cumulative loss position of Bankshares is considered negative evidence when determining if a valuation allowance is necessary. We considered positive evidence such as previous earnings patterns, multiyear business projections and the potential realization of net operating loss, (NOL) carry forwards within the prescribed time periods. In addition, we considered tax planning strategies that would impact the timing and extent of taxable income. Based on the analysis and the guidance in the relevant accounting literature, it is not considered more likely than not that Bankshares will be able to realize all its deferred tax assets. A valuation allowance of $5.3 million related to the deferred tax assets has been recorded at December 31, 2011.

Bankshares evaluated the DTA related to the fair value adjustment of an FHLB advance separately from other DTAs. As the future taxable income implicit in the recovery of the book basis of the fair value adjustment offsets any potential future deductions underlying the DTA, Bankshares determined that no valuation allowance was necessary for this DTA. Bankshares has the ability and intent to retain the FHLB advance until such time as it recovers in value, which could be maturity.

The components of the net deferred tax assets and liabilities are as follows:

 

     2011     2010  
     (Dollars in thousands)  

Deferred tax assets:

    

Bad debt expense

   $ 1,833      $ 1,795   

Deferred rent

     17        21   

Deferred data processing costs

     130        77   

Unrealized loss on available-for-sales securities

     —          149   

Other real estate owned

     1,164        1,088   

Net operating loss carryforward

     1,905        2,690   

Other

     447        72   

Fair value adjustment

     1,553        689   
  

 

 

   

 

 

 
     7,049        6,581   
  

 

 

   

 

 

 

Deferred tax liabilities:

    

Unrealized gain on available-for-sale securities

     19        —     

Deferred loan costs, net

     96        107   

Depreciation and amortization

     66        18   

Other

     24        34   
  

 

 

   

 

 

 
     205        159   
  

 

 

   

 

 

 

Net deferred tax assets

   $ 6,844      $ 6,422   

Valuation allowance

     (5,291     —     
  

 

 

   

 

 

 

Deferred tax assets

   $ 1,553      $ 6,422   
  

 

 

   

 

 

 

On November 6, 2009, a new law was enacted that changes the rules and regulations for NOL carrybacks for large corporations (as defined by the Internal Revenue Service (IRS)). The new rules allow for a carryback period of five years. Bankshares filed the appropriate tax forms seeking a refund of $3.9 million.

 

40


Alliance Bankshares Corporation

Notes To Consolidated Financial Statements

 

In early 2010, Bankshares received approximately $3.4 million of the refund. The remaining amounts due are related to alternative minimum taxes and we anticipate a full refund of the alternative minimum taxes paid.

Bankshares files income tax returns in the U.S. federal jurisdiction and the state of Virginia. With few exceptions, Bankshares is no longer subject to U.S. federal, state and local income tax examinations by tax authorities for years prior to 2008.

 

14.   OPERATING EXPENSES

The components of other operating expenses for the years ended December 31, were as follows:

 

     2011      2010  
     (Dollars in thousands)  

Business development

   $ 216       $ 361   

Office expense

     303         549   

Bank operations expense

     589         296   

Data processing

     1,651         1,023   

Professional fees

     1,598         2,192   

FDIC insurance

     850         1,369   

Merger Expenses

     1,158         —     

Other

     1,093         1,305   
  

 

 

    

 

 

 

Total

   $ 7,458       $ 7,095   
  

 

 

    

 

 

 

 

15.   RELATED PARTY TRANSACTIONS AND LETTERS OF CREDIT

Bankshares grants loans and letters of credit to its executive officers, directors and their affiliated entities. These loans are made in the ordinary course of business on substantially the same terms and conditions, including interest rates and collateral, as those prevailing at the same time for comparable transactions with unrelated persons, and, in the opinion of management, do not involve more than normal risk or present other unfavorable features. The aggregate amount of such loans outstanding at December 31, 2011 and 2010 was approximately $1.5 million and $2.3 million, respectively. During 2011, new loans and line of credit advances to such related parties amounted to $19 thousand in the aggregate and payments amounted to $807 thousand in the aggregate.

Bankshares also maintains deposit accounts with some of its executive officers, directors and their affiliated entities. The aggregate amount of these deposit accounts at December 31, 2011 and 2010 amounted to $5.5 million and $1.1 million, respectively.

 

16.   COMMITMENTS AND CONTINGENCIES

As a member of the Federal Reserve System, Bankshares is required to maintain certain average reserve balances. For the final weekly reporting period in the years ended December 31, 2011 and 2010, the aggregate amounts of daily average required balances were $7.9 million and $10.2 million, respectively.

 

41


Alliance Bankshares Corporation

Notes To Consolidated Financial Statements

 

In the normal course of business, there are outstanding various commitments and contingent liabilities, such as guarantees, commitments to extend credit, etc., which are not reflected in the accompanying consolidated financial statements. Bankshares does not anticipate losses as a result of these transactions. See Note 19 with respect to financial instruments with off-balance-sheet risk. Bankshares is obligated under several operating leases, with initial terms of three to ten years, for its office locations and branch sites.

Total rental expense for the occupancy leases for the years ended December 31, 2011 and 2010 was $1.9 million and $2.3 million, respectively. Bankshares also leases office equipment and vehicles pursuant to operating leases with various expiration dates. Total rental expense for office equipment for the years ended December 31, 2011 and 2010 was $52 thousand and $130 thousand, respectively.

Bankshares leases office space for six of its branch locations, corporate headquarters location, and space in Fredericksburg. These non-cancelable agreements, which expire through March 2019, in some instances require payment of certain operating charges. At December 31, 2011, minimum annual rental commitments under these leases are as follows:

 

Year

   Amount  

(Dollars in thousands)

  

2012

   $ 1,791   

2013

     1,543   

2014

     1,239   

2015

     1,274   

2016

     1,163   

Thereafter

     760   
  

 

 

 

Total

   $ 7,770   
  

 

 

 

Bankshares made a decision to exit the Fredericksburg, Virginia market place and is actively attempting to sublease a single facility under lease agreement in the Fredericksburg, Virginia market. Bankshares has recorded a liability of $205 thousand as of December 31, 2011 for the estimated present value of the potential differential between the contractual rental obligations and potential subleasing income.

 

42


Alliance Bankshares Corporation

Notes To Consolidated Financial Statements

 

17.   SUPPLEMENTAL CASH FLOW INFORMATION

Supplemental disclosures of cash flow information for the year ended December 31:

 

     2011      2010  
     (Dollars in thousands)  

Supplemental Disclosures of Cash Flow Information:

     

Interest paid during the year

   $ 5,454       $ 8,714   

Income taxes paid during the year

   $ —         $ —     

Supplemental Disclosures of Noncash Activities:

     

Fair value adjustment for securities

   $ 492       $ (267

Transfer of loans to foreclosed assets

   $ 434       $ 1,973   

 

18.   DEPOSITS

The aggregate amount of time deposits in denominations of $100 thousand or more at December 31, 2011 and 2010 was $38.6 million and $48.8 million, respectively. Brokered deposits totaled $122.4 million and $100.0 million at December 31, 2011 and 2010, respectively.

At December 31, 2011, the scheduled maturities of time deposits are as follows:

 

Year

   Amount  
(Dollars in thousands)  

2012

   $ 96,993   

2013

     53,444   

2014

     28,302   

2015

     12,976   

2016

     1,433   
  

 

 

 

Total

   $ 193,148   
  

 

 

 

Bankshares has made a special effort to obtain deposits from title and mortgage loan closing companies. These balances represent a substantial portion of our non-interest bearing deposits, which creates a real estate industry concentration.

 

43


Alliance Bankshares Corporation

Notes To Consolidated Financial Statements

 

19.   FINANCIAL INSTRUMENTS WITH OFF-BALANCE SHEET RISK

Bankshares, through its banking subsidiary, is party to credit-related 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. Such commitments involve, to varying degrees, elements of credit and interest rate risk in excess of the amount recognized in the consolidated balance sheets.

Bankshares’ exposure to credit loss is represented by the contractual amount of these commitments. Bankshares follows the same credit policies in making commitments as it does for on-balance-sheet instruments.

At December 31, 2011 and 2010, the following financial instruments were outstanding whose contract amounts represent credit risk (in thousands):

 

     2011      2010  
     (Dollars in thousands)  

Financial instruments whose contract amounts represent credit risk

     

Commitments to extend credit

   $ 49,424       $ 34,773   

Standby letters of credit

     2,139         2,274   

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. Bankshares evaluates each customer’s credit worthiness on a case-by-case basis. The amount of collateral obtained, if deemed necessary by Bankshares, is based on management’s credit evaluation of the customer.

Unfunded commitments under commercial lines of credit, revolving credit lines and overdraft protection agreements are commitments for possible future extensions of credit to existing customers. These lines of credit are uncollateralized and usually do not contain a specified maturity date and may not be drawn upon to the total extent to which Bankshares is committed.

Standby letters of credit are conditional commitments issued by Bankshares to guarantee the performance of a customer to a third party. Those letters of credit are primarily issued to support public and private borrowing arrangements. The credit risk involved in issuing letters of credit is essentially the same as that involved in extending loan facilities to customers. Bankshares generally holds collateral supporting those commitments if deemed necessary.

From time to time Bankshares will enter into forward purchase agreements for investment securities. These purchases generally will settle within 90 days of the end of the reporting period. As of December 31, 2011 Bankshares had no forward purchase commitments.

Bankshares maintains cash accounts and federal funds sold in other commercial banks. The amount on deposit with correspondent institutions, including federal funds sold at December 31, 2011, exceeded the insurance limits of the Federal Deposit Insurance Corporation by $14.4 million.

 

44


Alliance Bankshares Corporation

Notes To Consolidated Financial Statements

 

20.   SIGNIFICANT CONCENTRATIONS

Substantially all of Bankshares’ loans, commitments and standby letters of credit have been granted to customers located in the greater Washington, D.C. Metropolitan region, primarily in the Northern Virginia area. Bankshares’ overall business includes a significant focus on real estate activities, including real estate lending, title companies and real estate settlement businesses. Commercial real estate loans are 44.8% of the total gross loan portfolio as of December 31, 2011 and total real estate loans are 90.6% of the total gross loan portfolio as of December 31, 2011. The impact of this concentration can create more volatility in our funding mix, especially during periods of declines in the real estate market, which can have an impact on organizational profitability.

 

21.   EMPLOYEE BENEFITS

Bankshares has a 401(k) defined contribution plan covering substantially all full-time employees and provides that an employee becomes eligible to participate immediately on employment provided they are age 21 or older. Under the plan, a participant may contribute up to 15% of his or her covered compensation for the year, subject to certain limitations. In the first quarter of 2010, Bankshares elected to discontinue the 401(k) matching contributions Matching contributions totaled $3 thousand for the year ended December 31, 2010. Bankshares may also make, but is not required to make, a discretionary contribution for each participant. The amount of contribution, if any, is determined on an annual basis by the Board of Directors. No discretionary contributions were made by Bankshares during the years ended December 31, 2011 and 2010

 

22.   REGULATORY MATTERS

Federal and state banking regulations place certain restrictions on cash dividends paid and loans or advances made by the Bank to Bankshares. The total amount of dividends which may be paid at any date is generally limited to a portion of retained earnings as defined. As of December 31, 2011, no funds were available to be transferred from the banking subsidiary to the Parent Company, without prior regulatory approval. As of December 31, 2011 and 2010, no cash dividends were declared.

As a member of the Federal Reserve Bank system, the Bank is required to subscribe to shares of $100 par value Federal Reserve Bank stock equal to 6% of the Bank’s capital and surplus. The Bank is only required to pay for one-half of the subscription. The remaining amount is subject to call when deemed necessary by the Board of Governors of the Federal Reserve.

Bankshares (on a consolidated basis) and the Bank are subject to various regulatory capital requirements administered by the federal banking agencies. Failure to meet minimum capital requirements can initiate certain mandatory and possible additional discretionary actions by regulators that, if undertaken, could have a direct material effect on Bankshares’ financial statements. Under capital adequacy guidelines and the regulatory framework for prompt corrective action, Bankshares 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. Prompt correction action provisions are not applicable to bank holding companies.

Quantitative measures established by regulation to ensure capital adequacy require Bankshares and the Bank 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). Management believes, as of December 31, 2011 and 2010, that Bankshares and the Bank met all capital adequacy requirements to which they are subject.

 

45


Alliance Bankshares Corporation

Notes To Consolidated Financial Statements

 

As of December 31, 2011, the most recent notification from the Federal Reserve Bank categorized the Bank as well capitalized under the regulatory framework for prompt corrective action. To be categorized as well capitalized, an institution must maintain minimum total risk-based, Tier 1 risk-based and Tier 1 leverage ratios as set forth in the following tables. There are no conditions or events since the notification that management believes have changed the Bank’s category. Bankshares’ and the Bank’s actual capital amounts and ratios as of December 31, 2011 and 2010 are also presented in the table.

 

     Actual     Minimum Capital
Requirement
    Minimum
To Be Well
Capitalized Under

Prompt Corrective
Action Provisions
 
     Amount      Ratio     Amount      Ratio     Amount      Ratio  
     (Dollars in thousands)  

As of December 31, 2011:

               

Total Capital (to Risk Weighted Assets)

               

Consolidated

   $ 41,914         13.8   $ 24,374         8.0     N/A         N/A   

Alliance Bank Corporation

   $ 41,670         13.7   $ 24,292         8.0   $ 30,158         10.0

Tier 1 Capital (to Risk Weighted Assets)

               

Consolidated

   $ 38,086         12.5   $ 12,187         4.0     N/A         N/A   

Alliance Bank Corporation

   $ 37,855         12.5   $ 12,146         4.0   $ 18,095         6.0

Tier 1 Capital (to Average Assets)

               

Consolidated

   $ 38,086         7.5   $ 20,242         4.0     N/A         N/A   

Alliance Bank Corporation

   $ 37,855         7.6   $ 19,843         4.0   $ 24,804         5.0

As of December 31, 2010:

               

Total Capital (to Risk Weighted Assets)

               

Consolidated

   $ 45,383         12.9   $ 28,182         8.0     N/A         N/A   

Alliance Bank Corporation

   $ 44,910         12.8   $ 28,089         8.0   $ 35,111         10.0

Tier 1 Capital (to Risk Weighted Assets)

               

Consolidated

   $ 40,983         11.6   $ 14,091         4.0     N/A         N/A   

Alliance Bank Corporation

   $ 40,510         11.5   $ 14,044         4.0   $ 21,067         6.0

Tier 1 Capital (to Average Assets)

               

Consolidated

   $ 40,983         7.5   $ 21,880         4.0     N/A         N/A   

Alliance Bank Corporation

   $ 40,510         7.4   $ 21,838         4.0   $ 27,298         5.0

 

46


Alliance Bankshares Corporation

Notes To Consolidated Financial Statements

 

23.   STOCK OPTION PLAN

Effective June 30, 1999, as amended on May 28, 2003 and June 22, 2005, Bankshares established an incentive and non-qualified stock option plan called Alliance Bankshares Corporation 1999 Stock Option Plan (1999 Plan). The 1999 Plan is administered by the Board of Directors of Bankshares acting upon recommendations made by the Compensation Committee appointed by the Board. The 1999 Plan is currently authorized to grant a maximum of 1,143,675 shares to directors, key employees and consultants. The options are granted at the fair market value of Bankshares common stock at the date of grant. The term of the options shall not exceed ten years from the date of grant. The options vest on a schedule determined by the Compensation Committee based on financial performance criteria.

Effective June 13, 2007, Bankshares established a new incentive stock option plan called Alliance Bankshares Corporation 2007 Incentive Stock Plan (2007 Plan). The 2007 Plan is administered by the Compensation Committee appointed by the Board. The maximum number of shares authorized is 200,000 common shares. The 2007 Plan permits the grant of incentive stock options, non-qualified stock options, stock appreciation rights, restricted stock, restricted stock units and stock awards to employees, non-employee directors and non-employee service providers. The options are granted at the fair market value of Bankshares common stock at the date of grant. The term of the options shall not exceed ten years from the date of grant. The options vest on a schedule determined by the Compensation Committee based on financial performance criteria.

The 1999 Plan and the 2007 Plan are summarized in the following tables:

The fair value of each grant is estimated at the grant date using the Black-Scholes Option-Pricing Model with the following weighted average assumptions (no grants were made in 2011):

 

     December  31,
2010
    

Dividend yield

   0.00%

Expected life

   7 years

Expected volatility

   71.37%

Risk-free interest rate

   2.29%

The expected volatility is based on historical volatility. The risk-free interest rates for the periods within the contractual life of the awards are based on the U.S. Treasury yield curve in effect at the time of the grant. The expected life is based on historical exercise experience. The dividend yield assumption is based on Bankshares’ history and expectation of dividend payouts.

 

47


Alliance Bankshares Corporation

Notes To Consolidated Financial Statements

 

A summary of the status of Bankshares stock option plan is presented below:

 

           2011           2010  
     Number
of Shares
    Weighted
Average
Exercise
Price
     Aggregate
Intrinsic
Value
   Number
of Shares
    Weighted
Average
Exercise
Price
 
     (Dollars in thousands)  

Outstanding at January 1

     500,210      $ 10.26            684,005      $ 11.27   

Granted

     —          —              60,000        2.89   

Forfeited

     (228,864     12.19            (243,795     11.27   

Exercised

     (3,150     2.41            —          —     

Expired

     (10,350     4.25            —          —     
  

 

 

   

 

 

    

 

  

 

 

   

 

 

 

Outstanding at December 31

     257,846      $ 8.88            500,210      $ 10.26   
  

 

 

   

 

 

    

 

  

 

 

   

 

 

 

Exercisable at end of year

     198,096      $ 10.73            373,985      $ 11.80   
  

 

 

   

 

 

    

 

  

 

 

   

 

 

 

Weighted-average fair value per option of options granted during the year

   $ —              $ 1.82     
  

 

 

         

 

 

   

The status of the options outstanding at December 31, 2011 is as follows:

 

     Options Outstanding      Options Exercisable  

Year of

Expiration

   Number
Outstanding
     Weighted
Average
Remaining
Contractual
Life
     Weighted
Average
Exercise
Price
     Number
Exercisable
     Weighted
Average
Exercise
Price
 

2012

     18,803         1 year       $ 4.72         18,803       $ 4.72   

2013

     39,243         2 years       $ 9.41         39,243       $ 9.41   

2014

     28,175         3 years       $ 16.44         28,175       $ 16.44   

2015

     32,775         4 years       $ 14.01         32,775       $ 14.01   

2017

     66,250         6 years       $ 10.72         66,250       $ 10.72   

2018

     1,600         7 years       $ 2.32         —         $ —     

2019

     11,000         8 years       $ 2.08         3,850       $ 2.08   

2020

     60,000         9 years       $ 2.89         9,000       $ 2.89   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 
     257,846         4.8 years       $ 8.88         198,096       $ 10.73   
  

 

 

          

 

 

    

 

48


Alliance Bankshares Corporation

Notes To Consolidated Financial Statements

 

24.   NET INCOME (LOSS) PER SHARE

The following table shows the weighted average number of shares used in computing net income (loss) per common share and the effect on weighted average number of shares of potential dilutive common stock. Potential dilutive common stock had no effect on income (loss) available to common shareholders for the periods presented.

 

     2011     2010  
     Shares     Per Share
Amount
    Shares      Per Share
Amount
 
     (Dollars in thousands)  

Basic net income per share

     5,108,757      $ (1.17     5,106,819       $ 0.14   
    

 

 

      

 

 

 

Effect of dilutive securities, stock options

     —            981      
  

 

 

     

 

 

    

Diluted net income per share

     5,108,757      $ (1.17     5,107,800       $ 0.14   
  

 

 

   

 

 

   

 

 

    

 

 

 

Net income (loss) utilized in the earnings per share calculations above

   $ (5,958     $ 705      
  

 

 

     

 

 

    

Average potential common shares of 167,306 and 478,210 have been excluded from the earnings (loss) per share calculation for 2011 and 2010, because their effects were anti-dilutive.

 

49


Alliance Bankshares Corporation

Notes To Consolidated Financial Statements

 

25.   PARENT ONLY FINANCIAL INFORMATION

ALLIANCE BANKSHARES CORPORATION

(Parent Corporation Only)

Balance Sheets

December 31, 2011 and 2010

( Dollars in thousands)

 

     2011     2010  

Assets

    

Cash

   $ 192      $ 299   

Investment in subsidiaries

     37,994        43,364   

Other assets

     1,209        905   
  

 

 

   

 

 

 

Total assets

   $ 39,395      $ 44,568   
  

 

 

   

 

 

 

Liabilities

    

Trust preferred capital notes

   $ 10,310      $ 10,310   

Other liabilities

     963        573   
  

 

 

   

 

 

 

Total liabilities

   $ 11,273      $ 10,883   
  

 

 

   

 

 

 

Stockholders’ Equity

    

Common stock

   $ 20,440      $ 20,427   

Capital surplus

     25,915        25,857   

Retained (deficit)

     (18,269     (12,311

Accumulated other comprehensive income (loss), net

     36        (288
  

 

 

   

 

 

 

Total shareholders’ equity

   $ 28,122      $ 33,685   
  

 

 

   

 

 

 

Total liabilities and shareholders’ equity

   $ 39,395      $ 44,568   
  

 

 

   

 

 

 

 

50


Alliance Bankshares Corporation

Notes To Consolidated Financial Statements

 

ALLIANCE BANKSHARES CORPORATION

(Parent Corporation Only)

Statements of Operations

For the Years Ended December 31, 2011 and 2010

( Dollars in thousands)

 

     2011     2010  

Other income

   $ 110        (6
  

 

 

   

 

 

 

Expenses

    

Interest expense

   $ 380      $ 367   

Professional fees

     5        15   

Other expense

     207        83   
  

 

 

   

 

 

 

Total expense

   $ 592      $ 465   
  

 

 

   

 

 

 

Loss before income tax (benefit) and undistributed income (loss) of subsidiaries

   $ (482   $ (471

Income tax (benefit)

     (194     (160
  

 

 

   

 

 

 

Loss before undistributed income (loss) of subsidiaries

   $ (288   $ (311
  

 

 

   

 

 

 

Undistributed income (loss) of subsidiaries

     (5,670     1,016   
  

 

 

   

 

 

 

Net income (loss)

   $ (5,958   $ 705   
  

 

 

   

 

 

 

 

51


Alliance Bankshares Corporation

Notes To Consolidated Financial Statements

 

ALLIANCE BANKSHARES CORPORATION

(Parent Corporation Only)

Statements of Cash Flows

For the Years Ended December 31, 2011 and 2010

(Dollars in thousands)

 

     2011     2010  

Cash Flows from Operating Activities

    

Net income (loss)

   $ (5,958   $ 705   

Adjustments to reconcile net income (loss) to net cash (used in) operating activities:

    

Undistributed (income) loss of subsidiaries

     5,670        (1,016

Stock-based compensation expense

     63        22   

Increase (decrease) in other assets

     (271     115   

Increase in accrued expenses

     381        49   
  

 

 

   

 

 

 

Net cash (used in) operating activities

     (115     (125
  

 

 

   

 

 

 

Cash Flows from Financing Activities

    

Net proceeds from exercise of stock options

   $ 8      $ —     

Common stock repurchased

     —          —     
  

 

 

   

 

 

 

Net cash (used in) financing activities

     8        —     
  

 

 

   

 

 

 

Cash and Cash Equivalents

    

Net (decrease) in Cash and Cash Equivalents

     (107     (125

Beginning of Year

     299        424   
  

 

 

   

 

 

 

End of Year

   $ 192      $ 299   
  

 

 

   

 

 

 

 

52


Alliance Bankshares Corporation

Notes To Consolidated Financial Statements

 

26.   MERGER TERMINATION

On July 27, 2011, Eagle Bancorp, Inc. (Eagle), Bankshares and the Bank entered into an Agreement of Merger (Merger Agreement), pursuant to which Bankshares was to merge with and into Eagle, with Eagle being the surviving corporation.

On November 28, 2011, Eagle, Bankshares and the Bank mutually agreed to terminate the Merger Agreement.

In connection with the termination of the Merger Agreement, Bankshares, the Bank and Eagle entered into a Merger Termination Agreement, dated November 28, 2011 (the Termination Agreement). The Termination Agreement provided, among other things, that neither party would incur any termination fee or penalty in connection with termination of the Merger Agreement, including in connection with any solicitation or consummation by Bankshares of a transaction with any third party. In addition, the Termination Agreement provided for mutual releases by the parties from any claims of liability to one another relating to the Merger Agreement or the transactions contemplated thereby and that each party shall be solely responsible for its own expenses and costs incurred in connection with the Merger Agreement and the transactions contemplated thereby.

Bankshares total transaction expenses related to the Merger and its subsequent termination totaled approximately $1.2 million.

 

27.   SUBSEQUENT EVENTS

Bankshares evaluated subsequent events that occurred after the balance sheet date, but before the financial statements are issued. There are two types of subsequent events: (1) recognized, or those that provide additional evidence about conditions that existed at the date of the balance sheet, including estimates inherent in the process of preparing financial statements, and (2) non-recognized, or those that provided evidence about conditions that did not exist at the date of the balance sheet but arose after that date. As of the report date there were no subsequent events that would cause adjustments to or disclosures in the financial statements.

 

53


PART IV.

Item 15. Exhibits, Financial Statement Schedules

 

(a)

   Exhibits     
   2.1      Agreement and Plan of Reorganization between Alliance Bankshares Corporation and Alliance Bank Corporation, dated as of May 22, 2002 (incorporated by reference to Exhibit 2.0 to Form 8-K12g-3 filed August 21, 2002).
   2.4      Stock Purchase Agreement between Alliance Bank Corporation, as the seller, and Thomas P. Danaher and Oswald H. Skewes, as the purchasers, dated as of December 29, 2009 (incorporated by reference to Exhibit 2.4 to Form 10-K filed May 28, 2010).
   3.1      Articles of Incorporation of Alliance Bankshares Corporation (as amended July 6, 2006) (incorporated by reference to Exhibit 3.1 to Form 10-Q filed August 14, 2006).
   3.2      Bylaws of Alliance Bankshares Corporation (amended and restated as of December 19, 2007) (incorporated by reference to Exhibit 3.2 to Form 8-K filed December 27, 2007).
  

Certain instruments relating to trust preferred capital securities not being registered have been omitted in accordance with Item 601(b)(4)(iii) of Regulation S-K. The registrant will furnish a copy of any such instrument to the Securities and Exchange Commission upon its request.

   10.1*      Alliance Bankshares Corporation Stock Option Plan, as restated effective March 25, 2003, and further amended April 27, 2005 (incorporated by reference to Appendix A to the definitive proxy statement filed May 2, 2005).
   10.1.1*      Form of Stock Option Agreement for Alliance Bankshares Corporation Stock Option Plan (incorporated by reference to Exhibit 10.1.1 to Form 10-K filed March 31, 2006).
   10.3*      Amended and Restated Employment Agreement between Alliance Bank and Paul M. Harbolick, Jr. dated
March 1, 2007 (incorporated by reference to Exhibit 10.3 to Form 10-Q filed May 10, 2007).
   10.3.1*      Amendment to the Employment Agreement between Alliance Bank and Paul M. Harbolick, Jr. dated as of December 30, 2008 (incorporated by reference to Exhibit 10.3.1 to Form 10-K filed April 15, 2009).
   10.4*      Amended and Restated Employment Agreement between Alliance Bank and Craig W. Sacknoff dated March 1, 2007 (incorporated by reference to Exhibit 10.4 to Form 10-Q filed May 10, 2007).
   10.4.1*      Amendment to the Employment Agreement between Alliance Bank and Craig W. Sacknoff, dated as of December 30, 2008 (incorporated by reference to Exhibit 10.4.1 to Form 10-K filed April 15, 2009).
   10.7*      Base Salaries of Named Executive Officers (incorporated by reference to Exhibit 10.7 to Form 10-K filed April 17, 2012).
   10.8*      Non-Employee Director Compensation (incorporated by reference to Exhibit 10.8 to Form 10-K filed April 17, 2012).

 

54


   10.11*      Alliance Bankshares Corporation 2007 Incentive Stock Plan, effective as of June 13, 2007 (incorporated by reference to Appendix A to definitive proxy statement filed April 30, 2007).
   10.12*      Form of Stock Option Agreement for Alliance Bankshares Corporation 2007 Incentive Stock Plan (incorporated by reference to Exhibit 10.12 to Form 8-K filed November 9, 2007).
   10.13*      Employment Agreement between Alliance Bankshares Corporation, Alliance Bank Corporation, and William E. Doyle, Jr., dated as of May 4, 2010 (incorporated by reference to Exhibit 10.13 to Form 10-Q filed August 16, 2010).
   10.14*      Employment Agreement between Alliance Bank Corporation and George F. Cave, dated as of October 22, 2010 (incorporated by reference to Exhibit 10.14 to Form 10-Q filed November 15, 2010).
   10.15*      Employennt Agreement between Alliance Bank Corporation and Jean S. Houpert, dated as of March 23, 2012 (incorporated by reference to Exhibit 10.15 to Form 8-K filed March 29, 2012)
   21      Subsidiaries of the Registrant (incorporated by reference to Exhibit 21 to Form 10-K filed April 17, 2012).
   23.1      Consent of Yount, Hyde & Barbour, P.C.
   31.1      Certification of CEO pursuant to Rule 13a-14(a).
   31.2      Certification of CFO pursuant to Rule 13a-14(a).
   32      Certification of CEO and CFO pursuant to 18 U.S.C. Section 1350.
   101      The following materials from Alliance Bankshares Corporation’s Annual Report on Form 10-K for the year ended December 31, 2011, formatted in XBRL (Extensible Business Reporting Language), furnished herewith: (i) Consolidated Balance Sheets, (ii) Consolidated Statements of Operations, (iii) Consolidated Statements of Changes in Shareholders’ Equity, (iv) Consolidated Statements of Cash Flows, and (v) Notes to Consolidated Financial Statements (incorporated by reference to Exhibit 101 to Form 10-K filed April 17, 2012).

 

* Management Contracts

 

55


SIGNATURES

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

ALLIANCE BANKSHARES CORPORATION

(Registrant)

 

April 18, 2012      

/s/ William E. Doyle, Jr.

Date       William E. Doyle, Jr.
      Director, President & Chief Executive Officer
      (principal executive officer)
April 18, 2012   `    

/s/ Jean S. Houpert

Date       Jean S. Houpert
      Executive Vice President &
      Chief Financial Officer
      (principal financial and accounting officer)

 

56