Attached files
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EXCEL - IDEA: XBRL DOCUMENT - BOTETOURT BANKSHARES INC | Financial_Report.xls |
EX-32.1 - SECTION 906 CEO AND CFO CERTIFICATION - BOTETOURT BANKSHARES INC | d335042dex321.htm |
EX-31.2 - SECTION 302 CFO CERTIFICATION - BOTETOURT BANKSHARES INC | d335042dex312.htm |
EX-31.1 - SECTION 302 CEO CERTIFICATION - BOTETOURT BANKSHARES INC | d335042dex311.htm |
Table of Contents
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
Quarterly Report pursuant to Section 13 or 15(d) of
the Securities Exchange Act of 1934
for the quarterly period ended March 31, 2012
Commission File No. 000-49787
BOTETOURT BANKSHARES, INC.
(Exact name of the registrant as specified in its charter)
Virginia | 54-1867438 | |
(State or other jurisdiction of incorporation or organization) |
(I.R.S. Employer Identification No.) |
19747 Main Street, Buchanan, VA 24066
(Address of principal executive offices)
(540) 591-5000
(Registrants telephone number, including area code)
Indicate by check mark whether the registrant: (1) filed all reports required to be filed by Section 13 or 15 (d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x No ¨
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes x No ¨
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of large accelerated filer, accelerated filer and smaller reporting company in Rule 12b-2 of the Exchange Act.
Large accelerated filer | ¨ | Accelerated filer | ¨ | |||
Non-accelerated filer | ¨ (Do not check if a smaller reporting company) | Smaller reporting company | x |
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ¨ No x
The number of shares outstanding of the Registrants Common Stock, $1 Par Value, as of May 11, 2012 was 1,409,519.
Table of Contents
Form 10-Q
Index
Part I Financial Information | ||||
Item 1. |
Financial Statements | |||
The consolidated financial statements of Botetourt Bankshares, Inc. (the Company) are set forth in the following pages. | ||||
Consolidated Balance Sheets as of March 31, 2012 and December 31, 2011 |
2 | |||
Consolidated Statements of Operations for Three Months Ended March 31, 2012 and 2011 |
3 | |||
4 | ||||
Consolidated Statements of Cash Flows for the Three Months Ended March 31, 2012 and 2011 |
5 | |||
6-19 | ||||
Item 2. |
Managements Discussion and Analysis of Financial Condition and Results of Operations | 20-24 | ||
Item 3. |
Quantitative and Qualitative Disclosures About Market Risk | 24 | ||
Item 4. |
Controls and Procedures | 24 | ||
Part II Other Information | ||||
Item 1. |
Legal Proceedings | 25 | ||
Item 1A. |
Risk Factors | 25 | ||
Item 2. |
Unregistered Sales of Equity Securities and Use of Proceeds | 25 | ||
Item 3. |
Defaults Upon Senior Securities | 25 | ||
Item 4. |
Mine Safety Disclosures | 25 | ||
Item 5. |
Other Information | 25 | ||
Item 6. |
Exhibits | 25-26 | ||
27 | ||||
Certifications |
28-30 |
Table of Contents
Cautionary Statement Regarding Forward-Looking Statements
Certain information in this report may include forward-looking statements as defined by federal securities law. These forward-looking statements contain the Companys expectations, plans, future financial performance, and other statements that are not historical facts. Although the Company believes that its assumptions regarding these forward-looking statements are based on reasonable assumptions, actual results could differ materially. The forward-looking statements involve known and unknown risks including, but not limited to, the following factors:
| Changes in general local, regional and national economic and business conditions in the Companys market area, including downturns in certain industries |
| Changes in deposit composition and controlling the growth of deposits |
| Changes in banking laws, compliance, and the regulatory climate of the Company |
| Changes in interest rates and the management of interest rate risk |
| Demand for banking services, both lending and deposit products, in our market area |
| Risks inherent in making loans such as repayment risks and fluctuating collateral values |
| Changes in loan quality, delinquencies and defaults by our borrowers |
| Further decline in the market value of real estate in the Companys markets |
| Increased regulatory scrutiny could require considerable time and attention of our management and board of directors |
| Attraction and retention of key personnel, including the Companys management team and directors |
| Changes in technology, product delivery channels, and end user demands and acceptance |
| Changes in consumer spending, borrowings, and savings habits |
| The soundness of other financial institutions |
| Risks related to cyber incidents |
| Government intervention in the U.S. financial system |
| Changes in accounting principles, policies, and guidelines |
These risks and inherent uncertainties should be considered in evaluating forward-looking statements contained in this report. We caution readers not to place undue reliance on those statements, which are specific as of the date of the report.
Table of Contents
Part I. Financial Information
Consolidated Balance Sheets
March 31, 2012 and December 31, 2011
(Unaudited) March 31, 2012 |
(Audited) December 31, 2011 |
|||||||
Assets |
||||||||
Cash and due from banks |
$ | 9,590,016 | $ | 7,376,113 | ||||
Interest-bearing deposits with banks |
22,236,280 | 19,235,517 | ||||||
Federal funds sold |
1,714,000 | 680,000 | ||||||
|
|
|
|
|||||
Total cash and cash equivalents |
33,540,296 | 27,291,630 | ||||||
Time deposits with banks |
250,000 | 250,000 | ||||||
Investment securities available for sale |
14,632,393 | 15,622,899 | ||||||
Restricted equity securities |
536,000 | 536,000 | ||||||
Loans, net of allowance for loan losses of $5,283,722 at March 31, 2012 and $5,994,825 at December 31, 2011 |
237,875,460 | 243,854,200 | ||||||
Property and equipment, net |
7,346,879 | 7,344,643 | ||||||
Accrued income |
1,009,525 | 1,039,676 | ||||||
Foreclosed assets |
5,301,048 | 5,251,939 | ||||||
Other assets |
5,159,198 | 5,427,044 | ||||||
|
|
|
|
|||||
Total assets |
$ | 305,650,799 | $ | 306,618,031 | ||||
|
|
|
|
|||||
Liabilities and Stockholders Equity |
||||||||
Liabilities |
||||||||
Noninterest-bearing deposits |
$ | 37,693,597 | $ | 36,359,242 | ||||
Interest-bearing deposits |
240,390,119 | 244,464,401 | ||||||
|
|
|
|
|||||
Total deposits |
278,083,716 | 280,823,643 | ||||||
Accrued interest payable |
412,044 | 451,663 | ||||||
Subordinated debt |
310,000 | 300,000 | ||||||
Other liabilities |
1,532,751 | 1,420,074 | ||||||
|
|
|
|
|||||
Total liabilities |
280,338,511 | 282,995,380 | ||||||
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|
|||||
Commitments and contingencies |
| | ||||||
Stockholders equity |
||||||||
Common stock, $1.00 par value; 2,500,000 shares authorized; 1,409,519 issued and outstanding at March 31, 2012 and 1,253,542 shares issued and outstanding at December 31, 2011 |
1,409,519 | 1,253,542 | ||||||
Additional paid-in capital |
2,752,311 | 1,714,975 | ||||||
Retained earnings |
21,227,476 | 20,720,004 | ||||||
Accumulated other comprehensive loss |
(77,018 | ) | (65,870 | ) | ||||
|
|
|
|
|||||
Total stockholders equity |
25,312,288 | 23,622,651 | ||||||
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|
|||||
Total liabilities and stockholders equity |
$ | 305,650,799 | $ | 306,618,031 | ||||
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|
|
See Notes to Consolidated Financial Statements
2
Table of Contents
Consolidated Statements of Operations
For the three months ended March 31, 2012 and 2011 (Unaudited)
Three Months Ended March 31, |
||||||||
2012 | 2011 | |||||||
Interest income |
||||||||
Loans and fees on loans |
$ | 3,537,981 | $ | 3,630,868 | ||||
Federal funds sold |
189 | 380 | ||||||
Investment securities: |
||||||||
Taxable |
57,475 | 56,215 | ||||||
Exempt from federal income tax |
42,380 | 59,899 | ||||||
Dividend income |
1,728 | 1,141 | ||||||
Deposits with banks |
12,367 | 6,048 | ||||||
|
|
|
|
|||||
Total interest income |
3,652,120 | 3,754,551 | ||||||
|
|
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|
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Interest expense |
||||||||
Deposits |
912,735 | 1,066,147 | ||||||
Long-term debt |
5,460 | | ||||||
|
|
|
|
|||||
Total interest expense |
918,195 | 1,066,147 | ||||||
|
|
|
|
|||||
Net interest income |
2,733,925 | 2,688,404 | ||||||
Provision for loan losses |
| 1,515,000 | ||||||
|
|
|
|
|||||
Net interest income after provision for loan losses |
2,733,925 | 1,173,404 | ||||||
|
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|
|
|||||
Noninterest income |
||||||||
Service charges on deposit accounts |
138,128 | 173,433 | ||||||
Mortgage origination fees |
49,832 | 31,182 | ||||||
Other income |
314,750 | 299,673 | ||||||
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|
|
|
|||||
Total noninterest income |
502,710 | 504,288 | ||||||
|
|
|
|
|||||
Noninterest expense |
||||||||
Salaries and employee benefits |
1,087,102 | 1,181,026 | ||||||
Occupancy and equipment expense |
204,057 | 202,748 | ||||||
Foreclosed assets, net |
372,605 | 69,695 | ||||||
Other expense |
834,237 | 763,423 | ||||||
|
|
|
|
|||||
Total noninterest expense |
2,498,001 | 2,216,892 | ||||||
|
|
|
|
|||||
Income (loss) before income taxes |
738,634 | (539,200 | ) | |||||
Income tax expense (benefit) |
231,162 | (215,721 | ) | |||||
|
|
|
|
|||||
Net income (loss) |
$ | 507,472 | $ | (323,479 | ) | |||
|
|
|
|
|||||
Basic earnings (loss) per share |
$ | 0.37 | $ | (0.26 | ) | |||
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|
|
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Diluted earnings (loss) per share |
$ | 0.37 | $ | (0.26 | ) | |||
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|
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Dividends declared per share |
$ | | $ | 0.04 | ||||
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|
|
|||||
Basic weighted average shares outstanding |
1,378,574 | 1,250,870 | ||||||
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Diluted weighted average shares outstanding |
1,378,574 | 1,250,870 | ||||||
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|
See Notes to Consolidated Financial Statements
3
Table of Contents
Consolidated Statements of Comprehensive Income (Loss)
For the three months ended March 31, 2012 and 2011 (Unaudited)
Three months ended March 31, |
||||||||
2012 | 2011 | |||||||
Net income (loss) |
$ | 507,472 | $ | (323,479 | ) | |||
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|
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Other comprehensive income (loss): |
||||||||
Unrealized gains (losses) on investment securities available for sale |
(16,890 | ) | 120,106 | |||||
Tax (expense) benefit related to unrealized gains (losses) on investment securities available for sale |
5,742 | (40,836 | ) | |||||
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|
|
|||||
Total other comprehensive income (loss) |
(11,148 | ) | 79,270 | |||||
|
|
|
|
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Total comprehensive income (loss) |
$ | 496,324 | $ | (244,209 | ) | |||
|
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|
|
See Notes to Consolidated Financial Statements
4
Table of Contents
Consolidated Statements of Cash Flows
For the three months ended March 31, 2012 and 2011 (Unaudited)
Three Months Ended March 31, |
||||||||
2012 | 2011 | |||||||
Cash flows from operating activities |
||||||||
Net income (loss) |
$ | 507,472 | $ | (323,479 | ) | |||
Adjustments to reconcile net income (loss) to net cash provided by operations: |
||||||||
Depreciation and amortization |
137,685 | 145,012 | ||||||
Net amortization of securities premiums |
3,615 | 3,572 | ||||||
Provision for loan losses |
| 1,515,000 | ||||||
Deferred income taxes |
(219,676 | ) | (209,877 | ) | ||||
Net realized losses (gains) on sales of assets |
(6,555 | ) | 19,645 | |||||
Write down of other real estate owned |
362,012 | 62,605 | ||||||
Changes in assets and liabilities: |
||||||||
Accrued interest receivable |
30,151 | 143,999 | ||||||
Other assets |
466,097 | 213,093 | ||||||
Accrued interest payable |
(39,619 | ) | (12,830 | ) | ||||
Other liabilities |
118,420 | (45,392 | ) | |||||
|
|
|
|
|||||
Net cash provided by operating activities |
1,359,602 | 1,511,348 | ||||||
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|
|
|
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Cash flows from investing activities |
||||||||
Purchases of investment securities available for sale |
(1,000,000 | ) | | |||||
Maturity of investment securities held to maturity |
| 100,000 | ||||||
Maturity of investment securities available for sale |
1,970,000 | 1,128,388 | ||||||
Net decrease in time deposits with banks |
| 250,000 | ||||||
Net decrease (increase) in loans |
5,556,740 | (1,644,930 | ) | |||||
Purchases of properties and equipment |
(118,496 | ) | (36,945 | ) | ||||
Proceeds from sales of properties and equipment |
| 4,500 | ||||||
Proceeds from sales of foreclosed assets |
17,434 | 168,285 | ||||||
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|
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Net cash provided (used) by investing activities |
6,425,678 | (30,702 | ) | |||||
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|
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Cash flows from financing activities |
||||||||
Net increase in noninterest-bearing deposits |
1,334,355 | 577,449 | ||||||
Net decrease in interest-bearing deposits |
(4,074,282 | ) | (1,293,606 | ) | ||||
Proceeds of long-term debt |
10,000 | | ||||||
Dividends paid |
| (50,015 | ) | |||||
Common stock issued |
1,193,313 | 11,405 | ||||||
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|
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Net cash used by financing activities |
(1,536,614 | ) | (754,767 | ) | ||||
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Net increase in cash & due from banks |
6,248,666 | 725,879 | ||||||
Cash and cash equivalents, beginning |
27,291,630 | 20,151,341 | ||||||
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Cash and cash equivalents, ending |
$ | 33,540,296 | $ | 20,877,220 | ||||
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Supplemental disclosures of cash flow information: |
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Interest paid |
$ | 957,814 | $ | 1,078,977 | ||||
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Income taxes paid |
$ | | $ | | ||||
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Supplemental schedule of noncash investing activities: |
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Other real estate acquired in settlement of loans |
$ | 672,000 | $ | 240,000 | ||||
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Loans originated from disposition of other real estate |
$ | 250,000 | $ | 125,000 | ||||
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See Notes to Consolidated Financial Statements
5
Table of Contents
Notes to Consolidated Financial Statements
March 31, 2012 (Unaudited)
Note 1. Organization and Summary of Significant Accounting Policies
Organization
Botetourt Bankshares, Inc., (the Company) was incorporated as a Virginia corporation on January 17, 1997 and is the holding company for Bank of Botetourt (the Bank). The Bank was acquired by the Company on September 30, 1997. Bank of Botetourt was founded in 1899 and currently serves Botetourt, Roanoke, Rockbridge, and Franklin Counties, Virginia and surrounding areas through ten banking offices. As an FDIC-insured, state-chartered bank, the Bank is subject to regulation by the Commonwealth of Virginias Bureau of Financial Institutions and the Federal Deposit Insurance Corporation. The Company is subject to supervision by the Federal Reserve.
The consolidated financial statements as of March 31, 2012 and for the periods ended March 31, 2012 and 2011 have been prepared by Botetourt Bankshares, Inc., without audit pursuant to the rules and regulations of the Securities and Exchange Commission. In the opinion of management, the information furnished in the interim consolidated financial statements reflects all adjustments necessary to present fairly the Companys consolidated financial position, results of operations, and cash flows for such interim periods. These consolidated financial statements should be read in conjunction with the Companys audited financial statements as of December 31, 2011, included in the Companys Form 10-K for the fiscal year ended December 31, 2011. The balance sheet as of December 31, 2011 was extracted from the Form 10-K for the year ended December 31, 2011.
Interim financial performance is not necessarily indicative of performance for the full year.
The accounting and reporting policies of the Company and its subsidiaries follow generally accepted accounting principles and general practices within the financial services industry.
Principles of Consolidation
The consolidated financial statements include the accounts of the Company and its subsidiaries. All significant intercompany transactions and balances have been eliminated in consolidation.
Use of Estimates
The preparation of financial statements requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.
Reclassification
Certain reclassifications have been made to the prior years financial statements to place them on a comparable basis with the current year. Net income and stockholders equity previously reported were not affected by these reclassifications.
Subsequent Events
The Company evaluated events and transactions for potential recognition or disclosure in our financial statements through the date the financial statements were issued.
Note 2. Cash and Cash Equivalents
For the purpose of presentation in the consolidated statements of cash flows, cash and cash equivalents are defined as those amounts included in the balance sheet caption cash and due from banks, interest-bearing deposits with banks, and federal funds sold. As a condition of our correspondent bank agreement, the Bank is required to maintain a target balance. The target balance as of March 31, 2012 was $3,550,000.
6
Table of Contents
Note 3. Investment Securities
Debt and equity securities have been classified in the consolidated balance sheets according to managements intent. The amortized cost of securities and their approximate fair values at March 31, 2012 and December 31, 2011 are as follows:
Amortized Cost |
Unrealized Gains |
Unrealized Losses |
Fair Value |
|||||||||||||
March 31, 2012 |
||||||||||||||||
Available for sale: |
||||||||||||||||
Government-sponsored enterprises |
$ | 7,508,010 | $ | 45,480 | $ | 23,215 | $ | 7,530,275 | ||||||||
State and municipal securities |
6,669,333 | 375,329 | | 7,044,662 | ||||||||||||
Corporate securities |
1 | 57,455 | | 57,456 | ||||||||||||
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$ | 14,177,344 | $ | 478,264 | $ | 23,215 | $ | 14,632,393 | |||||||||
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December 31, 2011 |
||||||||||||||||
Available for sale: |
||||||||||||||||
Government-sponsored enterprises |
$ | 8,258,620 | $ | 54,525 | $ | 12,547 | $ | 8,300,598 | ||||||||
State and municipal securities |
6,892,338 | 386,412 | 2,832 | 7,275,918 | ||||||||||||
Corporate securities |
1 | 46,382 | | 46,383 | ||||||||||||
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$ | 15,150,959 | $ | 487,319 | $ | 15,379 | $ | 15,622,899 | |||||||||
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Government-sponsored enterprises, commonly referred to as U.S. Agencies, include investments in Federal Farm Credit Banks, Federal Home Loan Banks, Federal Home Loan Mortgage Corporation, and Federal National Mortgage Association bonds.
There were no sales of investments during the first three months of 2012 or 2011.
The scheduled maturities of securities available for sale at March 31, 2012 are shown below. Actual expected maturities may differ from contractual maturities because issuers may have the right to call or prepay obligations.
Available for Sale | ||||||||
Amortized Cost |
Fair Value |
|||||||
Due in one year or less |
$ | 629,953 | $ | 632,986 | ||||
Due after one year through five years |
5,953,454 | 6,082,472 | ||||||
Due after five years through ten years |
7,593,936 | 7,859,479 | ||||||
Due after ten years |
1 | 57,456 | ||||||
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|
|
|||||
$ | 14,177,344 | $ | 14,632,393 | |||||
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|
7
Table of Contents
Note 3. Investment Securities, continued
The following tables detail unrealized losses in and related fair values of the Banks investment securities portfolio. This information is aggregated by the length of time that individual securities have been in a continuous unrealized loss position as of March 31, 2012 and December 31, 2011.
Less Than 12 Months | 12 Months or More | Total | ||||||||||||||||||||||
Fair Value |
Unrealized Losses |
Fair Value |
Unrealized Losses |
Fair Value |
Unrealized Losses |
|||||||||||||||||||
March 31, 2012 |
||||||||||||||||||||||||
Government-sponsored enterprises |
$ | 4,476,785 | $ | 23,215 | $ | | $ | | $ | 4,476,785 | $ | 23,215 | ||||||||||||
State and municipal securities |
| | | | | | ||||||||||||||||||
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Total temporarily impaired securities |
$ | 4,476,785 | $ | 23,215 | $ | | $ | | $ | 4,476,785 | $ | 23,215 | ||||||||||||
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Less Than 12 Months | 12 Months or More | Total | ||||||||||||||||||||||
Fair Value |
Unrealized Losses |
Fair Value |
Unrealized Losses |
Fair Value |
Unrealized Losses |
|||||||||||||||||||
December 31, 2011 |
||||||||||||||||||||||||
Government-sponsored enterprises |
$ | 3,737,452 | $ | 12,547 | $ | | $ | | $ | 3,737,452 | $ | 12,547 | ||||||||||||
State and municipal securities |
217,169 | 2,832 | | | 217,169 | 2,832 | ||||||||||||||||||
Corporate securities |
| | | | | | ||||||||||||||||||
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|||||||||||||
Total temporarily impaired securities |
$ | 3,954,621 | $ | 15,379 | $ | | $ | | $ | 3,954,621 | $ | 15,379 | ||||||||||||
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Management considers the nature of the investment, the underlying causes of the decline in market value, the magnitude and duration of the decline in market value and other evidence, on a security by security basis, in determining if the decline in market value is other than temporary. The Company believes that gross unrealized losses as of March 31, 2012 and December 31, 2011, which are comprised of 9 investment securities respectively, represent a temporary impairment given the credit ratings on these investment securities and the short duration of the unrealized loss. The gross unrealized losses reported relate to investment securities issued by Government-sponsored enterprises and various state and municipal securities. Total gross unrealized losses at March 31, 2012, which represent 0.16% of the amortized cost basis of the Companys total investment securities, resulted from changes in interest rates due to market conditions and not due to the credit quality of the investment securities.
Restricted equity securities, which are carried at cost, consist of investments in stock of the Federal Home Loan Bank of Atlanta (FHLB), and CBB Financial Corp., which are upstream correspondents of the Bank. The FHLB requires financial institutions to make equity investments in the FHLB in order to borrow from it. The Bank is required to hold that stock so long as it borrows from the FHLB. Both the Banks stock in CBB Financial Corp. and the FHLB are restricted in the fact that the stock may only be repurchased by the issuer. Management also considers these investments when testing for impairment. On a quarterly basis, management reviews both institutions capital adequacy to ensure they meet minimum regulatory requirements.
Note 4. Loans Receivable
The Company segments its loan portfolio to capture the nature of credit risk inherent in its loans receivable. The major segmented components of loans at March 31, 2012 and December 31, 2011 are as follows (in thousands):
March 31, 2012 |
December 31, 2011 |
|||||||
Commercial |
$ | 16,239 | $ | 16,300 | ||||
Commercial Real Estate |
85,776 | 88,712 | ||||||
Consumer |
10,519 | 10,628 | ||||||
Residential Prime |
112,707 | 116,391 | ||||||
Agricultural & Raw Land |
17,918 | 17,818 | ||||||
|
|
|
|
|||||
243,159 | 249,849 | |||||||
Allowance for loan losses |
(5,284 | ) | (5,995 | ) | ||||
|
|
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|
|||||
$ | 237,875 | $ | 243,854 | |||||
|
|
|
|
Loans receivable include approximately $62,000 and $42,000 in overdraft demand deposit accounts at March 31, 2012 and December 31, 2011, respectively.
8
Table of Contents
Note 5. Allowance for Loan Losses
The following table presents activity in the allowance for credit losses for the three months ended March 31, 2012 on a portfolio segment basis. Allocation of a portion of the allowance to one category of loans does not preclude its availability to absorb losses in other categories.
Commercial | Commercial Real Estate |
Consumer | Residential Prime |
Agricultural & Raw Land |
Total | |||||||||||||||||||
Allowance for loan losses |
||||||||||||||||||||||||
Balance, January 1, 2012 |
$ | 574,676 | $ | 1,776,439 | $ | 205,300 | $ | 2,947,212 | $ | 491,198 | $ | 5,994,825 | ||||||||||||
Charge-offs |
(238,804 | ) | (222,722 | ) | (7,474 | ) | (246,933 | ) | | (715,933 | ) | |||||||||||||
Recoveries |
2,389 | | 2,366 | 75 | | 4,830 | ||||||||||||||||||
Provisions |
| | | | | | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Balance, March 31, 2012 |
$ | 338,261 | $ | 1,553,717 | $ | 200,192 | $ | 2,700,354 | $ | 491,198 | $ | 5,283,722 | ||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Balance, January 1, 2011 |
$ | 327,341 | $ | 1,640,142 | $ | 222,432 | $ | 2,891,175 | $ | 66,700 | $ | 5,147,790 | ||||||||||||
Charge-offs |
| | (36,922 | ) | (850,628 | ) | | (887,550 | ) | |||||||||||||||
Recoveries |
| 23,757 | 5,426 | 100 | | 29,283 | ||||||||||||||||||
Provisions |
(45,950 | ) | (6,671 | ) | 36,464 | 1,532,685 | (1,528 | ) | 1,515,000 | |||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Balance, March 31, 2011 |
$ | 281,391 | $ | 1,657,228 | $ | 227,400 | $ | 3,573,332 | $ | 65,172 | $ | 5,804,523 | ||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
March 31, 2012 |
||||||||||||||||||||||||
Allowance for loan losses ending balances: |
||||||||||||||||||||||||
Individually evaluated for impairment |
$ | 47,154 | $ | 184,261 | $ | | $ | 459,828 | $ | 230,695 | $ | 921,938 | ||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Collectively evaluated for impairment |
$ | 291,107 | $ | 1,369,456 | $ | 200,192 | $ | 2,240,526 | $ | 260,503 | $ | 4,361,784 | ||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Loans receivable: |
||||||||||||||||||||||||
Ending balance - total |
$ | 16,239,117 | $ | 85,776,348 | $ | 10,518,518 | $ | 112,706,635 | $ | 17,918,564 | $ | 243,159,182 | ||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Ending balances: |
||||||||||||||||||||||||
Individually evaluated for impairment |
$ | 786,172 | $ | 5,003,282 | $ | | $ | 8,802,829 | $ | 1,991,255 | $ | 16,583,538 | ||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Collectively evaluated for impairment |
$ | 15,452,945 | $ | 80,773,066 | $ | 10,518,518 | $ | 103,903,806 | $ | 15,927,309 | $ | 226,575,644 | ||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
March 31, 2011 |
||||||||||||||||||||||||
Allowance for loan losses ending balances: |
||||||||||||||||||||||||
Individually evaluated for impairment |
$ | 39,091 | $ | 728,528 | $ | | $ | 1,873,832 | $ | | $ | 2,641,451 | ||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Collectively evaluated for impairment |
$ | 242,300 | $ | 928,700 | $ | 227,400 | $ | 1,699,500 | $ | 65,172 | $ | 3,163,072 | ||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Loans receivable: |
||||||||||||||||||||||||
Ending balance - total |
$ | 18,693,375 | $ | 91,681,340 | $ | 11,525,208 | $ | 127,899,175 | $ | 13,578,237 | $ | 263,377,335 | ||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Ending balances: |
||||||||||||||||||||||||
Individually evaluated for impairment |
$ | 1,155,595 | $ | 8,879,396 | $ | | $ | 17,990,099 | $ | 599,969 | $ | 28,625,059 | ||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Collectively evaluated for impairment |
$ | 17,537,780 | $ | 82,801,944 | $ | 11,525,208 | $ | 109,909,076 | $ | 12,978,268 | $ | 234,752,276 | ||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
9
Table of Contents
Note 5. Allowance for Loan Losses, continued
The following table presents impaired loans in the segmented portfolio categories as of March 31, 2012 and December 31, 2011. The recorded investment is defined as the original amount of the loan, net of any deferred costs and fees, less any principal reductions and direct charge-offs.
Recorded Investment |
Unpaid Principal Balance |
Related Allowance |
Average Recorded Investment |
Interest Income Recognized |
||||||||||||||||
March 31, 2012 |
||||||||||||||||||||
With no related allowance recorded: |
||||||||||||||||||||
Commercial |
$ | 739,530 | $ | 739,018 | $ | | $ | 658,777 | $ | 174 | ||||||||||
Commercial Real Estate |
2,925,990 | 2,926,290 | | 3,455,636 | 26,408 | |||||||||||||||
Residential - Prime |
5,066,991 | 5,065,767 | | 4,717,234 | 34,753 | |||||||||||||||
Consumer |
| | | 2,989 | | |||||||||||||||
Agricultural & Raw Land |
1,189,855 | 1,189,855 | | 504,435 | | |||||||||||||||
With an allowance recorded: |
||||||||||||||||||||
Commercial |
$ | 47,154 | $ | 47,154 | $ | 47,154 | $ | 309,098 | $ | 715 | ||||||||||
Commercial Real Estate |
2,077,694 | 2,076,992 | 184,261 | 2,341,741 | | |||||||||||||||
Residential prime |
3,738,246 | 3,737,062 | 459,828 | 4,165,739 | 8,197 | |||||||||||||||
Agricultural & Raw Land |
801,256 | 801,400 | 230,695 | 1,486,676 | 2,961 | |||||||||||||||
Total: |
||||||||||||||||||||
Commercial |
$ | 786,684 | $ | 786,172 | $ | 47,154 | $ | 967,875 | $ | 889 | ||||||||||
Commercial Real Estate |
5,003,684 | 5,003,282 | 184,261 | 5,797,377 | 26,408 | |||||||||||||||
Residential - Prime |
8,805,237 | 8,802,829 | 459,828 | 8,882,973 | 42,950 | |||||||||||||||
Consumer |
| | | 2,989 | | |||||||||||||||
Agricultural & Raw Land |
1,991,111 | 1,991,255 | 230,695 | 1,991,111 | 2,961 | |||||||||||||||
December 31, 2011 |
||||||||||||||||||||
With no related allowance recorded: |
||||||||||||||||||||
Commercial |
$ | 626,742 | $ | 626,512 | $ | | $ | 622,735 | $ | 2,350 | ||||||||||
Commercial Real Estate |
4,907,524 | 4,908,048 | | 5,700,280 | 255,762 | |||||||||||||||
Residential - Prime |
4,872,253 | 4,871,762 | | 8,925,580 | 131,688 | |||||||||||||||
Consumer |
4,751 | 4,738 | | 5,540 | 562 | |||||||||||||||
Agricultural & Raw Land |
161,725 | 161,725 | | 476,322 | 6,913 | |||||||||||||||
With an allowance recorded: |
||||||||||||||||||||
Commercial |
$ | 441,028 | $ | 440,382 | $ | 282,376 | $ | 383,181 | $ | 3,001 | ||||||||||
Commercial Real Estate |
2,473,765 | 2,473,063 | 346,039 | 2,456,694 | 823 | |||||||||||||||
Residential prime |
5,894,612 | 5,893,388 | 838,412 | 5,980,074 | 21,530 | |||||||||||||||
Agricultural & Raw Land |
1,829,385 | 1,829,530 | 409,055 | 163,285 | 68,096 | |||||||||||||||
Total: |
||||||||||||||||||||
Commercial |
$ | 1,067,770 | $ | 1,066,894 | $ | 282,376 | $ | 1,005,916 | $ | 5,351 | ||||||||||
Commercial Real Estate |
7,381,289 | 7,381,111 | 346,039 | 8,156,974 | 256,585 | |||||||||||||||
Residential - Prime |
10,766,865 | 10,765,150 | 838,412 | 14,905,654 | 153,218 | |||||||||||||||
Consumer |
4,751 | 4,738 | | 5,540 | 562 | |||||||||||||||
Agricultural & Raw Land |
1,991,110 | 1,991,255 | 409,055 | 639,607 | 75,009 |
Impaired loans with a balance at the end of the period are reflected in the Recorded Investment and Unpaid Principal Balance columns. The Average Recorded Investment represents the Banks average investment in those same loans during the period.
10
Table of Contents
Note 5. Allowance for Loan Losses, continued
A loan is considered past due if the required principal and interest payment has not been received as of the due date. The following schedule is an aging of past due loans receivable by portfolio segment as of March 31, 2012 and December 31, 2011.
March 31, 2012
30-59 Days Past Due |
60-89 Days Past Due |
90 Days Plus Past Due |
Total Past Due |
Current | Total Loans Receivable |
Recorded Investment > 90 Days and Accruing |
||||||||||||||||||||||
Commercial |
$ | 48,465 | $ | | $ | 723,692 | $ | 772,157 | $ | 15,466,960 | $ | 16,239,117 | $ | 623 | ||||||||||||||
Commercial Real Estate |
948,870 | 560,000 | 3,053,890 | 4,562,760 | 81,213,588 | 85,776,348 | 117,295 | |||||||||||||||||||||
Consumer |
111,851 | 47,450 | 5,698 | 164,999 | 10,353,519 | 10,518,518 | 5,113 | |||||||||||||||||||||
Residential Prime |
1,600,472 | 1,259,163 | 5,485,920 | 8,345,555 | 104,361,080 | 112,706,635 | 498,009 | |||||||||||||||||||||
Agricultural & Raw Land |
67,284 | 161,725 | 1,829,530 | 2,058,539 | 15,860,025 | 17,918,564 | 205,851 | |||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||
Total |
$ | 2,776,942 | $ | 2,028,338 | $ | 11,098,730 | $ | 15,904,010 | $ | 227,255,172 | $ | 243,159,182 | $ | 826,891 | ||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2011
30-59 Days Past Due |
60-89 Days Past Due |
Greater Than 90 Days |
Total Past Due |
Current | Total Loans Receivable |
Recorded Investment > 90 Days and Accruing |
||||||||||||||||||||||
Commercial |
$ | 17,065 | $ | 15,326 | $ | 987,349 | $ | 1,019,740 | $ | 15,280,064 | $ | 16,299,804 | $ | | ||||||||||||||
Commercial Real Estate |
116,519 | 677,295 | 3,930,617 | 4,724,431 | 83,987,147 | 88,711,578 | 263,827 | |||||||||||||||||||||
Consumer |
164,210 | 16,876 | 15,833 | 196,919 | 10,431,015 | 10,627,934 | 15,183 | |||||||||||||||||||||
Residential Prime |
2,808,768 | 943,922 | 6,364,455 | 10,117,145 | 106,274,250 | 116,391,395 | 356,017 | |||||||||||||||||||||
Agricultural & Raw Land |
59,888 | 205,994 | 1,028,130 | 1,294,012 | 16,524,302 | 17,818,314 | | |||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||
Total |
$ | 3,166,450 | $ | 1,859,413 | $ | 12,326,384 | $ | 17,352,247 | $ | 232,496,778 | $ | 249,849,025 | $ | 635,027 | ||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loans are generally placed in nonaccrual status when the collection of principal and interest is 90 days or more past due, unless the obligation is both well-secured and in the process of collection. When interest accrual is discontinued, all unpaid accrued interest is reversed. Payments on nonaccrual loans are applied to the principal balance. No interest income was recognized on impaired loans subsequent to the nonaccrual status designation. A loan is returned to accrual status when the borrower makes consistent payments according to contractual terms and future payments are reasonably assured. The following is a schedule of loans receivable, by portfolio segment, on nonaccrual status as of March 31, 2012 and December 31, 2011.
March 31, 2012 |
December 31, 2011 |
|||||||
Commercial |
$ | 723,069 | $ | 987,349 | ||||
Commercial Real Estate |
2,936,595 | 3,666,169 | ||||||
Residential - Prime |
4,989,796 | 6,725,941 | ||||||
Agricultural & Raw Land |
1,785,261 | 1,785,261 | ||||||
|
|
|
|
|||||
$ | 10,434,721 | $ | 13,164,720 | |||||
|
|
|
|
The Company uses several metrics as credit quality indicators of current or potential risks as part of the ongoing monitoring of the credit quality of its loan portfolio. The credit quality indicators are periodically reviewed and updated on a case-by-case basis. The Company uses the following definitions for the internal risk rating grades, listed from the least risk to the highest risk.
Excellent: The borrower is typically a long established, well seasoned company with a significant market position. It possesses unquestioned asset quality, liquidity, and excellent sales and earnings trends. Leverage, if present, is well below industry norms. Borrower appears to have capacity to meet all of its obligations under almost any circumstances. If a business, the borrowing entitys management has extensive experience and depth.
Good: The borrower demonstrates a strong and liquid financial condition based upon current financial information and qualifies to borrow on an unsecured basis under most circumstances. If borrowing is secured, collateral is readily marketable and amply margined. Repayment sources are well defined and more than adequate. Credit checks and prior lending experiences with the company, if any, are fully satisfactory. The borrowers cash flow comfortably exceeds total current obligations.
11
Table of Contents
Note 5. Allowance for Loan Losses, continued
Satisfactory: The borrower provides current financial information reflecting a satisfactory financial condition and reasonable debt service capacity. If borrowing is secured, collateral is marketable, adequately margined at the present time, and expected to afford coverage to maturity. Repayment understandings are documented, sources are considered adequate, and repayment terms are appropriate. Credit checks and prior experience, if any, are satisfactory. The borrower is usually established and is attractive to other financial institutions. If a business, the borrowers balance sheet is stable and sales and earnings are steady and predictable.
Acceptable: While an acceptable credit risk to the Company, the borrower will generally demonstrate a higher leveraged, less liquid balance sheet and capacity to service debt, while steady, may be less well-defined. Repayment terms may not be appropriate for individual transactions. Borrower is generally acceptable to other financial institutions; however, secured borrowing is the norm. Collateral marketability and margin are acceptable at the present time but may not continue to be so. Credit checks or prior experience, if any, reveals some, but not serious, slowness in paying. If a business, its management experience may be limited or have less depth than a Satisfactory borrower. Sensitivity to economic or credit cycles exists, and staying power could be a problem.
Special Mention: While loans to a borrower in this rating category are currently protected (no loss of principal or interest envisioned), they may pose undue or unwarranted credit risks if weaknesses are not checked or corrected. Weaknesses may be limited to one or several trends or developments. Weaknesses may include one or more of the following: a potentially over-extended financial condition, a questionable repayment program, an uncertain level of continuing employment or income, inadequate or deteriorating collateral, inadequate or untimely financial information, management competence or succession issues, a high degree of vulnerability to outside forces.
Substandard: Assets in this category are inadequately protected by the current creditworthiness and paying capacity of the obligor or of the collateral pledged, if any. Assets so classified have a well-defined weakness or weaknesses that jeopardizes the liquidation of the debt. They are characterized by the distinct possibility that the Company will sustain some loss if the deficiencies are not corrected. Nonaccrual loans, reduced-earnings loans, and loans to borrowers engaged in bankruptcy proceedings are automatically rated Substandard or lower.
Doubtful: A loan rated Doubtful has all of the weaknesses inherent in one rated Substandard with the added characteristic that the weakness may make collection or liquidation in full, on the basis of currently existing facts, highly improbable. A Doubtful rating generally is used when the amount of loss can be projected and that projection exceeds one-third of the balance of outstanding debt but does not exceed two-thirds of that balance. A Doubtful rating is generally applied when the likelihood of significant loss is high.
Loss: A Loss rating should be applied when the borrowers outstanding debt is considered uncollectible or of such little value that its continuance as a bankable asset is not warranted. This rating does not suggest that there is absolutely no recovery or salvage value, but that it is not practical or desirable to defer writing off the debt even though a partial recovery may be affected in the future.
For the consumer segment of the loan portfolio, the Company uses the following definitions:
Nonperforming: Loans on nonaccrual status plus loans greater than ninety days past due and still accruing interest.
Performing: All current loans plus loans less than ninety days past due.
12
Table of Contents
Note 5. Allowance for Loan Losses, continued
The following is a schedule of the credit quality of loans receivable, by portfolio segment, as of March 31, 2012 and December 31, 2011.
March 31, 2012
Commercial | Commercial Real Estate |
Residential - Prime |
Agricultural & Raw Land |
|||||||||||||
Internal Risk Rating Grades: |
||||||||||||||||
Satisfactory or better |
$ | 9,478,126 | $ | 44,256,668 | $ | 59,102,546 | $ | 6,598,960 | ||||||||
Acceptable |
5,623,278 | 27,633,872 | 32,035,968 | 7,093,306 | ||||||||||||
Special Mention |
143,385 | 8,321,323 | 6,513,939 | 2,106,691 | ||||||||||||
Substandard |
994,328 | 5,564,485 | 15,054,182 | 2,119,607 | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Total |
$ | 16,239,117 | $ | 85,776,348 | $ | 112,706,635 | $ | 17,918,564 | ||||||||
|
|
|
|
|
|
|
|
|||||||||
Consumer | ||||||||||||||||
Internal Risk Rating Grades: |
||||||||||||||||
Performing |
$ | 10,512,820 | ||||||||||||||
Nonperforming |
5,698 | |||||||||||||||
|
|
|||||||||||||||
Total |
$ | 10,518,518 | ||||||||||||||
|
|
December 31, 2011
Commercial | Commercial Real Estate |
Residential - Prime |
Agricultural & Raw Land |
|||||||||||||
Internal Risk Rating Grades: |
||||||||||||||||
Satisfactory or better |
$ | 9,227,714 | $ | 45,832,733 | $ | 61,293,063 | $ | 6,610,668 | ||||||||
Acceptable |
5,536,487 | 27,777,797 | 32,682,370 | 8,039,221 | ||||||||||||
Special Mention |
238,962 | 8,081,599 | 4,871,387 | 1,062,438 | ||||||||||||
Substandard |
1,296,641 | 7,019,449 | 17,544,575 | 2,105,987 | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Total |
$ | 16,299,804 | $ | 88,711,578 | $ | 116,391,395 | $ | 17,818,314 | ||||||||
|
|
|
|
|
|
|
|
|||||||||
Consumer | ||||||||||||||||
Internal Risk Rating Grades: |
||||||||||||||||
Performing |
$ | 10,612,101 | ||||||||||||||
Nonperforming |
15,833 | |||||||||||||||
|
|
|||||||||||||||
Total |
$ | 10,627,934 | ||||||||||||||
|
|
The following is a schedule of loans that are considered Trouble Debt Restructurings for the three months ended March 31, 2012.
Number of Contracts |
Pre-Modification Outstanding Recorded Investment |
Post-Modification Outstanding Recorded Investment |
||||||||||
Commercial |
1 | $ | 594,122 | $ | 586,054 | |||||||
Agricultural & Raw Land |
3 | 1,282,458 | 1,260,442 | |||||||||
|
|
|
|
|
|
|||||||
Total |
4 | $ | 1,876,580 | $ | 1,846,496 | |||||||
|
|
|
|
|
|
13
Table of Contents
Note 5. Allowance for Loan Losses, continued
During the three months ended March 31, 2012, the Bank modified four loans that were considered to be troubled debt restructurings. We entered into forbearance agreements on three loans and cancelled residual debt on one loan.
The following is a schedule of loans that are considered Trouble Debt Restructurings for the three months ended March 31, 2011.
Number of Contracts |
Pre-Modification Outstanding Recorded Investment |
Post-Modification Outstanding Recorded Investment |
||||||||||
Commercial |
1 | $ | 482,086 | $ | 471,381 | |||||||
Residential - prime |
1 | 325,453 | 325,453 | |||||||||
|
|
|
|
|
|
|||||||
Total |
2 | $ | 807,539 | $ | 796,834 | |||||||
|
|
|
|
|
|
The following is a schedule of loans that had been previously restructured and have subsequently defaulted for the three months-ended March 31, 2012.
Number of Contracts |
Pre-Modification Outstanding Recorded Investment |
Post-Modification Outstanding Recorded Investment |
||||||||||
Commercial |
1 | $ | 594,122 | $ | 586,054 | |||||||
Agricultural & Raw Land |
2 | 880,000 | 880,000 | |||||||||
|
|
|
|
|
|
|||||||
Total |
3 | $ | 1,474,122 | $ | 1,466,054 | |||||||
|
|
|
|
|
|
During the three months ended March 31, 2012, three loans that had previously been restructured, were in default. No loans restructured during the first three months of 2011 were in default. The Bank considers a loan in default when it is 90 days or more past due or on nonaccrual status.
In the determination of the allowance for loan losses, management considers troubled debt restructurings and subsequent defaults in these restructurings. All troubled debt restructurings are considered impaired loans. Loss exposure related to these loans is determined by management quarterly.
Note 6. Earnings (Loss) Per Share
Basic earnings (loss) per share is computed by dividing income available to common stockholders by the weighted-average number of common shares outstanding for the period. Diluted net income (loss) per share reflects the potential dilution that could occur if option contracts to issue common stock were exercised or converted into common stock or resulted in the issuance of common stock that then shared in the earnings of the Company. The Company has no potentially dilutive securities outstanding. Therefore, the number of shares for basic and diluted earnings per share were 1,378,574, for the three months ended March 31, 2012 and 1,250,870 for the three months ended March 31, 2011.
14
Table of Contents
Note 7. Commitments and Contingencies
Financial Instruments with Off-Balance-Sheet Risk
The Bank is party to financial instruments with off-balance-sheet risk in the normal course of business to meet the financing needs of its customers. These financial instruments include commitments to extend credit and standby letters of credit. These instruments involve, to varying degrees, credit risk in excess of the amount recognized in the consolidated balance sheets.
The Banks exposure to credit loss in the event of nonperformance by the other party to the financial instrument for commitments to extend credit and standby letters of credit is represented by the contractual amount of those instruments. The Bank uses the same credit policies in making commitments and conditional obligations as for on-balance-sheet instruments. A summary of the Banks commitments is as follows:
March 31, 2012 |
December 31, 2011 |
|||||||
Commitments to extend credit |
$ | 33,872,000 | $ | 33,187,000 | ||||
Letters of credit |
1,658,000 | 1,610,000 | ||||||
|
|
|
|
|||||
$ | 35,530,000 | $ | 34,797,000 | |||||
|
|
|
|
Commitments to extend credit are agreements to lend to a customer as long as there is no violation of any condition established in the contract. Commitments generally have fixed expiration dates or other termination clauses and may require payment of a fee. Since many of the commitments are expected to expire without being drawn upon, the total commitment amounts do not necessarily represent future cash requirements.
Note 8. Benefit Plans
Stock-Based Compensation
The Company maintains a 2009 Incentive Stock Plan (2009 Incentive Plan) that provides for restricted stock grants and options up to 50,000 shares for key employees of the Company, to be issued at no less than the current market price at the time of the grant or option. The maximum number of shares with respect to which awards may be granted in any calendar year is 15,000 shares. The plan expires May 13, 2019 unless all shares are granted prior to the expiration date. No restricted stock grants or options have been granted or are outstanding under the 2009 Incentive Plan.
Defined Benefit Pension Plan
The Bank has a qualified noncontributory, Defined Benefit Pension Plan which covers substantially all of its employees. The Defined Benefit Plan is frozen with no future benefit accruals. The components of net periodic benefit cost related to the Defined Benefit Pension Plan for the three months ended March 31 are as follows:
Pension Benefits Three Months Ended March 31, |
||||||||
2012 | 2011 | |||||||
Service cost |
$ | | $ | 65,464 | ||||
Interest cost |
36,938 | 53,824 | ||||||
Expected return on plan assets |
(57,608 | ) | (57,318 | ) | ||||
Amortization of prior service cost |
| 197 | ||||||
Amortization of net loss |
1,531 | 9,276 | ||||||
|
|
|
|
|||||
Net periodic benefit cost (benefit) |
$ | (19,139 | ) | $ | 71,443 | |||
|
|
|
|
Employer Contributions
In 2012, the Banks required quarterly contribution of $2,273 is satisfied by a deduction from the plans available credit balance. The Bank does not expect to make additional voluntary contributions in 2012.
15
Table of Contents
Note 9. Fair Value
Generally accepted accounting principles (GAAP) provides a framework for measuring and disclosing fair value and requires disclosures about the fair value of assets and liabilities recognized in the balance sheet in periods subsequent to initial recognition, whether the measurements are made on a recurring basis (for example, available for sale investment securities) or on a nonrecurring basis (for example, impaired loans).
Assets and Liabilities Recorded at Fair Value on a Recurring Basis
There were no significant transfers to or from Levels 1 and 2 during the reporting period ended March 31, 2012. The table below presents the recorded amount of assets and liabilities measured at fair value on a recurring basis.
(In Thousands) March 31, 2012 |
Total | Level 1 | Level 2 | Level 3 | ||||||||||||
Investment securities available for sale: |
||||||||||||||||
Government-sponsored enterprises |
$ | 7,530 | $ | | $ | 7,530 | $ | | ||||||||
State and municipal securities |
7,045 | | 7,045 | | ||||||||||||
Corporate securities |
57 | 57 | | | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Total assets at fair value |
$ | 14,632 | $ | 57 | $ | 14,575 | $ | | ||||||||
|
|
|
|
|
|
|
|
(In Thousands) December 31, 2011 |
Total | Level 1 | Level 2 | Level 3 | ||||||||||||
Investment securities available for sale: |
||||||||||||||||
Government-sponsored enterprises |
$ | 8,301 | $ | | $ | 8,301 | $ | | ||||||||
State and municipal securities |
7,276 | | 7,276 | | ||||||||||||
Corporate securities |
46 | 46 | | | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Total assets at fair value |
$ | 15,623 | $ | 46 | $ | 15,577 | $ | | ||||||||
|
|
|
|
|
|
|
|
Assets and Liabilities Recorded at Fair Value on a Nonrecurring Basis
The Company may be required from time to time, to measure certain assets at fair value on a nonrecurring basis. These include assets that are measured at the lower of cost or market that were recognized at fair value below cost at the end of the period. Balances are net of specific reserves. Assets measured at fair value on a nonrecurring basis are included in the table below.
(In Thousands) March 31, 2012 |
Total | Level 1 | Level 2 | Level 3 | ||||||||||||
Impaired loans: |
||||||||||||||||
Commercial Real Estate |
$ | 1,893 | $ | | $ | 1,749 | $ | 144 | ||||||||
Residential Prime |
3,278 | | 3,127 | 151 | ||||||||||||
Agricultural & Raw Land |
570 | | 396 | 174 | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Total Impaired Loans |
5,741 | | 5,272 | 469 | ||||||||||||
Other real estate owned |
5,301 | | 5,301 | | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Total assets at fair value |
$ | 11,042 | $ | | $ | 10,454 | $ | 469 | ||||||||
|
|
|
|
|
|
|
|
(In Thousands) December 31, 2011 |
Total | Level 1 | Level 2 | Level 3 | ||||||||||||
Impaired loans: |
||||||||||||||||
Commercial Real Estate |
$ | 2,127 | $ | | $ | 1,630 | $ | 497 | ||||||||
Residential - Prime |
5,055 | | 2,799 | 2,256 | ||||||||||||
Agricultural & Raw Land |
1,420 | | | 1,420 | ||||||||||||
Commercial |
158 | | | 158 | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Total Impaired Loans |
8,760 | | 4,429 | 4,331 | ||||||||||||
Other real estate owned |
5,252 | | 5,252 | | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Total assets at fair value |
$ | 14,012 | $ | | $ | 9,681 | $ | 4,331 | ||||||||
|
|
|
|
|
|
|
|
16
Table of Contents
Note 9. Fair Value, continued
Transfers into Level 3 during the quarter ended March 31, 2012 were related to management adjustments to third party appraisals. Management estimated the fair value of these loans to be further impaired and below the appraised value, resulting in no observable market price. For the three months ended March 31, the changes in Level 3 assets measured at fair value on a recurring basis are summarized as follows (dollars in thousands):
Three Months Ended March 31, |
||||||||
2012 | 2011 | |||||||
Impaired Loans |
Impaired Loans |
|||||||
Balance, January 1 |
$ | 4,331 | $ | 4,126 | ||||
Included in earnings |
(367 | ) | (1,319 | ) | ||||
Principal reductions |
(1,302 | ) | | |||||
Transfers into Level 3 |
144 | 10 | ||||||
Transfer out of Level 3 |
(2,337 | ) | (1,478 | ) | ||||
|
|
|
|
|||||
Balance, March 31 |
$ | 469 | $ | 1,339 | ||||
|
|
|
|
Transfers out of Level 3 during the quarter resulted after charge-off to earnings or elimination of impairment status. The Company has no liabilities carried at fair value or measured at fair value on a recurring or nonrecurring basis.
For Level 3 assets and liabilities measured at fair value on a recurring or nonrecurring basis, as of March 31, 2012, the significant unobservable inputs used in the fair value measurements were as follows:
(In Thousands) March 31, 2012 |
Fair Value | Valuation Technique |
Significant Unobservable Inputs |
Significant Unobservable Input Value |
||||||||
Impaired loans |
$ | 469 | Management estimate |
Appraisals and/or sales of compareable properties |
n/a |
The following table presents the carrying amount, fair value, and placement in the fair value hierarchy of the Companys financial instruments as of March 31, 2012 and December 31, 2011. This table excludes financial instruments for which the carrying amount approximates fair value (dollars in thousands):
Fair Value Measurements | ||||||||||||||||
Carrying Amount |
Fair Value | Significant Other Observable Inputs Level 2 |
Significant Other Nonobservable Inputs Level 3 |
|||||||||||||
March 31, 2012 |
||||||||||||||||
Financial assets |
||||||||||||||||
Loans, net |
$ | 237,875 | $ | 235,647 | $ | 5,272 | $ | 230,375 | ||||||||
Financial liabilities |
||||||||||||||||
Deposits |
278,084 | 281,723 | 281,723 | | ||||||||||||
December 31, 2011 |
||||||||||||||||
Financial assets |
||||||||||||||||
Loans, net |
$ | 243,854 | $ | 242,206 | $ | 4,429 | $ | 237,777 | ||||||||
Financial liabilities |
||||||||||||||||
Deposits |
280,824 | 284,839 | 284,839 | |
17
Table of Contents
Note 9. Fair Value, continued
The Company had no financial assets with fair values different from the carrying amount placed in the Level 1, quoted in the active markets, hierarchy at March 31, 2012 or December 31, 2011.
The following methods and assumptions were used by the Company in estimating its fair value disclosures for financial instruments:
Loans receivable: For variable-rate loans that reprice frequently and with no significant change in credit risk, fair values are based on carrying amounts. The fair values for other loans are estimated using discounted cash flow analysis, based on interest rates currently being offered for loans with similar terms to borrowers of similar credit quality. Loan fair value estimates include judgments regarding future expected loss experience and risk characteristics.
Fair values for impaired loans are estimated using discounted cash flow analysis or underlying collateral values, where applicable.
Deposit liabilities: The fair values disclosed for demand and savings deposits are, by definition, equal to the amount payable on demand at the reporting date. The fair values for certificates of deposit are estimated using a discounted cash flow calculation that applies interest rates currently being offered on certificates to a schedule of aggregated contractual maturities on such time deposits.
Note 10. Common Stock Rights Offering
In January 2012, the Company completed its Common Stock Rights Offering. Under the terms of the rights offering, the Company distributed, at no charge to holders of its common stock as of 5:00 p.m., Eastern Time, on November 4, 2011, rights to purchase shares of the Companys common stock at a subscription price of $7.65 per full share. The rights offering expired at 5:00 p.m., Eastern Time, on January 13, 2012. As a result of the rights offering, on January 19, 2012, the Company generated approximately $1.19 million of net proceeds through the issuance of approximately 156,000 new shares of the Companys common stock.
Note 11. Long-Term Debt
In August 2011, the Bank began issuing Subordinated Debt. Interest rates are fixed on the debt for the full term but vary by maturity and range from 6.75% on the 7 year maturity to 7.75% on the 10 year maturity. As the terms are greater than five years and the debt is subordinate to deposits and other borrowings, this debt is included in capital for purposes of calculating Total Risk Based Capital.
The maturities of the long-term debt, as of March 31, 2012, are as follows:
2018 |
210,000 | |||
2021 |
100,000 | |||
|
|
|||
Total |
$ | 310,000 | ||
|
|
Note 12. Recent Accounting Pronouncements and Future Accounting Considerations
The following is a summary of recent authoritative announcements.
In April 2011, the criteria used to determine effective control of transferred assets in the Transfers and Servicing topic of the ASC was amended by ASU 2011-03. The requirement for the transferor to have the ability to repurchase or redeem the financial assets on substantially the agreed terms and the collateral maintenance implementation guidance related to that criterion were removed from the assessment of effective control. The other criteria to assess effective control were not changed. The amendments were effective for the Company on January 1, 2012 and had no effect on the financial statements.
18
Table of Contents
Note 12. Recent Accounting Pronouncements and Future Accounting Considerations, continued
ASU 2011-04 was issued in May 2011 to amend the Fair Value Measurement topic of the ASC by clarifying the application of existing fair value measurement and disclosure requirements and by changing particular principles or requirements for measuring fair value or for disclosing information about fair value measurements. The amendments were effective for the Company beginning January 1, 2012 and had no effect on the financial statements.
The Comprehensive Income topic of the ASC was amended in June 2011. The amendment eliminates the option to present other comprehensive income as a part of the statement of changes in stockholders equity and requires consecutive presentation of the statement of net income and other comprehensive income. The amendments were applicable to the Company on January 1, 2012 and have been applied retrospectively. In December 2011, the topic was further amended to defer the effective date of presenting reclassification adjustments from other comprehensive income to net income on the face of the financial statements. Companies should continue to report reclassifications out of accumulated other comprehensive income consistent with the presentation requirements in effect prior to the amendments while FASB redeliberates future requirements.
Other accounting standards that have been issued or proposed by the FASB or other standards-setting bodies are not expected to have a material impact on the Companys financial position, results of operations or cash flows.
Note 13. Subsequent Events
On April 25, 2012, the Board of Directors of Botetourt Bankshares, Inc. voted to terminate the registration of the Companys common stock under Section 12(g) of the Securities Exchange Act of 1934 (the Exchange Act). On April 26, 2012, the Company filed a Form 15 with the Securities and Exchange Commission pursuant to Section 12(g)(4) of the Exchange Act, as amended by the Jumpstart Our Business Startups Act, to effect such termination. The termination will be effective 90 days, or such shorter period as the Securities and Exchange Commission may determine, after the filing of the Form 15. Additionally, as appropriate under Rule 15d-6, the Board of Directors voted to terminate the Dividend Reinvestment and Stock Purchase Plan and the 2009 Incentive Stock Plan effective immediately pursuant to that deregistration schedule. The Company intends to offer a replacement Dividend Reinvestment and Stock Purchase Plan and Incentive Stock Plan with unregistered shares at a future date.
19
Table of Contents
Item 2. | Managements Discussion and Analysis of Financial Condition and Results of Operations |
General
The following discussion provides information about the major components of the results of operations and financial condition of the Company. This discussion and analysis should be read in conjunction with the Consolidated Financial Statements and Notes to Consolidated Financial Statements included in this report.
Critical Accounting Policy
For a discussion of the Companys critical accounting policies, see the Companys Annual Report on Form 10-K for the year ended December 31, 2011.
Results of Operations
Net income for the quarter ended March 31, 2012 amounted to $507,472 compared to a net loss of $(323,479) for the same period last year, representing an increase of $830,951. Both basic and diluted earnings (loss) per share increased $0.63 from $(0.26) at March 31, 2011 to $0.37 at March 31, 2012. The increase in net income and earnings per share is primarily due to no expense related to provision for loan losses during the quarter ending March 31, 2012.
Interest-earning assets decreased $8,863,745 to $282,527,855 at March 31, 2012 from $291,391,600 at March 31, 2011. Total interest income decreased in the first three months of 2012 as compared to the first three months of 2011 due primarily to a decrease in fees on loans and a decrease in investment income resulting from lower interest rates earned on a smaller investment portfolio, and a decrease in earnings on federal funds sold. The decrease was partially offset by increases in interest earned on deposits at correspondent banks and dividend income. Interest-bearing liabilities decreased $6,047,577 to $240,700,119 at March 31, 2012 from $246,747,696 at March 31, 2011. Interest expense decreased during the period due to a reduction in interest-bearing deposits combined with the repricing of maturing deposits at lower interest rate levels. Net interest income for the three months ended March 31, 2012 increased by $45,521 compared to the same time period in 2011.
There was no provision for loan losses for the three months ended March 31, 2012 compared to $1,515,000 for the three months ended March 31, 2011. Impaired loans decreased by $4,626,000 during the first three months of 2012, although the overall volume remains at higher levels than in normal economic times. The loss exposure related to the underlying collateral values of collateral dependent loans decreased by $954,000, or 50.9% during the first three months of 2012. This amount was estimated by management based on current and adjusted appraisals, including an estimate for selling costs. Management also performed discounted cash flow analysis on non-collateral dependent loans. The general component of the model provides for potential losses from non-impaired loans based on historical loss experience and other factors, including an internal analysis of economic trends. For the unallocated component, economic statistical data is obtained from a professional third party vendor, the Federal Reserve Bank, and other appropriate public domain sources. The economic data is reviewed, interpreted, and applied to our loan portfolio to quantify the financial impact of current and forecasted economic trends on loans in our portfolio. The results of the estimated losses on specific loans combined with the general or unallocated component represents managements estimate of the amount adequate to provide for potential losses inherent in the loan portfolio. Management continually evaluates the adequacy of the loan loss reserve and believes that the provision and the resulting allowance for loan losses are adequate and appropriate for the overall risk in the portfolio.
Net charge-offs for the three months ended March 31, 2012 amounted to $711,000 compared to $859,000 for the same time period in 2011. The net charge-offs in 2012 are the result of problem loans primarily for residential properties, commercial real estate, and investment rental properties. These loans were previously identified as impaired with specific reserve amounts. The decrease in net charge-offs during the first three months of 2012 compared to 2011 is encouraging but management believes that more stable real estate values, increased sales activity, and stronger employment is still needed for a positive trend to be fully determined. Charge-off trends are considered in the quarterly review of the allowance for loan losses and influence the allowance for loan losses as they both reduce the levels of reserves and increase historical loss experience, which is an input to the calculation of general reserves.
20
Table of Contents
Item 2. | Managements Discussion and Analysis of Financial Condition and Results of Operations, continued |
Noninterest income decreased slightly by 0.31% to $502,710 for the three months ended March 31, 2012 compared to $504,288 for the three months ended March 31, 2011. We attribute this decrease primarily to service charges on deposit accounts such as fewer overdraft fees, offset by an increase in mortgage origination fees, financial services commissions, and check sales. For the three months ended March 31, 2012, noninterest expense increased by $281,109 or 12.7%, to $2,498,001 compared to $2,216,892 at March 31, 2011. The increase is primarily a result of an increase in expenses related to foreclosed assets, collection expense, and to a lesser extent, other expenses such as automated teller machine expenses.
Financial Condition
Overall loan demand continues to remain soft in our operating markets during 2012. Total loans decreased $6,689,843 during the three months ended March 31, 2012. Deposits decreased by $2,739,927. The decrease in loans, partially offset by a decrease in deposits, increased liquid funds by $4,034,763, which were held as interest-bearing deposits with banks and federal funds sold. At March 31, 2012 federal funds sold and interest-bearing deposits with banks amounted to $23,950,280 compared to $19,915,517 at December 31, 2011. Investment securities, including restricted equity securities, decreased $990,506 as a result of maturing, called or redeemed investment securities. Given the current interest rate environment and investment opportunities, management elected to invest primarily in the overnight market. Total liabilities decreased by $2,656,869 from $282,995,380 at December 31, 2011 to $280,338,511 at March 31, 2012.
Stockholders equity totaled $25,312,288 at March 31, 2012 compared to $23,622,651 at December 31, 2011. The $1,689,637 increase during the period was the result of net proceeds from the issuance of common stock, net income for the three months, partially offset by a minor decrease in the market value of securities that are classified as available for sale.
Non-Performing Assets
Non-performing assets, which consist of nonaccrual loans and foreclosed properties, were $15.7 million at March 31, 2012 and $18.4 million at December 31, 2011. The decrease is primarily due to the overall decrease in nonaccrual loans discussed below.
Nonaccrual loans were $10.4 million at March 31, 2012 and $13.2 million at December 31, 2011. There were no additions to nonaccrual loans during the first three months of 2012. Although deemed a positive metric, total nonaccrual loan balances remain at higher levels than in more normal economic times and continue to contribute to our nonearning assets.
Loans, including troubled debt restructurings, are generally placed in nonaccrual status when the collection of principal and interest is 90 days or more past due, unless the obligation is both well-secured and in the process of collection. A loan is removed from nonaccrual status when it is deemed a loss and appropriately charged to the allowance or when it begins performing consistently, normally for six months, according to contractual terms. A loan that is placed as nonaccrual does not mean that we will not recover much of or all the principal balance due. In most cases, we have a secured interest in collateral, such as real property or equipment. Sales of the collateral will not always cover the full loan amount, but it should offset some of this risk. We recognize that real estate collateral may be difficult to liquidate at desired values in the current economic climate. Additionally, the sale of our collateral could be a slow process and further hampered by the sales efforts of other lenders in the same market.
A loan is considered impaired if it is probable that the Bank will be unable to collect all amounts due under the contractual terms of the loan agreement. Impaired loans amounted to $16.6 million at March 31, 2012 compared to $21.2 million at December 31, 2011. While the review of our loan portfolio in the first quarter of 2012 identified one additional loan as impaired, the overall balance of impaired loans, and their related loss exposure, decreased as a result of the net effect of charge-offs, payments received, and changes in loss exposure or liquidation costs. The specific reserve component of the allowance for loan losses has decreased by approximately $954,000, or 50.9%, from December 31, 2011 to March 31, 2012. At March 31, 2012, $922,000, or 17.4%, of the $5,284,000 total allowance for loan losses was allocated for the loss exposure related to impaired loans. Management will continue to monitor the performance of loan repayments by borrowers who may be unable to pay according to contractual terms. We will take appropriate action, including identifying loss exposure and allocating specific reserves, when deemed necessary.
21
Table of Contents
Item 2. | Managements Discussion and Analysis of Financial Condition and Results of Operations, continued |
Foreclosed assets consisted of twenty properties totaling $5,301,000 at March 31, 2012. Each quarter, management evaluates the carrying value of these properties to determine if write-downs to lower market values are warranted. During the first quarter of 2012, the bank recorded a write-down on foreclosed properties in the amount of $362,000. Also during the first quarter, the Bank foreclosed on three properties and sold foreclosed properties related to three loans. The sales activity of these properties resulted in a net gain of $6,555 during the quarter. All foreclosed properties are currently being marketed for sale, and no additional material loss is anticipated. Bank management acknowledges that the uncertainty in the residential real estate market could result in future write downs during the holding phase, if updated annual property valuations result in lower collateral values. The Bank had no loans secured by 1-4 family residential properties in the process of formal foreclosure at March 31, 2012.
The Bank continues to make a conscious effort to attempt work-out loan situations with past due customers. In some cases, loan restructuring is appropriate. Bank management has procedures and processes in place to identify, monitor, and report troubled debt restructurings (TDRs). At March 31, 2012, troubled debt restructurings, including performing and nonperforming TDRs totaled $7.3 million, and were spread among all loan categories. Of the $7.3 million, loans restructured during 2012 totaled $1.8 million at March 31, 2012. While bank management supported a philosophy of working with our customers during this economic cycle and had some general success in the past, we have had less success in recent quarters. Of the four loans restructured in 2012, we entered into forbearance agreements on three loans and cancelled residual debt on one loan. Of the four loans, three loans totaling $1.5 million, have subsequently defaulted, either becoming 90 days or more past due or being placed on nonaccrual status. The Bank engaged a local legal firm to assist with specific asset quality issues in 2012.
Long Term Debt
In August 2011, the Bank began issuing Subordinated Debt agreements with local investors in a strategic effort to improve the Total Risk Based Capital Ratio over the long-term. The notes bear terms of 7 and 10 years. Interest rates are fixed on the notes for the full term but vary by maturity. Interest rates range from 6.75% on the 7 year note to 7.75% on the 10 year note. As of March 31, 2012, the balance outstanding was $310,000. Since their terms are greater than five years and the debt is subordinate to deposits and other borrowings, this debt is counted with capital for purposes of calculating the Total Risk Based Capital Ratio. The notes are debt instruments and therefore are not dilutive to our shareholders.
Capital Requirements
The Company (on a consolidated basis) and the Bank are subject to various regulatory capital requirements administered by federal banking agencies. Failure to meet minimum capital requirements can initiate certain mandatory (and possibly additional discretionary) actions by regulators that, if undertaken, could have a direct material effect on the Companys and the Banks financial statements. Under capital adequacy guidelines and the regulatory framework for prompt corrective action, the Company and the Bank must meet specific capital guidelines that involve quantitative measures of their assets, liabilities, and certain off-balance sheet items as calculated under regulatory accounting practices. The capital amounts and classification are also subject to qualitative judgments by the regulators about components, risk weightings, general portfolio risk, and other factors.
Quantitative measures established by regulation to ensure capital adequacy require the Company and the Bank to maintain minimum amounts and ratios of total and Tier 1 capital to risk-weighted assets, and of Tier 1 capital to average assets, as all those terms are defined in the regulations. By definition, Tier 1 capital is comprised of common equity, retained earnings and qualifying perpetual preferred stock, less certain intangibles.
At March 31, 2012, the Banks Tier 1 risk-based capital ratio (Tier 1 capital divided by risk-weighted average assets) was 10.4% compared to 9.4% at December 31, 2011. The Companys risk-based ratio (Tier 1 capital divided by risk-weighted average assets) was 10.4% at March 31, 2012 and 9.5% at December 31, 2011. Each of these ratios exceeded the required regulatory minimum ratio of 4.0%.
At March 31, 2012, the Banks total risk based capital ratio (total risk based capital divided by total risk-weighted assets) was 11.8% compared to 10.8% at December 31, 2011. The Companys total risk based capital ratio (total risk based capital divided by total risk-weighted assets) was 11.8% at March 31, 2012 compared to 10.9% at December 31, 2011. Each of these ratios exceeded the required regulatory minimum ratio of 8.0%.
22
Table of Contents
Item 2. | Managements Discussion and Analysis of Financial Condition and Results of Operations, continued |
At March 31, 2012, the Banks Tier 1 leverage ratio (Tier 1 capital divided by quarterly average assets) was 7.9% compared to 7.2% at December 31, 2011. At March 31, 2012, the Companys Tier 1 leverage ratio (Tier 1 capital divided by quarterly average assets) was 7.9% compared to 7.2% at December 31, 2011. Each of these ratios exceeded the required regulatory minimum ratio of 4.0%.
All capital ratios showed improvement at March 31, 2012 due to our Common Stock Rights Offering and a profitable quarter. Management believes that the Company and the Bank met all capital adequacy requirements to which we are subject to be considered a well capitalized financial institution, although our regulators encourage higher levels given the risk profile of our nonperforming assets.
Liquidity
One of the principal goals of the Banks asset and liability management strategy is to maintain adequate liquidity. Liquidity is the ability to convert assets to cash to fund depositors withdrawals or borrowers loans without significant loss. During 2012 the Banks liquidity has increased due in part to soft loan demand, investments called prior to maturity, partially offset by a decrease in deposits. With limited attractive investment opportunities, the Banks interest-bearing deposits with banks was $22.2 million at March 31, 2012 compared to $19.2 million at December 31, 2011, as the Bank held funds with the Federal Reserve Bank of Richmond to earn interest income on excess reserves. The Bank uses cash and federal funds sold to meet its daily funding needs. When our funding needs are met through holdings of excess cash and federal funds, earnings are mildly sacrificed as we forego higher-yielding investments in the interest of liquidity. Therefore, management determines, based on such items as loan demand and deposit activity, an appropriate level of cash and federal funds sold and seeks to maintain that level of liquidity.
Federal funds lines and repurchase agreement lines available from correspondent banks totaled $18.0 million at March 31, 2012 and December 31, 2011. There was no balance outstanding on these lines at March 31, 2012 or December 31, 2011. On April 25, 2012, the Board of Directors adopted a resolution to convert the Banks primary $12.0 million unsecured federal funds line to a secured federal funds line with a $5.3 million in borrowing capacity. The Bank plans to pledge certain investments and time deposits with banks to collateralize the line.
The secondary liquidity source for both short-term and long-term borrowings consists of a $13.4 million secured line of credit from the Federal Home Loan Bank at March 31, 2012 compared to $14.7 million at December 31, 2011. The $1.3 million decrease is due to a decrease in loans, including those pledged as collateral, and prior collateral deemed ineligible for borrowing purposes. Any borrowings from the Federal Home Loan Bank are secured by a blanket collateral agreement on a pledged portion of the Banks 1-to-4 family residential real estate loans, multifamily mortgage loans, and commercial mortgage collateral. At March 31, 2012, a $6.0 million letter of credit in favor of the Commonwealth of Virginia Treasury Board, to secure public deposits, was utilized from this line of credit, leaving approximately $7.4 million of available credit for secondary liquidity needs. Advancing the maximum available credit could require the pledging of additional collateral. No balance was outstanding on this line at March 31, 2012 or December 31, 2011.
The Bank has an approved $1.0 million Discount Window facility at the Federal Reserve Bank of Richmond as part of its Contingency Liquidity Plan. No balance was outstanding on this line at March 31, 2012 or December 31, 2011.
The Bank is a participating institution in the Certificate of Deposit Account Registry Service (CDARS). CDARS is a technology-based service that the Bank can incorporate into its traditional product offering. The service uses a web based application that allows participating institutions across the country to swap, sell, or buy deposits from other members. The CDARS program can be used to attract new deposits, diversify our funding sources, and manage liquidity.
23
Table of Contents
Item 2. | Managements Discussion and Analysis of Financial Condition and Results of Operations, continued |
The Banks investment portfolio also serves as a source of liquidity. The primary objectives of the investment portfolio are to satisfy liquidity requirements, maximize income on portfolio assets, and supply collateral required to secure public funds deposits. As investment securities mature, the proceeds are either held as excess balance deposits at the Federal Reserve Bank, reinvested in federal funds sold, fund any loan demand or deposit withdrawal fluctuations, or reinvested in similar investment securities. The majority of investment security transactions consist of replacing securities that have been called or matured. The Bank keeps a majority of its investment portfolio in unpledged assets that have less than a five year average life to maturity. These investments are a source of liquid funds as they can be sold in any interest rate environment without causing significant harm to the current periods results of operations.
Management believes that the Company maintains overall liquidity sufficient to satisfy its depositors requirements and meet its customers credit needs.
Item 3. Quantitative and Qualitative Disclosures About Market Risk
Not applicable.
Item 4. Controls and Procedures
As of the end of the period covered by this report, we carried out an evaluation, under the supervision and with the participation of the Companys management, including the Companys Chief Executive Officer and Chief Financial Officer, of the effectiveness of the design and operation of our disclosure controls and procedures pursuant to Rule 13a-15 under the Securities Exchange Act of 1934. Based upon that evaluation, the Companys Chief Executive Officer and Chief Financial Officer concluded that those disclosure controls and procedures are effective in timely alerting them to material information relating to the Company (including its consolidated subsidiaries) required to be included in its periodic filings with the Securities and Exchange Commission.
The Companys management is also responsible for establishing and maintaining adequate internal control over financial reporting. There were no changes in the Companys internal control over financial reporting that occurred during the Companys last fiscal quarter that materially affected, or are reasonably likely to materially affect, internal control over financial reporting.
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PART II.
OTHER INFORMATION
Item 1. | Legal Proceedings |
In the normal course of business, the Company is involved in various legal proceedings. Management believes that the ultimate resolution of these proceedings will not have a material effect on the Companys financial position, liquidity, or results of operations.
Item 1A. | Risk Factors |
Not applicable.
Item 2. | Unregistered Sales of Equity Securities and Use of Proceeds |
Not applicable.
Item 3. | Defaults Upon Senior Securities |
Not applicable.
Item 4. | Mine Safety Disclosures |
None.
Item 5. | Other Information |
None.
Item 6. | Exhibits |
The following is a list of all exhibits filed or incorporated by reference as part of this Report on Form 10-Q.
3(i).1 | Restated Articles of Incorporation filed on the Form 10-K on March 29, 2011 | |
3(ii).1 | Amended and restated Bylaws filed on the Form 8-K on October 14, 2008. | |
10.41,2 | Change In Control Agreement filed as Exhibit 10.4 on the Form 10-SB 12G on April 30, 2002. Terminated effective November 30, 2010 | |
10.51 | Defined Benefit Plan filed as Exhibit 10.5 on the Form 10-SB 12G on April 30, 2002 | |
10.61,2 | Employment Agreement filed as Exhibit 10.6 on the Form 8-K on January 5, 2010 | |
10.71 | 2009 Incentive Stock Plan filed as Appendix B on the Schedule 14A on March 27, 2009. Terminated effective May 2, 2012 | |
10.81 | Dividend Reinvestment and Stock Purchase Plan filed on the Form S-3D on September 10, 2009. Replaced by Amendment No. 1 to Form S-3 filed January 11, 2011, referenced in Exhibit 10.14. Terminated effective May 2, 2012 | |
10.91,2 | Employment Agreement filed as Exhibit 10.9 on the Form 8-K on November 30, 2010 | |
10.101,2 | Employment Agreement filed as Exhibit 10.10 on the Form 8-K on November 30, 2010 | |
10.111,2 | Noncompete and Change of Control Agreement filed as Exhibit 10.11 on the Form 8-K on November 30, 2010 | |
10.121,2 | Confidentiality and Change of Control Agreement filed as Exhibit 10.12 on the Form 8-K on November 30, 2010 |
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10.131 | 2011 Annual Executive Bonus Plan filed as Exhibit 10.13 on the Form 8-K on November 30, 2010 | |
10.141 | The Amended Dividend Reinvestment and Stock Purchase Plan as filed in Amendment No. 1 to Form S-3 January 11, 2011. Terminated effective May 2, 2012 | |
10.151 | The Amended Dividend Reinvestment and Stock Purchase Plan as filed in Amendment No. 2 to Form S-3 September 9, 2011. Terminated effective May 2, 2012 | |
31.1 | Certification of Chief Executive Officer pursuant to Rule 13 a-14(a) under the Securities Exchange Act of 1934 | |
31.2 | Certification of Chief Financial Officer pursuant to Rule 13 a-14(a) under the Securities Exchange Act of 1934 | |
32.1 | Certification of Chief Executive Officer and Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 | |
101 | Interactive Data File |
1 | Incorporated by Reference |
2 | Designates a Management Contract |
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Pursuant to the requirements of the Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
Botetourt Bankshares, Inc. | ||||||||
Date: | May 11, 2012 | By: | /s/ H. Watts Steger, III | |||||
H. Watts Steger, III | ||||||||
Chief Executive Officer | ||||||||
Date: | May 11, 2012 | By: | /s/ Michelle A. Crook | |||||
Michelle A. Crook | ||||||||
Chief Financial Officer |
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