Attached files
file | filename |
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EX-32.1 - SECTION 906 CEO CERTIFICATION - FIRST CENTURY BANKSHARES INC | d325225dex321.htm |
EX-31.1 - SECTION 302 CEO CERTIFICATION - FIRST CENTURY BANKSHARES INC | d325225dex311.htm |
EX-32.2 - SECTION 906 CFO CERTIFICATION - FIRST CENTURY BANKSHARES INC | d325225dex322.htm |
EX-31.2 - SECTION 302 CFO CERTIFICATION - FIRST CENTURY BANKSHARES INC | d325225dex312.htm |
EXCEL - IDEA: XBRL DOCUMENT - FIRST CENTURY BANKSHARES INC | Financial_Report.xls |
Table of Contents
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D. C., 20549
FORM 10-Q
x | Quarterly Report Pursuant to Section 13 or 15 (d) of the Securities Exchange Act of 1934 |
For the quarterly period ended: March 31, 2012
or
¨ | 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: 0-11671
FIRST CENTURY BANKSHARES, INC.
(Exact name of registrant as specified in its charter)
West Virginia | 55-0628089 | |
(State or other jurisdiction of incorporation or organization) |
(IRS Employer Identification No.) | |
500 Federal Street, Bluefield, WV | 24701 | |
(Address of principal executive offices) | (Zip Code) |
Registrants telephone number, including area code: (304) 325-8181
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 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 definitions of large accelerated filer, accelerated filer, and smaller reporting company in Rule 12b-2 of the Exchange Act. (Check one):
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 $1.25 par value common stock, as of May 11, 2012, was 1,903,120 shares.
Table of Contents
FIRST CENTURY BANKSHARES, INC.
Page | ||||||
PART I. FINANCIAL INFORMATION | ||||||
Item 1. | ||||||
3 | ||||||
Consolidated Statements of Income (Unaudited) for the Three Months Ended March 31, 2012 and 2011 |
4 | |||||
5 | ||||||
6 | ||||||
Consolidated Statements of Cash Flows (Unaudited) for the Three Months Ended March 31, 2012 and 2011 |
7 | |||||
8 - 26 | ||||||
Item 2. | Managements Discussion and Analysis of Financial Condition and Results of Operations |
27 - 31 | ||||
Item 3. | 32 | |||||
Item 4. | 32 | |||||
PART II. OTHER INFORMATION | ||||||
Item 1. | Legal Proceedings | 33 | ||||
Item 1A. | Risk Factors | 33 | ||||
Item 2. | Unregistered Sales of Equity Securities and Use of Proceeds | 33 | ||||
Item 3. | Defaults Upon Senior Securities | 33 | ||||
Item 4. | Mine Safety Disclosures | 33 | ||||
Item 5. | Other Information | 33 | ||||
Item 6. | Exhibits | 34 | ||||
Signatures and Certifications | 35 - 39 |
2
Table of Contents
FIRST CENTURY BANKSHARES, INC.
PART I. FINANCIAL | INFORMATION |
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
(Dollars in thousands, except share and per share data)
March 31, 2012 |
December 31, 2011 |
|||||||
(Unaudited) | (Audited) | |||||||
ASSETS |
||||||||
Cash and due from banks |
$ | 11,953 | $ | 10,902 | ||||
Interest-bearing balances with banks |
38,359 | 34,840 | ||||||
Federal funds sold |
10,000 | 10,000 | ||||||
Securities available for sale |
70,845 | 66,673 | ||||||
Securities held to maturity: (estimated fair value of $30,496 at March 31, 2012 and $28,149 at December 31, 2011) |
29,407 | 27,024 | ||||||
Federal Home Loan Bank and Federal Reserve Bank Stock |
1,303 | 1,352 | ||||||
Loans |
243,595 | 248,367 | ||||||
Less allowance for loan losses |
4,905 | 4,905 | ||||||
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|
|
|
|||||
Net loans |
238,690 | 243,462 | ||||||
Premises and equipment |
12,678 | 12,503 | ||||||
Real estate owned other than bank premises |
1,787 | 1,180 | ||||||
Other assets |
4,424 | 4,701 | ||||||
Goodwill |
5,183 | 5,183 | ||||||
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TOTAL ASSETS |
$ | 424,629 | $ | 417,820 | ||||
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LIABILITIES AND STOCKHOLDERS EQUITY |
||||||||
Deposits: |
||||||||
Noninterest-bearing |
$ | 61,094 | $ | 57,403 | ||||
Interest-bearing |
295,588 | 295,246 | ||||||
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|
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Total deposits |
356,682 | 352,649 | ||||||
Short-term borrowings |
22,672 | 20,097 | ||||||
Other liabilities |
4,216 | 4,350 | ||||||
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TOTAL LIABILITIES |
383,570 | 377,096 | ||||||
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STOCKHOLDERS EQUITY |
||||||||
Common stock - par value per share $1.25 |
||||||||
Shares authorized: 10,000,000 |
||||||||
Shares issued: 2,000,000 |
||||||||
Shares outstanding: 1,903,120 at March 31, 2012, and at December 31, 2011 |
2,500 | 2,500 | ||||||
Paid-in capital |
757 | 757 | ||||||
Retained earnings |
42,462 | 42,086 | ||||||
Treasury stock, at cost; 96,880 shares at March 31, 2012, and at December 31, 2011 |
(2,280 | ) | (2,280 | ) | ||||
Accumulated other comprehensive loss, net of tax |
(2,380 | ) | (2,339 | ) | ||||
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|
|||||
TOTAL STOCKHOLDERS EQUITY |
41,059 | 40,724 | ||||||
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TOTAL LIABILITIES AND STOCKHOLDERS EQUITY |
$ | 424,629 | $ | 417,820 | ||||
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The accompanying notes are an integral part of the unaudited consolidated financial statements.
3
Table of Contents
FIRST CENTURY BANKSHARES, INC.
CONSOLIDATED STATEMENTS OF INCOME (Unaudited)
(Dollars in thousands, except share and per share data)
Three Months Ended | ||||||||
March 31, | ||||||||
2012 | 2011 | |||||||
INTEREST INCOME |
||||||||
Interest and fees on loans |
$ | 3,036 | $ | 3,289 | ||||
Interest on balances with banks |
32 | 7 | ||||||
Interest and dividends from securities available for sale: |
||||||||
Taxable |
361 | 478 | ||||||
Interest and dividends from securities held to maturity: |
||||||||
Taxable |
43 | 29 | ||||||
Tax-exempt |
205 | 193 | ||||||
Interest on federal funds sold |
4 | 5 | ||||||
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|
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TOTAL INTEREST INCOME |
3,681 | 4,001 | ||||||
INTEREST EXPENSE |
||||||||
Interest on time deposits of $100,000 or more |
110 | 162 | ||||||
Interest on other deposits |
298 | 435 | ||||||
Interest on federal funds purchased and securities sold under agreements to repurchase |
66 | 65 | ||||||
Other interest expense |
5 | | ||||||
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|
|||||
TOTAL INTEREST EXPENSE |
479 | 662 | ||||||
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Net interest income |
3,202 | 3,339 | ||||||
Provision for loan losses |
364 | 79 | ||||||
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Net interest income after provision for loan losses |
2,838 | 3,260 | ||||||
NONINTEREST INCOME |
||||||||
Income from fiduciary activities |
426 | 529 | ||||||
Other operating income |
903 | 966 | ||||||
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|
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TOTAL NONINTEREST INCOME |
1,329 | 1,495 | ||||||
NONINTEREST EXPENSE |
||||||||
Salaries, wages, and other employee benefits |
1,454 | 1,588 | ||||||
Furniture and equipment expense |
564 | 614 | ||||||
Other noninterest expense |
1,203 | 1,440 | ||||||
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TOTAL NONINTEREST EXPENSE |
3,221 | 3,642 | ||||||
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Income before income taxes |
946 | 1,113 | ||||||
Provision for income taxes |
247 | 359 | ||||||
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NET INCOME |
$ | 699 | $ | 754 | ||||
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NET INCOME PER COMMON SHARE: |
||||||||
Basic and diluted |
$ | 0.37 | $ | 0.40 | ||||
WEIGHTED AVERAGE SHARES OUTSTANDING: |
||||||||
Basic and diluted |
1,903,120 | 1,903,120 |
The accompanying notes are an integral part of the unaudited consolidated financial statements.
4
Table of Contents
FIRST CENTURY BANKSHARES, INC.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (Unaudited)
(Dollars in thousands, except share and per share data)
Three Months Ended | ||||||||
March 31, | ||||||||
2012 | 2011 | |||||||
NET INCOME |
$ | 699 | $ | 754 | ||||
Unrealized holding losses for securities available for sale arising during the period |
(66 | ) | (237 | ) | ||||
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|
|
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Other comprehensive loss before tax |
(66 | ) | (237 | ) | ||||
Income tax benefit related to other comprehensive loss |
25 | 88 | ||||||
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|
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Other comprehensive loss |
(41 | ) | (149 | ) | ||||
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COMPREHENSIVE INCOME |
$ | 658 | $ | 605 | ||||
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|
The accompanying notes are an integral part of the unaudited consolidated financial statements.
5
Table of Contents
FIRST CENTURY BANKSHARES, INC.
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS EQUITY (Unaudited)
(Dollars in thousands, except share and per share data)
Common Stock |
Paid-in Capital |
Retained Earnings |
Accumulated Other Comprehensive Loss |
Treasury Stock |
Total | |||||||||||||||||||
Balance at December 31, 2010 |
$ | 2,500 | $ | 757 | $ | 40,726 | $ | (1,732 | ) | $ | (2,280 | ) | $ | 39,971 | ||||||||||
Net income |
| | 754 | | | 754 | ||||||||||||||||||
Other comprehensive loss |
| | | (149 | ) | | (149 | ) | ||||||||||||||||
Cash dividends paid - $0.15 per share |
| | (285 | ) | | | (285 | ) | ||||||||||||||||
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Balance at March 31, 2011 |
$ | 2,500 | $ | 757 | $ | 41,195 | $ | (1,881 | ) | $ | (2,280 | ) | $ | 40,291 | ||||||||||
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Balance at December 31, 2011 |
$ | 2,500 | $ | 757 | $ | 42,086 | $ | (2,339 | ) | $ | (2,280 | ) | $ | 40,724 | ||||||||||
Net income |
| | 699 | | | 699 | ||||||||||||||||||
Other comprehensive loss |
| | | (41 | ) | | (41 | ) | ||||||||||||||||
Cash dividends paid - $0.17 per share |
| | (323 | ) | | | (323 | ) | ||||||||||||||||
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Balance at March 31, 2012 |
$ | 2,500 | $ | 757 | $ | 42,462 | $ | (2,380 | ) | $ | (2,280 | ) | $ | 41,059 | ||||||||||
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The accompanying notes are an integral part of the unaudited consolidated financial statements.
6
Table of Contents
FIRST CENTURY BANKSHARES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)
(Dollars in thousands)
Three Months Ended | ||||||||
March 31, | ||||||||
2012 | 2011 | |||||||
CASH FLOWS FROM OPERATING ACTIVITIES |
||||||||
Net income |
$ | 699 | $ | 754 | ||||
Adjustments to reconcile net income to net cash provided by operating activities: |
||||||||
Provision for loan losses |
364 | 79 | ||||||
Depreciation and amortization |
226 | 213 | ||||||
(Gain) loss on disposal of other real estate owned |
5 | (28 | ) | |||||
Amortization (accretion) of securities premiums (discounts), net |
84 | 78 | ||||||
Decrease in interest receivable and other assets |
388 | 218 | ||||||
Decrease in interest payable and other liabilities |
(134 | ) | (234 | ) | ||||
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NET CASH PROVIDED BY OPERATING ACTIVITIES |
1,632 | 1,080 | ||||||
CASH FLOWS FROM INVESTING ACTIVITIES |
||||||||
Purchases of securities held to maturity |
(2,752 | ) | (380 | ) | ||||
Purchases of securities available for sale |
(17,184 | ) | (13,967 | ) | ||||
Redemptions of Federal Home Loan Bank stock |
49 | 59 | ||||||
Proceeds from maturities and calls of securities held to maturity |
345 | 490 | ||||||
Proceeds from maturities and calls of securities available for sale |
12,886 | 12,695 | ||||||
Net (increase) decrease in loans |
3,695 | (2,086 | ) | |||||
Proceeds from disposal of other real estate owned |
30 | 70 | ||||||
Acquisition of fixed assets |
(416 | ) | (48 | ) | ||||
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NET CASH USED IN INVESTING ACTIVITIES |
(3,347 | ) | (3,167 | ) | ||||
CASH FLOWS FROM FINANCING ACTIVITIES |
||||||||
Net increase in demand and savings deposits |
11,430 | 10,579 | ||||||
Net decrease in time deposits |
(7,397 | ) | (2,414 | ) | ||||
Net increase in short-term borrowings |
2,575 | 4,691 | ||||||
Cash dividends paid |
(323 | ) | (285 | ) | ||||
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NET CASH PROVIDED BY FINANCING ACTIVITIES |
6,285 | 12,571 | ||||||
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Net increase in cash and cash equivalents |
4,570 | 10,484 | ||||||
Cash and cash equivalents at beginning of period |
55,742 | 28,869 | ||||||
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Cash and cash equivalents at end of period |
$ | 60,312 | $ | 39,353 | ||||
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SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION: |
||||||||
Cash paid during the period for: |
||||||||
Interest |
$ | 481 | $ | 651 | ||||
Income taxes |
| 217 | ||||||
SUPPLEMENTAL DISCLOSURE OF NON-CASH TRANSACTIONS: |
||||||||
Transfers of loans to other real estate owned |
713 | 30 |
The accompanying notes are an integral part of the unaudited consolidated financial statements.
7
Table of Contents
FIRST CENTURY BANKSHARES, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2012
NOTE A BASIS OF PRESENTATION
The accompanying unaudited consolidated financial statements have been prepared in accordance with generally accepted accounting principles for interim financial information and with the instructions to Form 10-Q and Rule 8-03 of Rule S-X. Accordingly, they do not include all of the information and footnotes required by accounting principles generally accepted in the United States of America for complete financial statements. In the opinion of management, all adjustments considered necessary for a fair presentation have been included. All such adjustments were of a normal recurring nature. Operating results are for the three-month period ended March 31, 2012, and are not necessarily indicative of the results that may be expected for the year ending December 31, 2012. For further information refer to the financial statements and footnotes thereto included as Exhibit 13 to the Corporations annual report on Form 10-K for the year ended December 31, 2011.
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.
NOTE B INVESTMENT SECURITIES
Securities available for sale are summarized as follows:
March 31, 2012 | ||||||||||||||||
Amortized Cost |
Gross Unrealized Gains |
Gross Unrealized Losses |
Fair Value |
|||||||||||||
(Dollars in Thousands) | ||||||||||||||||
U.S. Government agency obligations |
$ | 36,026 | $ | 82 | $ | 55 | $ | 36,053 | ||||||||
U.S. Government agency mortgage-backed securities |
34,145 | 674 | 27 | 34,792 | ||||||||||||
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TOTAL SECURITIES AVAILABLE FOR SALE |
$ | 70,171 | $ | 756 | $ | 82 | $ | 70,845 | ||||||||
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December 31, 2011 | ||||||||||||||||
Amortized Cost |
Gross Unrealized Gains |
Gross Unrealized Losses |
Fair Value |
|||||||||||||
(Dollars in Thousands) | ||||||||||||||||
U.S. Government agency obligations |
$ | 33,452 | $ | 112 | $ | 12 | $ | 33,552 | ||||||||
U.S. Government agency mortgage-backed securities |
32,482 | 661 | 22 | 33,121 | ||||||||||||
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TOTAL SECURITIES AVAILABLE FOR SALE |
$ | 65,934 | $ | 773 | $ | 34 | $ | 66,673 | ||||||||
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8
Table of Contents
FIRST CENTURY BANKSHARES, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
March 31, 2012
NOTE B INVESTMENT SECURITIES (Continued)
Securities held to maturity are summarized as follows:
March 31, 2012 | ||||||||||||||||
Amortized Cost |
Gross Unrealized Gains |
Gross Unrealized Losses |
Fair Value |
|||||||||||||
(Dollars in Thousands) | ||||||||||||||||
State and municipal obligations |
$ | 29,407 | $ | 1,151 | $ | 62 | $ | 30,496 | ||||||||
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TOTAL SECURITIES HELD TO MATURITY |
$ | 29,407 | $ | 1,151 | $ | 62 | $ | 30,496 | ||||||||
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December 31, 2011 | ||||||||||||||||
Amortized Cost |
Gross Unrealized Gains |
Gross Unrealized Losses |
Fair Value |
|||||||||||||
(Dollars in Thousands) | ||||||||||||||||
State and municipal obligations |
$ | 27,024 | $ | 1,139 | $ | 14 | $ | 28,149 | ||||||||
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TOTAL SECURITIES HELD TO MATURITY |
$ | 27,024 | $ | 1,139 | $ | 14 | $ | 28,149 | ||||||||
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Securities with an aggregate fair value of $39,287,000 at March 31, 2012 and $34,102,000 at December 31, 2011, were pledged to secure public and trust deposits and for other purposes required or permitted by law, including approximately $22,672,000 at March 31, 2012 and $20,205,000 at December 31, 2011 pledged to secure repurchase agreements.
The amortized cost and estimated fair value for securities available for sale and securities held to maturity by contractual maturities at March 31, 2012 are shown in the following tables. Expected maturities may differ from contractual maturities because some securities may have call or prepayment features.
Amortized Cost |
Fair Value |
Net Unrealized Gains (Losses) |
||||||||||
(Dollars in Thousands) | ||||||||||||
Due in one year or less |
$ | 181 | $ | 186 | $ | 5 | ||||||
Due after one year through five years |
22,731 | 22,825 | 94 | |||||||||
Due after five years through ten years |
16,145 | 16,438 | 293 | |||||||||
Due after ten years |
31,114 | 31,396 | 282 | |||||||||
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TOTAL SECURITIES AVAILABLE FOR SALE |
$ | 70,171 | $ | 70,845 | $ | 674 | ||||||
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Amortized Cost |
Fair Value |
Net Unrealized Gains (Losses) |
||||||||||
(Dollars in Thousands) | ||||||||||||
Due in one year or less |
$ | 1,756 | $ | 1,778 | $ | 22 | ||||||
Due after one year through five years |
3,972 | 4,119 | 147 | |||||||||
Due after five years through ten years |
15,127 | 15,750 | 623 | |||||||||
Due after ten years |
8,552 | 8,849 | 297 | |||||||||
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TOTAL SECURITIES HELD TO MATURITY |
$ | 29,407 | $ | 30,496 | $ | 1,089 | ||||||
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9
Table of Contents
FIRST CENTURY BANKSHARES, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
March 31, 2012
NOTE B INVESTMENT SECURITIES (Continued)
The following table shows the gross unrealized losses and fair value of the Corporations investments with unrealized losses that are not deemed to be other-than-temporarily impaired, aggregated by investment category at March 31, 2012:
(Dollars in thousands) | Less Than Twelve Months | Over Twelve Months | ||||||||||||||
Description of security | Gross Unrealized Losses |
Fair Value |
Gross Unrealized Losses |
Fair Value |
||||||||||||
Securities available for sale: |
||||||||||||||||
U.S. Government agency obligations |
$ | 55 | $ | 12,988 | $ | | $ | | ||||||||
U.S. Government agency mortgage-backed securities |
$ | 27 | $ | 7,072 | $ | | $ | | ||||||||
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Total securities available for sale |
$ | 82 | $ | 20,060 | $ | | $ | | ||||||||
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Securities held to maturity: |
||||||||||||||||
Municipal bonds |
$ | 62 | $ | 2,686 | $ | | $ | | ||||||||
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Total securities held to maturity |
$ | 62 | $ | 2,686 | $ | | $ | | ||||||||
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For all of these securities, because the decline in market value is attributable to changes in interest rates and not credit quality and because the Corporation has the ability and intent to hold these investments until a recovery of fair value, which may be maturity, the Corporation does not consider these investments to be other-than-temporarily impaired at March 31, 2012.
10
Table of Contents
FIRST CENTURY BANKSHARES, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
March 31, 2012
NOTE C LOANS AND ALLOWANCE FOR LOAN LOSSES
Loans at March 31, 2012 and December 31, 2011 consisted of the following:
For the Three Months Ended | ||||||||
March 31, 2012 |
December 31, 2011 |
|||||||
(Dollars in Thousands) | ||||||||
Commercial |
$ | 19,445 | $ | 21,525 | ||||
Commercial - real estate |
||||||||
Construction |
7,238 | 7,291 | ||||||
Owner occupied |
47,373 | 50,116 | ||||||
Non-owner occupied |
51,694 | 50,817 | ||||||
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|
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Total commercial loans |
125,750 | 129,749 | ||||||
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|
|||||
Consumer |
16,498 | 16,844 | ||||||
Residential real estate |
96,948 | 97,142 | ||||||
Residential construction |
4,399 | 4,632 | ||||||
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|
|||||
Total consumer loans |
117,845 | 118,618 | ||||||
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TOTAL LOANS |
$ | 243,595 | $ | 248,367 | ||||
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|
Loans are categorized into one of nine loan grades with grades 1 through 5 representing various levels of acceptable loans, or Pass grades, and grades 6 through 9 representing various levels of credit deterioration.
To help ensure that risk ratings are accurate and reflect the present and future capacity of borrowers to repay a loan as agreed, the Company has a structured loan rating process with both internal and external oversight. The Credit Administration Department is responsible for the timely and accurate risk rating of the loan portfolio at origination and on an ongoing basis. As part of this process the Companys loan officers are responsible for providing the Credit Administration Department with all necessary information needed to accurately risk rate the loans in excess of $250,000 in their portfolios at origination and on an ongoing basis. Loans under $250,000 are assigned a predetermined risk rating set by The Credit Administration Department based upon the class and risk characteristics of the loan. The Companys approving Committees review risk ratings when approving a loan. Additionally, on a quarterly basis any risk rating changes are reported to the Discount Committee and the Board of Directors, except those made within the pass risk ratings. The Company engages an external consultant to conduct loan review on a quarterly basis. Generally, the external consultant reviews commercial relationships that equal or exceed $250,000, but not less than 75% of the total commercial portfolio, and all adversely classified commercial credits. Detailed problem loan reports, including plans for resolution, are completed on loans classified as Special Mention (OAEM) and Substandard greater than $250,000 on a quarterly basis. The Companys process requires the review and evaluation of impaired loans greater than $250,000 and all troubled debt restructures to be updated at least quarterly.
6 Special Mention (OAEM)
A special mention asset has potential weaknesses that deserve managements close attention. If left uncorrected, these potential weaknesses may result in deterioration of the repayment prospects for the asset or in the institutions credit position at some future date. Special mention assets are not adversely classified and do not expose an institution to sufficient risk to warrant adverse classification. Loans graded a 6 may be experiencing adverse operating trends such as declining revenues or margins or an ill-proportioned balance sheet caused by increasing accounts receivable and/or inventory balances not supported by an increase in sales revenue. Other reasons supporting this classification include adverse economic or market conditions, pending litigation or any other material structural weakness.
11
Table of Contents
FIRST CENTURY BANKSHARES, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
March 31, 2012
NOTE C LOANS AND ALLOWANCE FOR LOAN LOSSES (Continued)
7 Substandard
Substandard loans are inadequately protected by current sound net worth, paying capacity of the borrower, or pledged collateral. Loans are normally graded 7 when they have unsatisfactory characteristics causing more than acceptable levels of risk. A loan graded 7 normally has one or more well-defined weakness that could jeopardize repayment of the debt. The following are examples of situations that might cause a loan to be graded 7:
| Cash flow deficiencies jeopardize future loan payments. |
| Sale of non-collateral assets has become a primary source of loan repayment. |
| The relationship has deteriorated to the point that sale of collateral is now the banks primary source of repayment. |
| The borrower is bankrupt, or for any other reason, future repayment is dependent on court action. |
8 Doubtful
Loans are graded 8 if they contain weaknesses so serious that collection or liquidation in full is questionable. An 8 classification will result in the loan being placed in non-accrual.
9 Loss
A 9 rating is assigned to loans considered uncollectible and of such little value that their continuance as an active bank asset is not warranted. This rating does not mean that the asset has no recovery or salvage value, but rather that the asset should be charged off now, even though partial or full recovery may be possible in the future.
12
Table of Contents
FIRST CENTURY BANKSHARES, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
March 31, 2012
NOTE C LOANS AND ALLOWANCE FOR LOAN LOSSES (Continued)
The following tables present loans by credit quality indicator at March 31, 2012 and December 31, 2011. There were no loans classified as Doubtful at March 31, 2012 or December 31, 2011.
March 31, 2012 | ||||||||||||||||
Pass | Special Mention |
Substandard | Total | |||||||||||||
(Dollars in Thousands) | ||||||||||||||||
Commercial |
$ | 17,629 | $ | 27 | $ | 1,789 | $ | 19,445 | ||||||||
Commercial real estate |
||||||||||||||||
Construction |
2,290 | | 4,948 | 7,238 | ||||||||||||
Owner occupied |
34,972 | 8,718 | 3,683 | 47,373 | ||||||||||||
Non-owner occupied |
48,393 | 759 | 2,542 | 51,694 | ||||||||||||
Consumer |
16,197 | 74 | 227 | 16,498 | ||||||||||||
Residential real estate |
90,519 | 274 | 6,155 | 96,948 | ||||||||||||
Residential construction |
3,832 | | 567 | 4,399 | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
TOTAL |
$ | 213,832 | $ | 9,852 | $ | 19,911 | $ | 243,595 | ||||||||
|
|
|
|
|
|
|
|
|||||||||
December 31, 2011 | ||||||||||||||||
Pass | Special Mention |
Substandard | Total | |||||||||||||
(Dollars in Thousands) | ||||||||||||||||
Commercial |
$ | 19,524 | $ | 65 | $ | 1,936 | $ | 21,525 | ||||||||
Commercial real estate |
||||||||||||||||
Construction |
2,343 | | 4,948 | 7,291 | ||||||||||||
Owner occupied |
37,028 | 5,371 | 7,717 | 50,116 | ||||||||||||
Non-owner occupied |
47,284 | 767 | 2,766 | 50,817 | ||||||||||||
Consumer |
16,527 | 86 | 231 | 16,844 | ||||||||||||
Residential real estate |
90,968 | 281 | 5,893 | 97,142 | ||||||||||||
Residential construction |
4,063 | | 569 | 4,632 | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
TOTAL |
$ | 217,737 | $ | 6,570 | $ | 24,060 | $ | 248,367 | ||||||||
|
|
|
|
|
|
|
|
13
Table of Contents
FIRST CENTURY BANKSHARES, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
March 31, 2012
NOTE C LOANS AND ALLOWANCE FOR LOAN LOSSES (Continued)
The following table presents loans by past due status at March 31, 2012.
30-59 Days Past Due |
60-89 Days Past Due |
90 Days or More Past Due |
Total Past Due |
Current | Total Loans | 90 Days Past Due and Still Accruing |
||||||||||||||||||||||
(Dollars in Thousands) | ||||||||||||||||||||||||||||
Commercial |
$ | 72 | $ | | $ | 1,053 | $ | 1,125 | $ | 18,320 | $ | 19,445 | $ | 42 | ||||||||||||||
Commercial real estate |
||||||||||||||||||||||||||||
Construction |
| | 4,948 | 4,948 | 2,290 | 7,238 | | |||||||||||||||||||||
Owner occupied |
588 | 174 | 3,515 | 4,277 | 43,096 | 47,373 | | |||||||||||||||||||||
Non-owner occupied |
73 | | 1,849 | 1,922 | 49,772 | 51,694 | | |||||||||||||||||||||
Consumer |
186 | 26 | 56 | 268 | 16,230 | 16,498 | 36 | |||||||||||||||||||||
Residential real estate |
1,848 | 589 | 1,825 | 4,262 | 92,686 | 96,948 | 656 | |||||||||||||||||||||
Residential construction |
70 | | 471 | 541 | 3,858 | 4,399 | | |||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||
TOTAL |
$ | 2,837 | $ | 789 | $ | 13,717 | $ | 17,343 | $ | 226,252 | $ | 243,595 | $ | 734 | ||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The following table presents loans by past due status at December 31, 2011.
30-59 Days Past Due |
60-89 Days Past Due |
90 Days or More Past Due |
Total Past Due |
Current | Total Loans | 90 Days Past Due and Still Accruing |
||||||||||||||||||||||
(Dollars in Thousands) | ||||||||||||||||||||||||||||
Commercial |
$ | 157 | $ | 233 | $ | 1,169 | $ | 1,559 | $ | 19,966 | $ | 21,525 | $ | | ||||||||||||||
Commercial real estate |
||||||||||||||||||||||||||||
Construction |
| | 4,948 | 4,948 | 2,343 | 7,291 | | |||||||||||||||||||||
Owner occupied |
681 | 174 | 3,047 | 3,902 | 46,214 | 50,116 | | |||||||||||||||||||||
Non-owner occupied |
123 | | 1,827 | 1,950 | 48,867 | 50,817 | | |||||||||||||||||||||
Consumer |
136 | 88 | 61 | 285 | 16,559 | 16,844 | 42 | |||||||||||||||||||||
Residential real estate |
1,607 | 999 | 1,999 | 4,605 | 92,537 | 97,142 | 765 | |||||||||||||||||||||
Residential construction |
47 | | 476 | 523 | 4,109 | 4,632 | 23 | |||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||
TOTAL |
$ | 2,751 | $ | 1,494 | $ | 13,527 | $ | 17,772 | $ | 230,595 | $ | 248,367 | $ | 830 | ||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
14
Table of Contents
FIRST CENTURY BANKSHARES, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
March 31, 2012
NOTE C LOANS AND ALLOWANCE FOR LOAN LOSSES (Continued)
The following table presents impaired loans at March 31, 2012.
Carrying Amount |
Unpaid Principal Balance |
Associated Allowance |
Average Carrying Amount |
Interest Income Recognized |
||||||||||||||||
(Dollars in Thousands) | ||||||||||||||||||||
With no related allowance recorded: |
||||||||||||||||||||
Commercial |
$ | 18 | $ | 268 | $ | | $ | 19 | $ | | ||||||||||
Commercial Real Estate |
||||||||||||||||||||
Construction |
| | | | | |||||||||||||||
Owner occupied |
| | | | | |||||||||||||||
Nonowner occupied |
| | | | | |||||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Total Commercial |
$ | 18 | $ | 268 | $ | | $ | 19 | $ | | ||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Consumer |
$ | 13 | $ | 13 | $ | | $ | 13 | $ | | ||||||||||
Residential real estate |
959 | 959 | | 974 | | |||||||||||||||
Residential construction |
452 | 452 | | 452 | | |||||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Total Consumer |
$ | 1,424 | $ | 1,424 | $ | | $ | 1,439 | $ | | ||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
With an allowance recorded: |
||||||||||||||||||||
Commercial |
$ | 993 | $ | 993 | $ | 348 | $ | 996 | $ | | ||||||||||
Commercial Real Estate |
||||||||||||||||||||
Construction |
4,948 | 4,948 | 768 | 4,948 | | |||||||||||||||
Owner occupied |
4,240 | 4,240 | 451 | 4,182 | 80 | |||||||||||||||
Nonowner occupied |
1,292 | 1,292 | 81 | 1,292 | | |||||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Total Commercial |
$ | 11,473 | $ | 11,473 | $ | 1,648 | $ | 11,418 | $ | 80 | ||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Consumer |
$ | 24 | $ | 24 | $ | 1 | $ | 25 | $ | | ||||||||||
Residential real estate |
617 | 617 | 79 | 621 | 8 | |||||||||||||||
Residential construction |
33 | 33 | 3 | 33 | 1 | |||||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Total Consumer |
$ | 674 | $ | 674 | $ | 83 | $ | 679 | $ | 9 | ||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Total: |
||||||||||||||||||||
Commercial |
$ | 1,011 | $ | 1,261 | $ | 348 | $ | 1,015 | $ | | ||||||||||
Commercial Real Estate |
||||||||||||||||||||
Construction |
4,948 | 4,948 | 768 | 4,948 | | |||||||||||||||
Owner occupied |
4,240 | 4,240 | 451 | 4,182 | 80 | |||||||||||||||
Nonowner occupied |
1,292 | 1,292 | 81 | 1,292 | | |||||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Total Commercial |
$ | 11,491 | $ | 11,741 | $ | 1,648 | $ | 11,437 | $ | 80 | ||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Consumer |
$ | 37 | $ | 37 | $ | 1 | $ | 38 | $ | | ||||||||||
Residential real estate |
1,576 | 1,576 | 79 | 1,595 | 8 | |||||||||||||||
Residential construction |
485 | 485 | 3 | 485 | 1 | |||||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Total Consumer |
$ | 2,098 | $ | 2,098 | $ | 83 | $ | 2,118 | $ | 9 | ||||||||||
|
|
|
|
|
|
|
|
|
|
15
Table of Contents
FIRST CENTURY BANKSHARES, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
March 31, 2012
NOTE C LOANS AND ALLOWANCE FOR LOAN LOSSES (Continued)
The following table presents impaired loans at December 31, 2011.
Carrying Amount |
Unpaid Principal Balance |
Associated Allowance |
Average Carrying Amount |
Interest Income Recognized |
||||||||||||||||
(Dollars in Thousands) | ||||||||||||||||||||
With no related allowance recorded: |
||||||||||||||||||||
Commercial |
$ | 19 | $ | 269 | $ | | $ | 19 | $ | 1 | ||||||||||
Commercial Real Estate |
||||||||||||||||||||
Owner occupied |
499 | 499 | | 513 | | |||||||||||||||
Nonowner occupied |
123 | 123 | | 127 | | |||||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Total Commercial |
$ | 641 | $ | 891 | $ | | $ | 659 | $ | 1 | ||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Consumer |
$ | 14 | $ | 14 | $ | | $ | 14 | $ | | ||||||||||
Residential real estate |
983 | 983 | | 1,013 | 9 | |||||||||||||||
Residential construction |
452 | 452 | | 452 | | |||||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Total Consumer |
$ | 1,449 | $ | 1,449 | $ | | $ | 1,479 | $ | 9 | ||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
With an allowance recorded: |
||||||||||||||||||||
Commercial |
$ | 1,154 | $ | 1,273 | $ | 469 | $ | 1,132 | $ | | ||||||||||
Commercial Real Estate |
||||||||||||||||||||
Construction |
4,948 | 4,948 | 768 | 4,948 | | |||||||||||||||
Owner occupied |
3,046 | 3,046 | 33 | 3,078 | 15 | |||||||||||||||
Nonowner occupied |
2,613 | 2,613 | 463 | 2,612 | 29 | |||||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Total Commercial |
$ | 11,761 | $ | 11,880 | $ | 1,733 | $ | 11,770 | $ | 44 | ||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Consumer |
$ | 26 | $ | 26 | $ | 1 | $ | 36 | $ | 2 | ||||||||||
Residential real estate |
624 | 624 | 81 | 635 | 28 | |||||||||||||||
Residential construction |
33 | 33 | 3 | 33 | 2 | |||||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Total Consumer |
$ | 683 | $ | 683 | $ | 85 | $ | 704 | $ | 32 | ||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Total: |
||||||||||||||||||||
Commercial |
$ | 1,173 | $ | 1,542 | $ | 469 | $ | 1,151 | $ | 1 | ||||||||||
Commercial Real Estate |
||||||||||||||||||||
Construction |
4,948 | 4,948 | 768 | 4,948 | | |||||||||||||||
Owner occupied |
3,545 | 3,545 | 33 | 3,591 | 15 | |||||||||||||||
Nonowner occupied |
2,736 | 2,736 | 463 | 2,739 | 29 | |||||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Total Commercial |
$ | 12,402 | $ | 12,771 | $ | 1,733 | $ | 12,429 | $ | 45 | ||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Consumer |
$ | 40 | $ | 40 | $ | 1 | $ | 50 | $ | 2 | ||||||||||
Residential real estate |
1,607 | 1,607 | 81 | 1,648 | 37 | |||||||||||||||
Residential construction |
485 | 485 | 3 | 485 | 2 | |||||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Total Consumer |
$ | 2,132 | $ | 2,132 | $ | 85 | $ | 2,183 | $ | 41 | ||||||||||
|
|
|
|
|
|
|
|
|
|
16
Table of Contents
FIRST CENTURY BANKSHARES, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
March 31, 2012
NOTE C LOANS AND ALLOWANCE FOR LOAN LOSSES (Continued)
The following table presents the composition of nonaccrual loans at March 31, 2012 and December 31, 2011.
March 31, 2012 |
December 31, 2011 |
|||||||
(Dollars in Thousands) | ||||||||
Commercial |
$ | 1,192 | $ | 1,354 | ||||
Commercial - Real Estate |
||||||||
Construction |
4,948 | 4,948 | ||||||
Owner Occupied |
3,020 | 3,669 | ||||||
Non-Owner Occupied |
1,727 | 1,827 | ||||||
|
|
|
|
|||||
Total Commercial Loans |
10,887 | 11,798 | ||||||
Consumer |
24 | 26 | ||||||
Residential Real Estate |
1,792 | 1,551 | ||||||
Residential Construction |
471 | 452 | ||||||
|
|
|
|
|||||
Total Consumer Loans |
2,287 | 2,029 | ||||||
|
|
|
|
|||||
TOTAL NONACCRUAL LOANS |
$ | 13,174 | $ | 13,827 | ||||
|
|
|
|
In addition to the review of credit quality through the credit review process, we construct a comprehensive allowance analysis for the loan portfolio at least quarterly. The procedures that we use entail preparation of a loan watch list and assigning each loan a classification. Commercial loans with an aggregate loan balance in excess of $250,000 that meet one or more of the following conditions require the completion of a Problem Loan Report and an impairment analysis by the responsible lender. The conditions are as follows:
a. | Commercial loans graded OAEM, Substandard, Doubtful or Loss |
b. | Commercial loan in non-accrual status |
c. | Commercial loans deemed impaired |
d. | Commercial loans past due greater than 90 days |
e. | Trouble debt restructures |
f. | Other mitigating circumstances i.e. bankruptcy, death of borrower/guarantor, etc. |
The loans specified on the loan watch list have been assigned a classification that is intended to be representative of the degree of risk associated with that particular loan(s). An on-going three-year migration analysis of the pools of loans graded OAEM, Substandard, Doubtful and Loss as compared to their historical charge-offs is completed annually. This three year average percentage is then applied to the respective loan pool.
17
Table of Contents
FIRST CENTURY BANKSHARES, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
March 31, 2012
NOTE C LOANS AND ALLOWANCE FOR LOAN LOSSES (Continued)
The remaining portfolio is segregated into loan pools consisting of commercial loans, commercial real estate owner occupied loans, commercial real estate non-owner occupied loans, commercial construction and land development loans, residential real estate loans, residential construction loans and consumer loans. The historical net charge-off percentage of each category is compiled for ten successive years. This data is then used to establish an average charge-off percentage for each category.
Also, we review concentrations of credit, classes of loans and pledged collateral to determine the existence of any deterioration. In addition, we consider volume and trends in delinquencies and nonaccrual loans, the loan portfolio composition, loan volume and maturity of the portfolio, national and local economic conditions and the experience, ability and depth of our lending management and staff.
The following tables summarize changes in the allowance for loan losses applicable to each category of the loan portfolio:
For the Three Months Ended March 31, 2012 | ||||||||||||||||||||||||||||
Commercial | Commercial Real Estate |
Consumer | Residential Real Estate |
Construction | Unallocated | Total | ||||||||||||||||||||||
(Dollars in Thousands) | ||||||||||||||||||||||||||||
Balance at beginning of quarter |
$ | 764 | $ | 1,528 | $ | 477 | $ | 1,135 | $ | 891 | $ | 110 | $ | 4,905 | ||||||||||||||
Provision for loan losses |
311 | 232 | (88 | ) | (16 | ) | 1 | (76 | ) | 364 | ||||||||||||||||||
Recoveries on loans previously charged off |
4 | 14 | 27 | | | | 45 | |||||||||||||||||||||
Loans charged off |
(205 | ) | (109 | ) | (37 | ) | (58 | ) | | | (409 | ) | ||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||
Balance at end of quarter |
$ | 874 | $ | 1,665 | $ | 379 | $ | 1,061 | $ | 892 | $ | 34 | $ | 4,905 | ||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Three Months Ended March 31, 2011 | ||||||||||||||||||||||||||||
Commercial | Commercial Real Estate |
Consumer | Residential Real Estate |
Construction | Unallocated | Total | ||||||||||||||||||||||
(Dollars in Thousands) | ||||||||||||||||||||||||||||
Balance at beginning of quarter |
$ | 1,758 | $ | 1,966 | $ | 588 | $ | 1,206 | $ | 283 | $ | 74 | $ | 5,875 | ||||||||||||||
Provision for loan losses |
1 | 168 | (4 | ) | (16 | ) | (125 | ) | 55 | 79 | ||||||||||||||||||
Recoveries on loans previously charged off |
| 10 | 15 | | | | 25 | |||||||||||||||||||||
Loans charged off |
| | (34 | ) | (70 | ) | | | (104 | ) | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||
Balance at end of quarter |
$ | 1,759 | $ | 2,144 | $ | 565 | $ | 1,120 | $ | 158 | $ | 129 | $ | 5,875 | ||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
18
Table of Contents
FIRST CENTURY BANKSHARES, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
March 31, 2012
NOTE C LOANS AND ALLOWANCE FOR LOAN LOSSES (Continued)
The following tables present the allocation of the allowance for loan losses at March 31, 2012 and 2011.
March 31 2012 | ||||||||||||||||||||||||||||
Commercial | Commercial Real Estate |
Consumer | Residential Real Estate |
Construction | Unallocated | Total | ||||||||||||||||||||||
(Dollars in Thousands) | ||||||||||||||||||||||||||||
Reserve ending balance: |
$ | 874 | $ | 1,665 | $ | 379 | $ | 1,061 | $ | 892 | $ | 34 | $ | 4,905 | ||||||||||||||
Individually evaluated for Impairment |
$ | 348 | $ | 532 | $ | 1 | $ | 79 | $ | 771 | $ | | $ | 1,731 | ||||||||||||||
Collectively evaluated for Impairment |
$ | 526 | $ | 1,133 | $ | 378 | $ | 982 | $ | 121 | $ | 34 | $ | 3,174 | ||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||
Principal balance outstanding: |
||||||||||||||||||||||||||||
Individually evaluated for Impairment |
$ | 1,011 | $ | 5,532 | $ | 37 | $ | 1,576 | $ | 5,433 | $ | | $ | 13,589 | ||||||||||||||
Collectively evaluated for Impairment |
$ | 18,434 | $ | 93,535 | $ | 16,461 | $ | 95,372 | $ | 6,204 | $ | | $ | 230,006 | ||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||
Total loans |
$ | 19,445 | $ | 99,067 | $ | 16,498 | $ | 96,948 | $ | 11,637 | $ | | $ | 243,595 | ||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31 2011 | ||||||||||||||||||||||||||||
Commercial | Commercial Real Estate |
Consumer | Residential Real Estate |
Construction | Unallocated | Total | ||||||||||||||||||||||
(Dollars in Thousands) | ||||||||||||||||||||||||||||
Reserve ending balance: |
$ | 1,759 | $ | 2,144 | $ | 565 | $ | 1,120 | $ | 158 | $ | 129 | $ | 5,875 | ||||||||||||||
Individually evaluated for Impairment |
$ | 1,240 | $ | 1,242 | $ | 1 | $ | 110 | $ | 3 | $ | | $ | 2,596 | ||||||||||||||
Collectively evaluated for Impairment |
$ | 519 | $ | 902 | $ | 564 | $ | 1,010 | $ | 155 | $ | 129 | $ | 3,279 | ||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||
Principal balance outstanding: |
||||||||||||||||||||||||||||
Individually evaluated for Impairment |
$ | 3,485 | $ | 6,399 | $ | 46 | $ | 942 | $ | 5,434 | $ | | $ | 16,306 | ||||||||||||||
Collectively evaluated for Impairment |
$ | 25,035 | $ | 99,966 | $ | 17,919 | $ | 92,687 | $ | 10,321 | $ | | $ | 245,928 | ||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||
Total loans |
$ | 28,520 | $ | 106,365 | $ | 17,965 | $ | 93,629 | $ | 15,755 | $ | | $ | 262,234 | ||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
19
Table of Contents
FIRST CENTURY BANKSHARES, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
March 31, 2012
NOTE C LOANS AND ALLOWANCE FOR LOAN LOSSES (Continued)
The Companys loan portfolio also includes certain loans that have been modified in a Troubled Debt Restructuring (TDR), where economic concessions have been granted to borrowers who have experienced or are expected to experience financial difficulties. These concessions typically result from the Companys collection activities and could include reductions in the interest rate, payment extensions, forgiveness of principal, forbearance or other actions. TDRs are classified as nonperforming at the time of restructure and may only be returned to performing status after considering the borrowers sustained repayment performance for a reasonable period, generally six months.
When the Company modifies a loan, management evaluates any possible impairment based on the present value of expected future cash flows, discounted at the contractual interest rate of the original loan agreement, except when the sole remaining source of repayment for the loan is the operation or liquidation of the collateral. In these cases management uses the current fair value of the collateral, less selling costs, instead of discounted cash flows. If management determines that the value of the modified loan is less than the recorded investment in the loan, net of charge-offs, deferred loan fees or costs and unamortized premium or discount, impairment is recognized by segment or class of loan, as applicable, through an allowance estimate or a charge-off to the allowance. Segment and class status is determined by the loans classification at origination.
The following tables include the recorded investment and number of modifications for these loans. The Company reports the recorded investment in the loans prior to modifications and also the recorded investment in the loans after the loans were restructured. There were no modifications for troubled debt restructurings within the last year where concessions were made that subsequently defaulted in the current reporting period.
Troubled debt restructurings
For the three months ended March 31, 2012 and 2011.
2012 | 2011 | |||||||||||||||||||||||
Number Of Modifications |
Recorded Investment Prior to Modification |
Recorded Investment After Modification |
Number Of Modifications |
Recorded Investment Prior to Modification |
Recorded Investment After Modification |
|||||||||||||||||||
(Dollars in Thousands) | ||||||||||||||||||||||||
Loan Term Extension: |
||||||||||||||||||||||||
Commercial - real estate |
||||||||||||||||||||||||
Non-owner Occupied |
1 | $ | 688 | $ | 434 | | $ | | $ | | ||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
TOTAL |
1 | $ | 688 | $ | 434 | | $ | | $ | | ||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
20
Table of Contents
FIRST CENTURY BANKSHARES, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
March 31, 2012
NOTE D RETIREMENT AND BENEFIT PLANS
The following summarizes the components of net periodic benefit cost for the three-month periods ended March 31, 2012 and 2011:
Pension Benefits | Postretirement Benefits | |||||||||||||||
(Dollars in thousands) | Three Months Ended March 31, | |||||||||||||||
2012 | 2011 | 2012 | 2011 | |||||||||||||
Service cost |
$ | | $ | 86 | $ | 4 | $ | 3 | ||||||||
Interest cost |
105 | 110 | 11 | 13 | ||||||||||||
Expected return on plan assets |
(138 | ) | (134 | ) | | | ||||||||||
Amortization of transition amount |
| | 14 | 14 | ||||||||||||
Amortization of prior service cost |
| (22 | ) | | | |||||||||||
Recognition of net actuarial loss (gain) |
29 | 63 | (9 | ) | (10 | ) | ||||||||||
|
|
|
|
|
|
|
|
|||||||||
Net periodic benefit cost |
$ | (4 | ) | $ | 103 | $ | 20 | $ | 20 | |||||||
|
|
|
|
|
|
|
|
The Corporation contributed $250,000 to the pension plan in the first quarter of 2012 and $75,000 in the first quarter of 2011. Approximately $11,000 in contributions were made for postretirement benefits for the three-month periods ended March 31, 2012 and 2011. Contributions of $750,000 for pension benefits and $33,000 for postretirement benefits are expected to be made during the remainder of 2012.
NOTE E REGULATORY CAPITAL REQUIREMENTS
Regulators of the Corporation and its subsidiary have implemented risk-based capital guidelines which require the maintenance of certain minimum capital as a percent of assets and certain off-balance sheet items adjusted for predefined credit risk factors. The regulatory minimums for Tier 1 and combined Tier 1 and Tier 2 capital ratios are 4.0% and 8.0%, respectively. Tier 1 capital includes common stockholders equity reduced by goodwill and certain other intangibles. Tier 2 capital includes portions of the allowance for loan losses, not to exceed Tier 1 capital. In addition to the risk-based guidelines, a minimum leverage ratio (Tier 1 capital as a percentage of average total consolidated assets) of 4% is required. The following table contains the capital ratios for the Corporation and the Bank.
March 31, 2012 | December 31, 2011 | |||||||||||||||||||||||
Combined Capital | Combined Capital | |||||||||||||||||||||||
Entity | Tier 1 | (Tier 1 and Tier 2) | Leverage | Tier 1 | (Tier 1 and Tier 2) | Leverage | ||||||||||||||||||
Consolidated |
15.75 | % | 17.01 | % | 9.48 | % | 15.41 | % | 16.67 | % | 9.49 | % | ||||||||||||
First Century Bank |
15.33 | % | 16.59 | % | 9.23 | % | 15.00 | % | 16.26 | % | 9.23 | % |
21
Table of Contents
FIRST CENTURY BANKSHARES, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
March 31, 2012
NOTE F COMMITMENTS AND CONTINGENCIES
In the normal course of business, the Corporation is involved in various legal suits and proceedings. In the opinion of management, based on the advice of legal counsel, these suits are without substantial merit and should not result in judgments that, in the aggregate, would have a material adverse effect on the Corporations financial statements.
First Century Bank, the Corporations wholly-owned banking subsidiary, is party to various financial instruments with off-balance sheet risk arising in the normal course of business to meet the financing needs of its customers. These commitments include standby letters of credit of approximately $3,264,000 at March 31, 2012 and $3,796,000 at December 31, 2011. These instruments contain various elements of credit and interest rate risk in excess of the amount recognized in the consolidated statements of financial condition. Additionally, certain off-balance sheet items of approximately $36,890,000 at March 31, 2012, and $36,554,000 at December 31, 2011, were comprised primarily of unfunded loan commitments.
NOTE H FAIR VALUE MEASUREMENT
The Corporation utilizes fair value measurements to record fair value adjustments to certain assets and to determine fair value disclosures. Fair value guidance establishes a framework for using fair value to measure assets and liabilities and defines fair value as the price that would be received to sell an asset or paid to transfer a liability (an exit price) as opposed to the price that would be paid to acquire the asset or received to assume the liability (an entry price). A fair value measure should reflect the assumptions that market participants would use in pricing the asset or liability, including the assumptions about the risk inherent in a particular valuation technique, the effect of a restriction on the sale or use of an asset and the risk of nonperformance. Required disclosures include identification of balance sheet amounts measured at fair value based on inputs the Company uses to derive fair value measurements. These include:
| Level 1 valuations, where the valuation is based on quoted market prices for identical assets or liabilities traded in active markets (which include exchanges and over-the-counter markets with sufficient volume), |
| Level 2 valuations, where the valuation is based on quoted market prices for similar instruments traded in active markets, quoted prices for identical or similar instruments in markets that are not active and model-based valuation techniques for which all significant assumptions are observable in the market, and |
22
Table of Contents
FIRST CENTURY BANKSHARES, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
March 31, 2012
NOTE H FAIR VALUE MEASUREMENT (Continued)
| Level 3 valuations, where the valuation is generated from model-based techniques that use significant assumptions not observable in the market, but observable based on Company-specific data. These unobservable assumptions reflect the Companys own estimates for assumptions that market participants would use in pricing the asset or liability. Valuation techniques typically include option pricing models, discounted cash flow models and similar techniques, but may also include the use of market prices of assets or liabilities that are not directly comparable to the subject asset or liability. |
Investment Securities Available-for-Sale:
Investment securities available-for-sale are recorded at fair value on a recurring basis. Fair value measurement is based upon quoted prices, if available. If quoted prices are not available, fair values are measured using independent pricing models or other model-based valuation techniques such as the present value of future cash flows, adjusted for the securitys credit rating, prepayment assumptions and other factors such as credit loss assumptions.
Loans:
The Corporation does not record loans at fair value on a recurring basis. However, from time to time, a loan is considered impaired and an allowance for loan losses is established. The fair value of impaired loans is estimated using one of several methods, including collateral value, recent appraisal value and /or tax assessed value, liquidation value and discounted cash flows. At March 31, 2012, substantially all of the total impaired loans were evaluated based on the fair value of the collateral. When the fair value of the collateral is based on an observable market price or a current appraised value, the Corporation records the impaired loan as nonrecurring Level 2.
Foreclosed Assets / Repossessions:
Foreclosed assets and repossessions are adjusted to fair value upon transfer of the loans to foreclosed assets and repossessions. Fair value is based upon independent market prices, appraised values of the collateral or managements estimation of the value of the collateral. When the fair value of the collateral is based on an observable market price or a current appraised value, the Corporation records the foreclosed asset as nonrecurring Level 2.
23
Table of Contents
FIRST CENTURY BANKSHARES, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
March 31, 2012
NOTE H FAIR VALUE MEASUREMENT (Continued)
The following table presents information about the Companys assets and liabilities measured at fair value on a recurring and non-recurring basis as of March 31, 2012 and December 31, 2011, and indicates the fair value hierarchy of the valuation techniques utilized by the Company to determine such fair value.
Description |
Fair Value March 31, 2012 |
Fair Value Measurements at March 31, 2012, Using | ||||||||||||||
(Dollars in thousands) | Level 1 | Level 2 | Level 3 | |||||||||||||
Assets and liabilities measured on a recurring basis: |
||||||||||||||||
Available-for-sale securities: |
||||||||||||||||
U.S. Government agency obligations |
$ | 36,053 | $ | | $ | 36,053 | $ | | ||||||||
U.S. Government agency mortgage-backed securities |
34,792 | | 34,792 | | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Total |
$ | 70,845 | $ | | $ | 70,845 | $ | | ||||||||
Assets and liabilities measured on a nonrecurring basis: |
||||||||||||||||
Impaired loans, net |
$ | 11,858 | $ | | $ | 11,858 | $ | | ||||||||
Foreclosures and repossessions |
|
1,787 |
|
| 1,787 | | ||||||||||
|
|
|
|
|
|
|
|
|||||||||
Total |
$ | 13,645 | $ | | $ | 13,645 | $ | | ||||||||
Description |
Fair Value December 31, 2011 |
Fair Value Measurements at December 31, 2011, Using | ||||||||||||||
(Dollars in thousands) | Level 1 | Level 2 | Level 3 | |||||||||||||
Assets and liabilities measured on a recurring basis: |
||||||||||||||||
Available-for-sale securities: |
||||||||||||||||
U.S. Government agency obligations |
$ | 33,552 | $ | | $ | 33,552 | $ | | ||||||||
U.S. Government agency mortgage-backed securities |
33,121 | | 33,121 | | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Total |
$ | 66,673 | $ | | $ | 66,673 | $ | | ||||||||
Assets and liabilities measured on a nonrecurring basis: |
||||||||||||||||
Impaired loans, net |
$ | 12,716 | $ | | $ | 12,716 | $ | | ||||||||
Foreclosures and repossessions |
1,180 | | 1,180 | | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Total |
$ | 13,896 | $ | | $ | 13,896 | $ | |
24
Table of Contents
FIRST CENTURY BANKSHARES, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
March 31, 2012
NOTE H FAIR VALUE MEASUREMENT (Continued)
The following table presents the carrying amounts and fair values of the Companys financial instruments: (in thousands)
March 31, 2012 | December 31, 2011 | |||||||||||||||
Carrying Amount |
Fair Value |
Carrying Amount |
Fair Value |
|||||||||||||
Cash & cash equivalents |
$ | 60,312 | $ | 60,312 | $ | 55,742 | $ | 55,742 | ||||||||
Investment securities available for sale |
70,845 | 70,845 | 66,673 | 66,673 | ||||||||||||
Investment securities held to maturity |
29,407 | 30,496 | 27,024 | 28,149 | ||||||||||||
Loans, net |
238,690 | 249,985 | 243,462 | 254,834 | ||||||||||||
Accrued interest receivable |
1,152 | 1,152 | 832 | 832 | ||||||||||||
Deposits |
356,682 | 357,253 | 352,649 | 353,603 | ||||||||||||
Borrowings |
22,672 | 22,672 | 20,097 | 20,097 | ||||||||||||
Accrued interest payable |
83 | 83 | 86 | 86 |
NOTE I RECENT ACCOUNTING PRONOUNCEMENTS
In April 2011, the FASB issued ASU 2011-03, Reconsideration of Effective Control for Repurchase Agreements. The main objective in developing this Update is to improve the accounting for repurchase agreements (repos) and other agreements that both entitle and obligate a transferor to repurchase or redeem financial assets before their maturity. The amendments in this Update 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 Update apply to all entities, both public and nonpublic. The amendments affect all entities that enter into agreements to transfer financial assets that both entitle and obligate the transferor to repurchase or redeem the financial assets before their maturity. The guidance in this Update was effective for the first interim or annual period beginning on or after December 15, 2011 and was to be applied prospectively to transactions or modifications of existing transactions that occur on or after the effective date. Early adoption is not permitted. Adoption of this ASU did not have a significant impact on the Companys financial statements.
In May 2011, the FASB issued ASU 2011-04, Amendments to Achieve Common Fair Value Measurement and Disclosure Requirements in U.S. GAAP and International Financial Reporting Standards. The amendments in this Update result in common fair value measurement and disclosure requirements in U.S. GAAP and IFRSs. Consequently, the amendments change the wording used to describe many of the requirements in U.S. GAAP for measuring fair value and for disclosing information about fair value measurements. The amendments in this update were to be applied prospectively. For public entities, the amendments were effective during interim and annual periods beginning after December 15, 2011. Early application by public entities was not permitted. Adoption of this ASU did not have a significant impact on the Companys financial statements.
25
Table of Contents
FIRST CENTURY BANKSHARES, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
March 31, 2012
NOTE I RECENT ACCOUNTING PRONOUNCEMENTS (Continued)
In June 2011, the FASB issued ASU 2011-05, Presentation of Comprehensive Income. The amendments in this Update improve the comparability, clarity, consistency, and transparency of financial reporting and increase the prominence of items reported in other comprehensive income. To increase the prominence of items reported in other comprehensive income and to facilitate convergence of U.S. GAAP and IFRS, the option to present components of other comprehensive income as part of the statement of changes in stockholders equity was eliminated. The amendments require that all non-owner changes in stockholders equity be presented either in a single continuous statement of comprehensive income or in two separate but consecutive statements. 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 total other comprehensive income, the components of other comprehensive income, and the total of comprehensive income. All entities that report items of comprehensive income, in any period presented, will be affected by the changes in this Update. For public entities, the amendments were effective for fiscal years, and interim periods within those years, beginning after December 15, 2011. The amendments in this Update were to be applied retrospectively. Adoption of this ASU did not have a significant impact on the Companys financial statements.
26
Table of Contents
FIRST CENTURY BANKSHARES, INC.
ITEM 2. | MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS |
March 31, 2012
This narrative will assist you, the reader, in your analysis of the accompanying consolidated financial statements and supplemental financial information. You should read it in conjunction with the unaudited consolidated financial statements and the notes presented elsewhere in this report. We are not aware of any market or institutional trends, events or uncertainties that will have or are reasonably likely to have a material effect on the liquidity, capital resources or operations of the Corporation, except as discussed herein. We are also not aware of any current recommendations by any regulatory authorities, which would have such a material effect if implemented, except as discussed herein.
Forward-looking Statements
This report contains certain forward-looking statements (as defined in the Private Securities Litigation Act of 1995), including certain plans, expectations, goals and projections, which are inherently subject to numerous assumptions, risks and uncertainties. Actual results could differ materially from those contained in or implied by such statements for a variety of factors including but not limited to: the nature and extent of governmental actions and reforms; continued monetary policy actions compressing market interest rates; rapid movements in interest rates; the rapid pace of new accounting and regulatory changes; changes in economic conditions which may affect our primary market area; continued volatility in national and local real estate values; competitive pressures on product pricing and services; success and timing of business strategies; success and timing of loan workout strategies; continuing consolidation on the financial services industry; rapidly changing technology; and evolving financial industry standards.
Critical Accounting Policies
Our accounting policies are an integral part to understanding the results reported. Our accounting and reporting policies are in accordance with accounting principles generally accepted in the United States of America, and they conform to general practices within the financial services industry. The most complex accounting policies require our best judgment to ascertain the valuation of assets, liabilities, commitments and contingencies. A variety of factors could affect the ultimate value obtained by the use of assumptions that involve significant uncertainty at the time of estimation. In some instances, we use a discount factor to determine the present value of assets and liabilities. A change in the discount factor could increase or decrease the values of those assets and liabilities, resulting in either a beneficial or an adverse impact on our financial results. The following is a brief description of our current accounting policies involving significant management valuation judgments and estimates.
Allowance for Loan Losses
We maintain, through the provision expense, an allowance for loan losses that we believe to be adequate to absorb probable credit losses inherent in the portfolio. The procedures that we use entail preparation of a loan watch list and assigning each loan a classification. For those individually significant loans where it is determined that it is not probable that the borrower will make all payments in accordance with the original loan agreement, we perform an impairment analysis. The measurement of impaired loans is based on either the fair value of the underlying collateral, the present value of the future cash flows discounted at the historical effective interest rate stipulated in the loan agreement, or the estimated market value of the loan.
Other classified loans are categorized and allocated appropriate reserves. We also reserve for other loans more than 90 days past due that were not considered in the aforementioned procedures. We segregate the remaining portfolio into consumer, commercial and residential real estate loans, and apply the historical net charge off percentage of each category to the current amount outstanding in those categories. Additionally, as part of this analysis we include such factors as concentrations of credit, collateral deficient loans, volume and trends in delinquencies, loan portfolio composition, loan volume and maturity of the portfolio, national and local economic conditions and the experience, ability and depth of lending management and staff.
27
Table of Contents
FIRST CENTURY BANKSHARES, INC.
MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (Continued)
March 31, 2012
Greater detail regarding the determination of the adequacy of the allowance for loan losses is provided later in this Managements Discussion and Analysis of Financial Condition and Results of Operations, as well as in Note C of Notes to Unaudited Consolidated Financial Statements.
Pensions
We have a defined benefit pension plan covering substantially all employees with at least nine months of service who are at least 20 1/2 years of age. Pension expense is determined by an actuarial valuation based on assumptions that are evaluated annually as of December 31, the measurement date for pension obligations. The most significant assumptions are the long-term expected rate of return on plan assets, the discount rate used to determine the present value of the pension obligations, and the weighted-average rate of expected increase in future compensation levels. We review these assumptions with the plan actuaries and modify them as necessary to reflect current market conditions as well as anticipated long-term market conditions. Effective December 31, 2011, benefits under the defined benefit pension plan were frozen.
Recent Developments
Following the Annual Meeting of shareholders on April 24, 2012, the Board of Directors of the Company met and unanimously approved the filing of a Form 15 with the Securities and Exchange Commission (the SEC) to voluntarily deregister its common shares under the Securities Exchange Act of 1934. The Form 15 was filed with the SEC on April 26, 2012. As a result of the passage of H.R. 3606, the Jumpstart Our Business Startups Act, commonly referred to as the JOBS Act, the Company was eligible to deregister its common shares because it has fewer than 1,200 holders of record of its common shares. Upon the filing of the Form 15, the Companys obligation to file certain reports with the SEC, including Forms 10-K, 10-Q and 8-K and other filing requirements, will terminate upon the effectiveness of the deregistration, which is expected to occur 90 days after the filing of the Form 15.
Results of Operations for Three Months ended March 31, 2012
Net income for the first three months of 2012 was $699,000, representing a decrease of approximately 7.3%, from the comparable 2011 level of $754,000. The most significant component, net interest income, amounted to $3,202,000 for the three-month period ended March 31, 2012, a decrease of $137,000, or 4.1%, as compared to $3,339,000 for the first three months of 2011. This decrease was primarily the result of reduced interest income in excess of the reductions seen in interest expense due to lower loan demand resulting in a reduction in total loans, and the impact of an extended lower interest rate environment on the short term nature of the Companys balance sheet. Net interest income to average total assets for the three months ended March 31, 2012 and 2011 was 3.02% and 3.15%, respectively.
Interest income for the three-month period ended March 31, 2012 decreased $320,000, or 8.0%, to $3,681,000, from $4,001,000 for the three-month period ended March 31, 2011. Interest income reflected a weighted-average yield on earning assets of 3.74% for the three-month period ended March 31, 2012, compared to 4.09% for the same three-month period in 2011. Average interest-earning assets were $394,117,000 and $391,080,000 during the three months ended March 31, 2012 and 2011, respectively.
Interest expense decreased $183,000, or 27.6%, to $479,000 for the three-month period ended March 31, 2012, from $662,000 for the same period in 2011. This reflected an average cost of funds of 0.60% and 0.82%, respectively, for the three-month periods ended March 31, 2012 and 2011. Average interest-bearing liabilities were $317,579,000 and $321,340,000 during the three months ended March 31, 2012 and 2011, respectively.
The provision for loan losses was $364,000 for the three months ended March 31, 2012. This was an increase of $285,000, or 360.8%, compared to the provision of $79,000 for the same period in 2011. The additional provision reflects our ongoing emphasis to collect and reduce the amount of nonperforming loans.
28
Table of Contents
FIRST CENTURY BANKSHARES, INC.
MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (Continued)
March 31, 2012
Noninterest income was $1,329,000 for the three-month period ended March 31, 2012 and represented a decrease of $166,000, or 11.1%, compared to $1,495,000 for the same period in 2011. Decreases occurred in fiduciary fees, which had a major estate settlement fee recorded in the first quarter of 2011; and service charges on deposit accounts, primarily due to lower overdraft fee income.
Noninterest expense of $3,221,000 for the quarter ended March 31, 2012 represented a decrease of $421,000, or 11.6%, from $3,642,000 for the same period in 2011. Personnel expense decreased $134,000, or 8.4%, due to lower pension expense as a result of the Company freeze of benefits in the plan at the end of 2011. FDIC assessment expense was lower by $112,000, or 74.8%. There were also reductions in consulting fees and regulatory examination assessments as we completed the conversion of our national bank charter to a state bank charter. We continue to experience significant costs related to nonperforming loan collection efforts as many of these borrowers have sought protection in bankruptcy and legal fees remain high as we pursue recovery.
On a per share basis, net income decreased to $0.37 per share for the three-month period ended March 31, 2012, compared to $0.40 per share for the same period in 2011. Earnings through March 31, 2012 and March 31, 2011, reflect an annualized return on average assets (ROAA) of 0.66% and 0.71%, respectively. Also, these earnings reflect an annualized return on average equity (ROAE) of 6.82% and 7.50% for the periods ending March 31, 2012 and 2011, respectively. Dividends paid in the first quarters of 2012 and 2011 were $0.17 per share and $0.15 per share, respectively.
Financial Condition and Asset Quality
Total assets at March 31, 2012 were $424,629,000 as compared to $417,820,000 at December 31, 2011, or an increase of $6,809,000, or 1.6%. The loan portfolio decreased 1.9% during this period to $243,595,000 at March 31, 2012, from $248,367,000 at December 31, 2011, reflecting the minimal loan demand experienced during the quarter. The investment portfolio increased approximately $6,555,000, or 7.0%, during this same period, utilizing excess liquidity.
Total deposits increased by $4,033,000 to $356,682,000 at March 31, 2012 from $352,649,000 at December 31, 2011. Noninterest-bearing deposits increased by $3,691,000, or 6.4%, reflecting normal commercial customer activity. Interest-bearing deposits were essentially unchanged during this same period.
We evaluate the adequacy of the allowance for loan losses on a quarterly basis in order to maintain the allowance at a level that is sufficient to absorb probable credit losses. This evaluation is based on a review of our historical loss experience, known and inherent risks in the loan portfolio, including adverse circumstances that may affect the ability of the borrower to repay interest and/or principal, the estimated value of collateral, and an analysis of the levels and trends of delinquencies, charge-offs and the risk ratings of the various loan categories. Such factors as the level and trend of interest rates and the condition of national and local economies are also considered. We continue to focus efforts on evaluating our commercial real estate exposure to determine the potential impact on future earnings should conditions in this sector continue to deteriorate.
Our policy is to discontinue the accrual of interest on loans that are past due more than 90 days, unless those loans are well collateralized and in process of collection. We may also classify loans that are on a current payment status or past due less than 90 days as nonaccrual if the repayment of principal or interest is in doubt. Once a loan is placed in nonaccrual status we apply payments that are received to reducing the outstanding principal balance. Interest income is only recognized after the borrower can demonstrate cash flow and the ability to amortize the remaining debt, and, performs under the new arrangement for at least six payments.
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FIRST CENTURY BANKSHARES, INC.
MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (Continued)
March 31, 2012
Nonperforming assets, including nonaccrual loans, loans past-due over 90 days, restructured loans and other real estate owned, were $17,116,000 at March 31, 2012, and $17,266,000 at December 31, 2011. As a percentage of total assets, nonperforming assets decreased from 4.1% at December 31, 2011 to 4.0% at March 31, 2012. The allowance for loan losses was $4,905,000 at March 31, 2012, and December 31, 2011. The allowance for loan losses as a percentage of total loans increased from 1.97% at December 31, 2011, to 2.01% at March 31, 2012.
Impaired credits consist primarily of loans collateralized by commercial real estate where the borrower has experienced financial difficulties as a result of the downturn in the local and national economies. There is no other concentration by locale or industry that is common among these loans. The largest impaired loan is approximately $4,948,000, and is secured by a mixed use real estate development project in Richmond, Virginia. Both the development project and the guarantor have sought protection in bankruptcy and we are pursuing all collection efforts through this process. Specific reserves of $768,000 are assigned to this credit.
For the three-month period ended March 31, 2012, there were no significant additions to impaired loans. Our collection efforts include foreclosure sales, often resulting in the borrower seeking protection in bankruptcy. Other borrowers make efforts to liquidate assets to avoid foreclosure on primary collateral. Our success in maximizing collateral value will, in large part, depend on the market absorption rate of commercial real estate property.
Off-Balance Sheet Arrangements
Financial instruments include commitments to extend credit and standby letters of credit. These commitments include standby letters of credit of approximately $3,264,000 at March 31, 2012 and $3,796,000 at December 31, 2011. These instruments contain various elements of credit and interest rate risk in excess of the amount recognized in the consolidated statements of financial condition. Additionally, certain off-balance sheet items of approximately $36,890,000 at March 31, 2012, and $36,554,000 at December 31, 2011, were comprised primarily of unfunded loan commitments. The methodology used to determine an estimate for the reserve for unfunded lending commitments is inherently similar to the methodology used in calculating the allowance for loan losses adjusted for factors specific to binding commitments, including the probability of funding and exposure at the time of funding. The reserve for unfunded lending commitments is included in other liabilities with increases or decreases included in noninterest expense. At March 31, 2012 and December 31, 2011, the reserve for unfunded lending commitments was $10,000. Estimates may change at some point in the future.
Liquidity and Capital Resources
Liquidity management involves the ability to meet the cash flow requirements of depositors wanting to withdraw funds or borrowers needing assurance that sufficient funds will be available to meet their credit needs. Liquidity can best be demonstrated by an analysis of cash flows. The primary source of cash flows is from operating activities. Operating activities provided $1,632,000 of liquidity for the three-month period ended March 31, 2012, compared to $1,080,000 for the same three months in 2011. The principal elements of these operating flows are net income, increased for significant non-cash expenses for the provision for loan losses and depreciation and amortization. A secondary source of liquidity comes from investing activities, principally the maturities of investment securities. Maturities and calls of investment securities were $13,231,000 for the three-month period ended March 31, 2012, compared to $13,185,000 for the three-month period ended March 31, 2011. Excess proceeds from maturities and calls of investments during the first quarter of 2012 of $6,705,000 were reinvested in the portfolio for a total of $19,936,000 in investment purchases for the quarter. As of March 31, 2012, there were approximately $6,472,000 of investment securities that mature within 36 months based on contractual maturities.
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FIRST CENTURY BANKSHARES, INC.
MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (Continued)
March 31, 2012
Additional sources of liquidity are available through the Federal Reserve System and through membership in the Federal Home Loan Bank system. As of March 31, 2012, we had a maximum secured borrowing capacity exceeding $60,000,000 through the Federal Home Loan Bank of Pittsburgh. These funds can be made available with various maturities and interest rate structures. Borrowings are collateralized by a blanket lien by the Federal Home Loan Bank on its members qualifying assets. At March 31, 2012, we owned $920,500 in stock, and had no borrowings outstanding for overnight liquidity needs through the FHLB. As of March 31, 2012, there were no outstanding balances on our federal funds purchased lines of $8,700,000 with correspondent banks which are available for short-term liquidity needs.
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FIRST CENTURY BANKSHARES, INC.
ITEM 3. | QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK |
Not Applicable.
ITEM 4. | CONTROLS AND PROCEDURES |
Evaluation of disclosure controls and procedures:
The Companys Chief Executive Officer and the Chief Financial Officer have conducted as of March 31, 2012, an evaluation of the effectiveness of the Companys disclosure controls and procedures as defined in Exchange Act Rule 13a-15(e). Based on their evaluation, the Chief Executive Officer and the Chief Financial Officer concluded that the Companys disclosure controls and procedures as of March 31, 2012, were effective in ensuring that information required to be disclosed in the Quarterly Report on Form 10-Q was recorded, processed, summarized and reported within the time period required by the Securities and Exchange Commissions rules and forms.
Changes in internal controls over financial reporting:
There were no changes in the Companys internal control over financial reporting that occurred during the first quarter ended March 31, 2012, or in other factors that have materially affected, or are reasonably likely to materially affect, the Companys internal control over financial reporting.
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FIRST CENTURY BANKSHARES, INC.
The subsidiary of the Corporation is involved in various legal proceedings, all of which are considered incidental to the normal conduct of business. Management believes that the liabilities arising from these proceedings will not have a material adverse effect on the consolidated financial position or consolidated results of operations of the Corporation.
Not Applicable.
ITEM 2 UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
(a) | Not Applicable |
(b) | Not Applicable |
(c) | Not Applicable |
ITEM 3 DEFAULTS UPON SENIOR SECURITIES
None
ITEM 4 MINE SAFETY DISCLOSURES
Not Applicable
(a) None
(b) None
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FIRST CENTURY BANKSHARES, INC.
PART II. | OTHER INFORMATION (Continued) |
The following exhibits are filed herewith or incorporated by reference.
Exhibit |
Description of Exhibit |
Page Number |
||||
3. | Articles of Incorporation and Bylaws | |||||
3(a) | Articles of Amendment to Articles of Incorporation (1) | | ||||
3(b) | Restated Articles of Incorporation (2) | | ||||
3(c) | Amended and Restated By-laws of the Company (3) | | ||||
10. | Material Contracts | |||||
10(a) | Executive Benefit Agreement between the Registrant and Frank W. Wilkinson(4) | | ||||
10(b) | Executive Benefit Agreement between the Registrant and J. Ronald Hypes(4) | | ||||
31.1 | Rule 13a-14(a)/15d-14(a) Certification of Chief Executive Officer | 36 | ||||
31.2 | Rule 13a-14(a)/15d-14(a) Certification of Chief Financial Officer | 37 | ||||
32.1 | 18 U.S.C. Section 1350 Certification of Chief Executive Officer | 38 | ||||
32.2 | 18 U.S.C. Section 1350 Certification of Chief Financial Officer | 39 | ||||
101 | Interactive data file (XBRL) (5) | |
(1) | Incorporated by reference to Exhibit 3 to the Companys Annual Report on Form 10-K dated December 31, 1999 and filed March 27, 2000, File Number: 000-11671; Film Number: 579818. |
(2) | Incorporated by reference to Exhibit 3(b) to the Companys Quarterly Report on Form 10-Q dated June 30, 1996 and filed August 14, 2006, File Number 000-11671; Film Number: 96610281. |
(3) | Incorporated by reference to Exhibit 3(ii) to the Companys Current Report on Form 8-K dated February 15, 2005 and filed February 18, 2005, File Number: 000-11671; Film Number: 05625963. |
(4) | Incorporated by reference to Exhibit 10.1 to the Companys Current Report on Form 8-K dated December 2, 2010 and filed December 8, 2010, File Number: 000-11671; Film Number: 101239496. |
(5) | Exhibit not provided herein. The interactive data file (XBRL) exhibit is available through First Centurys Investor Relations tab on its corporate website at www.firstcentury.com. |
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Pursuant to the requirements of the Securities and Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
First Century Bankshares, Inc. | ||
(Registrant) | ||
By: | /s/ J. Ronald Hypes | |
J. Ronald Hypes, Treasurer | ||
(Principal Accounting and Financial Officer) |
Date: | May 15, 2012 |
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