form10q.htm
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (D) OF THE SECURITIES
EXCHANGE ACT OF 1934
FOR QUARTER ENDED JUNE 30, 2011 |
COMMISSION FILE NUMBER 0-12436 |
COLONY BANKCORP, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
GEORGIA |
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58-1492391 |
(STATE OR OTHER JURISDICTION OF INCORPORATION OR ORGANIZATION) |
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(I.R.S. EMPLOYER IDENTIFICATION NUMBER) |
115 SOUTH GRANT STREET, FITZGERALD, GEORGIA 31750
ADDRESS OF PRINCIPAL EXECUTIVE OFFICES
229/426-6000
REGISTRANT’S TELEPHONE NUMBER INCLUDING AREA CODE
INDICATE BY CHECK MARK WHETHER THE REGISTRANT (1) HAS FILED REPORTS REQUIRED TO BE FILED BY SECTIONS 13 OR 15 (D) OF THE SECURITIES EXCHANGE ACT OF 1934 DURING THE PRECEDING 12 MONTHS (OR FOR SUCH SHORTER PERIOD THAT THE REGISTRANT WAS REQUIRED TO FILE SUCH REPORTS), AND (2) HAS BEEN SUBJECT TO SUCH FILING REQUIREMENTS FOR THE PAST 90 DAYS.
YES x NO o
INDICATE BY CHECK MARK WHETHER THE REGISTRANT HAS SUBMITTED ELECTRONICALLY AND POSTED ON ITS CORPORATE WEB SITE, IF ANY, EVERY INTERACTIVE DATA FILE REQUIRED TO BE SUBMITTED AND POSTED PURSUANT TO RULE 405 OF REGULATION S-T (§232.405 OF THIS CHAPTER) DURING THE PRECEDING 12 MONTHS (OR FOR SUCH SHORTER PERIOD THAT THE REGISTRANT WAS REQUIRED TO SUBMIT AND POST SUCH FILES).
YES o NO o
INDICATE BY CHECK MARK WHETHER THE REGISTRANT IS A LARGE ACCELERATED FILER, AN ACCELERATED FILER, A NON-ACCELERATED FILER OR A SMALLER REPORTING COMPANY. SEE DEFINITIONS OF “ACCELERATED FILER”, “LARGE ACCELERATED FILER” AND “SMALLER REPORTING COMPANY” IN RULE 12b-2 OF THE EXCHANGE ACT.
LARGE ACCELERATED FILER o |
ACCELERATED FILERo |
NON-ACCELERATED FILER o |
SMALLER REPORTING COMPANY x |
(DO NOT CHECK IF A SMALLER REPORTING COMPANY)
|
INDICATE BY CHECK MARK WHETHER THE REGISTRANT IS A SHELL COMPANY (AS DEFINED IN RULE 12B-2 OF THE EXCHANGE ACT).
YES o NO x
INDICATE THE NUMBER OF SHARES OUTSTANDING OF EACH OF THE ISSUER’S CLASSES OF COMMON STOCK, AS OF THE LATEST PRACTICABLE DATE.
CLASS |
|
OUTSTANDING AT AUGUST 12,2011 |
COMMON STOCK, $1 PAR VALUE |
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8,442,658 |
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Page
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PART I – Financial Information |
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3
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Item 1.
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4
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Item 2.
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39
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Item 3.
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64 |
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Item 4.
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67
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PART II – Other Information |
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Item 1.
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68
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Item 1A.
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68
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Item 2.
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68
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Item 3.
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68
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Item 4.
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68
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Item 5.
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68
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Item 6.
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69
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71
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Forward Looking Statement Disclosure
Statements in this Quarterly Report regarding future events or performance are “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995 (the PSLRA) and are made pursuant to the safe harbors of the PSLRA. Actual results of Colony Bankcorp, Inc. (the Company) could be quite different from those expressed or implied by the forward-looking statements. Any statements containing the words “could,” “may,” “will,” “should,” “plan,” “believe,” “anticipates,” “estimates,” “predicts,” “expects,” “projections,”
“potential,” “continue,” or words of similar import, constitute “forward-looking statements”, as do any other statements that expressly or implicitly predict future events, results, or performance. Factors that could cause results to differ from results expressed or implied by our forward-looking statements include, among others, risks discussed in the text of this Quarterly Report as well as the following specific items:
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·
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General economic conditions, whether national or regional, that could affect the demand for loans or lead to increased loan losses;
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·
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Competitive factors, including increased competition with community, regional, and national financial institutions, that may lead to pricing pressures that reduce yields the Company achieves on loans and increase rates the Company pays on deposits, loss of the Company’s most valued customers, defection of key employees or groups of employees, or other losses;
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·
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Increasing or decreasing interest rate environments, including the shape and level of the yield curve, that could lead to decreases in net interest margin, lower net interest and fee income, including lower gains on sales of loans, and changes in the value of the Company’s investment securities;
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·
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Changing business or regulatory conditions, or new legislation, affecting the financial services industry that could lead to increased costs, changes in the competitive balance among financial institutions, or revisions to our strategic focus;
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·
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Changes or failures in technology or third party vendor relationships in important revenue production or service areas, or increases in required investments in technology that could reduce our revenue, increase our costs or lead to disruptions in our business.
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·
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Readers are cautioned not to place undue reliance on our forward-looking statements, which reflect management’s analysis only as of the date of the statements. The Company does not intend to publicly revise or update forward-looking statements to reflect events or circumstances that arise after the date of this report.
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Readers should carefully review all disclosures we file from time to time with the Securities and Exchange Commission (SEC).
ITEM 1
FINANCIAL STATEMENTS
THE FOLLOWING FINANCIAL STATEMENTS ARE PROVIDED FOR COLONY BANKCORP, INC. AND ITS WHOLLY-OWNED SUBSIDIARY BANK, COLONY BANK
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A.
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CONSOLIDATED BALANCE SHEETS – JUNE 30, 2011 AND DECEMBER 31, 2010.
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B.
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CONSOLIDATED STATEMENTS OF INCOME – FOR THE THREE MONTHS ENDED JUNE 30, 2011 AND 2010 AND FOR THE SIX MONTHS ENDED JUNE 30, 2011 AND 2010.
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C.
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CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME – FOR THE THREE MONTHSENDED JUNE 30, 2011 AND 2010 AND FOR THE SIX MONTHS ENDED JUNE 30, 2011 AND 2010.
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D.
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CONSOLIDATED STATEMENTS OF CASH FLOWS – FOR THE SIX MONTHS ENDED JUNE 30, 2011 AND 2010.
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THE CONSOLIDATED FINANCIAL STATEMENTS FURNISHED HAVE NOT BEEN AUDITED BY INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS, BUT REFLECT, IN THE OPINION OF MANAGEMENT, ALL ADJUSTMENTS (CONSISTING SOLELY OF NORMAL RECURRING ADJUSTMENTS) NECESSARY FOR A FAIR PRESENTATION OF THE RESULTS OF OPERATIONS FOR THE PERIODS PRESENTED.
THE RESULTS OF OPERATIONS FOR THE SIX MONTH PERIOD ENDED JUNE 30, 2011 ARE NOT NECESSARILY INDICATIVE OF THE RESULTS TO BE EXPECTED FOR THE FULL YEAR.
Part I (Continued)
Item 1 (Continued)
COLONY BANKCORP, INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
JUNE 30, 2011 AND DECEMBER 31, 2010
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June 30, 2011
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December 31, 2010
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ASSETS
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(Unaudited)
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(Audited)
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Cash and Cash Equivalents
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Cash and Due from Banks
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$ |
16,506 |
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$ |
16,613 |
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Federal Funds Sold
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10,000 |
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32,536 |
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Securities Purchased Under Agreement to Resell
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5,000 |
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5,000 |
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31,506 |
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54,149 |
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Interest-Bearing Deposits
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28,624 |
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50,727 |
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Investment Securities
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Available for Sale, at Fair Value
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314,713 |
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303,838 |
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Held to Maturity, at Cost (Fair Value of $46 and $53, as of June 30, 2011 and December 31, 2010, Respectively)
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47 |
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48 |
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314,760 |
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303,886 |
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Federal Home Loan Bank Stock, at Cost
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5,735 |
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6,063 |
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Loans
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759,110 |
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813,250 |
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Allowance for Loan Losses
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(15,394 |
) |
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(28,280 |
) |
Unearned Interest and Fees
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(60 |
) |
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(61 |
) |
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743,656 |
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784,909 |
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Premises and Equipment
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26,393 |
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27,148 |
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Other Real Estate
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20,545 |
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20,208 |
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Other Intangible Assets
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277 |
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295 |
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Other Assets
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26,077 |
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28,273 |
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Total Assets
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$ |
1,197,573 |
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$ |
1,275,658 |
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LIABILITIES AND STOCKHOLDERS' EQUITY
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Deposits
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Noninterest-Bearing
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$ |
92,582 |
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$ |
102,959 |
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Interest-Bearing
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909,625 |
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956,165 |
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1,002,207 |
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1,059,124 |
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Borrowed Money
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Securities Sold Under Agreements to Repurchase
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-- |
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20,000 |
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Subordinated Debentures
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24,229 |
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24,229 |
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Other Borrowed Money
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71,000 |
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75,076 |
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95,229 |
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119,305 |
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Other Liabilities
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4,545 |
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4,271 |
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Commitments and Contingencies
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Stockholders' Equity
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Preferred Stock, No Par Value; Authorized 10,000,000 Shares, Issued 28,000 Shares
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27,583 |
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27,506 |
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Common Stock, Par Value $1 a Share; Authorized 20,000,000 Shares, Issued 8,442,958 and 8,442,958 Shares as of June 30, 2011 and December 31, 2010, Respectively
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8,443 |
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8,443 |
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Paid-In Capital
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29,171 |
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29,171 |
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Retained Earnings
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29,297 |
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28,479 |
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Restricted Stock - Unearned Compensation
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(20 |
) |
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(41 |
) |
Accumulated Other Comprehensive Income (Loss), Net of Tax
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1,118 |
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(600 |
) |
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95,592 |
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92,958 |
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Total Liabilities and Stockholders' Equity
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$ |
1,197,573 |
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$ |
1,275,658 |
|
The accompanying notes are an integral part of these statements.
Part I (Continued)
Item 1 (Continued)
COLONY BANKCORP, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF INCOME
THREE MONTHS ENDED JUNE 30, 2011 AND 2010
AND SIX MONTHS ENDED JUNE 30, 2011 AND 2010
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Three Months Ended
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Six Months Ended
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6/30/2011
|
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6/30/2010
|
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|
6/30/2011
|
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6/30/2010
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Interest Income
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Loans, Including Fees
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$ |
11,135 |
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$ |
13,039 |
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$ |
22,703 |
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$ |
26,471 |
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Federal Funds Sold
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38 |
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14 |
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|
72 |
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|
|
40 |
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Deposits with Other Banks
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8 |
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|
|
14 |
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|
|
26 |
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|
17 |
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Investment Securities
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|
|
|
|
|
|
|
|
|
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|
|
|
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U.S. Government Agencies
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1,851 |
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1,995 |
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3,694 |
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3,671 |
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State, County and Municipal
|
|
|
29 |
|
|
|
23 |
|
|
|
58 |
|
|
|
48 |
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Corporate Obligations and Asset-Backed Securities
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|
|
22 |
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34 |
|
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|
45 |
|
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|
90 |
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Dividends on Other Investments
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|
|
12 |
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|
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4 |
|
|
|
24 |
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|
|
8 |
|
|
|
|
13,095 |
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|
|
15,123 |
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|
|
26,622 |
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|
|
30,345 |
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Interest Expense
|
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|
|
|
|
|
|
|
|
|
|
|
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Deposits
|
|
|
3,450 |
|
|
|
4,430 |
|
|
|
7,104 |
|
|
|
8,870 |
|
Federal Funds Purchased
|
|
|
171 |
|
|
|
181 |
|
|
|
338 |
|
|
|
367 |
|
Borrowed Money
|
|
|
893 |
|
|
|
916 |
|
|
|
1,781 |
|
|
|
1,834 |
|
|
|
|
4,514 |
|
|
|
5,527 |
|
|
|
9,223 |
|
|
|
11,071 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Interest Income
|
|
|
8,581 |
|
|
|
9,596 |
|
|
|
17,399 |
|
|
|
19,274 |
|
Provision for Loan Losses
|
|
|
2,250 |
|
|
|
3,400 |
|
|
|
3,750 |
|
|
|
6,650 |
|
Net Interest Income After Provision for Loan Losses
|
|
|
6,331 |
|
|
|
6,196 |
|
|
|
13,649 |
|
|
|
12,624 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Noninterest Income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Service Charges on Deposits
|
|
|
800 |
|
|
|
936 |
|
|
|
1,556 |
|
|
|
1,843 |
|
Other Service Charges, Commissions and Fees
|
|
|
330 |
|
|
|
288 |
|
|
|
645 |
|
|
|
558 |
|
Mortgage Fee Income
|
|
|
42 |
|
|
|
79 |
|
|
|
104 |
|
|
|
140 |
|
Securities Gains
|
|
|
736 |
|
|
|
97 |
|
|
|
1,132 |
|
|
|
878 |
|
Other
|
|
|
763 |
|
|
|
619 |
|
|
|
1,338 |
|
|
|
1,140 |
|
|
|
|
2,671 |
|
|
|
2,019 |
|
|
|
4,775 |
|
|
|
4,559 |
|
Noninterest Expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Salaries and Employee Benefits
|
|
|
3,570 |
|
|
|
3,510 |
|
|
|
7,139 |
|
|
|
7,064 |
|
Occupancy and Equipment
|
|
|
1,028 |
|
|
|
1,098 |
|
|
|
2,044 |
|
|
|
2,206 |
|
Other
|
|
|
3,620 |
|
|
|
3,088 |
|
|
|
6,974 |
|
|
|
6,739 |
|
|
|
|
8,218 |
|
|
|
7,696 |
|
|
|
16,157 |
|
|
|
16,009 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income Before Income Taxes
|
|
|
784 |
|
|
|
519 |
|
|
|
2,267 |
|
|
|
1,174 |
|
Income Taxes (Benefits)
|
|
|
245 |
|
|
|
(2 |
) |
|
|
672 |
|
|
|
(31 |
) |
Net Income
|
|
|
539 |
|
|
|
521 |
|
|
|
1,595 |
|
|
|
1,205 |
|
Preferred Stock Dividends
|
|
|
350 |
|
|
|
350 |
|
|
|
700 |
|
|
|
700 |
|
Net Income Available to Common Stockholders
|
|
$ |
189 |
|
|
$ |
171 |
|
|
$ |
895 |
|
|
$ |
505 |
|
Net Income Per Share of Common Stock
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
$ |
0.02 |
|
|
$ |
0.02 |
|
|
$ |
0.11 |
|
|
$ |
0.06 |
|
Diluted
|
|
$ |
0.02 |
|
|
$ |
0.02 |
|
|
$ |
0.11 |
|
|
$ |
0.06 |
|
Cash Dividends Declared Per Share of Common Stock
|
|
$ |
0.00 |
|
|
$ |
0.00 |
|
|
$ |
0.00 |
|
|
$ |
0.00 |
|
Weighted Average Basic Shares Outstanding
|
|
|
8,441,712 |
|
|
|
8,443,884 |
|
|
|
8,440,466 |
|
|
|
7,849,973 |
|
Weighted Average Diluted Shares Outstanding
|
|
|
8,441,712 |
|
|
|
8,443,884 |
|
|
|
8,440,466 |
|
|
|
7,849,973 |
|
The accompanying notes are an integral part of these statements.
Part I (Continued)
Item 1 (Continued)
COLONY BANKCORP INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
THREE MONTHS ENDED JUNE 30, 2011 AND 2010
AND SIX MONTHS ENDED JUNE 30, 2011 AND 2010
|
|
Three Months Ended
|
|
|
Six Months Ended
|
|
|
|
06/30/11
|
|
|
06/30/10
|
|
|
06/30/11
|
|
|
06/30/10
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Income
|
|
$ |
539 |
|
|
$ |
521 |
|
|
$ |
1,595 |
|
|
$ |
1,205 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other Comprehensive Income, Net of Tax
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gains on Securities Arising During the Year
|
|
|
3,019 |
|
|
|
3,113 |
|
|
|
2,465 |
|
|
|
3,815 |
|
Reclassification Adjustment
|
|
|
(486 |
) |
|
|
( 63 |
) |
|
|
(747 |
) |
|
|
(579 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Change in Net Unrealized Gains on Securities Available for Sale, Net of Reclassification Adjustment and Tax Effect
|
|
|
2,533 |
|
|
|
3,050 |
|
|
|
1,718 |
|
|
|
3,236 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive Income
|
|
$ |
3,072 |
|
|
$ |
3,571 |
|
|
$ |
3,313 |
|
|
$ |
4,441 |
|
The accompanying notes are an integral part of these statements.
Part I (Continued)
Item 1 (Continued)
COLONY BANKCORP, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
SIX MONTHS ENDED JUNE 30, 2011 AND 2010
|
|
2011
|
|
|
2010
|
|
CASH FLOWS FROM OPERATING ACTIVITIES
|
|
|
|
|
|
|
Net Income
|
|
$ |
1,595 |
|
|
$ |
1,205 |
|
Adjustments to Reconcile Net Income to Net Cash Provided by Operating Activities:
|
|
|
|
|
|
|
|
|
Depreciation
|
|
|
927 |
|
|
|
1,088 |
|
Provision for Loan Losses
|
|
|
3,750 |
|
|
|
6,650 |
|
Securities Gains
|
|
|
(1,132 |
) |
|
|
(878 |
) |
Amortization and Accretion
|
|
|
1,686 |
|
|
|
1,996 |
|
Loss on Sale of Other Real Estate and Repossessions
|
|
|
453 |
|
|
|
449 |
|
Unrealized Loss on Other Real Estate
|
|
|
648 |
|
|
|
441 |
|
(Increase) Decrease in Cash Surrender Value of Life Insurance
|
|
|
(108 |
) |
|
|
13 |
|
Other Prepaids, Deferrals and Accruals, Net
|
|
|
1,587 |
|
|
|
5,992 |
|
Gain on Sale of Equipment
|
|
|
(2 |
) |
|
|
-- |
|
|
|
|
9,404 |
|
|
|
16,956 |
|
CASH FLOWS FROM INVESTING ACTIVITIES
|
|
|
|
|
|
|
|
|
Purchases of Investment Securities Available for Sale
|
|
|
(185,192 |
) |
|
|
(179,428 |
) |
Proceeds from Maturities, Calls, and Paydowns of Investment Securities:
|
|
|
|
|
|
|
|
|
Available for Sale
|
|
|
21,924 |
|
|
|
24,642 |
|
Held to Maturity
|
|
|
6 |
|
|
|
8 |
|
Proceeds from Sale of Investment Securities
|
|
|
|
|
|
|
|
|
Available for Sale
|
|
|
154,560 |
|
|
|
136,572 |
|
(Increase) Decrease in Interest-Bearing Deposits in Other Banks
|
|
|
22,103 |
|
|
|
(10,749 |
) |
Decrease in Net Loans to Customers
|
|
|
32,007 |
|
|
|
58,538 |
|
Purchase of Premises and Equipment
|
|
|
(173 |
) |
|
|
(261 |
) |
Proceeds from Sale of Other Real Estate and Repossessions
|
|
|
4,081 |
|
|
|
4,286 |
|
Federal Home Loan Bank Stock
|
|
|
329 |
|
|
|
-- |
|
Proceeds from Sale of Premises and Equipment
|
|
|
2 |
|
|
|
-- |
|
|
|
|
49,647 |
|
|
|
33,608 |
|
CASH FLOWS FROM FINANCING ACTIVITIES
|
|
|
|
|
|
|
|
|
Noninterest-Bearing Customer Deposits
|
|
|
(10,378 |
) |
|
|
(6,793 |
) |
Interest-Bearing Customer Deposits
|
|
|
(46,540 |
) |
|
|
(42,428 |
) |
Securities Sold Under Agreements to Repurchase
|
|
|
(20,000 |
) |
|
|
(15,000 |
) |
Dividends Paid On Preferred Stock
|
|
|
(700 |
) |
|
|
(700 |
) |
Proceeds from Issuance of Common Stock
|
|
|
-- |
|
|
|
5,078 |
|
Principal Payments on Other Borrowed Money
|
|
|
(4,076 |
) |
|
|
(20,000 |
) |
Proceeds from Other Borrowed Money
|
|
|
-- |
|
|
|
19,000 |
|
Proceeds from Secured Borrowings
|
|
|
-- |
|
|
|
1,667 |
|
|
|
|
(81,694 |
) |
|
|
(59,176 |
) |
|
|
|
|
|
|
|
|
|
Net Increase in Cash and Cash Equivalents
|
|
|
(22,643 |
) |
|
|
(8,612 |
) |
Cash and Cash Equivalents at Beginning of Period
|
|
|
54,149 |
|
|
|
42,429 |
|
Cash and Cash Equivalents at End of Period
|
|
$ |
31,506 |
|
|
$ |
33,817 |
|
The accompanying notes are an integral part of these statements.
Part I (Continued)
Item 1 (Continued)
COLONY BANKCORP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(1) Summary of Significant Accounting Policies
Presentation
Colony Bankcorp, Inc. (the Company) is a bank holding company located in Fitzgerald, Georgia. The Company merged all of its operations into one sole subsidiary effective August 1, 2008. The consolidated financial statements include the accounts of Colony Bankcorp, Inc. and its wholly-owned subsidiary, Colony Bank (which includes its wholly-owned subsidiary, Colony Mortgage Corp.), Fitzgerald, Georgia. All significant intercompany accounts have been eliminated in consolidation. The accounting and reporting policies of Colony Bankcorp, Inc. conform to generally accepted accounting principles and practices utilized in the commercial banking industry.
All dollars in notes to consolidated financial statements are rounded to the nearest thousand.
In the opinion of management, all adjustments necessary for a fair presentation of financial position and results of operations for the interim dates and interim periods are included herein.
Nature of Operations
The Bank provides a full range of retail and commercial banking services for consumers and small- to medium-size businesses located primarily in middle and south Georgia. Colony Bank is headquartered in Fitzgerald, Georgia with banking offices in Albany, Ashburn, Broxton, Centerville, Chester, Columbus, Cordele, Douglas, Eastman, Fitzgerald, Leesburg, Moultrie, Pitts, Quitman, Rochelle, Savannah, Soperton, Sylvester, Thomaston, Tifton, Valdosta and Warner Robins. Lending and investing activities are funded primarily by deposits gathered through its retail banking office network.
Use of Estimates
In preparing the financial statements, management is required to make estimates and assumptions that affect the reported amounts of assets and liabilities as of the balance sheet date and revenues and expenses for the period. Actual results could differ significantly from those estimates. Material estimates that are particularly susceptible to significant change in the near term relate to the determination of the allowance for loan losses and the valuation of real estate acquired in connection with foreclosures or in satisfaction of loans.
Reclassifications
In certain instances, amounts reported in prior years’ consolidated financial statements have been reclassified to conform to statement presentations selected for 2011. Such reclassifications had no effect on previously reported stockholders’ equity or net income.
Concentrations of Credit Risk
Concentrations of credit risk can exist in relation to individual borrowers or groups of borrowers, certain types of collateral, certain types of industries, or certain geographic regions. The Company has a concentration in real estate loans as well as a geographic concentration that could pose an adverse credit risk, particularly with the current economic downturn in the real estate market. At June 30, 2011, approximately 86 percent of the Company’s loan portfolio was concentrated in loans secured by real estate. A substantial portion of borrowers’ ability to honor their contractual obligations is dependent upon the viability of the real estate economic
sector. The continued downturn of the housing and real estate market that began in 2007 has resulted in an increase of problem loans secured by real estate. These loans are centered primarily in the Company’s larger MSA markets. Declining collateral real estate values that secure land development, construction and speculative real estate loans in the Company’s larger MSA markets have resulted in high loan loss provisions in recent years. In addition, a large portion of the Company’s foreclosed assets are also located in these same geographic markets, making the recovery of the carrying amount of foreclosed assets susceptible to changes in market conditions. Management continues to monitor these concentrations and has considered these concentrations in its allowance for loan loss analysis.
Part I (Continued)
Item 1 (Continued)
(1) Summary of Significant Accounting Policies (Continued)
Concentrations of Credit Risk (Continued)
The success of the Company is dependent, to a certain extent, upon the economic conditions in the geographic markets it serves. Adverse changes in the economic conditions in these geographic markets would likely have a material adverse effect on the Company’s results of operations and financial condition. The operating results of Colony depend primarily on its net interest income. Accordingly, operations are subject to risks and uncertainties surrounding the exposure to changes in the interest rate environment.
At times, the Company may have cash and cash equivalents at financial institutions in excess of federal deposit insurance limits. The Company places its cash and cash equivalents with high credit quality financial institutions whose credit rating is monitored by management to minimize credit risk.
Investment Securities
The Company classifies its investment securities as trading, available for sale or held to maturity. Securities that are held principally for resale in the near term are classified as trading. Trading securities are carried at fair value, with realized and unrealized gains and losses included in noninterest income. Currently, no securities are classified as trading. Securities acquired with both the intent and ability to be held to maturity are classified as held to maturity and reported at amortized cost. All securities not classified as trading or held to maturity are considered available for sale. Securities available for sale are reported at
estimated fair value. Unrealized gains and losses on securities available for sale are excluded from earnings and are reported, net of deferred taxes, in accumulated other comprehensive income (loss), a component of stockholders’ equity. Gains and losses from sales of securities available for sale are computed using the specific identification method. Securities available for sale includes securities, which may be sold to meet liquidity needs arising from unanticipated deposit and loan fluctuations, changes in regulatory capital requirements, or unforeseen changes in market conditions.
The Company evaluates each held to maturity and available for sale security in a loss position for other-than-temporary impairment (OTTI). In estimating other-than-temporary impairment losses, management considers such factors as the length of time and the extent to which the market value has been below cost, the financial condition of the issuer and the Company’s intent to sell and whether it is more likely than not that the Company will be required to sell the security before anticipated recovery of the amortized cost basis. If the Company intends to sell or if it is more likely than not that the Company will be required to sell the security before recovery, the OTTI write-down is
recognized in earnings. If the Company does not intend to sell the security or it is not more likely than not that it will be required to sell the security before recovery, the OTTI write-down is separated into an amount representing credit loss, which is recognized in earnings and an amount related to all other factors, which is recognized in other comprehensive income (loss).
Federal Home Loan Bank Stock
Investment in stock of a Federal Home Loan Bank (FHLB) is required for every federally insured institution that utilizes its services. FHLB stock is considered restricted, as defined in the accounting standards. The FHLB stock is reported in the consolidated financial statements at cost. Dividend income is recognized when earned.
Loans
Loans that the Company has the ability and intent to hold for the foreseeable future or until maturity are recorded at their principal amount outstanding, net of unearned interest and fees. Loan origination fees, net of certain direct origination costs, are deferred and amortized over the estimated terms of the loans using the straight-line method. Interest income on loans is recognized using the effective interest method.
A loan is considered to be delinquent when payments have not been made according to contractual terms, typically evidenced by nonpayment of a monthly installment by the due date.
When management believes there is sufficient doubt as to the collectibility of principal or interest on any loan or generally when loans are 90 days or more past due, the accrual of applicable interest is discontinued and the loan is designated as nonaccrual, unless the loan is well secured and in the process of collection. Interest payments received on nonaccrual loans are either applied against principal or reported as income, according to management’s judgment as to the collectibility of principal. Loans are returned to an accrual status when factors indicating doubtful collectibility on a timely basis no longer exist.
Part I (Continued)
Item 1 (Continued)
(1) Summary of Significant Accounting Policies (Continued)
Allowance for Loan Losses
The allowance for loan losses is established as losses are estimated to have occurred through a provision for loan losses charged to earnings. Loan losses are charged against the allowance when management believes the uncollectibility of a loan balance is confirmed. Subsequent recoveries, if any, are credited to the allowance.
The allowance for loan losses is evaluated on a regular basis by management and is based upon management’s periodic review of the collectibility of the loans in light of historical experience, the nature and volume of the loan portfolio, adverse situations that may affect the borrower’s ability to repay, estimated value of any underlying collateral and prevailing economic conditions. This evaluation is inherently subjective, as it requires estimates that are susceptible to significant revisions as more information becomes available.
The allowance consists of specific, historical and general components. The specific component relates to loans that are classified as either doubtful, substandard or special mention. For such loans that are also classified as impaired, an allowance is established when the discounted cash flows (or collateral value or observable market price) of the impaired loan is lower than the carrying value of that loan. The historical component covers nonclassified loans and is based on historical loss experience adjusted for qualitative factors. A general component is maintained to cover uncertainties that could affect management’s estimate of probable losses. The general component of the allowance reflects
the margin of imprecision inherent in the underlying assumptions used in the methodologies for estimating specific and historical losses in the portfolio. General valuation allowances are based on internal and external qualitative risk factors such as (i) changes in the composition of the loan portfolio, (ii) the extent of loan concentrations within the portfolio, (iii) the effectiveness of the Company’s lending policies, procedures and internal controls, (iv) the experience, ability and effectiveness of the Company’s lending management and staff, and (v) national and local economics and business conditions.
Loans identified as losses by management, internal loan review and/or regulatory agencies are charged off.
During 2011, the Company continues its methodology regarding the look-back period for charge-off experience to one year. The current methodology has resulted in significant loan loss provisions for 2010 and 2009.
A loan is considered impaired when, based on current information and events, it is probable that the Company will be unable to collect the scheduled payments of principal or interest when due according to the contractual terms of the loan agreement. Factors considered by management in determining impairment include payment status, collateral value and the probability of collecting scheduled principal and interest payments when due. Loans that experience insignificant payment delays and payment shortfalls generally are not classified as impaired. Management determines the significance of payment delays and payment shortfalls on a case-by-case basis, taking into consideration all of the circumstances surrounding the
loan and the borrower, including the length of the delay, the reasons for the delay, the borrower’s prior payment record and the amount of the shortfall in relation to the principal and interest owed. Impairment is measured on a loan-by-loan basis by either the present value of expected future cash flows discounted at the loan’s effective interest rate, the loan’s obtainable market price or the fair value of the collateral if the loan is collateral dependent.
Premises and Equipment
Premises and equipment are recorded at acquisition cost net of accumulated depreciation.
Depreciation is charged to operations over the estimated useful lives of the assets. The estimated useful lives and methods of depreciation are as follows:
Description
|
|
Life in Years
|
|
Method
|
Banking Premises
|
|
15-40
|
|
Straight-Line and Accelerated
|
Furniture and Equipment
|
|
5-10
|
|
Straight-Line and Accelerated
|
Expenditures for major renewals and betterments are capitalized. Maintenance and repairs are charged to operations as incurred. When property and equipment are retired or sold, the cost and accumulated depreciation are removed from the respective accounts and any gain or loss is reflected in other income or expense.
Part I (Continued)
Item 1 (Continued)
(1) Summary of Significant Accounting Policies (Continued)
Intangible Assets
Intangible assets consist of core deposit intangibles acquired in connection with a business combination. The core deposit intangible is initially recognized based on a valuation performed as of the consummation date. The core deposit intangible is amortized by the straight-line method over the average remaining life of the acquired customer deposits.
Transfers of Financial Assets
Transfers of financial assets are accounted for as sales, when control over the assets has been surrendered. Control over transferred assets is deemed to be surrendered when (1) the assets have been isolated from the Company, (2) the transferee obtains the right (free of conditions that constrain it from taking advantage of that right) to pledge or exchange the transferred assets and (3) the Company does not maintain effective control over the transferred assets through an agreement to repurchase them before their maturity.
Statement of Cash Flows
For reporting cash flows, cash and cash equivalents include cash on hand, noninterest-bearing amounts due from banks and federal funds sold. Cash flows from demand deposits, NOW accounts, savings accounts, loans and certificates of deposit are reported net.
Securities Purchased Under Agreement to Resell and Securities Sold Under Agreements to Repurchase
The Company purchases certain securities under agreements to resell. The amounts advanced under these agreements represent short-term loans and are reflected as assets in the consolidated balance sheets.
The Company sells securities under agreements to repurchase. These repurchase agreements are treated as borrowings. The obligations to repurchase securities sold are reflected as a liability and the securities underlying the agreements are reflected as assets in the consolidated balance sheets.
Advertising Costs
The Company expenses the cost of advertising in the periods in which those costs are incurred.
Income Taxes
The provision for income taxes is based upon income for financial statement purposes, adjusted for nontaxable income and nondeductible expenses. Deferred income taxes have been provided when different accounting methods have been used in determining income for income tax purposes and for financial reporting purposes.
Deferred tax assets and liabilities are recognized based on future tax consequences attributable to differences arising from the financial statement carrying values of assets and liabilities and their tax bases. The differences relate primarily to depreciable assets (use of different depreciation methods for financial statement and income tax purposes) and allowance for loan losses (use of the allowance method for financial statement purposes and the direct write-off method for tax purposes). In the event of changes in the tax laws, deferred tax assets and liabilities are adjusted in the period of the enactment of those changes, with effects included in the income tax provision. The Company and its subsidiary file
a consolidated federal income tax return. The subsidiary pays its proportional share of federal income taxes to the Company based on its taxable income.
Positions taken in the Company’s tax returns may be subject to challenge by the taxing authorities upon examination. Uncertain tax positions are initially recognized in the consolidated financial statements when it is more likely than not the position will be sustained upon examination by the tax authorities. Such tax positions are both initially and subsequently measured as the largest amount of tax benefit that is greater than 50 percent likely of being realized upon settlement with the tax authority, assuming full knowledge of the position and all relevant facts. The Company provides for interest and, in some cases, penalties on tax positions that may be challenged by the
taxing authorities. Interest expense is recognized beginning in the first period that such interest would begin accruing. Penalties are recognized in the period that the Company claims the position in the tax return. Interest and penalties on income tax uncertainties are classified within income tax expense in the consolidated statement of income.
Part I (Continued)
Item 1 (Continued)
(1) Summary of Significant Accounting Policies (Continued)
Other Real Estate
Other real estate generally represents real estate acquired through foreclosure and is initially recorded at estimated fair value at the date of acquisition less costs to sell. Losses from the acquisition of property in full or partial satisfaction of debt are recorded as loan losses. Properties are evaluated regularly to ensure the recorded amounts are supported by current fair values, and valuation allowances are recorded as necessary to reduce the carrying amount to fair value less estimated cost of disposal. Routine holding costs and gains or losses upon disposition are included in other losses.
Comprehensive Income
Accounting principles generally require that recognized revenue, expenses, gains and losses be included in net income. Certain changes in assets and liabilities, such as unrealized gains and losses on securities available for sale, represent equity changes from economic events of the period other than transactions with owners and are not reported in the consolidated statements of operations but as a separate component of the equity section of the consolidated balance sheets. Such items are considered components of other comprehensive income (loss). Accounting standards codification requires the presentation in the consolidated financial statements of net income and all items of other comprehensive
income (loss) as total comprehensive income.
Off-Balance Sheet Credit Related Financial Instruments
In the ordinary course of business, the Company has entered into commitments to extend credit, commercial letters of credit and standby letters of credit. Such financial instruments are recorded when they are funded.
Accounting Standards Updates
ASU No. 2010-20, “Receivables (Topic 830) – Disclosures about the Credit Quality of Financing Receivables and the Allowance for Credit Losses.” ASU 2010-20 requires entities to provide disclosures designed to facilitate financial statement users’ evaluation of (i) the nature of credit risk inherent in the entity’s portfolio of financing receivables, (ii) how that risk is analyzed and assessed in arriving at the allowance for credit losses and (iii) the changes and reasons for those changes in the allowance for credit losses. Disclosures must be disaggregated by portfolio segment, the level at which any
entity develops and documents a systematic method for determining its allowance for credit losses, and class of financing receivable, which is generally a disaggregation of portfolio segment. The required disclosures include, among other things, a rollforward of the allowance for credit losses as well as information about modified, impaired, non-accrual and past due loans and credit quality indicators. ASU 2010-20 became effective for the Company’s financial statements as of December 31, 2010, as it relates to disclosures required as of the end of a reporting period. Disclosures that relate to activity during a reporting period became effective for the Company’s financial statements that include periods beginning on or after January 1, 2011. ASU 2011-01, “Receivables (Topic 310) – Deferral of the Effective Date of
Disclosures about Troubled Debt Restructurings in Update No. 2010-20,” temporarily deferred the effective date for disclosures related to troubled debt restructurings to coincide with the effective date of the then proposed ASU 2011-02, “Receivables (Topic 310) – A Creditor’s Determination of Whether a Restructuring Is a Troubled Debt Restructuring,” which is further discussed below.
ASU No. 2011-02, “Receivables (Topic 310) – A Creditor’s Determination of Whether a Restructuring Is a Troubled Debt Restructuring.” ASU 2011-02 clarifies which loan modifications constitute troubled debt restructurings and is intended to assist creditors in determining whether a modification of the terms of a receivable meets the criteria to be considered a troubled debt restructuring, both for purposes of recording an impairment loss and for disclosure of troubled debt restructurings. In evaluating whether a restructuring constitutes a troubled debt restructuring, a creditor must separately conclude, under the
guidance clarified by ASU 2011-02, that both of the following exist: (a) the restructuring constitutes a concession: and (b) the debtor is experiencing financial difficulties. ASU 2011-02 will be effective for the Corporation on July 1, 2011, and applies retrospectively to restructurings occurring on or after January 1, 2011. Adoption of ASU 2011-02 is not expected to have a significant impact on the Corporation’s financial statements.
ASU No. 2011-03, “Transfers and Servicing (Topic 860) – Reconsideration of Effective Control for Repurchase Agreements.” ASU 2011-03 is intended to improve financial reporting of repurchase agreements and other agreements that both entitle and obligate a transferor to repurchase or redeem financial assets before their maturity. ASU 2011-03 removes from the assessment of effective control (i) 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 (ii) the collateral maintenance guidance
related to that criterion. ASU 2011-03 will be effective for the Corporation on January 1, 2012 and is not expected to have a significant impact on the Corporation’s financial statements.
Part I (Continued)
Item 1 (Continued)
(1) Summary of Significant Accounting Policies (Continued)
Accounting Standards Updates (Continued)
ASU No. 2011-05, “Comprehensive Income (Topic 220) – Presentation of Comprehensive Income.” ASU 2011-05 amends Topic 220, “Comprehensive Income,” to require that all nonowner changes in stockholders’ equity be presented in either a single continuous statement of comprehensive income or in two separate but consecutive statements. Additionally, ASU 2011-05 requires entities to present, on the face of the financial statements, reclassification adjustments for items that are reclassified from other comprehensive income to net income in the statement or statements where the components of net income and the
components of other comprehensive income are presented. The option to present components of other comprehensive income as part of the statement of changes in stockholders’ equity was eliminated. ASU 2011-05 is effective for annual periods beginning after December 15, 2011, and is not expected to have a significant impact on the Corporation’s financial statements.
(2) Cash and Balances Due from Banks
Components of cash and balances due from banks are as follows as of June 30, 2011 and December 31, 2010:
|
|
June 30, 2011
|
|
|
December 31, 2010
|
|
Cash on Hand and Cash Items
|
|
$ |
10,185 |
|
|
$ |
8,898 |
|
Noninterest-Bearing Deposits with Other Banks
|
|
|
6,321 |
|
|
|
7,715 |
|
|
|
$ |
16,506 |
|
|
$ |
16,613 |
|
The Company is required to maintain reserve balances in cash or on deposit with the Federal Reserve Bank based on a percentage of deposits. Reserve balances totaled $950 and $916 at June 30, 2011 and December 31, 2010.
(3) Investment Securities
Investment securities as of June 30, 2011 are summarized as follows:
|
|
|
|
|
Gross
|
|
|
Gross
|
|
|
|
|
|
|
Amortized
|
|
|
Unrealized
|
|
|
Unrealized
|
|
|
Fair
|
|
|
|
Cost
|
|
|
Gains
|
|
|
Losses
|
|
|
Value
|
|
Securities Available for Sale:
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. Government Agencies Mortgage-Backed
|
|
$ |
307,305 |
|
|
$ |
2,514 |
|
|
$ |
(541 |
) |
|
$ |
309,278 |
|
State, County & Municipal
|
|
|
3,235 |
|
|
|
19 |
|
|
|
(54 |
) |
|
|
3,200 |
|
Corporate Obligations
|
|
|
2,000 |
|
|
|
118 |
|
|
|
(15 |
) |
|
|
2,103 |
|
Asset-Backed Securities
|
|
|
479 |
|
|
|
-- |
|
|
|
(347 |
) |
|
|
132 |
|
|
|
$ |
313,019 |
|
|
$ |
2,651 |
|
|
$ |
(957 |
) |
|
$ |
314,713 |
|
Securities Held to Maturity:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
State, County and Municipal
|
|
$ |
47 |
|
|
$ |
-- |
|
|
$ |
(1 |
) |
|
$ |
46 |
|
The amortized cost and fair value of investment securities as of June 30, 2011, by contractual maturity, are shown hereafter. Expected maturities will differ from contractual maturities because issuers have the right to call or prepay obligations with or without call or prepayment penalties.
|
|
Securities
|
|
|
|
Available for Sale
|
|
|
Held to Maturity
|
|
|
|
Amortized Cost
|
|
|
Fair Value
|
|
|
Amortized Cost
|
|
|
Fair Value
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Due After One Year Through Five Years
|
|
$ |
498 |
|
|
$ |
513 |
|
|
$ |
47 |
|
|
$ |
46 |
|
Due After Five Years Through Ten Years
|
|
|
2,734 |
|
|
|
2,802 |
|
|
|
-- |
|
|
|
-- |
|
Due After Ten Years
|
|
|
2,482 |
|
|
|
2,120 |
|
|
|
-- |
|
|
|
-- |
|
|
|
|
5,714 |
|
|
|
5,435 |
|
|
|
47 |
|
|
|
46 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mortgage-Backed Securities
|
|
|
307,305 |
|
|
|
309,278 |
|
|
|
-- |
|
|
|
-- |
|
|
|
$ |
313,019 |
|
|
$ |
314,713 |
|
|
$ |
47 |
|
|
$ |
46 |
|
Part I (Continued)
Item 1 (Continued)
(3) Investment Securities (Continued)
Investment securities as of December 31, 2010 are summarized as follows:
|
|
|
|
|
Gross
|
|
|
Gross
|
|
|
|
|
|
|
Amortized
|
|
|
Unrealized
|
|
|
Unrealized
|
|
|
Fair
|
|
|
|
Cost
|
|
|
Gains
|
|
|
Losses
|
|
|
Value
|
|
Securities Available for Sale:
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. Government Agencies Mortgage-Backed
|
|
$ |
299,019 |
|
|
$ |
1,763 |
|
|
$ |
(2,319 |
) |
|
$ |
298,463 |
|
State, County & Municipal
|
|
|
3,248 |
|
|
|
35 |
|
|
|
(27 |
) |
|
|
3,256 |
|
Corporate Obligations
|
|
|
2,000 |
|
|
|
102 |
|
|
|
(115 |
) |
|
|
1,987 |
|
Asset-Backed Securities
|
|
|
479 |
|
|
|
-- |
|
|
|
(347 |
) |
|
|
132 |
|
|
|
$ |
304,746 |
|
|
$ |
1,900 |
|
|
$ |
(2,808 |
) |
|
$ |
303,838 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Securities Held to Maturity:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
State, County and Municipal
|
|
$ |
48 |
|
|
$ |
5 |
|
|
$ |
-- |
|
|
$ |
53 |
|
Proceeds from the sale of investments available for sale during first six months of 2011 totaled $154,560 compared to $136,572 for the first six months of 2010. The sale of investments available for sale during 2011 resulted in gross realized gains of $1,133 and gross realized losses of $(1) and the sale of investments available for sale during 2010 resulted in gross realized gain of $878 and losses of $0.
Investment securities having a carry value approximating $146,650 and $123,789 as of June 30, 2011 and December 31, 2010, respectively, were pledged to secure public deposits and for other purposes.
Information pertaining to securities with gross unrealized losses at June 30, 2011 and December 31, 2010 aggregated by investment category and length of time that individual securities have been in a continuous loss position, follows:
|
|
Less Than 12 Months
|
|
|
12 Months or Greater
|
|
|
Total
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross
|
|
|
|
|
|
Gross
|
|
|
|
|
|
Gross
|
|
|
|
Fair
|
|
|
Unrealized
|
|
|
Fair
|
|
|
Unrealized
|
|
|
Fair
|
|
|
Unrealized
|
|
|
|
Value
|
|
|
Losses
|
|
|
Value
|
|
|
Losses
|
|
|
Value
|
|
|
Losses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30, 2011
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. Government Agencies Mortgage-Backed
|
|
$ |
82,636 |
|
|
$ |
(541 |
) |
|
$ |
-- |
|
|
$ |
-- |
|
|
$ |
82,636 |
|
|
$ |
(541 |
) |
State, County and Municipal
|
|
|
2,164 |
|
|
|
(52 |
) |
|
|
77 |
|
|
|
(2 |
) |
|
|
2,241 |
|
|
|
(54 |
) |
Corporate Obligations
|
|
|
-- |
|
|
|
-- |
|
|
|
985 |
|
|
|
(15 |
) |
|
|
985 |
|
|
|
(15 |
) |
Asset-Backed Securities
|
|
|
-- |
|
|
|
-- |
|
|
|
132 |
|
|
|
(347 |
) |
|
|
132 |
|
|
|
(347 |
) |
|
|
$ |
84,800 |
|
|
$ |
(593 |
) |
|
$ |
1,194 |
|
|
$ |
(364 |
) |
|
$ |
85,994 |
|
|
$ |
(957 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2010
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. Government Agencies Mortgage-Backed
|
|
$ |
152,287 |
|
|
$ |
(2,319 |
) |
|
$ |
-- |
|
|
$ |
-- |
|
|
$ |
152,287 |
|
|
$ |
(2,319 |
) |
State, County and Municipal
|
|
|
1,777 |
|
|
|
(27 |
) |
|
|
-- |
|
|
|
-- |
|
|
|
1,777 |
|
|
|
(27 |
) |
Corporate Obligations
|
|
|
-- |
|
|
|
-- |
|
|
|
885 |
|
|
|
(115 |
) |
|
|
885 |
|
|
|
(115 |
) |
Asset-Backed Securities
|
|
|
-- |
|
|
|
-- |
|
|
|
132 |
|
|
|
(347 |
) |
|
|
132 |
|
|
|
(347 |
) |
|
|
$ |
154,064 |
|
|
$ |
(2,346 |
) |
|
$ |
1,017 |
|
|
$ |
(462 |
) |
|
$ |
155,081 |
|
|
$ |
(2,808 |
) |
Part I (Continued)
Item 1 (Continued)
(3) Investment Securities (Continued)
Management evaluates securities for other-than-temporary impairment at least on a quarterly basis, and more frequently when economic or market concerns warrant such evaluation. Consideration is given to (1) the length of time and the extent to which the fair value has been less than cost, (2) the financial condition and near-term prospects of the issuer and (3) the intent and ability of the Company to retain its investment in the issuer for a period of time sufficient to allow for any anticipated recovery in fair value.
At June 30, 2011, the debt securities with unrealized losses have depreciated 1.10 percent from the Company’s amortized cost basis. These unrealized losses relate principally to current interest rates for similar types of securities. In analyzing an issuer’s financial condition, management considers whether the securities are issued by the federal government or its agencies, whether downgrades by bond rating agencies have occurred and the results of reviews of the issuer’s financial condition. As management has the ability to hold debt securities until maturity, or for the foreseeable future if classified as available-for-sale, no declines are
deemed to be other-than-temporary.
(4) Loans
The following table presents the composition of loans segregated by class of loans, as of June 30, 2011 and December 31, 2010.
|
|
June 30, 2011
|
|
|
December 31, 2010
|
|
Commercial and Industrial
|
|
|
|
|
|
|
Commercial
|
|
$ |
48,466 |
|
|
$ |
53,220 |
|
Industrial
|
|
|
11,965 |
|
|
|
10,552 |
|
|
|
|
|
|
|
|
|
|
Real Estate
|
|
|
|
|
|
|
|
|
Commercial Construction
|
|
|
68,426 |
|
|
|
72,309 |
|
Residential Construction
|
|
|
4,046 |
|
|
|
4,373 |
|
Commercial
|
|
|
330,192 |
|
|
|
362,878 |
|
Residential
|
|
|
201,119 |
|
|
|
207,472 |
|
Farmland
|
|
|
48,010 |
|
|
|
52,778 |
|
|
|
|
|
|
|
|
|
|
Consumer and Other
|
|
|
|
|
|
|
|
|
Consumer
|
|
|
32,071 |
|
|
|
33,564 |
|
Other
|
|
|
14,815 |
|
|
|
16,104 |
|
|
|
|
|
|
|
|
|
|
Total Loans
|
|
$ |
759,110 |
|
|
$ |
813,250 |
|
Commercial and industrial loans are extended to a diverse group of businesses within the company’s market area. These loans are often underwritten based on the borrower’s ability to service the debt from income from the business. Real estate construction loans often require loan funds to be advanced prior to completion of the project. Due to uncertainties inherent in estimating construction costs, changes in interest rates and other economic conditions, these loans often pose a higher risk than other types of loans. Consumer loans are originated at the bank level. These loans are generally smaller loan amounts spread across many individual
borrowers to help minimize risk.
Credit Quality Indicators. As part of the ongoing monitoring of the credit quality of the loan portfolio, management tracks certain credit quality indicators including trends related to (i) the risk grade assigned to commercial and consumer loans, (ii) the level of classified commercial loans, (iii) net charge-offs, (iv) nonperforming loans, and (v) the general economic conditions in the Company’s geographic markets.
Part I (Continued)
Item 1 (Continued)
(4) Loans (Continued)
The Company uses a risk grading matrix to assign a risk grade to each of its loans. Loans are graded on a scale of 1 to 8. A description of the general characteristics of the grades is as follows:
|
·
|
Grades 1 and 2 – Borrowers with these assigned grades range in risk from virtual absence of risk to minimal risk. Such loans may be secured by Company-issued and controlled certificates
|
|
·
|
Grades 3 and 4 – Loans assigned these “pass” risk grades are made to borrowers with acceptable credit quality and risk. The risk ranges from loans with no significant weaknesses in repayment capacity and collateral protection to acceptable loans with one or more risk factors considered to be more than average.
|
|
·
|
Grade 5 – This grade includes “special mention” loans on management’s watch list and is intended to be used on a temporary basis for pass grade loans where risk-modifying action is intended in the short-term.
|
|
·
|
Grade 6 – This grade includes “substandard” loans in accordance with regulatory guidelines. This category includes borrowers with well-defined weaknesses that jeopardize the payment of the debt in accordance with the agreed terms. Loans considered to be impaired are assigned this grade, and these loans often have assigned loss allocations as part of the allowance for loan and lease losses. Generally, loans on which interest accrual has been stopped would be included in this grade.
|
|
·
|
Grades 7 and 8 – These grades correspond to regulatory classification definitions of “doubtful” and “loss,” respectively. In practice, any loan with these grades would be for a very short period of time, and generally the Company has no loans with these assigned grades. Management manages the Company’s problem loans in such a way that uncollectible loans or uncollectible portions of loans are charged off immediately with any residual, collectible amounts assigned a risk grade of 6.
|
The following table presents the loan portfolio by credit quality indicator (risk grade) as of June 30, 2011 and December 31, 2010. Those loans with a risk grade of 1, 2, 3 or 4 have been combined in the pass column for presentation purposes.
June 30, 2011
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pass
|
|
|
Special Mention
|
|
|
Substandard
|
|
|
Total Loans
|
|
Commercial and Industrial
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial
|
|
$ |
45,329 |
|
|
$ |
745 |
|
|
$ |
2,392 |
|
|
$ |
48,466 |
|
Industrial
|
|
|
11,548 |
|
|
|
-- |
|
|
|
417 |
|
|
|
11,965 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Real Estate
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial Construction
|
|
|
30,574 |
|
|
|
5,573 |
|
|
|
32,279 |
|
|
|
68,426 |
|
Residential Construction
|
|
|
3,814 |
|
|
|
232 |
|
|
|
-- |
|
|
|
4,046 |
|
Commercial
|
|
|
278,941 |
|
|
|
11,863 |
|
|
|
39,388 |
|
|
|
330,192 |
|
Residential
|
|
|
181,714 |
|
|
|
7,288 |
|
|
|
12,117 |
|
|
|
201,119 |
|
Farmland
|
|
|
46,375 |
|
|
|
688 |
|
|
|
947 |
|
|
|
48,010 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consumer and Other
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consumer
|
|
|
30,920 |
|
|
|
365 |
|
|
|
786 |
|
|
|
32,071 |
|
Other
|
|
|
14,541 |
|
|
|
121 |
|
|
|
153 |
|
|
|
14,815 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Loans
|
|
$ |
643,756 |
|
|
$ |
26,875 |
|
|
$ |
88,479 |
|
|
$ |
759,110 |
|
Part I (Continued)
Item 1 (Continued)
(4) Loans (Continued)
December 31, 2010
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pass
|
|
|
Special Mention
|
|
|
Substandard
|
|
|
Total Loans
|
|
Commercial and Industrial
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial
|
|
$ |
48,732 |
|
|
$ |
2,498 |
|
|
$ |
1,990 |
|
|
$ |
53,220 |
|
Industrial
|
|
|
10,059 |
|
|
|
169 |
|
|
|
324 |
|
|
|
10,552 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Real Estate
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial Construction
|
|
|
33,523 |
|
|
|
10,064 |
|
|
|
28,722 |
|
|
|
72,309 |
|
Residential Construction
|
|
|
3,974 |
|
|
|
204 |
|
|
|
195 |
|
|
|
4,373 |
|
Commercial
|
|
|
294,186 |
|
|
|
11,847 |
|
|
|
56,845 |
|
|
|
362,878 |
|
Residential
|
|
|
183,518 |
|
|
|
9,196 |
|
|
|
14,758 |
|
|
|
207,472 |
|
Farmland
|
|
|
49,500 |
|
|
|
1,838 |
|
|
|
1,440 |
|
|
|
52,778 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consumer and Other
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consumer
|
|
|
32,046 |
|
|
|
727 |
|
|
|
791 |
|
|
|
33,564 |
|
Other
|
|
|
14,553 |
|
|
|
1,186 |
|
|
|
365 |
|
|
|
16,104 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Loans
|
|
$ |
670,091 |
|
|
$ |
37,729 |
|
|
$ |
105,430 |
|
|
$ |
813,250 |
|
A loan’s risk grade is assigned at the inception of the loan and is based on the financial strength of the borrower and the type of collateral. Loan risk grades are subject to reassessment at various times throughout the year as part of the Company’s ongoing loan review process. Loans with an assigned risk grade of 6 or below and an outstanding balance of $50,000 or more are reassessed on a quarterly basis. During this reassessment process individual reserves may be identified and placed against certain loans which are not considered impaired.
In assessing the overall economic condition of the markets in which it operates, the Company monitors the unemployment rates for its major service areas. The unemployment rates are reviewed on a quarterly basis as part of the allowance for loan loss determination.
Loans are considered past due if the required principal and interest payments have not been received as of the date such payments were due. Generally, loans are placed on nonaccrual status if principal or interest payments become 90 days past due or when, in management’s opinion, the borrower may be unable to meet payment obligations as they become due, as well as when required by regulatory provision. Loans may be placed on nonaccrual status regardless of whether or not such loans are considered past due.
The following table represents an age analysis of past due loans and nonaccrual loans, segregated by class of loans, as of June 30, 2011 and December 31, 2010:
Part I (Continued)
Item 1 (Continued)
(4) Loans (Continued)
June 30, 2011
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accruing Loans
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Accruing
Loans Past Due
|
|
|
|
|
|
Current Loans
|
|
|
Total Loans
|
|
Commercial and Industrial
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial
|
|
$ |
374 |
|
|
$ |
-- |
|
|
$ |
374 |
|
|
$ |
309 |
|
|
$ |
47,783 |
|
|
$ |
48,466 |
|
Industrial
|
|
|
-- |
|
|
|
-- |
|
|
|
-- |
|
|
|
196 |
|
|
|
11,769 |
|
|
|
11,965 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Real Estate
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial Construction
|
|
|
259 |
|
|
|
-- |
|
|
|
259 |
|
|
|
25,192 |
|
|
|
42,975 |
|
|
|
68,426 |
|
Residential Construction
|
|
|
-- |
|
|
|
-- |
|
|
|
-- |
|
|
|
-- |
|
|
|
4,046 |
|
|
|
4,046 |
|
Commercial
|
|
|
3,525 |
|
|
|
-- |
|
|
|
3,525 |
|
|
|
14,386 |
|
|
|
312,281 |
|
|
|
330,192 |
|
Residential
|
|
|
2,424 |
|
|
|
-- |
|
|
|
2,424 |
|
|
|
4,292 |
|
|
|
194,403 |
|
|
|
201,119 |
|
Farmland
|
|
|
489 |
|
|
|
-- |
|
|
|
489 |
|
|
|
212 |
|
|
|
47,309 |
|
|
|
48,010 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consumer and Other
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consumer
|
|
|
526 |
|
|
|
-- |
|
|
|
526 |
|
|
|
158 |
|
|
|
31,387 |
|
|
|
32,071 |
|
Other
|
|
|
57 |
|
|
|
-- |
|
|
|
57 |
|
|
|
43 |
|
|
|
14,715 |
|
|
|
14,815 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Loans
|
|
$ |
7,654 |
|
|
$ |
-- |
|
|
$ |
7,654 |
|
|
$ |
44,788 |
|
|
$ |
706,668 |
|
|
$ |
759,110 |
|
December 31, 2010
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accruing Loans
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Accruing
Loans Past Due
|
|
|
|
|
|
Current Loans
|
|
|
Total Loans
|
|
Commercial and Industrial
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial
|
|
$ |
382 |
|
|
$ |
-- |
|
|
$ |
382 |
|
|
$ |
394 |
|
|
$ |
52,444 |
|
|
$ |
53,220 |
|
Industrial
|
|
|
101 |
|
|
|
-- |
|
|
|
101 |
|
|
|
175 |
|
|
|
10,276 |
|
|
|
10,552 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Real Estate
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial Construction
|
|
|
1,514 |
|
|
|
-- |
|
|
|
1,514 |
|
|
|
10,182 |
|
|
|
60,613 |
|
|
|
72,309 |
|
Residential Construction
|
|
|
195 |
|
|
|
-- |
|
|
|
195 |
|
|
|
-- |
|
|
|
4,178 |
|
|
|
4,373 |
|
Commercial
|
|
|
11,790 |
|
|
|
-- |
|
|
|
11,790 |
|
|
|
13,568 |
|
|
|
337,520 |
|
|
|
362,878 |
|
Residential
|
|
|
4,268 |
|
|
|
16 |
|
|
|
4,284 |
|
|
|
3,057 |
|
|
|
200,131 |
|
|
|
207,472 |
|
Farmland
|
|
|
567 |
|
|
|
-- |
|
|
|
567 |
|
|
|
1,157 |
|
|
|
51,054 |
|
|
|
52,778 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consumer and Other
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consumer
|
|
|
703 |
|
|
|
3 |
|
|
|
706 |
|
|
|
290 |
|
|
|
32,568 |
|
|
|
33,564 |
|
Other
|
|
|
219 |
|
|
|
-- |
|
|
|
219 |
|
|
|
79 |
|
|
|
15,806 |
|
|
|
16,104 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Loans
|
|
$ |
19,739 |
|
|
$ |
19 |
|
|
$ |
19,758 |
|
|
$ |
28,902 |
|
|
$ |
764,590 |
|
|
$ |
813,250 |
|
Nonaccrual loans are loans for which principal and interest are doubtful of collection in accordance with original loan terms and for which accruals of interest have been discontinued due to payment delinquency. Nonaccrual loans totaled $44,788 and $28,902 as of June 30, 2011 and December 31, 2010, respectively, and total recorded investment in loans past due 90 days or more and still accruing interest approximated $0 and $19, respectively. During its review of impaired loans, the company determined the majority of its exposures on these loans were known losses. As a result, the exposures were charged off, reducing the specific allowances on impaired loans.
Part I (Continued)
Item 1 (Continued)
(4) Loans (Continued)
During the first quarter, as a result of recently issued guidance regarding troubled debt restructurings, the Company reviewed its policy for designating loans as impaired. As a result of this review, the Company identified additional loans which are now included in the impaired loan disclosures that were not previously reported as impaired. The loans identified were those troubled debt restructurings which were on accrual status. The inclusion of these accruing troubled debt restructurings in the impaired loan disclosures for June 30, 2011 did not have an impact on the allowance for loan losses.
The following table details impaired loan data as of June 30, 2011:
June 30, 2011
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Average
|
|
|
Interest
|
|
|
Interest
|
|
|
|
Impaired
|
|
|
Related
|
|
|
Recorded
|
|
|
Income
|
|
|
Income
|
|
|
|
Balance
|
|
|
Allowance
|
|
|
Investment
|
|
|
Recognized
|
|
|
Collected
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
With No Related Allowance Recorded
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial
|
|
$ |
373 |
|
|
$ |
-- |
|
|
$ |
282 |
|
|
$ |
7 |
|
|
$ |
14 |
|
Agricultural
|
|
|
196 |
|
|
|
-- |
|
|
|
254 |
|
|
|
(28 |
) |
|
|
-- |
|
Commercial Construction
|
|
|
13,485 |
|
|
|
-- |
|
|
|
10,642 |
|
|
|
41 |
|
|
|
67 |
|
Commercial Real Estate
|
|
|
28,744 |
|
|
|
-- |
|
|
|
23,436 |
|
|
|
251 |
|
|
|
261 |
|
Residential Real Estate
|
|
|
4,277 |
|
|
|
-- |
|
|
|
3,517 |
|
|
|
32 |
|
|
|
49 |
|
Farmland
|
|
|
211 |
|
|
|
-- |
|
|
|
328 |
|
|
|
66 |
|
|
|
66 |
|
Consumer
|
|
|
158 |
|
|
|
-- |
|
|
|
181 |
|
|
|
3 |
|
|
|
4 |
|
Other
|
|
|
43 |
|
|
|
-- |
|
|
|
33 |
|
|
|
1 |
|
|
|
1 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
47,487 |
|
|
|
-- |
|
|
|
38,673 |
|
|
|
373 |
|
|
|
462 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
With An Allowance Recorded
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial
|
|
|
-- |
|
|
|
-- |
|
|
|
10 |
|
|
|
-- |
|
|
|
-- |
|
Commercial Construction
|
|
|
12,418 |
|
|
|
2,965 |
|
|
|
10,198 |
|
|
|
58 |
|
|
|
101 |
|
Commercial Real Estate
|
|
|
7,072 |
|
|
|
1,473 |
|
|
|
8,372 |
|
|
|
114 |
|
|
|
151 |
|
Residential Real Estate
|
|
|
5,488 |
|
|
|
512 |
|
|
|
3,024 |
|
|
|
125 |
|
|
|
124 |
|
Other
|
|
|
-- |
|
|
|
-- |
|
|
|
39 |
|
|
|
-- |
|
|
|
-- |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
24,978 |
|
|
|
4,950 |
|
|
|
21,643 |
|
|
|
297 |
|
|
|
376 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial
|
|
|
373 |
|
|
|
-- |
|
|
|
292 |
|
|
|
7 |
|
|
|
14 |
|
Agricultural
|
|
|
196 |
|
|
|
-- |
|
|
|
254 |
|
|
|
(28 |
) |
|
|
-- |
|
Commercial Construction
|
|
|
25,903 |
|
|
|
2,965 |
|
|
|
20,840 |
|
|
|
99 |
|
|
|
168 |
|
Commercial Real Estate
|
|
|
35,816 |
|
|
|
1,473 |
|
|
|
31,808 |
|
|
|
365 |
|
|
|
412 |
|
Residential Real Estate
|
|
|
9,765 |
|
|
|
512 |
|
|
|
6,541 |
|
|
|
157 |
|
|
|
173 |
|
Farmland
|
|
|
211 |
|
|
|
-- |
|
|
|
328 |
|
|
|
66 |
|
|
|
66 |
|
Consumer
|
|
|
158 |
|
|
|
-- |
|
|
|
181 |
|
|
|
3 |
|
|
|
4 |
|
Other
|
|
|
43 |
|
|
|
-- |
|
|
|
72 |
|
|
|
1 |
|
|
|
1 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
72,465 |
|
|
$ |
4,950 |
|
|
$ |
60,316 |
|
|
$ |
670 |
|
|
$ |
838 |
|
The Company does not have any unfunded commitments to lend to a customer that has a troubled debt restructured loan as of June 30, 2011.
Part I (Continued)
Item 1 (Continued)
(4) Loans (Continued)
The following table details impaired loan data as of December 31, 2010:
December 31, 2010
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Average
|
|
|
Interest
|
|
|
Interest
|
|
|
|
Impaired
|
|
|
Related
|
|
|
Recorded
|
|
|
Income
|
|
|
Income
|
|
|
|
Balance
|
|
|
Allowance
|
|
|
Investment
|
|
|
Recognized
|
|
|
Collected
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
With No Related Allowance Recorded
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial
|
|
|