XNAS:VBFC Village Bank and Trust Financial Corp Quarterly Report 10-Q Filing - 6/30/2012

Effective Date 6/30/2012

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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

__________

FORM 10-Q
QUARTERLY REPORT UNDER SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended June 30, 2012

TRANSITION REPORT UNDER SECTION 13 OR 15(d)
OF THE EXCHANGE ACT

For the transition period from ______ to ______

____________


Commission file number: 0-50765

VILLAGE BANK AND TRUST FINANCIAL CORP.
(Exact name of registrant as specified in its charter)

Virginia
16-1694602
(State or other jurisdiction of
(I.R.S. Employer
incorporation or organization)
Identification No.)
   
15521 Midlothian Turnpike, Midlothian, Virginia
23113
(Address of principal executive offices)
(Zip code)
   
804-897-3900
(Registrant’s telephone number, including area code)

Indicate by check whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Exchange Act 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 S     No £

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

Large Accelerated Filer £
Accelerated Filer £
Non-Accelerated Filer £  (Do not check if 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

Indicate the number of shares outstanding of each of the issuer’s classes of common equity, as of the latest practicable date.
4,251,795 shares of common stock, $4.00 par value, outstanding as of August 3, 2012
 



 
 

 

Village Bank and Trust Financial Corp.
Form 10-Q

TABLE OF CONTENTS

Part I – Financial Information
       
 
Item 1.  Financial Statements
 
       
 
Consolidated Balance Sheets
 
 
June 30, 2012 (unaudited) and December 31, 2011
3
       
 
Consolidated Statements of Operations For the Three and Six Months Ended
 
 
June 30, 2012 and 2011 (unaudited)
4
       
 
Consolidated Statements of Comprehensive Income (Loss)
 
 
For the Three and Six Months Ended June 30, 2012 and 2011 (unaudited)
5
       
 
Consolidated Statements of Stockholders’ Equity For the Six Months Ended
 
 
June 30, 2012 and 2011 (unaudited)
6
       
 
Consolidated Statements of Cash Flows For the Six Months Ended
 
 
June 30, 2012 and 2011 (unaudited)
7
       
 
Notes to Condensed Consolidated Financial Statements (unaudited)
8
       
 
Item 2.  Management’s Discussion and Analysis of Financial Condition
 
   
  and Results of Operations
33
       
 
Item 3.  Quantitative and Qualitative Disclosures About Market Risk
56
       
 
Item 4. Controls and Procedures
56
       
Part II – Other Information
 
       
 
Item 1.  Legal Proceedings
58
       
 
Item 1A. Risk Factors
58
       
 
Item 2.  Unregistered Sales of Equity Securities and Use of Proceeds
58
       
 
Item 3.  Defaults Upon Senior Securities
58
       
 
Item 4.  Mine Safety Disclosures
58
       
 
Item 5.  Other Information
58
       
 
Item 6.  Exhibits
58
       
Signatures
59

 
2

 

PART I – FINANCIAL INFORMATION

ITEM 1 – FINANCIAL STATEMENTS

Village Bank and Trust Financial Corp. and Subsidiary
 
Consolidated Balance Sheet
 
June 30, 2012 (Unaudited) and December 31, 2011
 
             
   
June 30,
   
December 31,
 
   
2012
   
2011
 
Assets
           
Cash and due from banks
  $ 23,271,435     $ 55,557,541  
Federal funds sold
    3,834,563       7,228,475  
Total cash and cash equivalents
    27,105,998       62,786,016  
Investment securities available for sale
    36,696,282       30,163,292  
Loans held for sale
    19,729,508       16,168,405  
Loans
               
Outstandings
    393,035,350       427,870,716  
Allowance for loan losses
    (14,865,722 )     (16,071,424 )
Deferred fees and costs
    751,748       767,775  
      378,921,376       412,567,067  
Premises and equipment, net
    26,286,493       26,826,524  
Accrued interest receivable
    1,910,147       2,046,524  
Bank owned life insurance
    6,159,335       6,065,305  
Other real estate owned
    17,677,080       9,177,167  
Restricted equity securities
    2,767,886       2,989,286  
Other assets
    7,208,307       12,914,733  
                 
    $ 524,462,412     $ 581,704,319  
                 
Liabilities and Stockholders' Equity
               
Liabilities
               
Deposits
               
Noninterest bearing demand
  $ 64,348,408     $ 66,534,956  
Interest bearing
    386,071,500       418,986,096  
Total deposits
    450,419,908       485,521,052  
Federal Home Loan Bank advances
    29,000,000       37,750,000  
Long-term debt - trust preferred securities
    8,764,000       8,764,000  
Other borrowings
    5,062,344       5,778,661  
Accrued interest payable
    703,817       592,283  
Other liabilities
    5,458,402       7,050,681  
Total liabilities
    499,408,471       545,456,677  
                 
Stockholders' equity
               
Preferred stock, $4 par value, $1,000 liquidation preference
    58,952       58,952  
1,000,000 shares authorized, 14,738 shares issued and outstanding
               
Common stock, $4 par value - 10,000,000 shares issued and outstanding
               
4,251,795 shares issued and outstanding at June 30, 2012
               
4,243,378 shares issued and outstanding at December 31, 2011
    17,007,180       16,973,512  
Additional paid-in capital
    40,704,021       40,732,178  
Retained earnings (deficit)
    (33,438,097 )     (21,895,557 )
Preferred stock warrant
    732,479       732,479  
Discount on preferred stock
    (272,921 )     (346,473 )
Accumulated other comprehensive income (loss)
    262,327       (7,449 )
Total stockholders' equity
    25,053,941       36,247,642  
                 
    $ 524,462,412     $ 581,704,319  
                 
                 
See accompanying notes to consolidated financial statements
               
 

 
 
3

 
Village Bank and Trust Financial Corp. and Subsidiary
 
Consolidated Statements of Operations
 
Three and Six Months Ended June 30, 2012 and 2011
 
(Unaudited)
 
                         
                         
   
Three Months Ended
   
Six Months Ended
 
   
June 30,
   
June 30,
 
   
2012
   
2011
   
2012
   
2011
 
Interest income
                       
Loans
  $ 5,614,263     $ 6,767,421     $ 11,513,471     $ 13,808,189  
Investment securities
    215,196       352,798       365,545       653,124  
Federal funds sold
    11,621       20,481       32,553       38,804  
Total interest income
    5,841,080       7,140,700       11,911,569       14,500,117  
                                 
Interest expense
                               
Deposits
    1,245,465       1,905,320       2,604,018       3,944,196  
Borrowed funds
    244,135       297,158       535,121       579,849  
Total interest expense
    1,489,600       2,202,478       3,139,139       4,524,045  
                                 
Net interest income
    4,351,480       4,938,222       8,772,430       9,976,072  
Provision for loan losses
    6,660,000       900,000       8,395,000       1,903,000  
Net interest income (loss) after provision
                               
for loan losses
    (2,308,520 )     4,038,222       377,430       8,073,072  
                                 
Noninterest income
                               
Service charges and fees
    540,335       498,432       1,047,978       871,382  
Gain on sale of loans
    2,191,229       1,636,240       3,941,892       3,008,918  
Gain (loss) on sale of securities
    99,470       19       263,677       63,144  
Rental income
    182,199       164,620       393,197       299,069  
Other
    121,896       106,554       211,855       201,072  
Total noninterest income
    3,135,129       2,405,865       5,858,599       4,443,585  
                                 
Noninterest expense
                               
Salaries and benefits
    3,305,869       3,195,283       6,404,093       6,245,399  
Occupancy
    579,931       518,712       1,160,800       994,448  
Equipment
    202,616       224,150       407,980       444,220  
Supplies
    105,311       109,785       197,213       225,944  
Professional and outside services
    733,909       523,092       1,369,291       1,089,446  
Advertising and marketing
    47,983       111,584       124,046       234,423  
Expenses related to foreclosed real estate
    677,848       361,896       1,796,623       824,212  
Other operating expenses
    1,027,500       1,010,448       2,030,721       1,877,307  
Total noninterest expense
    6,680,967       6,054,950       13,490,767       11,935,399  
                                 
Net income (loss) before income taxes
    (5,854,358 )     389,137       (7,254,738 )     581,258  
Income tax expense
    3,881,914       132,306       3,881,914       241,706  
                                 
Net income (loss)
    (9,736,272 )     256,831       (11,136,652 )     339,552  
                                 
Preferred stock dividends and amortization of discount
    185,449       220,169       405,898       438,227  
Net income (loss) available to common
                               
shareholders
  $ (9,921,721 )   $ 36,662     $ (11,542,550 )   $ (98,675 )
                                 
Earnings (loss) per share, basic
  $ (2.33 )   $ 0.01     $ (2.72 )   $ (0.02 )
Earnings (loss) per share, diluted
  $ (2.33 )   $ 0.01     $ (2.72 )   $ (0.02 )
 

 
 
4

 
 
Village Bank and Trust Financial Corp. and Subsidiary
 
Consolidated Statements of Comprehensive Income (Loss)
 
Three and Six Months Ended June 30, 2012 and 2011
 
(Unaudited)
 
                                     
   
For the Three Months Ended June 30,
 
   
2012
   
2011
 
         
Tax
               
Tax
       
         
Expense
               
Expense
       
   
Amount
   
(Benefit)
   
Total
   
Amount
   
(Benefit)
   
Total
 
                                     
Net Income (loss)
  $ (5,854,358 )   $ 3,881,914     $ (9,736,272 )   $ 389,137     $ 132,306     $ 256,831  
                                                 
Other comprehensive income:
                                               
Unrealized holding gains arising during the period
    1,046,534       355,821       690,712       (692,993 )     (235,618 )     (457,375 )
Reclassification adjustment for gains realized in income
    (99,470 )     (33,820 )     (65,650 )     (19 )     (6 )     (13 )
Minimum pension adjustment
    3,250       1,105       2,145       3,250       1,105       2,145  
Total other comprehensive income
    950,314       323,107       627,207       (689,762 )     (234,519 )     (455,243 )
                                                 
        Total comprehensive income (loss)
  $ (4,904,044 )   $ 4,205,021     $ (9,109,065 )   $ (300,625 )   $ (102,213 )   $ (198,412 )
                                                 
     
For the Six Months Ended June 30,
 
      2012       2011  
           
Tax
                   
Tax
         
           
Expense
                   
Expense
         
   
Amount
   
(Benefit)
   
Total
   
Amount
   
(Benefit)
   
Total
 
                                                 
Net Income (loss)
  $ (7,254,738 )   $ 3,881,914     $ (11,136,652 )   $ 581,258     $ 241,706     $ 339,552  
                                                 
Other comprehensive income:
                                               
Unrealized holding gains arising during the period
    665,929       226,416       439,513       1,103,971       375,350       728,621  
Reclassification adjustment for gains realized in income
    (263,677 )     (89,650 )     (174,027 )     (63,144 )     (21,469 )     (41,675 )
Minimum pension adjustment
    6,500       2,210       4,290       6,500       2,210       4,290  
Total other comprehensive income
    408,752       138,976       269,776       1,047,327       356,091       691,236  
                                                 
        Total comprehensive income (loss)
  $ (6,845,986 )   $ 4,020,890     $ (10,866,876 )   $ 1,628,585     $ 597,797     $ 1,030,788  
                                                 
                                                 
See accompanying notes to consolidated financial statements
 
 
5

 

 
Village Bank and Trust Financial Corp. and Subsidiary
Consolidated Statements of Stockholders' Equity
Six Months Ended June 30, 2012 and 2011
(Unaudited)
                                 
                           
Accumulated
   
           
Additional
 
Retained
     
Discount on
 
Other
   
   
Preferred
 
Common
 
Paid-in
 
Earnings
     
Preferred
 
Comprehensive
   
   
Stock
 
Stock
 
Capital
 
(Deficit)
 
Warrant
 
Stock
 
Income (loss)
 
Total
                                 
Balance, December 31, 2005
     
            7,418,472
 
              9,191,567
 
              585,416
         
             (43,562)
 
             17,151,893
Issuance of common stock
     
            2,829,880
 
              4,374,314
 
                         -
         
                       -
 
              7,204,194
Stock based compensation
     
                          -
 
                   23,007
 
                         -
         
                       -
 
                   23,007
Minimum pension adjustment
                               
(net of income taxes of
                               
$75,112)
     
                          -
 
                            -
 
                         -
         
           (145,806)
 
                (145,806)
Balance, December 31, 2011
 
 $       58,952
 
 $        16,973,512
 
 $          40,732,178
 
 $      (21,895,557)
 
 $     732,479
 
 $    (346,473)
 
 $            (7,449)
 
 $          36,247,642
Amortization of preferred stock
                         
                       -
 
                            -
discount
 
                  -
         
               (73,552)
 
                  -
 
         73,552
     
                            -
Preferred stock dividend
 
                  -
 
                          -
     
             (332,336)
 
                  -
 
                  -
 
                       -
 
                (332,336)
Issuance of common stock
 
                  -
 
                 33,668
 
                  (33,668)
 
                         -
 
                  -
 
                  -
 
                       -
 
                            -
Stock based compensation
         
                     5,511
                 
                     5,511
Minimum pension adjustment
                               
(net of income taxes of $2,917)
 
                  -
 
                          -
 
                            -
 
                         -
 
                  -
 
                  -
 
                4,290
 
                     4,290
Net income (loss)
 
                  -
 
                          -
 
                            -
 
         (11,136,652)
 
                  -
 
                  -
 
                       -
 
            (11,136,652)
Change in unrealized gain on
                               
investment securities available-for-sale,
                               
net of reclassification and tax effect
 
                  -
 
                          -
 
                            -
 
                         -
 
                  -
 
                  -
 
            265,486
 
                 265,486
                                 
Balance, June 30, 2012
 
 $       58,952
 
 $        17,007,180
 
 $          40,704,021
 
 $      (33,438,097)
 
 $     732,479
 
 $    (272,921)
 
 $         262,327
 
 $          25,053,942
                                 
Balance, December 31, 2010
 
 $       58,952
 
 $        16,953,664
 
 $          40,633,581
 
 $        (9,192,552)
 
 $     732,479
 
 $    (492,456)
 
 $        (373,474)
 
 $          48,320,194
Amortization of preferred stock
                         
                       -
 
                            -
discount
 
                  -
         
               (72,806)
 
                  -
 
         72,806
     
                            -
Preferred stock dividend
 
                  -
 
                          -
     
             (365,421)
 
                  -
 
                  -
 
                       -
 
                (365,421)
Issuance of common stock
 
                  -
 
                 19,848
 
                  (19,848)
 
                         -
 
                  -
 
                  -
 
                       -
 
                            -
Stock based compensation
         
                   59,223
                 
                   59,223
Minimum pension adjustment
                               
(net of income taxes of $2,917)
 
                  -
 
                          -
 
                            -
 
                         -
 
                  -
 
                  -
 
                4,290
 
                     4,290
Net income (loss)
 
                  -
 
                          -
 
                            -
 
              339,552
 
                  -
 
                  -
 
                       -
 
                 339,552
Change in unrealized gain on
                               
investment securities available-for-sale,
                               
net of reclassification and tax effect
 
                  -
 
                          -
 
                            -
 
                         -
 
                  -
 
                  -
 
            686,946
 
                 686,946
                                 
Balance, June 30, 2011
 
 $       58,952
 
 $        16,973,512
 
 $          40,672,956
 
 $        (9,291,227)
 
 $     732,479
 
 $    (419,650)
 
 $         317,762
 
 $          49,044,784
                                 

 
6

 
Village Bank and Trust Financial Corp. and Subsidiary
 
Consolidated Statements of Cash Flows
 
Six Months Ended June 30, 2012 and 2011
 
(Unaudited)
 
   
Six Months Ended June 30,
 
   
2012
   
2011
 
Cash Flows from Operating Activities
           
Net income (loss)
  $ (11,136,652 )   $ 339,552  
Adjustments to reconcile net income (loss) to net
               
cash provided by (used in) operating activities:
               
Depreciation and amortization
    764,926       716,443  
Deferred income taxes
    (4,290,620 )     (3,710,085 )
Valuation allowance on deferred tax asset
    6,281,101       -  
Provision for loan losses
    8,395,000       1,903,000  
Write-down of other real estate owned
    943,560       427,237  
Gain on securities sold
    (263,678 )     (63,144 )
Gain on loans sold
    (3,941,892 )     (3,008,918 )
Loss on sale of other real estate owned
    43,618       86,824  
Stock compensation expense
    5,511       59,223  
Proceeds from sale of mortgage loans
    140,739,661       114,982,327  
Origination of mortgage loans for sale
    (140,358,872 )     (104,077,018 )
Amortization of premiums and accrection of discounts on securities, net
    130,888       56,757  
(Increase) decrease in interest receivable
    136,377       (231,244 )
Increase in bank owned life insurance
    (94,030 )     (100,228 )
Decrease  in other assets
    5,901,368       4,188,569  
Increase in interest payable
    111,534       82,335  
Decrease in other liabilities
    (4,021,112 )     1,176,406  
Net cash provided by (used in) operating activities
    (653,312 )     12,828,036  
                 
Cash Flows from Investing Activities
               
Purchases of available for sale securities
    (36,395,416 )     (62,377,306 )
Proceeds from the sale or calls of available for sale securities
    28,804,399       803,100  
Proceeds from maturities and principal payments of  available for sale securities
    1,593,068       62,996,221  
Net decrease in loans
    14,634,257       5,347,767  
Proceeds from sale of other real estate owned
    1,129,343       2,382,588  
Purchases of premises and equipment
    (224,896 )     (579,743 )
Net cash provided by investing activities
    9,540,755       8,572,627  
                 
Cash Flows from Financing Activities
               
Net increase (decrease) in deposits
    (35,101,144 )     6,964,761  
Net increase (decrease) in Federal Home Loan Bank Advances
    (8,750,000 )     10,000,000  
Net increase (decrease) in other borrowings
    (716,317 )     1,568,180  
Net cash provided by (used in) financing activities
    (44,567,461 )     18,532,941  
                 
Net increase (decrease) in cash and cash equivalents
    (35,680,018 )     39,933,604  
Cash and cash equivalents, beginning of period
    62,786,016       12,012,311  
                 
Cash and cash equivalents, end of period
  $ 27,105,998     $ 51,945,915  
                 
Supplemental Schedule of Non Cash Activities
               
Real estate owned assets acquired in settlement of loans
  $ 10,616,434     $ 2,850,739  
Dividends on preferred stock accrued
  $ 332,336     $ -  
                 
See accompanying notes to consolidated financial statements.
               
                 
 
7

 



Village Bank and Trust Financial Corp. and Subsidiary
Notes to Condensed Consolidated Financial Statements
Three and Six Months Ended June 30, 2012 and 2011 (Unaudited)

Note 1 - Principles of presentation

Village Bank and Trust Financial Corp. (the “Company”) is the holding company of Village Bank (the “Bank”).  The consolidated financial statements include the accounts of the Company, the Bank and the Bank’s three wholly-owned subsidiaries, Village Bank Mortgage Company, Village Insurance Agency, Inc., and Village Financial Services Company.  All material intercompany balances and transactions have been eliminated in consolidation.

In the opinion of management, the accompanying condensed consolidated financial statements of the Company have been prepared on the accrual basis in accordance with generally accepted accounting principles for interim financial information.  Accordingly, they do not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements.  However, all adjustments that are, in the opinion of management, necessary for a fair presentation have been included.  The results of operations for the three and six month periods ended June 30, 2012 are not necessarily indicative of the results to be expected for the full year ending December 31, 2012.  The unaudited interim financial statements should be read in conjunction with the audited financial statements and notes to financial statements that are presented in the Company’s Annual Report on Form 10-K for the year ended December 31, 2011 as filed with the Securities and Exchange Commission.

Note 2 - Use of estimates

The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities as of the date of the balance sheets and statements of income for the period.  Actual results could differ significantly from those estimates.  A material estimate that is particularly susceptible to significant change in the near term relates to the determination of the allowance for loan losses and the related provision.

Note 3 - Earnings (loss) per common share

The following table presents the basic and diluted earnings per share computations:

 
8

 
 
 
   
Three Months Ended June 30,
   
Six Months Ended June 30,
 
   
2012
   
2011
   
2012
   
2011
 
Numerator
                       
Net income (loss) - basic and diluted
  $ (9,736,272 )   $ 256,831     $ (11,136,652 )   $ 339,552  
Preferred stock dividend and accretion
    185,449       220,169       405,898       438,227  
Net income (loss) available to common
                               
shareholders
  $ (9,921,721 )   $ 36,662     $ (11,542,550 )   $ (98,675 )
                                 
Denominator
                               
Weighted average shares outstanding - basic
    4,250,579       4,243,378       4,250,579       4,242,665  
Dilutive effect of common stock options and
                               
      restricted stock awards
    -       -       -       -  
                                 
Weighted average shares outstanding - diluted
    4,250,579       4,243,378       4,250,579       4,242,665  
                                 
Earnings (loss) per share - basic and diluted
                               
Earnings (loss) per share - basic
  $ (2.33 )   $ 0.01     $ (2.72 )   $ (0.02 )
Effect of dilutive common stock options
    -       -       -       -  
                                 
Earnings (loss) per share - diluted
  $ (2.33 )   $ 0.01     $ (2.72 )   $ (0.02 )

Outstanding options and warrants to purchase common stock were considered in the computation of diluted earnings per share for the periods presented.  Stock options for 261,530 shares of common stock were not included in computing diluted earnings per share for the three and six months ended June 30, 2012 because their effects were anti-dilutive.  Warrants for 499,029 shares of common stock were not included in computing earnings per share in 2012 and 2011 because their effects were also anti-dilutive.

Note 4 – Investment securities available for sale

At June 30, 2012 and December 31, 2011, all of our securities were classified as available-for-sale.  The following table presents the composition of our investment portfolio at the dates indicated (dollars in thousands).
 
 
9

 

               
Gross
   
Gross
   
Estimated
       
   
Par
   
Amortized
   
Unrealized
   
Unrealized
   
Fair
   
Average
 
   
Value
   
Cost
   
Gains
   
Losses
   
Value
   
Yield
 
June 30, 2012
                                   
                                     
US Government Agencies
                                   
More than ten years
  $ 15,300     $ 18,264     $ 472     $ -     $ 18,736       3.27 %
      15,300       18,264       472       -       18,736       3.27 %
Mortgage-backed securities
                                               
One to five years
    3       3       -       -       3       0.01 %
More than ten years
    11,363       11,961       64       (10 )     12,016       1.51 %
Total
    11,366       11,964       64       (10 )     12,019       1.51 %
                                                 
Municipals
                                               
Five to ten years
    3,500       4,137       5       -       4,142       2.56 %
More than ten years
    1,550       1,784       15       -       1,799       3.52 %
Total
    5,050       5,921       20       -       5,941       2.85 %
                                                 
Total investment securities
  $ 31,716     $ 36,149     $ 557     $ (10 )   $ 36,696       2.63 %
                                                 
December 31, 2011
                                               
                                                 
US Government Agencies
                                               
More than ten years
  $ 2,000     $ 2,000     $ 1     $ -     $ 2,001       3.81 %
                                                 
Mortgage-backed securities
                                               
One to five years
    11       11       -       -       11       0.01 %
More than ten years
    19,870       20,621       220       (49 )     20,792       1.83 %
Total
    19,881       20,632       220       (49 )     20,803       1.83 %
                                                 
Other investments
                                               
More than ten years
    7,356       7,386       -       (27 )     7,359       0.55 %
                                                 
Total investment securities
  $ 29,237     $ 30,018     $ 221     $ (76 )   $ 30,163       1.65 %
 

Investment securities available for sale that have an unrealized loss position at June 30, 2012 and December 31, 2011 are detailed below (dollars in thousands).

   
Securities in a loss
   
Securities in a loss
             
   
Position for less than
   
Position for more than
             
   
12 Months
   
12 Months
   
Total
 
   
Fair
   
Unrealized
   
Fair
   
Unrealized
   
Fair
   
Unrealized
 
   
Value
   
Losses
   
Value
   
Losses
   
Value
   
Losses
 
June 30, 2012
 
(in Thousands)
 
Mortgage-backed securities
  $ 2,331     $ (10 )   $ 3     $ -     $ 2,334     $ (10 )
                                                 
Total
  $ 2,331     $ (10 )   $ 3     $ -     $ 2,334     $ (10 )
                                                 
December 31, 2011
     
US Treasuries
  $ 7,358     $ (27 )   $ -     $ -     $ 7,358     $ (27 )
Mortgage-backed securities
    10,221       (47 )     205       (2 )     10,426       (49 )
                                                 
Total
  $ 17,579     $ (74 )   $ 205     $ (2 )   $ 17,784     $ (76 )

 
10

 
Management does not believe that any individual unrealized loss as of June 30, 2012 and December 31, 2011 is other than a temporary impairment.  These unrealized losses are primarily attributable to changes in interest rates.  As of June 30, 2012, management does not have the intent to sell any of the securities classified as available for sale and management believes that it is more likely than not that the Company will not have to sell any such securities before a recovery of cost.

Note 5 – Loans and allowance for loan losses

The following table presents the composition of our loan portfolio (excluding mortgage loans held for sale) at the dates indicated (dollars in thousands).

   
June 30, 2012
   
December 31, 2011
 
   
Amount
   
%
   
Amount
   
%
 
Construction and land development
                       
Residential
  $ 7,442       1.89 %   $ 7,906       1.85 %
Commercial
    55,828       14.20 %     72,621       16.97 %
    Total construction and land development
    63,270       16.09 %     80,527       18.82 %
Commercial real estate
                               
Farmland
    2,447       0.62 %     2,465       0.58 %
Commercial real estate - owner occupied
    100,149       25.48 %     105,592       24.68 %
Commercial real estate - non-owner occupied
    55,891       14.22 %     54,059       12.63 %
Multifamily
    6,960       1.77 %     6,680       1.56 %
    Total commercial real estate
    165,447       42.09 %     168,796       39.45 %
Consumer real estate
                               
Home equity lines
    28,365       7.22 %     30,687       7.17 %
Secured by 1-4 family residential, secured by first deeds of trust
    84,775       21.58 %     93,219       21.79 %
Secured by 1-4 family residential, secured by second deeds of trust
    10,095       2.57 %     12,042       2.81 %
   Total consumer real estate
    123,235       31.37 %     135,948       31.77 %
Commercial and industrial loans (except those secured by real estate)
    37,529       9.55 %     37,734       8.82 %
Consumer and other
    3,554       0.90 %     4,865       1.14 %
                                 
Total Loans
    393,035       100.0 %     427,870       100.0 %
Deferred loan cost (unearned income), net
    752               768          
Less:  Allowance for loan losses
    (14,866 )             (16,071 )        
                                 
    $ 378,921             $ 412,567          

The Company assigns risk rating classifications to its loans.  These risk ratings are divided into the following groups:

 
·
Risk rated 1 to 4 loans are considered of sufficient quality to preclude an adverse rating.  1-4 assets generally are well protected by the current net worth and paying capacity of the obligor or by the value of the asset or underlying collateral;
 
·
Risk rated 5 loans are defined as having potential weaknesses that deserve management’s close attention;
 
·
Risk rated 6 loans are inadequately protected by the current sound worth and paying capacity of the obligor or of the collateral pledged, if any, and;
 
·
Risk rated 7 loans have all the weaknesses inherent in substandard loans, with the added characteristics that the weaknesses make collection or liquidation in full, on the basis of currently existing facts, conditions and values, highly questionable and improbable.

 
11

 
The following tables provide information on the risk rating of loans at the dates indicated:
 
   
June 30, 2012
 
   
Risk Rated
   
Risk Rated
   
Risk Rated
   
Risk Rated
   
Total
 
      1-4       5       6       7    
Loans
 
                                       
Construction and land development
                                     
Residential
  $ 6,197,776     $ 671,709     $ 572,439     $ -     $ 7,441,924  
Commercial
    29,535,994       1,403,600       24,388,336       500,472       55,828,402  
    Total construction and land development
    35,733,770       2,075,309       24,960,775       500,472       63,270,326  
                                         
Commercial real estate
                                       
Farmland
    1,397,310               1,049,489       -       2,446,799  
Commercial real estate - owner occupied
    73,149,268       11,261,166       15,480,900       257,898       100,149,232  
Commercial real estate - non-owner occupied
    25,607,380       11,142,004       19,141,489       -       55,890,873  
Multifamily
    4,702,665       1,091,058       1,166,632       -       6,960,355  
    Total commercial real estate
    104,856,623       23,494,228       36,838,510       257,898       165,447,259  
                                         
Consumer real estate
                                       
Home equity lines
    22,888,912       2,267,061       3,134,202       75,000       28,365,175  
Secured by 1-4 family residential, secured by first deeds of trust
    58,547,748       7,258,617       18,968,098       -       84,774,463  
Secured by 1-4 family residential, secured by second deeds of trust
    8,218,980       419,994       1,456,145       -       10,095,119  
   Total consumer real estate
    89,655,640       9,945,672       23,558,445       75,000       123,234,757  
                                         
Commercial and industrial loans (except those secured by real estate)
    29,206,043       1,732,430       5,740,435       850,305       37,529,213  
                                         
Consumer and other
    3,311,242       182,600       59,953       -       3,553,795  
                                         
Total Loans
  $ 262,763,318     $ 37,430,239     $ 91,158,118     $ 1,683,675     $ 393,035,350  
 
   
December 31, 2011
 
                               
   
Risk Rated
   
Risk Rated
   
Risk Rated
   
Risk Rated
   
Total
 
      1-4       5       6       7    
Loans
 
                                       
Construction and land development
                                     
Residential
  $ 4,943,061             $ 2,963,404     $ -     $ 7,906,465  
Commercial
    44,315,474       -       28,305,063       -       72,620,537  
    Total construction and land development
    49,258,535       -       31,268,467       -       80,527,002  
                                         
Commercial real estate
                                       
Farmland
    2,464,981       -       -       -       2,464,981  
Commercial real estate - owner occupied
    46,958,816       16,352,920       42,280,412       -       105,592,148  
Commercial real estate - non-owner occupied
    37,581,904       3,036,887       13,440,358       -       54,059,149  
Multifamily
    5,511,882       -       1,167,446       -       6,679,328  
    Total commercial real estate
    92,517,583       19,389,807       56,888,216       -       168,795,606  
                                         
Consumer real estate
                                       
Home equity lines
    26,403,850       1,373,002       2,910,374       -       30,687,226  
Secured by 1-4 family residential, secured by first deeds of trust
    80,670,887       6,052,128       6,495,783       -       93,218,798  
Secured by 1-4 family residential, secured by second deeds of trust
    9,960,928       706,484       1,374,651       -       12,042,063  
   Total consumer real estate
    117,035,665       8,131,614       10,780,808       -       135,948,087  
                                         
Commercial and industrial loans (except those secured by real estate)
    31,322,834       4,289,037       2,122,645       -       37,734,516  
                                         
Consumer and other
    3,508,768       384,387       972,350       -       4,865,505