PINX:TMAK Touchmark Bancshares, Inc. Quarterly Report 10-Q Filing - 3/31/2012

Effective Date 3/31/2012

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Table of Contents

 

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

FORM 10-Q

 

(Mark One)

 

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

 

For the Quarterly Period Ended March 31, 2012

 

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

 

For the Transition Period from                to                 

 

Commission file number 000-53655

 

TOUCHMARK BANCSHARES, INC.

(Exact name of registrant as specified in its charter)

 

Georgia

 

20-8746061

(State or other jurisdiction

 

(I.R.S. Employer

of incorporation)

 

Identification No.)

 

3651 Old Milton Parkway

Alpharetta, Georgia 30005

(Address of principal executive offices)

 

(770) 407-6700

(Registrant’s telephone number)

 


 

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.  x YES  o 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 (Section 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).  x YES  o 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 o

 

Accelerated filer o

 

 

 

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).  o YES  x NO

 

Indicate the number of shares outstanding of each of the registrant’s classes of common equity, as of the latest practicable date: 3,465,391 shares of common stock, par value $.01 per share, outstanding as of May 14, 2012.

 

 

 



Table of Contents

 

INDEX

 

 

 

Page

 

 

 

 

 

Part I. Financial Information

 

 

 

 

 

 

 

Item 1. Financial Statements (unaudited)

 

 

 

 

 

 

 

Condensed Consolidated Balance Sheets as of March 31, 2012 and December 31, 2011

 

3

 

 

 

 

 

Condensed Consolidated Statements of Income for the Three Months Ended March 31, 2012 and 2011

 

4

 

 

 

 

 

Condensed Consolidated Statements of Comprehensive Income for the Three Months Ended March 31, 2012 and 2011

 

5

 

 

 

 

 

Condensed Consolidated Statements of Cash Flows For The Three Months Ended March 31, 2012 and 2011

 

6

 

 

 

 

 

Notes to Condensed Consolidated Financial Statements

 

8

 

 

 

 

 

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

 

30

 

 

 

 

 

Item 3. Quantitative and Qualitative Disclosures About Market Risk

 

38

 

 

 

 

 

Item 4. Controls and Procedures

 

38

 

 

 

 

 

Part II. Other Information

 

39

 

 

 

 

 

Item 6. Exhibits

 

39

 

 

 

 

 

SIGNATURES

 

40

 

 

 

 

 

EXHIBIT INDEX

 

41

 

 

2



Table of Contents

 

TOUCHMARK BANCSHARES, INC.

AND SUBSIDIARY

 

CONDENSED CONSOLIDATED BALANCE SHEETS

MARCH 31, 2012 AND DECEMBER 31, 2011

 

 

 

(Unaudited)

 

 

 

 

 

March 31,

 

December 31,

 

 

 

2012

 

2011

 

ASSETS

 

 

 

 

 

 

 

 

 

 

 

Cash and due from banks

 

$

2,160,417

 

$

2,509,157

 

Federal funds sold

 

300,000

 

325,000

 

Interest-bearing accounts with other banks

 

2,843,284

 

6,729,905

 

Investment securities

 

32,244,727

 

36,134,645

 

Restricted stock

 

1,699,000

 

1,478,500

 

Loans held for sale

 

248,658

 

248,658

 

Loans, less allowance for loan losses of $1,652,347 and $1,745,400, respectively

 

79,519,760

 

74,268,936

 

Accrued interest receivable

 

471,400

 

434,178

 

Premises and equipment

 

2,425,587

 

2,486,685

 

Foreclosed real estate

 

5,505,410

 

5,375,473

 

Land held for sale

 

2,409,023

 

2,409,023

 

Other assets

 

182,229

 

200,806

 

Total assets

 

$

130,009,495

 

$

132,600,966

 

 

 

 

 

 

 

LIABILITIES AND SHAREHOLDERS’ EQUITY

 

 

 

 

 

 

 

 

 

 

 

Liabilities:

 

 

 

 

 

Deposits:

 

 

 

 

 

Non-interest bearing demand

 

$

7,650,560

 

$

9,119,354

 

Interest-bearing

 

79,691,238

 

85,197,277

 

Total deposits

 

87,341,798

 

94,316,631

 

Accrued interest payable

 

33,621

 

36,011

 

Federal Home Loan Bank advances

 

16,500,000

 

12,500,000

 

Other liabilities

 

468,356

 

523,263

 

Total liabilities

 

104,343,775

 

107,375,905

 

 

 

 

 

 

 

Shareholders’ Equity:

 

 

 

 

 

Preferred stock, no par value, 10,000,000 shares authorized, none issued

 

 

 

Common stock, $.01 par value, 50,000,000 shares authorized, 3,465,391 issued and outstanding

 

34,654

 

34,654

 

Paid in capital

 

36,201,886

 

36,189,165

 

Accumulated deficit

 

(10,908,425

)

(11,428,518

)

Accumulated other comprehensive income

 

337,605

 

429,760

 

Total shareholders’ equity

 

25,665,720

 

25,225,061

 

 

 

 

 

 

 

Total liabilities and shareholders’ equity

 

$

130,009,495

 

$

132,600,966

 

 

3



Table of Contents

 

TOUCHMARK BANCSHARES, INC.

AND SUBSIDIARY

 

CONDENSED CONSOLIDATED STATEMENTS OF INCOME

THREE MONTHS ENDED MARCH 31, 2012 AND 2011

(UNAUDITED)

 

 

 

Three Months

 

Three Months

 

 

 

Ended

 

Ended

 

 

 

March 31,

 

March 31,

 

 

 

2012

 

2011

 

Interest income:

 

 

 

 

 

Loans, including fees

 

$

1,211,446

 

$

1,187,798

 

Investment income

 

216,501

 

390,497

 

Federal funds sold

 

180

 

257

 

Total interest income

 

1,428,127

 

1,578,552

 

 

 

 

 

 

 

Interest expense:

 

 

 

 

 

Deposits

 

212,045

 

357,509

 

Federal Home Loan Bank advances

 

68,118

 

69,862

 

Other borrowings

 

521

 

3,615

 

Total interest expense

 

280,684

 

430,986

 

 

 

 

 

 

 

Net interest income

 

1,147,443

 

1,147,566

 

Provision for loan losses

 

75,000

 

 

Net interest income after provision for loan losses

 

1,072,443

 

1,147,566

 

 

 

 

 

 

 

Noninterest income:

 

 

 

 

 

Service charges on deposit accounts and other fees

 

9,770

 

13,922

 

Gain on sale of securities available for sale

 

40,185

 

63,558

 

Gain on sale of foreclosed real estate

 

40,588

 

 

Gain on sale of SBA loans

 

476,596

 

288,214

 

Gain (loss) on fair value mark of derivative instrument

 

(7,308

)

9,056

 

Other noninterest income

 

78,814

 

10,891

 

Total noninterest income

 

638,645

 

385,641

 

 

 

 

 

 

 

Noninterest expense:

 

 

 

 

 

Salaries and employee benefits

 

622,501

 

702,907

 

Occupancy and equipment

 

152,257

 

152,501

 

Other operating expense

 

416,237

 

486,723

 

Total noninterest expense

 

1,190,995

 

1,342,131

 

 

 

 

 

 

 

Net income

 

$

520,093

 

$

191,076

 

 

 

 

 

 

 

Basic earnings per share

 

$

0.15

 

$

0.06

 

Diluted earnings per share

 

$

0.15

 

$

0.06

 

Dividends per share

 

$

 

$

 

 

4



Table of Contents

 

TOUCHMARK BANCSHARES, INC.

AND SUBSIDIARY

 

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

THREE MONTHS ENDED MARCH 31, 2012 AND 2011

(UNAUDITED)

 

 

 

Three Months

 

Three Months

 

 

 

Ended

 

Ended

 

 

 

March 31,

 

March 31,

 

 

 

2012

 

2011

 

Net income

 

$

520,093

 

$

191,076

 

Other comprehensive loss:

 

 

 

 

 

Unrealized holding losses arising during the period

 

(97,360

)

(32,188

)

Reclassification adjustment for gain realized in net income

 

(40,185

)

(63,558

)

Tax effect

 

45,390

 

31,596

 

Other comprehensive loss

 

(92,155

)

(64,150

)

Comprehensive income

 

$

427,938

 

$

126,926

 

 

5



Table of Contents

 

TOUCHMARK BANCSHARES, INC.

AND SUBSIDIARY

 

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

THREE MONTHS ENDED MARCH 31, 2012 AND 2011

(UNAUDITED)

 

 

 

Three Months

 

Three Months

 

 

 

Ended

 

Ended

 

 

 

March, 31

 

March, 31

 

 

 

2012

 

2011

 

Cash flow from operating activities:

 

 

 

 

 

Net income

 

$

520,093

 

$

191,076

 

Adjustments to reconcile net income to net cash provided by operating activities

 

 

 

 

 

Depreciation

 

65,367

 

71,639

 

Net amortization

 

125,540

 

78,651

 

Provision for loan losses

 

75,000

 

 

Gain on sale of securities available for sale

 

(40,185

)

(63,558

)

Gain on sale of SBA loans

 

(476,596

)

(288,214

)

Gain on sale of foreclosed real estate

 

(40,588

)

 

Stock compensation expense

 

12,721

 

25,459

 

Decrease (increase) in interest receivable

 

(37,222

)

201,897

 

Decrease in interest payable

 

(2,390

)

(12,346

)

Decrease in other assets

 

18,577

 

140,121

 

Increase (decrease) in other liabilities

 

(9,517

)

11,334

 

 

 

 

 

 

 

Net cash provided by operating activities

 

210,800

 

356,059

 

 

 

 

 

 

 

Cash flow from investing activities:

 

 

 

 

 

Decrease (increase) in federal funds sold, net

 

25,000

 

(54,000

)

Decrease (increase) in interest bearing accounts

 

3,886,621

 

(2,969,927

)

Purchase of securities available for sale

 

(4,424,206

)

(1,010,469

)

Proceeds from paydowns, calls and maturities of securities available for sale

 

2,318,180

 

3,287,526

 

Proceeds from sales of securities available for sale

 

5,773,044

 

7,286,906

 

Redemption (purchase) of restricted stock

 

(220,500

)

53,250

 

Proceeds from sale of foreclosed real estate

 

968,494

 

17,713

 

Loan originations and collections, net

 

(5,907,071

)

1,603,987

 

Purchase of premises and equipment

 

(4,269

)

(8,962

)

 

 

 

 

 

 

Net cash provided by investing activities

 

2,415,293

 

8,206,024

 

 

6



Table of Contents

 

TOUCHMARK BANCSHARES, INC.

AND SUBSIDIARY

 

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

THREE MONTHS ENDED MARCH 31, 2012 AND 2011

(UNAUDITED)

 

 

 

Three Months

 

Three Months

 

 

 

Ended

 

Ended

 

 

 

March, 31

 

March, 31

 

 

 

2012

 

2011

 

Cash flow from financing activities:

 

 

 

 

 

Net decrease in deposits

 

(6,974,833

)

(5,611,180

)

Repayment of secured borrowings

 

 

(1,176,583

)

Proceeds from Federal Home Loan Bank advances

 

4,000,000

 

575,000

 

 

 

 

 

 

 

Net cash used by financing activities

 

(2,974,833

)

(6,212,763

)

 

 

 

 

 

 

Net change in cash

 

(348,740

)

2,349,320

 

 

 

 

 

 

 

Cash at the beginning of the period

 

2,509,157

 

1,220,785

 

 

 

 

 

 

 

Cash at the end of the period

 

$

2,160,417

 

$

3,570,105

 

 

 

 

 

 

 

Supplemental disclosures of cash flow information -

 

 

 

 

 

Interest paid

 

$

283,074

 

$

443,332

 

 

 

 

 

 

 

Non cash activities:

 

 

 

 

 

Transfer of loan principal to foreclosed real estate

 

$

1,057,843

 

$

 

 

7



Table of Contents

 

TOUCHMARK BANCSHARES, INC.

AND SUBSIDIARY

 

Notes to Condensed Consolidated Financial Statements

(unaudited)

 

1.                    BASIS OF PRESENTATION:

 

The consolidated financial information included for Touchmark Bancshares, Inc. herein is unaudited; however, such information reflects all adjustments (consisting of normal recurring adjustments) which are, in the opinion of management, necessary for a fair statement of results for the interim periods. These statements should be read in conjunction with the financial statements and related notes included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2011.

 

The results of operations for the three month period ended March 31, 2012 are not necessarily indicative of the results to be expected for the full year.

 

2.                    ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:

 

Reporting Entity and Nature of Operations

 

Touchmark Bancshares, Inc. (the “Company”, “we”, “us” or “ours”), a Georgia corporation, was established on April 3, 2007 for the purpose of organizing and managing Touchmark National Bank (the “Bank”).  The Company is a one-bank holding company with respect to its subsidiary, Touchmark National Bank. The Bank is a national bank, which began operations on January 28, 2008 headquartered in Fulton County, Georgia with the purpose of providing community banking services to Gwinnett County, Dekalb, north Fulton and south Forsyth counties and surrounding areas in the State of Georgia.

 

Basis of Accounting: The accounting and reporting policies of the Company conform to accounting principles generally accepted in the United States of America. In preparing the financial statements, management is required to make estimates and assumptions that affect the reported amounts of assets, liabilities, shareholders’ equity and net income. Actual results may differ significantly from those estimates. The Company uses the accrual basis of accounting by recognizing revenues when they are earned and expenses in the period incurred, without regard to the time of receipt or payment of cash.

 

Allowance for Loan Losses: Arriving at an appropriate level of allowance for loan losses involves a high degree of judgment. The Company’s allowance for loan losses provides for probable losses based upon evaluations of known and inherent risks in the loan portfolio. Due to our limited operating history, the loans in our loan portfolio and our lending relationships are of recent origin. In general, loans do not begin to show signs of credit deterioration or default until they have been outstanding for some period of time, a process known as seasoning. As a result, a portfolio of older loans will usually behave more predictably than a newer portfolio. Because our loan portfolio is new, the current level of delinquencies and defaults may not be representative of the level that will prevail when the portfolio becomes more seasoned, which may be higher or lower than current levels. If delinquencies and defaults increase, we may be required to increase our provision for loan losses, which would adversely affect our results of operations and financial condition. The allowance for loan losses is increased by provisions for loan losses and by recoveries of loans previously charged-off and reduced by loans charged-off.

 

The process of reviewing the adequacy of the allowance for loan losses requires management to make numerous judgments and assumptions about current events and subjective judgments, including the likelihood of loan repayment, risk evaluation, historical losses, extrapolation of historical losses of similar banks, and similar judgments and assumptions. If these assumptions prove to be incorrect, charge-offs in future periods could exceed the allowance for loan losses.

 

8



Table of Contents

 

TOUCHMARK BANCSHARES, INC.

AND SUBSIDIARY

 

Notes to Condensed Consolidated Financial Statements

(unaudited)

 

2.                    ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:

 

The allowance for loan losses may consist of specific, general, and unallocated components.  The specific component relates to loans that are classified as impaired.  For loans that are classified as impaired, an allowance is established when the collateral value, discounted cash flows or the observable market price of the impaired loan is lower than the carrying value of the loan. General allowances are established for non-impaired loans.  These loans are assigned a loan category, and the allocated allowance for loan losses is determined based upon the loss percentage factors that correspond to each loan category.

 

The general reserves are determined based on consideration of historic and peer loss data, and the various risk characteristics of each loan segment. Risk characteristics relevant to each portfolio segment are as follows:

 

Construction and development loans — Loans in this segment primarily include real estate development loans for which payment is derived from sale of the property as well as construction projects in which the property will ultimately be used by the borrower. Credit risk is affected by cost overruns, time to sell at an adequate price, and market conditions.

 

Real estate - mortgage — The Company generally does not originate loans with a loan-to-value ratio greater than 85 percent and does not grant subprime loans. Loans in this segment are dependent on the credit quality of the individual borrower. The overall health of the economy, including unemployment rates will have an effect on the credit quality in the segment.

 

Commercial real estate — Loans in this segment are primarily income-producing properties. The underlying cash flows generated by the properties are adversely impacted by a downturn in the economy as evidenced by increased vacancy rates, which in turn, will have an effect on the credit quality in this segment. Management monitors the cash flows of these loans.

 

Commercial and industrial loans — Loans in this segment are made to businesses and are generally secured by assets of the business. Repayment is expected from the cash flows of the business. A weakened economy, and resultant decreased consumer spending, will have an effect on the credit quality in this segment.

 

Stock Based Compensation: The Company has adopted the fair value recognition provisions of Financial Accounting Standards Board Accounting Standards Codification (FASB ASC) 718, Stock Compensation. Upon issuance of the Director and Organizer warrants, compensation cost was recognized in the consolidated financial statements of the Company for all share-based payments granted, based on the grant date fair value as estimated in accordance with the provisions of FASB ASC 718, which requires recognition of expense equal to the fair value of the warrant over the vesting period of the warrant. There were no options or warrants granted in the first quarter 2012.

 

The fair value of each warrant grant is estimated on the date of grant using the Black-Scholes option-pricing model. Expected volatility for the period has been determined based on expected volatility of similar entities. The expected term of warrants granted is based on the short-cut method and represents the period of time that the warrants granted are expected to be outstanding. Expected dividends are based on dividend trends and the market price of the Company’s stock at grant date. The risk-free rate for periods within the contractual life of the option is based on the U.S. Treasury yield curve in effect at the time of grant.

 

The Company recorded no compensation expense related to the warrants for the three months ended March 31, 2012 and 2011, respectively.

 

9



Table of Contents

 

TOUCHMARK BANCSHARES, INC.

AND SUBSIDIARY

 

Notes to Condensed Consolidated Financial Statements

(unaudited)

 

2.                    ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:

 

At March 31, 2012, there was no unrecognized compensation cost related to warrants. The weighted average remaining contractual life of the warrants outstanding as of March 31, 2012 was approximately 5.77 years. The Company had 469,167 warrants exercisable as of March 31, 2012.

 

Through March 31, 2012, the Company issued 219,822 options to purchase common stock to employees of the Company or the Bank and the Company issued 10,000 options to purchase common stock to a new director.  There were no options issued during the first three months of 2012 or 2011. Upon issuance of options, compensation cost is recognized in the consolidated financial statements of the Company for all options granted, based on the grant date fair value as estimated in accordance with the provisions of FASB ASC 718, which requires recognition of expense equal to the fair value of the options over the vesting period of the options.

 

The fair value of each option grant is estimated on the date of grant using the Black-Scholes option-pricing model. Expected volatility for the period has been determined based on expected volatility of similar entities. The expected term of options granted is based on the short-cut method and represents the period of time that the options granted are expected to be outstanding. Expected dividends are based on dividend trends and the market price of the Company’s stock at grant date. The risk-free rate for periods within the contractual life of the option is based on the U.S. Treasury yield curve in effect at the time of grant.

 

The Company recorded stock-based compensation expense related to the options of $12,721 and $25,459 during the three months ended March 31, 2012 and 2011, respectively.

 

At March 31, 2012, there was $39,290 of unrecognized compensation cost related to options outstanding, which is expected to be recognized over a weighted-average period of 0.73 years. The weighted average remaining contractual life of the options outstanding as of March 31, 2012 was approximately 7.59 years. The Company had 107,616 options exercisable as of March 31, 2012.

 

Income Taxes: Deferred income tax assets and liabilities are determined using the liability (or balance sheet) method.  Under this method, the net deferred tax asset or liability is determined based on the tax effects of the differences between the book and tax bases of the various balance sheet assets and liabilities, and gives current recognition to changes in tax rates and laws.  A valuation allowance for deferred tax assets is required when it is more likely than not that some portion or all of the deferred tax asset will not be realized.  In assessing the realization of the deferred tax assets, management considers the scheduled reversals of deferred tax liabilities, projected future taxable income (in the near-term based on current projections), and tax planning strategies.

 

Statement of Cash Flows: The statement of cash flows was prepared using the indirect method. Under this method, net income was reconciled to net cash flows provided by operating activities by adjusting for the effects of operating activities.

 

Cash and Cash Equivalents: For purposes of presentation in the statement of cash flows, cash and cash equivalents are defined as those amounts included in the balance sheet caption “cash and due from banks.” Cash flows from interest-bearing accounts with other banks, deposits, federal funds purchased and sold, and originations, renewals and extensions of loans are reported net.

 

Loans Purchased: Discounts and premiums on loans purchased by the Company are amortized based upon specific identification over the contractual life of the loan.

 

10



Table of Contents

 

TOUCHMARK BANCSHARES, INC.

AND SUBSIDIARY

 

Notes to Condensed Consolidated Financial Statements

(unaudited)

 

3.                    INVESTMENT SECURITIES:

 

The amortized cost, gross unrealized gains and losses, and estimated fair value of investment securities at March 31, 2012 and December 31, 2011, are summarized as follows:

 

 

 

Amortized

 

Unrealized

 

Unrealized

 

Fair

 

 

 

Cost

 

Gains

 

Losses

 

Value

 

March 31, 2012:

 

 

 

 

 

 

 

 

 

U.S. Government-sponsored enterprises (GSEs)*

 

$

2,000,000

 

$

13,371

 

$

 

$

2,013,371

 

State and municipal securities

 

4,137,039

 

175,516

 

 

4,312,555

 

Mortgage-backed GSE residential

 

25,603,800

 

328,766

 

(13,765

)

25,918,801

 

 

 

 

 

 

 

 

 

 

 

 

 

$

31,740,839

 

$

517,653

 

$

(13,765

)

$

32,244,727

 

 

 

 

Amortized

 

Unrealized

 

Unrealized

 

Fair

 

 

 

Cost

 

Gains

 

Losses

 

Value

 

December 31, 2011:

 

 

 

 

 

 

 

 

 

U.S. Government-sponsored enterprises (GSEs)*

 

$

2,000,000

 

$

12,163

 

$

 

$

2,012,163

 

State and municipal securities

 

4,140,071

 

233,654

 

 

4,373,725

 

Mortgage-backed GSE residential

 

29,353,141

 

420,639

 

(25,023

)

29,748,757

 

 

 

 

 

 

 

 

 

 

 

 

 

$

35,493,212

 

$

666,456

 

$

(25,023

)

$

36,134,645

 

 


*                 Such as Federal Mortgage Association, Federal Home Loan Mortgage Corporation, and Federal Home Loan Banks

 

The amortized cost and estimated fair value of investment securities at March 31, 2012, by contractual maturity are shown below.  Expected maturities will differ from contractual maturities because borrowers may have the right to call or prepay obligations with or without call or prepayment penalties.

 

 

 

Amortized

 

Fair

 

 

 

Cost

 

Value

 

 

 

 

 

 

 

Due in one year or less

 

$

6,974,501

 

$

7,056,437

 

Due after one year but less than five years

 

15,336,945

 

15,519,192

 

Due after five years but less than ten years

 

6,813,794

 

6,979,609

 

Due after ten years

 

2,615,599

 

2,689,489

 

 

 

 

 

 

 

 

 

$

31,740,839

 

$

32,244,727

 

 

11



Table of Contents

 

TOUCHMARK BANCSHARES, INC.

AND SUBSIDIARY

 

Notes to Condensed Consolidated Financial Statements

(unaudited)

 

3.                    INVESTMENT SECURITIES:

 

For the purpose of the maturity table, mortgage-backed securities, which are not due at a single maturity date, have been allocated over maturity groupings based on the weighted-average contractual maturities of underlying collateral.  The mortgage-backed securities may mature earlier than their weighted-average contractual maturities because of principal prepayments.

 

During the first quarter of 2012, the Company had gross gains on sales of securities of $43,241 and gross losses on sales of securities of $3,056.  The Company had gross gains on sales of securities of $90,312 and gross losses on sales of securities of $26,754 during the first quarter of 2011.

 

Information pertaining to securities with gross unrealized losses at March 31, 2012 and December 31, 2011 aggregated by investment category and length of time that individual securities have been in a continuous loss position, follows:

 

 

 

Less than

 

More than

 

 

 

 

 

Twelve Months

 

Twelve Months

 

Total

 

 

 

Gross

 

Estimated

 

Gross

 

Estimated

 

Gross

 

Estimated

 

 

 

Unrealized

 

Fair

 

Unrealized

 

Fair

 

Unrealized

 

Fair

 

 

 

Losses

 

Value

 

Losses

 

Value

 

Losses

 

Value

 

March 31, 2012:

 

 

 

 

 

 

 

 

 

 

 

 

 

Mortgage-backed GSE residential

 

$

(13,765

)

$

5,454,252

 

$

 

$

 

$

(13,765

)

$

5,454,252

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

$

(13,765

)

$

5,454,252

 

$

 

$

 

$

(13,765

)

$

5,454,252

 

 

 

 

Less than

 

More than

 

 

 

 

 

Twelve Months

 

Twelve Months

 

Total

 

 

 

Gross

 

Estimated

 

Gross

 

Estimated

 

Gross

 

Estimated

 

 

 

Unrealized

 

Fair

 

Unrealized

 

Fair

 

Unrealized

 

Fair

 

 

 

Losses

 

Value

 

Losses

 

Value

 

Losses

 

Value

 

December 31, 2011:

 

 

 

 

 

 

 

 

 

 

 

 

 

Mortgage-backed GSE residential

 

$

(25,023

)

$

6,383,330

 

$

 

$

 

$

(25,023

)

$

6,383,330

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

$

(25,023

)

$

6,383,330

 

$

 

$

 

$

(25,023

)

$

6,383,330

 

 

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.

 

At March 31, 2012, six debt securities have unrealized losses with aggregate depreciation of 0.25% from the Company’s amortized cost basis. 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 industry analysts’ reports. Although some of the issuers have shown declines in earnings and/or a weakened financial condition as a result of the weakened economy, no credit issues have been identified that cause management to believe the declines in market value are other than temporary. As management has the ability to hold debt securities until maturity, or for the foreseeable future, no declines are deemed to be other than temporary.

 

12



Table of Contents

 

TOUCHMARK BANCSHARES, INC.

AND SUBSIDIARY

 

Notes to Condensed Consolidated Financial Statements

(unaudited)

 

3.                    INVESTMENT SECURITIES:

 

Mortgage-backed securities GSE residential. The unrealized losses on the Company’s investment in six mortgage-backed securities GSE residential were caused by interest rate increases. The contractual cash flows of those investments are guaranteed by an agency of the U.S. Government. Accordingly, it is expected that the securities would not be settled at a price less than the amortized cost bases of the Company’s investments. Because the decline in market value is attributable to changes in interest rates and not credit quality, and because the Company does not intend to sell the investments and because it is not more likely than not that the Company will be required to sell the investments before recovery of their amortized cost bases, which may be maturity, the Company does not consider those investments to be other-than-temporarily impaired at March 31, 2012.

 

4.                    LOANS AND ALLOWANCE FOR LOAN LOSSES:

 

The composition of loans as of March 31, 2012 and December 31, 2011 is summarized as follows:

 

 

 

March 31, 2012

 

December 31, 2011

 

Construction and development

 

$

8,251,549

 

$

9,255,356

 

Real estate - mortgage

 

7,351,740

 

7,676,754

 

Commercial real estate

 

60,852,184

 

51,405,126

 

Commercial and industrial

 

4,572,278

 

7,282,319

 

Other

 

231,359

 

516,849

 

 

 

 

 

 

 

 

 

81,259,110

 

76,136,404

 

 

 

 

 

 

 

Unearned loan origination income

 

(87,003

)

(122,068

)

Allowance for loan losses

 

(1,652,347

)

(1,745,400

)

 

 

 

 

 

 

Loans, net

 

$

79,519,760

 

$

74,268,936

 

 

For purposes of the disclosures required pursuant to the adoption of amendments to ASC 310, the loan portfolio was disaggregated into segments. A portfolio segment is defined as the level at which an entity develops and documents a systematic method for determining its allowance for loan losses. There are five loan portfolio segments that include construction and development, real estate — mortgage, commercial real estate, commercial and industrial, and other.

 

Construction and Development

Loans in this segment include real estate development loans for which the source of repayment is the sale of the property as well as construction projects in which the property will ultimately be used by the borrower. Total construction and development loans as of March 31, 2012 were 10.2% of the total loan portfolio.

 

Real Estate - Mortgage

These are loans secured by real estate mortgages.  Total real estate mortgage loans as of March 31, 2012 were 9.0% of the total loan portfolio.

 

13



Table of Contents

 

TOUCHMARK BANCSHARES, INC.

AND SUBSIDIARY

 

Notes to Condensed Consolidated Financial Statements

(unaudited)

 

4.                    LOANS AND ALLOWANCE FOR LOAN LOSSES:

 

Commercial Real Estate

The commercial real estate portfolio represents the largest category of the Company’s loan portfolio.  These loans are primarily income-producing properties and are dependent upon the borrower’s cash flow.  Total commercial real estate loans as of March 31, 2012 were 74.9% of the total loan portfolio.

 

Commercial and Industrial

Loans in this segment are made to businesses and are generally secured by business assets.  Total commercial and industrial loans as of March 31, 2012 were 5.6% of the total loan portfolio.

 

Other

Loans in this segment are made to individuals and are secured by personal assets or unsecured.  Total other loans as of March 31, 2012 were 0.3% of the total loan portfolio.

 

Changes in the allowance for loan losses for the periods ended March 31, 2012 and 2011 are as follows:

 

 

 

March 31,

 

March 31,

 

 

 

2012

 

2011

 

Balance, beginning of year

 

$

1,745,400

 

$

3,462,375

 

Provision for loan losses

 

75,000

 

 

Loans charged off

 

(168,053

)

 

Recoveries

 

 

 

 

 

 

 

 

 

Balance, end of year

 

$

1,652,347

 

$

3,462,375

 

 

14



Table of Contents

 

TOUCHMARK BANCSHARES, INC.

AND SUBSIDIARY

 

Notes to Condensed Consolidated Financial Statements

(unaudited)

 

4.                    LOANS AND ALLOWANCE FOR LOAN LOSSES:

 

The allowance for loan losses as of March 31, 2012, by portfolio segment, is as follows:

 

 

 

Construction

 

 

 

Commercial

 

Commercial

 

 

 

 

 

 

 

 

 

and

 

Real Estate -

 

Real

 

and

 

 

 

 

 

 

 

 

 

Development

 

Mortgage

 

Estate

 

Industrial

 

Other

 

Unallocated

 

Total

 

Allowance for loan losses:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Beginning balance

 

$

564,176

 

$

145,288

 

$

572,763

 

$

145,418

 

$

28,438

 

$

289,317

 

$

1,745,400

 

Charge-offs

 

 

 

 

 

(168,053

)

 

(168,053

)

Recoveries

 

 

 

 

 

 

 

 

Provision

 

140,426

 

(15,736

)

74,785

 

(63,043

)

144,074

 

(205,506

)

75,000

 

Ending balance

 

$

704,602

 

$

129,552

 

$

647,548

 

$

82,375

 

$

4,459

 

$

83,811

 

$

1,652,347

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Ending balance: individually evalutated for impairment

 

$

 

$

 

$

 

$

 

$

 

$

 

$

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Ending balance: collectively evalutated for impairment

 

$

704,602

 

$

129,552

 

$

647,548

 

$

82,375

 

$

4,459

 

$

83,811

 

$

1,652,347

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Ending balance: loans acquired with deteriorated credit quality

 

$

 

$

 

$

 

$

 

$

 

$

 

$

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Loans:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Ending Balance

 

$

8,251,549

 

$

7,351,740

 

$

60,852,184

 

$

4,572,278

 

$

231,359

 

$

 

$

81,259,110

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Ending balance: individually evalutated for impairment

 

$

 

$

 

$

158,418

 

$

 

$

 

$

 

$

158,418

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Ending balance: collectively evalutated for impairment

 

$

8,251,549

 

$

7,351,740

 

$

60,693,766

 

$

4,572,278

 

$

231,359

 

$

 

$

81,100,692

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Ending balance: loans acquired with deteriorated credit quality

 

$

 

$

 

$

 

$

 

$

 

$

 

$

 

 

15



Table of Contents

 

TOUCHMARK BANCSHARES, INC.

AND SUBSIDIARY

 

Notes to Condensed Consolidated Financial Statements

(unaudited)

 

4.       LOANS AND ALLOWANCE FOR LOAN LOSSES:

 

The allowance for loan losses as of December 31, 2011, by portfolio segment, is as follows:

 

 

 

Construction

 

 

 

Commercial

 

Commercial

 

 

 

 

 

 

 

 

 

and

 

Real Estate -

 

Real

 

and

 

 

 

 

 

 

 

 

 

Development

 

Mortgage

 

Estate

 

Industrial

 

Other

 

Unallocated

 

Total

 

Allowance for loan losses:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Beginning balance

 

$

1,259,996

 

$

68,905

 

$

1,933,810

 

$

156,457

 

$

43,207

 

$

 

$

3,462,375

 

Charge-offs

 

(93,190

)

 

(1,833,348

)

 

 

 

(1,926,538

)

Recoveries

 

 

 

 

 

 

 

 

Provision

 

(602,630

)

76,383

 

472,301

 

(11,039

)

(14,769

)

289,317

 

209,563

 

Ending balance

 

$

564,176

 

$

145,288

 

$

572,763

 

$

145,418

 

$

28,438

 

$

289,317

 

$

1,745,400

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Ending balance: individually evalutated for impairment

 

$

 

$

 

$

 

$

 

$

 

$

 

$

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Ending balance: collectively evalutated for impairment

 

$

564,176

 

$

145,288

 

$

572,763

 

$

145,418

 

$

28,438

 

$

289,317

 

$

1,745,400

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Ending balance: loans acquired with deteriorated credit quality

 

$

 

$

 

$

 

$

 

$

 

$

 

$

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Loans:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Ending Balance

 

$

9,255,356

 

$

7,676,754

 

$

51,405,126

 

$

7,282,319

 

$

516,849

 

$

 

$

76,136,404

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Ending balance: individually evalutated for impairment

 

$

 

$

 

$

1,251,803

 

$

 

$

 

$

 

$

1,251,803

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Ending balance: collectively evalutated for impairment

 

$

9,255,356

 

$

7,676,754

 

$

50,153,323

 

$

7,282,319

 

$

516,849

 

$

 

$

74,884,601

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Ending balance: loans acquired with deteriorated credit quality

 

$

 

$

 

$

 

$

 

$

 

$

 

$

 

 

16



Table of Contents

 

TOUCHMARK BANCSHARES, INC.

AND SUBSIDIARY

 

Notes to Condensed Consolidated Financial Statements

(unaudited)

 

4.       LOANS AND ALLOWANCE FOR LOAN LOSSES:

 

The allowance for loan losses for the three months ended March 31, 2011, by portfolio segment, is as follows:

 

 

 

Construction
and
Development

 

Real Estate -
Mortgage

 

Commercial
Real
Estate

 

Commercial
and
Industrial

 

Other

 

Unallocated

 

Total

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Allowance for loan losses:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Beginning balance

 

$

1,259,996

 

$

68,905

 

$

1,933,810

 

$

156,457

 

$

43,207

 

$

 

$

3,462,375

 

Charge-offs

 

 

 

 

 

 

 

 

Recoveries

 

 

 

 

 

 

 

 

Provision

 

 

 

 

 

 

 

 

Reallocation

 

(81,645

)

(41,111

)

(464,226

)

583,967

 

3,315

 

 

 

Ending balance

 

$

1,178,351

 

$

27,494

 

$

1,469,584

 

$

740,424

 

$

46,522

 

 

$

3,462,375

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Ending balance: individually evaluated for impairment

 

$

 

$

 

$

932,951

 

$

 

$

 

$

 

$

932,951

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Ending balance: collectively evaluated for impairment

 

$

1,178,351

 

$

27,494

 

$

536,633

 

$

740,424

 

$

46,522

 

$

 

$

2,529,424

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Ending balance: loans acquired with deteriorated credit quality

 

$

 

$

 

$

 

$

 

$

 

 

$

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Gross Loans:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Ending Balance

 

$

15,055,020

 

$

8,459,896

 

$

52,936,202

 

$

8,608,155

 

$

581,905

 

 

$

85,641,178

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Ending balance: individually evaluated for impairment

 

$

2,043,300

 

$

 

$

5,920,765

 

$

 

$

 

 

$

7,964,065

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Ending balance: collectively evaluated for impairment

 

$

13,011,720

 

$

8,459,896

 

$

47,015,437

 

$

8,608,155

 

$

581,905

 

 

$

77,677,113

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Ending balance :loans acquired with deteriorated credit quality

 

$

 

$

 

$

518,995

 

$

 

$

 

 

$

518,995

 

 

17



Table of Contents

 

TOUCHMARK BANCSHARES, INC.

AND SUBSIDIARY

 

Notes to Condensed Consolidated Financial Statements

(unaudited)

 

4.       LOANS AND ALLOWANCE FOR LOAN LOSSES:

 

Historically, the bank used a combination of peer loss history and its own loss history for its various loan types in arriving at its allowance for loan and lease loss (ALLL). Management revisited the Bank’s methodology after the second quarter of 2011 for the purposes of determining the most effective means for arriving at an appropriate allowance for loan loss balance commensurate with the Bank’s size and level of complexity.

 

Management concluded that a loss migration analysis based on the Bank’s internal loan risk rating system provides a more precise and accurate estimate of potential losses within the loan portfolio. The basis for determining the appropriateness of the allowance for loan losses under the revised methodology focuses on the Bank’s internal risk rated loss experience over a rolling eight quarter period as opposed to reliance on peer group data.

 

Impaired loans as of March 31, 2012 and December 31, 2011, by portfolio segment, are as follows:

 

 

 

Unpaid

 

Recorded

 

Recorded

 

 

 

 

 

 

 

Total

 

Investment

 

Investment

 

Total

 

 

 

 

 

Principal

 

With No

 

With

 

Recorded

 

Related

 

 

 

Balance

 

Allowance

 

Allowance

 

Investment

 

Allowance

 

As of March 31, 2012

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Construction and development

 

$

 

$

 

$

 

$

 

$

 

Real estate - mortgage

 

 

 

 

 

 

Commercial real estate

 

417,212

 

158,418

 

 

158,418

 

 

Commercial and industrial

 

 

 

 

 

 

Other

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total

 

$

417,212

 

$

158,418

 

$

 

$

158,418

 

$

 

 

 

 

 

 

 

 

 

 

 

 

 

As of December 31, 2011

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Construction and development

 

$

 

$

 

$

 

$

 

$

 

Real estate - mortgage

 

 

 

 

 

 

Commercial real estate

 

3,925,636

 

1,251,803

 

 

1,251,803

 

 

Commercial and industrial

 

 

 

 

 

 

Other

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total

 

$

3,925,636

 

$

1,251,803

 

$

 

$

1,251,803

 

$

 

 

18



Table of Contents

 

TOUCHMARK BANCSHARES, INC.

AND SUBSIDIARY

 

Notes to Condensed Consolidated Financial Statements

(unaudited)

 

4.       LOANS AND ALLOWANCE FOR LOAN LOSSES:

 

 

 

Three Months Ended

 

Year Ended

 

 

 

March 31, 2012

 

December 31, 2011

 

 

 

Average

 

 

 

Average

 

 

 

 

 

Recorded

 

Income

 

Recorded

 

Income

 

 

 

Investment

 

Recognized

 

Investment

 

Recognized

 

Construction and development

 

$

 

$

 

$

 

$

 

Real estate - mortgage

 

 

 

 

 

Commercial real estate

 

705,111

 

 

1,495,372

 

 

Commercial and industrial

 

 

 

 

 

Other

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total

 

$

705,111

 

$

 

$

1,495,372

 

$

 

 

A primary credit quality indicator for financial institutions is delinquent balances.  Following are the delinquent amounts, by portfolio segment, as of March 31, 2012 and December 31, 2011: