XNAS:FBSS Fauquier Bankshares Inc Quarterly Report 10-Q Filing - 3/31/2012

Effective Date 3/31/2012

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UNITED STATES
 SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 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
 
or
 
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 No.: 000-25805

Fauquier Bankshares, Inc.
(Exact name of registrant as specified in its charter)
 
Virginia
 
54-1288193
(State or other jurisdiction of  incorporation or organization)
 
(I.R.S. Employer Identification No.)
     
10 Courthouse Square, Warrenton, Virginia   20186
 (Address of principal executive offices)    (Zip Code) 
 
(540) 347-2700
(Registrant's telephone number, including area code)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
Yes x Noo
 
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).
Yes x 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 the definitions of “large accelerated filer,” “accelerated filer,” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):
 
Large accelerated filer o Accelerated filer  o Non-accelerated filer o Smaller reporting company x
 
Indicate by check mark if the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act.)
Yeso No x
 
The registrant had 3,695,160 shares of common stock outstanding as of May 4, 2012.
 


 
 

 
 
FAUQUIER BANKSHARES, INC.
 
 
Part I.   FINANCIAL INFORMATION  
     
Page
Item 1.
  3
       
    3
       
    4
       
    Consolidated Statements of Comprehensive Income (unaudited) for the Three Months Ended March 31, 2012 and 2011  5
       
    6
       
    7
       
    8
       
Item 2
  28
       
Item 3.
  38
       
Item 4.
  38
       
Part II.  OTHER INFORMATION  
       
Item 1.
  38
       
Item 1A.
  38
       
Item 2
  38
       
Item 3.
  38
       
Item 4.
  38
       
Item 5.
  39
       
Item 6.
  39
       
40
 
 
2

 
Part I. FINANCIAL INFORMATION

Fauquier Bankshares, Inc. and Subsidiaries

   
March 31,
   
December 31,
 
   
2012
   
2011
 
   
(Unaudited)
   
(Audited)
 
Assets
           
Cash and due from banks
  $ 4,534,587     $ 5,544,545  
Interest-bearing deposits in other banks
    40,143,034       66,607,776  
Federal funds sold
    7,906       7,904  
Securities available for sale, net
    56,511,993       47,649,479  
Restricted investments
    2,557,300       2,543,200  
Loans
    457,214,931       458,813,851  
Allowance for loan losses
    (6,877,319 )     (6,728,320 )
Net loans
    450,337,612       452,085,531  
Bank premises and equipment, net
    15,076,195       14,788,611  
Accrued interest receivable
    1,464,358       1,533,758  
Other real estate owned, net of allowance
    1,776,000       1,776,000  
Bank-owned life insurance
    11,725,479       11,621,158  
Other assets
    10,077,679       10,066,086  
Total assets
  $ 594,212,143     $ 614,224,048  
                 
Liabilities
               
Deposits:
               
Noninterest-bearing
  $ 83,423,647     $ 75,310,509  
Interest-bearing:
               
NOW accounts
    169,850,661       184,383,523  
Savings accounts and money market accounts
    106,853,421       107,004,349  
Time deposits
    151,051,549       163,871,068  
Total interest-bearing
    427,755,631       455,258,940  
Total deposits
    511,179,278       530,569,449  
                 
Federal Home Loan Bank advances
    25,000,000       25,000,000  
Company-obligated mandatorily redeemable capital securities
    4,124,000       4,124,000  
Other liabilities
    5,853,350       6,959,739  
Commitments and contingencies
    -       -  
Total liabilities
    546,156,628       566,653,188  
                 
Shareholders' Equity
               
Common stock, par value, $3.13; authorized 8,000,000 shares; issued and outstanding: 2012: 3,695,160 shares including 31,423 nonvested shares: 2011: 3,669,758 shares including 32,572 nonvested shares
    11,467,497       11,384,392  
Retained earnings
    38,118,777       37,503,865  
Accumulated other comprehensive income (loss), net
    (1,530,759 )     (1,317,397 )
Total shareholders' equity
    48,055,515       47,570,860  
                 
Total liabilities and shareholders' equity
  $ 594,212,143     $ 614,224,048  

See accompanying Notes to Consolidated Financial Statements.
 
 
3


Fauquier Bankshares, Inc. and Subsidiaries
(Unaudited)
For the Three Months Ended March 31, 2012 and 2011

   
2012
   
2011
 
Interest Income
           
Interest and fees on loans
  $ 6,120,665     $ 6,505,194  
Interest and dividends on securities available for sale:
               
Taxable interest income
    265,969       240,107  
Interest income exempt from federal income taxes
    61,508       57,884  
Dividends
    21,633       10,690  
Interest on federal funds sold
    4       7  
Interest on deposits in other banks
    37,456       25,003  
Total interest income
    6,507,235       6,838,885  
                 
Interest Expense
               
Interest on deposits
    815,082       1,007,396  
Interest on federal funds purchased
    14       13  
Interest on Federal Home Loan Bank advances
    246,813       244,246  
Distribution on capital securities of subsidiary trusts
    49,933       49,101  
Total interest expense
    1,111,842       1,300,756  
                 
Net interest income
    5,395,393       5,538,129  
                 
Provision for loan losses
    500,000       462,501  
                 
Net interest income after provision for loan losses
    4,895,393       5,075,628  
                 
Other Income
               
Trust and estate income
    341,557       301,868  
Brokerage income
    81,676       111,690  
Service charges on deposit accounts
    691,924       672,455  
Other service charges, commissions and income
    366,417       349,494  
Total other-than-temporary impairment losses on securities
    -       (228,306 )
Less: Portion of gain/(loss) recognized in other comprehensive income before taxes
    -       (39,179 )
Net other-than-temporary impairment losses on securities
    -       (189,127 )
Gain on sale of securities
    401       1,013  
Total other income
    1,481,975       1,247,393  
                 
Other Expenses
               
Salaries and benefits
    2,704,352       2,709,575  
Occupancy expense of premises
    471,558       476,141  
Furniture and equipment
    276,171       318,436  
Marketing expense
    164,726       137,516  
Legal, audit and consulting expense
    257,444       269,681  
Data processing expense
    311,618       295,359  
Federal Deposit Insurance Corporation expense
    117,146       197,797  
(Gain) loss on sale or impairment and expense of other real estate owned
    5,037       -  
Other operating expenses
    802,642       726,227  
Total other expenses
    5,110,694       5,130,732  
                 
Income before income taxes
    1,266,674       1,192,289  
                 
Income tax expense
    312,859       271,403  
                 
Net Income
  $ 953,815     $ 920,886  
                 
Earnings per Share, basic
  $ 0.26     $ 0.25  
                 
Earnings per Share, assuming dilution
  $ 0.26     $ 0.25  
                 
Dividends per Share
  $ 0.12     $ 0.12  

See accompanying Notes to Consolidated Financial Statements.
 
 
4


Fauquier Bankshares, Inc. and Subsidiaries
(Unaudited)
For the Three Months Ended March 31, 2012 and 2011

   
2012
   
2011
 
Net Income
  $ 953,815     $ 920,886  
Other comprehensive income (loss), net of tax:
               
Change in fair value of securities available-for-sale net of tax benefit of $28,659 in 2012 and tax of $17,293 in 2011
    (55,632 )     33,569  
Interest rate swap, net of tax benefit of $81,119 in 2012 and $18,157 in 2011
    (157,466 )     35,247  
Adjustment for reclassification for other than temporary impairment net of tax benefit of $64,304 in 2011
    -       124,824  
Adjustment for gain on sale of securities available for sale, net of taxes of $137 in 2012 and $344 in 2011
    (264     (669)  
Total other comprehensive income (loss) net of tax
    (213,362 )     192,971  
Comprehensive Income
  $ 740,453     $ 1,113,857  
 
See accompanying Notes to Consolidated Financial Statements.

 
5

 
Fauquier Bankshares, Inc. and Subsidiaries
For the Three Months Ended March 31, 2012 and 2011

   
Common
Stock
   
Retained
Earnings
   
Accumulated Other
Comprehensive Income
(Loss)
   
Total
 
Balance, December 31, 2010
  $ 11,277,346     $ 34,892,905     $ (2,064,688 )   $ 44,105,563  
Net income
            920,886               920,886  
Other comprehensive income net of tax of $99,409
                  $ 192,971       192,971  
                                 
Cash dividends ($.12 per share)
            (440,371 )             (440,371 )
Amortization of unearned compensation, restricted stock awards
            35,279               35,279  
Issuance of common stock - nonvested shares  (10,914 shares)
    34,161       (34,161 )             -  
Issuance of common stock - vested shares  (4,752 shares)
    14,874       53,080               67,954  
Exercise of stock options
    58,011       91,558               149,569  
Balance, March 31, 2011
  $ 11,384,392     $ 35,519,176     $ (1,871,717 )   $ 45,031,851  
                                 
Balance, December 31, 2011
  $ 11,384,392     $ 37,503,865     $ (1,317,397 )   $ 47,570,860  
Net income
            953,815               953,815  
Other comprehensive income net of tax of $109,915
                     (213,362     (213,362 )
                                 
Cash dividends ($.12 per share)
            (443,419 )             (443,419 )
Amortization of unearned compensation, restricted stock awards
            34,468               34,468  
Issuance of common stock - nonvested shares  (13,074 shares)
    40,922       (40,922 )                
Issuance of common stock - vested shares  (13,477 shares)
    42,183       110,970               153,153  
Balance, March 31, 2012
  $ 11,467,497     $ 38,118,777     $ (1,530,759 )   $ 48,055,515  

See accompanying Notes to Consolidated Financial Statements

 
6

 
Fauquier Bankshares, Inc. and Subsidiaries
For the Three Months Ended March 31, 2012 and 2011
(Unaudited)

   
2012
   
2011
 
Cash Flows from Operating Activities
           
Net income
  $ 953,815     $ 920,886  
Adjustments to reconcile net income to net cash provided by operating activities:
               
Depreciation and amortization
    280,521       303,682  
Provision for loan losses
    500,000       462,501  
(Gain) on sale and call of securities
    (401 )     (1,013 )
Loss on impairment of securities
    -       189,127  
Amortization of security premiums, net
    6,235       24,968  
Amortization of unearned compensation, net of forfeiture
    34,468       35,279  
Changes in assets and liabilities:
               
(Increase) in other assets
    (115,167 )     (195,357 )
(Decrease) increase in other liabilities
    (1,166,406     126,928  
Net cash provided by operating activities
    493,065       1,867,001  
                 
Cash Flows from Investing Activities
               
Proceeds from maturities, calls and principal payments of securities available for sale
    3,945,970       3,081,822  
Purchase of securities available for sale
    (12,899,010 )     (5,350,526 )
Purchase of premises and equipment
    (568,105     (322,455 )
Purchase of restricted securities
    (14,100     -  
Net decrease in loans
    1,247,919       4,882,418  
Net cash (used in) provided by investing activities
    (8,287,326 )     2,291,259  
                 
Cash Flows from Financing Activities
               
Net increase (decrease) in demand deposits, NOW accounts and savings accounts
    (6,570,652 )     2,138,481  
Net (decrease) in certificates of deposit
    (12,819,519 )     (7,681,936 )
Cash dividends paid on common stock
    (443,419 )     (440,371 )
Issuance of common stock
    153,153       217,523  
Net cash (used in) financing activities
    (19,680,437 )     (5,766,303 )
                 
(Decrease) in cash and cash equivalents
    (27,474,698 )     (1,608,043 )
                 
Cash and Cash Equivalents
               
Beginning
    72,160,225       47,182,499  
                 
Ending
  $ 44,685,527     $ 45,574,456  
                 
Supplemental Disclosures of Cash Flow Information
               
Cash payments for
               
Interest
  $ 1,104,541     $ 1,291,761  
                 
Income taxes
  $ -     $ -  
                 
Supplemental Disclosures of Noncash Investing Activities
               
Unrealized gain on securities available for sale, net of tax effect
  $ (55,896 )   $ 157,724  
Foreclosed assets acquired in settlement of loans
  $ -     $ 412,000  
Unrealized gain (loss) on interest rate swap, net of taxes
  $ (157,466 )   $ 35,247  

See accompanying Notes to Consolidated Financial Statements.
 
 
7

 
FAUQUIER BANKSHARES, INC. AND SUBSIDIARIES

Note 1.
General

The consolidated financial statements include the accounts of Fauquier Bankshares, Inc. (“the Company”) and its wholly-owned subsidiaries: The Fauquier Bank (“the Bank”) and Fauquier Statutory Trust II; and the Bank's wholly-owned subsidiary, Fauquier Bank Services, Inc.  In consolidation, significant intercompany financial balances and transactions have been eliminated.  In the opinion of management, the accompanying unaudited consolidated financial statements contain all adjustments (consisting of only normal recurring accruals) necessary to present fairly the financial positions as of March 31, 2012 and December 31, 2011 and the results of operations for the three ended March 31, 2012 and  2011.  The notes included herein should be read in conjunction with the consolidated financial statements and accompanying notes included in the Company’s 2011 Annual Report on Form 10-K filed with the Securities and Exchange Commission (the “SEC”).

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

Recent Accounting Pronouncements
 
In April 2011, the FASB issued ASU 2011-03, “Transfers and Servicing (Topic 860) – Reconsideration of Effective Control for Repurchase Agreements.”  The amendments in this ASU remove from the assessment of effective control (1) the criterion requiring the transferor to have the ability to repurchase or redeem the financial assets on substantially the agreed terms, even in the event of default by the transferee and (2) the collateral maintenance implementation guidance related to that criterion.  The amendments in this ASU are effective for the first interim or annual period beginning on or after December 15, 2011. The guidance should be applied prospectively to transactions or modifications of existing transactions that occur on or after the effective date.  Early adoption is not permitted. The adoption of the new guidance did not have a material impact on the Company's consolidated financial statements.
 
In May 2011, the FASB issued Accounting Standards Update ("ASU 2011-04"), “Fair Value Measurement (Topic 820) – Amendments to Achieve Common Fair Value Measurement and Disclosure Requirements in U.S. GAAP and IFRSs.”  This ASU is the result of joint efforts by the FASB and International Accounting Standards Board    to develop a single, converged fair value framework on how (not when) to measure fair value and what disclosures to provide about fair value measurements.  The ASU is largely consistent with existing fair value measurement principles in U.S. GAAP (Topic 820), with many of the amendments made to eliminate unnecessary wording differences between U.S. GAAP and International Financial Reporting Standards .  The amendments are effective for interim and annual periods beginning after December 15, 2011 with prospective application.  Early application is not permitted.  The Company has included the required disclosures in its consolidated financial statements.
 
 
8


In June 2011, the FASB issued ASU 2011-05, “Comprehensive Income (Topic 220) – Presentation of Comprehensive Income.”  The objective of this ASU is to improve the comparability, consistency and transparency of financial reporting and to increase the prominence of items reported in other comprehensive income by eliminating the option to present components of other comprehensive income as part of the statement of changes in stockholders’ equity.  The amendments require that all non-owner changes in stockholders’ equity be presented either in a single continuous statement of comprehensive income or in two separate but consecutive statements.  The single statement of comprehensive income should include the components of net income, a total for net income, the components of other comprehensive income, a total for other comprehensive income, and a total for comprehensive income.  In the two-statement approach, the first statement should present total net income and its components followed consecutively by a second statement that should present all the components of other comprehensive income, a total for other comprehensive income, and a total for comprehensive income.  The amendments do not change the items that must be reported in other comprehensive income, the option for an entity to present components of other comprehensive income either net of related tax effects or before related tax effects, or the calculation or reporting of earnings per share.  The amendments in this ASU should be applied retrospectively. The amendments are effective for fiscal years and interim periods within those years beginning after December 15, 2011.  Early adoption is permitted because compliance with the amendments is already permitted. The amendments do not require transition disclosures.  The Company has included the required disclosures in its consolidated financial statements.
 
In September 2011, the FASB issued ASU 2011-08, “Intangible – Goodwill and Other (Topic 350) – Testing Goodwill for Impairment.”  The amendments in this ASU permit an entity to first assess qualitative factors related to goodwill to determine whether it is more likely than not that the fair value of the reporting unit is less than its carrying amount as a basis for determining whether it is necessary to perform the two-step goodwill test described in Topic 350.  The more-likely-than-not threshold is defined as having a likelihood of more than 50 percent.  Under the amendments in this ASU, an entity is not required to calculate the fair value of a reporting unit unless the entity determines that it is more likely than not that its fair value is less than its carrying amount.  The amendments in this ASU are effective for annual and interim goodwill impairment tests performed for fiscal years beginning after December 15, 2010. Early adoption is permitted, including for annual and interim goodwill impairment tests performed as of a date before September 15, 2011, if an entity’s financial statements for the most recent annual or interim period have not yet been issued.  The adoption of the new guidance did not have a material impact on the Company's consolidated financial statements.
 
In December 2011, the FASB issued ASU 2011-11 , " Balance Sheet (Topic 210) - Disclosures about Offsetting Assets and Liabilities." This ASU requires entities to disclose both gross information and net information about both instruments and transactions eligible for offset in the balance sheet and instruments and transactions subject to an agreement similar to a master netting arrangement. An entity is required to apply the amendments for annual reporting periods beginning on or after January 1, 2013, and interim periods within those annual periods. An entity should provide the disclosures required by those amendments retrospectively for all comparative periods presented. The Company is currently assessing the impact that ASU 2011-11 will have on its consolidated financial statements.
 
In December 2011, the FASB issued ASU 2011-12, “Comprehensive Income (Topic 220) – Deferral of the Effective Date for Amendments to the Presentation of Reclassifications of Items Out of Accumulated Other Comprehensive Income in Accounting Standards Update No. 2011-05.”  The amendments are being made to allow FASB time to redeliberate whether to present on the face of the financial statements the effects of reclassifications out of accumulated other comprehensive income on the components of net income and other comprehensive income for all periods presented. While FASB is considering the operational concerns about the presentation requirements for reclassification adjustments and the needs of financial statement users for additional information about reclassification adjustments, entities should continue to report reclassifications out of accumulated other comprehensive income consistent with the presentation requirements in effect before ASU 2011-05.  All other requirements in ASU 2011-05 are not affected by ASU 2011-12, including the requirement to report comprehensive income either in a single continuous financial statement or in two separate but consecutive financial statements. Public entities should apply these requirements for fiscal years, and interim periods within those years, beginning after December 15, 2011. The  Company has included the required disclosures in its consolidated financial statements.
 
 
9

 
Note 2.
Securities

The amortized cost and fair value of securities available for sale, with unrealized gains and losses follows:

   
March 31, 2012
 
         
Gross Unrealized
   
Gross Unrealized
       
   
Amortized Cost
   
Gains
   
(Losses)
   
Fair Value
 
Obligations of U.S. Government corporations and agencies
  $ 47,735,941     $ 851,915     $ (50,492 )     48,537,364  
Obligations of states and political subdivisions
    6,789,999       557,393       -       7,347,392  
Corporate bonds
    3,815,864       -       (3,539,396 )     276,468  
Mutual funds
    339,430       11,339       -       350,769  
    $ 58,681,234     $ 1,420,647     $ (3,589,888 )   $ 56,511,993  
                                 
   
December 31, 2011
 
           
Gross Unrealized
   
Gross Unrealized
         
   
Amortized Cost
   
Gains
   
(Losses)
   
Fair Value
 
Obligations of U.S. Government corporations and agencies
  $ 38,811,926     $ 761,577     $ (1,672 )     39,571,831  
Obligations of states and political subdivisions
    6,791,235       604,331       (1,930 )     7,393,636  
Corporate bonds
    3,793,807       -       (3,458,833 )     334,974  
Mutual funds
    337,060       11,978       -       349,038  
    $ 49,734,028     $ 1,377,886     $ (3,462,435 )   $ 47,649,479  
 
The amortized cost and fair value of securities available for sale, by contractual maturity, are shown below.  Expected maturities may differ from contractual maturities because issuers may have the right to call or prepay obligations without penalties.

   
March 31, 2012
 
   
Amortized Cost
   
Fair Value
 
Due in one year or less
  $ 1,016,394     $ 1,018,407  
Due after one year through five years
    14,997,818       15,029,029  
Due after five years through ten years
    11,018,650       11,562,585  
Due after ten years
    31,308,942       28,551,203  
Equity securities     339,430       350,769  
      58,681,234       56,511,993  
 
There were no impairment losses on securities during the quarter ended March 31, 2012 and $189,000 during the quarter ended March 31, 2011.

During the quarter ended March 31, 2012, two securities were called totaling a fair value of $2.0 million, resulting in a gain of $401.
 
 
10


The following table shows the Company securities with gross unrealized losses and fair value, aggregated by investment category and length of time that individual securities have been in a continuous unrealized loss position, at March 31, 2012 and December 31, 2011, respectively.
 
   
Less than 12 Months
 
12 Months or More
 
Total
 
March 31, 2012
 
Fair Value
   
Unrealized
(Losses)
 
Fair Value
   
Unrealized
(Losses)
 
Fair Value
   
Unrealized
(Losses)
 
                                     
Obligations of U.S. Government, corporations and agencies
  $ 7,948,340     $ (50,492 )   $ -     $ -     7,948,340     (50,492 )
Obligations of states and political subdivisions
    -       -       -       -       -       -  
Corporate bonds
    -       -       276,468       (3,539,396 )     276,468       (3,539,396 )
Total temporary impaired securities
  $ 7,948,340     $ (50,492 )   $ 276,468     $ (3,539,396 )   $ 8,224,808     $ (3,589,888 )
 
   
Less than 12 Months
   
12 Months or More
   
Total
 
December 31, 2011
 
Fair Value
   
Unrealized
(Losses)
 
Fair Value
   
Unrealized
(Losses)
 
Fair Value
   
Unrealized
(Losses)
 
                                                 
Obligations of U.S. Government, corporations and agencies
  $ 1,997,300     $ (1,672 )   -     -     $ 1,997,300     $ (1,672 )
Obligations of states and political subdivisions
    514,895       (1,930 )     -       -       514,895       (1,930 )
Corporate bonds
                    334,974       (3,458,833 )     334,974       (3,458,833 )
Total temporary impaired securities
  $ 2,512,195     $ (3,602 )   $ 334,974     $ (3,458,833 )   $ 2,847,169     $ (3,462,435 )
 
The nature of securities which were temporarily impaired for a continuous 12 month period or more at March 31, 2012 consisted of four corporate bonds with a cost basis net of other-than-temporary impairment (“OTTI”)  totaling $3.8 million and a temporary loss of approximately $3.5 million. The method for valuing these four corporate bonds came from Moody's Analytics. Moody’s Analytics employs a two-step discounted cash-flow valuation process. The first step is to evaluate the financial condition of the individual creditors in order to estimate the credit quality of the collateral pool and the structural supports. Step two is to apply a discount rate to the cash flows to calculate a value. These four corporate bonds are the “Class B” or subordinated “mezzanine” tranche of pooled trust preferred securities. The trust preferred securities are collateralized by the interest and principal payments made on trust preferred capital offerings by a geographically diversified pool of approximately 60 different financial institutions per bond. They have an estimated maturity of 25 years. These bonds could have been called at par on the five year anniversary date of issuance, which has already passed for all four bonds.  The bonds reprice every three months at a fixed rate index above the three-month London Interbank Offered Rate (“LIBOR”).  These bonds have sufficient collateralization and cash flow projections to satisfy their valuation based on the cash flow portion of the OTTI test under authoritative accounting guidance as of March 31, 2012. All four bonds totaling $276,000 at fair value, are greater than 90 days past due, and are classified as nonperforming corporate bond investments in the nonperforming asset table in Note 3.
 
Additional information regarding each of the pooled trust preferred securities as of March 31, 2012 follows:

Cost, net of
OTTI loss
   
Fair Value
 
Percent of
Underlying
Collateral
Performing
  Percent of Underlying Collateral in Deferral   Percent of Underlying Collateral in Default   Estimated 
incremental
defaults required
to break yield (1)
  Current
Moody's
Rating
 
Cumulative
Amount of
OTTI Loss
   
Cumulative Other
Comprehensive
Loss, net of tax
benefit
 
$ 374,426     $ 5,994   50.0 %   25.7 %   24.3 %   
broken
  C   $ 625,574     $ 243,165  
  1,624,770       226,845   67.7 %   17.1 %    15.2 %   
broken
  Ca     375,230       922,630  
  1,271,911       29,507   61.5 %   30.9 %    7.6 %   
broken
  Ca     728,089       819,987  
  544,757       14,122   64.0 %   22.3 %    13.7 %   
broken
  C     455,243       350,219  
$ 3,815,864     $ 276,468                       $ 2,184,136     $ 2,336,001  
 
(1)
A break in yield for a given tranche investment means that defaults and/or deferrals have reached such a level that the specific tranche would not receive all of the contractual principal and interest cash flow by its maturity, resulting in not a temporary shortfall, but an actual loss. This column represents the percentage of additional defaults among the currently performing collateral that would result in other-than-temporary  loss.
 
 
11

 
The Company monitors these pooled trust preferred securities in its portfolio as to additional collateral issuer defaults and deferrals, which as a general rule, indicate that additional impairment may have occurred. Due to the continued stress on banks in general, and the issuer banks in particular, as a result of overall economic conditions, the Company anticipates having to recognize additional impairment in future periods; however the extent, timing, and probability of any additional impairment cannot be reasonably estimated at this time.

The following roll forward reflects the amount related to credit losses recognized in earnings (in accordance with FASB Accounting Standards Codification (“ASC”) 320-10-35-34D:
 
Beginning balance as of December 31, 2011
  $ 2,206,193  
Add: Amount related to the credit loss for which an other-than- temporary impairment was not previously recognized
    -  
Add: Increases to the amount related to the credit loss for which an other-than temporary impairment was previously recognized
    -  
Less: Realized losses for securities sold
    -  
Less: Securities for which the amount previously recognized in other comprehensive income was recognized in earnings because the Company intends to sell the security or more likely than not will be required to to sell the security before recovery of its amortized cost basis.
    -  
Less: Increases in cash flows expected to be collected that are recognized over the remaining life of the security (See FASB ASC 320-10-35-35)
    22,057  
Ending balance as of March 31, 2012
  $ 2,184,136  
 
The carrying value of securities pledged to secure deposits and for other purposes amounted to $41.0 million and $37.3 million at March 31, 2012 and December 31, 2011, respectively.
 
The Company’s restricted investments include an equity investment in the Federal Home Loan Bank of Atlanta (“FHLB”). FHLB stock is generally viewed as a long-term investment and as a restricted investment which is carried at cost because there is no market for the stock other than the FHLB or member institutions. Therefore, when evaluating FHLB stock for impairment, its value is based on ultimate recoverability of the par value rather than recognizing temporary declines in value. The Company does not consider this investment to be other-than-temporarily impaired at March 31, 2012, and no impairment has been recognized.
 
 
12


Note 3.
Loans and Allowance for Loan Losses
 
Allowance for Loan Losses and Recorded Investment in Loans Receivable

   
As of December 31, 2011 and for the Three Months Ended March 31, 2012
 
   
Commercial
and Industrial
   
Commercial
Real Estate
   
Commercial
Construction
   
Consumer
   
Residential
Real Estate
   
Home Equity
Line of Credit
   
Unallocated
   
Total
 
Allowance for Loan Losses
                                               
Beginning balance at 12/31/2011
  $ 794,647     $ 2,898,784     $ 195,376     $ 31,279     $ 1,584,277     $ 697,835     $ 526,122     $ 6,728,320  
Charge-offs
    (87,967 )     (46,185 )     -       (45,965 )     (27 )     (177,244 )     -       (357,388 )
Recoveries
    2,786       -       -       2,100       1,451       50       -       6,387  
Provision
    79,036       (87,517 )     (48,378 )     40,152       285,028       297,539       (65,860 )     500,000  
Ending balance at 3/31/2012
  $ 788,502     $ 2,765,082     $ 146,998     $ 27,566     $ 1,870,729     $ 818,180     $ 460,262     $ 6,877,319  
                                                                 
Ending balances individually evaluated for impairment
  $ 440,500     $ -     $ -     $ -     $ 207,700     $ -     $ -     $ 648,200  
                                                                 
Ending balances collectively evaluated for impairment
  $ 348,002     $ 2,765,082     $ 146,998     $ 27,566     $ 1,663,029     $ 818,180     $ 460,262     $ 6,229,119  
                                                                 
Loans Receivable                                                                
Individually evaluated for impairment
  $ 789,571     $ 4,787,000     $ -     $ -     $ 3,241,148     $ 443,754             $ 9,261,473  
Collectively evaluated for impairment
    28,012,825       199,734,061       33,966,156       4,889,579       137,032,147       44,318,690               447,953,458  
Ending balance at 3/31/2012
  $ 28,802,396     $ 204,521,061     $ 33,966,156     $ 4,889,579     $ 140,273,295     $ 44,762,444             $ 457,214,931  
 
   
As of and for the Period Ended December 31, 2011
 
   
Commercial
and Industrial
   
Commercial
Real Estate
   
Commercial
Construction
   
Consumer
   
Residential
Real Estate
   
Home Equity
Line of Credit
   
Unallocated
   
Total
 
Allowance for Loan Losses
                                               
Beginning balance at 12/31/2010
  $ 792,796     $ 2,320,692     $ 150,513     $ 314,580     $ 1,622,830     $ 1,105,782     $ -     $ 6,307,193  
Charge-offs
    (599,320 )     -       -       (60,251 )     (596,607 )     (471,752 )      -       (1,727,930 )
Recoveries
    11,750       160,724       -       39,863       -       3,382        -       215,719  
Provision
    589,421       417,368       44,863       (262,913     558,054       60,423       526,122       1,933,338  
Ending balance at 12/31/2011
  $ 794,647     $ 2,898,784     $ 195,376     $ 31,279     $ 1,584,277     $ 697,835     $ 526,122     $ 6,728,320  
                                                                 
Ending balances individually evaluated for impairment
  $ 434,844     $ -     $ -     $ -     $ 207,700     $ 37,000     $ -     $ 679,544  
                                                                 
Ending balances collectively evaluated for impairment
  $ 359,803     $ 2,898,784     $ 195,376     $ 31,279     $ 1,376,577     $ 660,835     $ 526,122     $ 6,048,776  
                                                                 
Loans Receivable
                                                               
Individually evaluated for impairment
  $ 1,029,765     $ 4,455,999     $ -     $ -     $ 3,324,388     $ 564,996             $ 9,375,148  
Collectively evaluated for impairment
    28,030,939       196,964,153       38,111,739       5,451,186       135,721,739       45,158,947               449,438,703  
Ending balance at 12/31/2011
  $ 29,060,704     $ 201,420,152     $ 38,111,739     $ 5,451,186     $ 139,046,127     $ 45,723,943             $ 458,813,851  
 
 
13

 
Credit Quality Indicators
 
   
As of March 31, 2012
 
   
Commercial
and Industrial
   
Commercial
Real Estate
   
Commercial
Construction
   
Consumer
   
Residential
Real Estate
   
Home Equity
Line of Credit
   
Total
 
Grade:
                                         
Pass
  $ 20,967,615     $ 151,541,940     $ 33,966,156     $ 4,700,590     $ 123,501,621     $ 39,620,907     $ 374,298,829  
Special mention
    2,513,121       29,172,472       -       112,879       8,457,385       2,877,851       43,133,708  
Substandard
    4,868,558       23,806,649       -       76,110       7,311,964       2,263,686       38,326,967  
Doubtful
    453,102       -       -       -       1,002,325       -       1,455,427  
Loss
    -       -       -       -       -       -       -  
Total
  $ 28,802,396     $ 204,521,061     $ 33,966,156     $ 4,889,579     $ 140,273,295     $ 44,762,444     $ 457,214,931  
 
   
As of December 31, 2011
 
   
Commercial
and Industrial
   
Commercial
Real Estate
   
Commercial
Construction
   
Consumer
   
Residential
Real Estate
   
Home Equity
Line of Credit
   
Total
 
Grade:
                                         
Pass
  $ 20,794,642     $ 149,140,329     $ 38,111,739     $ 5,289,040     $ 128,181,706     $ 42,532,255     $ 384,049,711  
Special mention
    2,901,436       27,414,713       -       82,624       3,422,104       1,067,145       34,888,022  
Substandard
    4,814,459       24,795,110       -       79,522       6,261,650       2,013,489       37,964,230  
Doubtful
    550,167       70,000       -       -       1,180,667       111,054       1,911,888  
Loss
    -       -       -       -       -       -       -  
Total
  $ 29,060,704     $ 201,420,152     $ 38,111,739     $ 5,451,186     $ 139,046,127     $ 45,723,943     $ 458,813,851  
 
Age Analysis of Past Due Loans Receivable
 
   
As of March 31, 2012
 
   
30-59 Days
Past Due
   
60-89 Days
Past Due
   
Greater
than 90
Days
   
Total
Past Due
   
Current
   
Total Financing
Receivables
   
Carrying
Amount > 90
Days and A
ccruing
   
Nonaccruals
 
Commercial and industrial
  $  943,917     $  -     $  135,802     $  1,079,719     $  27,722,677     $  28,802,396     $  -     $  789,573  
Commercial real estate
    2,900,669       74,431       265,813       3,240,913       201,280,148       204,521,061       -       601,251  
Commercial construction
    -       -       -       -       33,966,156       33,966,156       -       -  
Consumer
    126,560       30,140       -       156,700       4,732,879       4,889,579       -       -  
Residential real estate
    725,149       990,061       1,201,718       2,916,928       137,356,367       140,273,295       85,955       2,889,903  
Home equity line of credit
    579,807       129,790       357,473       1,067,070       43,695,374       44,762,444       -       565,526  
Total
  $ 5,276,102     $ 1,224,422     $ 1,960,806     $ 8,461,330     $ 448,753,601     $ 457,214,931     $ 85,955     $ 4,846,253  
 
   
As of December 31, 2011
 
   
30-59 Days
Past Due
   
60-89 Days
Past Due
   
Greater
than 90
Days
   
Total
Past Due
   
Current
   
Total Financing
Receivables
   
Carrying
Amount > 90
Days and
Accruing
   
Nonaccruals
 
Commercial and industrial
  $ 216,059     $ 164,011     $ 441,960     $ 822,030     $ 28,238,674     $ 29,060,704     $ -     $ 986,927  
Commercial real estate
    1,655,903       946,185       252,490       2,854,578       198,565,574       201,420,152       -       252,490  
Commercial construction
    371,235       -       -       371,235       37,740,504       38,111,739       -       -  
Consumer
    139,389       29,398       17,525       186,312       5,264,874       5,451,186       -       3,707  
Residential real estate
    1,463,022       992,914       1,683,649       4,139,585       134,906,542       139,046,127       101,347       2,928,567  
Home equity line of credit
    348,105       150,031       53,942       552,078       45,171,865       45,723,943       -       450,248  
Total
  $ 4,193,713     $ 2,282,539     $ 2,449,566     $ 8,925,818     $ 449,888,033     $ 458,813,851     $ 101,347     $ 4,621,939  

 
14

 
Impaired Loans Receivable

   
March 31, 2012
 
   
Recorded
Investment
 
Unpaid
Principal
Balance
 
Related
Allowance
 
Average
Recorded
 Investment
 
Interest
Income
Recognized
 
With no specific allowance recorded:
                             
Commercial and industrial
  $ 198,457     $ 198,457     $ -     $ 207,724     $ 1,240  
Commercial real estate
    4,787,000       4,787,000       -       4,797,196       102,966  
Commercial construction
    -       -       -       -       -  
Residential real estate
    1,970,979       1,970,979       -       1,977,100       1,717  
                                         
With an allowance recorded
                                       
Commercial and industrial
    591,114       591,114       440,500       591,539       506  
Commercial real estate
    -       -       -       -       -  
Commercial construction
    -       -       -       -       -  
Residential real estate
    1,713,923       1,713,923       207,700       1,726,487       2,824  
                                         
Total
                                       
Commercial and industrial
    789,571       789,571       440,500       799,263       1,746  
Commercial real estate
    4,787,000       4,787,000       -       4,797,196       102,966  
Commercial construction
    -       -       -       -       -  
Residential real estate
    3,684,902       3,684,902       207,700       3,703,587       4,541  
Total
  $ 9,261,473     $ 9,261,473     $ 648,200     $ 9,300,046     $ 109,253  
 
   
December 31, 2011
 
   
Recorded
Investment
 
Unpaid
Principal
Balance
 
Related
Allowance
 
Average
Recorded
Investment
 
Interest
Income
Recognized
 
With no specific allowance recorded:
                                       
Commercial and industrial
  $ 345,763     $ 345,763     $ -     $ 363,522     $ 16,884  
Commercial real estate
    4,455,998       4,455,998       -       4,516,083       377,074  
Commercial construction
    -       -       -       -       -  
Residential real estate
    2,038,951       2,038,951       -       2,082,239       40,409  
                                         
With an allowance recorded:
                                       
Commercial and industrial
    684,002       684,002       434,844       728,455       19,742  
Commercial real estate
    -       -       -       -       -  
Commercial construction
    -       -       -       -       -  
Residential real estate
    1,850,434       1,850,434       244,700       1,907,718       52,879  
                                         
Total:
                                       
Commercial and industrial
    1,029,765       1,029,765       434,844       1,091,977       36,626  
Commercial real estate     4,455,998       4,455,998       -       4,516,083       377,074  
Commercial construction
    -       -        -        -        -  
Residential real estate
    3,889,385        3,889,385       244,700        3,989,957        93,288  
Total
  9,375,148