PINX:FFIS Quarterly Report 10-Q Filing - 6/30/2012

Effective Date 6/30/2012



United States
Securities and Exchange Commission
Washington, D.C. 20549

FORM 10-Q
 
(MARK ONE)
 
þ   QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 
FOR THE QUARTERLY PERIOD ENDED JUNE 30, 2012
 
o TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 
 1ST FINANCIAL SERVICES CORPORATION
(Exact name of the registrant as specified in its charter)
 
NORTH CAROLINA   000-53264   26-0207901
(State or other Jurisdiction of
incorporation or organization)
  (Commission File Number)  
(IRS Employer
Identification No.)
 
   101 Jack Street
Hendersonville, North Carolina 28792
(Address of Principal Executive Office)

  (828) 697-3100
(Registrant’s telephone number, including area code)

Not Applicable
(Former name, former address and former fiscal year, if changed since last report)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 of 15(d) of the Exchange Act during the past 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 þ   NO  o            

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Date 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 þ   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 definition 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   þ
 
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

YES o   NO  þ
 
Common Stock, $5 par value
5,214,482 shares outstanding as of August 10, 2012
 


 
 

 
 
1st Financial Services Corporation
Index

 
    Page Number
Part I.  FINANCIAL INFORMATION  
     
Item 1.
Financial Statements
 
     
 
Consolidated Balance Sheets as of June 30, 2012 (Unaudited) and December 31, 2011
1
     
 
Consolidated Statements of Operations for the Three and Six Months Ended June 30, 2012 and 2011 (Unaudited)
2
     
  Consolidated Statements of Comprehensive Income for the Three and Six Months Ended June 30, 2012 and 2011 (Unaudited) 3
     
  Consolidated Statements of Changes in Stockholders’ Equity for the Six Months Ended June 30, 2012 and 2011 (Unaudited) 4
     
 
Consolidated Statements of Cash Flows for the Six Months Ended June 30, 2012 and 2011 (Unaudited)
5
     
 
Notes to Consolidated Financial Statements (Unaudited)
6
     
Item 2.
Management’s Discussion and Analysis of Financial Condition and Results of Operations
36
     
Item 3.
Quantitative and Qualitative Disclosures about Market Risk
62
     
Item 4.
Controls and Procedures
62
     
Part II.  OTHER INFORMATION  
     
Item 1.
Legal Proceedings
63
     
Item 1A.
Risk Factors
63
     
Item 2.
Unregistered Sales of Equity Securities and Use of Proceeds
63
     
Item 3.
Defaults Upon Senior Securities
63
     
Item 4.
Mine Safety Disclosures
63
     
Item 5.
Other Information
63
     
Item 6.
Exhibits
63
     
Signatures 64
 
 
 

 
   
PART I – FINANCIAL INFORMATION
 
ITEM 1.
  FINANCIAL STATEMENTS
 
1st Financial Services Corporation
Consolidated Balance Sheets
June 30, 2012 (Unaudited) and December 31, 2011
 
(dollars in thousands, except share and per share data)
 
June 30
2012
 
December 31 2011
 
             
Assets
           
             
Cash and noninterest-bearing bank deposits
  $ 17,167     $ 15,579  
Due from Federal Reserve Bank
    29,296       16,170  
Interest-bearing deposits with banks
    3,877       5,554  
Total cash and cash equivalents
    50,340       37,303  
Investment securities available for sale
    236,595       195,485  
Investment securities held to maturity (fair value of $1,250 at June 30, 2012
 
and $4,378 at December 31, 2011
    1,250       4,167  
Restricted equity securities
    3,283       3,903  
Loans held for sale
    3,535       8,694  
Portfolio loans
    393,617       418,902  
Allowance for loan losses
    (10,295 )     (10,650 )
Net portfolio loans
    383,322       408,252  
Bank-owned life insurance
    13,147       12,952  
Property and equipment, net
    4,606       4,942  
Accrued interest receivable
    2,686       2,721  
Foreclosed real estate
    12,754       19,333  
Other assets
    2,626       2,273  
  Total assets
  $ 714,144     $ 700,025  
                 
Liabilities and Stockholders’ Equity
               
                 
Liabilities
               
Demand deposits
  $ 84,422     $ 76,874  
NOW accounts
    65,854       66,402  
Savings deposits
    160,576       137,062  
Money market accounts
    58,794       52,349  
Time deposits under $100
    156,405       170,633  
Time deposits of $100 and greater
    163,999       169,324  
Total deposits
    690,050       672,644  
Federal funds purchased and securities sold under
               
agreements to repurchase
    505       605  
Accrued interest payable
    763       1,052  
Other borrowings
    -       3,952  
Other liabilities
    3,407       3,230  
Total liabilities
    694,725       681,483  
                 
Stockholders’ equity
               
Preferred stock, no par value; 10,000,000 shares authorized; 16,369 shares
 
issued and outstanding
    16,090       15,989  
Common stock, $5.00 par value; 35,000,000 shares authorized;
         
5,214,482 and 5,168,546 shares issued and outstanding at June 30, 2012
 
and December 31, 2011, respectively
    26,072       25,843  
Common stock warrant
    1,016       1,016  
Additional paid-in capital
    16,926       17,173  
Retained deficit
    (41,415 )     (42,245 )
Accumulated other comprehensive income
    730       766  
Total stockholders’ equity
    19,419       18,542  
  Total liabilities and stockholders’ equity
  $ 714,144     $ 700,025  
 
See accompanying notes to consolidated financial statements
 
 
1

 
 
1st Financial Services Corporation
Consolidated Statements of Operations
Three and Six Months Ended June 30, 2012 and 2011 (Unaudited)
 
   
Three Months Ended June 30
   
Six Months Ended June 30
 
(dollars in thousands, except per share data)
 
2012
   
2011
   
2012
   
2011
 
Interest income
                       
Loans and fees on loans
  $ 5,120     $ 6,039     $ 10,484     $ 12,121  
Investment securities
    1,275       1,129       2,426       2,142  
Due from Federal Reserve Bank
    21       21       35       42  
Interest-earning deposits with banks
    14       22       29       40  
Total interest income
    6,430       7,211       12,974       14,345  
Interest expense
                               
Deposits
    1,506       1,891       3,103       3,921  
Federal funds purchased and securities sold under
                               
agreements to repurchase
    -       1       1       3  
Other borrowings
    -       6       -       17  
Total interest expense
    1,506       1,898       3,104       3,941  
Net interest income
    4,924       5,313       9,870       10,404  
Provision for loan losses
    935       2,120       2,040       2,806  
Net interest income after provision for loan losses
    3,989       3,193       7,830       7,598  
Noninterest income
                               
Service charges on deposit accounts
    370       385       727       760  
Mortgage services revenue
    618       423       1,241       993  
Other service charges and fees
    430       391       837       754  
Increase in cash surrender value of life insurance
    96       112       195       219  
Gains on sales of investment securities, net
    605       -       1,284       -  
USDA/SBA loan sale and servicing revenue
    28       12       592       224  
Other income
    87       49       144       78  
Total noninterest income
    2,234       1,372       5,020       3,028  
Noninterest expense
                               
Salaries and employee benefits
    2,467       2,106       4,862       4,458  
Occupancy
    343       219       686       587  
Equipment
    212       240       414       485  
Advertising
    59       76       108       128  
Data processing and telecommunications
    464       525       933       1,036  
Deposit insurance premiums
    604       408       1,220       958  
Professional fees
    138       74       227       231  
Printing and supplies
    28       37       56       81  
Foreclosed assets
    1,016       413       2,361       774  
Dues and subscriptions
    38       47       72       96  
Postage
    51       44       103       90  
Loan related expense
    201       1,145       449       1,372  
Corporate insurance
    76       56       124       107  
Other
    179       211       304       416  
Total noninterest expense
    5,876       5,601       11,919       10,819  
Income (loss) before income taxes
    347       (1,036 )     931       (193 )
Income tax expense (benefit)
    -       (528 )     -       (287 )
Net income (loss)
    347       (508 )     931       94  
Accretion of preferred stock to redemption value
    51       51       101       101  
Dividends on preferred stock
    205       205       409       409  
Net income (loss) available to common stockholders
  $ 91     $ (764 )   $ 421     $ (416 )
                                 
                                 
Basic net income (loss) per common share
  $ 0.02     $ (0.15 )   $ 0.08     $ (0.08 )
Diluted net income (loss) per common share
  $ 0.02     $ (0.15 )   $ 0.08     $ (0.08 )
Basic weighted-average common shares outstanding
    5,200,388       5,143,360       5,191,753       5,115,364  
Diluted weighted-average common shares outstanding
    5,200,388       5,143,360       5,191,753       5,115,364  

See accompying notes to consolidated financial statements
 
 
2

 
 
1st Financial Services Corporation
Consolidated Statements of Comprehensive Income
Three and Six Months Ended June 30, 2012 and 2011
 
   
Three Months Ended June 30
   
Six Months Ended June 30
(dollars in thousands)
 
2012
   
2011
   
2012
   
2011
 
Net income (loss)
  $ 347     $ (508 )   $ 931     $ 94  
Other comprehensive income (loss), before tax
                               
Investment securities available for sale
                               
Change in net unrealized gains during the period
    139       2,046       (1,342 )     1,730  
Reclassification adjustment included in net income
    605       -       1,284       -  
Other comprehensive income (loss), before tax
    744       2,046       (58 )     1,730  
Income tax expense (benefit) related to items of other comprehensive income (loss)
    287       714       (22 )     667  
Other comprehensive income (loss), net of tax
    457       1,332       (36 )     1,063  
Comprehensive income
  $ 804     $ 824     $ 895     $ 1,157  
 
See accompanying notes to consolidated financial statements
 
 
3

 
 
1st Financial Services Corporation
Consolidated Statements of Changes in Stockholders’ Equity
Six Months Ended June 30, 2012 and 2011 (Unaudited)
 
(dollars in thousands, except share data)
                                     
   
Common Stock
   
Preferred Stock
   
Additional
Paid-in
   
Retained
   
Accumulated Other
Comprehensive
Income
       
   
Shares
   
Amount
   
Warrant
   
Shares
   
Amount
   
Capital
   
Deficit
   
(Loss)
   
Total
 
Balance, December 31, 2010
    5,097,058     $ 25,485     $ 1,016       16,369     $ 15,786     $ 17,533     $ (21,563 )   $ (925 )   $ 37,332  
Issuance of common stock pursuant to restricted stock plan
    86,488       433       -       -       -       (433 )     -       -       -  
Common stock cancelled pursuant to restricted stock plan
    (15,000 )     (75 )     -       -       -       63       -       -       (12 )
Forfeiture of nonvested stock options
    -       -       -       -       -       (40 )     -       -       (40 )
Compensation expense related to restricted stock plan
    -       -       -       -       -       24       -       -       24  
Accretion of preferred stock to redemption value
    -       -       -       -       101       1       (101 )     -       1  
Net income
    -       -       -       -       -       -       94       -       94  
Other comprehensive income, net of tax
    -       -       -       -       -       -       -       1,063       1,063  
Balance, June 30, 2011
    5,168,546     $ 25,843     $ 1,016       16,369     $ 15,887     $ 17,148     $ (21,570 )   $ 138     $ 38,462  
                                                                         
Balance, December 31, 2011
    5,168,546     $ 25,843     $ 1,016       16,369     $ 15,989     $ 17,173     $ (42,245 )   $ 766     $ 18,542  
Issuance of common stock pursuant to restricted stock plan
    86,488       432       -       -       -       (432 )     -       -       -  
Common stock cancelled pursuant to restricted stock plan
    (40,552 )     (203 )     -       -       -       167       -       -       (36 )
Compensation expense related to restricted stock plan
    -       -       -       -       -       18       -       -       18  
Accretion of preferred stock to redemption value
    -       -       -       -       101       -       (101 )     -       -  
Net income
    -       -       -       -       -       -       931       -       931  
Other comprehensive income (loss), net of tax
    -       -       -       -       -       -       -       (36 )     (36 )
Balance, June 30, 2012
    5,214,482     $ 26,072     $ 1,016       16,369     $ 16,090     $ 16,926     $ (41,415 )   $ 730     $ 19,419  

See accompanying notes to consolidated financial statements
 
 
4

 
 
1st Financial Services Corporation
Consolidated Statements of Cash Flows
Six Months Ended June 30, 2012 and 2011 (Unaudited)
 
   
Six Months Ended June 30
 
(dollars in thousands)
 
2012
   
2011
 
Cash flows from operating activities
           
Net income
  $ 931     $ 94  
Adjustments to reconcile net income to net cash provided by operating activities:
 
Depreciation
    446       537  
Provision for loan losses
    2,040       2,806  
Deferred income taxes
    -       182  
Amortization of premium on securities, net of discount accretion
    681       267  
Origination of held-for-sale loans
    (45,057 )     (40,053 )
Proceeds from sales of held-for-sale loans
    51,316       48,249  
Net gains on sales of investment securities
    (1,284 )     -  
Net gains on sales of USDA and SBA loans
    (577 )     (201 )
Net gains on sales of held-for-sale loans
    (1,100 )     (916 )
Net loss on sale of foreclosed real estate
    145       321  
Net (gains) loss on sale of repossessed assets
    (57 )     2  
Net loss on sale or disposal of equipment
    36       2  
Stock compensation expense (benefit)
    (18 )     (16 )
Writedown of foreclosed real estate
    503       520  
Writedown of repossessed assets
    821       -  
Increase in cash surrender value of bank-owned life insurance
    (195 )     (219 )
Changes in assets and liabilities:
               
Accrued interest receivable
    35       (81 )
Other assets
    (1,170 )     1,900  
Accrued interest payable
    (289 )     (667 )
Other liabilities
    200       (456 )
Net cash provided by operating activities
    7,407       12,271  
Cash flows from investing activities
               
 Purchases of investment securities available for sale
    (152,098 )     (50,764 )
     Sales of investment securities available for sale
    42,844       -  
     Maturities of investment securities available for sale
    9,772       5,177  
     Calls of investment securities available for sale
    61,833       19,751  
     Maturities of investment securities held to maturity
    -       50  
     Redemptions of restricted equity securities
    807       921  
     Purchases of restricted equity securities
    (187 )     -  
     Proceeds from sale of foreclosed real estate
    10,161       1,230  
     Proceeds from sale of repossessed assets
    2,640       4  
     Net decrease in loans
    16,650       14,506  
     Purchases of property and equipment
    (146 )     (9 )
Net cash used by investing activities
    (7,724 )     (9,134 )
Cash flows from financing activities
               
     Net increase in deposits
    17,406       2,618  
     Net increase (decrease) in securities sold under agreements to repurchase and
 
  federal funds purchased
    (100 )     108  
     Repayment of FHLB advances
    (3,952 )     -  
 Net decrease in other borrowings
    -       (3,619 )
Net cash provided (used) by financing activities
    13,354       (893 )
Net increase in cash and cash equivalents
    13,037       2,244  
Cash and cash equivalents, beginning of year
    37,303       57,398  
Cash and cash equivalents, end of year
  $ 50,340     $ 59,642  
                 
Supplemental disclosure of cash flow information
               
Transfer of loans to foreclosed real estate
  $ 4,230     $ 3,012  
Transfer of loans to repossessed assets
    2,586       -  
Transfer of loans to held-to-maturity securities
    -       1,250  
Sales of nonaccrual loans
    -       300  
Transfer of held-to-maturity securities to available-for-sale securities
    2,917       -  

See accompanying notes to consolidated financial statements
 
 
5

 

1st Financial Services Corporation
Notes to Consolidated Financial Statements (Unaudited)
June 30, 2012


Note 1 - Organization and Summary of Significant Accounting Policies

Organization

1st Financial Services Corporation (1st Financial  or the  Company), a bank holding company registered under the Bank Holding Company Act of 1956, as amended, is the parent company for Mountain 1st Bank & Trust Company (the  Bank).  The Company essentially has no other assets or liabilities other than its investment in the Bank.  Clear Focus Holdings LLC, is a wholly owned real estate holdings subsidiary of the Bank.  The Company is regulated, supervised, and examined by the Board of Governors of the Federal Reserve System (the Federal Reserve).  The Company’s business activity consists of directing the activities of the Bank.  Accordingly, the information set forth in this report, including financial statements and related data, relates primarily to the Bank.

The Bank is a federally insured non-member commercial bank, incorporated under the laws of North Carolina on April 30, 2004.  The Bank commenced operations on May 14, 2004.  The Bank provides financial services through its branch network located in Western North Carolina and operates under the banking laws of North Carolina and the rules and regulations of the Federal Deposit Insurance Corporation (FDIC).  The Bank competes with other financial institutions and numerous other non-financial services commercial entities offering financial services products.  The Bank is further subject to the regulations of certain federal and state agencies and undergoes periodic examinations by those regulatory authorities.  The Bank’s customers are principally located in Western North Carolina.

Business Segments

The Company reports its activities as a single business segment.  In determining proper segment definition, the Company considers the materiality of a potential segment and components of the business about which financial information is available and regularly evaluated, relative to resource allocation and performance assessment.

Principles of Consolidation

The consolidated financial statements include the accounts of the Company, the Bank, and the Bank’s wholly owned subsidiary, Clear Focus Holdings, LLC.  All intercompany transactions and balances have been eliminated in consolidation.

Basis of Presentation

The accompanying unaudited consolidated financial statements were prepared in accordance with instructions for Form 10-Q and therefore do not include all disclosures required by generally accepted accounting principles for a complete presentation of financial statements.  In the opinion of management, the consolidated financial statements contain all adjustments necessary to present fairly the financial condition of the Company as of June 30, 2012, its results of operations and other comprehensive income for the three- and six-month periods ended June 30, 2012 and 2011 and its cash flows and changes in stockholders’ equity for the six-month periods ended June 30, 2012 and 2011.

Management believes all interim period adjustments are of a normal recurring nature.  These consolidated financial statements should be read in conjunction with the audited financial statements for the year ended December 31, 2011, contained in the Company’s filing on Form 10-K with the Securities and Exchange Commission.  The accounting policies of the Company and the Bank follow generally accepted accounting principles and practices within the financial services industry.

Estimates

The preparation of financial statements in conformity with generally accepted accounting principles 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 the reported amounts of income and expense for the periods presented.  Actual results could differ significantly from those estimates.
 
 
6

 
 
1st Financial Services Corporation
Notes to Consolidated Financial Statements (Unaudited)
June 30, 2012


Material estimates that are particularly susceptible to significant change in the near-term relate to the determination of the allowance for loan losses, the valuation of foreclosed real estate, the realization of the deferred tax asset, and the determination of the fair value of financial instruments.

Reclassifications

Certain amounts in the 2011 consolidated financial statements were reclassified to conform to the 2012 presentation.  These reclassifications had no effect on shareholders’ equity or results of operations as previously presented.

Risk and Uncertainties

In the normal course of business, the Company encounters two significant types of overall risk: economic and regulatory.  There are three main components of economic risk: credit risk, market risk, and concentration of credit risk.  Credit risk is the risk of default on the Company’s loan portfolios that results from borrowers’ inability or unwillingness to make contractually required payments, or default on repayment of investment securities.  Market risk includes primarily interest rate risk.  The Company is exposed to interest rate risk to the degree that its interest-bearing liabilities mature or reprice at different speeds, or different bases, than its interest-earning assets.  Market risk also reflects the risk of declines in the valuation of loans held for sale and in the value of the collateral underlying loans and the value of real estate held by the Company.  Concentration of credit risk refers to the risk that, if the Company extends a significant portion of its total outstanding credit to borrowers in a specific geographical area or industry or on the security of a specific form of collateral, the Company may experience disproportionately high levels of default and losses if those borrowers, or the value of such type of collateral, is adversely impacted by economic or other factors that are particularly applicable to such borrowers or collateral.  Concentration of credit risk is also similarly applicable to the investment securities portfolio.

The Company and the Bank are subject to the regulations of various government agencies.  These regulations can and do change significantly from period to period.  The Company and the Bank also undergo periodic examinations by regulatory agencies, which may subject them to changes with respect to asset valuations, amount of required allowance for loan loss, or operating restrictions.

Subsequent Events

We have evaluated events and transactions through our filing date for potential recognition or disclosure in the consolidated financial statements.

Recent Accounting Developments

The following is a summary of recent authoritative pronouncements that could impact the accounting, reporting and/or disclosure of financial information by the Company.

In September 2011, the Intangibles topic of the ASC was amended to permit an entity to consider qualitative factors to determine whether it is more likely than not that the fair value of a reporting unit is less than its carrying amount as a basis for determining whether it is necessary to perform the two-step goodwill impairment test.  These amendments were effective for the Company on January 1, 2012 and had no effect on the financial statements.

In April 2011, the criteria used to determine effective control of transferred assets in the Transfers and Servicing topic of the ASC was amended by ASU 2011-03.  The requirement for the transferor to have the ability to repurchase or redeem the financial assets on substantially the agreed terms and the collateral maintenance implementation guidance related to that criterion were removed from the assessment of effective control.  The other criteria to assess effective control were not changed.  The amendments were effective for the Company on January 1, 2012 and had no effect on the financial statements.

ASU 2011-04 was issued in May 2011 to amend the Fair Value Measurement topic of the ASC by clarifying the application of existing fair value measurement and disclosure requirements and by changing particular principles or requirements for measuring fair value or for disclosing information about fair value measurements.  The amendments were effective for the Company beginning January 1, 2012 and had no effect on the financial statements.
 
 
7

 
 
1st Financial Services Corporation
Notes to Consolidated Financial Statements (Unaudited)
June 30, 2012

 
The Comprehensive Income topic of the ASC was amended in June 2011.  The amendment eliminates the option to present other comprehensive income as a part of the statement of changes in stockholders’ equity and requires consecutive presentation of the statement of net income and other comprehensive income.  The amendments were applicable to the Company on January 1, 2012 and have been applied retrospectively.  In December 2011, the topic was further amended to defer the effective date of presenting reclassification adjustments from other comprehensive income to net income on the face of the financial statements.  Companies should continue to report reclassifications out of accumulated other comprehensive income consistent with the presentation requirements in effect prior to the amendments while FASB redeliberates future requirements.

Other accounting standards that have been issued or proposed by the FASB or other standards-setting bodies are not expected to have a material impact on the Company’s financial position, results of operations, or cash flows.

Note 2 - Enforcement Actions and Going Concern Considerations

Consent Order.  During 2009, the FDIC conducted a periodic examination of the Bank.  As a consequence of this examination, effective February 25, 2010, the Bank entered into a Stipulation to the Issuance of a Consent Order (the Stipulation) agreeing to the issuance of a Consent Order (the Consent Order) with the FDIC and the North Carolina Commissioner of Banks (the Commissioner).

Although the Bank neither admitted nor denied any unsafe or unsound banking practices or violations of law or regulation, it agreed to the Consent Order, which requires the Bank or its Board of Directors to undertake a number of actions:
 
 
 
enhance its supervision of the Bank’s activities.
 
 
 
assess the management team to ensure executive officers have the skills, training, abilities, and experience needed.
 
 
 
develop and implement a plan for achieving and maintaining Tier 1 Capital of at least 8% of total assets, a Total Risk Based Capital Ratio of at least 12%, and a fully funded allowance for loan and lease losses.
 
 
 
strengthen the Allowance policy of the Bank.
 
 
 
develop and implement a strategic plan.
 
 
 
not extend additional credit to any borrower who had a loan with the Bank that was charged off or who has a current loan that is classified “Loss” or “Doubtful”.
 
 
 
formulate a detailed plan to collect, charge off or improve the quality of each of its “Substandard” or “Doubtful” loans.
 
 
 
reduce loans in excess of $250,000 and classified as “Substandard” or “Doubtful” in accordance with a schedule required by the supervisory authorities.
 
 
 
cause full implementation of its loan underwriting, loan administration, loan documentation, and loan portfolio management policies.
 
 
 
adopt a loan review and grading system.
 
 
 
develop a plan to systematically reduce the concentration in a limited group of borrowers.
 
 
8

 
 
1st Financial Services Corporation
Notes to Consolidated Financial Statements (Unaudited)
June 30, 2012

 
 
 
enhance its review of its liquidity and implement a liquidity contingency and asset/liability management plan.
 
 
 
implement a plan and 2010 budget designed to improve and sustain earnings.

 
 
implement internal routine and control policies addressing concerns to enhance its safe and sound operation.
 
  
 
implement a comprehensive internal audit program and cause an effective system of internal and external audits to be in place.
 
 
 
implement a policy for managing its “owned real estate”.
 
 
 
forebear from soliciting and accepting “brokered deposits” without approval.

 
 
limit growth to 10% per year.
 
 
 
not pay dividends without prior approval.
 
 
 
implement policies to enhance the handling of transactions with officers and directors.
 
 
 
correct any violations of laws and regulations.
 
 
 
make quarterly progress reports.
 
The foregoing description is a summary of the material terms of the Consent Order and is qualified in its entirety by reference to the Consent Order.  The Consent Order will remain in effect until modified or terminated by the FDIC and the Commissioner.

The plans, policies, and procedures which the Bank is required to prepare under the Consent Order are subject to approval by the supervisory authorities before implementation.  During the period a consent order, having the general provisions discussed above, is in effect, the financial institution is discouraged from requesting approval to either expand through acquisitions or open additional branches.  Accordingly, the Bank will defer expanding its current markets or entering into new markets through acquisition or branching until the Consent Order is terminated.
 
Written Agreement.  As a direct consequence of the issuance of the Consent Order and the requirement the Company serve as a source of strength for the Bank, the Company executed a written agreement (the Written Agreement) with the Federal Reserve Bank of Richmond (the Federal Reserve Bank), effective October 13, 2010.

Although the Company neither admitted nor denied any unsafe or unsound banking practices or violations of law or regulation, it agreed to the Written Agreement, which requires it to undertake a number of actions, including, among other things that the Company or its Board of Directors shall:

  
take appropriate steps to fully utilize the Company’s financial and managerial resources, to serve as a source of strength to the Bank.

  
not declare or pay any dividends with approval.

  
not directly or indirectly take dividends from the Bank without approval.

  
not directly or indirectly, incur, increase, or guarantee any debt without approval.

  
not directly or indirectly, purchase or redeem any shares of its stock without approval.
 
 
9

 
 
1st Financial Services Corporation
Notes to Consolidated Financial Statements (Unaudited)
June 30, 2012

 
  
comply with the notice provisions of the Federal Deposit Insurance Act (the FDI Act) and Regulation Y of the Federal Reserve related to changes in executive officers and compensation matters.

  
submit a written capital plan that is acceptable to the FRB, implement the approved plan, and thereafter fully comply with it.

The Company and the Bank have taken and continue to take action to respond to the issues raised in the Consent Order and the Written Agreement.

Going Concern Considerations. The going concern assumption is a fundamental principle in the preparation of financial statements.  It is the responsibility of management to assess the Company’s ability to continue as a going concern.  In assessing this assumption, the Company has taken into account all available information about the future, which is at least, but is not limited to, 12 months from the balance sheet date.  The Bank has suffered recurring losses that have eroded regulatory capital ratios during the past three years, resulting from the extraordinary effects of what may ultimately be the worst economic downturn since the Great Depression.

The effects of the current economic environment are being felt across many industries, with financial services and residential real estate being particularly hard hit.  The effects of the economic downturn have been particularly severe during the last several years.  The Bank, with a loan portfolio consisting of a concentration in commercial real estate loans, has seen a decline in the value of the collateral securing its portfolio, as well as rapid deterioration in its borrowers’ cash flow and ability to repay their outstanding loans to the Bank.  As a result, the Bank’s level of nonperforming assets increased substantially during 2010 and 2011.  For 2011, the Bank recorded a $15.8 million provision to increase the allowance for loan losses to a level which, in management’s best judgment, adequately reflected the risk inherent in the loan portfolio as of December 31, 2011.  Nevertheless, given the current economic climate, management recognizes the possibility of further deterioration in the loan portfolio during 2012.  For 2011, the Bank recorded net loan charge-offs of $21.4 million, or 4.66% of average loans, as compared to net loan charge-offs of $24.5 million, or 4.71% of average loans, for 2010.

The Company and the Bank operate in a highly regulated industry and must plan for the liquidity needs of each entity separately.  A variety of sources of liquidity are available to the Bank to meet its short-term and long-term funding needs.  Although a number of these sources have been limited following execution of the Consent Order with the FDIC and the Commissioner and the Written Agreement with the Federal Reserve Bank, management has prepared forecasts of these sources of funds and the Bank’s projected uses of funds during 2012 in an effort to ensure the sources available are sufficient to meet the Bank’s projected liquidity needs for this period.  Management believes the Bank’s liquidity sources are adequate to meet its needs for at least the next 12 months, but if the Bank is unable to meet its liquidity needs, then the Bank may be placed into a federal conservatorship or receivership by the FDIC, with the FDIC appointed conservator or receiver.
 
The Company relies on dividends from the Bank as its primary source of liquidity.  The Company is a legal entity separate and distinct from the Bank.  Various legal limitations restrict the Bank from lending or otherwise supplying funds to the Company to meet its obligations, including paying dividends.  In addition, the terms of the Consent Order described above further limits the Bank’s ability to pay dividends to the Company to satisfy its funding needs.  Management believes the Bank's liquidity sources are adequate to meet its needs for at least the next 12 months, but if the Bank is unable to meet its liquidity needs, then the Bank may be placed into federal conservatorship or receivership by the FDIC, with the FDIC appointed conservator or receiver. 
 
The Company will also need to raise substantial additional capital to increase capital levels to meet the standards set forth by the Consent Order and Written Agreement.  There can be no assurances the Company will be successful in its efforts to raise additional capital in 2012 or at all.  Should these efforts be unsuccessful, due to the regulatory restrictions which exist that restrict cash payments between the Bank and the Company, the Company may be unable to realize its assets and discharge its liabilities in the normal course of business.
 
These matters raise substantial doubt about the Company’s ability to continue as a going concern.  As a result of management’s assessment of the Company’s ability to continue as a going concern, the accompanying consolidated financial statements for the Company have been prepared on a going concern basis, which contemplates the realization of assets and the discharge of liabilities in the normal course of business for the foreseeable future, and does not include any adjustments to reflect the possible future effects on the recoverability or classification of assets.
 
 
10

 
 
1st Financial Services Corporation
Notes to Consolidated Financial Statements (Unaudited)
June 30, 2012

 
Note 3 - Restrictions on Cash

The Company is required to maintain average reserve balances, computed by applying prescribed percentages to its various types of deposits, either at the Company or on deposit with the Federal Reserve Bank.  At June 30, 2012 and December 31, 2011, all required reserves were met by the Company’s vault cash.

At June 30, 2012 and December 31, 2011, cash and cash equivalents totaling $7.0 million and $6.9 million, respectively, were pledged as collateral against the Bank’s check clearing and debit card activity.

Note 4 - Investment Securities

The Company maintains a portfolio of investment securities as part of its asset/liability and liquidity management program, which emphasizes effective yields and maturities to match its funding needs.  The composition of the investment portfolio is examined periodically and appropriate realignments are initiated to meet liquidity and interest-rate sensitivity needs for the Company.

Unrealized gains and losses on available-for-sale securities are reported net of tax as a separate component of stockholders’ equity.  Realized gains and losses on the sale of available-for-sale securities are determined using the specific-identification method.  Premiums and discounts are recognized in interest income using the effective interest rate method over the period to maturity or call date.

Available-for-sale securities are reported at fair value and consist of bonds, notes, debentures, and certain equity securities not classified as trading securities or as held-to-maturity securities.  The Company held no private-label mortgage-backed securities; the mortgage-backed securities owned by the Company have been issued by governmental entities, such as Ginnie Mae, Freddie Mac, and Fannie Mae.  Investments in available-for-sale securities are as follows:

(in thousands)
                       
   
June 30, 2012
         
Gross
   
Gross
       
   
Amortized
   
Unrealized
   
Unrealized
   
Fair
 
   
Cost
   
Gains
   
Losses
   
Value
 
U.S. government agencies
  $ 30,775     $ 335     $ 102     $ 31,008  
Government-sponsored enterprises
    111,503       368       119       111,752  
Mortgage-backed securities
    93,129       786       80       93,835  
   Total
  $ 235,407     $ 1,489     $ 301     $ 236,595  
                                 
                                 
   
December 31, 2011
           
Gross
   
Gross
         
   
Amortized
   
Unrealized
   
Unrealized
   
Fair
 
   
Cost
   
Gains
   
Losses
   
Value
 
U.S. government agencies
  $ 18,182     $ 147     $ 114     $ 18,215  
Government-sponsored enterprises
    86,230       518       13       86,735  
Mortgage-backed securities
    89,825       844       134       90,535  
   Total
  $ 194,237     $ 1,509     $ 261     $ 195,485  
 
At June 30, 2012 and December 31, 2011, investment securities with an amortized cost of $29.2 million and $28.8 million and a fair value of $29.4 million and $29.2 million, respectively, were pledged as collateral for lines or credit, securities sold under agreements to repurchase, and other banking purposes.  During the six months ended June 30, 2012, proceeds from sales of investment securities were $42.8 million with gains recognized on the sales of $1.3 million.  No losses on sales of investment securities were recognized during the period.  U.S. government-sponsored securities totaling $61.8 million were called during the first six months of 2012.  During the first six months of 2011, there were no sales of investment securities.  During that period, U.S. government-sponsored securities totaling $19.8 million were called.
 
 
11

 
 
1st Financial Services Corporation
Notes to Consolidated Financial Statements (Unaudited)
June 30, 2012

 
Held-to-maturity securities are bonds, notes and debentures, for which the Company has the positive intent and ability to hold to maturity and are reported at cost, adjusted by premiums and discounts that are recognized in interest income using the effective interest rate method over the period to maturity or call date.  During the first six months of 2012, held-to-maturity securities with an amortized cost of $2.9 million and fair value of $3.2 million were transferred to available-for-sale.  Investments in held-to-maturity securities are as follows:

(in thousands)
                       
   
June 30, 2012
         
Gross
   
Gross
       
   
Amortized
   
Unrealized
   
Unrealized
   
Fair
 
   
Cost
   
Gains
   
Losses
   
Value
 
Other debt securities
  $ 1,250     $ -     $ -     $ 1,250  
Total
  $ 1,250     $ -     $ -     $ 1,250  
                                 
                                 
   
December 31, 2011
           
Gross
   
Gross
         
   
Amortized
   
Unrealized
   
Unrealized
   
Fair
 
   
Cost
   
Gains
   
Losses
   
Value
 
States and political subdivisions
  $ 2,917     $ 211     $ -     $ 3,128  
Other debt securities
    1,250       -       -       1,250  
Total
  $ 4,167     $ 211     $ -     $ 4,378  

Declines in the fair value of individual held-to-maturity and available-for-sale securities below cost that are other than temporary are reflected as write-downs of the individual securities to fair value.  Related write-downs are included in earnings as realized losses.  During the six months ended June 30, 2012 and 2011, the Company experienced no declines in the value of securities that were considered to be other than temporary in nature.

The following table details the gross unrealized losses and related fair values in the Company’s available-for-sale investment securities portfolio.  This information is aggregated by the length of time that individual securities have been in a continuous unrealized loss position.
 
 
12

 
 
1st Financial Services Corporation
Notes to Consolidated Financial Statements (Unaudited)
June 30, 2012

(in thousands)
                                   
   
June 30, 2012
   
Less Than 12 Months
   
12 Months or More
   
Total
 
   
Fair
   
Unrealized
   
Fair
   
Unrealized
   
Fair
   
Unrealized
 
   
Value
   
Losses
   
Value
   
Losses
   
Value
   
Losses
 
U. S. government agencies
  $ -     $ -     $ 2,235     $ 102     $ 2,235     $ 102  
Government-sponsored enterprises
    30,888       119       -       -       30,888       119  
Mortgage-backed securities
    15,791       62       1,408       18       17,199       80  
   Total
  $ 46,679     $ 181     $ 3,643     $ 120     $ 50,322     $ 301  
                                                 
                                                 
   
December 31, 2011
   
Less Than 12 Months
   
12 Months or More
   
Total
 
   
Fair
   
Unrealized
   
Fair
   
Unrealized
   
Fair
   
Unrealized
 
   
Value
   
Losses
   
Value
   
Losses
   
Value
   
Losses
 
U. S. government agencies
  $ 3,303     $ 1     $ 2,305     $ 113     $ 5,608     $ 114  
Government-sponsored enterprises
    6,985       13       -       -       6,985       13  
Mortgage-backed securities
    17,421       134       -       -       17,421       134  
   Total
  $ 27,709     $ 148     $ 2,305     $ 113     $ 30,014     $ 261  

As of June 30, 2012, one Fannie Mae mortgage-backed security and three individual U.S. government agency securities (two U.S. Department of Agriculture securities and one Small Business Administration security) were in a continuous loss position for 12 months or more.  As of December 31, 2011, only the three individual U.S. government agency securities referenced above were in a continuous loss position for 12 months or more.  The Company has the ability and intent to hold these three securities until such time as the value recovers or the security matures.  The Company believes, based on their credit ratings, the deterioration in value is attributable to changes in market interest rates and not in the credit quality of the issuer and therefore, these losses are not considered to be other than temporary.

No held-to-maturity securities were in an unrealized loss position at June 30, 2012 or December 31, 2011.

The aggregate amortized cost and fair value of available-for-sale and held-to-maturity investment securities by remaining contractual maturity are shown below.  Actual expected maturities differ from contractual maturities because issuers may have the right to call or prepay obligations.
 
 
13

 
 
1st Financial Services Corporation
Notes to Consolidated Financial Statements (Unaudited)
June 30, 2012


Available-for-Sale Investment Securities
                       
(in thousands)
                       
   
June 30, 2012
   
December 31, 2011
 
   
Amortized
   
Fair
   
Amortized
   
Fair
 
   
Cost
   
Value
   
Cost
   
Value
 
U. S. government agencies
                       
Due within one year
  $ -     $ -     $ 31     $ 31  
Due after one but within five years
    99       99       135       134  
Due after five but within ten years
    -       -       -       -  
Due after ten years
    30,676       30,909       18,016       18,050  
Government-sponsored enterprises
                               
Due within one year
    -       -       -       -  
Due after one but within five years
    -       -       -       -  
Due after five but within ten years
    43,530       43,727       52,236       52,668  
Due after ten years
    67,973       68,025       33,994       34,067  
Mortgage-backed securities
    93,129       93,835       89,825       90,535  
   Total
  $ 235,407     $ 236,595     $ 194,237     $ 195,485  
 
Held-to-Maturity Investment Securities
                               
(in thousands)
                               
   
June 30, 2012
   
December 31, 2011
 
   
Amortized
   
Fair
   
Amortized
   
Fair
 
   
Cost
   
Value
   
Cost
   
Value
 
States and political subdivisions
                               
Due within one year
  $ -     $ -     $ 100     $ 100  
Due after one but within five years
    -       -       401       432  
Due after five but within ten years
    -       -       200       232  
Due after ten years
    -       -       2,216       2,364  
Other debt securities
                               
Due within one year
    -       -       -       -  
Due after one but within five years
    -       -       -       -  
Due after five but within ten years
    1,250       1,250       1,250       1,250  
Due after ten years
    -       -       -       -  
Total
  $ 1,250     $ 1,250     $ 4,167     $ 4,378  
 
 
14

 
 
1st Financial Services Corporation
Notes to Consolidated Financial Statements (Unaudited)
June 30, 2012


Note 5 - Loans

Following is a summary of the major components of loans, excluding loans held for sale.
 
(in thousands)
           
   
June 30
   
December 31
 
   
2012
   
2011
 
Real estate:
           
Construction and development
  $ 74,359     $ 87,080  
1-4 family residential
    118,207       117,025  
Multifamily
    5,330       5,818  
Nonfarm, nonresidential
    153,189       159,120  
   Total real estate
    351,085       369,043  
Commercial and industrial
    39,508       46,873  
Consumer
    3,024       2,986  
      393,617       418,902  
Allowance for loan losses
    (10,295 )     (10,650 )
   Total
  $ 383,322     $ 408,252  

At June 30, 2012, the Company had $25.2 million in nonaccruing loans, compared to $33.7 million at December 31, 2011.  The year-to-date foregone interest associated with these loans, which averaged $27.7 million for the six months ended June 30, 2012, and $41.5 million for the comparable period in 2011, was $994,000 and $1.2 million for the respective periods.

Credit Quality Indicators.  As part of the on-going monitoring of the credit quality of the Company’s loan portfolio, management tracks certain credit quality indicators including trends related to (i) the weighted-average risk grade of commercial loans, (ii) the level of classified commercial loans, (iii) net charge-offs, (iv) non-performing loans and (v) the general economic conditions in the State of North Carolina.

The Company uses a risk grading matrix to assign a risk grade to each of its commercial loans.  Loans are graded on a scale of 1 to 9.  A description of the general characteristics of the nine risk grades is as follows:

Rating 1 – Extremely Low Risk.  Low Risk assets are of the highest quality with an unquestioned capacity for repayment.  These borrowers are generally international, national, or regional in scope and the debt rating, if available, is AAA (S&P) or Aaa (Moody’s).  The borrower has ready access to all public financing markets.  Management has a demonstrated successful track record and a succession plan is in place for highly qualified replacements.  Financial statements are audited without qualification by reputable CPA firms.  Loans are also considered extremely low risk prime when the collateral consists of properly margined Bank CDs and shorter-term U.S. government securities.

Rating 2 – Minimal Risk.  Minimal Risk assets have a history of consistently superior earnings and cash flow.  Very strong liquidity and low leverage.  The balance sheet is well capitalized and the secondary source of repayment is well defined and of unquestioned quality.  These borrowers also have ready access to all public finance markets as evidenced by debt ratings, if available, of AA (S&P) or Aaa (Moody’s).  These assets can also be those secured by properly margined long-term U.S. government bonds.

Rating 3 – Moderate Risk. Moderate Risk assets have consistently satisfactory earnings and cash flow.  They possess no disclosed weaknesses; however, financial analysis reveals factors such as leverage, liquidity, or debt service to be less than optimal or susceptible to changes in the business cycle.  Access to other financing sources exists and private placement may be possible.  Unqualified audited statements are preferred; however, reviewed statements are also acceptable.  The borrower may not be able to survive a significant downturn; however, the debt is supported by high quality unrestricted liquid collateral.
 
 
15

 
 
1st Financial Services Corporation
Notes to Consolidated Financial Statements (Unaudited)
June 30, 2012

 
Rating 4 – Satisfactory Risk.  Satisfactory Risk assets possess adequate earnings, cash flow, leverage, and capital when compared to their industry.  Debt service does not place an undue strain on the business.  The borrower is not strong enough to sustain major financial setbacks.  The asset has a readily apparent weakness such as being relatively new, new management with an unproven track record, low liquidity or equity, volatile profitability and cash flow. Guarantor(s) and collateral that provide an acceptable and readily quantifiable secondary source of repayment always support these assets.
 
Rating 5 – Acceptable Risk – “Management Watch.”  Acceptable Risk assets are those that warrant closer than normal attention due to adverse conditions affecting the borrower, the borrowers industry, or the general economic environment.  Above average risk is reflected through erratic earnings and cash flow, inconsistent debt service coverage, or strained liquidity or leverage.  Uncertain events may have taken place such as unanticipated management changes or pending litigation that could have a significant negative impact.  Collateral and/or guarantor(s) adequately protect these assets.

Rating 6 – Special Mention.  A Special Mention asset has potential weaknesses that deserve management’s close attention.  If left uncorrected, these potential weaknesses may result in deterioration of the repayment prospects for the asset or in the institution’s credit position at some future date.  Special Mention assets are not adversely classified and do not expose the Bank to sufficient risk to warrant adverse classification.

Rating 7 – Substandard.  Loans with a well-defined weakness, some loss may be possible, though not anticipated.  A Substandard asset is inadequately protected by the current sound worth and paying capacity of the obligor or of the collateral pledged, if any.  Assets so classified have a well-defined weakness or weaknesses that jeopardize the liquidation of the debt.  They are characterized by the distinct possibility the Bank will sustain some loss if the deficiencies are not corrected.  Loss potential, while existing in the aggregate amount of substandard assets, does not have to exist in individual assets classified substandard.

Rating 8 – Doubtful.  A Doubtful asset has all the weaknesses inherent in an asset classified substandard with the added characteristic that the weaknesses make collection or liquidation in full, on the basis of currently existing facts, conditions, and values, highly questionable and improbable.  The possibility of loss is extremely high, but because of certain important and reasonable specific pending factors that may work to the advantage and strengthening of the asset, its classification as an estimated loss is deferred until its more exact status may be determined.   Pending factors include proposed merger, acquisition, or liquidation procedures, capital injection, perfecting liens on additional collateral and refinancing plans.   A substandard credit with 50 percent or more liquidated collateral value shortfall would generally be considered doubtful, unless other substantive credit factors justified otherwise.

Rating 9 – Loss.  Assets classified as Loss are considered uncollectible and of such little value that their continuance as bankable assets is not warranted.  This classification does not mean the asset has absolutely no recovery or salvage value, but rather it is not practical or desirable to defer writing off this basically worthless asset even though partial recovery may be affected in the future.  Losses are taken in the period in which they determined to be uncollectible.

 
16

 

1st Financial Services Corporation
Notes to Consolidated Financial Statements (Unaudited)
June 30, 2012

 
Commercial loans with a risk rating of 1 through 5 are classified as “Pass” rated credits in the following tables.  Nonrated consumer loans are also classified as “Pass.”  The following is a summary of information pertaining to credit quality.

(in thousands)
                                   
   
June 30, 2012
 
   
Pass
   
Special
Mention
   
Substandard
   
Doubtful
   
Loss
   
Total
 
                                                 
Construction and development
  $ 42,548     $ 16,621     $ 15,190     $ -     $ -     $ 74,359  
1-4 family residential
    106,831       4,574       6,625       177       -       118,207  
Multifamily
    5,330       -       -       -       -       5,330  
Nonfarm, nonresidential
    119,784       13,983       19,310       112       -       153,189  
  Total real estate loans
    274,493       35,178       41,125       289       -       351,085  
Commercial and industrial
    34,023       4,227       1,258       -       -       39,508  
Consumer
    3,007       -       17       -       -       3,024  
Total
  $ 311,523     $ 39,405     $ 42,400     $ 289     $ -     $ 393,617  
                                                 
                                                 
                                                 
   
December 31, 2011
 
   
Pass
   
Special
Mention
   
Substandard
   
Doubtful
   
Loss
   
Total
 
                                                 
Construction and development
  $ 56,405     $ 13,034     $ 17,639     $ 2     $ -     $ 87,080  
1-4 family residential
    102,399       3,101       9,717       1,808       -       117,025  
Multifamily
    5,818       -       -       -       -       5,818  
Nonfarm, nonresidential
    123,852       13,724       21,432       112       -       159,120  
  Total real estate loans
    288,474       29,859       48,788       1,922       -       369,043  
Commercial and industrial
    37,521       4,917       3,836       599       -       46,873  
Consumer
    2,962       -       24       -       -       2,986  
Total
  $ 328,957     $ 34,776     $ 52,648     $ 2,521     $ -     $ 418,902  
 
 
17

 

1st Financial Services Corporation
Notes to Consolidated Financial Statements (Unaudited)
June 30, 2012

 
The following is a summary loan aging analysis.

(in thousands)
                                         
   
June 30, 2012
 
                           
Total
Past Due &
Nonaccrual
             
       Past Due and Accruing                    
   
30-59 days
   
60-89 days
   
90 or more days
   
Nonaccrual
       
Current
   
Total Loans
 
                                                         
Construction and development
  $ 30     $ -     $ -     $ 6,722     $ 6,752     $ 67,607     $ 74,359  
1-4 family residential
    681       16       -       8,030       8,727       109,480       118,207  
Multifamily
    -       -       -       -       -       5,330       5,330  
Nonfarm, nonresidential
    39       -       -       10,029       10,068       143,121       153,189  
   Total real estate loans
    750       16       -       24,781       25,547       325,538       351,085  
Commercial and industrial
    53       -       -       387       440       39,068       39,508  
Consumer
    7       -       -       23       30       2,994       3,024  
Total loans
  $ 810     $ 16     $ -     $ 25,191     $ 26,017     $ 367,600     $ 393,617  
                                                         
                                                         
                                                         
   
December 31, 2011
 
                                   
Total
Past Due &
Nonaccrual
                 
         Past Due and Accruing                        
   
30-59 days
   
60-89 days
   
90 or more days
   
Nonaccrual
       
Current
   
Total Loans
 
                                                         
Construction and development
  $ 4,304     $ 180     $ -     $ 9,243     $ 13,727     $ 73,353     $ 87,080  
1-4 family residential