XNAS:EVBS Eastern Virginia Bankshares Inc Quarterly Report 10-Q Filing - 6/30/2012

Effective Date 6/30/2012

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Table of Contents

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

 

 

FORM 10-Q

 

 

 

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

For the quarterly period ended June 30, 2012

or

 

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

For the transition period from              to             

Commission File Number: 000-23565

 

 

EASTERN VIRGINIA BANKSHARES, INC.

(Exact name of registrant as specified in its charter)

 

 

 

VIRGINIA   54-1866052
(State or other jurisdiction of incorporation or organization)   (I.R.S. Employer Identification No.)
330 Hospital Road, Tappahannock, Virginia   22560
(Address of principal executive offices)   (Zip Code)

(804) 443-8400

(Registrant’s telephone number, including area code)

N/A

(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 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes  x    No  ¨

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).    Yes  x    No  ¨

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

 

Large accelerated filer   ¨    Accelerated filer   ¨
Non-accelerated filer   ¨  (Do not check if a smaller reporting company)    Smaller reporting company   x

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    Yes  ¨    No  x

The number of shares of the registrant’s Common Stock outstanding as of August 10, 2012 was 6,069,551.

 

 

 


Table of Contents

EASTERN VIRGINIA BANKSHARES, INC.

INDEX

 

PART I.

   FINANCIAL INFORMATION   

Item 1.

   Financial Statements   
   Consolidated Balance Sheets as of June 30, 2012 (unaudited) and December 31, 2011    2
   Consolidated Statements of Operations (unaudited) for the Three Months Ended June 30, 2012 and June 30, 2011    3
   Consolidated Statements of Comprehensive Income (unaudited) for the Three Months Ended June 30, 2012 and June 30, 2011    4
   Consolidated Statements of Operations (unaudited) for the Six Months Ended June 30, 2012 and June 30, 2011    5
   Consolidated Statements of Comprehensive Income (unaudited) for the Six Months Ended June 30, 2012 and June 30, 2011    6
   Consolidated Statements of Shareholders’ Equity (unaudited) for the Six Months Ended June 30, 2012 and June 30, 2011    7
   Consolidated Statements of Cash Flows (unaudited) for the Six Months Ended June 30, 2012 and June 30, 2011    8
   Notes to the Interim Consolidated Financial Statements (unaudited)    9

Item 2.

   Management’s Discussion and Analysis of Financial Condition and Results of Operations    38

Item 3.

   Quantitative and Qualitative Disclosures About Market Risk    63

Item 4.

   Controls and Procedures    64

PART II.

   OTHER INFORMATION   

Item 1.

   Legal Proceedings    64

Item 1A.

   Risk Factors    64

Item 2.

   Unregistered Sales of Equity Securities and Use of Proceeds    64

Item 3.

   Defaults Upon Senior Securities    65

Item 4.

   Mine Safety Disclosures    65

Item 5.

   Other Information    65

Item 6.

   Exhibits    65
  

SIGNATURES

   66

 

1


Table of Contents

PART I—FINANCIAL INFORMATION

Item 1. Financial Statements

Eastern Virginia Bankshares, Inc. and Subsidiaries

Consolidated Balance Sheets

(dollars in thousands, except share and per share amounts)

 

     June 30,
2012
    December 31,
2011
 
     (unaudited)        

Assets:

    

Cash and due from banks

   $ 13,751      $ 12,676   

Interest bearing deposits with banks

     15,980        11,890   

Federal funds sold

     283        —     

Securities available for sale, at fair value

     254,665        236,820   

Restricted securities, at cost

     9,690        9,762   

Loans, net of allowance for loan losses of $22,866 and $24,102, respectively

     691,961        710,428   

Deferred income taxes, net

     11,698        12,160   

Bank premises and equipment, net

     19,797        20,054   

Accrued interest receivable

     3,931        3,761   

Other real estate owned, net of valuation allowance of $1,936 and $1,403, respectively

     7,226        7,326   

Goodwill

     15,970        15,970   

Other assets

     21,508        22,187   
  

 

 

   

 

 

 

Total assets

   $ 1,066,460      $ 1,063,034   
  

 

 

   

 

 

 

Liabilities and Shareholders’ Equity:

    

Liabilities

    

Noninterest-bearing demand accounts

   $ 116,132      $ 103,639   

Interest-bearing deposits

     715,980        726,312   
  

 

 

   

 

 

 

Total deposits

     832,112        829,951   

Federal funds purchased and repurchase agreements

     3,022        4,003   

Long-term borrowings

     117,500        117,500   

Trust preferred debt

     10,310        10,310   

Accrued interest payable

     1,581        1,483   

Other liabilities

     5,005        4,664   
  

 

 

   

 

 

 

Total liabilities

     969,530        967,911   
  

 

 

   

 

 

 

Shareholders’ Equity

    

Preferred stock, $2 par value per share, authorized 10,000,000, issued and outstanding: Series A; $1,000 stated value per share, 24,000 shares fixed rate cumulative perpetual preferred

     24,000        24,000   

Common stock, $2 par value per share, authorized 50,000,000, issued and outstanding 6,063,545 and 6,025,478 including 40,300 and 14,500 nonvested shares in 2012 and 2011, respectively

     12,046        12,022   

Surplus

     19,486        19,446   

Retained earnings

     40,877        39,365   

Warrant

     1,481        1,481   

Discount on preferred stock

     (454     (604

Accumulated other comprehensive (loss), net

     (506     (587
  

 

 

   

 

 

 

Total shareholders’ equity

     96,930        95,123   
  

 

 

   

 

 

 

Total liabilities and shareholders’ equity

   $ 1,066,460      $ 1,063,034   
  

 

 

   

 

 

 

The accompanying notes are an integral part of the consolidated financial statements.

 

2


Table of Contents

Eastern Virginia Bankshares, Inc. and Subsidiaries

Consolidated Statements of Operations (unaudited)

(dollars in thousands, except per share amounts)

 

     Three Months Ended
June 30,
 
     2012      2011  

Interest and Dividend Income

     

Interest and fees on loans

   $ 9,919       $ 11,048   

Interest on investments:

     

Taxable interest income

     1,200         1,552   

Tax exempt interest income

     66         191   

Dividends

     79         59   

Interest on deposits with banks

     12         10   
  

 

 

    

 

 

 

Total interest and dividend income

     11,276         12,860   
  

 

 

    

 

 

 

Interest Expense

     

Deposits

     1,702         2,524   

Federal funds purchased and repurchase agreements

     6         9   

Short-term borrowings

     —           2   

Long-term borrowings

     1,188         1,187   

Trust preferred debt

     89         81   
  

 

 

    

 

 

 

Total interest expense

     2,985         3,803   
  

 

 

    

 

 

 

Net interest income

     8,291         9,057   

Provision for Loan Losses

     1,258         1,500   
  

 

 

    

 

 

 

Net interest income after provision for loan losses

     7,033         7,557   
  

 

 

    

 

 

 

Noninterest Income

     

Service charges and fees on deposit accounts

     790         845   

Debit/credit card fees

     361         409   

Gain on sale of available for sale securities, net

     832         129   

Other operating income

     199         278   
  

 

 

    

 

 

 

Total noninterest income

     2,182         1,661   
  

 

 

    

 

 

 

Noninterest Expenses

     

Salaries and employee benefits

     3,814         4,022   

Occupancy and equipment expenses

     1,240         1,419   

Telephone

     269         321   

FDIC expense

     587         931   

Consultant fees

     212         319   

Collection, repossession and other real estate owned

     350         567   

Marketing and advertising

     179         215   

Loss on sale of other real estate owned

     44         48   

Impairment losses on other real estate owned

     292         77   

Other operating expenses

     1,137         1,190   
  

 

 

    

 

 

 

Total noninterest expenses

     8,124         9,109   
  

 

 

    

 

 

 

Income before income taxes

     1,091         109   

Income Tax Expense (Benefit)

     243         (114
  

 

 

    

 

 

 

Net Income

   $ 848       $ 223   

Effective dividend on preferred stock

     375         374   
  

 

 

    

 

 

 

Net income (loss) available to common shareholders

   $ 473       $ (151
  

 

 

    

 

 

 

Income (loss) per common share: basic and diluted

   $ 0.08       $ (0.03

Dividends per share, common

   $ —         $ —     

The accompanying notes are an integral part of the consolidated financial statements.

 

3


Table of Contents

Eastern Virginia Bankshares, Inc. and Subsidiaries

Consolidated Statements of Comprehensive Income (unaudited)

(dollars in thousands)

 

     Three Months Ended
June 30,
 
     2012     2011  

Net income

   $ 848      $ 223   

Other comprehensive income, net of tax:

    

Unrealized securities gains arising during period (net of tax, $548 and $1,576, respectively)

     1,068        3,059   

Less: reclassification adjustment for securities gains included in net income (net of tax, $282 and $44, respectively)

     (550     (85
  

 

 

   

 

 

 

Other comprehensive income

     518        2,974   
  

 

 

   

 

 

 

Comprehensive income

   $ 1,366      $ 3,197   
  

 

 

   

 

 

 

The accompanying notes are an integral part of the consolidated financial statements.

 

4


Table of Contents

Eastern Virginia Bankshares, Inc. and Subsidiaries

Consolidated Statements of Operations (unaudited)

(dollars in thousands, except per share amounts)

 

     Six Months Ended
June 30,
 
     2012      2011  

Interest and Dividend Income

     

Interest and fees on loans

   $ 20,103       $ 21,904   

Interest on investments:

     

Taxable interest income

     2,134         2,940   

Tax exempt interest income

     411         573   

Dividends

     156         125   

Interest on deposits with banks

     26         16   
  

 

 

    

 

 

 

Total interest and dividend income

     22,830         25,558   
  

 

 

    

 

 

 

Interest Expense

     

Deposits

     3,521         5,145   

Federal funds purchased and repurchase agreements

     13         17   

Short-term borrowings

     —           8   

Long-term borrowings

     2,375         2,361   

Trust preferred debt

     180         162   
  

 

 

    

 

 

 

Total interest expense

     6,089         7,693   
  

 

 

    

 

 

 

Net interest income

     16,741         17,865   

Provision for Loan Losses

     4,158         3,500   
  

 

 

    

 

 

 

Net interest income after provision for loan losses

     12,583         14,365   
  

 

 

    

 

 

 

Noninterest Income

     

Service charges and fees on deposit accounts

     1,559         1,780   

Debit/credit card fees

     680         733   

Gain on sale of available for sale securities, net

     3,363         322   

Gain on sale of bank premises and equipment

     —           256   

Other operating income

     487         661   
  

 

 

    

 

 

 

Total noninterest income

     6,089         3,752   
  

 

 

    

 

 

 

Noninterest Expenses

     

Salaries and employee benefits

     7,714         8,112   

Occupancy and equipment expenses

     2,511         2,632   

Telephone

     576         586   

FDIC expense

     1,175         1,428   

Consultant fees

     386         593   

Collection, repossession and other real estate owned

     655         1,020   

Marketing and advertising

     421         426   

Loss on sale of other real estate owned

     117         295   

Impairment losses on other real estate owned

     907         229   

Other operating expenses

     2,213         2,288   
  

 

 

    

 

 

 

Total noninterest expenses

     16,675         17,609   
  

 

 

    

 

 

 

Income before income taxes

     1,997         508   

Income Tax Expense (Benefit)

     335         (189
  

 

 

    

 

 

 

Net Income

   $ 1,662       $ 697   

Effective dividend on preferred stock

     750         748   
  

 

 

    

 

 

 

Net income (loss) available to common shareholders

   $ 912       $ (51
  

 

 

    

 

 

 

Income (loss) per common share: basic and diluted

   $ 0.15       $ (0.01

Dividends per share, common

   $ —         $ —     

The accompanying notes are an integral part of the consolidated financial statements.

 

5


Table of Contents

Eastern Virginia Bankshares, Inc. and Subsidiaries

Consolidated Statements of Comprehensive Income (unaudited)

(dollars in thousands)

 

     Six Months Ended
June 30,
 
     2012     2011  

Net income

   $ 1,662      $ 697   

Other comprehensive income, net of tax:

    

Unrealized securities gains arising during period (net of tax, $1,184 and $2,106, respectively)

     2,301        4,079   

Less: reclassification adjustment for securities gains included in net income (net of tax, $1,143 and $110, respectively)

     (2,220     (212
  

 

 

   

 

 

 

Other comprehensive income

     81        3,867   
  

 

 

   

 

 

 

Comprehensive income

   $ 1,743      $ 4,564   
  

 

 

   

 

 

 

The accompanying notes are an integral part of the consolidated financial statements.

 

6


Table of Contents

Eastern Virginia Bankshares, Inc. and Subsidiaries

Consolidated Statements of Shareholders’ Equity (unaudited)

For the Six Months Ended June 30, 2012 and 2011

(dollars in thousands)

 

     Common
Stock
     Preferred
Stock (1)
     Surplus     Retained
Earnings
    Accumulated
Other
Comprehensive
Income (Loss)
    Total  

Balance, December 31, 2010

   $ 11,954       $ 24,581       $ 19,302      $ 37,884      $ (2,303   $ 91,418   

Net income for the six months ended June 30, 2011

             697          697   

Other comprehensive income

               3,867        3,867   

Preferred stock discount

        148           (148       —     

Stock based compensation

           65            65   

Restricted common stock vested

     1            (1         —     

Issuance of common stock under dividend reinvestment and employee stock plans

     21         —           20        —          —          41   
  

 

 

    

 

 

    

 

 

   

 

 

   

 

 

   

 

 

 

Balance, June 30, 2011

   $ 11,976       $ 24,729       $ 19,386      $ 38,433      $ 1,564      $ 96,088   
  

 

 

    

 

 

    

 

 

   

 

 

   

 

 

   

 

 

 

Balance, December 31, 2011

   $ 12,022       $ 24,877       $ 19,446      $ 39,365      $ (587   $ 95,123   

Net income for the six months ended June 30, 2012

             1,662          1,662   

Other comprehensive income

               81        81   

Preferred stock discount

        150           (150       —     

Stock based compensation

           27            27   

Restricted common stock vested

     1            (1         —     

Issuance of common stock under dividend reinvestment and employee stock plans

     23         —           14        —          —          37   
  

 

 

    

 

 

    

 

 

   

 

 

   

 

 

   

 

 

 

Balance, June 30, 2012

   $ 12,046       $ 25,027       $ 19,486      $ 40,877      $ (506   $ 96,930   
  

 

 

    

 

 

    

 

 

   

 

 

   

 

 

   

 

 

 

(1) For the purposes of this table, preferred stock includes the effect of the warrant issued in connection with the sale of preferred stock to the U.S. Treasury pursuant to the Capital Purchase Program and the discount on such preferred stock.

The accompanying notes are an integral part of the consolidated financial statements.

 

7


Table of Contents

Eastern Virginia Bankshares, Inc. and Subsidiaries

Consolidated Statements of Cash Flows (unaudited)

(dollars in thousands)

 

     Six Months Ended
June 30,
 
     2012     2011  

Operating Activities:

    

Net income

   $ 1,662      $ 697   

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

    

Provision for loan losses

     4,158        3,500   

Depreciation and amortization

     1,072        1,186   

Stock based compensation

     27        65   

Net amortization of premiums and accretion of discounts on securities available for sale

     2,332        962   

(Gain) realized on securities available for sale transactions, net

     (3,363     (322

(Gain) on sale of bank premises and equipment

     —          (256

Loss on sale of other real estate owned

     117        295   

Impairment on other real estate owned

     907        229   

Loss on LLC investments

     65        47   

Deferred income taxes

     421        (497

Net change in:

    

Accrued interest receivable

     (170     23   

Other assets

     614        1,535   

Accrued interest payable

     98        (3

Other liabilities

     341        (337
  

 

 

   

 

 

 

Net cash provided by operating activities

     8,281        7,124   
  

 

 

   

 

 

 

Investing Activities:

    

Purchase of securities available for sale

     (165,448     (44,213

Purchase of restricted securities

     (325     (330

Purchases of bank premises and equipment

     (815     (1,371

Improvements to other real estate owned

     —          (150

Net change in loans

     11,424        17,303   

Proceeds from:

    

Maturities, calls, and paydowns of securities available for sale

     26,763        33,135   

Sales of securities available for sale

     121,993        45,539   

Sale of restricted securities

     397        427   

Sale of bank premises and equipment

     —          299   

Sale of other real estate owned

     1,961        3,232   
  

 

 

   

 

 

 

Net cash provided by (used in) investing activities

     (4,050     53,871   
  

 

 

   

 

 

 

Financing Activities:

    

Net change in:

    

Demand, interest-bearing demand and savings deposits

     13,321        (17,300

Time deposits

     (11,160     (16,361

Federal funds purchased and repurchase agreements

     (981     2,159   

Short-term borrowings

     —          (25,000

Issuance of common stock under dividend reinvestment and employee stock plans

     37        41   
  

 

 

   

 

 

 

Net cash provided by (used in) financing activities

     1,217        (56,461
  

 

 

   

 

 

 

Net increase in cash and cash equivalents

     5,448        4,534   

Cash and cash equivalents, January 1

     24,566        22,831   
  

 

 

   

 

 

 

Cash and cash equivalents, June 30

   $ 30,014      $ 27,365   
  

 

 

   

 

 

 

Supplemental disclosure:

    

Interest paid

   $ 5,991      $ 7,696   

Supplemental disclosure of noncash investing and financing activities:

    

Unrealized gains on securities available for sale

   $ 122      $ 5,858   

Loans transferred to other real estate owned

   $ (2,885   $ (2,969

The accompanying notes are an integral part of the consolidated financial statements.

 

8


Table of Contents

EASTERN VIRGINIA BANKSHARES, INC. AND SUBSIDIARIES

Notes to the Interim Consolidated Financial Statements

(unaudited)

Note 1. Summary of Significant Accounting Policies

Principles of Consolidation

The accompanying unaudited consolidated financial statements of Eastern Virginia Bankshares, Inc. (the “Parent”) and its subsidiaries, EVB Statutory Trust I (the “Trust”), and EVB (the “Bank”) and its subsidiaries, are in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”) for interim financial information and with the instructions to Form 10-Q adopted by the Securities and Exchange Commission (“SEC”). Accordingly, these financial statements do not include all of the information and footnotes required by U.S. GAAP for complete financial statements. Operating results for the three and six months ended June 30, 2012 are not necessarily indicative of the results that may be expected for the year ended December 31, 2012. These interim consolidated financial statements should be read in conjunction with the audited consolidated financial statements and notes thereto included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2011 (the “2011 Form 10-K”).

The accompanying unaudited consolidated financial statements include the accounts of the Parent, the Bank and its subsidiaries, collectively referred to as “the Company.” All significant intercompany balances and transactions have been eliminated in consolidation. In addition, the Parent owns the Trust which is an unconsolidated subsidiary. The subordinated debt owed to this trust is reported as a liability of the Parent.

Nature of Operations

Eastern Virginia Bankshares, Inc. is a bank holding company headquartered in Tappahannock, Virginia that was organized and chartered under the laws of the Commonwealth of Virginia on September 5, 1997 and commenced operations on December 29, 1997. The Company conducts its primary operations through its wholly-owned bank subsidiary, EVB. Two of EVB’s three predecessor banks, Bank of Northumberland, Inc. and Southside Bank, were established in 1910. The third bank, Hanover Bank, was established as a de novo bank in 2000. In April 2006, these three banks were merged and the surviving bank was re-branded as EVB. The Bank provides a full range of banking and related financial services to individuals and businesses through its network of retail branches. With twenty-three retail branches, the Bank serves diverse markets that primarily are in the counties of Caroline, Essex, Gloucester, Hanover, Henrico, King and Queen, King William, Lancaster, Middlesex, New Kent, Richmond, Northumberland, Southampton, Surry, Sussex and the City of Colonial Heights. The Bank operates under a state bank charter and as such is subject to regulation by the Virginia State Corporation Commission-Bureau of Financial Institutions (the “SCC”) and the Board of Governors of the Federal Reserve System (the “Federal Reserve”).

The Bank owns EVB Financial Services, Inc., which in turn has a 100% ownership interest in EVB Investments, Inc. and through March 31, 2011 a 50% ownership interest in EVB Mortgage, LLC. EVB Investments, Inc. is a full-service brokerage firm offering a comprehensive range of investment services. EVB Mortgage, LLC was formed to originate and sell residential mortgages. Due to the uncertainties surrounding potential regulatory pressures regarding the origination and funding of mortgage loans on one to four family residences, the Company decided in March 2011 to cease the operations of EVB Mortgage, LLC as a joint venture with Southern Trust Mortgage, LLC. On April 1, 2011, the Company entered into an independent contractor agreement with Southern Trust Mortgage, LLC. Under the terms of this agreement, the Company will advise and consult with Southern Trust Mortgage, LLC and facilitate the marketing and brand recognition of their mortgage business. In addition, the Company will provide Southern Trust Mortgage, LLC with offices at five retail branches in the Company’s market area and access to office equipment at these locations during normal work hours. For its services, the Company shall receive fixed monthly compensation from Southern Trust Mortgage, LLC in the amount of $1 thousand, which is adjustable on a quarterly basis going forward. The Bank has a 75% ownership interest in EVB Title, LLC, which primarily sells title insurance to the mortgage loan customers of the Bank and EVB Mortgage, LLC. The Bank has a 2.33% ownership in Virginia Bankers Insurance Center, LLC, which primarily sells insurance products to customers of the Bank, and other financial institutions that have an equity interest in the agency. The Bank also has a 100% ownership interest in Dunston Hall LLC, POS LLC, Tartan Holdings LLC and ECU-RE LLC which were formed to hold the title to real estate acquired by the Bank upon foreclosure on property of real estate secured loans. The financial position and operating results of all of these subsidiaries are not significant to the Company as a whole and are not considered principal activities of the Company at this time. The Company’s stock trades on the NASDAQ Global Market under the symbol EVBS.

 

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Basis of Presentation

The preparation of financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. Material estimates that are particularly susceptible to significant change in the near term relate to the determination of the allowance for loan losses, impairment of loans, impairment of securities, the valuation of other real estate owned, the projected benefit obligation under the defined benefit pension plan, the valuation of deferred taxes, goodwill impairment and fair value of financial instruments. In the opinion of management, all adjustments, consisting only of normal recurring adjustments, which are necessary for a fair presentation of the results of operations in these interim financial statements, have been made. Certain prior year amounts have been reclassified to conform to the 2012 presentation. These reclassifications have no effect on previously reported net income

.

Recent Accounting Pronouncements

In April 2011, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“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. 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 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. The Company has adopted ASU 2011-04 and included the required disclosures in its consolidated financial statements.

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. The amendments do not require transition disclosures. The Company has adopted ASU 2011-05 and 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

 

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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, 2011. 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 does not expect the adoption of ASU 2011-11 to have a material impact 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 the 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 the 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 adopted ASU 2011-12 and included the required disclosures in its consolidated financial statements.

Note 2. Investment Securities

The amortized cost and estimated fair value, with gross unrealized gains and losses, of securities at June 30, 2012 and December 31, 2011 were as follows:

 

(dollars in thousands)

   June 30, 2012  
Available for Sale:    Amortized
Cost
     Gross
Unrealized
Gains
     Gross
Unrealized
Losses
     Estimated
Fair Value
 

SBA Pool securities

   $ 45,286       $ 891       $ 30       $ 46,147   

Agency mortgage-backed securities

     57,989         513         126         58,376   

Agency CMO securities

     81,520         556         446         81,630   

Non agency CMO securities

     7,699         23         14         7,708   

State and political subdivisions

     58,582         955         360         59,177   

Pooled trust preferred securities

     532         251         —           783   

FNMA and FHLMC preferred stock

     77         172         —           249   

Corporate securities

     592         3         —           595   
  

 

 

    

 

 

    

 

 

    

 

 

 

Total

   $ 252,277       $ 3,364       $ 976       $ 254,665   
  

 

 

    

 

 

    

 

 

    

 

 

 

 

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(dollars in thousands)

   December 31, 2011  
Available for Sale:    Amortized
Cost
     Gross
Unrealized
Gains
     Gross
Unrealized
Losses
     Estimated
Fair Value
 

SBA Pool securities

   $ 60,873       $ 400       $ 191       $ 61,082   

Agency mortgage-backed securities

     40,470         595         2         41,063   

Agency CMO securities

     61,460         378         104         61,734   

Non agency CMO securities

     10,908         33         121         10,820   

State and political subdivisions*

     59,636         1,096         —           60,732   

Pooled trust preferred securities

     536         66         —           602   

FNMA and FHLMC preferred stock

     77         109         —           186   

Corporate securities

     594         7         —           601   
  

 

 

    

 

 

    

 

 

    

 

 

 

Total

   $ 234,554       $ 2,684       $ 418       $ 236,820   
  

 

 

    

 

 

    

 

 

    

 

 

 

* The combined unrealized loss on these securities was less than $1 thousand.

There are no securities classified as “Held to Maturity” or “Trading” at June 30, 2012 or December 31, 2011. The Company’s mortgage-backed securities consist entirely of residential mortgage-backed securities. The Company does not hold any commercial mortgage-backed securities. The Company’s mortgage-backed securities are all agency backed and rated Aaa and AA+ by Moody and S&P, respectively, with no subprime issues.

The Company’s pooled trust preferred securities include one senior issue of Preferred Term Securities XXVII which is current on all payments and on which the Company took an impairment charge in the third quarter of 2009 to reduce the Company’s book value to the market value at September 30, 2009. As of June 30, 2012, that security has an estimated fair value that is $251 thousand greater than its amortized cost after impairment. During the second quarter of 2010, the Company recognized an impairment charge in the amount of $77 thousand on the Company’s investment in Preferred Term Securities XXIII mezzanine tranche, thus reducing the book value of this investment to $0. The decision to recognize the other-than-temporary impairment was based upon an analysis of the market value of the discounted cash flow for the security as provided by Moody’s at June 30, 2010, which indicated that the Company was unlikely to recover any of its remaining investment in these securities.

The amortized cost and estimated fair values of securities at June 30, 2012, by the earlier of contractual maturity or expected maturity, are shown below . Expected maturities may differ from contractual maturities because issuers may have the right to call or prepay obligations without penalties.

 

     June 30, 2012  

(dollars in thousands)

   Amortized
Cost
     Estimated
Fair Value
 

Due in one year or less

   $ 8,587       $ 8,545   

Due after one year through five years

     170,335         171,834   

Due after five years through ten years

     67,471         68,042   

Due after ten years

     5,884         6,244   
  

 

 

    

 

 

 

\Total

   $ 252,277       $ 254,665   
  

 

 

    

 

 

 

Proceeds from the sales of securities available for sale for the six months ended June 30, 2012 and 2011 were $122.0 million and $45.5 million, respectively. Net realized gains on the sales of securities available for sale for the six months ended June 30, 2012 and 2011 were $3.4 million and $322 thousand, respectively. Proceeds from maturities, calls and paydowns of securities available for sale for the six months ended June 30, 2012 and 2011 were $26.8 million and $33.1 million, respectively.

The Company pledges securities to secure public deposits, balances with the Federal Reserve Bank and repurchase agreements. Securities with an aggregate book value of $90.8 million and an aggregate fair value of $91.5 million were pledged at June 30, 2012. Securities with an aggregate book value of $115.8 million and an aggregate fair value of $116.4 million were pledged at December 31, 2011.

 

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Securities in an unrealized loss position at June 30, 2012, by duration of the period of the unrealized loss, are shown below:

 

     June 30, 2012  

(dollars in thousands)

   Less than 12 months      12 months or more      Total  
Description of Securities    Fair
Value
     Unrealized
Loss
     Fair
Value
     Unrealized
Loss
     Fair
Value
     Unrealized
Loss
 

SBA Pool securities

   $ 4,000       $ 30       $ —         $ —         $ 4,000       $ 30   

Agency mortgage-backed securities

     27,648         126         —           —           27,648         126   

Agency CMO securities

     32,647         446         —           —           32,647         446   

Non agency CMO securities

     1,590         4         1,936         10         3,526         14   

State and political subdivisions

     10,413         360         —           —           10,413         360   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total

   $ 76,298       $ 966       $ 1,936       $ 10       $ 78,234       $ 976   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

The Company reviews the investment securities portfolio on a quarterly basis to monitor its exposure to other-than-temporary impairment that may result due to the current adverse economic conditions and associated credit deterioration. A determination as to whether a security’s decline in market value is other-than-temporary takes into consideration numerous factors and the relative significance of any single factor can vary by security. Some factors the Company may consider in the other-than-temporary impairment analysis include the length of time the security has been in an unrealized loss position, changes in security ratings, financial condition of the issuer, as well as security and industry specific economic conditions. In addition, with regards to its securities, the Company may also evaluate payment structure, whether there are defaulted payments or expected defaults, prepayment speeds, and the value of any underlying collateral. For certain securities in unrealized loss positions, the Company will enlist independent third-party firms to prepare cash flow analyses to compare the present value of cash flows expected to be collected from the security with the amortized cost basis of the security.

Based on the Company’s evaluation, management does not believe any unrealized loss at June 30, 2012, represents an other-than-temporary impairment as these unrealized losses are primarily attributable to changes in interest rates and current financial market conditions, and are not attributable to credit deterioration. At June 30, 2012, there are 46 debt securities with fair values totaling $78.2 million considered temporarily impaired. Of these debt securities, 44 with fair values totaling $76.3 million were in an unrealized loss position of less than 12 months and 2 with fair values totaling $1.9 million were in an unrealized loss position of 12 months or more. Because the Company intends to hold these investments in debt securities to maturity and it is more likely than not that the Company will not be required to sell these investments before a recovery of unrealized losses, the Company does not consider these investments to be other-than-temporarily impaired at June 30, 2012 and no impairment has been recognized. At June 30, 2012, there are no equity securities in an unrealized loss position.

Securities in an unrealized loss position at December 31, 2011, by duration of the period of the unrealized loss, are shown below.

 

     December 31, 2011  

(dollars in thousands)

   Less than 12 months      12 months or more      Total  
Description of Securities    Fair
Value
     Unrealized
Loss
     Fair
Value
     Unrealized
Loss
     Fair
Value
     Unrealized
Loss
 

SBA Pool securities

   $ 25,353       $ 191       $ —         $ —         $ 25,353       $ 191   

Agency mortgage-backed securities

     2,735         2         —           —           2,735         2   

Agency CMO securities

     16,594         104         —           —           16,594         104   

Non agency CMO securities

     —           —           5,587         121         5,587         121   

State and political subdivisions*

     2,168         —           —           —           2,168         —     
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total

   $ 46,850       $ 297       $ 5,587       $ 121       $ 52,437       $ 418   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

* The combined unrealized loss on these securities was less than $1 thousand.

As of June 30, 2012 and December 31, 2011, there were no corporate securities in an unrealized loss position.

 

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The table below presents a roll forward of the credit loss component recognized in earnings (referred to as “credit-impaired debt securities”) on debt securities held by the Company for which a portion of an other-than-temporary impairment was recognized in other comprehensive income during 2009. Changes in the credit loss component of credit-impaired debt securities were:

 

(dollars in thousands)

   Six Months Ending
June 30, 2012
 

Balance, beginning of period

   $ 339   

Additions

  

Initial credit impairments

     —     

Subsequent credit impairments

     —     

Reductions

  

Subsequent chargeoff of previously impaired credits

     —     
  

 

 

 

Balance, end of period

   $ 339   
  

 

 

 

The Company’s investment in Federal Home Loan Bank of Atlanta (“FHLB”) stock totaled $7.3 million and $7.4 million at June 30, 2012 and December 31, 2011, respectively. FHLB stock is generally viewed as a long-term investment and as a restricted investment security, which is carried at cost, because there is no market for the stock other than the FHLBs or member institutions. Therefore, when evaluating FHLB stock for impairment, its value is based on the ultimate recoverability of the par value rather than by recognizing temporary declines in value. Because the FHLB generated positive net income for each quarterly period beginning January 1, 2010 and ending June 30, 2012, the Company does not consider this investment to be other-than-temporarily impaired at June 30, 2012 and no impairment has been recognized. FHLB stock is included in a separate line item on the consolidated balance sheets (Restricted securities, at cost) and is not part of the Company’s securities available for sale portfolio.

 

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Note 3. Loan Portfolio

The following table sets forth the composition of the Company’s loan portfolio in dollar amounts and as a percentage of the Company’s total gross loans at the dates indicated:

 

     June 30, 2012     December 31, 2011  

(dollars in thousands)

   Amount     Percent     Amount     Percent  

Commercial, industrial and agricultural

   $ 61,336        8.58   $ 57,021        7.76

Real estate—one to four family residential:

        

Closed end first and seconds

     246,450        34.47     253,465        34.51

Home equity lines

     101,975        14.27     102,297        13.93
  

 

 

   

 

 

   

 

 

   

 

 

 

Total real estate—one to four family residential

     348,425        48.74     355,762        48.44

Real estate—multifamily residential

     15,982        2.24     13,035        1.77

Real estate—construction:

        

One to four family residential

     22,595        3.16     21,212        2.89

Other construction, land development and other land

     34,115        4.77     42,208        5.75
  

 

 

   

 

 

   

 

 

   

 

 

 

Total real estate—construction

     56,710        7.93     63,420        8.64

Real estate—farmland

     8,400        1.18     5,860        0.80

Real estate—non-farm, non-residential:

        

Owner occupied

     120,677        16.87     135,294        18.42

Non-owner occupied

     75,797        10.60     74,231        10.11
  

 

 

   

 

 

   

 

 

   

 

 

 

Total real estate—non-farm, non-residential

     196,474        27.47     209,525        28.53

Consumer

     24,420        3.43     28,355        3.86

Other

     3,080        0.43     1,553        0.20
  

 

 

   

 

 

   

 

 

   

 

 

 

Total loans

     714,827        100.00     734,531        100.00
    

 

 

     

 

 

 

Less unearned income

     —            (1  

Less allowance for loan losses

     (22,866       (24,102  
  

 

 

     

 

 

   

Loans, net

   $ 691,961        $ 710,428     
  

 

 

     

 

 

   

The following table presents the aging of the recorded investment in past due loans as of June 30, 2012 by class of loans:

 

(dollars in thousands)

   30-59 Days
Past Due
     60-89 Days
Past Due
     Over 90 Days
Past Due
     Total
Past Due
     Total
Current*
     Total
Loans
 

Commercial, industrial and agricultural

   $ 888       $ 19       $ 648       $ 1,555       $ 59,781       $ 61,336   

Real estate—one to four family residential:

                 

Closed end first and seconds

     5,555         832         1,963         8,350         238,100         246,450   

Home equity lines

     614         164         372         1,150         100,825         101,975   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total real estate—one to four family residential

     6,169         996         2,335         9,500         338,925         348,425   

Real estate—multifamily residential

     —           —           —           —           15,982         15,982   

Real estate—construction:

                 

One to four family residential

     707         10         547         1,264         21,331         22,595   

Other construction, land development and other land

     —           —           410         410         33,705         34,115   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total real estate—construction

     707         10         957         1,674         55,036         56,710   

Real estate—farmland

     31         —           —           31         8,369         8,400   

Real estate—non-farm, non-residential:

                 

Owner occupied

     694         —           759         1,453         119,224         120,677   

Non-owner occupied

     37         —           706         743         75,054         75,797   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total real estate—non-farm, non-residential

     731         —           1,465         2,196         194,278         196,474   

Consumer

     243         47         173         463         23,957         24,420   

Other

     —           —           —           —           3,080         3,080   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total loans

   $ 8,769       $ 1,072       $ 5,578       $ 15,419       $ 699,408       $ 714,827   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

* For purposes of this table only, the “Total Current” column includes loans that are 1-29 days past due.

 

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The following table presents the aging of the recorded investment in past due loans as of December 31, 2011 by class of loans:

 

(dollars in thousands)

   30-59 Days
Past Due
     60-89 Days
Past Due
     Over 90 Days
Past Due
     Total
Past Due
     Total
Current*
     Total
Loans
 

Commercial, industrial and agricultural

   $ 491       $ 963       $ 677       $ 2,131       $ 54,890       $ 57,021   

Real estate—one to four family residential:

                 

Closed end first and seconds

     5,045         1,475         5,245         11,765         241,700         253,465   

Home equity lines

     545         275         514         1,334         100,963         102,297   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total real estate—one to four family residential

     5,590         1,750         5,759         13,099         342,663         355,762   

Real estate—multifamily residential

     —           —           —           —           13,035         13,035   

Real estate—construction:

                 

One to four family residential

     336         329         315         980         20,232         21,212   

Other construction, land development and other land

     48         —           3,965         4,013         38,195         42,208   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total real estate—construction

     384         329         4,280         4,993         58,427         63,420   

Real estate—farmland

     —           —           190         190         5,670         5,860   

Real estate—non-farm, non-residential:

                 

Owner occupied

     603         —           3,545         4,148         131,146         135,294   

Non-owner occupied

     442         —           1,835         2,277         71,954         74,231   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total real estate—non-farm, non-residential

     1,045         —           5,380         6,425         203,100         209,525   

Consumer

     300         97         484         881         27,474         28,355   

Other

     —           14         —           14         1,539         1,553   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total loans

   $ 7,810       $ 3,153       $ 16,770       $ 27,733       $ 706,798       $ 734,531   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

* For purposes of this table only, the “Total Current” column includes loans that are 1-29 days past due.

The following table presents nonaccrual loans, loans past due 90 days and accruing interest, and restructured loans at the dates indicated:

 

(dollars in thousands)

   June 30, 2012      December 31, 2011  

Nonaccrual loans

   $ 14,609       $ 30,293   

Loans past due 90 days and accruing interest

     336         168   

Restructured loans (accruing)

     4,332         5,517   

At June 30, 2012 and December 31, 2011, there were approximately $9.3 million and $13.4 million, respectively, in troubled debt restructurings (“TDRs”) included in nonaccrual loans.

 

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The following table presents the recorded investment in nonaccrual loans and loans past due 90 days and accruing interest by class at June 30, 2012 and December 31, 2011:

 

     Nonaccrual      Over 90 Days Past Due
and Accruing
 

(dollars in thousands)

   June 30,
2012
     December 31,
2011
     June 30,
2012
     December 31,
2011
 

Commercial, industrial and agricultural

   $ 715       $ 634       $ —         $ 43   

Real estate—one to four family residential:

           

Closed end first and seconds

     6,769         9,320         —           —     

Home equity lines

     511         1,059         —           55   
  

 

 

    

 

 

    

 

 

    

 

 

 

Total real estate—one to four family residential

     7,280         10,379         —           55   

Real estate—construction:

           

One to four family residential

     1,044         444         —           —     

Other construction, land development and other land

     607         5,293         —           —     
  

 

 

    

 

 

    

 

 

    

 

 

 

Total real estate—construction

     1,651         5,737         —           —     

Real estate—farmland

     —           190         —           —     

Real estate—non-farm, non-residential:

           

Owner occupied

     3,597         6,707         326         —     

Non-owner occupied

     706         5,730         —           —     
  

 

 

    

 

 

    

 

 

    

 

 

 

Total real estate—non-farm, non-residential

     4,303         12,437         326         —     

Consumer

     660         916         10         70   
  

 

 

    

 

 

    

 

 

    

 

 

 

Total loans

   $ 14,609       $ 30,293       $ 336       $ 168   
  

 

 

    

 

 

    

 

 

    

 

 

 

The following table presents commercial loans by credit quality indicator at June 30, 2012:

 

(dollars in thousands)

   Pass      Special
Mention
     Substandard      Doubtful      Impaired      Total  

Commercial, industrial and agricultural

   $ 44,492       $ 5,236       $ 3,135       $ 7,407       $ 1,066       $ 61,336   

Real estate—multifamily residential

     15,692         290         —           —           —           15,982   

Real estate—construction:

                 

One to four family residential

     19,540         525         1,983         290         257         22,595   

Other construction, land development and other land

     8,165         1,860         3,269         —           20,821         34,115   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total real estate—construction

     27,705         2,385         5,252         290         21,078         56,710   

Real estate—farmland

     7,187         960         253         —           —           8,400   

Real estate—non-farm, non-residential:

                 

Owner occupied

     77,849         20,330         14,153         506         7,839         120,677   

Non-owner occupied

     46,122         15,077         6,251         74         8,273         75,797   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total real estate—non-farm, non-residential

     123,971         35,407         20,404         580         16,112         196,474   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total commercial loans

   $ 219,047       $ 44,278       $ 29,044       $ 8,277       $ 38,256       $ 338,902   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

 

17


Table of Contents

The following table presents commercial loans by credit quality indicator at December 31, 2011:

 

(dollars in thousands)

   Pass      Special
Mention
     Substandard      Doubtful      Impaired      Total  

Commercial, industrial and agricultural

   $ 43,559       $ 8,681       $ 4,344       $ 437       $ —         $ 57,021   

Real estate—multifamily residential

     12,742         293         —           —           —           13,035   

Real estate—construction:

                 

One to four family residential

     19,802         327         532         —           551         21,212   

Other construction, land development and other land

     9,934         2,381         16,542         —           13,351         42,208   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total real estate—construction

     29,736         2,708         17,074         —           13,902         63,420   

Real estate—farmland

     4,492         354         1,014         —           —           5,860   

Real estate—non-farm, non-residential:

                 

Owner occupied

     89,016         20,775         12,546         934         12,023         135,294   

Non-owner occupied

     45,448         10,511         6,784         2,720         8,768         74,231   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total real estate—non-farm, non-residential

     134,464         31,286         19,330         3,654         20,791         209,525   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total commercial loans

   $ 224,993       $ 43,322       $ 41,762       $ 4,091       $ 34,693       $ 348,861   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

At June 30, 2012 and December 31, 2011, the Company did not have any loans classified as Loss.

The following table presents consumer loans, including one to four family residential first and seconds and home equity lines, by payment activity at June 30, 2012:

 

(dollars in thousands)

   Performing      Nonperforming      Total  

Real estate—one to four family residential:

        

Closed end first and seconds

   $ 236,730       $ 9,720       $ 246,450   

Home equity lines

     100,429         1,546         101,975   
  

 

 

    

 

 

    

 

 

 

Total real estate—one to four family residential

     337,159         11,266         348,425   

Consumer

     24,218         202         24,420   

Other

     2,584         496         3,080   
  

 

 

    

 

 

    

 

 

 

Total consumer loans

   $ 363,961       $ 11,964       $ 375,925   
  

 

 

    

 

 

    

 

 

 

The following table presents consumer loans, including one to four family residential first and seconds and home equity lines, by payment activity at December 31, 2011:

 

(dollars in thousands)

   Performing      Nonperforming      Total  

Real estate—one to four family residential:

        

Closed end first and seconds

   $ 238,033       $ 15,432       $ 253,465   

Home equity lines

     101,783         514         102,297   
  

 

 

    

 

 

    

 

 

 

Total real estate—one to four family residential

     339,816         15,946         355,762   

Consumer

     27,794         561         28,355   

Other

     1,050         503         1,553   
  

 

 

    

 

 

    

 

 

 

Total consumer loans

   $ 368,660       $ 17,010       $ 385,670   
  

 

 

    

 

 

    

 

 

 

The following table summarizes the activity in the Company’s allowance for loan losses for the periods presented:

 

(dollars in thousands)

   Six Months Ended
June 30, 2012
    Twelve Months Ended
December 31, 2011
    Six Months Ended
June 30, 2011
 

Balance at beginning of period

   $ 24,102      $ 25,288      $ 25,288   

Provision charged against income

     4,158        8,800        3,500   

Recoveries of loans charged off

     1,056        805        554   

Loans charged off

     (6,450     (10,791     (2,589
  

 

 

   

 

 

   

 

 

 

Balance at end of period

   $ 22,866      $ 24,102      $ 26,753   
  

 

 

   

 

 

   

 

 

 

 

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The following table presents a roll forward of the Company’s allowance for loan losses for the six months ended June 30, 2012:

 

(dollars in thousands)

   Beginning Balance
January 1, 2012
     Charge-offs     Recoveries      Provision     Ending Balance
June 30, 2012
 

Commercial, industrial and agricultural

   $ 4,389       $ (834   $ 391       $ (315   $ 3,631   

Real estate—one to four family residential:

            

Closed end first and seconds

     2,856         (783     10         605        2,688   

Home equity lines

     278         (514     —           872        636   
  

 

 

    

 

 

   

 

 

    

 

 

   

 

 

 

Total real estate—one to four family residential

     3,134         (1,297     10         1,477        3,324   

Real estate—multifamily residential

     29         —          —           8        37   

Real estate—construction:

            

One to four family residential

     382         (4     30         133        541   

Other construction, land development and other land

     6,861         (1,618     1         (814     4,430   
  

 

 

    

 

 

   

 

 

    

 

 

   

 

 

 

Total real estate—construction

     7,243         (1,622     31         (681     4,971   

Real estate—farmland

     15         —          —           1        16   

Real estate—non-farm, non-residential:

            

Owner occupied

     4,831         (852     117         1,302        5,398   

Non-owner occupied

     3,172         (1,506     409         2,341        4,416   
  

 

 

    

 

 

   

 

 

    

 

 

   

 

 

 

Total real estate—non-farm, non-residential

     8,003         (2,358     526         3,643        9,814   

Consumer

     776         (291     79         (64     500   

Other

     513         (48     19         89        573   
  

 

 

    

 

 

   

 

 

    

 

 

   

 

 

 

Total

   $ 24,102       $ (6,450   $ 1,056       $ 4,158      $ 22,866   
  

 

 

    

 

 

   

 

 

    

 

 

   

 

 

 

The following table presents the balance in the allowance for loan losses and the recorded investment in loans by portfolio class based on impairment method as of June 30, 2012:

 

     Allowance allocated to loans:      Total Loans:  

(dollars in thousands)

   Individually
evaluated
for
impairment
     Collectively
evaluated
for
impairment
     Total      Individually
evaluated
for
impairment
     Collectively
evaluated
for
impairment
     Total  

Commercial, industrial and agricultural

   $ 361       $ 3,270       $ 3,631       $ 1,066       $ 60,270       $ 61,336   

Real estate—one to four family residential:

                 

Closed end first and seconds

     933         1,755         2,688         7,757         238,693         246,450   

Home equity lines

     210         426         636         1,174         100,801         101,975   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total real estate—one to four family residential

     1,143         2,181         3,324         8,931         339,494         348,425   

Real estate—multifamily residential

     —           37         37         —           15,982         15,982   

Real estate—construction:

                 

One to four family residential

     169         372         541         257         22,338         22,595   

Other construction, land development and other land

     1,569         2,861         4,430         20,821         13,294         34,115   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total real estate—construction

     1,738         3,233         4,971         21,078         35,632         56,710   

Real estate—farmland

     —           16         16         —           8,400         8,400   

Real estate—non-farm, non-residential:

                 

Owner occupied

     1,759         3,639         5,398         7,839         112,838         120,677   

Non-owner occupied

     1,944         2,472         4,416         8,273         67,524         75,797   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total real estate—non-farm, non-residential

     3,703         6,111         9,814         16,112         180,362         196,474   

Consumer

     1         499         500         29         24,391         24,420   

Other

     359         214         573         496         2,584         3,080   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total

   $ 7,305       $ 15,561       $ 22,866       $ 47,712       $ 667,115       $ 714,827   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

 

19


Table of Contents

The following table presents the balance in the allowance for loan losses and the recorded investment in loans by portfolio class based on impairment method as of December 31, 2011:

 

     Allowance allocated to loans:      Total Loans:  

(dollars in thousands)

   Individually
evaluated
for
impairment
     Collectively
evaluated
for
impairment
     Total      Individually
evaluated
for
impairment
     Collectively
evaluated
for
impairment
     Total  

Commercial, industrial and agricultural

   $ —         $ 4,389       $ 4,389       $ —         $ 57,021       $ 57,021   

Real estate—one to four family residential:

                 

Closed end first and seconds

     1,215         1,641         2,856         10,187         243,278         253,465   

Home equity lines

     —           278         278         —           102,297         102,297   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total real estate—one to four family residential

     1,215         1,919         3,134         10,187         345,575         355,762   

Real estate—multifamily residential

     —           29         29         —           13,035         13,035   

Real estate—construction:

                 

One to four family residential

     96         286         382         551         20,661         21,212   

Other construction, land development and other land

     316         6,545         6,861         13,351         28,857         42,208   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total real estate—construction

     412         6,831         7,243         13,902         49,518         63,420   

Real estate—farmland

     —           15         15         —           5,860         5,860   

Real estate—non-farm, non-residential:

                 

Owner occupied

     2,990         1,841         4,831         12,023         123,271         135,294   

Non-owner occupied

     1,311         1,861         3,172         8,768         65,463         74,231   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total real estate—non-farm, non-residential

     4,301         3,702         8,003         20,791         188,734         209,525   

Consumer

     42         734         776         77         28,278         28,355   

Other

     380         133         513         503         1,050         1,553   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total

   $ 6,350       $ 17,752       $ 24,102       $ 45,460       $ 689,071       $ 734,531   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

The following is a summary of information pertaining to impaired loans as of and for the six months ended June 30, 2012 and as of and for the year ended December 31, 2011:

 

(dollars in thousands)

   June 30,
2012
     December 31,
2011
 

Impaired loans without a specific reserve

   $ 19,434       $ 18,097   

Impaired loans with a specific reserve

   $ 28,278       $ 27,363   
  

 

 

    

 

 

 

Allowance related to impaired loans

   $ 7,305       $ 6,350   
  

 

 

    

 

 

 

Average balance of impaired loan

   $ 51,001       $ 50,306   
  

 

 

    

 

 

 

Interest income recognized and collected on impaired loans

   $ 1,032       $ 2,051   
  

 

 

    

 

 

 

 

20


Table of Contents

The following table presents loans individually evaluated for impairment by class of loans as of June 30, 2012:

 

(dollars in thousands)

   Recorded
Investment
     Unpaid
Principal
Balance
     Recorded
Investment
With No
Allowance
     Recorded
Investment
With
Allowance
     Related
Allowance
     Average
Recorded
Investment
     Interest
Income
Recognized
 

Commercial, industrial and agricultural

   $ 1,066       $ 1,480       $ 413       $ 653       $ 361       $ 832       $ 24   

Real estate—one to four family residential:

                    

Closed end first and seconds

     7,757         8,325         2,170         5,587         933         8,801         185   

Home equity lines

     1,174         1,374         458         716         210         1,109         20   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total real estate—one to four family residential

     8,931         9,699         2,628         6,303         1,143         9,910         205   

Real estate—construction:

                    

One to four family residential

     257         257         —           257         169         443         2   

Other construction, land development and other land

     20,821         21,970         14,301         6,520         1,569         20,822         435   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total real estate—construction

     21,078         22,227         14,301         6,777         1,738         21,265         437   

Real estate—non-farm, non-residential:

                    

Owner occupied

     7,839         9,281         1,386         6,453         1,759         9,866         167   

Non-owner occupied

     8,273         8,322         706         7,567         1,944         8,605         198   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total real estate—non-farm, non-residential

     16,112         17,603         2,092         14,020         3,703         18,471         365   

Consumer

     29         29         —           29         1         24         1   

Other

     496         496         —           496         359         499         —     
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total loans

   $ 47,712       $ 51,534       $ 19,434       $ 28,278       $ 7,305       $ 51,001       $ 1,032   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

The following table presents loans individually evaluated for impairment by class of loans as of December 31, 2011:

 

(dollars in thousands)

   Recorded
Investment
     Unpaid
Principal
Balance
     Recorded
Investment
With No
Allowance
     Recorded
Investment
With
Allowance
     Related
Allowance
     Average
Recorded
Investment
     Interest
Income
Recognized
 

Commercial, industrial and agricultural

   $ —         $ —         $ —         $ —         $ —         $ 400       $ —     

Real estate—one to four family residential:

                    

Closed end first and seconds

     10,187         10,536         3,511         6,676         1,215         9,020         314   

Real estate—construction:

                    

One to four family residential

     551         551         422         129         96         642         21   

Other construction, land development and other land

     13,351         15,525         12,249         1,102         316         16,393         709   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total real estate—construction

     13,902         16,076         12,671         1,231         412         17,035         730   

Real estate—non-farm, non-residential:

                    

Owner occupied

     12,023         13,882         1,100         10,923         2,990         12,514         401   

Non-owner occupied

     8,768         9,585         798         7,970         1,311         11,060         602   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total real estate—non-farm, non-residential

     20,791         23,467         1,898         18,893         4,301         23,574         1,003   

Consumer

     77         77         —           77         42         161         4   

Other

     503         503         17         486         380         116         —     
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total loans

   $ 45,460       $ 50,659       $ 18,097       $ 27,363       $ 6,350       $ 50,306       $ 2,051   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

 

21


Table of Contents

The following table presents, by class of loans, information related to loans modified as TDRs during the three and six months ended June 30, 2012:

 

     Three Months Ended June 30, 2012  

(dollars in thousands)

   Number of
Loans
     Pre-Modification
Recorded Balance
     Post-Modification
Recorded Balance*
 

Commercial, industrial and agricultural

     1       $ 66       $ 66   

Real estate—one to four family residential:

        

Closed end first and seconds

     2         730         729   

Real estate—construction:

        

One to four family residential

     1         240         240   

Other construction, land development and other land

     2         164         163   
  

 

 

    

 

 

    

 

 

 

Total real estate—construction

     3         404         403   
  

 

 

    

 

 

    

 

 

 

Total

     6       $ 1,200       $ 1,198   
  

 

 

    

 

 

    

 

 

 

* The period end balances are inclusive of all partial paydowns and charge-offs since the modification date. Loans modified as TDRs that were fully paid down, charged-off, or foreclosed upon by period end are not reported.

 

     Six Months Ended June 30, 2012  

(dollars in thousands)

   Number of
Loans
     Pre-Modification
Recorded Balance
     Post-Modification
Recorded Balance*
 

Commercial, industrial and agricultural

     1       $ 66       $ 66   

Real estate—one to four family residential:

        

Closed end first and seconds

     2         730         729   

Real estate—construction:

        

One to four family residential

     2         371         371   

Other construction, land development and other land

     2         164         163   
  

 

 

    

 

 

    

 

 

 

Total real estate—construction

     4         535         534   
  

 

 

    

 

 

    

 

 

 

Total

     7       $ 1,331       $ 1,329   
  

 

 

    

 

 

    

 

 

 

* The period end balances are inclusive of all partial paydowns and charge-offs since the modification date. Loans modified as TDRs that were fully paid down, charged-off, or foreclosed upon by period end are not reported.

There were no loans modified as TDRs that subsequently defaulted (i.e., 90 days or more past due following a modification) during the three and six months ended June 30, 2012 and were modified as TDRs within the 12 months prior to default.

Note 4. Deferred Income Taxes

As of June 30, 2012 and December 31, 2011, the Company had recorded net deferred income tax assets of approximately $11.7 million and $12.2 million, respectively. The realization of deferred income tax assets is assessed and a valuation allowance is recorded if it is “more likely than not” that all or a portion of the deferred tax asset will not be realized. “More likely than not” is defined as greater than a 50% chance. Management considers all available evidence, both positive and negative, to determine whether, based on the weight of that evidence, a valuation allowance is needed. Management’s assessment is primarily dependent on historical taxable income and projections of future taxable income, which are directly related to the Company’s core earnings capacity and its prospects to generate core earnings in the future. Projections of core earnings and taxable income are inherently subject to uncertainty and estimates that may change given the uncertain economic outlook, banking industry conditions and other factors. Further, management has considered future reversals of existing taxable temporary differences and limited prudent and feasible tax-planning strategies, such as, changes in investment security income (tax-exempt to

 

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taxable), additional sales of loans and sales of branches/buildings with an appreciated asset value over the tax basis. Based upon an analysis of available evidence, management has determined that it is “more likely than not” that the Company’s deferred income tax assets as of June 30, 2012 will be fully realized and therefore no valuation allowance to the Company’s deferred income tax assets was recorded. However, the Company can give no assurance that in the future its deferred income tax assets will not be impaired because such determination is based on projections of future earnings and the possible effect of certain transactions, which are subject to uncertainty and based on estimates that may change due to changing economic conditions and other factors. Due to the uncertainty of estimates and projections, it is possible that the Company will be required to record adjustments to the valuation allowance in future reporting periods.

Due primarily to the net operating loss incurred for the years ended December 31, 2010 and 2009, the Company has recorded income taxes receivable, which have been carried back to prior years, of approximately $2.7 million at June 30, 2012 and $2.6 million at December 31, 2011, which are included in other assets on the accompanying consolidated balance sheets.

Note 5. Bank Premises and Equipment

Bank premises and equipment are summarized as follows:

 

(dollars in thousands)

   June 30,
2012
    December 31,
2011
 

Land and improvements

   $ 6,009      $ 6,009   

Buildings and leasehold improvements

     20,368        20,556   

Furniture, fixtures and equipment

     17,969        17,530   

Construction in progress

     479        94   
  

 

 

   

 

 

 
     44,825        44,189   

Less accumulated depreciation

     (25,028     (24,135
  

 

 

   

 

 

 

Net balance

   $ 19,797      $ 20,054   
  

 

 

   

 

 

 

Depreciation and amortization of bank premises and equipment for the six months ended June 30, 2012 and 2011 amounted to $1.1 million and $1.2 million, respectively.

Note 6. Borrowings

Federal funds purchased and repurchase agreements. The Company has unsecured lines of credit with SunTrust Bank, Community Bankers Bank and Pacific Coast Bankers Bank for the purchase of federal funds in the amount of $20.0 million, $15.0 million and $5.0 million, respectively. These lines of credit have a variable rate based on the lending bank’s daily federal funds sold and are due on demand. Repurchase agreements are secured transactions and generally mature the day following the day sold. Customer repurchases are standard transactions that involve a Bank customer instead of a wholesale bank or broker. The Company offers this product as an accommodation to larger retail and commercial customers that request safety for their funds beyond the FDIC deposit insurance limits. The Company does not use or have any open repurchase agreements with broker-dealers.

 

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The tables below present selected information on federal funds purchased and repurchase agreements during the six months ended June 30, 2012 and the year ended December 31, 2011:

 

Federal funds purchased
(dollars in thousands)

   June 30,
2012
    December 31,
2011
 

Balance outstanding at period end

   $ —        $ —     

Maximum balance at any month end during the period

   $ 2      $ 2   

Average balance for the period

   $ 288      $ 57   

Weighted average rate for the period

     0.75     0.86

Weighted average rate at period end

     0.00     0.00

Repurchase agreements
(dollars in thousands)

   June 30,
2012
    December 31,
2011
 

Balance outstanding at period end

   $ 3,022      $ 4,003   

Maximum balance at any month end during the period

   $ 3,097      $ 4,984   

Average balance for the period

   $ 2,515      $ 3,072   

Weighted average rate for the period

     0.96     1.11

Weighted average rate at period end

     0.92     1.09

Short-term borrowings. Short-term borrowings consist of advances from the FHLB using a daily rate credit and due on demand. These advances are secured by a blanket floating lien on all qualifying closed-end and revolving open-end loans that are secured by 1-4 family residential properties.

The table below presents selected information on short-term borrowings during the six months ended June 30, 2012 and the year ended December 31, 2011:

 

Short-term borrowings
(dollars in thousands)

   June 30,
2012
    December 31,
2011
 

Balance outstanding at period end

   $ —        $ —     

Maximum balance at any month end during the period

   $ —        $ 10,325   

Average balance for the period

   $ 193      $ 1,878   

Weighted average rate for the period

     0.42     0.43

Weighted average rate at period end

     0.00     0.00

Long-term borrowings. Long-term borrowings consist of advances from the FHLB, which are secured by a blanket floating lien on all qualifying closed-end and revolving open-end loans that are secured by 1-4 family residential properties. Long-term advances from the FHLB at June 30, 2012 and December 31, 2011 consisted of $107.5 million in convertible advances and a $10.0 million fixed rate hybrid advance, respectively. The convertible advances have fixed rates of interest unless the FHLB exercises its option to convert the interest on these advances from fixed rate to variable rate.

 

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The table below shows the year of maturity and potential call dates of long-term FHLB advances as of June 30, 2012. All of the convertible advances have a call provision.

 

(dollars in thousands)

   Maturity
Amount
     Average
Rate
    Callable
Amount
     Average
Rate
 

2012

   $ —           —        $ 94,000         4.18

2013

     10,000         2.42     —           —     

2015

     13,500         3.87     —           —     

2016

     10,000         4.85     —           —     

2017

     75,000         4.30     —           —     

2018

     9,000         2.44     —           —     
  

 

 

    

 

 

   

 

 

    

 

 

 
   $ 117,500         4.00   $ 94,000         4.18
  

 

 

      

 

 

    

The Company’s line of credit with the FHLB can equal up to 25% of the Company’s assets or approximately $268.5 million at June 30, 2012. This line of credit totaled $186.6 million with approximately $62.2 million available at June 30, 2012. As of June 30, 2012 and December 31, 2011, loans with a carrying value of $305.2 million and $300.1 million, respectively, are pledged to the FHLB as collateral for borrowings. Additional loans are available that can be pledged as collateral for future borrowings from the FHLB above the current lendable collateral value. Combined long-term borrowings outstanding under the FHLB line of credit was $117.5 million at June 30, 2012 and December 31, 2011.

Note 7. Earnings (Loss) Per Common Share

The following table shows the weighted average number of common shares used in computing earnings (loss) per common share and the effect on the weighted average number of shares of potential dilutive common stock for the three and six months ended June 30, 2012 and 2011 . Potential dilutive common stock had no effect on earnings (loss) per common share otherwise available to common shareholders for the three and six months ended June 30, 2012 and 2011.

 

     Three Months Ended  
     June 30, 2012      June 30, 2011  
     Shares      Per
Share
Amount
     Shares      Per
Share
Amount
 

Basic earnings (loss) per common share

     6,035,393       $ 0.08         6,000,821       $ (0.03

Effect of dilutive securities, stock options

     —           —           —           —     
  

 

 

    

 

 

    

 

 

    

 

 

 

Diluted earnings (loss) per common share

     6,035,393       $ 0.08         6,000,821       $ (0.03
  

 

 

    

 

 

    

 

 

    

 

 

 
     Six Months Ended  
     June 30, 2012      June 30, 2011  
     Shares      Per
Share
Amount
     Shares      Per
Share
Amount
 

Basic earnings (loss) per common share

     6,032,217       $ 0.15         5,998,377       $ (0.01

Effect of dilutive securities, stock options

     —           —           —           —     
  

 

 

    

 

 

    

 

 

    

 

 

 

Diluted earnings (loss) per common share

     6,032,217       $ 0.15         5,998,377       $ (0.01
  

 

 

    

 

 

    

 

 

    

 

 

 

At June 30, 2012 and 2011, options to acquire 186,962 and 239,692 shares of common stock, respectively were not included in computing diluted earnings per common share because their effects were anti-dilutive.

Note 8. Stock Based Compensation Plans

On September 21, 2000, the Company adopted the Eastern Virginia Bankshares, Inc. 2000 Stock Option Plan (the “2000 Plan”) to provide a means for selected key employees and directors to increase their personal financial interest in the Company, thereby stimulating their efforts and strengthening their desire to remain with the Company. Under the 2000 Plan, up to 400,000 shares of Company common stock could be granted in the form of stock options. On April 17, 2003, the shareholders approved the Eastern Virginia Bankshares, Inc. 2003 Stock Incentive Plan, amending

 

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and restating the 2000 Plan (the “2003 Plan”) still authorizing the issuance of up to 400,000 shares of common stock under the plan, but expanding the award types available under the plan to include stock options, stock appreciation rights, common stock, restricted stock and phantom stock. There are 134,793 shares still available to be granted as awards under the 2003 Plan.

On April 19, 2007, the Company’s shareholders approved the Eastern Virginia Bankshares, Inc. 2007 Equity Compensation Plan (the “2007 Plan”) to enhance the Company’s ability to recruit and retain officers, directors, employees, consultants and advisors with ability and initiative and to encourage such persons to have a greater financial interest in the Company. The 2007 Plan authorizes the Company to issue up to 400,000 additional shares of common stock pursuant to grants of stock options, stock appreciation rights, common stock, restricted stock, performance shares, incentive awards and stock units. There are 366,000 shares still available to be granted as awards under the 2007 Plan.

Accounting standards require companies to recognize the cost of employee services received in exchange for awards of equity instruments, such as stock options, based on the fair value of those awards at the date of grant.

Accounting standards also require that new awards to employees eligible for retirement prior to the awards becoming fully vested be recognized as compensation cost over the period through the date that the employee first becomes eligible to retire and is no longer required to provide service to earn the award. The Company’s stock options granted to eligible participants are being recognized, as required, as compensation cost over the vesting period except in the instance where a participant reaches normal retirement age of 65 prior to the normal vesting date. For the three and six months ended June 30, 2012, stock option compensation expense was $10 thousand and $21 thousand, respectively, compared to stock option compensation expense of $27 thousand and $55 thousand, respectively, for the three and six months ended June 30, 2011. Stock option compensation expense is included in salaries and employee benefits expense in the consolidated statements of operations.

Stock option compensation expense is the estimated fair value of options granted, amortized on a straight-line basis over the requisite service period for each stock option award. There were no stock options granted or exercised in the six months ended June 30, 2012 and 2011.

A summary of the Company’s stock option activity and related information for the six months ended June 30, 2012 is as follows:

 

     Options
Outstanding
    Weighted Average
Exercise Price
     Remaining Contractual
Life (in years)
     Aggregate
Intrinsic Value
(in thousands)
 

Stock options outstanding at January 1, 2012

     218,442      $ 19.86         

Forfeited

     (31,480     18.51         
  

 

 

   

 

 

       

Stock options outstanding at June 30, 2012

     186,962      $ 20.06         3.67       $ —     
  

 

 

   

 

 

    

 

 

    

 

 

 

Stock options exercisable at June 30, 2012

     159,712      $ 21.37         3.15       $ —     
  

 

 

   

 

 

    

 

 

    

 

 

 

* Intrinsic value is the amount by which the fair value of the underlying common stock exceeds the exercise price of a stock option on exercise date.

As of June 30, 2012, there was $9 thousand of unrecognized compensation expense related to stock options that will be recognized over the remaining requisite average service period of approximately 3 months.

 

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The table below summarizes information concerning stock options outstanding and exercisable at June 30, 2012:

 

Stock Options Outstanding

 

Stock Options Exercisable

Exercise Price

 

Number Outstanding

 

Weighted Average Remaining
Term

 

Exercise Price

 

Number Exercisable

$                             28.60

  20,275   1.25 years   $                             28.60   20,275

$                             19.92

  29,700   2.00 years   $                             19.92   29,700

$                             20.57

  38,912   3.00 years   $                             20.57   38,912

$                             21.16

  40,825   4.25 years   $                             21.16   40,825

$                             19.25

  30,000   5.25 years   $                             19.25   30,000

$                             12.36

  27,250   6.25 years   $                                —     —  

 

 

 

 

 

 

 

 

 

$                             20.06

  186,962   3.67 years   $                             21.37   159,712

 

 

 

 

 

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