Notes to Consolidated Financial Statements
March 31, 2013 and 2012
(unaudited)
Note 1. General
Berkshire Bancorp Inc.,
a Delaware corporation, is a bank holding company registered under the Bank Holding Company Act of 1956. References herein to "Berkshire",
the "Company" or "we" and similar pronouns, shall be deemed to refer to Berkshire Bancorp Inc. and its wholly-owned
consolidated subsidiaries unless the context otherwise requires. Berkshire's principal activity is the ownership and management
of its indirect wholly-owned subsidiary, The Berkshire Bank (the "Bank"), a New York State chartered commercial bank.
The Bank is owned through Berkshire's wholly-owned subsidiary, Greater American Finance Group, Inc. ("GAFG").
The accompanying
consoldiated financial statements of Berkshire Bancorp Inc. and subsidiaries include the accounts of the parent company,
Berkshire Bancorp Inc., and its wholly-owned subsidiaries: The Berkshire Bank, GAFG and East 39, LLC.
We have prepared the
accompanying consolidated financial statements pursuant to the rules and regulations of the Securities and Exchange Commission
(the "SEC") for interim financial reporting. These consolidated financial statements, including the notes thereto, are
unaudited and, in our opinion, include all adjustments, consisting of normal recurring adjustments and accruals, necessary for
a fair presentation of our consolidated balance sheets, operating results, and cash flows for the periods presented. Operating
results for the periods presented are not necessarily indicative of the results that may be expected for the remaining quarters
of fiscal 2012 due to a variety of factors. Certain information and footnote disclosures normally included in financial statements
prepared in accordance with accounting principles generally accepted in the United States ("GAAP") have been omitted
in accordance with the rules and regulations of the SEC. These consolidated financial statements should be read in conjunction
with the audited consolidated financial statements and accompanying notes included in the Company's 2012 Annual Report on Form
10-K.
BERKSHIRE BANCORP INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(continued)
(unaudited)
Note 2. Earnings Per Share
Basic earnings per
common share is calculated by dividing income available to common stockholders by the weighted average common stock outstanding,
excluding stock options from the calculation. As of and for the three-month periods ended March 31, 2013 and 2012, there were no
potential dilutive shares. The following tables present the Company's calculation of income per common share:
|
|
For
The Three Months Ended March 31,
|
|
|
|
2013
|
|
|
2012
|
|
|
|
Income
(numerator)
|
|
|
Shares
(denominator)
|
|
|
Per
share
amount
|
|
|
Income
(numerator)
|
|
|
Shares
(denominator)
|
|
|
Per
share
amount
|
|
|
|
(In
thousands, except per share data)
|
|
Basic earnings
per common share
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
income
|
|
$
|
951
|
|
|
|
|
|
|
|
|
|
|
$
|
2,136
|
|
|
|
|
|
|
|
|
|
Net
income available to common stockholders
|
|
$
|
951
|
|
|
|
14,417
|
|
|
$
|
0.0
7
|
|
|
$
|
2,136
|
|
|
|
14,443
|
|
|
$
|
0.15
|
|
BERKSHIRE BANCORP INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(continued)
(unaudited)
Note 3. Income Taxes
The provision for income taxes consists
of the following:
|
|
March 31, 2013
|
|
|
March 31, 2012
|
|
|
|
(In thousands)
|
|
Federal:
|
|
|
|
|
|
|
|
|
Current
|
|
$
|
-
|
|
|
$
|
-
|
|
Deferred
|
|
|
236
|
|
|
|
(901
|
)
|
State and Local:
|
|
|
|
|
|
|
|
|
Current
|
|
|
190
|
|
|
|
171
|
|
Deferred
|
|
|
161
|
|
|
|
461
|
|
Total
|
|
|
587
|
|
|
|
(269
|
)
|
The tax effect of the
principal temporary differences at March 31, 2013 and December 31, 2012 are as follows:
|
|
March 31, 2013
|
|
|
December 31, 2012
|
|
|
|
(In thousands)
|
|
Net deferred tax assets
|
|
|
|
|
|
|
|
|
Loan loss provision
|
|
$
|
4,828
|
|
|
$
|
4,965
|
|
Depreciation
|
|
|
(200
|
)
|
|
|
(264
|
)
|
Non accrual interest
|
|
|
104
|
|
|
|
104
|
|
Net operating loss
|
|
|
7,953
|
|
|
|
8,245
|
|
Tax Credits
|
|
|
123
|
|
|
|
123
|
|
Other
|
|
|
911
|
|
|
|
784
|
|
Unrealized loss on investment securities
|
|
|
729
|
|
|
|
2,436
|
|
Net deferred tax assets included in other assets
|
|
$
|
14,448
|
|
|
$
|
16,392
|
|
As of March 31, 2013 and December 31, 2012, the Company had $19.6 million and $20.0 million, respectively,
of federal net operating losses (“NOLs”) and $11.7 million and $12.9 million, respectively, of state NOLs available
to offset future taxable income for income tax purposes that will begin to expire in 2029.
For the fiscal year ended December 31,
2011, the Company recorded a valuation reserve of $3.9 million relating primarily to NOL's. During the six months ended June 30,
2012, the valuation reserve was released due to additional current earnings and the expectation that we will recognize the remaining
benefit of the NOLs within the next few years. Of the remaining deferred tax asset, management has determined that it is more likely
than not that we will realize the net deferred tax asset based upon the nature and timing of the items referred to above. In order
to fully realize the net deferred tax asset, the Company will need to generate future taxable income. Management has projected
that the Company will generate sufficient taxable income to utilize the net deferred tax asset. However, there can be no assurance
that such levels of taxable income will be generated.
In the normal course of business, the Company's Federal, New York State and New York City Corporation
tax returns are subject to audit. The Company is currently open to audit by the Internal Revenue Service (the "IRS")
under the statute of limitations for years after 2008. The Company was under examination by the IRS for the years 2008 and 2009.
This examination was completed during 2012 with no change to the tax returns as filed.
The Company has performed
an evaluation of its tax positions and has concluded that as of March 31, 2013 and December 31, 2012, there were no significant
uncertain tax positions requiring additional recognition in its financial statements and does not believe that there will be any
material changes in its unrecognized tax positions over the next twelve months.
The Company's policy
is to recognize interest and penalties related to unrecognized tax benefits as a component of income tax expense. There were no
accruals for interest or penalties during the three months ended March 31, 2013 or the year ended December 31, 2012.
BERKSHIRE BANCORP INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(continued)
(unaudited)
Note 4. Loan Portfolio
The following table
sets forth information concerning the Company's loan portfolio by type of loan at the dates indicated:
|
|
March 31, 2013
|
|
|
December 31, 2012
|
|
|
|
Amount
|
|
|
% of
Total
|
|
|
Amount
|
|
|
% of
Total
|
|
|
|
(Dollars in thousands)
|
|
Commercial and Industrial and Finance
Leases
|
|
$
|
25,781
|
|
|
|
8.6
|
%
|
|
$
|
23,184
|
|
|
|
7.8
|
%
|
Secured by Real Estate
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Residential
|
|
|
80,238
|
|
|
|
26.9
|
|
|
|
84,207
|
|
|
|
28.5
|
|
Multi family
|
|
|
14,240
|
|
|
|
4.8
|
|
|
|
14,491
|
|
|
|
4.9
|
|
Commercial Real Estate and
Construction
|
|
|
177,110
|
|
|
|
59.4
|
|
|
|
172,973
|
|
|
|
58.5
|
|
Consumer
|
|
|
846
|
|
|
|
0.3
|
|
|
|
899
|
|
|
|
0.3
|
|
Total loans
|
|
|
298,215
|
|
|
|
100.0
|
%
|
|
|
295,754
|
|
|
|
100.0
|
%
|
Deferred loan fees
|
|
|
(569
|
)
|
|
|
|
|
|
|
(589
|
)
|
|
|
|
|
Allowance for loan losses
|
|
|
(10,705
|
)
|
|
|
|
|
|
|
(11,008
|
)
|
|
|
|
|
Loans, net
|
|
$
|
286,941
|
|
|
|
|
|
|
$
|
284,157
|
|
|
|
|
|
The Bank had $1.2 million
and $0.9 million of non-accrual loans as of March 31, 2013 and December 31, 2012, respectively, and no loans delinquent more than
ninety days and still accruing interest at both March 31, 2013 and December 31, 2012. The Bank did not foreclose on any loans during
the three months ended March 31, 2013. The Bank had one foreclosed real estate property, with a carrying value of $225,000 in the
year ended December 31, 2012. The Bank classified the non-accrual loans as impaired loans at both March 31, 2013 and December 31,
2012. However, no specific reserves for impaired loans was made because the collateral underlying the impaired loans was deemed
to be sufficient to cover any loss in the event of a default. Therefore, the allowance for loan loss is includable in the calculation
of regulatory capital up to a maximum of 125% of risk-weighted assets or approximately $4.6 million and $4.6 million at March 31,
2013 and December 31, 2012, respectively.
BERKSHIRE BANCORP INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(continued)
(unaudited)
Note 4. - (continued)
Average impaired loans
for the three months ended March 31, 2013 and 2012 were approximately $8.8 million and $25.8 million, respectively. Interest income
that would have been recognized had these loans performed in accordance with their contractual terms was $7,000 and $29,000 for
the three months ended March 31, 2013 and 2012, respectively.
The following table
sets forth information concerning activity in the Company's allowance for loan losses for the indicated periods.
|
|
For The Three Months
Ended March 31,
|
|
|
|
2013
|
|
|
2012
|
|
|
|
(In thousands
|
|
Balance at beginning of period
|
|
$
|
11,008
|
|
|
$
|
17,720
|
|
Provision charged to operations
|
|
|
(303
|
)
|
|
|
—
|
|
Loans charge-offs
|
|
|
—
|
|
|
|
—
|
|
Recoveries
|
|
|
—
|
|
|
|
—
|
|
Balance at end of period
|
|
$
|
10,705
|
|
|
$
|
17,720
|
|
BERKSHIRE BANCORP INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(continued)
(unaudited)
Note 4. - (continued)
Allowance for Credit Losses and Recorded
Investment in Financing Receivables
The qualitative factors
are determined based on the various risk characteristics of each loan class. Relevant risk characteristics are as follows:
Commercial and industrial
loans
- Loans in this class are made to businesses. Generally these loans are secured by assets of the business and repayment
is expected from the cash flows of the business. A weakened economy, and resultant decreased consumer and/or business spending
will have an effect on the credit quality in this loan class.
Commercial real
estate
- Loans in this class include income-producing investment properties and owner-occupied real estate used for business
purposes. The underlying properties are generally located largely in our primary market area. The cash flows of the income producing
investment properties are adversely impacted by a downturn in the economy as evidenced by increased vacancy rates, which in turn,
will have an effect on credit quality. In the case of owner-occupied real estate used for business purposes a weakened economy
and resultant decreased consumer and/or business spending will have an adverse effect on credit quality.
Construction loans
- Loans in this class primarily include land loans to local individuals, contractors and developers for developing the land for
sale or for the purpose of making improvements thereon. Repayment is derived from sale of the lots/units including any pre-sold
units. Credit risk is affected by market conditions, time to sell at an adequate price and cost overruns. To a lesser extent this
class includes commercial development projects we finance which in most cases have an interest-only phase during construction and
then convert to permanent financing. Credit risk is affected by cost overruns, market conditions and the availability of permanent
financing, to the extent such permanent financing is not being provided by us.
Residential real
estate
- Loans in this class are made to and secured by owner-occupied residential real estate and repayment is dependent on
the credit quality of the individual borrower. The overall health of the economy, including unemployment rates and housing prices,
will have an effect on the credit quality in this loan class. The Company generally does not originate loans with a loan-to-value
ratio greater than 80 percent and does not grant subprime loans.
BERKSHIRE BANCORP INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(continued)
(unaudited)
Note 4. - (continued)
Multi-Family real
estate
- Loans in this class are made to and secured by owner-occupied residential real estate and repayment is dependent on
the credit quality of the individual borrower. The overall health of the economy, including unemployment rates and housing prices,
will have an effect on the credit quality in this loan class. The Company generally does not originate loans with a loan-to-value
ratio greater than 80 percent and does not grant subprime loans.
Consumer loans
- Loans in this class may be either secured or unsecured and repayment is dependent on the credit quality of the individual borrower
and, if applicable, sale of the collateral securing the loan (such as automobile or other secured assets). Therefore the overall
health of the economy, including unemployment rates and housing prices, will have an effect on the credit quality in this loan
class.
Financing Leases
- Loans in this class may be either secured or unsecured and repayment is dependent on the credit quality of the individual borrower
and, if applicable, sale of the collateral securing the loan (such as equipment or other secured assets). Therefore the overall
health of the economy, including unemployment rates and housing prices, will have an effect on the credit quality in this loan
class.
BERKSHIRE BANCORP INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(continued)
(unaudited)
Note 4. - (continued)
Allowance for Credit Losses and Recorded
Investment in Loans
For the Three Months Ended March 31,
2013
(In thousands)
|
|
Commercial &
Industrial
|
|
|
Commercial
Real Estate
|
|
|
Construction
|
|
|
Multi Family
|
|
|
Residential
Real Estate
|
|
|
Consumer
|
|
|
Finance
Leases
|
|
|
Unallocated
|
|
|
Total
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Allowance for credit losses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Beginning balance
|
|
$
|
989
|
|
|
$
|
6,309
|
|
|
$
|
1,441
|
|
|
$
|
326
|
|
|
$
|
1,529
|
|
|
$
|
15
|
|
|
$
|
62
|
|
|
$
|
337
|
|
|
$
|
11,008
|
|
Charge-offs
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Recoveries
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Provision
|
|
|
155
|
|
|
|
(179
|
)
|
|
|
14
|
|
|
|
(6
|
)
|
|
|
(128
|
)
|
|
|
8
|
|
|
|
(31
|
)
|
|
|
(136
|
)
|
|
|
(303
|
)
|
Ending balance
|
|
$
|
1,144
|
|
|
$
|
6,130
|
|
|
$
|
1,455
|
|
|
$
|
320
|
|
|
$
|
1,401
|
|
|
$
|
23
|
|
|
$
|
31
|
|
|
$
|
201
|
|
|
$
|
10,705
|
|
Ending
balance: individually evaluated for impairment
|
|
$
|
0
|
|
|
$
|
0
|
|
|
$
|
0
|
|
|
$
|
0
|
|
|
$
|
0
|
|
|
$
|
0
|
|
|
$
|
0
|
|
|
$
|
0
|
|
|
$
|
0
|
|
Ending
balance: collectively evaluated for impairment
|
|
$
|
1,144
|
|
|
$
|
6,130
|
|
|
$
|
1,455
|
|
|
$
|
320
|
|
|
$
|
1,401
|
|
|
$
|
23
|
|
|
$
|
31
|
|
|
$
|
201
|
|
|
$
|
10,705
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Financing Receivables:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ending balance
|
|
$
|
25,781
|
|
|
$
|
151,706
|
|
|
$
|
24,276
|
|
|
$
|
14,240
|
|
|
$
|
80,238
|
|
|
$
|
846
|
|
|
$
|
1,128
|
|
|
$
|
0
|
|
|
$
|
298,215
|
|
Ending
balance: individually evaluated for impairment
|
|
$
|
0
|
|
|
$
|
1,264
|
|
|
$
|
0
|
|
|
$
|
0
|
|
|
$
|
7,548
|
|
|
$
|
0
|
|
|
$
|
0
|
|
|
$
|
0
|
|
|
$
|
8,812
|
|
Ending balance: collectively
evaluated for impairment
|
|
$
|
25,781
|
|
|
$
|
150,442
|
|
|
$
|
24,276
|
|
|
$
|
14,240
|
|
|
$
|
72,690
|
|
|
$
|
846
|
|
|
$
|
1,128
|
|
|
$
|
0
|
|
|
$
|
289,403
|
|
Among the loans reviewed
for impairment, $2.1 million of residential loans and $1.3 million of commercial real estate loans were identified as troubled
debt restructurings ("TDRs"). TDRs are the result of an economic concession being granted to borrowers experiencing financial
difficulties. Certain TDRs are classified as nonperforming at the time of restructuring and may only return to performing status
after considering the borrower's sustained repayment performance under the revised payment terms for a reasonable period, generally
six months. We evaluated all of the impaired loans by analyzing the collateral value and by evaluating the discounted cash flow.
Based on the nature of the modifications no impairment was required.
BERKSHIRE BANCORP INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(continued)
(unaudited)
Note 4. - (continued)
Allowance for Credit
Losses and Recorded Investment in Loans
For the Three Months
Ended March 31, 2012
(In thousands)
|
|
Commercial &
Industrial
|
|
|
Commercial
Real Estate
|
|
|
Construction
|
|
|
Multi Family
|
|
|
Residential
Real Estate
|
|
|
Consumer
|
|
|
Finance
Leases
|
|
|
Unallocated
|
|
|
Total
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Allowance for credit losses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Beginning balance
|
|
$
|
950
|
|
|
$
|
7,857
|
|
|
$
|
609
|
|
|
$
|
411
|
|
|
$
|
6,490
|
|
|
$
|
53
|
|
|
$
|
126
|
|
|
$
|
1,224
|
|
|
$
|
17,720
|
|
Charge-offs
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Recoveries
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Provision
|
|
|
(280
|
)
|
|
|
262
|
|
|
|
462
|
|
|
|
(9
|
)
|
|
|
(315
|
)
|
|
|
(14
|
)
|
|
|
(28
|
)
|
|
|
(78
|
)
|
|
|
0
|
|
Ending balance
|
|
$
|
670
|
|
|
$
|
8,119
|
|
|
$
|
1,071
|
|
|
$
|
402
|
|
|
$
|
6,175
|
|
|
$
|
39
|
|
|
$
|
98
|
|
|
$
|
1,146
|
|
|
$
|
17,720
|
|
Ending
balance: individually evaluated for impairment
|
|
$
|
0
|
|
|
$
|
0
|
|
|
$
|
0
|
|
|
$
|
0
|
|
|
$
|
0
|
|
|
$
|
0
|
|
|
$
|
0
|
|
|
$
|
0
|
|
|
$
|
0
|
|
Ending
balance: collectively evaluated for impairment
|
|
$
|
670
|
|
|
$
|
8,119
|
|
|
$
|
1,071
|
|
|
$
|
402
|
|
|
$
|
6,175
|
|
|
$
|
39
|
|
|
$
|
98
|
|
|
$
|
1,146
|
|
|
$
|
17,720
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Financing Receivables:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ending balance
|
|
$
|
14,728
|
|
|
$
|
167,525
|
|
|
$
|
19,836
|
|
|
$
|
11,921
|
|
|
$
|
104,040
|
|
|
$
|
906
|
|
|
$
|
3,618
|
|
|
$
|
0
|
|
|
$
|
322,574
|
|
Ending
balance: individually evaluated for impairment
|
|
$
|
102
|
|
|
$
|
23,245
|
|
|
$
|
0
|
|
|
$
|
0
|
|
|
$
|
2,360
|
|
|
$
|
15
|
|
|
$
|
0
|
|
|
$
|
0
|
|
|
$
|
25,722
|
|
Ending balance: collectively
evaluated for impairment
|
|
$
|
14,626
|
|
|
$
|
144,280
|
|
|
$
|
19,836
|
|
|
$
|
11,921
|
|
|
$
|
101,860
|
|
|
$
|
891
|
|
|
$
|
3,618
|
|
|
$
|
0
|
|
|
$
|
296,852
|
|
Among the loans reviewed
for impairment, $2.4 million of residential loans and $1.3 million of commercial real estate loans were identified as troubled
debt restructurings ("TDRs"). TDRs are the result of an economic concession being granted to borrowers experiencing financial
difficulties. Certain TDRs are classified as nonperforming at the time of restructuring and may only return to performing status
after considering the borrower's sustained repayment performance under the revised payment terms for a reasonable period, generally
six months. We evaluated all of the impaired loans by analyzing the collateral value and by evaluating the discounted cash flow.
Based on the nature of the modifications no impairment was required.
BERKSHIRE BANCORP INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(continued)
(unaudited)
Note 4. - (continued)
Age Analysis of
Past Due Loans
As of March 31,
2013
(In thousands)
|
|
30-59 Days
Past Due
|
|
|
60-89 Days
Past Due
|
|
|
Greater
Than
90 Days
|
|
|
Total
Past Due
|
|
|
Current
|
|
|
Total
Loans
|
|
|
Recorded
Loans >
90 Days and
Accruing
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial & industrial
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
25,781
|
|
|
$
|
25,781
|
|
|
$
|
—
|
|
Construction
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
24,276
|
|
|
|
24,276
|
|
|
|
—
|
|
Commercial real estate
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
151,706
|
|
|
|
151,706
|
|
|
|
—
|
|
Consumer
|
|
|
21
|
|
|
|
—
|
|
|
|
—
|
|
|
|
21
|
|
|
|
668
|
|
|
|
689
|
|
|
|
—
|
|
Overdrafts
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
157
|
|
|
|
157
|
|
|
|
—
|
|
Residential - prime
|
|
|
299
|
|
|
|
511
|
|
|
|
731
|
|
|
|
1,541
|
|
|
|
78,697
|
|
|
|
80,238
|
|
|
|
—
|
|
Residential - multi family
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
14,240
|
|
|
|
14,240
|
|
|
|
—
|
|
Finance leases
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
1,128
|
|
|
|
1,128
|
|
|
|
—
|
|
Total
|
|
$
|
320
|
|
|
$
|
511
|
|
|
$
|
731
|
|
|
$
|
1,562
|
|
|
$
|
296,653
|
|
|
$
|
298,215
|
|
|
$
|
—
|
|
Age Analysis of Past Due Loans
As of December 31, 2012
(In thousands)
|
|
30-59 Days
Past Due
|
|
|
60-89 Days
Past Due
|
|
|
Greater
Than
90 Days
|
|
|
Total
Past Due
|
|
|
Current
|
|
|
Total
Loans
|
|
|
Recorded
Loans >
90 Days and
Accruing
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial & industrial
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
21,814
|
|
|
$
|
21,814
|
|
|
$
|
—
|
|
Construction
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
23,789
|
|
|
|
23,789
|
|
|
|
—
|
|
Commercial real estate
|
|
|
7,181
|
|
|
|
—
|
|
|
|
—
|
|
|
|
7,181
|
|
|
|
142,003
|
|
|
|
149,184
|
|
|
|
—
|
|
Consumer
|
|
|
50
|
|
|
|
—
|
|
|
|
—
|
|
|
|
50
|
|
|
|
665
|
|
|
|
715
|
|
|
|
—
|
|
Overdrafts
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
184
|
|
|
|
184
|
|
|
|
—
|
|
Residential - prime
|
|
|
6,081
|
|
|
|
373
|
|
|
|
861
|
|
|
|
7,315
|
|
|
|
76,892
|
|
|
|
84,207
|
|
|
|
—
|
|
Residential - multi family
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
14,491
|
|
|
|
14,491
|
|
|
|
—
|
|
Finance leases
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
1,370
|
|
|
|
1,370
|
|
|
|
—
|
|
Total
|
|
$
|
13,312
|
|
|
$
|
373
|
|
|
$
|
861
|
|
|
$
|
14,546
|
|
|
$
|
281,208
|
|
|
$
|
295,754
|
|
|
$
|
—
|
|
BERKSHIRE BANCORP INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(continued)
(unaudited)
Note 4. - (continued)
Impaired Loans
For the Three
Months Ended March 31, 2013
(In thousands)
|
|
Recorded
Loan
|
|
|
Unpaid
Principal
Balance
|
|
|
Related
Allowance
|
|
|
Average
Recorded
Loan
|
|
|
Interest
Income
Recognized
|
|
|
Interest
Income
Foregone
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
With no related allowance recorded:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial & industrial
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
Construction
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
Commercial real estate
|
|
|
1,263
|
|
|
|
1,263
|
|
|
|
—
|
|
|
|
1,270
|
|
|
|
21
|
|
|
|
—
|
|
Consumer
|
|
|
13
|
|
|
|
13
|
|
|
|
—
|
|
|
|
13
|
|
|
|
0
|
|
|
|
—
|
|
Residential - prime
|
|
|
7,536
|
|
|
|
7,536
|
|
|
|
—
|
|
|
|
7,566
|
|
|
|
132
|
|
|
|
7
|
|
Residential - multi family
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
Finance leases
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
8,812
|
|
|
$
|
8,812
|
|
|
$
|
—
|
|
|
$
|
8,849
|
|
|
$
|
153
|
|
|
$
|
7
|
|
Commercial
|
|
|
1,263
|
|
|
|
1,263
|
|
|
|
—
|
|
|
|
1,270
|
|
|
|
21
|
|
|
|
—
|
|
Consumer
|
|
|
13
|
|
|
|
13
|
|
|
|
—
|
|
|
|
13
|
|
|
|
0
|
|
|
|
—
|
|
Residential
|
|
|
7,536
|
|
|
|
7,536
|
|
|
|
—
|
|
|
|
7,566
|
|
|
|
132
|
|
|
|
7
|
|
BERKSHIRE BANCORP INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(continued)
(unaudited)
Note 4. - (continued)
Impaired Loans
For the Year Ended December 31, 2012
(In thousands)
|
|
Recorded
Loan
|
|
|
Unpaid
Principal
Balance
|
|
|
Related
Allowance
|
|
|
Average
Recorded
Loan
|
|
|
Interest
Income
Recognized
|
|
|
Interest
Income
Foregone
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
With no related allowance recorded:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial & industrial
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
Construction
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
Commercial real estate
|
|
|
1,277
|
|
|
|
1,277
|
|
|
|
—
|
|
|
|
1,307
|
|
|
|
87
|
|
|
|
—
|
|
Consumer
|
|
|
13
|
|
|
|
13
|
|
|
|
—
|
|
|
|
15
|
|
|
|
—
|
|
|
|
—
|
|
Residential - prime
|
|
|
7,596
|
|
|
|
7,596
|
|
|
|
—
|
|
|
|
7,640
|
|
|
|
355
|
|
|
|
6
|
|
Residential - multi family
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
Finance leases
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
8,886
|
|
|
$
|
8,886
|
|
|
$
|
—
|
|
|
$
|
8,962
|
|
|
$
|
442
|
|
|
$
|
6
|
|
Commercial
|
|
|
1,277
|
|
|
|
1,277
|
|
|
|
—
|
|
|
|
1,307
|
|
|
|
87
|
|
|
|
—
|
|
Consumer
|
|
|
13
|
|
|
|
13
|
|
|
|
—
|
|
|
|
15
|
|
|
|
—
|
|
|
|
—
|
|
Residential
|
|
|
7,596
|
|
|
|
7,596
|
|
|
|
—
|
|
|
|
7,640
|
|
|
|
355
|
|
|
|
6
|
|
Finance leases
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
BERKSHIRE BANCORP INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(continued)
(unaudited)
Note 4. - (continued)
Loans on Nonaccrual Status
As of
|
|
March 31,
2013
|
|
|
December 31,
2012
|
|
|
|
(In thousands)
|
|
Commercial & industrial
|
|
$
|
—
|
|
|
$
|
—
|
|
Construction
|
|
|
—
|
|
|
|
—
|
|
Commercial real estate
|
|
|
—
|
|
|
|
—
|
|
Consumer
|
|
|
—
|
|
|
|
—
|
|
Residential
|
|
|
1,163
|
|
|
|
861
|
|
Residential - multi family
|
|
|
—
|
|
|
|
—
|
|
Finance leases
|
|
|
—
|
|
|
|
—
|
|
Total
|
|
$
|
1,163
|
|
|
$
|
861
|
|
Credit Exposure
Credit Risk Profile by Internally Assigned
Grades
For the Three Months Ended March 31,
2013
(In thousands)
|
|
Commercial
&
Industrial
|
|
|
Commercial Real
Estate
Construction
|
|
|
Commercial
Real Estate
Other
|
|
Grade:
|
|
|
|
|
|
|
|
|
|
|
|
|
Pass
|
|
$
|
23,710
|
|
|
$
|
14,606
|
|
|
$
|
131,189
|
|
Watch
|
|
|
1,850
|
|
|
|
—
|
|
|
|
10,407
|
|
Special Mention
|
|
|
104
|
|
|
|
—
|
|
|
|
439
|
|
Substandard
|
|
|
117
|
|
|
|
9,670
|
|
|
|
9,671
|
|
Total
|
|
$
|
25,781
|
|
|
$
|
24,276
|
|
|
$
|
151,706
|
|
|
|
Residential
|
|
|
Multi Family
|
|
|
Finance
Leases
|
|
|
|
|
|
|
|
|
|
|
|
Grade:
|
|
|
|
|
|
|
|
|
|
|
|
|
Pass
|
|
$
|
71,881
|
|
|
$
|
14,240
|
|
|
$
|
—
|
|
Watch
|
|
|
578
|
|
|
|
—
|
|
|
|
—
|
|
Special Mention
|
|
|
1,158
|
|
|
|
—
|
|
|
|
—
|
|
Substandard
|
|
|
6,621
|
|
|
|
—
|
|
|
|
1,128
|
|
Total
|
|
$
|
80,238
|
|
|
$
|
14,240
|
|
|
$
|
1,128
|
|
|
|
Consumer
Overdrafts
|
|
|
Consumer
Other
|
|
|
|
|
|
|
|
|
Performing
|
|
$
|
157
|
|
|
$
|
689
|
|
Nonperforming
|
|
|
—
|
|
|
|
—
|
|
Total
|
|
$
|
157
|
|
|
$
|
689
|
|
BERKSHIRE BANCORP INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(continued)
(unaudited)
Note 4. - (continued)
Credit Exposure
Credit Risk Profile by Internally Assigned
Grades
For the Year Ended December 31, 2012
(In thousands)
|
|
Commercial
&
Industrial
|
|
|
Commercial Real
Estate
Construction
|
|
|
Commercial
Real Estate
Other
|
|
Grade:
|
|
|
|
|
|
|
|
|
|
|
|
|
Pass
|
|
$
|
21,679
|
|
|
$
|
23,789
|
|
|
$
|
115,547
|
|
Watch
|
|
|
—
|
|
|
|
—
|
|
|
|
8,226
|
|
Special Mention
|
|
|
—
|
|
|
|
—
|
|
|
|
5,970
|
|
Substandard
|
|
|
135
|
|
|
|
—
|
|
|
|
19,441
|
|
Total
|
|
$
|
21,814
|
|
|
$
|
23,789
|
|
|
$
|
149,184
|
|
|
|
Residential
|
|
|
Multi Family
|
|
Grade:
|
|
|
|
|
|
|
Pass
|
|
$
|
76,097
|
|
|
$
|
14,491
|
|
Watch
|
|
|
716
|
|
|
|
—
|
|
Special Mention
|
|
|
1,086
|
|
|
|
—
|
|
Substandard
|
|
|
6,308
|
|
|
|
—
|
|
Total
|
|
$
|
84,207
|
|
|
$
|
14,491
|
|
|
|
Consumer
Overdrafts
|
|
|
Consumer
Other
|
|
|
Finance
Leases
|
|
Performing
|
|
$
|
184
|
|
|
$
|
715
|
|
|
$
|
1,370
|
|
Nonperforming
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
Total
|
|
$
|
184
|
|
|
$
|
715
|
|
|
$
|
1,370
|
|
BERKSHIRE BANCORP INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(continued)
(unaudited)
Note 4. - (continued)
The Company utilizes
a grade risk rating system for commercial and industrial, commercial real estate and construction loans.
On a quarterly basis,
or more often if needed, the Company formally reviews the ratings on all classified commercial and industrial, commercial real
estate and construction loans. Semi-annually, the Company engages an independent third-party to review a significant portion of
loans within these segments. Management uses the results of these reviews as part of its periodic review process.
|
|
Loan Modifications
(Dollars in Thousands)
|
|
|
|
|
|
|
|
As of March 31, 2013
|
|
Troubled Debt
Restructuring
|
|
Number
of
Loans
|
|
|
Pre-Modification
Outstanding
Recorded Loans
|
|
|
Post-Modification
Outstanding
Recorded Loans
|
|
Residential - prime
|
|
|
7
|
|
|
$
|
2,177
|
|
|
$
|
2,090
|
|
Commercial Real Estate
|
|
|
3
|
|
|
|
1,354
|
|
|
|
1,264
|
|
|
|
|
10
|
|
|
$
|
3,531
|
|
|
$
|
3,354
|
|
|
|
As of December 31, 2012
|
|
Troubled Debt
Restructuring
|
|
Number
of
Loans
|
|
|
Pre-Modification
Outstanding
Recorded Loans
|
|
|
Post-Modification
Outstanding
Recorded Loans
|
|
Residential
|
|
|
7
|
|
|
$
|
2,177
|
|
|
$
|
2,101
|
|
Commercial Real Estate
|
|
|
3
|
|
|
|
1,354
|
|
|
|
1,276
|
|
|
|
|
10
|
|
|
$
|
3,531
|
|
|
$
|
3,377
|
|
The loans restructured as noted above were
restructured by extending maturity dates or reducing interest rates. No loans were restructured into two notes nor are there any
commitments to extend additional funds on any TDRs. The commercial real estate loans are individually evaluated for impairment
with any loss recognized in the allowance for loan losses.
The following table shows our recorded
investment for loans classified as TDR that are performing according to their restructured terms at the periods indicated:
|
|
As of March 31,
|
|
|
|
2013
|
|
|
2012
|
|
(Dollars in thousands)
|
|
Number of
contracts
|
|
|
Recorded
investments
|
|
|
Numbers of
contracts
|
|
|
Recorded
investments
|
|
Multi-family residential
|
|
|
—
|
|
|
$
|
—
|
|
|
|
—
|
|
|
$
|
—
|
|
Commercial real estate
|
|
|
3
|
|
|
|
1,263
|
|
|
|
3
|
|
|
|
1,315
|
|
One-to-four family – residential
|
|
|
5
|
|
|
|
1,285
|
|
|
|
7
|
|
|
|
2,134
|
|
Construction
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
Commercial business and others
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
Total Performing TDRs
|
|
|
8
|
|
|
$
|
2,548
|
|
|
|
10
|
|
|
$
|
3,449
|
|
BERKSHIRE BANCORP INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(continued)
(unaudited)
Note 5. Investment Securities
The following is a
summary of held to maturity investment securities:
|
|
March 31, 2013
|
|
|
|
Amortized
Cost
|
|
|
Gross
unrealized
gains
|
|
|
Gross
unrealized
losses
|
|
|
Fair
value
|
|
|
|
|
|
|
(In thousands)
|
|
|
|
|
U.S. Government Agencies
|
|
$
|
270
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
270
|
|
|
|
December 31, 2012
|
|
|
|
Amortized
Cost
|
|
|
Gross
unrealized
gains
|
|
|
Gross
unrealized
losses
|
|
|
Fair
value
|
|
|
|
|
|
|
(In thousands)
|
|
|
|
|
U.S. Government Agencies
|
|
$
|
275
|
|
|
$
|
8
|
|
|
$
|
-
|
|
|
$
|
283
|
|
BERKSHIRE BANCORP INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(continued)
(unaudited)
Note 5. - (continued)
The following is a
summary of available-for-sale investment securities:
|
|
March 31, 2013
|
|
|
|
Amortized
Cost
|
|
|
Gross
unrealized
gains
|
|
|
Gross
unrealized
losses
|
|
|
Fair
value
|
|
|
|
|
|
|
(In thousands)
|
|
|
|
|
U.S. Treasury Notes
|
|
$
|
34,866
|
|
|
$
|
40
|
|
|
$
|
(141
|
)
|
|
$
|
34,765
|
|
U.S. Government Agencies
|
|
|
139,445
|
|
|
|
211
|
|
|
|
(447
|
)
|
|
|
139,209
|
|
Mortgage-backed securities
|
|
|
113,517
|
|
|
|
1,880
|
|
|
|
(563
|
)
|
|
|
114,834
|
|
Corporate notes
|
|
|
9,302
|
|
|
|
103
|
|
|
|
(2
|
)
|
|
|
9,403
|
|
Auction rate securities
|
|
|
53,000
|
|
|
|
—
|
|
|
|
(2,694
|
)
|
|
|
50,306
|
|
Marketable equity securities and other
|
|
|
126
|
|
|
|
—
|
|
|
|
—
|
|
|
|
126
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Totals
|
|
$
|
350,256
|
|
|
$
|
2,234
|
|
|
$
|
(3,847
|
)
|
|
$
|
348,643
|
|
|
|
December 31, 2012
|
|
|
|
Amortized
Cost
|
|
|
Gross
unrealized
gains
|
|
|
Gross
unrealized
losses
|
|
|
Fair
value
|
|
|
|
|
|
|
(In thousands)
|
|
|
|
|
U.S. Treasury Notes
|
|
$
|
24,868
|
|
|
$
|
19
|
|
|
$
|
(37
|
)
|
|
$
|
24,850
|
|
U.S. Government Agencies
|
|
|
141,653
|
|
|
|
367
|
|
|
|
(151
|
)
|
|
|
141,869
|
|
Mortgage-backed securities
|
|
|
127,508
|
|
|
|
2,343
|
|
|
|
(255
|
)
|
|
|
129,594
|
|
Corporate notes
|
|
|
10,386
|
|
|
|
106
|
|
|
|
(3
|
)
|
|
|
10,489
|
|
Auction rate securities
|
|
|
56,000
|
|
|
|
—
|
|
|
|
(7,815
|
)
|
|
|
48,185
|
|
Marketable equity Securities and other
|
|
|
126
|
|
|
|
—
|
|
|
|
—
|
|
|
|
126
|
|
Totals
|
|
$
|
360,541
|
|
|
$
|
2,835
|
|
|
$
|
(8,261
|
)
|
|
$
|
355,114
|
|
BERKSHIRE BANCORP INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(continued)
(unaudited)
Note 5. - (continued)
Management uses a multi-factor
approach to determine whether each investment security in an unrealized loss position is other-than-temporarily impaired ("OTTI").
An unrealized loss position exists when the current fair value of an investment is less than its amortized cost basis. The valuation
factors utilized by management incorporate the ideas and concepts outlined in relevant accounting guidance. These include such
factors as:
*The length
of time and the extent to which the market value has been less than cost;
*The financial
condition of the issuer of the security as well as the near and long-term prospect for the issuer;
*The rating
of the security by a national rating agency;
*Historical
volatility and movement in the fair market value of the security; and
*Adverse conditions
relative to the security, issuer or industry.
The following table
shows the outstanding auction rate securities at March 31, 2013 and December 31, 2012:
|
|
March 31, 2013
|
|
|
December 31, 2012
|
|
|
|
Amortized
Cost
|
|
|
Fair Value
|
|
|
Amortized
Cost
|
|
|
Fair Value
|
|
|
|
|
|
|
(In thousands)
|
|
|
|
|
Preferred Shares of Money Center Banks
|
|
$
|
53,000
|
|
|
$
|
50,306
|
|
|
$
|
56,000
|
|
|
$
|
48,185
|
|
Totals
|
|
$
|
53,000
|
|
|
$
|
50,306
|
|
|
$
|
56,000
|
|
|
$
|
48,185
|
|
In accordance with
ASC 320-10, Investment - Debt and Equity Securities, Management's impairment analysis for the corporate and auction rate securities
that were in a loss position as of March 31, 2013 began with management's determination that it had the intent to hold these securities
for sufficient time to recover the cost basis. Management also concluded that it was unlikely that it would be required to sell
any of the securities before recovery of the cost basis.
At March 31, 2013 and
December 31, 2012, the amortized cost of our auction rate securities was $53.0 million and $56.0 million, respectively. The fair
value of the auction rate securities was $50.3 million and $48.2 million at March 31, 2013 and December 31, 2012, respectively.
BERKSHIRE BANCORP INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(continued)
(unaudited)
Note 5. - (continued)
The fair value of the
auction rate securities is determined by management valuing the underlying security. The auction rate securities allow for conversion
to the underlying preferred security after two failed auctions. As of March 31, 2013, there have been more than two failed auctions
for all outstanding auction rate securities. It is our intention to continue to hold these securities and not convert to the underlying
preferred securities. We also perform a discounted cash flow analysis, but we considered the market value of the underlying preferred
shares to be more objective and relevant in pricing auction rate securities.
In determining whether
there is OTTI, management considers the factors noted above. The financial performance indicators we review include, but are not
limited to, net earnings, change in liquidity, and change in cash from operating activities, and, for money center banks, the regulatory
capital ratios and the allowance for loan losses to the nonperforming loans. Through March 31, 2013, the auction rate securities
have continued to pay interest at the highest rate as stipulated in the original prospectus. Currently, the interest rate paid
approximates the rate paid on money market deposit accounts.
At March 31, 2013,
we had 6 auction rate securities with an aggregate fair market value of $34.8 million which were below investment grade. At December
31, 2012, we had four auction rate securities with an aggregate fair market value of $30.6 million which were below investment
grade.
Based upon our methodology
for determining the fair value of the auction rate securities, we concluded that as of March 31, 2013, the unrealized loss for
the auction rate securities is due to the market interest volatility, the continued illiquidity of the auction rate markets, and
uncertainty in the financial markets as there has not been a deterioration in the credit quality of the issuer of the auction rate
securities or a downgrade of additional auction rate securities from investment grade. It is not more likely than not that the
Company would be required to sell the auction rate securities prior to recovery of the unrealized loss, nor does the Company intend
to sell the security at the present time.
There has been one
credit rating down grade on our auction rate securities subsequent to December 31, 2012.
BERKSHIRE BANCORP INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(continued)
(unaudited)
Note 5. - (continued)
The Company has investments
in certain debt securities that have unrealized losses or may be otherwise impaired, but an OTTI has not been recognized in the
financial statements as management believes the decline is due to the credit markets coupled with the interest rate environment.
The following table
indicates the length of time individual securities that we consider temporarily impaired have been in a continuous unrealized loss
position at March 31, 2013 (in thousands):
|
|
Less than 12 months
|
|
|
12 months or longer
|
|
|
Total
|
|
|
|
Fair Value
|
|
|
Unrealized
Losses
|
|
|
Fair Value
|
|
|
Unrealized
Losses
|
|
|
Fair Value
|
|
|
Unrealized
Losses
|
|
Description of Securities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. Treasury Notes
|
|
$
|
14,746
|
|
|
$
|
140
|
|
|
$
|
1
|
|
|
$
|
1
|
|
|
$
|
14,747
|
|
|
$
|
141
|
|
U.S. Government Agencies
|
|
|
78,041
|
|
|
|
447
|
|
|
|
—
|
|
|
|
—
|
|
|
|
78,041
|
|
|
|
447
|
|
Mortgage-backed securities
|
|
|
29,714
|
|
|
|
279
|
|
|
|
8,889
|
|
|
|
284
|
|
|
|
38,603
|
|
|
|
563
|
|
Corporate Notes
|
|
|
671
|
|
|
|
2
|
|
|
|
—
|
|
|
|
—
|
|
|
|
671
|
|
|
|
2
|
|
Auction rate securities
|
|
|
50,306
|
|
|
|
2,694
|
|
|
|
—
|
|
|
|
—
|
|
|
|
50,306
|
|
|
|
2,694
|
|
Total temporarily impaired securities
|
|
$
|
173,478
|
|
|
$
|
3,562
|
|
|
$
|
8,890
|
|
|
$
|
285
|
|
|
$
|
182,368
|
|
|
$
|
3,847
|
|
The Company had a total
of 84 debt securities with a fair market value of $182.4 million which were temporarily impaired at March 31, 2013. The total unrealized
loss on these securities was $3.8 million, which is attributable to the market interest volatility, the continued illiquidity of
the debt markets, and uncertainty in the financial markets. The unrealized loss on our debt securities is comprised of a loss of
$2.7 million on eight auction rate securities which have declined in value due to auction failures beginning in February 2008 and
a loss of $1.1 million on other debt securities. It is not more likely than not that we would sell the auction rate securities
before maturity, and we have the intent to hold all of these securities to maturity and will not be required to sell these securities,
due to our ratio of cash and cash equivalents of approximately 16.58% of total assets at March 31, 2013. Therefore, the unrealized
losses associated with these securities are not considered to be other than temporary.
BERKSHIRE BANCORP INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(continued)
(unaudited)
Note 5. - (continued)
The amortized cost
and fair value of investment securities available for sale and held to maturity, by contractual maturity, at March 31, 2013 are
shown below. Expected maturities will differ from contractual maturities because borrowers may have the right to call or prepay
obligations with or without call or prepayment penalties.
|
|
March 31, 2013
|
|
|
|
Available for Sale
|
|
|
Held to Maturity
|
|
|
|
Amortized
Cost
|
|
|
Fair
Value
|
|
|
Amortized
Cost
|
|
|
Fair
Value
|
|
|
|
(In thousands)
|
|
Due in one year or less
|
|
$
|
22,326
|
|
|
$
|
22,372
|
|
|
$
|
—
|
|
|
$
|
—
|
|
Due after one through five years
|
|
|
11,991
|
|
|
|
12,187
|
|
|
|
—
|
|
|
|
—
|
|
Due after five through ten years
|
|
|
81,115
|
|
|
|
81,480
|
|
|
|
250
|
|
|
|
250
|
|
Due after ten years
|
|
|
181,698
|
|
|
|
182,172
|
|
|
|
20
|
|
|
|
20
|
|
Auction rate securities
|
|
|
53,000
|
|
|
|
50,306
|
|
|
|
—
|
|
|
|
—
|
|
Marketable equity securities and other
|
|
|
126
|
|
|
|
126
|
|
|
|
—
|
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Totals
|
|
$
|
350,256
|
|
|
$
|
348,643
|
|
|
$
|
270
|
|
|
$
|
270
|
|
Gross gains realized
on the sales of available-for-sale securities for the three months ended March 31, 2013, and 2012 were approximately $152,000 and
$327,000, respectively. Gross losses were approximately $131,000 and $107,000 for the three months ended March 31, 2013 and 2012,
respectively.
At both March 31, 2013
and December 31, 2012, securities sold under agreements to repurchase with a book value of $45.0 million were outstanding. The
book value of the securities pledged for these repurchase agreements was $49.8 million and $55.9 million, respectively. As of March
31, 2013 and December 31, 2012, the Company owns investment securities to one issuer where the carrying value exceeded 10% of shareholders'
equity.
BERKSHIRE BANCORP INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(continued)
(unaudited)
Note 6. Deposits
The following table
summarizes the composition of the average balances of major deposit categories:
|
|
Three Months Ended
March 31, 2013
|
|
|
Twelve Months Ended
December 31, 2012
|
|
|
|
Average
Amount
|
|
|
Average
Yield
|
|
|
Average
Amount
|
|
|
Average
Yield
|
|
|
|
(Dollars in thousands)
|
|
Demand deposits
|
|
$
|
77,406
|
|
|
|
—
|
|
|
$
|
74,632
|
|
|
|
—
|
|
NOW and money market
|
|
|
40,004
|
|
|
|
0.37
|
%
|
|
|
27,544
|
|
|
|
0.29
|
%
|
Savings deposits
|
|
|
166,306
|
|
|
|
0.20
|
|
|
|
201,251
|
|
|
|
0.18
|
|
Time deposits
|
|
|
333,304
|
|
|
|
0.99
|
|
|
|
357,706
|
|
|
|
1.15
|
|
Total deposits
|
|
$
|
617,020
|
|
|
|
0.62
|
%
|
|
$
|
661,133
|
|
|
|
0.68
|
%
|
The following table
provides the Weighted Average rate for each of the deposit categories:
|
|
As of March 31,
|
|
(Dollars in thousands)
|
|
2013
|
|
|
2012
|
|
|
|
|
|
|
Weighted
|
|
|
|
|
|
Weighted
|
|
|
|
Balance
|
|
|
Ave Rate
|
|
|
Balance
|
|
|
Ave Rate
|
|
Interest-bearing deposits:
|
|
|
|
|
|
|
|
|
|
|
|
|
Certificate of deposit accounts
|
|
$
|
331,548
|
|
|
|
1.01
|
%
|
|
$
|
362,325
|
|
|
|
1.19
|
%
|
Savings accounts
|
|
|
163,061
|
|
|
|
0.19
|
%
|
|
|
210,691
|
|
|
|
0.12
|
%
|
Money Market accounts
|
|
|
10,194
|
|
|
|
0.14
|
%
|
|
|
8,153
|
|
|
|
0.16
|
%
|
NOW accounts
|
|
|
26,727
|
|
|
|
0.57
|
%
|
|
|
19,534
|
|
|
|
0.23
|
%
|
Total interest-bearing demand deposits
|
|
|
531,530
|
|
|
|
|
|
|
|
600,703
|
|
|
|
|
|
Non-interest bearing deposits
|
|
|
75,805
|
|
|
|
|
|
|
|
75,921
|
|
|
|
|
|
Total due to depositors
|
|
|
607,335
|
|
|
|
|
|
|
|
676,624
|
|
|
|
|
|
Mortgagors' escrow deposits
|
|
|
3,036
|
|
|
|
1.39
|
%
|
|
|
2,919
|
|
|
|
1.36
|
%
|
Total Deposits
|
|
$
|
610,371
|
|
|
|
|
|
|
$
|
679,543
|
|
|
|
|
|
Note 7. Comprehensive Income (Loss)
The Company follows
the provisions of FASB ASC 220, Comprehensive Income, ("ASC 220") which includes net income as well as certain other
items which result in a change to equity during the period. The following table presents the components of comprehensive income
(loss):
|
|
For The Three Months Ended March 31,
|
|
|
|
2013
|
|
|
2012
|
|
|
|
Before tax
amount
|
|
|
Tax
(expense)
benefit
|
|
|
Net of tax
amount
|
|
|
Before tax
amount
|
|
|
Tax
(expense)
benefit
|
|
|
Net of tax
amount
|
|
|
|
(In thousands)
|
|
Unrealized gains (losses) on investment securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unrealized holding gains (losses) arising During period
|
|
$
|
3,791
|
|
|
$
|
(1,706
|
)
|
|
$
|
2,085
|
|
|
$
|
10,020
|
|
|
$
|
(4,008
|
)
|
|
$
|
6,012
|
|
Less reclassification adjustment for gains (losses) realized in net income
|
|
|
—
|
|
|
|
—
|
|
|
|
0
|
|
|
|
220
|
|
|
|
(88
|
)
|
|
|
132
|
|
Unrealized gain (loss) on investment securities
|
|
|
3,791
|
|
|
|
(1,706
|
)
|
|
|
2,085
|
|
|
|
9,800
|
|
|
|
(3,920
|
)
|
|
|
5,880
|
|
Other comprehensive Income (loss), net
|
|
$
|
3,791
|
|
|
$
|
(1,706
|
)
|
|
$
|
2,085
|
|
|
$
|
9,800
|
|
|
$
|
(3,920
|
)
|
|
$
|
5,880
|
|
BERKSHIRE BANCORP INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(continued)
(unaudited)
Note 8. Fair Value of Financial Instruments
FASB ASC 820, "Fair
Value Measurements and Disclosure", ("ASC 820") defines fair value, establishes a framework for measuring fair value,
and expands disclosure about fair value. ASC 820 defines fair value as the price that would be received to sell an asset or paid
to transfer a liability (an exit price) in an orderly transaction between market participants on the measurement date. ASC 820
also establishes a fair value hierarchy which requires an entity to maximize the use of observable inputs and minimize the use
of unobservable inputs when measuring fair value. The standard describes three levels of inputs that may be used to measure fair
value. A financial instrument's level within the fair value hierarchy is based on the lowest level of input significant to the
fair value measurement. There have been no material changes in valuation techniques as a result of the adoption of ASC 820.
Level 1 - Quoted prices (unadjusted) in
active markets for identical assets or liabilities that the Company has the ability to access at the measurement date.
Level 2 - Observable inputs other than
Level 1 prices, such as quoted prices for similar assets or liabilities in active markets; quoted prices in markets that are not
active for identical or similar assets or liabilities; or other inputs that are observable or can be corroborated by observable
market data for substantially the full term of the assets or liabilities.
Level 3 - Unobservable inputs that are
supported by little or no market activity and significant to the fair value of the assets or liabilities that are developed using
the reporting entities' estimates and assumptions, which reflect those that market participants would use.
The Company is required
to disclose the estimated fair value of its assets and liabilities considered to be financial instruments. For the Company, as
for most financial institutions, the majority of its assets and liabilities are considered financial instruments. However, many
such instruments lack an available trading market, as characterized by a willing buyer and seller engaging in an exchange transaction.
Also, it is the Company's general practice and intent to hold its financial instruments to maturity and not to engage in trading
or sales activities, except for certain loans. Therefore, the Company had to use significant estimations and present value calculations
to prepare this disclosure.
Changes in the assumptions
or methodologies used to estimate fair values may materially affect the estimated amounts. Also, there may not be reasonable comparability
between institutions due to the wide range of permitted assumptions and methodologies in the absence of active markets. This lack
of uniformity gives rise to a high degree of subjectivity in estimating financial instrument fair values.
Estimated fair values
have been determined by the Company using the best available data and an estimation methodology suitable for each category of
financial instruments. The estimation methodologies used, the estimated fair values, and recorded book balances at March 31, 2013
and December 31, 2012 are outlined below.
BERKSHIRE BANCORP INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(continued)
(unaudited)
Note 8. - (continued)
|
|
March 31, 2013
|
|
|
December 31, 2012
|
|
|
|
Carrying
amount
|
|
|
Estimated
fair value
|
|
|
Carrying
amount
|
|
|
Estimated
fair value
|
|
|
|
(In thousands)
|
|
Investment securities
|
|
$
|
348,913
|
|
|
$
|
348,914
|
|
|
$
|
355,389
|
|
|
$
|
355,397
|
|
Loans, net of unearned income
|
|
|
297,646
|
|
|
|
306,041
|
|
|
|
295,165
|
|
|
|
305,123
|
|
Time Deposits
|
|
|
331,548
|
|
|
|
324,125
|
|
|
|
337,492
|
|
|
|
338,723
|
|
Other Deposits
|
|
|
278,823
|
|
|
|
278,823
|
|
|
|
304,978
|
|
|
|
304,978
|
|
Repurchase Agreements
|
|
|
45,000
|
|
|
|
45,820
|
|
|
|
45,000
|
|
|
|
46,138
|
|
Borrowings
|
|
|
564
|
|
|
|
565
|
|
|
|
1,539
|
|
|
|
1,548
|
|
The following table sets forth the
fair value hierarchy for financial instruments measured at fair value at March 31, 2013 and December 31, 2012:
|
|
Quoted Prices
|
|
|
|
|
|
|
|
|
|
|
|
|
in Active Markets
|
|
|
|
|
|
|
|
|
|
|
|
|
for Identical
|
|
|
Significant Other
|
|
|
Significant Other
|
|
|
Total carried at
|
|
|
|
Assets
|
|
|
Observable Inputs
|
|
|
Unobservable Inputs
|
|
|
fair value
|
|
|
|
(Level 1)
|
|
|
(Level 2)
|
|
|
(Level 3)
|
|
|
|
|
(In thousands)
|
|
March 31,
2013
|
|
|
December 31,
2012
|
|
|
March 31,
2013
|
|
|
December 31,
2012
|
|
|
March 31,
2013
|
|
|
December 31,
2012
|
|
|
March 31,
2013
|
|
|
December 31,
2012
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investment Securities
|
|
$
|
41,966
|
|
|
$
|
21,234
|
|
|
$
|
256,642
|
|
|
$
|
285,978
|
|
|
$
|
50,306
|
|
|
$
|
48,185
|
|
|
$
|
348,914
|
|
|
$
|
355,397
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loans, net of Unearned Income
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
306,041
|
|
|
|
305,123
|
|
|
|
306,041
|
|
|
|
305,123
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Time Deposits
|
|
|
—
|
|
|
|
—
|
|
|
|
324,125
|
|
|
|
338,723
|
|
|
|
—
|
|
|
|
—
|
|
|
|
324,125
|
|
|
|
338,723
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other Deposits
|
|
|
—
|
|
|
|
—
|
|
|
|
278,823
|
|
|
|
304,978
|
|
|
|
—
|
|
|
|
—
|
|
|
|
278,823
|
|
|
|
304,978
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Repurchase Agreements
|
|
|
—
|
|
|
|
—
|
|
|
|
45,820
|
|
|
|
46,138
|
|
|
|
—
|
|
|
|
—
|
|
|
|
45,820
|
|
|
|
46,138
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Borrowings
|
|
|
—
|
|
|
|
—
|
|
|
|
565
|
|
|
|
1,548
|
|
|
|
—
|
|
|
|
—
|
|
|
|
565
|
|
|
|
1,548
|
|
For cash and cash equivalents, the recorded
book values of $132.6 million and $149.2 million at March 31, 2013 and December 31, 2012, respectively, approximates fair value
because of the relatively short term between the origination of the instrument and its expected realization. Therefore, the Company
believes the measurement of fair value of cash and cash equivalents is derived from Level 1 inputs.
The estimated fair
values of investment securities are based on quoted market prices (Level 1 inputs), if available. Estimated fair values are based
on quoted market prices of comparable instruments if quoted market prices are not available (Level 2 inputs). Estimated fair values
are also determined using unobservable inputs that are supported by little or no market values and significant assumptions and
estimates (Level 3 inputs).
The net loan portfolio
at March 31, 2013 and December 31, 2012 has been valued using a present value discounted cash flow where market prices were not
available. The discount rate used in these calculations is the estimated current market rate adjusted for credit risk. The Company
believes the fair value of portfolio loans is derived from Level 3 inputs.
The estimated fair
values of demand deposits (i.e. interest (checking) and non-interest bearing demand accounts, savings and certain types of money
market accounts) are, by definition, equal to the amount payable on demand at the reporting date (i.e. their carrying amounts).
The fair value of such deposits is derived from Level 2 inputs. The fair value of time deposits have been valued using net present
value discounted cash flow and is derived from Level 2 inputs.
The fair value of
commitments to extend credit is estimated based upon the amount of unamortized deferred loan commitment fees. The fair value of
letters of credit is based upon the amount of unearned fees plus the estimated cost to terminate letters of credit. Fair values
of unrecognized financial instruments, including commitments to extend credit, and the fair value of letters of credit are considered
immaterial. As such, no disclosures are made on the fair value of commitments.
The fair value of
interest rate caps, included in borrowings, are based upon the estimated amount the Company would receive or pay to terminate
the contracts or agreements, taking into account current interest rates and, when appropriate, the current creditworthiness of
the counterparties. The aggregate fair value for the interest rate caps were zero at both March 31, 2013 and December 31, 2012.
The fair value of
borrowings and repurchase agreements approximates the carrying value due to the re-pricing of the
debt. The Company measures the fair value of borrowings and repurchase agreements using Level 2
inputs.
BERKSHIRE BANCORP INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(continued)
(unaudited)
Note 8. - (continued)
Assets and Liabilities Measured at
Fair Value on a Recurring Basis
A description of the
valuation methodologies used for financial instruments measured at fair value on a recurring basis, as well as the classification
of the instruments pursuant to the valuation hierarchy, are as follows:
Securities Available for Sale
When quoted market
prices are available in an active market, securities are classified within Level 1 of the fair value hierarchy. If quoted market
prices are not available or accessible, then fair values are estimated using pricing models, matrix pricing, or discounted cash
flow models. The fair values of securities estimated using pricing models or matrix pricing are generally classified within Level
2 of the fair value hierarchy. When discounted cash flow models are used there is omitted activity or less transparency around
inputs to the valuation and securities are classified within Level 3 of the fair value hierarchy.
Level 1 securities
generally include equity securities valued based on quoted market prices in active markets. Level 2 instruments include U.S. government
agency obligations, state and municipal bonds, mortgage-backed securities, collateralized mortgage obligations and corporate bonds.
For these securities, the Company obtains fair value measurements from an independent pricing service. The fair value measurements
consider observable data that may include dealer quotes, market spreads, cash flows, the U.S. Treasury yield curve, live trading
levels, trade execution data, market consensus prepayment speeds, credit information and the bond's terms and conditions, among
other things. Level 3 securities available for sale consist of instruments that are not readily marketable and may only be redeemed
with the issuer at par such as Federal Home Loan Bank and Federal Reserve Bank stock. These securities are valued at par value.
Assets measured at
fair value on a recurring and nonrecurring basis at March 31, 2013 and at December 31, 2012 are summarized below.
|
|
At March 31, 2013
Fair Value Measurement Using
|
|
|
|
Quoted Prices in
Active Markets
for Identical
Assets/Liabilities
(Level 1)
|
|
|
Significant
Other
Observable
Inputs
(Level 2)
|
|
|
Significant
Unobservable
Inputs
(Level 3)
|
|
|
Balance
March 31,2013
|
|
|
|
(Dollars in thousands)
|
|
Assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Impaired Loans (1)
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
8,812
|
|
|
$
|
8,812
|
|
Investment securities available for sale: (2)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. Treasury Notes
|
|
$
|
34,765
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
34,765
|
|
U.S. Government Agencies
|
|
|
—
|
|
|
|
139,209
|
|
|
|
—
|
|
|
|
139,209
|
|
Mortgage-backed securities
|
|
|
—
|
|
|
|
114,834
|
|
|
|
—
|
|
|
|
114,834
|
|
Corporate notes
|
|
|
7,201
|
|
|
|
2,202
|
|
|
|
—
|
|
|
|
9,403
|
|
Auction rate securities
|
|
|
—
|
|
|
|
—
|
|
|
|
50,306
|
|
|
|
50,306
|
|
Marketable equity securities and other
|
|
|
—
|
|
|
|
126
|
|
|
|
—
|
|
|
|
126
|
|
Total Investment securities available for sale
|
|
$
|
41,966
|
|
|
$
|
256,371
|
|
|
$
|
50,306
|
|
|
$
|
348,643
|
|
Total assets
|
|
$
|
41,966
|
|
|
$
|
256,371
|
|
|
$
|
59,118
|
|
|
$
|
357,455
|
|
(1) Non-recurring basis-impaired loans
represent carrying amount as no write downs were taken to date.
(2) Recurring basis
The above table includes
$8.6 million in net unrealized losses on the Company's available for sale securities. The Company has reviewed its investment
portfolio at March 31, 2013, and determined that the unrealized losses are temporary.
|
|
At December, 31, 2012
Fair Value Measurement Using
|
|
|
|
Quoted Prices in
Active Markets
for Identical
Assets/Liabilities
(Level 1)
|
|
|
Significant
Other
Observable
Inputs
(Level 2)
|
|
|
Significant
Unobservable
Inputs
(Level 3)
|
|
|
Balance
December 31,
2012
|
|
|
|
(Dollars in thousands)
|
|
Assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Impaired Loans (1)
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
8,886
|
|
|
$
|
8,886
|
|
Investment securities available for sale: (2)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. Treasury Notes
|
|
$
|
14,846
|
|
|
$
|
10,004
|
|
|
$
|
—
|
|
|
$
|
24,850
|
|
U.S. Government Agencies
|
|
|
—
|
|
|
|
141,869
|
|
|
|
—
|
|
|
|
141,869
|
|
Mortgage-backed securities
|
|
|
—
|
|
|
|
129,595
|
|
|
|
—
|
|
|
|
129,595
|
|
Corporate notes
|
|
|
6,388
|
|
|
|
4,101
|
|
|
|
—
|
|
|
|
10,489
|
|
Municipal securities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Auction rate securities
|
|
|
—
|
|
|
|
—
|
|
|
|
48,185
|
|
|
|
48,185
|
|
Marketable equity securities and other
|
|
|
—
|
|
|
|
126
|
|
|
|
—
|
|
|
|
126
|
|
Total Investment securities available for sale
|
|
$
|
21,234
|
|
|
$
|
285,695
|
|
|
$
|
48,185
|
|
|
$
|
355,114
|
|
Total assets
|
|
$
|
21,234
|
|
|
$
|
285,695
|
|
|
$
|
57,071
|
|
|
$
|
364,000
|
|
(1) Non-recurring basis-impaired loans
represent carrying amount as no write downs were taken to date.
(2) Recurring basis
The above table includes
$5.4 million in net unrealized losses on the Company's available for sale securities. The Company has reviewed its investment
portfolio at December 31, 2012, and determined that the unrealized losses are temporary.
The fair value of
the derivative is zero and valued as a Level 3 input.
Assets and Liabilities Measured at
Fair Value on a Recurring Basis Using Significant Unobservable Inputs (Level 3)
The following table
presents a reconciliation for assets measured at fair value on a recurring basis for which the Company has utilized significant
unobservable inputs (Level 3).
(Dollars in thousands)
|
|
Investment
Securities
Available
for Sale
|
|
|
|
|
|
Balance, January 1, 2013
|
|
$
|
48,185
|
|
Total gains/losses (realized/unrealized)
|
|
|
|
|
Included in earnings
|
|
|
5,121
|
|
Included in other comprehensive income
|
|
|
—
|
|
Purchases
|
|
|
—
|
|
Sales
|
|
|
(3,000
|
)
|
Issuances
|
|
|
—
|
|
Settlements
|
|
|
—
|
|
Redemptions
|
|
|
—
|
|
Interest
|
|
|
—
|
|
Other than temporary impairment expense
|
|
|
—
|
|
Capital deductions for operating expenses
|
|
|
—
|
|
Balance, March 31, 2013
|
|
$
|
50,306
|
|
|
|
|
|
|
The amount of total gains (losses) for the period included in earnings attributable to the change in unrealized gains or losses relating to assets still held at March 31, 2013
|
|
$
|
—
|
|
In accordance with
FASB Accounting Standards Update (“ASU”) No. 2011-04, the Bank establishes valuation processes and procedures to ensure
that the valuation techniques for investments that are categorized within Level 3 of the fair value hierarchy are fair, consistent
and verifiable.
The Bank periodically
tests its valuation of Level 3 investments through performing Discounted Cash Flow analysis of the investments by comparing
the results of the discounted cash flow to the values obtained from valuation of the underlying collateral of the Auction Rate
Securities. The following table presents additional information in accordance with ASU 2011-04 about the valuation processes utilized
in measuring assets and liabilities at fair value using significant unobservable inputs (Level 3):
Assets(at fair value)
Investments in
Auction Rate Securities
|
|
Fair Value at
March 31, 2013
(in thousands)
|
|
|
Valuation
Technique
|
|
Unobservable
Inputs
|
|
Range of
Preferred Share
Pricing
|
Auction Rate Securities
|
|
$
|
50,306
|
|
|
Market Prices
|
|
Underlying Collateral
|
|
$22.30 to $24.33
|
Note 9. Related Party Transactions
In accordance with
banking regulations, the Bank, from time to time, enters into lending transactions in the ordinary course of business with directors,
executive officers, principal stockholders and affiliates of such persons on the same terms as those prevailing for comparable
transactions with other borrowers. The following table summarizes the activity in loans to related parties. (In thousands)
Balance at 12/31/12
|
|
$
|
4,900
|
|
New Loans
|
|
|
—
|
|
Repayments
|
|
|
77
|
|
Balance at 3/31/13
|
|
$
|
4,823
|
|
Aggregate deposits
from related parties at March 31, 2013 and December 31, 2012 amounted to approximately $48.9 million and $61.5 million, respectively.
At both March 31, 2013 and December 31, there were no related party Overdrawn deposit accounts reclassified to loans.
NOTE 10. Capital Adequacy
Quantitative measures
established by regulations to ensure capital adequacy require the Bank to maintain minimum amounts and ratios (set forth in the
table below) of total and Tier I capital (as defined in the regulations) to risk- weighted assets, and of Tier I capital to average
assets. Management believes that, as of March 31, 2013, the Bank meets all capital adequacy requirements to which it is subject.
As of March 31, 2013,
the Bank met all regulatory requirements for classification as well capitalized under the regulatory framework for prompt corrective
action. To be categorized as well capitalized, the Bank must maintain minimum total risk-based, Tier I risk-based and Tier I leverage
ratios as set forth in the following table. There are no conditions or events since that date that management believes have changed
the institution's category.
The following table
set forth the actual and required regulatory capital amounts and ratios of the Company and the Bank as of March 31, 2013 (dollars
in thousands):
|
|
Actual
|
|
|
For capital
adequacy purposes
|
|
|
To be well
capitalized under
prompt corrective
action provisions
|
|
|
|
Amount
|
|
|
Ratio
|
|
|
Amount
|
|
|
Ratio
|
|
|
Amount
|
|
|
Ratio
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31, 2013
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Capital (to Risk-Weighted Assets)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Company
|
|
|
139,636
|
|
|
|
37.7
|
%
|
|
|
29,601
|
|
|
|
>
8.0
|
%
|
|
$
|
—
|
|
|
|
N/A
|
|
Bank
|
|
|
129,596
|
|
|
|
35.6
|
%
|
|
|
29,118
|
|
|
|
>
8.0
|
%
|
|
|
36,397
|
|
|
|
>
10.0
|
%
|
Tier I Capital (to Risk-Weighted Assets)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Company
|
|
|
134,936
|
|
|
|
36.5
|
%
|
|
|
14,800
|
|
|
|
>
4.0
|
%
|
|
|
—
|
|
|
|
N/A
|
|
Bank
|
|
|
124,970
|
|
|
|
34.3
|
%
|
|
|
14,559
|
|
|
|
>
4.0
|
%
|
|
|
21,838
|
|
|
|
>
6.0
|
%
|
Tier I Capital (to Average Assets)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Company
|
|
|
135,936
|
|
|
|
16.9
|
%
|
|
|
31,915
|
|
|
|
>
4.0
|
%
|
|
|
—
|
|
|
|
N/A
|
|
Bank
|
|
|
124,970
|
|
|
|
15.8
|
%
|
|
|
31,647
|
|
|
|
>
4.0
|
%
|
|
|
39,559
|
|
|
|
>
5.0
|
%
|
Note 11. New Accounting Pronouncements
In December 2011,
the FASB issued ASU No. 2011-11, which amends Topic 210, "Balance Sheet," to require an entity to disclose both gross
and net information about financial instruments, such as sales and repurchase agreements and reverse sale and repurchase agreements
and securities borrowing/lending arrangements, and derivative instruments that are eligible for offset in the statement of financial
position and/or subject to a master netting arrangement or similar agreement. ASU 2011-11 is effective for annual and interim
periods beginning on January 1, 2013, and did not have a material effect on the consolidated statements of operations or
financial condition.
In February 2013,
the FASB issued ASU No. 2013-02, which amends the authoritative accounting guidance under ASC Topic 220 “Comprehensive Income.” The
amendments do not change the current requirements for reporting net income or other comprehensive income in financial statements.
However, the amendments require an entity to provide information about the amounts reclassified out of accumulated other comprehensive
income by component. In addition, an entity is required to present, either on the face of the statement where net income is presented
or in the notes, significant amounts reclassified out of accumulated other comprehensive income by the respective line items of
net income but only if the amount reclassified is required under U.S. GAAP to be reclassified to net income in its entirety in
the same reporting period. For other amounts that are not required under U.S. GAAP to be reclassified in their entirety to net
income, an entity is required to cross-reference to other disclosures required under U.S. GAAP that provide additional detail
about those amounts. The amendments in this update are effective prospectively for reporting periods beginning after December
15, 2013. Early adoption is permitted. Adoption of this update is not expected to have a material effect on the Company’s
consolidated results of operation or financial condition.