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MIDDLEFIELD BANC CORP - Quarter Report: 2013 September (Form 10-Q)

mbcn20130930_10q.htm

 

UNITED STATES SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20552

 

FORM 10 - Q

 

QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT

   OF 1934

 

For the quarterly period ended September 30, 2013

 

Commission File Number 000-32561

 

 

Middlefield Banc Corp.

(Exact name of registrant as specified in its charter)

 

Ohio

34 - 1585111 

(State or other jurisdiction of incorporation 

(IRS Employer Identification No.)

or organization) 

 

 

15985 East High Street, Middlefield, Ohio 44062-9263

(Address of principal executive offices)

 

(440) 632-1666

(Registrant's telephone number, including area code)

 

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

 

YES [√] NO [ ]

 

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate website, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (Section 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). YES [√] 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 definition of “large accelerated filer”, “accelerated filer”, and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):

 

Large accelerated filer [ ]  Accelerated filer [ ]  Non-accelerated filer [ ]  Small reporting company [√]

 

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

YES [ ]   NO [√]

 

State the number of shares outstanding of each of the issuer's classes of common equity as of the latest practicable date:

 

Class: Common Stock, without par value

      Outstanding at November 5, 2013: 2,026,578

 

 
1

 

 

MIDDLEFIELD BANC CORP.

 

INDEX

 

Part I – 

Financial Information

   
 

Item 1.

Financial Statements (unaudited)

 
       
   

Consolidated Balance Sheet as of September 30, 2013 and December 31, 2012     

3

       
   

Consolidated Statement of Income for the Three and Nine Months ended September 30, 2013 and 2012   

  4

       
   

Consolidated Statement of Comprehensive Income for the Three and Nine Months ended September 30, 2013 

5

       
   

Consolidated Statement of Changes in Stockholders' Equity for the Nine Months ended September 30, 2013 

6

       
   

Consolidated Statement of Cash Flows for the Nine Months ended September 30, 2013 and 2012     

7

       
   

Notes to Unaudited Consolidated Financial Statements     

8

       
 

Item 2.

Management's Discussion and Analysis of Financial Condition and Results of Operations     

29

       
 

Item 3.

Quantitative and Qualitative Disclosures about Market Risk     

40

       
 

Item 4.

Controls and Procedures     

41

       

Part II – 

Other Information

   
 

Item 1.

Legal Proceedings     

42

       
 

Item 1A.

Risk Factors     

42

       
 

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds     

42

       
 

Item 3.

Defaults by the Company on its Senior Securities     

42

       
 

Item 4.

Mine Safety Disclosures     

42

       
 

Item 5.

Other Information     

42

       
 

Item 6.

Exhibits and Reports on Form 8 – K     

43

       

Signatures

 47

   

Exhibit 31.1

 

   

Exhibit 31.2

 
   

Exhibit 32

 

 

 
2

 

 

MIDDLEFIELD BANC CORP.

CONSOLIDATED BALANCE SHEET

(Dollar amounts in thousands)

(Unaudited)

 

   

September 30,

2013

   

December 31,

2012

 
                 

ASSETS

               

Cash and due from banks

  $ 21,124     $ 33,568  

Federal funds sold

    11,069       11,778  

Cash and cash equivalents

    32,193       45,346  

Investment securities available for sale

    180,771       194,473  

Loans

    419,060       408,433  

Less allowance for loan losses

    7,821       7,779  

Net loans

    411,239       400,654  

Premises and equipment, net

    8,555       8,670  

Goodwill

    4,559       4,559  

Core deposit intangible

    161       195  

Bank-owned life insurance

    8,745       8,536  

Accrued interest and other assets

    11,918       7,855  
                 

TOTAL ASSETS

  $ 658,141     $ 670,288  
                 

LIABILITIES

               

Deposits:

               

Noninterest-bearing demand

  $ 81,760     $ 75,912  

Interest-bearing demand

    59,799       63,915  

Money market

    77,118       81,349  

Savings

    179,581       175,406  

Time

    180,964       196,753  

Total deposits

    579,222       593,335  

Short-term borrowings

    10,575       6,538  

Federal funds purchased

    1,639       -  

Other borrowings

    12,261       12,970  

Accrued interest and other liabilities

    1,915       2,008  

TOTAL LIABILITIES

    605,612       614,851  
                 

STOCKHOLDERS' EQUITY

               

Common stock, no par value; 10,000,000 shares authorized, 2,216,099 and 2,181,763 shares issued

    34,833       34,295  

Retained earnings

    26,123       22,485  

Accumulated other comprehensive (loss) income

    (1,693 )     5,391  

Treasury stock, at cost; 189,530 shares

    (6,734 )     (6,734 )

TOTAL STOCKHOLDERS' EQUITY

    52,529       55,437  
                 

TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY

  $ 658,141     $ 670,288  

 

See accompanying notes to unaudited consolidated financial statements.

 

 
3

 

 

MIDDLEFIELD BANC CORP.

CONSOLIDATED STATEMENT OF INCOME

(Dollar amounts in thousands, except per share data)

(Unaudited)

 

   

Three Months Ended

September 30,

   

Nine Months Ended

September 30,

 
   

2013

   

2012

   

2013

   

2012

 

INTEREST INCOME

                               

Interest and fees on loans

  $ 5,754     $ 5,810     $ 16,876     $ 16,988  

Interest-bearing deposits in other institutions

    6       7       23       19  

Federal funds sold

    4       6       12       13  

Investment securities:

                               

Taxable interest

    610       749       1,909       2,455  

Tax-exempt interest

    782       749       2,259       2,249  

Dividends on stock

    18       21       56       73  

Total interest income

    7,174       7,342       21,135       21,797  
                                 

INTEREST EXPENSE

                               

Deposits

    1,170       1,418       3,686       4,349  

Short-term borrowings

    41       61       140       219  

Federal funds purchased

    1       -       1       -  

Other borrowings

    41       78       131       244  

Trust preferred securities

    75       45       156       122  

Total interest expense

    1,328       1,602       4,114       4,934  
                                 

NET INTEREST INCOME

    5,846       5,740       17,021       16,863  
                                 

Provision for loan losses

    153       143       766       1,193  
                                 

NET INTEREST INCOME AFTER PROVISION FOR LOAN LOSSES

    5,693       5,597       16,255       15,670  
                                 

NONINTEREST INCOME

                               

Service charges on deposit accounts

    510       481       1,468       1,383  

Investment securities gains, net

    -       152       175       448  

Earnings on bank-owned life insurance

    66       71       209       208  

Gain on sale of loans

    -       -       -       85  

Other income

    232       164       643       555  

Total noninterest income

    808       868       2,495       2,679  
                                 

NONINTEREST EXPENSE

                               

Salaries and employee benefits

    1,872       1,705       5,649       5,255  

Occupancy expense

    273       233       795       703  

Equipment expense

    228       186       603       557  

Data processing costs

    209       184       609       574  

Ohio state franchise tax

    164       160       467       417  

Federal deposit insurance expense

    135       250       353       751  

Professional fees

    316       270       883       670  

(Gain) loss on sale of other real estate owned

    (35 )     188       (40 )     238  

Advertising expense

    113       114       336       346  

Other real estate expense

    128       68       324       341  

Directors fees

    77       97       315       279  

Other expense

    635       667       1,770       1,814  

Total noninterest expense

    4,115       4,122       12,064       11,945  
                                 

Income before income taxes

    2,386       2,343       6,686       6,404  

Income taxes

    521       494       1,479       1,392  
                                 

NET INCOME

  $ 1,865     $ 1,849     $ 5,207     $ 5,012  
                                 

EARNINGS PER SHARE

                               

Basic

  $ 0.92     $ 0.93     $ 2.59     $ 2.66  

Diluted

    0.92       0.93       2.58       2.65  
                                 

DIVIDENDS DECLARED PER SHARE

  $ 0.26     $ 0.26     $ 0.78     $ 0.78  
 

See accompanying notes to unaudited consolidated financial statements.

 

 
4

 

 

MIDDLEFIELD BANC CORP.

CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME

(Dollar amounts in thousands, except per share data)

(Unaudited)

 

   

Three Months Ended

September 30,

   

Nine Months Ended

September 30,

 
   

2013

   

2012

   

2013

   

2012

 
                                 

Net income

  $ 1,865     $ 1,849     $ 5,207     $ 5,012  
                                 

Other comprehensive income (loss):

                               

Net unrealized holding gain (loss) on available for sale securities

    (2,277 )     838       (10,558 )     2,662  

Tax effect

    774       (285 )     3,589       (905 )
                                 

Reclassification adjustment for investment securities gains included in net income

    -       (152 )     (175 )     (448 )

Tax effect

    -       52       60       152  
                                 

Total other comprehensive income (loss)

    (1,503 )     453       (7,084 )     1,461  
                                 

Comprehensive income (loss)

  $ 362     $ 2,302     $ (1,877 )   $ 6,473  

 

See accompanying notes to unaudited consolidated financial statements.

 

 
5

 

 

MIDDLEFIELD BANC CORP.

CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS EQUITY

(Dollar amounts in thousands, except share data)

(Unaudited)

 

   

Common

Stock

   

Retained

Earnings

   

Accumulated

Other

Comprehensive

Income (Loss)

   

Treasury

Stock

   

Total

Stockholders'

Equity

 

Balance, December 31, 2012

  $ 34,295     $ 22,485     $ 5,391     $ (6,734 )   $ 55,437  
                                         

Net income

            5,207                       5,207  

Comprehensive loss

                    (7,084 )             (7,084 )

Common stock issuance (13,320 shares), net of issuance cost ($139)

    74                               74  

Dividend reinvestment and purchase plan (21,016 shares)

    590                               590  

Stock options exercised

    (126 )                             (126 )

Cash dividends ($0.78 per share)

            (1,569 )                     (1,569 )
                                         

Balance, September 30, 2013

  $ 34,833     $ 26,123     $ (1,693 )   $ (6,734 )   $ 52,529  
 

See accompanying notes to unaudited consolidated financial statements.

 

 
6

 

 

MIDDLEFIELD BANC CORP.

CONSOLIDATED STATEMENT OF CASH FLOWS

(Dollar amounts in thousands, except per share data)

(Unaudited) 

 

   

Nine Months Ended

September 30,

 
   

2013

   

2012

 

OPERATING ACTIVITIES

               

Net income

  $ 5,207     $ 5,012  

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

               

Provision for loan losses

    766       1,193  

Investment securities gains, net

    (175 )     (448 )

Depreciation and amortization

    786       663  

Amortization of premium and discount on investment securities

    721       674  

Accretion of deferred loan fees, net

    (203 )     (139 )

Origination of loans held for sale

    -       (1,084 )

Proceeds from sale of loans held for sale

    -       1,169  

Gain on sale of loans

    -       (85 )

Earnings on bank-owned life insurance

    (209 )     (208 )

Deferred income taxes

    161       220  

(Gain) loss on sale of other real estate owned

    (40 )     238  

Increase in accrued interest receivable

    (402 )     (364 )

Decrease in accrued interest payable

    (28 )     (88 )

(Increase) decrease in prepaid federal deposit insurance

    (73 )     633  

Other, net

    546       (63 )

Net cash provided by operating activities

    7,057       7,323  
                 

INVESTING ACTIVITIES

               

Investment securities available for sale:

               

Proceeds from repayments and maturities

    20,103       40,227  

Proceeds from sale of securities

    8,136       27,426  

Purchases

    (25,815 )     (50,828 )

Increase in loans, net

    (12,841 )     (8,826 )

Proceeds from the sale of other real estate owned

    860       542  

Purchase of premises and equipment

    (476 )     (883 )

Net cash (used for) provided by investing activities

    (10,033 )     7,658  
                 

FINANCING ACTIVITIES

               

Net (decrease) increase in deposits

    (14,113 )     3,776  

Increase (decrease) in short-term borrowings, net

    4,037       (874 )

Increase in federal funds purchased

    1,639       -  

Repayment of other borrowings

    (709 )     (995 )

Common stock issuance

    74       2,329  

Stock options exercised

    (126 )     -  

Proceeds from dividend reinvestment & purchase plan

    590       481  

Cash dividends

    (1,569 )     (1,482 )

Net cash (used for) provided by financing activities

    (10,177 )     3,235  
                 

Increase (decrease) in cash and cash equivalents

    (13,153 )     18,216  
                 

CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD

    45,346       34,390  
                 

CASH AND CASH EQUIVALENTS AT END OF PERIOD

  $ 32,193     $ 52,606  
                 

SUPPLEMENTAL INFORMATION

               

Cash paid during the year for:

               

Interest on deposits and borrowings

  $ 4,142     $ 5,022  

Income taxes

    1,100       1,250  
                 

Non-cash investing transactions:

               

Transfers from loans to other real estate owned

  $ 1,693     $ 916  

 

See accompanying notes to unaudited consolidated financial statements.

 

 
7

 

 

MIDDLEFIELD BANC CORP.

 

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

 

NOTE 1 - BASIS OF PRESENTATION

 

The consolidated financial statements of Middlefield Banc Corp. ("Company") include its two bank subsidiaries The Middlefield Banking Company (“MB”) and Emerald Bank (“EB”) and a non-bank asset resolution subsidiary EMORECO, Inc. All significant inter-company items have been eliminated.

 

The accompanying financial statements have been prepared in accordance with U.S. generally accepted accounting principles and the instructions for Form 10-Q and Article 10 of Regulation S-X. In management’s opinion, the financial statements include all adjustments, consisting of normal recurring adjustments, that the Company considers necessary to fairly state the Company’s financial position and the results of operations and cash flows. The consolidated balance sheet at December 31, 2012, has been derived from the audited financial statements at that date but does not include all of the necessary informational disclosures and footnotes as required by U. S. generally accepted accounting principles. The accompanying financial statements should be read in conjunction with the financial statements and notes thereto included with the Company’s Form 10-K for the year ended December 31, 2012 (File No. 000-32561). The results of the Company’s operations for any interim period are not necessarily indicative of the results of the Company’s operations for any other interim period or for a full fiscal year.

 

 

Recent Accounting Pronouncements

 

In April 2013, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2013-07, Presentation of Financial Statements (Topic 205): Liquidation Basis of Accounting. The amendments in this Update are being issued to clarify when an entity should apply the liquidation basis of accounting. In addition, the guidance provides principles for the recognition and measurement of assets and liabilities and requirements for financial statements prepared using the liquidation basis of accounting. The amendments require an entity to prepare its financial statements using the liquidation basis of accounting when liquidation is imminent. Liquidation is imminent when the likelihood is remote that the entity will return from liquidation and either (a) a plan for liquidation is approved by the person or persons with the authority to make such a plan effective and the likelihood is remote that the execution of the plan will be blocked by other parties or (b) a plan for liquidation is being imposed by other forces (for example, involuntary bankruptcy). If a plan for liquidation was specified in the entity’s governing documents from the entity’s inception (for example, limited-life entities), the entity should apply the liquidation basis of accounting only if the approved plan for liquidation differs from the plan for liquidation that was specified at the entity’s inception. The amendments are effective for entities that determine liquidation is imminent during annual reporting periods beginning after December 15, 2013, and interim reporting periods therein. Entities should apply the requirements prospectively from the day that liquidation becomes imminent. Early adoption is permitted. Entities that use the liquidation basis of accounting as of the effective date in accordance with other Topics (for example, terminating employee benefit plans) are not required to apply the amendments. Instead, those entities should continue to apply the guidance in those other Topics until they have completed liquidation.

 

In June 2013, the FASB issued ASU 2013-08, Financial Services – Investment Companies (Topic 946): Amendments to the Scope, Measurement, and Disclosure Requirements. The amendments in this Update affect the scope, measurement, and disclosure requirements for investment companies under U.S. GAAP. The amendments do all of the following: 1. Change the approach to the investment company assessment in Topic 946, clarify the characteristics of an investment company, and provide comprehensive guidance for assessing whether an entity is an investment Company. 2. Require an investment company to measure noncontrolling ownership interests in other investment companies at fair value rather than using the equity method of accounting. 3. Require the following additional disclosures: (a) the fact that the entity is an investment company and is applying the guidance in Topic 946, (b) information about changes, if any, in an entity’s status as an investment company, and (c) information about financial support provided or contractually required to be provided by an investment company to any of its investees. The amendments in this Update are effective for an entity’s interim and annual reporting periods in fiscal years that begin after December 15, 2013. Earlier application is prohibited.

 

In July 2013, the FASB ASU 2013-09, Fair Value Measurement (Topic 820): Deferral of the Effective Date of Certain Disclosures for Nonpublic Employee Benefit Plans in Update No. 2011-04. The amendments in this Update apply to certain quantitative disclosure requirements for an employee benefit plan, other than those plans that are subject to the Securities and Exchange Commission’s filing requirements (hereafter “nonpublic employee benefit plan”), that holds investments in its plan sponsor’s own nonpublic entity equity securities, including equity securities of its plan sponsor’s nonpublic affiliated entities and that are within the scope of the disclosure requirements contained in FASB Accounting Standards Update No. 2011-04, Fair Value Measurement (Topic 820): Amendments to Achieve Common Fair Value Measurement and Disclosure Requirements in U.S. GAAP and IFRSs. The amendments in this Update defer indefinitely the effective date of certain required disclosures in Update 2011-04 (Topic 820) of quantitative information about the significant unobservable inputs used in Level 3 fair value measurements for investments held by a nonpublic employee benefit plan in its plan sponsor’s own nonpublic entity equity securities, including equity securities of its plan sponsor’s nonpublic affiliated entities. The amendments in this Update do not defer the effective date for those certain quantitative disclosures for other nonpublic entity equity securities held in the nonpublic employee benefit plan or any qualitative disclosures. The deferral in this amendment is effective upon issuance for financial statements that have not been issued.

 

 

 
8

 

 

In July 2013, the FASB issued ASU 2013-10, Derivatives and Hedging (Topic 815): Inclusion of the Fed Funds Effective Swap Rate (or Overnight Index Swap Rate) as a Benchmark Interest Rate for Hedge Accounting Purposes. The amendments in this Update permit the Fed Funds Effective Swap Rate (OIS) to be used as a U.S. benchmark interest rate for hedge accounting purposes under Topic 815, in addition to UST and LIBOR. The amendments also remove the restriction on using different benchmark rates for similar hedges. The amendments are effective prospectively for qualifying new or redesignated hedging relationships entered into on or after July 17, 2013.

 

In July 2013, the FASB issued ASU 2013-11, Income Taxes (Topic 740): Presentation of an Unrecognized Tax Benefit When a Net Operating Loss Carryforward, a Similar Tax Loss, or a Tax Credit Carryforward Exists. This Update applies to all entities that have unrecognized tax benefits when a net operating loss carryforward, a similar tax loss, or a tax credit carryforward exists at the reporting date. An unrecognized tax benefit, or a portion of an unrecognized tax benefit, should be presented in the financial statements as a reduction to a deferred tax asset for a net operating loss carryforward, a similar tax loss, or a tax credit carryforward, except as follows. To the extent a net operating loss carryforward, a similar tax loss, or a tax credit carryforward is not available at the reporting date under the tax law of the applicable jurisdiction to settle any additional income taxes that would result from the disallowance of a tax position or the tax law of the applicable jurisdiction does not require the entity to use, and the entity does not intend to use, the deferred tax asset for such purpose, the unrecognized tax benefit should be presented in the financial statements as a liability and should not be combined with deferred tax assets. The assessment of whether a deferred tax asset is available is based on the unrecognized tax benefit and deferred tax asset that exist at the reporting date and should be made presuming disallowance of the tax position at the reporting date. The amendments in this Update are effective for fiscal years, and interim periods within those years, beginning after December 15, 2013. For nonpublic entities, the amendments are effective for fiscal years, and interim periods within those years, beginning after December 15, 2014. Early adoption is permitted. The amendments should be applied prospectively to all unrecognized tax benefits that exist at the effective date. Retrospective application is permitted.

 

 
9

 

 

NOTE 2 - STOCK-BASED COMPENSATION

 

The Company had no unvested stock options outstanding or unrecognized stock-based compensation costs outstanding as of September 30, 2013 and 2012.

 

Stock option activity during the nine months ended September 30 is as follows:

 

   

2013

   

Weighted-

average

Exercise

Price

   

2012

   

Weighted-

average

Exercise

Price

 
                                 

Outstanding, January 1

    79,693     $ 26.81       88,774     $ 26.81  

Exercised

    (21,112 )     24.11       -       -  

Forfeited

    -       -       (420 )     36.86  
                                 

Outstanding, September 30

    58,581       28.38       88,354       26.76  
                                 

Exercisable, September 30

    58,581       28.38       88,354       26.76  
 

 

 
10

 

 

NOTE 3 - EARNINGS PER SHARE

 

 

The Company provides dual presentation of basic and diluted earnings per share. Basic earnings per share is calculated by dividing net income by the average shares outstanding. Diluted earnings per share adds the dilutive effects of options, warrants, and convertible securities to average shares outstanding.

 

The following table sets forth the composition of the weighted-average common shares (denominator) used in the basic and diluted earnings per share computation.

 

 

   

For the Three

Months Ended

September 30,

   

For the Nine

Months Ended

September 30,

 
   

2013

   

2012

   

2013

   

2012

 

Weighted average common shares outstanding

    2,212,020       2,167,711       2,202,747       2,077,027  
                                 

Average treasury stock shares

    (189,530 )     (189,530 )     (189,530 )     (189,530 )
                                 

Weighted average common shares and common stock equivalents used to calculate basic earnings per share

    2,022,490       1,978,181       2,013,217       1,887,497  
                                 

Additional common stock equivalents (stock options) used to calculate diluted earnings per share

    6,930       5,682       7,981       4,236  
                                 

Weighted average common shares and common stock equivalents used to calculate diluted earnings per share

    2,029,420       1,983,863       2,021,198       1,891,733  

 

 

 

Options to purchase 58,581 shares of common stock, at prices ranging from $17.55 to $40.24, were outstanding during the three months ended September 30, 2013. Of those options, 29,633 were considered dilutive based on the market price exceeding the strike price. The remaining options had no dilutive effect on earnings per share. For the nine months ended September 30, 2013, 49,394 options were considered dilutive. The remaining options had no dilutive effect on earnings per share.

 

Options to purchase 88,354 shares of common stock, at prices ranging from $17.55 to $40.24, were outstanding at September 30, 2012. Of those options, 9,000 were considered dilutive based on the average market price exceeding the strike price for the nine months ended September 30, 2012. The three month period ended with 17,536 shares considered dilutive. In accordance with the subscription agreement entered into by an institutional investor, there was also an additional 11,332 shares, at $16 per share, considered dilutive for the three and nine-months ended September 30, 2012. The remaining options had no dilutive effect on the earnings per share.

 

 
11

 

 

NOTE 4 - FAIR VALUE MEASUREMENTS

 

Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in the principal or most advantageous market for an asset or liability in an orderly transaction between market participants at the measurement date. GAAP established a fair value hierarchy that prioritizes the use of inputs used in valuation methodologies into the following three levels:

 

 

Level I:

Quoted prices are available in active markets for identical assets or liabilities as of the reported date.

 

Level II:

Pricing inputs are other than the quoted prices in active markets, which are either directly or indirectly observable as of the reported date. The nature of these assets and liabilities includes items for which quoted prices are available but traded less frequently and items that are fair-valued using other financial instruments, the parameters of which can be directly observed.

 

Level III:

Assets and liabilities that have little to no pricing observability as of the reported date. These items do not have two-way markets and are measured using management’s best estimate of fair value, where the inputs into the determination of fair value require significant management judgment or estimation.

 

 

The following tables present the assets measured on a recurring basis on the Consolidated Balance Sheet at their fair value by level within the fair value hierarchy. Financial assets and liabilities are classified in their entirety based on the lowest level of input that is significant to the fair value measurement.

 

 

           

September 30, 2013

         

(Dollar amounts in thousands)

 

Level I

   

Level II

   

Level III

   

Total

 

Assets measured on a recurring basis:

                               

U.S. government agency securities

  $ -     $ 26,343     $ -     $ 26,343  

Obligations of states and political subdivisions

    -       94,621       -       94,621  

Mortgage-backed securities in government- sponsored entities

            55,083               55,083  

Private-label mortgage-backed securities

    -       3,974       -       3,974  

Total debt securities

    -       180,021       -       180,021  

Equity securities in financial institutions

    5       745       -       750  

Total

  $ 5     $ 180,766     $ -     $ 180,771  

 

           

December 31, 2012

         
   

Level I

   

Level II

   

Level III

   

Total

 

Assets measured on a recurring basis:

                               

U.S. government agency securities

  $ -     $ 24,960     $ -     $ 24,960  

Obligations of states and political subdivisions

    -       92,596       -       92,596  

Mortgage-backed securities in government- sponsored entities

            71,102       -       71,102  

Private-label mortgage-backed securities

    -       5,064       -       5,064  

Total debt securities

    -       193,722       -       193,722  

Equity securities in financial institutions

    5       745       -       750  

Total

  $ 5     $ 194,467     $ -     $ 194,472  

 

The Company obtains fair values from an independent pricing service which represent either quoted market prices for the identical securities (Level I inputs) or fair values determined by pricing models using a market approach that considers observable market data, such as interest rate volatilities, LIBOR yield curve, credit spreads and prices from market makers and live trading systems (Level II).

 

Financial instruments are considered Level III when their values are determined using pricing models, discounted cash flow methodologies or similar techniques and at least one significant model assumption or input is unobservable. In addition to these unobservable inputs, the valuation models for Level III financial instruments typically also rely on a number of inputs that are readily observable either directly or indirectly. Level III financial instruments also include those for which the determination of fair value requires significant management judgment or estimation. The Company has no securities considered to be Level III as of September 30, 2013 or December 31, 2012.

 

 

 
12

 

 

The Company uses prices compiled by third party vendors due to the recent stabilization in the markets along with improvements in third party pricing methodology that have narrowed the variances between third party vendor prices and actual market prices.

 

The following tables present the assets measured on a nonrecurring basis on the Consolidated Balance Sheet at their fair value by level within the fair value hierarchy. Impaired loans that are collateral dependent are written down to fair value through the establishment of specific reserves. Techniques used to value the collateral that secure the impaired loan include: quoted market prices for identical assets classified as Level I inputs; observable inputs, employed by certified appraisers, for similar assets classified as Level II inputs. In cases where valuation techniques included inputs that are unobservable and are based on estimates and assumptions developed by management based on the best information available under each circumstance, the asset valuation is classified as Level III inputs.

 

The Company values other real estate owned at the estimated fair value of the underlying collateral less expected selling costs. Such values are estimated primarily using appraisals and reflect a market value approach. Due to the significance of the Level 3 inputs, other real estate owned has been classified as Level III.

 

 

           

September 30, 2013

         

(Dollar amounts in thousands)

 

Level I

   

Level II

   

Level III

   

Total

 

Assets measured on a non-recurring basis:

                               

Impaired loans

  $ -     $ -     $ 15,467     $ 15,467  

Other real estate owned

    -       -       2,719       2,719  

 

           

December 31, 2012

         
   

Level I

   

Level II

   

Level III

   

Total

 

Assets measured on a non-recurring basis:

                               

Impaired loans

  $ -     $ -     $ 17,600     $ 17,600  

Other real estate owned

    -       -       1,846       1,846  

 

The following table presents additional quantitative information about assets measured at fair value on a non-recurring basis and for which the Company uses Level III inputs to determine fair value:

 

   

Quantitative Information about Level III Fair Value Measurements

(unaudited, in thousands)

 

Fair Value Estimate

 

Valuation Techniques

Unobservable Input

 

Range (Weighted Average)

   

September 30, 2013

   

December 31, 2012

               

Impaired loans

  $ 15,467     $ 17,600  

Appraisal of collateral (1)

Appraisal adjustments (2)

  0% to -68.0% (-30.7%)
                   

Liquidation expenses (2)

  0% to -45.8% (-2.0%)

Other real estate owned

  $ 2,719     $ 1,846  

Appraisal of collateral (1), (3)

Appraisal adjustments (2)

  0% to -10.0% (-7.5%)

 

(1) Fair value is generally determined through independent appraisals of the underlying collateral, which generally include various level 3 inputs which are not identifiable.

(2) Appraisals may be adjusted by management for qualitative factors such as economic conditions and estimated liquidation expenses. The range and weighted average of liquidation expenses and other appraisal adjustments are presented as a percent of the appraisal.

(3) Includes qualitative adjustments by management and estimated liquidation expenses.

 

 

 
13

 

 

The estimated fair value of the Company’s financial instruments is as follows:

 

 

   

September 30, 2013

 
   

Carrying

Value

   

Level I

   

Level II

   

Level III

   

Total

Fair Value

 
   

(in thousands)

 

Financial assets:

                                       

Cash and cash equivalents

  $ 32,193     $ 32,193     $ -     $ -     $ 32,193  

Investment securities

                                       

Available for sale

    180,771       5       180,766       -       180,771  

Net loans

    411,239       -       -       413,767       413,767  

Bank-owned life insurance

    8,745       8,745               -       8,745  

Federal Home Loan Bank stock

    1,887       1,887               -       1,887  

Accrued interest receivable

    2,565       2,565       -       -       2,565  
                                         
                                         

Financial liabilities:

                                       

Deposits

  $ 579,222     $ 398,258     $ -     $ 182,824     $ 581,082  

Short-term borrowings

    10,575       10,575       -       -       10,575  

Federal funds purchased

    1,639       1,639       -       -       1,639  

Other borrowings

    12,261       -       -       12,469       12,469  

Accrued interest payable

    464       464       -       -       464  

 

   

December 31, 2012

 
   

Carrying

Value

   

Level I

   

Level II

   

Level III

   

Total

Fair Value

 
   

(in thousands)

 

Financial assets:

                                       

Cash and cash equivalents

  $ 45,346     $ 45,346     $ -     $ -     $ 45,346  

Investment securities

                                       

Available for sale

    194,472       5       194,467       -       194,472  

Net loans

    400,654       -       -       390,206       390,206  

Bank-owned life insurance

    8,536       8,536       -       -       8,536  

Federal Home Loan Bank stock

    1,887       1,887       -       -       1,887  

Accrued interest receivable

    2,163       2,163       -       -       2,163  
                                         

Financial liabilities:

                                       

Deposits

  $ 593,335     $ 396,582     $ -     $ 196,122     $ 592,704  

Short-term borrowings

    6,538       6,538       -       -       6,538  

Other borrowings

    12,970       -       -       13,337       13,337  

Accrued interest payable

    492       492       -       -       492  
 

 

Financial instruments are defined as cash, evidence of ownership interest in an entity, or a contract which creates an obligation or right to receive or deliver cash or another financial instrument from/to a second entity on potentially favorable or unfavorable terms.

 

Fair value is defined as the amount at which a financial instrument could be exchanged in a current transaction between willing parties other than in a forced liquidation sale. If a quoted market price is available for a financial instrument, the estimated fair value would be calculated based upon the market price per trading unit of the instrument.

 

If no readily available market exists, the fair value estimates for financial instruments should be based upon management’s judgment regarding current economic conditions, interest rate risk, expected cash flows, future estimated losses, and other factors as determined through various option pricing formulas or simulation modeling. Since many of these assumptions result from judgments made by management based upon estimates which are inherently uncertain, the resulting estimated fair values may not be indicative of the amount realizable in the sale of a particular financial instrument. In addition, changes in assumptions on which the estimated fair values are based may have a significant impact on the resulting estimated fair values.

 

 

 
14

 

 

As certain assets such as deferred tax assets and premises and equipment are not considered financial instruments, the estimated fair value of financial instruments would not represent the full value of the Company.

 

The Company employed simulation modeling in determining the estimated fair value of financial instruments for which quoted market prices were not available based upon the following assumptions:

 

Cash and Cash Equivalents, Federal Home Loan Bank Stock, Accrued Interest Receivable, Accrued Interest Payable, Federal Funds Purchased, and Short-Term Borrowings

The fair value is equal to the current carrying value.

 

Bank-Owned Life Insurance

The fair value is equal to the cash surrender value of the life insurance policies.

 

Investment Securities Available for Sale

The fair value of investment securities is equal to the available quoted market price.  If no quoted market price is available, fair value is estimated using the quoted market price for similar securities. 

 

Loans

The fair value is estimated by discounting future cash flows using current market inputs at which loans with similar terms and qualities would be made to borrowers of similar credit quality. Where quoted market prices were available, primarily for certain residential mortgage loans, such market rates were used as estimates for fair value.

 

Deposits and Other Borrowed Funds

The fair values of certificates of deposit and other borrowed funds are based on the discounted value of contractual cash flows. The discount rates are estimated using rates currently offered for similar instruments with similar remaining maturities. Demand, savings, and money market deposits are valued at the amount payable on demand as of period end.

 

Commitments to Extend Credit

These financial instruments are generally not subject to sale, and estimated fair values are not readily available. The carrying value, represented by the net deferred fee arising from the unrecognized commitment or letter of credit, and the fair value, determined by discounting the remaining contractual fee over the term of the commitment using fees currently charged to enter into similar agreements with similar credit risk, are not considered material for disclosure.

 

 
15

 

 

NOTE 5 – ACCUMULATED OTHER COMPREHENSIVE INCOME

 

The following table presents the changes in accumulated other comprehensive income (loss) by component net of tax for the three and nine months ended September 30, 2013 and 2012:

 

 

 

   

Unrealized gains on

available for sale

securities (a)

 

Balance as of December 31, 2012

  $ 5,391  

Other comprehensive loss before reclassification

    (5,466 )

Amount reclassified from accumulated other comprehensive income (loss)

    (115 )

Period change

    (5,581 )

Balance at June 30, 2013

  $ (190 )
         

Other comprehensive loss before reclassification

    (1,503 )

Amount reclassified from accumulated other comprehensive income (loss)

    -  

Period change

    (1,503 )

Balance at September 30, 2013

  $ (1,693 )
         

Balance as of December 31, 2011

  $ 4,541  

Other comprehensive income before reclassification

    1,204  

Amount reclassified from accumulated other comprehensive income (loss)

    (196 )

Period change

    1,008  

Balance at June 30, 2012

    5,549  
         

Other comprehensive loss before reclassification

    553  

Amount reclassified from accumulated other comprehensive income (loss)

    (100 )

Period change

    453  

Balance at September 30, 2012

  $ 6,002  
 

 (a) All amounts are net of tax. Amounts in parentheses indicate debits.

 

 

 

The following tables present significant amounts reclassified out of each component of accumulated other comprehensive income (loss): 

 

   

Amount Reclassified from

 

 

   

Accumulated Other Comprehensive Income (Loss)

 

Affected Line Item in

   

For the Three Months Ended

 

the Statement Where

   

September 30,

 

Net Income is

Details about other comprehensive income

 

2013

(a)

2012

 

Presented

Unrealized gains on available for sale securities

                 
    $ -     $ 152  

Investment securities gains, net

      -       (52 )

Income taxes

    $ -     $ 100  

Net of tax

 

(a) Amounts in parentheses indicate debits to net income

  

 
16

 

 

 

   

Amount Reclassified from

 
   

Accumulated Other Comprehensive Income (Loss)

 

Affected Line Item in

   

For the Nine Months Ended

 

the Statement Where

   

September 30,

 

Net Income is

Details about other comprehensive income

 

2013

(a)

2012

 

Presented

Unrealized gains on available for sale securities

                 
    $ 175     $ 448  

Investment securities gains, net

      (60 )     (152 )

Income taxes

    $ 115     $ 296  

Net of tax

 

(a) Amounts in parentheses indicate debits to net income

 

 

 

NOTE 6 - INVESTMENT SECURITIES AVAILABLE FOR SALE

 

The amortized cost and fair values of securities available for sale are as follows:

 

 

   

September 30, 2013

 

(Dollar amounts in thousands)

 

Amortized

Cost

   

Gross

Unrealized

Gains

   

Gross

Unrealized

Losses

   

Fair

Value

 
                                 

U.S. government agency securities

  $ 27,550     $ 161     $ (1,368 )   $ 26,343  

Obligations of states and political subdivisions:

                               

Taxable

    5,364       215       (21 )     5,558  

Tax-exempt

    90,441       1,885       (3,263 )     89,063  

Mortgage-backed securities in government-sponsored entities

    55,633       696       (1,246 )     55,083  

Private-label mortgage-backed securities

    3,597       377       -       3,974  

Total debt securities

    182,585       3,334       (5,898 )     180,021  

Equity securities in financial institutions

    750       -       -       750  

Total

  $ 183,335     $ 3,334     $ (5,898 )   $ 180,771  

 

 

   

December 31, 2012

 
   

Amortized

Cost

   

Gross

Unrealized

Gains

   

Gross

Unrealized

Losses

   

Fair

Value

 
                                 

U.S. government agency securities

  $ 24,485     $ 566     $ (91 )   $ 24,960  

Obligations of states and political subdivisions:

                               

Taxable

    6,888       738       -       7,626  

Tax-exempt

    80,391       4,684       (104 )     84,971  

Mortgage-backed securities in government-sponsored entities

    69,238       1,929       (65 )     71,102  

Private-label mortgage-backed securities

    4,553       511       -       5,064  

Total debt securities

    185,555       8,427       (260 )     193,723  

Equity securities in financial institutions

    750       -       -       750  

Total

  $ 186,305     $ 8,427     $ (260 )   $ 194,473  
 

 

 
17

 

 

The amortized cost and fair value of debt securities at September 30, 2013, by contractual maturity, are shown below. Expected maturities will differ from contractual maturities because borrowers may have the right to call or prepay obligations with or without call or prepayment penalties.

 

 

(Dollar amounts in thousands)

 

Amortized

Cost

   

Fair

Value

 
                 

Due in one year or less

  $ 2,736     $ 2,768  

Due after one year through five years

    4,071       4,261  

Due after five years through ten years

    21,891       21,963  

Due after ten years

    153,887       151,029  
                 

Total

  $ 182,585     $ 180,021  

 

 

Proceeds from the sales of securities available for sale and the gross realized gains and losses for the three and nine months ended September 30 are as follows:

 

 

   

For the Three Months Ended September 30,

   

For the Nine Months Ended September 30,

 
   

2013

   

2012

   

2013

   

2012

 

Proceeds from sales

  $ -     $ 5,622     $ 8,136     $ 27,426  

Gross realized gains

    -       154       204       462  

Gross realized losses

    -       (2 )     (29 )     (14 )
 

 

Investment securities with an approximate carrying value of $73.8 million and $62.5 million at September 30, 2013 and December 31, 2012, respectively, were pledged to secure deposits and other purposes as required by law.

 

The following tables show the Company’s gross unrealized losses and fair value, aggregated by investment category and length of time that the individual securities have been in a continuous unrealized loss position.

 

 

   

September 30, 2013

 
   

Less than Twelve Months

   

Twelve Months or Greater

   

Total

 

(Dollar amounts in thousands)

 

Fair

Value

   

Gross

Unrealized

Losses

   

Fair

Value

   

Gross

Unrealized

Losses

   

Fair

Value

   

Gross

Unrealized

Losses

 
                                                 

U.S. government agency securities

  $ 17,408     $ (1,368 )   $ -     $ -     $ 17,408     $ (1,368 )

Obligations of states and political subdivisions

    30,690       (3,244 )     448       (40 )     31,138       (3,284 )

Mortgage-backed securities in government-sponsored entities

    30,295       (1,061 )     5,719       (185 )     36,014       (1,246 )

Total

  $ 78,393     $ (5,673 )   $ 6,167     $ (225 )   $ 84,560     $ (5,898 )

 

 

 
18

 

 

   

December 31, 2012

 
   

Less than Twelve Months

   

Twelve Months or Greater

   

Total

 
   

Fair

Value

   

Gross

Unrealized

Losses

   

Fair

Value

   

Gross

Unrealized

Losses

   

Fair

Value

   

Gross

Unrealized

Losses

 
                                                 

U.S. government agency securities

  $ 9,938     $ (91 )   $ -     $ -     $ 9,938     $ (91 )

Obligations of states and political subdivisions

    9,240       (104 )     -       -       9,240       (104 )

Mortgage-backed securities in government-sponsored entities

    12,353       (65 )     -       -       12,353       (65 )

Total

  $ 31,531     $ (260 )   $ -     $ -     $ 31,531     $ (260 )

 

 

There were 103 securities considered temporarily impaired at September 30, 2013.

 

On a quarterly basis, the Company performs an assessment to determine whether there have been any events or economic circumstances indicating that a security with an unrealized loss has suffered other-than-temporary impairment (“OTTI”). A debt security is considered impaired if the fair value is less than its amortized cost basis at the reporting date. The Company assesses whether the unrealized loss is other-than-temporary.

 

OTTI losses are recognized in earnings when the Company has the intent to sell the debt security or it is more likely than not that it will be required to sell the debt security before recovery of its amortized cost basis. However, even if the Company does not expect to sell a debt security, it must evaluate expected cash flows to be received and determine if a credit loss has occurred.

 

An unrealized loss is generally deemed to be other than temporary and a credit loss is deemed to exist if the present value of the expected future cash flows is less than the amortized cost basis of the debt security. As a result the credit loss component of an OTTI is recorded as a component of investment securities gains (losses) in the accompanying Consolidated Statement of Income, while the remaining portion of the impairment loss is recognized in other comprehensive income, provided the Company does not intend to sell the underlying debt security and it is “more likely than not” that the Company will not have to sell the debt security prior to recovery.

 

Debt securities issued by U.S. government agencies, U.S. government-sponsored enterprises, and state and political subdivisions accounted for more than 97% of the total available-for-sale portfolio as of September 30, 2013 and no credit losses are expected, given the explicit and implicit guarantees provided by the U.S. federal government and the lack of prolonged unrealized loss positions within the obligations of state and political subdivisions security portfolio. The Company’s assessment was concentrated mainly on private-label collateralized mortgage obligations of approximately $3.6 million for which the Company evaluates credit losses on a quarterly basis. The gross unrealized gain position related to these private-label collateralized mortgage obligations amounted to $377,000 on September 30, 2013. The Company considered the following factors in determining whether a credit loss exists and the period over which the debt security is expected to recover:

 

 

The length of time and the extent to which the fair value has been less than the amortized cost basis.

     
 

Changes in the near term prospects of the underlying collateral of a security such as changes in default rates, loss severity given default and significant changes in prepayment assumptions;

     
 

The level of cash flows generated from the underlying collateral supporting the principal and interest payments of the debt securities; and

     
 

Any adverse change to the credit conditions and liquidity of the issuer, taking into consideration the latest information available about the overall financial condition of the issuer, credit ratings, recent legislation and government actions affecting the issuer’s industry and actions taken by the issuer to deal with the present economic climate.

 

 

For the nine months ended September 30, 2013 and 2012, there were no available-for-sale debt securities with an unrealized loss that suffered OTTI. 

 

 
19

 

 

NOTE 7 - LOANS AND RELATED ALLOWANCE FOR LOAN LOSSES

 

Major classifications of loans are summarized as follows (in thousands):

 

   

September 30,

2013

   

December 31,

2012

 
                 

Commercial and industrial

  $ 50,265     $ 62,188  

Real estate - construction

    25,487       22,522  

Real estate - mortgage:

               

Residential

    203,312       203,872  

Commercial

    135,760       115,734  

Consumer installment

    4,236       4,117  
      419,060       408,433  

Less allowance for loan losses

    7,821       7,779  
                 

Net loans

  $ 411,239     $ 400,654  
 

 

The Company’s primary business activity is with customers located within its local trade area, eastern Geauga County, and contiguous counties to the north, east, and south. The Company also serves the central Ohio market with offices in Dublin and Westerville, Ohio. Commercial, residential, consumer, and agricultural loans are granted. Although the Company has a diversified loan portfolio, loans outstanding to individuals and businesses are dependent upon the local economic conditions in the Company’s immediate trade area.

 

Loans that management has the intent and ability to hold for the foreseeable future or until maturity or payoff generally are reported at their outstanding unpaid principal balances net of the allowance for loan losses.  Interest income is recognized as income when earned on the accrual method.  The accrual of interest is discontinued on a loan when management believes, after considering economic and business conditions, the borrower’s financial condition is such that collection of interest is doubtful.  Interest received on nonaccrual loans is recorded as income or applied against principal according to management’s judgment as to the collectability of such principal.

 

Loan origination fees and certain direct loan origination costs are being deferred and the net amount amortized as an adjustment of the related loan’s yield.  Management is amortizing these amounts over the contractual life of the related loans.

  

The following tables summarize the primary segments of the loan portfolio and allowance for loan losses (in thousands):

 

                   

Real Estate- Mortgage

                 

September 30, 2013

 

Commercial and industrial

   

Real estate- construction

   

Residential

   

Commercial

   

Consumer installment

   

Total

 

Loans:

                                               

Individually evaluated for impairment

  $ 1,483     $ 3,963     $ 5,766     $ 6,787     $ 8     $ 18,007  

Collectively evaluated for impairment

    48,782       21,524       197,546       128,973       4,228       401,053  

Total loans

  $ 50,265     $ 25,487     $ 203,312     $ 135,760     $ 4,236     $ 419,060  

 

 

 

                   

Real estate- Mortgage

                 

December 31, 2012

 

Commercial and industrial

   

Real estate- construction

   

Residential

   

Commercial

   

Consumer installment

   

Total

 

Loans:

                                               

Individually evaluated for impairment

  $ 4,592     $ 3,993     $ 5,761     $ 6,914     $ 28     $ 21,288  

Collectively evaluated for impairment

    57,596       18,529       198,111       108,820       4,089       387,145  

Total loans

  $ 62,188     $ 22,522     $ 203,872     $ 115,734     $ 4,117     $ 408,433  
 

 

 
20

 

 

 

                   

Real Estate- Mortgage

                 

September 30, 2013

 

Commercial and industrial

   

Real estate- construction

   

Residential

   

Commercial

   

Consumer installment

   

Total

 

Allowance for loan losses:

                                               

Ending allowance balance attributable to loans:

                                               

Individually evaluated for impairment

  $ 195     $ 859     $ 896     $ 590     $ -     $ 2,540  

Collectively evaluated for impairment

    593       440       2,743       1,483       22       5,281  

Total ending allowance balance

  $ 788     $ 1,299     $ 3,639     $ 2,073     $ 22     $ 7,821  

 

                   

Real Estate- Mortgage

                 

December 31, 2012

 

Commercial and industrial

   

Real estate- construction

   

Residential

   

Commercial

   

Consumer installment

   

Total

 

Allowance for loan losses:

                                               

Ending allowance balance attributable to loans:

                                               

Individually evaluated for impairment

  $ 1,189     $ 933     $ 600     $ 960     $ 6     $ 3,688  

Collectively evaluated for impairment

    543       190       2,272       1,031       55       4,091  

Total ending allowance balance

  $ 1,732     $ 1,123     $ 2,872     $ 1,991     $ 61     $ 7,779  

 

The Company’s loan portfolio is segmented to a level that allows management to monitor risk and performance.  The portfolio is segmented into Commercial and Industrial (“C&I”), Real Estate Construction, Real Estate - Mortgage which is further segmented into Residential and Commercial real estate, and Consumer Installment Loans.  The C&I loan segment consists of loans made for the purpose of financing the activities of commercial customers.  The residential mortgage loan segment consists of loans made for the purpose of financing the activities of residential homeowners. The commercial mortgage loan segment consists of loans made for the purposed of financing the activities of commercial real estate owners and operators. The consumer loan segment consists primarily of installment loans and overdraft lines of credit connected with customer deposit accounts.

 

Management evaluates individual loans in all of the commercial segments for possible impairment if the loan is greater than $150,000 and if the loan either is in nonaccrual status, or is risk rated Special Mention or Substandard and is greater than 90 days past due.  Loans are considered to be impaired when, based on current information and events, it is probable that the Company will be unable to collect the scheduled payments of principal or interest when due according to the contractual terms of the loan agreement.  Factors considered by management in evaluating impairment include payment status, collateral value, and the probability of collecting scheduled principal and interest payments when due.  Management determines the significance of payment delays and payment shortfalls on a case-by-case basis, taking into consideration all of the circumstances surrounding the loan and the borrower, including the length of the delay, the reasons for the delay, the borrower’s prior payment record, and the amount of the shortfall in relation to the principal and interest owed.  The Company does not separately evaluate individual consumer and residential mortgage loans for impairment, unless such loans are part of a larger relationship that is impaired.

 

Once the determination has been made that a loan is impaired, the determination of whether a specific allocation of the allowance is necessary is measured by comparing the recorded investment in the loan to the fair value of the loan using one of three methods:  (a) the present value of expected future cash flows discounted at the loan’s effective interest rate; (b) the loan’s observable market price; or (c) the fair value of the collateral less selling costs.  The method is selected on a loan-by-loan basis, with management primarily utilizing the fair value of collateral method.  The evaluation of the need and amount of a specific allocation of the allowance and whether a loan can be removed from impairment status is made on a quarterly basis.  The Company’s policy for recognizing interest income on impaired loans does not differ from its overall policy for interest recognition.

 

 

 
21

 

 

The following table presents impaired loans by class, segregated by those for which a specific allowance was required and those for which a specific allowance was not necessary (in thousands):

  

September 30, 2013

 

Impaired Loans

 
   

Recorded

Investment

   

Unpaid Principal Balance

   

Related

Allowance

 

With no related allowance recorded:

                       

Commercial and industrial

  $ 932     $ 932     $ -  

Real estate - construction

    142       142       -  

Real estate - mortgage:

                       

Residential

    2,755       2,795       -  

Commercial

    3,567       3,567       -  

Consumer installment

    8       8       -  

Total

  $ 7,404     $ 7,444     $ -  
                         

With an allowance recorded:

                       

Commercial and industrial

  $ 551     $ 551     $ 195  

Real estate - construction

    3,821       3,821       859  

Real estate - mortgage:

                       

Residential

    3,011       3,050       896  

Commercial

    3,220       3,220       590  

Consumer installment

    -       -       -  

Total

  $ 10,603     $ 10,642     $ 2,540  
                         

Total:

                       

Commercial and industrial

  $ 1,483     $ 1,483     $ 195  

Real estate - construction

    3,963       3,963       859  

Real estate - mortgage:

                       

Residential

    5,766       5,845       896  

Commercial

    6,787       6,787       590  

Consumer installment

    8       8       -  

Total

  $ 18,007     $ 18,086     $ 2,540  
 

 

 
22

 

  

December 31, 2012

 

Impaired Loans

 
   

Recorded

Investment

   

Unpaid Principal Balance

   

Related

Allowance

 

With no related allowance recorded:

                       

Commercial and industrial

  $ 1,230     $ 1,229     $ -  

Real estate - construction

    308       308       -  

Real estate - mortgage:

                       

Residential

    2,716       2,729       -  

Commercial

    4,143       4,164       -  

Consumer installment

    11       11       -  

Total

  $ 8,408     $ 8,441     $ -  
                         

With an allowance recorded:

                       

Commercial and industrial

  $ 3,362     $ 3,367     $ 1,189  

Real estate - construction

    3,685       3,685       933  

Real estate - mortgage:

                       

Residential

    3,045       3,054       600  

Commercial

    2,771       2,776       960  

Consumer installment

    17       17       6  

Total

  $ 12,880     $ 12,899     $ 3,688  
                         

Total:

                       

Commercial and industrial

  $ 4,592     $ 4,596     $ 1,189  

Real estate - construction

    3,993       3,993       933  

Real estate - mortgage:

                       

Residential

    5,761       5,783       600  

Commercial

    6,914       6,940       960  

Consumer installment

    28       28       6  

Total

  $ 21,288     $ 21,340     $ 3,688  

   

The following table presents interest income by class, recognized on impaired loans:

   

   

For the Three Months Ended September 30, 2013

   

For the Nine Months Ended September 30, 2013

 
             
   

Average Recorded Investment

   

Interest Income Recognized

   

Average Recorded Investment

   

Interest Income Recognized

 

Total:

                               

Commercial and industrial

  $ 2,085     $ 8     $ 2,286     $ 78  

Real estate - construction

    3,731       43       3,654       138  

Real estate - mortgage:

                               

Residential

    5,351       81       5,213       224  

Commercial

    6,403       138       6,275       355  

Consumer installment

    13       -       15       1  

 

 

 
23

 

 

   

For the Three Months Ended September 30, 2012

   

For the Nine Months Ended September 30, 2012

 
             
   

Average Recorded Investment

   

Interest Income Recognized

   

Average Recorded Investment

   

Interest Income Recognized

 

Total:

                               

Commercial and industrial

  $ 2,535     $ 139     $ 2,170     $ 170  

Real estate - construction

    2,305       -       2,400       113  

Real estate - mortgage:

                               

Residential

    3,622       85       3,764       169  

Commercial

    3,597       200       3,985       324  

Consumer installment

    13       1       27       2  

 

Management uses a nine point internal risk rating system to monitor the credit quality of the overall loan portfolio. The first five categories are considered not criticized, and are aggregated as “Pass” rated. The criticized rating categories used by management generally follow bank regulatory definitions. The Special Mention category includes assets that are currently protected but are potentially weak, resulting in an undue and unwarranted credit risk, but not to the point of justifying a Substandard classification.  Loans in the Substandard category have well-defined weaknesses that jeopardize the liquidation of the debt, and have a distinct possibility that some loss will be sustained if the weaknesses are not corrected.  All loans greater than 90 days past due are considered Substandard.   Assets classified as “doubtful” have all the weaknesses inherent in those classified substandard, with the added characteristic that the weaknesses make collection of principal in full — on the basis of currently existing facts, conditions, and values — highly questionable and improbable. Any portion of a loan that has been charged off is placed in the Loss category.

 

To help ensure that risk ratings are accurate and reflect the present and future capacity of borrowers to repay a loan as agreed, the Company has a structured loan rating process with several layers of internal and external oversight.  Generally, consumer and residential mortgage loans are included in the Pass categories unless a specific action, such as bankruptcy, repossession, or death occurs to raise awareness of a possible credit event.  The Company’s Commercial Loan Officers are responsible for the timely and accurate risk rating of the loans in their portfolios at origination and on an ongoing basis.  The Credit Department performs an annual review of all commercial relationships $200,000 or greater.  Confirmation of the appropriate risk grade is included in the review on an ongoing basis.  The Company has an experienced Loan Review Department that continually reviews and assesses loans within the portfolio.  The Company engages an external consultant to conduct loan reviews on a semi-annual basis. Generally, the external consultant reviews commercial relationships greater than $250,000 and/or criticized relationships greater than $125,000.  Detailed reviews, including plans for resolution, are performed on loans classified as Substandard on a quarterly basis.  Loans in the Special Mention and Substandard categories that are collectively evaluated for impairment are given separate consideration in the determination of the allowance.

 

The primary risk of commercial and industrial loans is the current economic uncertainties. C & I loans are, by nature, secured by less substantial collateral than real estate secured loans. The primary risk of real estate construction loans is potential delays and /or disputes during the completion process. The primary risk of residential real estate loans is current economic uncertainties along with the slow recovery in the housing market. The primary risk of commercial real estate loans is loss of income of the owner or occupier of the property and the inability of the market to sustain rent levels. Consumer installment loans historically have experienced higher delinquency rates. Consumer installments are typically secured by less substantial collateral than other types of credits.

 

The following table presents the classes of the loan portfolio summarized by the aggregate Pass and the criticized categories of Special Mention, Substandard and Doubtful within the internal risk rating system (in thousands):

 

 

 
24

 

 

   

Pass

   

Special

Mention

   

Substandard

   

Doubtful

   

Total

Loans

 

September 30, 2013

                                       
                                         

Commercial and industrial

  $ 48,085     $ 873     $ 1,264     $ 43     $ 50,265  

Real estate - construction

    20,615       912       3,960       -       25,487  

Real estate - mortgage:

                                       

Residential

    190,408       964       11,940       -       203,312  

Commercial

    127,634       2,256       5,870       -       135,760  

Consumer installment

    4,218       -       18       -       4,236  

Total

  $ 390,960     $ 5,005     $ 23,052     $ 43     $ 419,060  

 

 

   

Pass

   

Special

Mention

   

Substandard

   

Doubtful

   

Total

Loans

 

December 31, 2012

                                       
                                         

Commercial and industrial

  $ 59,390     $ 678     $ 2,061     $ 59     $ 62,188  

Real estate - construction

    17,601       -       4,921       -       22,522  

Real estate - mortgage:

                                       

Residential

    190,967       758       12,147       -       203,872  

Commercial

    106,509       1,928       7,297       -       115,734  

Consumer installment

    4,084       -       33       -       4,117  

Total

  $ 378,551     $ 3,364     $ 26,459     $ 59     $ 408,433  
 

Management further monitors the performance and credit quality of the loan portfolio by analyzing the age of the portfolio as determined by the length of time a recorded payment is past due.

 

Nonperforming assets includes nonaccrual loans, troubled debt restructurings (TDRs), loans 90 days or more past due, assets purchased by EMORECO from EB, OREO, and repossessed assets. A loan is classified as nonaccrual when, in the opinion of management, there are serious doubts about collectability of interest and principal. Accrual of interest is discontinued on a loan when management believes, after considering economic and business conditions, the borrower’s financial condition is such that collection of principal and interest is doubtful.  Payments received on nonaccrual loans are applied against principal according to management’s shadow accounting system.

 

The following table presents the classes of the loan portfolio summarized by the aging categories of performing loans and nonaccrual loans (in thousands):

 

           

Still Accruing

                 
   

Current

   

30-59 Days

Past Due

   

60-89 Days

Past Due

   

90 Days+

Past Due

   

Total

Past Due

   

Non-

Accrual

   

Total

Loans

 

September 30, 2013

                                                       
                                                         

Commercial and industrial

  $ 49,234     $ 656     $ 56     $ 83     $ 795     $ 236     $ 50,265  

Real estate - construction

    24,594       17       876       -       893       -       25,487  

Real estate - mortgage:

                                                       

Residential

    192,461       1,414       666       414       2,494       8,357       203,312  

Commercial

    134,030       -       -       346       346       1,384       135,760  

Consumer installment

    4,182       41       3       -       44       10       4,236  

Total

  $ 404,502     $ 2,128     $ 1,601     $ 843     $ 4,572     $ 9,986     $ 419,060  
 

 

 
25

 

 

           

Still Accruing

                 
   

Current

   

30-59 Days

Past Due

   

60-89 Days

Past Due

   

90 Days+

Past Due

   

Total

Past Due

   

Non-

Accrual

   

Total

Loans

 

December 31, 2012

                                                       
                                                         

Commercial and industrial

  $ 60,428     $ 441     $ 63     $ 348     $ 852     $ 908     $ 62,188  

Real estate - construction

    22,158       -       -       -       -       364       22,522  

Real estate - mortgage:

                                                       

Residential

    191,349       2,614       1,401       90       4,105       8,418       203,872  

Commercial

    113,023       509       97       -       606       2,105       115,734  

Consumer installment

    4,074       25       -       -       25       18       4,117  

Total

  $ 391,032     $ 3,589     $ 1,561     $ 438     $ 5,588     $ 11,813     $ 408,433  
 

 

An allowance for loan and lease losses (“ALLL”) is maintained to absorb losses from the loan portfolio.  The ALLL is based on management’s continuing evaluation of the risk characteristics and credit quality of the loan portfolio, assessment of current economic conditions, diversification and size of the portfolio, adequacy of collateral, past and anticipated loss experience, and the amount of nonperforming loans.

 

The Company’s methodology for determining the ALLL is based on the requirements of ASC Section 310-10-35 for loans individually evaluated for impairment (discussed above) and ASC Subtopic 450-20 for loans collectively evaluated for impairment, as well as the Interagency Policy Statements on the Allowance for Loan and Lease Losses and other bank regulatory guidance.   The total of the two components represents the Company’s ALLL. Management also performs impairment analyses on TDRs, which may result in specific reserves.

 

Loans that are collectively evaluated for impairment are analyzed with general allowances being made as appropriate.  For general allowances, historical loss trends are used in the estimation of losses in the current portfolio.  These historical loss amounts are modified by other qualitative factors.

 

The classes described above, which are based on the purpose code assigned to each loan, provide the starting point for the ALLL analysis.  Management tracks the historical net charge-off activity at the purpose code level.  A historical charge-off factor is calculated using the last four consecutive historical quarters.

 

Management has identified a number of additional qualitative factors which it uses to supplement the historical charge-off factor because these factors are likely to cause estimated credit losses associated with the existing loan pools to differ from historical loss experience.  The additional factors that are evaluated quarterly and updated using information obtained from internal, regulatory, and governmental sources are: national and local economic trends and conditions; levels of and trends in delinquency rates and nonaccrual loans; trends in volumes and terms of loans; effects of changes in lending policies; experience, ability, and depth of lending staff; value of underlying collateral; and concentrations of credit from a loan type, industry and/or geographic standpoint.

 

Management reviews the loan portfolio on a quarterly basis using a defined, consistently applied process in order to make appropriate and timely adjustments to the ALLL.  When information confirms all or part of specific loans to be uncollectible, these amounts are promptly charged off against the ALLL.

 

 

 
26

 

 

The following table summarizes the primary segments of the loan portfolio (in thousands):

 

   

Commercial and industrial

   

Real estate- construction

   

Real estate- residential mortgage

   

Real estate- commercial mortgage

   

Consumer installment

   

Total

 

ALLL balance at December 31, 2012

  $ 1,732     $ 1,123     $ 2,872     $ 1,991     $ 61     $ 7,779  

Charge-offs

    (325 )     (190 )     (432 )     -       (41 )     (988 )

Recoveries

    92       33       73       46       20       264  

Provision

    (711 )     333       1,126       36       (18 )     766  

ALLL balance at September 30, 2013

  $ 788     $ 1,299     $ 3,639     $ 2,073     $ 22     $ 7,821  

 

 

   

Commercial and industrial

   

Real estate- construction

   

Real estate- residential mortgage

   

Real estate- commercial mortgage

   

Consumer installment

   

Total

 

ALLL balance at December 31, 2011

  $ 1,296     $ 438     $ 3,731     $ 1,306     $ 48     $ 6,819  

Charge-offs

    (88 )     -       (668 )     (123 )     (62 )     (941 )

Recoveries

    70       -       15       -       17       102  

Provision

    426       7       (125 )     872       13       1,193  

ALLL balance at September 30, 2012

  $ 1,704     $ 445     $ 2,953     $ 2,055     $ 16     $ 7,173  

 

 

   

Commercial and industrial

   

Real estate- construction

   

Real estate- residential mortgage

   

Real estate- commercial mortgage

   

Consumer installment

   

Total

 

ALLL balance at June 30, 2013

  $ 875     $ 1,191     $ 3,626     $ 2,005     $ 52     $ 7,749  

Charge-offs

    -       -       (87 )     -       (5 )     (92 )

Recoveries

    -       -       2       -       9       11  

Provision

    (87 )     108       98       68       (34 )     153  

ALLL balance at September 30, 2013

  $ 788     $ 1,299     $ 3,639     $ 2,073     $ 22     $ 7,821  

 

 

   

Commercial and industrial

   

Real estate- construction

   

Real estate- residential mortgage

   

Real estate- commercial mortgage

   

Consumer installment

   

Total

 

ALLL balance at June 30, 2012

  $ 1,626     $ 504     $ 4,109     $ 1,492     $ 21     $ 7,752  

Charge-offs

    (60 )     -       (570 )     (70 )     (40 )     (740 )

Recoveries

    1       -       12       -       5       18  

Provision

    137       (59 )     (598 )     633       30       143  

ALLL balance at September 30, 2012

  $ 1,704     $ 445     $ 2,953     $ 2,055     $ 16     $ 7,173  

 

 

The C&I ALLL balance declined from $1.7 million at December 31, 2012 to $788,000 at September 30, 2013. Loan reclassifications resulted in a shift of $660,000 of specific reserve from this category. Residential mortgage real estate increased from $2.9 million to $3.6 million during the nine months ended September 30, 2012. This was largely the result of increasing the 1-4 family owner-occupied loss ratio. A provision in any loan portfolio is not necessarily related to current charge-offs, but is a result of the evaluation of the loans in that category.

 

 

 
27

 

 

The following tables summarize troubled debt restructurings and subsequent defaults (in thousands):

 

   

Three months ended

 
   

September 30, 2013

   

September 30, 2012

 
   

Number of Contracts

   

Pre-Modification Outstanding

   

Number of Contracts

   

Pre-Modification Outstanding

 

Troubled Debt Restructurings

 

Term Modification

   

Other

   

Total

    Recorded Investment    

Term Modification

   

Other

   

Total

    Recorded Investment  

Commercial and industrial

    1       -       1     $ 137       2               2     $ 13  

Real estate- mortgage:

                                                               

Residential

    -       -       -       -       6       1       7       619  

Consumer Installment

    -       -       -       -       1       -       1       6  

 

 

   

Nine months ended

 
   

September 30, 2013

   

September 30, 2012

 
   

Number of Contracts

   

Pre-Modification Outstanding

   

Number of Contracts

   

Pre-Modification Outstanding

 

Troubled Debt Restructurings

 

Term Modification

   

Other

   

Total

    Recorded Investment    

Term Modification

   

Other

   

Total

    Recorded Investment  

Commercial and industrial

    6       -       6     $ 879       8       1       9     $ 243  

Real estate- mortgage:

                                                               

Residential

    2       -       2       383       8       2       10       946  

Consumer Installment

    1       -       1       644       2       -       2       11  
 

 

 

 

 

   

Three months ended

 
   

September 30, 2013

   

September 30, 2012

 

Troubled Debt Restructurings subsequently defaulted

 

Number of Contracts

   

Recorded Investment

   

Number of Contracts

   

Recorded Investment

 

Commercial and industrial

    -     $ -       1     $ 30  

Real estate- mortgage:

                               

Residential

    -       -       1       20  

 

   

Nine months ended

 
   

September 30, 2013

   

September 30, 2012

 

Troubled Debt Restructurings subsequently defaulted

 

Number of Contracts

   

Recorded Investment

   

Number of Contracts

   

Recorded Investment

 

Commercial and industrial

    1     $ 565       2     $ 60  

Real estate- mortgage:

                               

Residential

    -       -       1       20  

Commercial

    1       190       -       -  

 

 

 
28

 

 

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

 

 

The following discussion and analysis provides further detail to the financial condition and results of operations of the Company. The MD&A should be read in conjunction with the notes and financial statements presented in this report.

 

CHANGES IN FINANCIAL CONDITION

 

General. The Company’s total assets ended the September 30, 2013 quarter at $658.1 million, a decrease of $12.1 million or 1.8% from December 31, 2012. Investment securities available for sale decreased $13.7 million while net loans increased $10.6 million. Accrued interest and other assets increased $4.1 million, or 51.7%. This change is largely the tax effect of the shift in accumulated other comprehensive loss resulting from mark-to-market adjustments to the investment portfolio. The decrease in total assets reflected a corresponding decrease in total liabilities of $9.2 million or 1.5% and a decrease in stockholders’ equity of $2.9 million or 5.2%. The decrease in total liabilities was primarily the result of a decrease in deposits of $14.1 million, or 2.4%, for the quarter. The decrease in stockholders’ equity resulted mostly from a decrease in accumulated other comprehensive income of $7.1 million, or 131.4%. A partial offset resulted from increases in retained earnings and common stock of $3.6 million, or 16.2% and $538,000, or 1.6%, respectively.     

 

Cash on hand and due from banks. Cash and due from banks and Federal funds sold represent cash and cash equivalents. Cash and cash equivalents decreased $13.2 million, or 29.0% to $32.2 million at September 30, 2013 from $45.3 million at December 31, 2012. Deposits from customers into savings and checking accounts, loan and securities repayments and proceeds from borrowed funds typically increase these accounts. Decreases result from customer withdrawals, new loan originations, purchases of investment securities and repayments of borrowed funds.

 

Investment securities. Investment securities available for sale on September 30, 2013 totaled $180.8 million, a decrease of $13.7 million or 7.0% from $194.5 million at December 31, 2012. During this period the Company recorded purchases of available-for-sale securities of $25.8 million, consisting of mortgage-backed securities, U.S. Agencies, and municipal bonds. Offsetting the purchases of securities were repayments, calls, and maturities of $20.1 million. Sales of securities were $8.1 million with gross realized gains of $204,000 being partially offset by gross realized losses of $29,000.

 

Loans receivable. The loans receivable category consists primarily of single-family mortgage loans used to purchase or refinance personal residences located within the Company’s market area and commercial real estate loans used to finance properties that are used in the borrowers’ businesses or to finance investor-owned rental properties, and to a lesser extent, construction and consumer loans. Net loans receivable increased $10.5 million or 2.6% to $411.2 million as of September 30, 2013 from $400.7 million at December 31, 2012. Included in this amount were increases in the commercial real estate and construction portfolios of $20.0 million, or 17.3%, and $3.0 million, or 13.2%, respectively. These amounts were partially offset by decreases in the C&I and residential real estate segments of $11.9 million, or 19.2%, and $560,000, or 0.3%. A reclassification was responsible for $6.5 million of the changes between the two commercial categories. The Company’s lending philosophy centers around the growth of the commercial loan portfolio. The Company has taken a proactive approach in servicing the needs of both new and current clients. These relationships generally offer more attractive returns than residential loans and also offer opportunities for attracting larger balance deposit relationships. However, the shift in loan portfolio mix from residential real estate to commercial-oriented loans may increase credit risk.

 

Allowance for Loan Losses and Asset Quality. The Company maintained the allowance for loan losses at $7.8 million, or 1.9% of total loans, at September 30, 2013, when compared to December 31, 2012. Third quarter 2013 net loan charge-offs totaled $81,000, or 0.02% of average loans, compared $722,000, or 0.72%, for the third quarter of 2012. Year-to-date net loan charge-offs totaled $724,000 compared to $839,000 for the same period the year prior. To maintain the adequacy of the allowance for loan losses, the Company recorded a third quarter provision for loan losses of $153,000, versus $143,000 for the third quarter of 2012. The year-to-date provision for loan losses were $766,000 compared to $1.2 million for September 30, 2013 and 2012, respectively.

 

Management analyzes the adequacy of the allowance for loan losses regularly through reviews of the performance of the loan portfolio considering economic conditions, changes in interest rates and the effect of such changes on real estate values and changes in the amount and composition of the loan portfolio. The allowance for loan losses is a material estimate that is particularly susceptible to significant changes in the near term. Such evaluation, which includes a review of all loans for which full collectability may not be reasonably assured, considers among other matters, historical loan loss experience, the estimated fair value of the underlying collateral, economic conditions, current interest rates, trends in the borrower’s industry and other factors that management believes warrant recognition in providing for an appropriate allowance for loan losses. Future additions to the allowance for loan losses will be dependent on these factors. Additionally, the Company uses an outside party to conduct an independent review of commercial and commercial real estate loans. The Company uses the results of this review to help determine the effectiveness of the existing policies and procedures, and to provide an independent assessment of the allowance for loan losses allocated to these types of loans. Management believes the allowance for loan losses is appropriately stated at September 30, 2013. Based on the variables involved and management’s judgments about uncertain outcomes, the determination of the allowance for loan losses is considered a critical accounting policy.

 

 

 
29

 

 

Nonperforming assets. Nonperforming assets includes nonaccrual loans, troubled debt restructurings (TDRs), loans 90 days or more past due, assets purchased by EMORECO from EB, other real estate, and repossessed assets. Real estate owned is written down to fair value at its initial recording and continually monitored for changes in fair value. A loan is classified as nonaccrual when, in the opinion of management, there are serious doubts about collectability of interest and principal. Accrual of interest is discontinued on a loan when management believes, after considering economic and business conditions, the borrower’s financial condition is such that collection of principal and interest is doubtful. Payments received on nonaccrual loans are applied against principal until doubt about collectability ceases. TDRs are those loans which the Company, for economic or legal reasons related to a borrower’s financial difficulties, grants a concession to the borrower that the Company would not otherwise consider. The Company has 39 TDRs with a total balance of $5.7 million as of September 30, 2013. Nonperforming loans amounted to $13.7 million, or 3.3% of total loans, and $14.2 million, or 3.5% of total loans, at September 30, 2013 and December 31, 2012, respectively. A TDR that yields market interest rate at the time of restructuring and is in compliance with its modified terms is no longer reported as TDR in calendar years after the year in which the restructuring took place. To be in compliance with its modified terms, a loan that is a TDR must not be in nonaccrual status and must be current or less than 30 days past due on its contractual principal and interest payments under the modified repayment terms. Nonperforming loans secured by real estate totaled $12.3 million as of September 30, 2013, down $500,000 from $12.8 million at December 31, 2012.

 

    Asset Quality History  
       
   

(Dollar amounts in thousands)

 
       

(Dollar amounts in thousands)

 

9/30/2013

   

6/30/2013

   

3/31/2013

   

12/31/2012

   

9/30/2012

 
                                         

Nonperforming loans

  $ 13,607     $ 12,869     $ 13,899     $ 14,194     $ 15,404  

Real estate owned

    2,719       2,361       2,155       1,846       2,332  
                                         

Nonperforming assets

    16,326       15,230       16,054       16,040       17,736  
                                         

Allowance for loan losses

    7,821       7,749       7,732       7,779       7,173  
                                         

Ratios

                                       

Nonperforming loans to total loans

    3.25 %     3.12 %     3.41 %     3.48 %     3.76 %

Nonperforming assets to total assets

    2.48 %     2.32 %     2.41 %     2.39 %     2.67 %

Allowance for loan losses to total loans

    1.87 %     1.88 %     1.90 %     1.90 %     1.75 %

Allowance for loan losses to nonperforming loans

    57.48 %     60.21 %     55.63 %     54.80 %     46.57 %

 

 

A major factor in determining the appropriateness of the allowance for loan losses is the type of collateral which secures the loans. Of the total nonperforming loans at September 30, 2013, 94.2% were secured by real estate. Although this does not insure against all losses, the real estate typically provides for at least partial recovery, even in a distressed-sale and declining-value environment. In response to the poor economic conditions which have eroded the performance of the Company’s loan portfolio, additional resources have been allocated to the loan workout process. The Company’s objective is to minimize the future loss exposure to the Company.

 

Deposits. The Company considers various sources when evaluating funding needs, including but not limited to deposits, which are a significant source of funds totaling $579.2 million or 96.2% of the Company’s total funding sources at September 30, 2013. Total deposits decreased $14.1 million or 2.4% at September 30, 2013 from $593.3 million at December 31, 2012. The decrease in deposits is primarily related to the reduction of time deposits, interest-bearing demand deposits, and money market accounts of $15.8 million or 8.0%, $4.1 million or 6.4%, and $4.2 million or 5.2%, respectively, at September 30, 2013. These decreases were partially offset by increases in noninterest-bearing demand and savings deposits of $5.8 million, or 7.7%, and $4.2 million, or 2.4%, respectively, during the nine months ended September 30, 2013.

 

 

 
30

 

 

Borrowed funds. The Company uses short and long-term borrowings as another source of funding used for asset growth and liquidity needs. These borrowings primarily include FHLB advances, junior subordinated debt, short-term borrowings from other banks, federal funds purchased, and repurchase agreements. Short-term borrowings increased $4.0 million, or 61.7%, to $10.6 million as of September 30, 2013. Other borrowings, representing advances from the Federal Home Loan Bank of Cincinnati, declined $709,000, or 5.5%, for the nine months ended September 30, 2013 as a result of scheduled principal payments. Fed Funds purchased increased $1.7 million for the nine months ended September 30, 2013.

 

Stockholders’ equity. Stockholders’ equity decreased $2.9 million, or 5.2%, to $52.6 million at September 30, 2013 from $55.4 million at December 31, 2012. This decrease was the result of a reduction of accumulated other comprehensive income of $7.1 million, or 131.4%, due to available-for-sale securities market valuation adjustments. This amount was partially offset by increases in retained earnings and common stock of $3.6 million, or 16.2%, and $538,000, or 1.6%, respectively. The increase in common stock was the result of issuing 34,336 shares at a weighted average price of $24.09 since December 31, 2012.

  

 

 

 

RESULTS OF OPERATIONS

 

 

General. Net income for the three months ended September 30, 2013, was $1.9 million, a $16,000, or 0.9% increase from the amount earned during the same period in 2012. Diluted earnings per share for the third quarter of 2013 was $0.92 compared to $0.93 for the same period in 2012. Net income for the nine months ended September 30, 2013, was $5.2 million, a $195,000, or 3.9% increase from the $5.0 million earned during the same period in 2012. Diluted earnings per share for the nine months ended September 30, 2013 was $2.58 compared to $2.65 for the same period in 2012.

 

The Company’s annualized return on average assets (ROA) and return on average equity (ROE) for the third quarter were 1.12% and 13.66%, respectively, compared with 1.12% and 16.57% for the same period in 2012. ROA and ROE for the nine months ended September 30, 2013 were 1.05% and 12.74%, respectively, compared with 1.02% and 15.26% for the same period in 2012.

 

The Company’s year-to-date earnings were positively impacted by decreases in the provision for loan losses and interest expense. This was partially offset by an increase in noninterest expense coupled with a decrease in interest income.

 

Net interest income. Net interest income, the primary source of revenue for the Company, is determined by the Company’s interest rate spread, which is defined as the difference between income on earning assets and the cost of funds supporting those assets, and the relative amounts of interest-earning assets and interest-bearing liabilities. Management periodically adjusts the mix of assets and liabilities, as well as the rates earned or paid on those assets and liabilities in order to manage and improve net interest income. The level of interest rates and changes in the amount and composition of interest-earning assets and liabilities affect the Company’s net interest income. Historically from an interest rate risk perspective, it has been management’s goal to maintain a balance between steady net interest income growth and the risks associated with interest rate fluctuations.

 

Net interest income for the three months ended September 30, 2013 totaled $5.8 million, an increase of 1.8% from that reported in the comparable period of 2012. The net interest margin was 3.91% for the third quarter of 2013, up from the 3.87% reported for the same quarter of 2012. The increase is primarily attributable to lower interest-bearing liability costs, which decreased 19 basis points to 1.01%, partially offset by a 15 basis point decline in yields on interest-earning assets to 4.92%.

 

Net interest income for the nine months ended September 30, 2013 totaled $17.0 million, an increase of 0.9% from the $16.9 million reported for the comparable period of 2012. The net interest margin was 3.89%, up from the 3.79% reported for the same period of 2012. The increase is primarily attributable to lower interest-bearing liability costs, which decreased 19 basis points to 1.04%, partially offset by a 10 basis point decline in yields on interest-earning assets to 4.93%.

 

Interest income. Interest income decreased $168,000, or 2.3%, for the nine months ended September 30, 2013, compared to the same period in the prior year. For the nine months ended September 30, 2013, interest income decreased $662,000, or 3.0%, compared to the same period in the prior year. These decreases can also be attributed to decreases in interest earned on taxable investment securities and interest and fees on loans.

 

 

 
31

 

 

Interest earned on loans receivable decreased $56,000, or 1.0%, for the three months ended September 30, 2013, compared to the same period in the prior year. This decrease is attributable to a 15 basis point shift in yields from September 30, 2012, partially offset by a $6.6 million, or 1.6%, average balance increase. Interest earned on loans receivable decreased $112,000, or 0.7%, for the nine months ended September 30, 2013, compared to the same period in the prior year. This decrease is attributable to a 10 basis point shift in yields from September 30, 2012, partially offset by a $4.5 million, or 1.1%, average balance increase.

 

Interest earned on securities decreased $106,000, or 7.1%, for the three months ended September 30, 2013, compared to the same period in the prior year. The 3.94% yield on the investment portfolio decreased by 40 basis points, from 4.34%, for the same period in the prior year. This was partially offset by an average balance increase of $8.1 million, or 4.7%. For the nine months ended September 30, 2013, interest earned on securities decreased $536,000, or 11.4%, compared to the same period in the prior year. The 4.09% yield on the investment portfolio decreased by 24 basis points, from 4.33%, for the same period in the prior year. This was partially offset by an average balance increase of $5.5 million, or 3.0%.

 

Interest expense. Interest expense decreased $274,000, or 17.1%, for the three months ended September 30, 2013, compared to the same period in the prior year. The decline was mostly attributed to a 19 basis point decline in total interest-bearing liabilities when compared to the same period in the prior year. It was further impacted by a decrease in the average balance of certificates of deposit of $18.0 million, or 8.9%, compared to the same period in the prior year. For the nine months ended September 30, 2013, interest expense decreased $820,000, or 16.7%, compared to the same period in the prior year. This is mostly attributed to a decrease in the average balance of certificates of deposit of $20.0 million, or 9.6%, compared to the same period in the prior year. The decline was further caused by a 19 basis point decline in total interest-bearing liabilities when compared to the same period in the prior year.

 

Interest incurred on deposits, the largest component of the Company’s interest-bearing liabilities, declined $248,000, or 17.5%, for the three months ended September 30, 2013, compared to the same period in the prior year. This decrease was attributed to a decline in the average rate paid on deposits to 0.92% from 1.11% for the same period in the prior year. This improvement was exacerbated by a decrease in the average balance of interest-bearing deposits of $3.3 million, or 0.6%, to $505.2 million when compared to $508.5 million for the same period in the prior year. For the nine months ended September 30, 2013, interest incurred on deposits declined $662,000, or 15.2%, compared to the same period in the prior year. This decrease was attributed to a decline in the average rate paid on deposits to 1.00% from 1.14% for the same period in the prior year. This improvement was exacerbated by a decrease in the average balance of interest-bearing deposits of $2.4 million, or 0.5%, to $509.3 million when compared to $511.8 million for the same period in the prior year. These amounts are reflected in the quarterly rate volume report presented below depicting the cost decrease associated with interest-bearing liabilities. The Company diligently monitors the interest rates on its products as well as the rates being offered by its competition and utilizes rate surveys to minimize total interest expense.

 

Interest incurred on borrowings decreased $26,000, or 14.2%, for the three months ended September 30, 2013, compared to the same period in the prior year. For the nine months ended September 30, 2013, interest incurred on borrowings declined $158,000, or 27.0%, compared to the same period in the prior year.

 

Provision for loan losses. The provision for loan losses represents the charge to income necessary to adjust the allowance for loan losses to an amount that represents management’s assessment of the estimated probable incurred credit losses inherent in the loan portfolio. Each quarter management performs a review of estimated probable incurred credit losses in the loan portfolio. Based on this review, a provision for loan losses of $153,000 was recorded for the quarter ended September 30, 2013 compared to $143,000 for the quarter ended September 30, 2012. For the nine months ended September 30, 2013, a provision for loan losses of $766,000 was recorded compared to $1.2 million for the comparable 2012 period. The year-to-date provision for loan losses was lower due to decreases in nonperforming loans. Nonperforming loans were $13.7 million, or 3.27% of total loans at September 30, 2013 compared with $15.4 million, or 3.76% at September 30, 2012. Net charge-offs were $81,000 for the quarter ended September 30, 2013 compared with $722,000 for the quarter ended September 30, 2012. Total loans were $419.1 million at September 30, 2013 compared with $409.2 million at September 30, 2012.

 

Noninterest income. Noninterest income decreased $60,000 for the three months ended September 30, 2013 over the comparable 2012 period. This decrease was largely the result of a decline in net investment security gains of $152,000, partially offset by an increase in service charges on deposit accounts of $29,000 and other income of $64,000. Noninterest income decreased $184,000 for the nine months ended September 30, 2013 over the comparable 2012 period. This decrease was largely the result of declines in net investment securities gains and gain on sale of loans of $273,000 and $85,000, respectively. These decreases were partially offset by an increase in service charges on deposit accounts of $85,000 and other income of $84,000.

 

 

 
32

 

 

Noninterest expense. Noninterest expense of $4.1 million for the third quarter of 2013 was 0.2% or $7,000 less than the first quarter of 2012. Loss on sale of other real estate owned and FDIC assessments decreased $223,000, and $115,000, respectively. These decreases were partially offset by increases in salaries and benefits and other real estate expense of $167,000 and $60,000, respectively. Noninterest expense of $12.1 million for the nine months ended September 30, 2013 was 1.0%, or $119,000 higher than the third quarter of 2012. FDIC assessments and loss on sale of other real estate owned decreased $398,000, and $278,000, respectively. These decreases were partially offset by increases in salaries and benefits and professional fees of $394,000 and $213,000, respectively.

 

Provision for income taxes. The Company recognized $521,000 in income tax expense, which reflected an effective tax rate of 21.8% for the three months ended September 30, 2013, as compared to $494,000 with an effective tax rate of 21.1% for the respective 2012 period. The increase in the tax provision can be attributed to an increase in income before taxes of $43,000 or 1.8% when compared to the same quarter in the prior year. For the nine months ended September 30, 2013, the Company recognized $1.5 million in income tax expense, which reflected an effective tax rate of 22.1%, as compared to $1.4 million with an effective tax rate of 21.7% for the respective 2012 period. The increase in the tax provision can be attributed to an increase in income before taxes of $282,000 or 4.4% when compared to the same period in the prior year.

 

 

CRITICAL ACCOUNTING ESTIMATES

 

The Company’s critical accounting estimates involving the more significant judgments and assumptions used in the preparation of the consolidated financial statements as of September 30, 2013, have remained unchanged from December 31, 2012.

 

Average Balance Sheet and Yield/Rate Analysis. The following table sets forth, for the periods indicated, information concerning the total dollar amounts of interest income from interest-earning assets and the resultant average yields, the total dollar amounts of interest expense on interest-bearing liabilities and the resultant average costs, net interest income, interest rate spread and the net interest margin earned on average interest-earning assets. For purposes of this table, average balances are calculated using monthly averages and the average loan balances include nonaccrual loans and exclude the allowance for loan losses, and interest income includes accretion of net deferred loan fees. Interest and yields on tax-exempt securities (tax-exempt for federal income tax purposes) are shown on a fully tax-equivalent basis utilizing a federal tax rate of 34%. Yields and rates have been calculated on an annualized basis utilizing monthly interest amounts.

 

 

 
33

 

 

   

For the Three Months Ended September 30,

 
   

2013

   

2012

 
                                     

(Dollars in thousands)

 

Average

Balance

   

Interest

   

Average

Yield/Cost

   

Average

Balance

   

Interest

   

Average

Yield/Cost

 
                                                 

Interest-earning assets:

                                               

Loans receivable

  $ 417,666     $ 5,754       5.47 %   $ 411,053     $ 5,810       5.62 %

Investment securities (3)

    180,695       1,392       3.94 %     172,637       1,498       4.34 %

Interest-bearing deposits with other banks

    12,993       28       0.85 %     23,126       34       0.58 %

Total interest-earning assets

    611,354       7,174       4.92 %     606,816       7,342       5.07 %

Noninterest-earning assets

    48,833                       50,256                  

Total assets

  $ 660,187                     $ 657,072                  

Interest-bearing liabilities:

                                               

Interest-bearing demand deposits

  $ 61,612       55       0.35 %   $ 64,785       67       0.41 %

Money market deposits

    79,253       74       0.37 %     68,499       72       0.42 %

Savings deposits

    178,901       151       0.33 %     171,746       165       0.38 %

Certificates of deposit

    185,468       891       1.91 %     203,482       1,115       2.18 %

Borrowings

    17,931       157       3.47 %     22,997       183       3.17 %

Total interest-bearing liabilities

    523,165       1,328       1.01 %     531,509       1,602       1.20 %

Noninterest-bearing liabilities

                                               

Other liabilities

    82,869                       75,147                  

Stockholders' equity

    54,153                       50,416                  

Total liabilities and stockholders' equity

  $ 660,187                     $ 657,072                  

Net interest income

          $ 5,846                     $ 5,740          

Interest rate spread (1)

                    3.91 %                     3.87 %

Net yield on interest-earning assets (2)

                    4.05 %                     4.02 %

Ratio of average interest-earning assets to average interest-bearing liabilities

                    116.86 %                     114.17 %

 


(1)

Interest rate spread represents the difference between the average yield on interest-earning assets and the average cost of interest-bearing liabilities

(2)

Net interest margin represents net interest income as a percentage of average interest-earning assets.

(3)

Tax-equivalent adjustments to interest income for tax-exempt securities were $403 and $385 for 2013 and 2012, respectively.

 

 

Analysis of Changes in Net Interest Income. The following table analyzes the changes in interest income and interest expense, between the three month periods ended September 30, 2013 and 2012, in terms of: (1) changes in volume of interest-earning assets and interest-bearing liabilities and (2) changes in yields and rates. The table reflects the extent to which changes in the Company’s interest income and interest expense are attributable to changes in rate (change in rate multiplied by prior period volume), changes in volume (changes in volume multiplied by prior period rate) and changes attributable to the combined impact of volume/rate (change in rate multiplied by change in volume). The changes attributable to the combined impact of volume/rate are allocated on a consistent basis between the volume and rate variances. Changes in interest income on securities reflects the changes in interest income on a fully tax-equivalent basis.

 

 
34

 

 

   

2013 versus 2012

 
   

Increase (decrease) due to

 

(Dollars in thousands)

 

Volume

   

Rate

   

Total

 
                         

Interest-earning assets:

                       

Loans receivable

  $ 94     $ (150 )   $ (56 )

Investment securities

    88       (194 )     (106 )

Interest-bearing deposits with other banks

    (15 )     9       (6 )

Total interest-earning assets

    167       (335 )     (168 )
                         
                         

Interest-bearing liabilities:

                       

Interest-bearing demand deposits

    (3 )     (9 )     (12 )

Money market deposits

    11       (9 )     2  

Savings deposits

    7       (21 )     (14 )

Certificates of deposit

    (99 )     (125 )     (224 )

Borrowings

    (40 )     14       (26 )

Total interest-bearing liabilities

    (124 )     (150 )     (274 )
                         

Net interest income

  $ 291     $ (185 )   $ 106  

 

 

 
35

 

 

   

For the Nine Months Ended September 30,

 
   

2013

   

2012

 
             

(Dollars in thousands)

 

Average

Balance

   

Interest

   

Average

Yield/Cost

   

Average

Balance

   

Interest

   

Average

Yield/Cost

 
                                                 

Interest-earning assets:

                                               

Loans receivable

  $ 411,382     $ 16,876       5.48 %   $ 406,919     $ 16,988       5.58 %

Investment securities (3)

    186,564       4,168       4.09 %     181,062       4,704       4.33 %

Interest-bearing deposits with other banks

    16,918       91       0.72 %     22,221       105       0.63 %

Total interest-earning assets

    614,864       21,135       4.93 %     610,202       21,797       5.03 %

Noninterest-earning assets

    47,216                       45,323                  

Total assets

  $ 662,080                     $ 655,525                  

Interest-bearing liabilities:

                                               

Interest-bearing demand deposits

  $ 62,630       166       0.35 %   $ 61,718       190       0.41 %

Money market deposits

    78,956       230       0.39 %     70,108       216       0.41 %

Savings deposits

    178,275       460       0.34 %     170,423       495       0.39 %

Certificates of deposit

    189,472       2,831       2.00 %     209,504       3,448       2.20 %

Borrowings

    18,385       427       3.11 %     23,551       585       3.32 %

Total interest-bearing liabilities

    527,718       4,114       1.04 %     535,304       4,934       1.23 %

Noninterest-bearing liabilities

                                               

Other liabilities

    79,698                       70,846                  

Stockholders' equity

    54,664                       49,375                  

Total liabilities and stockholders' equity

  $ 662,080                     $ 655,525                  

Net interest income

          $ 17,021                     $ 16,863          

Interest rate spread (1)

                    3.89 %                     3.79 %

Net interest margin (2)

                    4.03 %                     3.95 %

Ratio of average interest-earning assets to average interest-bearing liabilities

                    116.51 %                     113.99 %

 


(1)

Interest rate spread represents the difference between the average yield on interest-earning assets and the average cost of interest-bearing liabilities 

(2)

Net interest margin represents net interest income as a percentage of average interest-earning assets.

(3)

Tax-equivalent adjustments to interest income for tax-exempt securities were $1,533 and $1,159 for 2013 and 2012, respectively.

  

 

 

Analysis of Changes in Net Interest Income. The following table analyzes the changes in interest income and interest expense, between the nine month periods ended September 30, 2013 and 2012, in terms of: (1) changes in volume of interest-earning assets and interest-bearing liabilities and (2) changes in yields and rates. The table reflects the extent to which changes in the Company’s interest income and interest expense are attributable to changes in rate (change in rate multiplied by prior period volume), changes in volume (changes in volume multiplied by prior period rate) and changes attributable to the combined impact of volume/rate (change in rate multiplied by change in volume). The changes attributable to the combined impact of volume/rate are allocated on a consistent basis between the volume and rate variances. Changes in interest income on securities reflect the changes in interest income on a fully tax-equivalent basis.

 

 
36

 

 

   

2013 versus 2012

 
   

Increase (decrease) due to

 

(Dollars in thousands)

 

Volume

   

Rate

   

Total

 
                         

Interest-earning assets:

                       

Loans receivable

  $ 186     $ (298 )   $ (112 )

Investment securities

    178       (714 )     (536 )

Interest-bearing deposits with other banks

    (25 )     11       (14 )

Total interest-earning assets

    339       (1,001 )     (662 )
                         
                         

Interest-bearing liabilities:

                       

Interest-bearing demand deposits

    3       (27 )     (24 )

Money market deposits

    27       (13 )     14  

Savings deposits

    23       (58 )     (35 )

Certificates of deposit

    (329 )     (288 )     (617 )

Borrowings

    (128 )     (30 )     (158 )

Total interest-bearing liabilities

    (404 )     (416 )     (820 )
                         
                         

Net interest income

  $ 743     $ (585 )   $ 158  
 

 

LIQUIDITY

 

Management's objective in managing liquidity is maintaining the ability to continue meeting the cash flow needs of banking customers, such as borrowings or deposit withdrawals, as well as the Company’s own financial commitments. The principal sources of liquidity are net income, loan payments, maturing and principal reductions on securities and sales of securities available for sale, federal funds sold and cash and deposits with banks. Along with its liquid assets, the Company has additional sources of liquidity available to ensure that adequate funds are available as needed. These include, but are not limited to, the purchase of federal funds, and the ability to borrow funds under line of credit agreements with correspondent banks and a borrowing agreement with the Federal Home Loan Bank of Cincinnati, Ohio and the adjustment of interest rates to obtain depositors. Management believes the Company has the capital adequacy, profitability and reputation to meet the current and projected needs of its customers.

 

For the three and nine months ended September 30, 2013, the adjustments to reconcile net income to net cash from operating activities consisted mainly of depreciation and amortization of premises and equipment, the provision for loan losses, net amortization of securities and net changes in other assets and liabilities. For a more detailed illustration of sources and uses of cash, refer to the condensed consolidated statements of cash flows.

 

INFLATION

 

Substantially all of the Company's assets and liabilities relate to banking activities and are monetary in nature. The consolidated financial statements and related financial data are presented in accordance with U.S. Generally Accepted Accounting Principles (“GAAP”). GAAP currently requires the Company to measure the financial position and results of operations in terms of historical dollars, with the exception of securities available for sale, impaired loans and other real estate loans that are measured at fair value. Changes in the value of money due to rising inflation can cause purchasing power loss.

 

Management's opinion is that movements in interest rates affect the financial condition and results of operations to a greater degree than changes in the rate of inflation. It should be noted that interest rates and inflation do affect each other, but do not always move in correlation with each other. The Company's ability to match the interest sensitivity of its financial assets to the interest sensitivity of its liabilities in its asset/liability management may tend to minimize the effect of changes in interest rates on the Company's performance.

 

 

 
37

 

 

REGULATORY MATTERS

 

The Company is subject to the regulatory requirements of the Federal Reserve System as a multi-bank holding company. The affiliate banks are subject to regulations of the Federal Deposit Insurance Corporation (“FDIC”) and the State of Ohio, Division of Financial Institutions.

 

The Federal Reserve Board and the FDIC have extensive authority to prevent and to remedy unsafe and unsound practices and violations of applicable laws and regulations by institutions and holding companies. The agencies may assess civil money penalties, issue cease-and-desist or removal orders, seek injunctions, and publicly disclose those actions. In addition, the Ohio Division of Financial Institutions possesses enforcement powers to address violations of Ohio banking law by Ohio-chartered banks.

 

In February of 2011, Emerald Bank agreed with the FDIC and the Ohio Division of Financial Institutions that Emerald Bank will take specified actions to correct weaknesses in the bank’s condition and operations.  The actions that Emerald Bank agreed to take include reducing the bank’s concentration of credit in non-owner occupied 1 - 4 family residential mortgage loans, reducing delinquent and classified loans, enhancing credit administration for non-owner occupied residential real estate, developing plans for the reduction of borrower indebtedness on classified and delinquent credits, implementing an earnings improvement plan, maintaining leverage capital of at least 9%, revising the bank’s methodology for calculating and determining the adequacy of the allowance for loan losses, and providing to the FDIC and the ODFI notice of proposed dividend payments at least 30 days in advance.

 

The following table sets forth the capital requirements for EB under the FDIC regulations and EB’s capital ratios:

 

FDIC Regulations

 

Capital Ratio

 

Adequately

Capitalized

   

Well

Capitalized

   

September 30,

2013

   

December 31,

2012

 
                                 

Tier I Leverage Capital

    4.00

%

    5.00

%

(1)   11.19

%

    10.61

%

Risk-Based Capital:

                               

Tier I

    4.00       6.00       13.21       14.16  

Total

    8.00       10.00       14.49       15.45  
 

 

(1)

EB has agreed to maintain leverage capital of at least 9%

 

 

 

REGULATORY CAPITAL REQUIREMENTS

 

The Company is subject to regulatory capital requirements administered by federal banking agencies. Capital adequacy guidelines and prompt corrective action regulations involve quantitative measures of assets, liabilities and certain off-balance sheet items calculated under regulatory accounting practices. Capital amounts and classifications are also subject to qualitative judgments by regulators about components, risk weightings and other factors and the regulators can lower classifications in certain cases. Failure to meet various capital requirements can initiate regulatory action that could have a direct material effect on the company's operations.

  

The prompt corrective action regulations provide five classifications, including well capitalized, adequately capitalized, undercapitalized, significantly undercapitalized and critically undercapitalized, although these terms are not used to represent overall financial condition. If adequately capitalized, regulatory approval is required to accept brokered deposits. If undercapitalized, capital distributions are limited, as is asset growth and expansion and plans for capital restoration are required.

 

 
38

 

 

The following tables illustrate the Company's and Banks’ capital ratios:

 

 

   

Middlefield Banc Corp.

September 30,

2013

   

The Middlefield Banking Co.

September 30,

2013

   

Emerald Bank

September 30,

2013

 
   

Amount

   

Ratio

   

Amount

   

Ratio

   

Amount

   

Ratio

 
   

(in thousands)

 

Total Capital

                                               

(to Risk-weighted Assets)

                                               
                                                 

Actual

  $ 62,528       14.22

%

  $ 51,728       13.80

%

  $ 9,294       14.49

%

For Capital Adequacy Purposes

    35,169       8.00       29,989       8.00       5,237       8.00  

To Be Well Capitalized

    43,961       10.00       37,486       10.00       6,546       10.00  
                                                 

Tier I Capital

                                               

(to Risk-weighted Assets)

                                               
                                                 

Actual

  $ 57,004       12.97

%

  $ 47,042       12.55

%

  $ 8,475       13.21

%

For Capital Adequacy Purposes

    17,584       4.00       14,994       4.00       2,618       4.00  

To Be Well Capitalized

    26,376       6.00       22,492       5.00       3,928       6.00  
                                                 

Tier I Capital

                                               

(to Average Assets)

                                               
                                                 

Actual

  $ 57,004       8.70

%

  $ 47,042       8.20

%

  $ 8,475       11.19

%

For Capital Adequacy Purposes

    26,199       4.00       22,939       4.00       3,028       4.00  

To Be Well Capitalized

    32,748       5.00       28,674       5.00       3,785       5.00  

 

   

Middlefield Banc Corp.

   

The Middlefield Banking Co.

   

Emerald Bank

 

(Dollar amounts in thousands)

 

December 31, 2012

   

December 31, 2012

   

December 31, 2012

 
   

Amount

   

Ratio

   

Amount

   

Ratio

   

Amount

   

Ratio

 
                                                 

Total Capital

                                               

(to Risk-weighted Assets)

                                               
                                                 

Actual

  $ 57,784       13.86

%

  $ 47,887       13.29

%

  $ 8,440       15.45

%

For Capital Adequacy Purposes

    33,344       8.00       28,822       8.00       4,370       8.00  

To Be Well Capitalized

    41,680       10.00       36,027       10.00       5,463       10.00  
                                                 

Tier I Capital

                                               

(to Risk-weighted Assets)

                                               
                                                 

Actual

  $ 52,543       12.61

%

  $ 43,371       12.04

%

  $ 7,737       14.16

%

For Capital Adequacy Purposes

    16,672       4.00       14,411       4.00       2,185       4.00  

To Be Well Capitalized

    25,008       6.00       21,616       6.00       3,278       6.00  
                                                 

Tier I Capital

                                               

(to Average Assets)

                                               
                                                 

Actual

  $ 52,543       7.88

%

  $ 43,371       7.32

%

  $ 7,737       10.61

%

For Capital Adequacy Purposes

    26,675       4.00       23,684       4.00       2,916       4.00  

To Be Well Capitalized

    33,344       5.00       29,605       5.00       3,646       5.00  

  

 
39

 

 

Supplementing these capital requirements of applicable banking regulations, Emerald Bank has agreed with the FDIC and the Ohio Division of Financial Institutions to maintain tier 1 leverage capital of at least 9%, The Middlefield Banking Company committed to the FDIC that The Middlefield Banking Company will maintain capital ratios at levels no lower than its June 30, 2010 ratios (i.e., no lower than 6.25% tier 1 leverage capital and 11.29% total risk-based capital), and Middlefield Banc Corp. committed to the Federal Reserve that Middlefield Banc Corp. will maintain tier 1 leverage capital of at least 7.25% and total risk-based capital of at least 12%, both at the level of the holding company and at the level of The Middlefield Banking Company, the lead bank.  We expect that these elevated minimum capital levels will apply for the foreseeable future, while the banks and the holding company continue their efforts to manage more serious asset quality challenges than they have been accustomed to, while also managing the impact of those challenges on earnings and the strains that general economic downturns in the banks’ markets and across the region and nation are placing not only on Emerald Bank and The Middlefield Banking Company but on all local banks.     

 

 

 

Item 3. Quantitative and Qualitative Disclosures about Market Risk

 

 

ASSET AND LIABILITY MANAGEMENT

 

 

The primary objective of the Company’s asset and liability management function is to maximize the Company’s net interest income while simultaneously maintaining an acceptable level of interest rate risk given the Company’s operating environment, capital and liquidity requirements, performance objectives and overall business focus. The principal determinant of the exposure of the Company’s earnings to interest rate risk is the timing difference between the repricing and maturity of interest-earning assets and the repricing or maturity of its interest-bearing liabilities. The Company’s asset and liability management policies are designed to decrease interest rate sensitivity primarily by shortening the maturities of interest-earning assets while at the same time extending the maturities of interest-bearing liabilities. The Board of Directors of the Company continues to believe in strong asset/liability management in order to insulate the Company from material losses as a result of prolonged increases in interest rates. As a result of this policy, the Company emphasizes a larger, more diversified portfolio of residential mortgage loans in the form of mortgage-backed securities. Mortgage-backed securities generally increase the quality of the Company’s assets by virtue of the insurance or guarantees that back them, are more liquid than individual mortgage loans and may be used to collateralize borrowings or other obligations of the Company.

 

MB’s Board of Directors have established an Asset and Liability Management Committee consisting of four outside directors, the President and Chief Executive Officer, Executive/Vice President/ Chief Operating Officer, Senior Vice President/Chief Financial Officer and Senior Vice President/Commercial Lending. This committee, which meets quarterly, generally monitors various asset and liability management policies and strategies, which were implemented by the Company over the past few years. These strategies have included: (i) an emphasis on the investment in adjustable-rate and shorter duration mortgage-backed securities; (ii) an emphasis on the origination of single-family residential adjustable-rate mortgages (ARMs), residential construction loans and commercial real estate loans, which generally have adjustable or floating interest rates and/or shorter maturities than traditional single-family residential loans, and consumer loans, which generally have shorter terms and higher interest rates than mortgage loans; (iii) increase the duration of the liability base of the Company by extending the maturities of savings deposits, borrowed funds and repurchase agreements.

 

MB and EB have established the following guidelines for assessing interest rate risk:

 

Net interest income simulation. Given a 200 basis point parallel and gradual increase or decrease in market interest rates, net interest income may not change by more than 10% for a one-year period.

 

Portfolio equity simulation. Portfolio equity is the net present value of the Company’s existing assets and liabilities. Given a 200 basis point immediate and permanent increase or decrease in market interest rates, portfolio equity may not correspondingly decrease or increase by more than 20% of stockholders’ equity.

 

The following table presents the simulated impact of a 200 basis point upward and a 200 basis point downward shift of market interest rates on net interest income and the change in portfolio equity. This analysis was done assuming that the interest-earning asset and interest-bearing liability levels at September 30, 2013 remained constant. The impact of the market rate movements was developed by simulating the effects of rates changing gradually over a one-year period from the September 30, 2012 levels for net interest income. The impact of market rate movements was developed by simulating the effects of an immediate and permanent change in rates at September 30, 2013 for portfolio equity:

 

 

 
40

 

 

Item 4. Controls and Procedures

 

Controls and Procedures Disclosure

 

The Company maintains disclosure controls and procedures that are designed to ensure that information required to be disclosed in the Corporation’s reports that it files or submits under the Securities Exchange Act of 1934 is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission’s rules and forms, and that such information is accumulated and communicated to the Company’s management, including its Chief Executive Officer and Chief Financial Officer, as appropriate to allow timely decisions regarding required disclosure.

 

As of the end of the period covered by this quarterly report, an evaluation was carried out under the supervision and with the participation of management, including our Chief Executive Officer and Chief Financial Officer, of the effectiveness of our disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934). Based on their evaluation, our Chief Executive Officer and Chief Financial Officer have concluded that the Company’s disclosure controls and procedures are, to the best of their knowledge, effective to ensure that information required to be disclosed by the Corporation in reports that it files or submits under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in Securities and Exchange Commission rules and forms. Subsequent to the date of their evaluation, our Chief Executive Officer and Chief Financial Officer have concluded that there were no significant changes in internal control or in other factors that could significantly affect the Company’s internal controls, including any corrective actions with regard to significant deficiencies and material weaknesses.

 

A material weakness is a significant deficiency (as defined in Public Company Accounting Oversight Board Auditing Standard No. 2), or a combination of significant deficiencies, that results in there being more than a remote likelihood that a material misstatement of the annual or interim financial statements will not be prevented or detected on a timely basis by management or employees in the normal course of performing their assigned functions.

 

Changes in Internal Control over Financial Reporting

 

There have not been any changes in the Company’s internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) that occurred during the Company’s most recent fiscal quarter that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.

 

 

 
41

 

 

PART II - OTHER INFORMATION

 

Item 1.

Legal Proceedings

None

 

                

Item 1a.

There are no material changes to the risk factors set forth in Part I, Item 1A, “Risk Factors,” of the Company’s Annual Report on Form 10-K for the year ended December 31, 2012. Please refer to that section for    disclosures regarding the risks and uncertainties related to the Company’s business. The Company has previously disclosed that the Company’s two subsidiary banks have implemented security controls to prevent unauthorized access to the banks’ computer systems.  To strengthen the Company’s controls designed to prevent unauthorized information technology access, the Company’s banks have agreed with the FDIC and the Ohio Division of Financial Institutions to implement improved information technology risk management practices.

 

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

None

 

 

 

Item 3.

Defaults by the Company on its Senior Securities

None

 

               

 

Item 4.

Mine Safety Disclosures

 

Item 5.

Other information

None

 

               

 

 
42

 

 

Item 6. Exhibits and Reports on Form 8-K

 

Exhibit list for Middlefield Banc Corp.’s Form 10-Q Quarterly Report for the Period Ended September 30, 2013

 

3.1

 

Second Amended and Restated Articles of Incorporation of Middlefield Banc Corp., as amended

 

Incorporated by reference to Exhibit 3.1 of Middlefield Banc Corp.’s Annual Report on Form 10-K for the Fiscal Year Ended December 31, 2005, filed on March 29, 2006

         

3.2

 

Regulations of Middlefield Banc Corp.

 

Incorporated by reference to Exhibit 3.2 of Middlefield Banc Corp.’s registration statement on Form 10 filed on April 17, 2001

         

4.0

 

Specimen stock certificate

 

Incorporated by reference to Exhibit 4 of Middlefield Banc Corp.’s registration statement on Form 10 filed on April 17, 2001

         

4.1

 

Amended and Restated Trust Agreement, dated as of December 21, 2006, between Middlefield Banc Corp., as Depositor, Wilmington Trust Company, as Property trustee, Wilmington Trust Company, as Delaware Trustee, and Administrative Trustees

 

Incorporated by reference to Exhibit 4.1 of Middlefield Banc Corp.’s Form 8-K Current Report filed on December 27, 2006

         

4.2

 

Junior Subordinated Indenture, dated as of December 21, 2006, between Middlefield Banc Corp. and Wilmington Trust Company

 

Incorporated by reference to Exhibit 4.2 of Middlefield Banc Corp.’s Form 8-K Current Report filed on December 27, 2006

         

4.3

 

Guarantee Agreement, dated as of December 21, 2006, between Middlefield Banc Corp. and Wilmington Trust Company

 

Incorporated by reference to Exhibit 4.3 of Middlefield Banc Corp.’s Form 8-K Current Report filed on December 27, 2006

         

10.1.0*

 

1999 Stock Option Plan of Middlefield Banc Corp.

 

Incorporated by reference to Exhibit 10.1 of Middlefield Banc Corp.’s registration statement on Form 10 filed on April 17, 2001

         

10.1.1*

 

2007 Omnibus Equity Plan

 

Incorporated by reference to Middlefield Banc Corp.’s definitive proxy statement for the 2008 Annual Meeting of Shareholders, Appendix A, filed on April 7, 2008

         

10.2*

 

Severance Agreement between Middlefield Banc Corp. and Thomas G. Caldwell, dated January 7, 2008

 

Incorporated by reference to Exhibit 10.2 of Middlefield Banc Corp.’s Form 8-K Current Report filed on January 9, 2008

         

10.3*

 

Severance Agreement between Middlefield Banc Corp. and James R. Heslop, II, dated January 7, 2008

 

Incorporated by reference to Exhibit 10.3 of Middlefield Banc Corp.’s Form 8-K Current Report filed on January 9, 2008

         

10.4.0*

 

Severance Agreement between Middlefield Banc Corp. and Jay P. Giles, dated January 7, 2008

 

Incorporated by reference to Exhibit 10.4 of Middlefield Banc Corp.’s Form 8-K Current Report filed on January 9, 2008

         

10.4.1*

 

Severance Agreement between Middlefield Banc Corp. and Teresa M. Hetrick, dated January 7, 2008

 

Incorporated by reference to Exhibit 10.4.1 of Middlefield Banc Corp.’s Form 8-K Current Report filed on January 9, 2008

         

10.4.2

 

[reserved]

   
         

10.4.3*

 

Severance Agreement between Middlefield Banc Corp. and Donald L. Stacy, dated January 7, 2008

 

Incorporated by reference to Exhibit 10.4.3 of Middlefield Banc Corp.’s Form 8-K Current Report filed on January 9, 2008

 

 

 
43

 

 

10.4.4*

 

Severance Agreement between Middlefield Banc Corp. and Alfred F. Thompson Jr., dated January 7, 2008

 

Incorporated by reference to Exhibit 10.4.4 of Middlefield Banc Corp.’s Form 8-K Current Report filed on January 9, 2008

         

10.5

 

Federal Home Loan Bank of Cincinnati Agreement for Advances and Security Agreement dated September 14, 2000

 

Incorporated by reference to Exhibit 10.4 of Middlefield Banc Corp.’s registration statement on Form 10 filed on April 17, 2001

         

10.6*

 

Amended Director Retirement Agreement with Richard T. Coyne

 

Incorporated by reference to Exhibit 10.6 of Middlefield Banc Corp.’s Form 8-K Current Report filed on January 9, 2008

         

10.7*

 

Amended Director Retirement Agreement with Frances H. Frank

 

Incorporated by reference to Exhibit 10.7 of Middlefield Banc Corp.’s Form 8-K Current Report filed on January 9, 2008

         

10.8*

 

Amended Director Retirement Agreement with Thomas C. Halstead

 

Incorporated by reference to Exhibit 10.8 of Middlefield Banc Corp.’s Form 8-K Current Report filed on January 9, 2008

         

10.9*

 

Director Retirement Agreement with George F. Hasman

 

Incorporated by reference to Exhibit 10.9 of Middlefield Banc Corp.’s Annual Report on Form 10-K for the Year Ended December 31, 2001, filed on March 28, 2002

         

10.10*

 

Director Retirement Agreement with Donald D. Hunter

 

Incorporated by reference to Exhibit 10.10 of Middlefield Banc Corp.’s Annual Report on Form 10-K for the Year Ended December 31, 2001, filed on March 28, 2002

         

10.11*

 

Director Retirement Agreement with Martin S. Paul

 

Incorporated by reference to Exhibit 10.11 of Middlefield Banc Corp.’s Annual Report on Form 10-K for the Year Ended December 31, 2001, filed on March 28, 2002

         

10.12*

 

Amended Director Retirement Agreement with Donald E. Villers

 

Incorporated by reference to Exhibit 10.12 of Middlefield Banc Corp.’s Form 8-K Current Report filed on January 9, 2008

         

10.13*

 

Executive Survivor Income Agreement (aka DBO agreement [death benefit only]) with Donald L. Stacy

 

Incorporated by reference to Exhibit 10.14 of Middlefield Banc Corp.’s Annual Report on Form 10-K for the Year Ended December 31, 2003, filed on March 30, 2004

         

10.14*

 

DBO Agreement with Jay P. Giles

 

Incorporated by reference to Exhibit 10.15 of Middlefield Banc Corp.’s Annual Report on Form 10-K for the Year Ended December 31, 2003, filed on March 30, 2004

         

10.15*

 

DBO Agreement with Alfred F. Thompson Jr.

 

Incorporated by reference to Exhibit 10.16 of Middlefield Banc Corp.’s Annual Report on Form 10-K for the Year Ended December 31, 2003, filed on March 30, 2004

         

10.16

 

[reserved]

   
         

10.17*

 

DBO Agreement with Theresa M. Hetrick

 

Incorporated by reference to Exhibit 10.18 of Middlefield Banc Corp.’s Annual Report on Form 10-K for the Year Ended December 31, 2003, filed on March 30, 2004

         

10.18 *

 

Executive Deferred Compensation Agreement with Jay P. Giles

 

Incorporated by reference to Exhibit 10.18 of Middlefield Banc Corp.’s Annual Report on Form 10-K for the Year Ended December 31, 2011, filed on March 20, 2012

 

 

 
44

 

 

10.19*

 

DBO Agreement with James R. Heslop, II

 

Incorporated by reference to Exhibit 10.20 of Middlefield Banc Corp.’s Annual Report on Form 10-K for the Year Ended December 31, 2003, filed on March 30, 2004

         

10.20*

 

DBO Agreement with Thomas G. Caldwell

 

Incorporated by reference to Exhibit 10.21 of Middlefield Banc Corp.’s Annual Report on Form 10-K for the Year Ended December 31, 2003, filed on March 30, 2004

         

10.21*

 

Form of Indemnification Agreement with directors of Middlefield Banc Corp. and with executive officers of Middlefield Banc Corp. and The Middlefield Banking Company

 

Incorporated by reference to Exhibit 99.1 of Middlefield Banc Corp.’s registration statement on Form 10, Amendment No. 1, filed on June 14, 2001

         

10.22*

 

Annual Incentive Plan Summary

 

Incorporated by reference to Exhibit 10.22 of Middlefield Banc Corp.’s Form 8-K Current Report filed on June 12, 2012

         

10.23*

 

Amended Executive Deferred Compensation Agreement with Thomas G. Caldwell

 

Incorporated by reference to Exhibit 10.23 of Middlefield Banc Corp.’s Form 8-K Current Report filed on May 9, 2008

         

10.24*

 

Amended Executive Deferred Compensation Agreement with James R. Heslop, II

 

Incorporated by reference to Exhibit 10.24 of Middlefield Banc Corp.’s Form 8-K Current Report filed on May 9, 2008

         

10.25*

 

Amended Executive Deferred Compensation Agreement with Donald L. Stacy

 

Incorporated by reference to Exhibit 10.25 of Middlefield Banc Corp.’s Form 8-K Current Report filed on May 9, 2008

         

10.26*

 

Stock Purchase Agreement dated August 15, 2011 between Bank Opportunity Fund LLC and Middlefield Banc Corp.

 

Incorporated by reference to Exhibit 10.26 of Middlefield Banc Corp.’s Form 8-K Current Report filed on August 18, 2011

         

10.26.1

 

Amendment 1 of the Stock Purchase Agreement with Bank Opportunity Fund LLC (amendment dated September 29, 2011)

 

Incorporated by reference to Exhibit 10.26.1 of Middlefield Banc Corp.’s Annual Report on Form 10-K for the Year Ended December 31, 2011, filed on March 20, 2012

         

10.26.2

 

Amendment 2 of the Stock Purchase Agreement with Bank Opportunity Fund LLC (amendment dated October 20, 2011)

 

Incorporated by reference to Exhibit 10.26.2 of Middlefield Banc Corp.’s Annual Report on Form 10-K for the Year Ended December 31, 2011, filed on March 20, 2012

         

10.26.3

 

Amendment 3 of the Stock Purchase Agreement with Bank Opportunity Fund LLC (amendment dated November 28, 2011)

 

Incorporated by reference to Exhibit 10.26.3 of Middlefield Banc Corp.’s Annual Report on Form 10-K for the Year Ended December 31, 2011, filed on March 20, 2012

         

10.26.4

 

Amendment 4 of the Stock Purchase Agreement with Bank Opportunity Fund LLC (amendment dated December 21, 2011)

 

Incorporated by reference to Exhibit 10.26.4 of Middlefield Banc Corp.’s Annual Report on Form 10-K for the Year Ended December 31, 2011, filed on March 20, 2012

         

10.26.5

 

March 21, 2012 letter agreement between Bank Opportunity Fund LLC and Middlefield Banc Corp.

 

Incorporated by reference to Exhibit 10.26.5 of Middlefield Banc Corp.’s Form 8-K Current Report filed on March 27, 2012

         

10.26.6

 

Amendment 5 of the Stock Purchase Agreement with Bank Opportunity Fund LLC (amendment dated April 17, 2012)

 

Incorporated by reference to Exhibit 10.26.6 of Middlefield Banc Corp.’s Form 8-K Current Report filed on April 23, 2012

         

10.26.7

 

Amendment 6 of the Stock Purchase Agreement with Bank Opportunity Fund LLC (amendment dated August 23, 2012)

 

Incorporated by reference to Exhibit 10.26.7 of Middlefield Banc Corp.’s Form 8-K Current Report filed on August 24, 2012

 

 

 
45

 

 

10.27

 

[reserved]

   
         

10.28

 

Amended and Restated Purchaser’s Rights and Voting Agreement, dated April 17, 2012, among Bank Opportunity Fund LLC, Middlefield Banc Corp., and directors and officers of Middlefield Banc Corp.

 

Incorporated by reference to Exhibit 10.28 of Middlefield Banc Corp.’s Form 8-K Current Report filed on April 23, 2012

         

10.28.1

 

Amendment of the Amended and Restated Purchaser’s Rights and Voting Agreement (amendment dated August 23, 2012)

 

Incorporated by reference to Exhibit 10.28.1 of Middlefield Banc Corp.’s Form 8-K Current Report filed on August 24, 2012

         

31.1

 

Rule 13a-14(a) certification of Chief Executive Officer

 

filed herewith

         

31.2

 

Rule 13a-14(a) certification of Chief Financial Officer

 

filed herewith

         

32

 

Rule 13a-14(b) certification

 

filed herewith

         

101.INS**

 

XBRL Instance

 

furnished herewith

         

101.SCH**

 

XBRL Taxonomy Extension Schema

 

furnished herewith

         

101.CAL**

 

XBRL Taxonomy Extension Calculation

 

furnished herewith

         

101.DEF**

 

XBRL Taxonomy Extension Definition

 

furnished herewith

         

101.LAB**

 

XBRL Taxonomy Extension Labels

 

furnished herewith

         

101.PRE**

 

XBRL Taxonomy Extension Presentation

 

furnished herewith

 

 

 

* management contract or compensatory plan or arrangement

 

** XBRL information is furnished and not filed or a part of a registration statement or prospectus for purposes of sections 11 or 12 of the Securities Act of 1933, as amended, is deemed not filed for purposes of section 18 of the Securities Exchange Act of 1934, as amended, and otherwise is not subject to liability under these sections.

 

 

 
46

 

 

 

 

 

 

 

 

SIGNATURES

 

 

Pursuant to the requirements of the Securities and Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned and hereunto duly authorized.

 

 

 

 

    MIDDLEFIELD BANC CORP.  
     
     

 

 

 

Date: November 5, 2013

By: 

/s/Thomas G. Caldwell

 

 

Thomas G. Caldwell

 

 

President and Chief Executive Officer

 
     
     
     
Date: November 5, 2013 By: /s/Donald L. Stacy  
  Donald L. Stacy  
  Principal Financial and Accounting Officer  

 

 

 

47