Document And Entity Information
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Document And Entity Information (USD $)
12 Months Ended
Dec. 31, 2011
Feb. 27, 2012
Jun. 30, 2011
Document And Entity Information [Abstract]      
Document Type 10-K    
Amendment Flag false    
Document Period End Date Dec. 31, 2011    
Document Fiscal Year Focus 2011    
Document Fiscal Period Focus FY    
Entity Registrant Name NEW PEOPLES BANKSHARES INC    
Entity Central Index Key 0001163389    
Current Fiscal Year End Date --12-31    
Entity Filer Category Smaller Reporting Company    
Entity Common Stock, Shares Outstanding   10,010,178  
Entity Well-known Seasoned Issuer No    
Entity Public Float     $ 44,876,692
Entity Current Reporting Status Yes    
Entity Voluntary Filers No    

Consolidated Balance Sheets
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Consolidated Balance Sheets (USD $)
In Thousands, unless otherwise specified
Dec. 31, 2011
Dec. 31, 2010
ASSETS    
Cash and due from banks $ 18,306 $ 14,369
Interest-bearing deposits with banks 72,170 42,549
Federal funds sold 77 25,611
Total Cash and Cash Equivalents 90,553 82,529
Investment Securities available-for-sale 32,434 4,658
Loans receivable 597,816 707,794
Allowance for loan losses (18,380) (25,014)
Net Loans 579,436 682,780
Bank premises and equipment, net 33,141 34,141
Equity securities (restricted) 3,573 3,878
Other real estate owned 15,092 12,346
Accrued interest receivable 3,067 3,700
Life insurance investments 11,351 11,011
Goodwill and other intangibles 123 4,346
Deferred taxes, net 7,220 8,037
Other assets 4,394 5,201
Total Assets 780,384 852,627
LIABILITIES    
Noninterest bearing 109,629 87,839
Interest-bearing 58,459 60,022
Savings deposits 94,569 108,119
Time deposits 445,658 510,100
Total Deposits 708,315 766,080
FHLB advances 17,983 24,183
Accrued interest payable 1,796 1,720
Accrued expenses and other liabilities 1,471 1,475
Line of credit borrowing   4,900
Other borrowings 5,450 250
Trust preferred securities 16,496 16,496
Total Liabilities 751,511 815,104
STOCKHOLDERS' EQUITY    
Common stock - $2.00 par value; 50,000,000 shares authorized; and 10,010,178 shares issued and outstanding for 2011 and 2010, respectively 20,020 20,020
Additional paid-in-capital 21,689 21,689
Retained earnings (deficit) (13,085) (4,175)
Accumulated other comprehensive income (loss) 249 (11)
Total Stockholders' Equity 28,873 37,523
Total Liabilities and Stockholders' Equity $ 780,384 $ 852,627

Consolidated Balance Sheets (Parenthetical)
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Consolidated Balance Sheets (Parenthetical) (USD $)
Dec. 31, 2011
Dec. 31, 2010
Consolidated Balance Sheets [Abstract]    
Common stock, par value $ 2 $ 2
Common stock, shares authorized 50,000,000 50,000,000
Common stock, shares issued 10,010,178 10,010,178
Common stock, shares outstanding 10,010,178 10,010,178

Consolidated Statements Of Operations
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Consolidated Statements Of Operations (USD $)
In Thousands, except Share data, unless otherwise specified
12 Months Ended
Dec. 31, 2011
Dec. 31, 2010
INTEREST AND DIVIDEND INCOME    
Loans including fees $ 41,176 $ 47,775
Federal funds sold 9 44
Interest-earning deposits with banks 184 12
Investments 301 111
Dividends on equity securities (restricted) 99 86
Total Interest and Dividend Income 41,769 48,028
INTEREST EXPENSE    
Demand 155 250
Savings 460 779
Time deposits below $100,000 4,768 7,000
Time deposits above $100,000 2,949 4,112
FHLB advances 644 1,057
Other borrowings 194 246
Trust Preferred Securities 436 454
Total Interest Expense 9,606 13,898
NET INTEREST INCOME 32,163 34,130
PROVISION FOR LOAN LOSSES (Note 7) 7,959 22,328
NET INTEREST INCOME AFTER PROVISION FOR LOAN LOSSES 24,204 11,802
NONINTEREST INCOME    
Service charges 2,488 2,701
Fees, commissions and other income 2,096 2,248
Insurance and investment fees 600 523
Life insurance investment income 340 462
Total Noninterest Income 5,524 5,934
NONINTEREST EXPENSES    
Salaries and employee benefits (Note 14) 15,735 15,007
Occupancy and equipment expense 4,533 4,552
Advertising and public relations 445 412
Data processing and telecommunications 1,654 1,616
FDIC Assessment 2,014 2,422
Other real estate owned and repossessed vehicles, net 5,577 2,183
Impairment of goodwill 4,122  
Other operating expenses 5,342 5,702
Total Noninterest Expenses 39,422 31,894
LOSS BEFORE INCOME TAXES (9,694) (14,158)
INCOME TAX BENEFIT (Note 11) (784) (5,093)
NET LOSS $ (8,910) $ (9,065)
Loss Per Share    
Basic $ (0.89) $ (0.91)
Fully Diluted $ (0.89) $ (0.91)
Average Weighted Shares of Common Stock    
Basic 10,010,178 10,009,468
Fully Diluted 10,010,178 10,009,468

Consolidated Statements Of Stockholders' Equity
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Consolidated Statements Of Stockholders' Equity (USD $)
In Thousands, except Share data
Common Stock [Member]
Additional Paid In Capital [Member]
Retained Earnings [Member]
Accumulated Other Comprehensive Income (Loss) [Member]
Comprehensive Income (Loss) [Member]
Total
Balance at Dec. 31, 2009 $ 20,018 $ 21,683 $ 4,890 $ 28 $ (3,705) $ 46,619
Balance, Shares at Dec. 31, 2009 10,009,000          
Net Loss     (9,065)   (9,065) (9,065)
Unrealized gain (loss) on available-for-sale securities, net of tax       (39) (39) (39)
Stock options exercised 2 6       8
Stock options exercised, shares 1,000          
Balance at Dec. 31, 2010 20,020 21,689 (4,175) (11) (9,104) 37,523
Balance, Shares at Dec. 31, 2010 10,010,000         10,010,178
Net Loss     (8,910)   (8,910) (8,910)
Unrealized gain (loss) on available-for-sale securities, net of tax       260 260 260
Balance at Dec. 31, 2011 $ 20,020 $ 21,689 $ (13,085) $ 249 $ (8,650) $ 28,873
Balance, Shares at Dec. 31, 2011 10,010,000         10,010,178

Consolidated Statements Of Stockholders' Equity (Parenthetical)
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Consolidated Statements Of Stockholders' Equity (Parenthetical) (USD $)
In Thousands, unless otherwise specified
12 Months Ended
Dec. 31, 2011
Dec. 31, 2010
Consolidated Statements Of Stockholders' Equity [Abstract]    
Available for sale securities, deferred tax $ 134 $ 20

Consolidated Statements Of Cash Flows
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Consolidated Statements Of Cash Flows (USD $)
In Thousands, unless otherwise specified
12 Months Ended
Dec. 31, 2011
Dec. 31, 2010
CASH FLOWS FROM OPERATING ACTIVITIES    
Net Loss $ (8,910) $ (9,065)
Adjustments to reconcile net loss to net cash provided by operating activities:    
Depreciation 2,562 2,678
Provision for Loan Losses 7,959 22,328
Impairment of Goodwill 4,122  
Income (less expenses) on Life Insurance (340) (462)
(Gain) loss on sale of fixed assets 126 (117)
Loss on sale of foreclosed real estate 218 202
Adjustment of carrying value of foreclosed real estate 4,023 1,427
Accretion of bond premiums/discounts 70 8
Deferred tax (benefit) expense 683 (2,616)
Amortization of core deposit intangible 101 168
Net change in:    
Interest receivable 633 591
Other assets 807 (3,790)
Accrued interest payable 76 103
Accrued expense and other liabilities (4) (707)
Net Cash Provided by Operating Activities 12,126 10,748
CASH FLOWS FROM INVESTING ACTIVITIES    
Net decrease in loans 82,453 27,826
Purchase of securities available-for-sale (31,647) (4,656)
Proceeds from sale and maturities of securities available-for-sale 4,195 2,536
Sale of Federal Home Loan Bank stock 305 118
Payments for the purchase of property and equipment (1,921) (2,825)
Proceeds from sales of property and equipment 233 1,082
Proceeds from sales of other real estate owned 5,945 3,716
Net Cash Provided by Investing Activities 59,563 27,797
CASH FLOW FROM FINANCING ACTIVITIES    
Common stock options exercised   8
Net decrease in line of credit borrowings (4,900)  
Net increase in other borrowings 5,200 250
Net change in:    
Demand deposits 20,227 16,774
Savings deposits (13,550) 17,652
Time deposits (64,442) (29,060)
Net decrease in FHLB borrowings (6,200) (1,200)
Net Cash Provided by (Used in) Financing Activities (63,665) 4,424
Net increase in cash and cash equivalents 8,024 42,969
Cash and Cash Equivalents, Beginning of Year 82,529 39,560
Cash and Cash Equivalents, End of Year 90,553 82,529
Supplemental Disclosure of Cash Paid During the Year for:    
Interest 9,682 14,001
Taxes   1,259
Supplemental Disclosure of Non Cash Transactions:    
Other real estate acquired in settlement of foreclosed loans 12,932 12,047
Loans made to finance sale of foreclosed real estate $ 1,000 $ 260

Nature Of Operations
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Nature Of Operations
12 Months Ended
Dec. 31, 2011
Nature Of Operations [Abstract]  
Nature Of Operations

NOTE 1 NATURE OF OPERATIONS

Nature of Operations – New Peoples Bankshares, Inc. ("The Company") is a bank holding company whose principal activity is the ownership and management of a community bank. New Peoples Bank, Inc. ("The Bank") was organized and incorporated under the laws of the Commonwealth of Virginia on December 9, 1997. The Bank commenced operations on October 28, 1998, after receiving regulatory approval. As a state chartered member bank, the Bank is subject to regulation by the Virginia Bureau of Financial Institutions, the Federal Deposit Insurance Corporation and the Federal Reserve Bank. The Bank provides general banking services to individuals, small and medium size businesses and the professional community of southwestern Virginia, southern West Virginia, and eastern Tennessee. On June 9, 2003, the Company formed two wholly owned subsidiaries, NPB Financial Services, Inc. and NPB Web Services, Inc. On July 7, 2004 the Company established NPB Capital Trust I for the purpose of issuing trust preferred securities. On September 27, 2006, the Company established NPB Capital Trust 2 for the purpose of issuing additional trust preferred securities. NPB Financial Services, Inc. was a subsidiary of the Company until January 1, 2009 when it became a subsidiary of the Bank.


Summary Of Significant Accounting Policies
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Summary Of Significant Accounting Policies
12 Months Ended
Dec. 31, 2011
Summary Of Significant Accounting Policies [Abstract]  
Summary Of Significant Accounting Policies

NOTE 2 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:

Consolidation Policy - The consolidated financial statements include the Company, the Bank, NPB Financial Services, Inc., and NPB Web Services, Inc. (Hereinafter, collectively referred to as "The Company.") All significant intercompany balances and transactions have been eliminated. In accordance with ASC 942, NPB Capital Trust I and 2 are not included in the consolidated financial statements.

Use of Estimates - The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. The determination of the adequacy of the allowance for loan losses is based on estimates that are particularly susceptible to significant changes in the economic environment and market conditions.

Cash and Cash Equivalents – Cash and cash equivalents as used in the cash flow statements include cash and due from banks, interest-bearing deposits with banks, and federal funds sold.

Investment Securities – Management determines the appropriate classification of securities at the time of purchase. If management has the intent and the Company has the ability at the time of purchase to hold securities until maturity, they are classified as held to maturity and carried at amortized historical cost. Securities not intended to be held to maturity are classified as available for sale and carried at fair value. Securities available for sale are intended to be used as part of the Company's asset and liability management strategy and may be sold in response to changes in interest rates, prepayment risk or other similar factors.

The amortization of premiums and accretion of discounts are recognized in interest income using the effective interest method over the period to maturity. Realized gains and losses on dispositions are based on the net proceeds and the adjusted book value of the securities sold, using the specific identification method. Realized gains (losses) on securities available-for-sale are included in noninterest income and, when applicable, are reported as a reclassification adjustment, net of tax, in other comprehensive income. Unrealized gains and losses on investment securities available for sale are based on the difference between book value and fair value of each security. These gains and losses are credited or charged to other comprehensive income, net of tax, whereas realized gains and losses flow through the statement of operations.

Loans – Loans are carried on the balance sheet at unpaid principal balance, net of any unearned interest and the allowance for loan losses. Interest income on loans is computed using the effective interest method, except where serious doubt exists as to the collectibility of the loan, in which case accrual of the income is discontinued.

It is the Company's policy to stop accruing interest on a loan, and classify that loan as non-accrual under the following circumstances: (a) whenever we are advised by the borrower that scheduled payment or interest payments cannot be met, (b) when our best judgment indicates that payment in full of principal and interest can no longer be expected, or (c) when any such loan or obligation becomes delinquent for 90 days unless it is both well secured and in the process of collection. All interest accrued but not collected for loans that are place on nonaccrual or charged off is reversed against interest income. The interest on these loans is accounted for on the cash basis or cost-recovery method, until qualifying for return to accrual. Loans are returned to accrual status when all the principal and interest amounts contractually due are brought current and prospects for future contractual payments are reasonably assured.

A loan is considered 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 determining impairment include payment status, collateral value, and the probability of collecting scheduled principal and interest payments when due. Loans that experience insignificant payment delays and payment shortfalls generally are not classified as impaired. 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. Impairment is measured on a loan by loan basis for commercial and construction loans by either the present value of expected future cash flows discounted at the loan's effective interest rate, the loan's obtainable market price, or the fair value of the collateral if the loan is collateral dependent.

Significant Group Concentrations of Credit Risk – The Company identifies a concentration as any obligation, direct or indirect, of the same or affiliated interests which represent 25% or more of the Company's capital structure, or $8.3 million as of December 31, 2011. Most of the Company's activities are with customers located within the southwest Virginia, southern West Virginia, and northeastern Tennessee region. Certain concentrations may pose credit risk. The Company does not have any significant concentrations to any one industry or customer.

Allowance for Loan Losses – The allowance for loan losses is maintained at a level that, in management's judgment, is adequate to absorb credit losses inherent in the loan portfolio. The loan portfolio is analyzed periodically and loans are assigned a risk rating. Allowances for impaired loans are generally determined based on collateral values or the present value of expected cash flows. A general allowance is made for all other loans not considered impaired as deemed appropriate by management. In determining the adequacy of the allowance, management considers the following factors: the nature of the portfolio, credit concentrations, trends in historical loss experience, specific impaired loans, the estimated value of any underlying collateral, prevailing environmental factors and economic conditions, and other inherent risks. While management uses available information to recognize losses on loans, further reductions in the carrying amounts of loans may be necessary based on changes in collateral values and changes in estimates of cash flows on impaired loans. This evaluation is inherently subjective as it requires estimates that are susceptible to significant revision as more information becomes available.

The allowance is increased by a provision for loan losses, which is charged to expense and reduced by charge-offs, net of recoveries. Loans are charged against the allowance for loan losses when management believes that collectability of all or part of the principal is unlikely. Past due status is determined based on contractual terms.

Bank Premises and Equipment – Land, buildings and equipment are recorded at cost less accumulated depreciation. Depreciation is computed using the straight-line method over the following estimated useful lives:

Type Estimated useful life
Buildings 39 years
Paving and landscaping 15 years
Computer equipment and software 3 to 5 years
Vehicles 5 years
Furniture and other equipment 5 to 7 years

 

Advertising Cost – Advertising costs are expensed in the period incurred.

Stock Options - The Company records compensation related to stock options pursuant to ASC 718 which requires the estimated fair market value of the expense to be reflected over the period the award is earned which is presumed to be the vesting period.

Income Taxes – Deferred income tax assets and liabilities are determined using the liability (or balance sheet) method. Under this method, the net deferred tax asset or liability is determined based on the tax effects of the temporary differences between the book and tax bases of the various balance sheet assets and liabilities and gives current recognition to changes in tax rates and laws. If all or a portion of the net deferred tax asset is determined to be unlikely to be realized, a valuation allowance is established to reduce the net deferred tax asset to the amount that is more likely than not to be realized.

In the event the Company has unrecognized tax expense in future accounting periods, the Company will recognize interest in interest expense and penalties in operating expenses. There were no interest or penalties related to an unrecognized tax position for the years ended December 31, 2011 and 2010. Because of the impact of deferred tax accounting, other than interest and penalties, the reversal of the Company's treatment by taxing authorities would not affect the annual effective tax rate but would defer or accelerate the payment of cash to the taxing authority. The Company's tax filings for years ended 2008 through 2011 are currently open to audit under statutes of limitations by the Internal Revenue Service ("IRS") and the Virginia Department of Taxation.

Financial Instruments – Off-balance-sheet instruments - In the ordinary course of business, the Company has entered into commitments to extend credit. Such financial instruments are recorded in the financial statements when they are funded.

Comprehensive Income – Generally accepted accounting principles require that recognized revenue, expenses, gains and losses be included in net income. Although certain changes in assets and liabilities, such as unrealized gains and losses on available-for-sale securities, are reported as a separate component of the equity section of the balance sheet, such items, along with net income, are components of comprehensive income.

Earnings Per Share – Basic earnings per share computations are based on the weighted average number of shares outstanding during each year. Dilutive earnings per share reflects the additional common shares that would have been outstanding if dilutive potential common shares had been issued. Potential common shares that may be issued relate to outstanding options and are determined by the Treasury Method.

For the years ending December 31, 2011 and 2010, potential common shares were anti-dilutive and were not included in the calculation. Basic and diluted net loss per common share calculations follows:

(Amounts in Thousands, Except For the years ended
December 31,
Share and Per Share Data)
  2011 2010
 
Net loss available to common shareholders $ (8,910 ) $ (9,065 )
Weighted average shares outstanding   10,010,178     10,009,468  
Weighted average dilutive shares outstanding   10,010,178     10,009,468  
 
Basic loss per share $ (0.89 ) $ (0.91 )
Diluted loss per share $ (0.89 ) $ (0.91 )

 

Other Real Estate Owned – Other real estate owned represents properties acquired through foreclosure or deed taken in lieu of foreclosure. At the time of acquisition, these properties are recorded at the lower of cost or fair value less estimated costs to sell. Expenses incurred in connection with operating these properties and subsequent write-downs, if any, are charged to expense. Subsequent to foreclosure, management periodically considers the adequacy of the reserve for losses on the property. Gains and losses on the sales of these properties are credited or charged to income in the year of the sale.

Business Combinations - For purchase acquisitions accounted for as a business combination, the Company is required to record the assets acquired, including identified intangible assets and liabilities assumed at their fair value, which in many instances involves estimates based on third party valuations, such as appraisals, or internal valuations based on discounted cash flow analyses or other valuation techniques. The determination of the useful lives of intangible assets is subjective, as is the appropriate amortization method for such intangible assets. In addition, purchase acquisitions may result in goodwill, which is subject to ongoing periodic impairment testing based on the fair value of net assets acquired compared to the carrying value of goodwill. Changes in acquisition multiples, the overall interest rate environment, or the continuing operations of the assets acquired could have a significant impact on the periodic impairment testing. For additional discussion concerning our valuation of intangible assets, see Note 13, "Intangible Assets."

Reclassification – Certain reclassifications have been made to the prior years' financial statements to place them on a comparable basis with the current year. Net income and stockholders' equity previously reported were not affected by these reclassifications.

Subsequent Events – The Company has evaluated subsequent events for potential recognition and/or disclosure through the date these consolidated financial statements were issued.


Formal Written Agreement
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Formal Written Agreement
12 Months Ended
Dec. 31, 2011
Formal Written Agreement [Abstract]  
Formal Written Agreement

NOTE 3 FORMAL WRITTEN AGREEMENT:

Effective July 29, 2010, the Company and the Bank entered into a written agreement with the Federal Reserve Bank of Richmond ("Reserve Bank") and the Virginia State Corporation Commission Bureau of Financial Institutions (the "Bureau") called (the "Written Agreement"). At December 31, 2011, we believe we have made good progress in our compliance efforts under the Written Agreement and all of the written plans required to date, as discussed in the following paragraphs, have been submitted on a timely basis.

Under the terms of the Written Agreement, the Bank has agreed to develop and submit for approval within specified time periods written plans to: (a) strengthen board oversight of management and the Bank's operation; (b) if appropriate after review, to strengthen the Bank's management and board governance; (c) strengthen credit risk management policies; (d) enhance lending and credit administration; (e) enhance the Bank's management of commercial real estate concentrations; (f) conduct ongoing review and grading of the Bank's loan portfolio; (g) improve the Bank's position with respect to loans, relationships, or other assets in excess of $1 million which are now or in the future become past due more than 90 days, which are on the Bank's problem loan list, or which are adversely classified in any report of examination of the Bank; (h) review and revise, as appropriate, current policy and maintain sound processes for maintaining an adequate allowance for loan and lease losses; (i) enhance management of the Bank's liquidity position and funds management practices; (j) revise its contingency funding plan; (k) revise its strategic plan; and (l) enhance the Bank's anti-money laundering and related activities.

In addition, the Bank has agreed that it will: (a) not extend, renew, or restructure any credit that has been criticized by the Reserve Bank or the Bureau absent prior board of directors approval in accordance with the restrictions in the Written Agreement; (b) eliminate all assets or portions of assets classified as "loss" and thereafter charge off all assets classified as "loss" in a federal or state report of examination, unless otherwise approved by the Reserve Bank.

Under the terms of the Written Agreement, both the Company and the Bank have agreed to submit capital plans to maintain sufficient capital at the Company, on a consolidated basis, and the Bank, on a stand-alone basis, and to refrain from declaring or paying dividends without prior regulatory approval. The Company has agreed that it will not take any other form of payment representing a reduction in the Bank's capital or make any distributions of interest, principal, or other sums on subordinated debentures or trust preferred securities without prior regulatory approval. The Company may not incur, increase or guarantee any debt without prior regulatory approval and has agreed not to purchase or redeem any shares of its stock without prior regulatory approval.

Under the terms of the Written Agreement, the Company and the Bank have appointed a committee to monitor compliance with the Written Agreement. The directors of the Company and the Bank have recognized and unanimously agree with the common goal of financial soundness represented by the Written Agreement and have confirmed the intent of the directors and executive management to diligently seek to comply with all requirements of the Written Agreement.


Deposits In And Federal Funds Sold To Banks
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Deposits In And Federal Funds Sold To Banks
12 Months Ended
Dec. 31, 2011
Deposits In And Federal Funds Sold To Banks [Abstract]  
Deposits In And Federal Funds Sold To Banks

NOTE 4 DEPOSITS IN AND FEDERAL FUNDS SOLD TO BANKS:

The Bank had federal funds sold and cash on deposit with other commercial banks amounting to $72.3 million and $68.2 million at December 31, 2011 and 2010, respectively. Deposit amounts at other commercial banks may, at times, exceed federally insured limits.


Investment Securities
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Investment Securities
12 Months Ended
Dec. 31, 2011
Investment Securities [Abstract]  
Investment Securities

NOTE 5 INVESTMENT SECURITIES:

The amortized cost and estimated fair value of securities (all available-for-sale) are as follows:

                 
        Gross   Gross   Approximate
    Amortized   Unrealized   Unrealized   Fair
(Dollars are in thousands)   Cost   Gains   Losses   Value
December 31, 2011                
U.S. Government Agencies $ 21,405 $ 238 $ 10 $ 21,633
Taxable municipals   1,465   89   2   1,552
Tax-exempt municipals   1,043   11   -   1,054
Mortgage backed securities   8,144   67   16   8,195
Total Securities AFS $ 32,057 $ 405 $ 28 $ 32,434
 
December 31, 2010                
U.S. Government Agencies $ 3,001 $ - $ 31 $ 2,970
Taxable municipals   894   5   -   899
Mortgage backed securities   781   8   -   789
Total Securities AFS $ 4,676 $ 13 $ 31 $ 4,658

 

The following table details unrealized losses and related fair values in the available-for-sale portfolio. This information is aggregated by the length of time that individual securities have been in a continuous unrealized loss position as of December 31, 2011 and December 31, 2010.

                         
    Less than 12 Months   12 Months or More   Total
    Fair   Unrealized   Fair   Unrealized   Fair   Unrealized
(Dollars are in thousands)   Value   Losses   Value   Losses   Value   Losses
December 31, 2011                        
U.S. Government Agencies $ 5,592 $ 10 $ - $ - $ 5,592 $ 10
Taxable municipals   572   2   -   -   572   2
Mtg. backed securities   4,055   16   -   -   4,055   16
Total Securities AFS $ 10,219 $ 28 $ - $ - $ 10,219 $ 28
 
December 31, 2010                        
U.S. Government Agencies $ 2,970 $ 31 $ - $ - $ 2,970 $ 31

 

At December 31, 2011, the available-for-sale portfolio included eleven investments for which the fair market value was less than amortized cost. At December 31, 2010, the available-for-sale portfolio included four investments for which the fair market value was less than amortized cost. Management evaluates securities for other than temporary impairment at least on a quarterly basis, and more frequently when economic or market concerns warrant such evaluation. Consideration is given to (1) the length of time and the extent to which the fair value has been less than cost, (2) the financial conditions and near-term prospects of the issuer, and (3) the intent and ability of the Company to retain its investment in the issuer for a period of time sufficient to allow for any anticipated recovery in fair value. No securities had an other than temporary impairment.

The amortized cost and fair value of investment securities at December 31, 2011, by contractual maturity, are shown in the following schedule. 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.

               
            Weighted  
(Dollars are in thousands)   Amortized   Fair   Average  
Securities Available for Sale   Cost   Value   Yield  
Due in one year or less $ - $ -   -%  
Due after one year through five years   171   176   2.59 %
Due after five years through fifteen years   8,377   8,615   3.11 %
Due after fifteen years   23,509   23,643   2.59 %
Total $ 32,057 $ 32,434   2.72 %

 

 

Investment securities with a carrying value of $15.7 million and $892 thousand at December 31, 2011 and 2010, were pledged to secure public deposits, overnight payment processing and for other purposes required by law.

The Bank, as a member of the Federal Reserve Bank and the Federal Home Loan Bank, is required to hold stock in each. These equity securities are restricted from trading and are recorded at a cost of $3.6 million and $3.9 million as of December 31, 2011 and 2010, respectively.


Loans
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Loans
12 Months Ended
Dec. 31, 2011
Loans [Abstract]  
Loans

NOTE 6 LOANS:

Loans receivable outstanding at December 31, are summarized as follows:

         
(Dollars are in thousands)   2011   2010
Real estate secured:        
Commercial $ 170,789 $ 198,259
Construction and land development   32,389   52,307
Residential 1-4 family   255,998   274,396
Multifamily   14,320   16,659
Farmland   40,106   49,323
Total real estate loans   513,602   590,944
Commercial   39,327   50,358
Agriculture   6,147   9,488
Consumer installment loans   38,522   56,755
All other loans   218   249
Total loans $ 597,816 $ 707,794

 

Loans receivable on nonaccrual status at December 31, are summarized as follows:

         
(Dollars are in thousands)   2011   2010
Real estate secured:        
Commercial $ 19,169 $ 19,655
Construction and land development   5,583   15,460
Residential 1-4 family   4,829   3,165
Multifamily   2,101   166
Farmland   5,257   1,909
Total real estate loans   36,939   40,355
Commercial   4,522   4,061
Agriculture   854   1,352
Consumer installment loans   1   13
All other loans   -   -
Total loans receivable on nonaccrual status $ 42,316 $ 45,781

 

Total interest income not recognized on nonaccrual loans for 2011 and 2010 was $1.3 million and $1.2 million, respectively. Total interest income recognized on nonaccrual loans for 2011 and 2010 was $1.1 million and $1.0 million, respectively.

 

The following table presents information concerning the Company's investment in loans considered impaired as of December 31, 2011 and December 31, 2010:

                       
    Average   Interest         Unpaid    
As of December 31, 2011   Recorded   Income   Recorded     Principal   Related
(Dollars are in thousands)   Investment   Recognized   Investment     Balance   Allowance
With no related allowance recorded:                      
Real estate secured:                      
Commercial $ 32,370 $ 1,356 $ 31,633   $ 33,175 $ -
Construction and land                      
development   14,288   125   6,954     12,838   -
Residential 1-4 family   6,406   315   8,221     8,296   -
Multifamily   619   31   613     613   -
Farmland   13,005   435   10,364     10,554   -
Commercial   2,958   60   3,529     4,070   -
Agriculture   396   1   521     817   -
Consumer installment loans   4   1   9     9   -
All other loans   -   -   -     -   -
With an allowance recorded:                      
Real estate secured:                      
Commercial   9,887   691   14,482     14,973   2,794
Construction and land                      
development   2,917   87   2,289     2,310   474
Residential 1-4 family   5,111   277   6,473     6,764   1,052
Multifamily   -   -   -     -   -
Farmland   2,354   119   4,192     4,192   605
Commercial   1,982   75   1,857     1,857   649
Agriculture   758   28   641     641   448
Consumer installment loans   41   3   43     43   24
All other loans   -   -   -     -   -
Total $ 93,096 $ 3,604 $ 91,821   $ 101,152 $ 6,046
 
                  Unpaid    
As of December 31, 2010           Recorded     Principal   Related
(Dollars are in thousands)           Investment     Balance   Allowance
With no related allowance recorded:                      
Real estate secured:                      
Commercial         $ 23,791     24,645   -
Construction and land development           8,585     12,594   -
Residential 1-4 family           3,347     3,352   -
Multifamily           -     -   -
Farmland           7,615     7,615   -
Commercial           1,646     2,167   -
Agriculture           3     3   -
Consumer installment loans           -     -   -
All other loans           -     -   -
With an allowance recorded:                      
Real estate secured:                      
Commercial           13,837     14,006   3,847
Construction and land development           14,913     16,253   3,926
Residential 1-4 family           4,626     4,626   953
Multifamily           510     510   42
Farmland           6,993     6,993   627
Commercial           3,254     3,254   2,295
Agriculture           1,482     1,482   1,120
Consumer installment loans           46     46   23
All other loans           -     -   -
Total         $ 90,648 $   97,546 $ 12,833

 

The average recorded investment in impaired loans was $63.4 million for the year ended December 31, 2010.

Interest income recognized on impaired loans for December 31, 2010 was $4.0 million.

 


An age analysis of past due loans receivable was as follows:

                             
                            Accruing
            Loans               Loans
    Loans   Loans   90 or               90 or
    30-59   60-89   More   Total           More
    Days   Days   Days   Past           Days
As of December 31, 2011   Past   Past   Past   Due   Current   Total   Past
(Dollars are in thousands)   Due   Due   Due   Loans   Loans   Loans   Due
Real estate secured:                            
Commercial $ 9,754 $ 2,294 $ 7,771 $ 19,819 $ 150,970 $ 170,789 $ -
Construction and land                            
development   595   238   5,280   6,113   26,276   32,389   -
Residential 1-4 family   9,471   1,412   4,101   14,984   241,014   255,998   1,129
Multifamily   -   1,777   218   1,995   12,325   14,320   -
Farmland   2,841   624   3,800   7,265   32,841   40,106   -
Total real estate loans   22,661   6,345   21,170   50,176   463,426   513,602   1,129
Commercial   551   34   2,938   3,523   35,804   39,327   117
Agriculture   268   88   458   814   5,333   6,147   3
Consumer installment                            
Loans   822   133   221   1,176   37,346   38,522   222
All other loans   26   9   33   68   150   218   33
Total loans $ 24,328 $ 6,609 $ 24,820 $ 55,757 $ 542,059 $ 597,816 $ 1,504
 
                            Accruing
            Loans               Loans
    Loans   Loans   90 or               90 or
    30-59   60-89   More   Total           More
    Days   Days   Days   Past           Days
As of December 31, 2010   Past   Past   Past   Due   Current   Total   Past
(Dollars are in thousands)   Due   Due   Due   Loans   Loans   Loans   Due
Real estate secured:                            
Commercial $ 6,331 $ 1,878 $ 9,673 $ 17,882 $ 180,377 $ 198,259 $ 6
Construction and land                            
development   556   1,523   8,150   10,229   42,078   52,307   -
Residential 1-4 family   9,445   4,374   2,554   16,373   258,023   274,396   1,326
Multifamily   61   162   -   223   16,436   16,659   -
Farmland   2,512   244   810   3,566   45,757   49,323   -
Total real estate loans   18,905   8,181   21,187   48,273   542,671   590,994   1,332
Commercial   1,851   1,015   1,880   4,746   45,612   50,358   90
Agriculture   244   327   127   698   8,790   9,488   73
Consumer installment                            
Loans   1,394   572   207   2,173   54,582   56,755   195
All other loans   32   15   3   50   199   249   3
Total loans $ 22,426 $ 10,110 $ 23,404 $ 55,940 $ 651,854 $ 707,794 $ 1,693

 

 

The Company categorizes loans receivable into risk categories based on relevant information about the ability of borrowers to service their debt such as: current financial information, historical payment experience, credit documentation, public information, and current economic trends, among other factors. The Company analyzes loans and leases individually by classifying the loans receivable as to credit risk. The Company uses the following definitions for risk ratings:

Pass - Loans in this category are considered to have a low likelihood of loss based on relevant information analyzed about the ability of the borrowers to service their debt and other factors.

Special Mention - Loans in this category are currently protected but are potentially weak, including adverse trends in borrower's operations, credit quality or financial strength. Those loans constitute an undue and unwarranted credit risk but not to the point of justifying a substandard classification. The credit risk may be relatively minor yet constitute an unwarranted risk in light of the circumstances. Special mention loans have potential weaknesses which may, if not checked or corrected, weaken the loan or inadequately protect the Company's credit position at some future date.

Substandard - A substandard loan is inadequately protected by the current sound net worth and paying capacity of the obligor or of the collateral pledged, if any. Loans classified as substandard must have a well-defined weakness or weaknesses that jeopardize the liquidation of the debt; they are characterized by the distinct possibility that the institution will sustain some loss if the deficiencies are not corrected.

Doubtful - Loans classified Doubtful have all the weaknesses inherent in loans classified Substandard, plus the added characteristic that the weaknesses make collection or liquidation in full on the basis of currently existing facts, conditions, and values highly questionable and improbable.

Based on the most recent analysis performed, the risk category of loans receivable was as follows:

                     
As of December 31, 2011       Special            
(Dollars are in thousands)   Pass   Mention   Substandard   Doubtful   Total
Real estate secured:                    
Commercial $ 112,694 $ 18,377 $ 39,573 $ 145 $ 170,789
Construction and land development   23,203   1,224   7,962   -   32,389
Residential 1-4 family   209,863   17,137   27,730   1,268   255,998
Multifamily   11,727   1,909   684   -   14,320
Farmland   21,715   4,957   13,022   412   40,106
Total real estate loans   379,202   43,604   88,971   1,825   513,602
Commercial   32,018   2,045   4,227   1,037   39,327
Agriculture   4,743   678   726   -   6,147
Consumer installment loans   36,107   900   1,484   31   38,522
All other loans   218   -   -   -   218
Total $

452,288

$ 47,227 $ 95,408 $

2,893

$ 597,816
 
As of December 31, 2010       Special            
(Dollars are in thousands)   Pass   Mention   Substandard   Doubtful   Total
Real estate secured:                    
Commercial $ 147,549 $ 14,550 $ 33,808 $ 2,352 $ 198,259
Construction and land development   28,802   4,095   19,410   -   52,307
Residential 1-4 family   254,884   5,204   13,014   1,294   274,396
Multifamily   15,733   359   567   -   16,659
Farmland   30,748   4,308   14,062   205   49,323
Total real estate loans   477,716   28,516   80,861   3,851   590,944
Commercial   44,261   1,092   4,325   680   50,358
Agriculture   8,091   161   232   1,004   9,488
Consumer installment loans   56,170   122   434   29   56,755
All other loans   249   -   -   -   249
Total $ 586,487 $ 29,891 $ 85,852 $ 5,564 $ 707,794

Allowance For Loan Losses
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Allowance For Loan Losses
12 Months Ended
Dec. 31, 2011
Allowance For Loan Losses [Abstract]  
Allowance For Loan Losses

NOTE 7 ALLOWANCE FOR LOAN LOSSES:

A summary of transactions in the allowance for loan losses is as follows:

             
(Dollar are in thousands)   2011     2010  
Balance, beginning of year $ 25,014   $ 18,588  
Provision for loan losses   7,959     22,328  
Advances made on loans with off balance sheet provision   153     -  
Recoveries of loans charged off   2,661     606  
Loans charged off   (17,407 )   (16,508 )
Balance, End of period $ 18,380   $ 25,014  
Percentage of Loans   3.07 %   3.53 %

 

The following table details activity in the allowance for loan losses by portfolio segment for the period ended December 31, 2011. Allocation of a portion of the allowance to one category of loans does not preclude its availability to absorb losses in other categories.

                             
As of December 31, 2011   Beginning   Charge                   Ending
(Dollars are in thousands)   Balance   Offs     Recoveries   Advances   Provisions     Balance
Real estate secured:                            
Commercial $ 5,141 $ (4,147 ) $ 877 $ - $ 3,800   $ 5,671
Construction and land development   4,913   (7,245 )   1,296   153   4,731     3,848
Residential 1-4 family   1,699   (1,299 )   141   -   3,218     3,759
Multifamily   42   -     -   -   106     148
Farmland   922   (511 )   66   -   474     951
Total real estate loans   12,717   (13,202 )   2,380   153   12,329     14,377
Commercial   3,281   (2,480 )   140   -   942     1,883
Agriculture   1,120   (1,031 )   18   -   379     486
Consumer installment loans   1,733   (694 )   123   -   (381 )   781
All other loans   -   -     -   -   2     2
Unallocated   6,163   -     -   -   (5,312 )   851
Total $ 25,014 $ (17,407 ) $ 2,661 $ 153 $ 7,959   $ 18,380

 

                         
  Allowance for Loan Losses   Recorded Investment in Loans
  Individually   Collectively       Individually   Collectively    
  Evaluated   Evaluated       Evaluated   Evaluated    
As of December 31, 2011 for   for   Total   for   for   Total
(Dollars are in thousands) Impairment   Impairment       Impairment   Impairment    
Real estate secured:                        
Commercial $ 2,794 $ 2,877 $ 5,671 $ 46,115 $ 124,674 $ 170,789
Construction and land                        
development   474   3,374   3,848   9,243   23,146   32,389
Residential 1-4 family   1,052   2,707   3,759   14,694   241,304   255,998
Multifamily   -   148   148   613   13,707   14,320
Farmland   605   346   951   14,556   25,550   40,106
Total real estate loans   4,925   9,452   14,377   85,221   428,381   513,602
Commercial   649   1,234   1,883   5,386   33,941   39,327
Agriculture   448   38   486   1,162   4,985   6,147
Consumer installment loans   24   757   781   52   38,470   38,522
All other loans   -   2   2   -   218   218
Unallocated   -   851   851   -   -   -
Total $ 6,046 $ 12,334 $ 18,380 $ 91,821 $ 505,995 $

597,816

 

 

The following table details activity in the allowance for loan losses by portfolio segment for the period ended December 31, 2010. Allocation of a portion of the allowance to one category of loans does not preclude its availability to absorb losses in other categories.

                           
As of December 31, 2010   Beginning   Charge                 Ending
(Dollars are in thousands)   Balance   Offs     Recoveries   Advances   Provisions   Balance
Real estate secured:                          
Commercial $ 2,153 $ (2,083 ) $ 5 $ - $ 5,066 $ 5,141
Construction and land development   8,036   (10,002 )   -   -   6,879   4,913
Residential 1-4 family   1,372   (1,719 )   1   -   2,045   1,699
Multifamily   -   (65 )   -   -   107   42
Farmland   344   (55 )   -   -   633   922
Total real estate loans   11,905   (13,924 )   6   -   14,730   12,717
Commercial   1,366   (1,370 )   509   -   2,776   3,281
Agriculture   -   (486 )   21   -   1,585   1,120
Consumer installment loans   1,501   (728 )   70   -   890   1,733
All other loans   -   -     -   -   -   -
Unallocated   3,816   -     -   -   2,347   6,163
Total $ 18,588 $ (16,508 ) $ 606 $ - $ 22,328 $ 25,014

 

                         
  Allowance for Loan Losses   Recorded Investment in Loans
    Individually   Collectively       Individually   Collectively    
    Evaluated   Evaluated       Evaluated   Evaluated    
As of December 31, 2010   for   for   Total   for   for   Total
(Dollars are in thousands)   Impairment   Impairment       Impairment   Impairment    
Real estate secured:                        
Commercial $ 3,847 $ 1,294 $ 5,141 $ 37,628 $ 160,631 $ 198,259
Construction and land                        
development   3,926   987   4,913   23,498   28,809   52,307
Residential 1-4 family   953   746   1,699   7,973   266,423   274,396
Multifamily   42   -   42   510   16,149   16,659
Farmland   627   295   922   14,608   34,715   49,323
Total real estate loans   9,395   3,322   12,717   84,217   506,727   590,944
Commercial   2,295   986   3,281   4,900   45,458   50,358
Agriculture   1,120   -   1,120   1,485   8,003   9,488
Consumer installment loans   23   1,710   1,733   46   56,709   56,755
All other loans   -   -   -   -   249   249
Unallocated   -   6,163   6,163   -   -   -
Total $ 12,833 $ 12,181 $ 25,014 $ 90,648 $ 617,146 $ 707,794

 

In determining the amount of our allowance, we rely on an analysis of our loan portfolio, our experience and our evaluation of general economic conditions, as well as the requirements of the written agreement and other regulatory input. If our assumptions prove to be incorrect, our current allowance may not be sufficient to cover future loan losses and we may experience significant increases to our provision.


Troubled Debt Restructurings
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Troubled Debt Restructurings
12 Months Ended
Dec. 31, 2011
Troubled Debt Restructurings [Abstract]  
Troubled Debt Restructurings

NOTE 8 TROUBLED DEBT RESTRUCTURINGS:

As a result of adopting the amendments in ASU 2011-02, the Company reassessed all restructurings that occurred on or after the beginning of the fiscal year of adoption (January 1, 2011) to determine whether they are considered troubled debt restructurings (TDRs) under the amended guidance. The determination is based on whether the restructuring constitutes a concession and whether the debtor is experiencing financial difficulties as both events must be present. The following table presents information related to loans modified as troubled debt restructurings during the year ended December 31, 2011.

           
  For the year ended
December 31, 2011
 
      Pre-Mod.   Post-Mod.
Troubled Debt Restructurings # of   Recorded   Recorded
(Dollars are in thousands) Loans   Investment   Investment
Real estate secured:          
Commercial 14 $ 14,651 $ 14,321
Construction and land development 2   179   176
Residential 1-4 family 14   2,914   2,893
Multifamily 2   454   452
Farmland -   -   -
Total real estate loans 32   18,198   17,842
Commercial 6   1,111   1,081
Agriculture 2   390   390
Consumer installment loans 9   168   155
All other loans -   -   -
Total 49 $ 19,867 $ 19,468

 

During the year ended 2011, the Company modified 49 loans that were considered to be troubled debt restructurings. We extended the terms for 26 of these loans and the interest rate was lowered for 24 of these loans.

       
Troubled Debt Restructurings For the year ended
That Subsequently Defaulted December 31, 2011
During the Period # of   Recorded
(Dollars are in thousands) Loans   Investment
Real estate secured:      
Commercial 3 $ 1,691
Construction and land development -   -
Residential 1-4 family 1   113
Multifamily -   -
Farmland -   -
Total real estate loans 4   1,804
Commercial -   -
Agriculture -   -
Consumer installment loans -   -
All other loans -   -
Total 4 $ 1,804

 

In determination of the allowance for loan losses, management considers troubled debt restructurings and subsequent defaults in these restructurings in its estimate. If the loan is over $100 thousand, the Company evaluates the loan for possible further impairment. As a result the allowance may be increased, adjustments may be made in the allocation of the allowance, or charge-offs may be taken to futher writedown the carrying value of the loan.

At December 31, 2011 there were $29.1 million in loans that are classified as troubled debt restructurings compared to $13.9 million at December 31, 2010.


Bank Premises And Equipment
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Bank Premises And Equipment
12 Months Ended
Dec. 31, 2011
Bank Premises And Equipment [Abstract]  
Bank Premises And Equipment

NOTE 9 BANK PREMISES AND EQUIPMENT:

Bank premises and equipment at December 31, are summarized as follows:

             
(Dollars are in thousands)   2011     2010  
Land $ 10,421   $ 10,569  
Buildings and improvements   24,043     21,619  
Furniture and equipment   13,874     13,153  
Vehicles   504     707  
Construction in progress   232     2,176  
    49,074     48,224  
Less accumulated depreciation   (15,933 )   (14,083 )
Bank Premises and Equipment $ 33,141   $ 34,141  

 

Depreciation expense for 2011 and 2010 was $2.6 million and $2.7 million, respectively.

At December 31, 2010, construction in progress included the costs of buildings for a new branch in Princeton, West Virginia. The Princeton location is anticipated to operate as a full service branch location at a future date and was placed in service in 2011 as an administrative office. Also included in construction in progress at December 31, 2010 are the costs of the building and equipment purchased for a new branch in Grundy, Virginia, which replaced the existing Grundy, Virginia location due to the condemnation of the property by the Virginia Department of Transportation. The new branch in Grundy, Virginia was completed and put into service on January 31, 2011.


Other Time Deposits
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Other Time Deposits
12 Months Ended
Dec. 31, 2011
Other Time Deposits [Abstract]  
Other Time Deposits

NOTE 10 OTHER TIME DEPOSITS:

The aggregate amount of time deposits with a minimum denomination of $100,000 was $167.2 million and $175.3 million at December 31, 2011 and 2010, respectively. We have brokered deposits totaling $2.7 million at December 31, 2011 and 2010, respectively. At December 31, 2011, the scheduled maturities of certificates of deposit are as follows (dollars are in thousands):

     
2012 $ 319,335
2013   39,133
2014   14,044
2015   41,223
2016   29,211
After five years   2,712
Total $ 445,658

Income Tax Expense (Benefit)
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Income Tax Expense (Benefit)
12 Months Ended
Dec. 31, 2011
Income Tax Expense (Benefit) [Abstract]  
Income Tax Expense (Benefit)

NOTE 11 INCOME TAX EXPENSE (BENEFIT):

The components of income tax expense for the years ended December 31, are as follows:

             
(Dollars are in thousands)   2011     2010  
 
Current expense (benefit) $ (1,467 ) $ (2,389 )
Deferred benefits   683     (2,704 )
Net income benefits $ (784 ) $ (5,093 )

 

The deferred tax expense (benefit) resulting from temporary differences for the years ended December 31 is as follows:

             
(Dollar are in thousands)   2011     2010  
Organization and start-up cost $ -   $ -  
Provision for loan losses   2,255     (2,287 )
Provision for loan commitments   164     (164 )
Depreciation   294     144  
Deferred compensation expense   17     126  
Accrued employee benefits   (10 )   155  
Nonaccrual loan interest   492     (415 )
Other real estate owned   (1,038 )   (485 )
Net operating loss carryforward   (2,621 )   -  
Goodwill   (1,308 )   -  
Valuation allowance   2,723     -  
Other tax adjustment   (285 )   222  
Deferred Income Tax Expense (Benefit) $ 683   $ (2,704 )

 

The net deferred tax assets and liabilities resulting from temporary differences as of December 31 are summarized as follows:

           
(Dollars are in thousands   2011     2010
Deferred Tax Assets          
Allowance for loan losses $ 6,249   $ 8,504
Provision for loan commitments   -     164
Deferred compensation   120     137
Accrued employee benefits   86     76
Nonaccrual loan interest   95     587
Other real estate owned   1,523     485
Amortization of core deposits   151     135
Amortization of goodwill   981     -
Capitalized interest and repair expense   48     13
Net operating loss carryforward   2,621     -
AMT carryforward   252     -
Unrealized loss on securities available for sale   -     6
Total Assets, gross   12,126     10,107
Valuation allowance   (2,723 )   -
Total Assets, net   9,403     10,107
 
Deferred Tax Liabilities          
Accelerated depreciation   1,798     1,504
Amortization of goodwill   -     327
Prepaid expenses   202     185
Deferred loan costs   55     54
Unrealized gain on securities available for sale   128     -
Total Liabilities, gross   2,183     2,070
Net Deferred Tax Asset $ 7,220   $ 8,037

 

 

The following table summarizes the differences between the actual income tax expense and the amounts computed using the federal statutory tax rate of 34%:

             
(Dollars are in thousands)   2011     2010  
 
Income tax expense at the applicable federal rate $ (3,296 ) $ (4,814 )
Permanent differences resulting from:            
Nondeductible expenses   8     8  
Tax exempt interest income   (64 )   (59 )
State income taxes less federal tax effect   84     48  
Bank owned life insurance   (116 )   (157 )
Deferred tax valuation allowance change, net   2,723     -  
Other adjustments   (123 )   (119 )
Income Tax Expense (benefit) $ (784 ) $ (5,093 )

 

Management reviewed the December 31, 2011 deferred tax calculation to determine the need for a valuation allowance. A valuation allowance is provided when it is more likely than not that some portion of the deferred tax asset will not be realized. In management's opinion, based on a three year taxable income projection, tax strategies which would result in potential securities gains and the effects of off-setting deferred tax liabilities, it is more likely than not that all the deferred tax assets, net of the $2.7 million allowance, would be realizable. Included in deferred tax assets are the tax benefits derived from net operating loss carryforwards totaling $2.6 million. Management expects to utilize all of these carryforwards prior to expiration.