v2.4.0.6
Document and Entity Information (USD $)
12 Months Ended
Dec. 31, 2011
May 25, 2012
Feb. 27, 2012
Entity Information [Line Items]      
Entity Registrant Name CITY NATIONAL BANCSHARES CORP    
Entity Central Index Key 0000714980    
Current Fiscal Year End Date --12-31    
Entity Filer Category Non-accelerated Filer    
Document Type 10-K    
Document Period End Date Dec. 31, 2011    
Document Fiscal Year Focus 2011    
Document Fiscal Period Focus FY    
Amendment Flag false    
Entity Common Stock, Shares Outstanding   131,326  
Entity Well-known Seasoned Issuer No    
Entity Voluntary Filers No    
Entity Current Reporting Status Yes    
Entity Public Float     $ 407,000
v2.4.0.6
Consolidated Balance Sheets (USD $)
In Thousands, unless otherwise specified
Dec. 31, 2011
Dec. 31, 2010
Assets    
Cash and due from banks $ 5,960 $ 7,228
Federal funds sold 32,600 13,550
Interest bearing deposits with banks 1,940 3,289
Investment securities available for sale 95,058 105,420
Loans 208,715 244,955
Less: Allowance for loan losses 10,870 10,626
Net loans 197,845 234,329
Premises and equipment 2,686 2,974
Accrued interest receivable 1,561 1,933
Bank-owned life insurance 5,920 5,730
Other real estate owned 1,524 1,997
Other assets 13,348 10,817
Total assets 358,442 387,267
Deposits:    
Demand 37,379 35,132
Savings 114,675 130,663
Time 147,217 172,756
Total deposits 299,271 338,551
Accrued expenses and other liabilities 20,200 6,620
Short-term portion of long-term debt 5,000 5,000
Long-term debt 14,200 14,200
Total liabilities 338,671 364,371
Commitments and contingencies      
Stockholders’ equity    
Common stock 1,345 1,345
Surplus 601 1,115
Retained earnings (3,163) 514
Accumulated other comprehensive income (loss) 423 (127)
Treasury stock, at cost — 3,204 and 3,240 common shares in 2011 and 2010, respectively (226) (228)
Total stockholders’ equity 19,771 22,896
Total liabilities and stockholders’ equity 358,442 387,267
Series A Preferred Stock [Member]
   
Stockholders’ equity    
Preferred stock 200 200
Series C Preferred Stock [Member]
   
Stockholders’ equity    
Preferred stock 27 27
Series D Preferred Stock [Member]
   
Stockholders’ equity    
Preferred stock 820 820
Series E Preferred Stock [Member]
   
Stockholders’ equity    
Preferred stock 2,450 2,450
Series F Preferred Stock [Member]
   
Stockholders’ equity    
Preferred stock 6,790 6,790
Series G Preferred Stock [Member]
   
Stockholders’ equity    
Preferred stock $ 10,504 $ 9,990
v2.4.0.6
Consolidated Balance Sheets (Parentheticals) (USD $)
Dec. 31, 2011
Dec. 31, 2010
Preferred Stock [Member]
   
Stockholders' equity:    
Preferred stock, par or stated value per share $ 0 $ 0
Preferred stock, shares authorized 100,000 100,000
Series A Preferred Stock [Member]
   
Stockholders' equity:    
Preferred stock, shares issued 8 8
Preferred stock, shares outstanding 8 8
Series C Preferred Stock [Member]
   
Stockholders' equity:    
Preferred stock, shares issued 108 108
Preferred stock, shares outstanding 108 108
Series D Preferred Stock [Member]
   
Stockholders' equity:    
Preferred stock, shares issued 3,280 3,280
Preferred stock, shares outstanding 3,280 3,280
Series E Preferred Stock [Member]
   
Stockholders' equity:    
Preferred stock, par or stated value per share $ 0 $ 0
Preferred stock, shares authorized 200 200
Preferred stock, shares issued 49 49
Preferred stock, shares outstanding 49 49
Series F Preferred Stock [Member]
   
Stockholders' equity:    
Preferred stock, par or stated value per share $ 0 $ 0
Preferred stock, shares authorized 7,000 7,000
Preferred stock, shares issued 7,000 7,000
Preferred stock, shares outstanding 7,000 7,000
Series G Preferred Stock [Member]
   
Stockholders' equity:    
Preferred stock, par or stated value per share $ 0 $ 0
Preferred stock, shares authorized 9,439 9,439
Preferred stock, shares issued 9,439 9,439
Preferred stock, shares outstanding 9,439 9,439
Common Stock [Member]
   
Stockholders' equity:    
Common stock, par value $ 10.00 $ 10.00
Common stock, shares authorized 400,000 400,000
Common stock, shares issued 134,530 134,530
Common stock, shares outstanding 131,326 131,290
Treasury Stock [Member]
   
Stockholders' equity:    
Treasury stock, shares 3,204 3,240
v2.4.0.6
Consolidated Statements of Operations (USD $)
In Thousands, except Share data, unless otherwise specified
12 Months Ended
Dec. 31, 2011
Dec. 31, 2010
Dec. 31, 2009
Interest income      
Interest and fees on loans $ 11,294 $ 14,148 $ 16,146
Interest on Federal funds sold 25 42 54
Interest on deposits with banks 236 29 50
Interest and dividends on investment securities:      
Taxable 3,623 5,269 6,668
Tax-exempt 246 746 1,256
Total interest income 15,424 20,234 24,174
Interest expense      
Interest on deposits 4,155 5,715 7,670
Interest on short-term borrowings 0 1 3
Interest on long-term debt 809 1,691 1,822
Total interest expense 4,964 7,407 9,495
Net interest income 10,460 12,827 14,679
Provision for loan losses 3,014 9,487 8,105
Net interest income after provision for loan losses 7,446 3,340 6,574
Other operating income      
Service charges on deposit accounts 1,158 1,319 1,476
ATM fees 291 360 482
Award income 600 1,100 71
Earnings from cash surrender value of bank-owned life insurance 257 257 252
Undistributed income from unconsolidated subsidiaries 308 130 201
Other income 417 371 630
Net gains on securities transactions (Notes 4 and 5) 989 2,080 12
Other than temporary impairment losses on securities 0 0 (19)
Portion of loss recognized in other comprehensive income, before tax 0 0 (2,314)
Net impairment losses on securities recognized in earnings 0 0 (2,333)
Total other operating income 4,020 5,617 791
Salaries and other employee benefits 6,079 5,822 5,800
Occupancy expense 1,219 1,641 1,326
Equipment expense 500 557 648
Data processing expense 393 352 361
Professional fees 798 837 432
Marketing expense 418 325 361
FDIC insurance expense 1,266 1,280 1,240
Management consulting fees 1,749 1,369 683
Amortization of core deposit intangible 0 566 194
Federal Home Loan Bank advance prepayment penalty 0 694 0
Foreclosure expense 298 97 139
OREO expense 780 146 558
Other expenses 1,570 2,368 1,639
Total other operating expenses 15,070 16,054 13,381
Loss before income tax expense (3,604) (7,097) (6,016)
Income tax expense 73 360 1,806
Net loss $ (3,677) $ (7,457) $ (7,822)
Net loss per common share      
Basic $ (32.60) $ (60.54) $ (68.36)
Diluted $ (32.60) $ (60.54) $ (68.36)
Basic average common shares outstanding 131,320 131,290 131,300
Diluted average common shares outstanding 131,320 131,290 131,300
Cash dividends declared per common share $ 0 $ 0.00 $ 2.00
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Consolidated Statements of Changes in Stockholders' Equity (USD $)
In Thousands, unless otherwise specified
Total
Common Stock [Member]
Additional Paid-in Capital [Member]
Preferred Stock [Member]
Retained Earnings (Accumulated Deficit) [Member]
Accumulated Other Comprehensive (Loss) Income [Member]
Treasury Stock [Member]
Balance, beginning of year at Dec. 31, 2008 $ 28,092 $ 1,345 $ 1,115 $ 10,287 $ 16,694 $ (1,124) $ (225)
Increase (Decrease) in Stockholders' Equity [Roll Forward]              
Net loss (7,822)       (7,822)    
Other comprehensive loss              
Unrealized holding gains (losses) on securities arising during period, net of tax 4,997         (4,997)  
Reclassification adjustment for gains (losses) included in net income, net of tax (2,333)         (2,333)  
Total other comprehensive loss (5,158)            
Transition adjustment for adoption of FASB ASC 320-10-65-1         1,007 (1,007)  
Proceeds from issuance of preferred stock 9,439     9,439      
Purchase of treasury stock (3)           (3)
Dividends paid on common stock (1,094)       (1,094)    
Dividend paid on preferred stock (263)       (263)    
Dividends accrued on preferred stock       60 (60)    
Balance, end of year at Dec. 31, 2009 31,013 1,345 1,115 19,786 8,462 533 (228)
Increase (Decrease) in Stockholders' Equity [Roll Forward]              
Net loss (7,457)       (7,457)    
Other comprehensive loss              
Unrealized holding gains (losses) on securities arising during period, net of tax (177)         177  
Transfer of held to maturity securities to available for sale at market value, net of tax 890         890  
Reclassification adjustment for gains (losses) included in net income, net of tax (1,373)         (1,373)  
Total other comprehensive loss (8,117)            
Dividends accrued on preferred stock       491 (491)    
Balance, end of year at Dec. 31, 2010 22,896 1,345 1,115 20,277 514 (127) (228)
Increase (Decrease) in Stockholders' Equity [Roll Forward]              
Net loss (3,677)       (3,677)    
Other comprehensive loss              
Unrealized holding gains (losses) on securities arising during period, net of tax 1,203         (1,203)  
Reclassification adjustment for gains (losses) included in net income, net of tax (653)         (653)  
Total other comprehensive loss (3,127)            
Dividends accrued on preferred stock       514 0    
Issuance of treasury stock 2           2
Balance, end of year at Dec. 31, 2011 $ 19,771 $ 1,345 $ 601 $ 20,791 $ (3,163) $ 423 $ (226)
v2.4.0.6
Consolidated Statements of Changes in Stockholders' Equity (Parentheticals) (USD $)
12 Months Ended
Dec. 31, 2011
Dec. 31, 2010
Dec. 31, 2009
Unrealized holding gains on securities arising during period, tax $ 620 $ 82 $ 2,574
Reclassification adjustment for losses included in net income, tax 336 707 485
Transfer held to maturity securities to available for sale at market value, tax $ 0 $ 459 $ 0
v2.4.0.6
Consolidated Statement of Cash Flows (USD $)
In Thousands, unless otherwise specified
12 Months Ended
Dec. 31, 2011
Dec. 31, 2010
Dec. 31, 2009
Operating activities      
Net loss $ (3,677) $ (7,457) $ (7,822)
Adjusting to reconcile net loss to net cash from operating activities:      
Depreciation and amortization 366 404 432
Provision for loan losses 3,014 9,487 8,105
Premium amortization of investment securities 152 211 17
Amortization of intangible assets 0 566 194
Net gains on sales and early redemptions of investment securities (989) (2,080) (12)
Net impairment losses on investment securities 0 0 2,333
Net (gains) losses on sales of loans held for sale 0 (6) 10
Net losses and writedowns of other real estate owned 613 43 427
Loans originated for sale 0 0 (312)
Proceeds from sales and principal payments from loans held for sale 0 196 273
(Increase) decrease in accrued interest receivable 372 613 250
Deferred taxes 0 845 2,372
Net increase in bank-owned life insurance (190) (193) (192)
Increase in other assets (2,577) (1,935) (6,103)
(Decrease) increase in accrued expenses and other liabilities 13,580 670 70
Net cash provided by operating activities 10,664 1,364 42
Investing activities      
Decrease in loans, net 33,330 23,532 (8,993)
Decrease in interest-bearing deposits with banks 1,349 (2,680) 117
Proceeds from maturities of investment securities available for sale, including principal repayments and early redemptions 20,588 42,300 27,100
Proceeds from maturities of investment securities held to maturity, including principal repayments and early redemptions 0 1,247 15,574
Proceeds from sales of investment securities available for sale 31,865 70,718 189
Purchases of investment securities available for sale (40,658) (56,513) (22,096)
Purchases of investment securities held to maturity 0 0 (2,462)
Proceeds from sales other real estate owned 0 556 275
Purchases of premises and equipment (78) (429) (139)
Net cash provided by investing activities 46,396 78,731 9,565
Financing activities      
Decrease in deposits (39,280) (41,725) (26,841)
Decrease in short-term borrowings 0 (100) (1,750)
Decrease in short-term portion of long-term debt 0 0 (2,600)
(Decrease) increase in long-term debt 0 (29,800) 0
Proceeds from issuance of preferred stock 0 0 9,439
Issuance (purchases) of treasury stock 2 0 (3)
Dividends paid on preferred stock 0 0 (1,094)
Dividends paid on common stock 0 0 (263)
Net cash (used in) provided by financing activities (39,278) (71,625) (23,112)
Net increase (decrease) in cash and cash equivalents 17,782 8,470 (13,505)
Cash and cash equivalents at beginning of year 20,778 12,308 25,813
Cash and cash equivalents at end of year 38,560 20,778 12,308
Cash paid during the year      
Interest 4,951 7,432 9,864
Income taxes (1,417) 59 1,279
Non-cash transactions      
Transfer of investments from held to maturity to available for sale 0 39,144 183
Transfer of loans to other real estate owned 140 244 1,508
Transfer of loans held for sale to loans $ 0 $ 0 $ 106
v2.4.0.6
Summary of significant accounting policies
12 Months Ended
Dec. 31, 2011
Accounting Policies [Abstract]  
Summary of significant accounting policies
 Summary of significant accounting policies
The accounting and reporting policies of City National Bancshares Corporation (the “Corporation” or “CNBC”) and its subsidiaries, City National Bank of New Jersey (the “Bank” or “CNB”) and City National Bank of New Jersey Capital Trust II conform with U.S. generally accepted accounting principles (“GAAP”) and to general practice within the banking industry. In preparing the financial statements, management is required to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent liabilities as of the date of the balance sheet and revenues and expenses for the related periods. Actual results could differ significantly from those estimates. A material estimate that is particularly susceptible to significant change in the near term is the allowance for loan losses. In connection with the determination of this allowance, management generally obtains independent appraisals for significant properties. Judgments related to securities valuation and impairment are also critical because they involve a higher degree of complexity and subjectivity and require estimates and assumptions about highly uncertain matters. Accordingly, it is reasonably possible that the Corporation may be required to record additional provisions for loan losses and other than temporary impairment charges in future periods. Additionally, significant judgment is required to determine the future realization of deferred tax assets and whether a valuation allowance may be required. The following is a summary of the more significant policies and practices.
Business
City National Bancshares Corporation primarily through its subsidiary City National Bank of New Jersey, offers a broad range of lending, leasing, depository and related financial services to individual consumers, businesses and governmental units through seven full-service offices located in New Jersey, New York City and Long Island, New York. CNB competes with other banking and financial institutions in its primary market communities, including financial institutions with resources substantially greater than its own. Commercial banks, savings banks, savings and loan associations, credit unions, and money market funds actively compete for deposits and loans. Such institutions, as well as consumer finance and insurance companies, may be considered competitors with respect to one or more services they render.
CNB offers equipment leasing services through its minority ownership interest in an unconsolidated leasing company.
Principles of consolidation
The financial statements include the accounts of CNBC and its wholly-owned subsidiaries. All significant intercompany accounts and transactions have been eliminated in consolidation.
Cash and cash equivalents
For purposes of the presentation of the Statement of Cash Flows, Cash and cash equivalents includes cash and due from banks and federal funds sold.
Investment securities held to maturity and investment securities available for sale
Investment securities are designated as held to maturity or available for sale at the time of acquisition. Securities that the Corporation has the intent and ability at the time of purchase to hold until maturity are designated as held to maturity. Investment securities held to maturity are stated at cost and adjusted for amortization of premiums and accretion of discount to the earlier of maturity or call date using the level yield method.
Securities to be held for indefinite periods of time but not intended to be held until maturity or on a long-term basis are classified as investment securities available for sale. Securities held for indefinite periods of time include securities that the Corporation intends to use as part of its interest rate sensitivity management strategy and that may be sold in response to changes in interest rates, resultant risk and other factors. Investment securities available for sale are reported at fair market value, with unrealized gains and losses, net of deferred tax, reported as a component of accumulated other comprehensive income, which is included in stockholders’ equity. Gains and losses realized from the sales of securities available for sale are determined using the specific identification method. Premiums are amortized and discounts are accreted using the “level yield” method.
Investment securities classified as held to maturity or available for sale are evaluated quarterly for other-than-temporary impairment. Other-than-temporary impairment means that the security’s impairment is due to factors that could include its inability to pay interest or dividends, its potential for default, and/or other factors. As a result of the adoption of new authoritative guidance under ASC Topic 320, “Investments—Debt and Equity Securities” on April 1, 2009, when a held to maturity or available for sale debt security is assessed for other-than-temporary impairment, the Corporation has to first consider (a) whether it intends to sell the security, and (b) whether it is more likely than not that the Corporation will be required to sell the security prior to recovery of its amortized cost basis. If one of these circumstances applies to a security, an other-than-temporary impairment loss is recognized in the statement of income equal to the full amount of the decline in fair value below amortized cost. If neither of these circumstances applies to a security, but the Corporation does not expect to recover the entire amortized cost basis, an other-than-temporary impairment loss has occurred that must be separated into two categories: (a) the amount related to credit loss, and (b) the amount related to other factors. In assessing the level of other-than-temporary impairment attributable to credit loss, the Corporation compares the present value of cash flows expected to be collected with the amortized cost basis of the security. The portion of the total other-than-temporary impairment related to credit loss is recognized in earnings, while the amount related to other factors is recognized in other comprehensive income. The total other-than-temporary impairment loss is presented in the statement of income, less the portion recognized in other comprehensive income. When a debt security becomes other-than-temporarily impaired, its amortized cost basis is reduced to reflect the portion of the total impairment related to credit loss. Prior to the adoption of the new authoritative guidance, total other-than-temporary impairment losses (i.e., both credit and non-credit losses) on debt securities were recognized through earnings with an offset to reduce the amortized cost basis of the applicable debt securities by their entire impairment amount.
To determine whether a security’s impairment is other-than-temporary, the Corporation considers factors that include the causes of the decline in fair value, such as credit problems, interest rate fluctuations, or market volatility, the severity and duration of the decline, its ability and intent to hold equity security investments until they recover in value (as well as the likelihood of such a recovery in the near term), the intent to sell security investments, or if it is more likely than not that the Corporation will be required to sell such securities before recovery of their individual amortized cost basis less any current-period credit loss. For debt securities, the primary consideration in determining whether impairment is other-than-temporary is whether or not it is probable that current or future contractual cash flows have been or may be impaired.
The Bank holds mortgage-backed securities in its investment portfolios, none of which are private-label. Such securities are subject to changes in the prepayment rates of the underlying mortgages, which may affect both the yield and maturity of the securities.
The Bank transferred its entire HTM portfolio to AFS in March 2010. This transfer was made in conjunction with a deleveraging program to reduce total asset levels and improve capital ratios. As a result, purchases of securities may not be classified as HTM until the second quarter of 2012.
Loans held for sale
Loans held for sale include residential mortgage loans originated with the intent to sell. Loans held for sale are carried at the lower of aggregate cost or fair value.
Loans
Loans are stated at the principal amounts outstanding, net of unearned discount and deferred loan fees, as well as interest received on certain nonaccrual loans. Interest income is accrued as earned, based upon the principal amounts outstanding. Loan origination fees and certain direct loan origination costs, as well as unearned discount, are deferred and recognized over the life of the loan revised for loan prepayments, as an adjustment to the loan’s yield.
Recognition of interest on the accrual method is generally discontinued when a loan contractually becomes 90 days or more past due or a reasonable doubt exists as to the collectability of the loan, unless such loans are well-secured and in the process of collection. At the time a loan is placed on a nonaccrual status, previously accrued and uncollected interest is generally reversed against interest income in the current period. Interest on such loans, if appropriate, is recognized as income when payments are received. A loan is returned to an accrual status when it is current as to principal and interest and its future collectability is expected. Generally, this occurs after the loan has been performing for six months.
The Corporation has defined the population of impaired loans to be all nonaccrual loans of $100,000 or more. Impaired loans of $100,000 or more are individually assessed to determine that the loan’s carrying value does not exceed the fair value of the underlying collateral or the present value of the loan’s expected future cash flows. Smaller balance homogeneous loans that are collectively evaluated for impairment are specifically excluded from the impaired loan portfolio.
Trouble debt restructured (“TDR”) loans are those loans whose terms have been modified because of deterioration of the financial condition of the borrower to provide for a reduction of interest or principal payments, or both. An allowance is established for all TDR loans based on the present value of the respective loan’s future cash flows unless the loan is deemed collateral dependent. The majority of concessions made for TDRs involve lowering the monthly payments on the loans either through a reduction in interest rate below a market rate, an extension of the term of the loan, or a combination of the two methods. They seldom result in the forgiveness of principal or accrued interest. In addition, we attempt to obtain additional collateral or guarantees when modifying such loans. If the borrower demonstrates the ability to perform under the restructured terms, the loan will continue to accrue interest. Nonaccruing restructured loans may be returned to accrual status when there has been a sustained period of repayment performance (generally six consecutive months of payments) and both principal and interest are considered collectible. TDRs are carried at a balance net of any charge-offs required when the modifications to the loan are made and the loan is determined to be a TDR.
Allowance for loan losses
The allowance for loan losses ("ALLL") is maintained at a level determined adequate to provide for losses inherent in the loan portfolio. The allowance is increased by provisions charged to operations and recoveries of loans previously charged off and reduced by loan charge-offs. Generally, losses on loans are charged against the allowance for loan losses when it is believed that the collection of all or a portion of the principal balance is unlikely and the collateral is not adequate.

Certain inherent, but unconfirmed losses are probable within the loan portfolio. The Bank's operations and lending activities are centered in urban communities which are more vulnerable to economic downturns. Unanticipated events, including political, economic and regulatory changes could cause changes in the credit characteristics of the portfolio and result in an unanticipated increase in the allowance.

The Bank's current methodology for determining the projected level of losses is based on historical loss rates, current credit grades, specific reserve allocations on loans modified as TDRs and impaired commercial credits above specified thresholds, and other qualitative adjustments. Due to the heavy reliance on realized historical losses and the credit grade rating process, the calculated reserves required under the model may tend to slightly lag the deterioration in the portfolio in a stable or deteriorating credit environment and may tend not to be as responsive when improved conditions have presented themselves.

Given these model limitations and market characteristics, the qualitative adjustment factors may be incremental or detrimental to the quantitative model results. An unallocated component to the ALLL is maintained to recognize the imprecision in estimating and measuring loss. Correspondingly, the portion considered unallocated may fluctuate from period to period based on management's evaluation of the factors affecting the assumptions used in calculating the allowance, including historical loss experience and current economic conditions.
The allowance is maintained at a level estimated to absorb probable credit losses inherent in the loan portfolio as well as other credit risk related charge-offs. The allowance is based on ongoing evaluations of the probable estimated losses inherent in the loan portfolio. The Bank’s methodology for evaluating the appropriateness of the allowance includes segmentation of the loan portfolio into its various components, tracking the historical levels of classified loans and delinquencies, applying economic outlook factors, assigning specific incremental reserves where necessary, providing specific reserves on impaired loans, and assessing the nature and trend of loan charge-offs. Additionally, the volume of non-performing loans, concentration risks by size, type, and geography, new markets, collateral adequacy and economic conditions are taken into consideration.
The allowance established for probable losses on specific loans are based on a regular analysis and evaluation of classified loans. Loans are classified based on an internal credit risk grading process that evaluates, among other things: (i) the obligor’s ability to repay; (ii) the underlying collateral, if any; and (iii) the economic environment and industry in which the borrower operates. Loans with a grade that is below a predetermined grade are adversely classified. Any change in the credit risk grade of performing and/or non-performing loans affects the amount of the related allowance.
Once a loan is classified, the loan is analyzed to determine whether the loan is impaired and, if impaired, the need to specifically allocate a portion of the allowance for loan losses to the loan. Specific valuation allowances are determined by analyzing the borrower’s ability to repay amounts owed, collateral deficiencies, the relative risk grade of the loan and economic conditions affecting the borrower’s industry, among other things.
Additionally, management individually evaluates nonaccrual loans and all troubled debt restructured loans for impairment based on the underlying anticipated method of payment consisting of either the expected future cash flows from the borrower or the proceeds from the disposition of the related collateral. If payment is expected solely based on the underlying collateral, an appraisal is completed to assess the fair value of the collateral. Collateral dependent impaired loan balances are written down to the current fair value of each loan’s underlying collateral resulting in an immediate charge-off to the allowance, excluding any consideration for personal guarantees that may be pursued in the Bank’s collection process. If repayment is based upon future expected cash flows, the present value of the expected future cash flows discounted at the loan’s original effective interest rate is compared to the carrying value of the loan, and any shortfall is recorded as a specific valuation allowance in the allowance for loan losses.
The allowance also contains unallocated reserves to cover inherent losses within a given loan category which have not been otherwise reviewed or measured on an individual basis. This unallocated portion of the allowance reflects management's best estimate of the elements of imprecision and estimation risk inherent in the calculation of the overall allowance. Due to the subjectivity involved in determining the overall allowance, including the unallocated portion, the portion considered unallocated may fluctuate from period to period based on management's evaluation of the factors affecting the assumptions used in calculating the overall allowance, including historical loss experience, current economic conditions, and industry or borrower concentrations. Changes may also occur due to the necessity of maintaining consistent loss coverage ratios for the various loan risk components.
Management believes that the allowance for loan losses is adequate. While management uses available information to determine the adequacy of the allowance, future additions may be necessary based on changes in economic conditions or subsequent events unforeseen at the time of evaluation. Additionally, to the extent that actual results differ from forecasts or management's judgment, the ALLL may be greater or less than future charge-offs.
In addition, various regulatory agencies, as an integral part of their examination process, periodically review the Bank’s allowance for loan losses. Such agencies may require the Bank to increase the allowance based on their judgment of information available to them at the time of their examination.
Bank premises and equipment
Premises and equipment are stated at cost less accumulated depreciation based upon estimated useful lives of three to 40 years, computed using the straight-line method. Leasehold improvements, carried at cost, net of accumulated depreciation, are generally amortized over the terms of the leases or the estimated useful lives of the assets, whichever are shorter, using the straight-line method. Expenditures for maintenance and repairs are charged to operations as incurred, while major replacements and improvements are capitalized. The net asset values of assets retired or disposed of are removed from the asset accounts and any related gains or losses are included in operations.
Other assets
Other assets include the Bank’s 35.4% interest in a leasing company. The investment in the unconsolidated investee is carried using the equity method of accounting whereby the carrying value of the investment reflects the Corporation’s initial cost of the investment and the Corporation’s share of the leasing company’s annual net income or loss.
Other real estate owned
OREO acquired through foreclosure or deed in lieu of foreclosure is carried at the lower of cost or fair value less estimated cost to sell, net of a valuation allowance. When a property is acquired, the excess of the loan balance over the estimated fair value is charged to the allowance for loan losses. Operating results, including any future writedowns of OREO, rental income and operating expenses, are included in “Other expenses.”
An allowance for OREO is established through charges to “Other expenses” to maintain properties at the lower of cost or fair value less estimated cost to sell.
Core deposit premiums
The premium paid for the acquisition of deposits in connection with the purchases of branch offices is amortized on a straight-line basis over a nine-year period, its estimated useful life, and is reviewed at least annually for impairment. If an impairment is found to exist, the carrying value is reduced by a charge to earnings. Amortization totaled $0 in 2011, $566,000 in 2010 and $194,000 in 2009. 2010 included accelerated amortization of $468,000 of core deposit intangibles of two closed branches. As of December 31, 2011, all core deposit premiums have been fully amortized.
Long-term debt
The Corporation has sold $4 million of trust preferred securities through a wholly-owned statutory business trust. The trust has no independent assets or operations and exists for the sole purpose of issuing trust preferred securities and investing the proceeds thereof in an equivalent amount of junior subordinated debentures issued by the Corporation. The junior subordinate debentures, which are the sole assets of the trusts, are unsecured obligations of the Corporation and are subordinate and junior in right of payment to all present and future senior and subordinated indebtedness and certain other financial obligations of the Corporation.
On December 10, 2003, the FASB issued FASB Interpretation No. 46R (“FIN 46R”), which replaced FIN 46. FIN 46R clarifies the applications of Accounting Research Bulletin No. 51 “Consolidated Financial Statements” to certain entities in which equity investors do not have the characteristics of a controlling financial interest or do not have sufficient equity at risk for the entity to finance its activities without additional subordinated financial support. FIN 46R required the Corporation to de-consolidate its investments in the trusts recorded as long-term debt.
Income taxes
Federal income taxes are based on currently reported income and expense after the elimination of income which is exempt from Federal income tax.
Deferred tax assets and liabilities are recognized for future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases. Such temporary differences include depreciation and the provision for possible loan losses. Where applicable, deferred tax assets are reduced by a valuation allowance for any portions determined not likely to be realized. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date.
A reserve is maintained related to certain tax positions and strategies that management believes contain an element of uncertainty. Management periodically evaluates each of its tax positions and strategies to determine whether the reserve continues to be appropriate.
Net loss per common share
Basic loss per common share is calculated by dividing net loss less dividends on preferred stock by the weighted average number of common shares outstanding. On a diluted basis, both net loss and common shares outstanding are adjusted to assume the conversion of the convertible subordinate debentures, if determined to be dilutive.
Comprehensive income (loss)
Other comprehensive income (loss) includes unrealized gains (losses) on securities available for sale (including the non-credit portion of any other-than-temporary impairment charges relating to these securities effective April 1, 2009). Comprehensive income (loss) and its components are included in the consolidated statements of changes in shareholders’ equity.
Recent accounting pronouncements
Accounting Standards Update (“ASU”) No. 2010-06, “Fair Value Measurements and Disclosures (Topic 820) – Improving Disclosures About Fair Value Measurements,” requires new disclosures and clarifies certain existing disclosure requirements about fair value measurement. Specifically, the update requires an entity to disclose separately the amounts of significant transfers in and out of Level 1 and Level 2 fair value measurements and describe the reasons for such transfers. A reporting entity is required to present separately information about purchases, sales, issuances, and settlements in the reconciliation of fair value measurements using Level 3 inputs. In addition, the update clarifies the following requirements of the existing disclosures: (i) for the purposes of reporting fair value measurements for each class of assets and liabilities, a reporting entity needs to use judgment in determining the appropriate classes of assets; and (ii) a reporting entity is required to include disclosures about the valuation techniques and inputs used to measure fair value for both recurring and nonrecurring fair value measurements. The disclosures related to the gross presentation of purchases, sales, issuances and settlements of assets and liabilities included in Level 3 of the fair value hierarchy became effective on January 1, 2011. The other disclosure requirements and clarifications made by ASU No. 2010-06 became effective on January 1, 2010.
ASU No. 2011-02, “Receivables (Topic 310) – A Creditor’s Determination of Whether a Restructuring Is a Troubled Debt Restructuring,” provides clarifying guidance intended to assist creditors in determining whether a modification of the terms of a receivable meets the criteria to be considered a troubled debt restructuring, both for purposes of recording an impairment loss and for disclosure of troubled debt restructurings. In evaluating whether a restructuring constitutes a troubled debt restructuring, a creditor must separately conclude, under the guidance clarified by ASU No. 2011-02, that both of the following exist: (i) the restructuring constitutes a concession to the debtor; and (ii) the debtor is experiencing financial difficulties. ASU No. 2011-02 applies retrospectively to restructurings occurring on or after January 1, 2011 and was effective on July 1, 2011. The adoption of ASU No. 2011-02 is not expected to have a significant impact on the consolidated financial statements.
ASU No. 2011-04, “Fair Value Measurements (Topic 820) – Amendments to Achieve Common Fair Value Measurement and Disclosure Requirements in U.S. GAAP and IFRS,” was issued as a result of the effort to develop common fair value measurement and disclosure requirements in U.S. GAAP and International Financial Reporting Standards (“IFRS”). While ASU No. 2011-04 is largely consistent with existing fair value measurement principles in U.S. GAAP, it expands the existing disclosure requirements for fair value measurements and clarifies the existing guidance or wording changes to align with IFRS No. 13. Many of the requirements for the amendments in ASU No. 2001-04 do not result in a change in the application of the requirements in Topic 820. ASU No. 2011-04 was effective for all interim and annual periods beginning after December 15, 2011. The adoption of ASU No. 2011-04 is not expected to have a significant impact on its consolidated financial statements.
ASU No. 2011-05, “Comprehensive Income (Topic 220) – Presentation of Comprehensive Income,” requires an entity to present components of comprehensive income either in a single continuous statement of comprehensive income or in two separate but consecutive statements. In the two-statement approach, the first statement should present total net income and its components followed consecutively by a second statement that should present total other comprehensive income, the components of other comprehensive income, and the total of comprehensive income. ASU No. 2011-05 must be applied retrospectively and is effective for all interim and annual periods beginning on or after December 15, 2011. The adoption of ASU No. 2011-05 is not expected to have a significant impact on the consolidated financial statements.
ASU No. 2011-08, “Intangibles – Goodwill and Other (Topic 350) Testing Goodwill for Impairment,” provides the option of performing a qualitative assessment of whether it is more likely than not that a reporting unit’s fair value is less than its carrying amount, before applying the current two-step goodwill impairment test. If the conclusion is that it is more likely than not that the fair value of a reporting unit is less than its carrying amount, the entity would be required to conduct the current two-step goodwill impairment test. Otherwise, the entity would not need to apply the two-step test. ASU No. 2011-28 is effective for annual and interim goodwill impairment tests performed for fiscal years beginning after December 15, 2011 with early adoption permitted. The adoption of ASU No. 2011-08 is not expected to have a significant impact on its consolidated financial statements.
In April 2010, the FASB issued ASU 2010-18, which states that modifications of loans that are accounted for within a pool under ASC 310-30 do not result in the removal of those loans from the pool even if the modification of those loans would otherwise be considered a troubled debt restructuring. An entity will continue to be required to consider whether the pool of assets in which the loan is included is impaired if expected cash flows for the pool change. The amendments do not affect the accounting for loans under the scope of ASC 310-30 that are not accounted for within pools. Loans accounted for individually under ASC 310-30 continue to be subject to the troubled debt restructuring accounting provisions within ASC 310-40, “Receivables-Troubled Debt Restructurings by Creditors.” The amendments were effective for modifications of loans accounted for within pools under Subtopic 310-30 occurring in the first interim or annual period ending on or after July 15, 2010. The adoption of this pronouncement did not have a material impact on the Corporation's financial condition, results of operations or financial statement disclosures.
In July 2010, the FASB issued ASU 2010-20 to provide financial statement users with greater transparency about an entity's allowance for credit losses and the credit quality of its financing receivables. The objective of the ASU is to provide disclosures that assist financial statement users in their evaluation of (1) the nature of an entity's credit risk associated with its financing receivables, (2) how the entity analyzes and assesses that risk in arriving at the allowance for credit losses and (3) the changes in the allowance for credit losses and the reasons for those changes. Disclosures provided to meet the objective above should be provided on a disaggregated basis. The disclosures as of the end of a reporting period were effective for interim and annual reporting periods ending on or after December 15, 2010. The disclosures about activity that occurs during a reporting period were effective for interim and annual reporting periods beginning on or after December 15, 2010. The adoption of this pronouncement did not have a material impact on the Corporation's financial condition or results of operations.
v2.4.0.6
Going concern/regulatory compliance
12 Months Ended
Dec. 31, 2011
Going concern/regulatory compliance [Abstract]  
Going concern/regulatory compliance
Going Concern/Regulatory Compliance
The consolidated financial statements of the Corporation as of and for the year ended December 31, 2011 have been prepared on a going concern basis, which contemplates the realization of assets and the discharge of liabilities in the normal course of business for the foreseeable future.
The Bank was subject to a Formal Agreement with the OCC entered into on June 29, 2009 (the “Formal Agreement”). The Formal Agreement required, among other things, the enhancement and implementation of certain programs to reduce the Bank’s credit risk, along with the development of a capital and profit plan, the development of a contingency funding plan and the correction of deficiencies in the Bank’s loan administration. The Bank failed to comply with certain provisions of the Formal Agreement; and failed to comply with the higher leverage ratio of 8%, required to be maintained.
Due to the Bank’s condition, the OCC has required that the Board of Directors of the Bank (the “Bank Board”) sign a formal enforcement action with the OCC, which mandates specific actions by the Bank to address certain findings from the OCC’s examination and to address the Bank’s current financial condition. The Bank entered into a Consent Order (“Order” or “Consent Order”) with the OCC on December 22, 2010, which contains a list of requirements. The Order supersedes and replaces the Formal Agreement. The Order also contains restrictions on future extensions of credit and requires the development of various programs and procedures to improve the Bank’s asset quality as well as routine reporting on the Bank’s progress toward compliance with the Order to the Bank Board and the OCC. As a result of the Order, the Bank may not be deemed “well-capitalized.” The description of the Consent Order is only a summary.
Specifically, the Order imposes the following requirements on the Bank:
within five (5) days of the Order, the Bank Board must appoint a Compliance Committee to be comprised of at least three directors, none of whom may be an employee, former employee or controlling shareholder of the Bank or any of its affiliates, to monitor and coordinate the Bank’s adherence to the Order.
within ninety (90) days of the Order, the Bank Board must develop and submit to the OCC for review a written strategic plan covering at least a three-year period, establishing objectives for the overall risk profile, earnings performance, growth, balance sheet mix, off-balance sheet activities, liability structure, capital adequacy, reduction in the volume of nonperforming assets, product line development, and market segments that the Bank intends to promote or develop, together with strategies to achieve those objectives.
by March 31, 2011, and thereafter, the Bank must maintain total capital at least equal to 13% of risk-weighted assets and Tier 1 capital at least equal to 9% of adjusted total assets; this requirement means that the Bank may not be considered “well-capitalized” as otherwise defined in applicable regulations.
within ninety (90) days of the Order, the Bank Board must submit to the OCC a written capital plan for the Bank covering at least a three-year period, including specific plans for the achievement and maintenance of adequate capital, projections for growth and capital requirements, based upon a detailed analysis of the Bank’s assets, liabilities, earnings, fixed assets and off-balance sheet activities; identification of the primary sources from which the Bank will maintain an appropriate capital structure to meet the Bank’s future needs, as set forth in the strategic plan; specific plans detailing how the Bank will comply with restrictions or requirements set forth in the Order and with the restrictions against brokered deposits in 12 C.F.R. § 337.6; contingency plans that identify alternative methods to strengthen capital, should the primary source(s) not be available; and a prohibition on the payment of director fees unless the Bank is in compliance with the minimum capital ratios previously identified in the prior paragraph or express written authorization is provided by the OCC.
the Bank is restricted on the payment of dividends.
to ensure the Bank has competent management in place at all times, including: within 90 days of the Order the Bank Board shall provide to the OCC qualified and capable candidates for the positions of President, Senior Credit Officer, Consumer Compliance Officer and Bank Secrecy Officer; within 90 days of the date of the Order, the Bank Board (with the exception of Bank executive officers) shall prepare a written assessment of the Bank’s executive officers to perform present and anticipated duties; prior to appointment of any individual to an executive position provide notice to the OCC, who shall have the power to veto such appointment; and the Bank Board shall at least annually perform a written performance appraisal for each Bank executive officer.
within sixty (60) days of the Order, the Bank Board shall develop and the Bank shall implement, and thereafter ensure compliance with, a written credit policy to ensure the Bank’s compliance with written programs to improve the Bank’s loan portfolio management.
within ninety (90) days of the Order the Bank Board shall develop, implement and thereafter ensure Bank adherence to a written program to improve the Bank’s loan portfolio management, including: requiring that extensions of credit are granted, by renewal or otherwise, to any borrower only after obtaining, performing, and documenting a global analysis of current and satisfactory credit information; requiring that existing extensions of credit structured as single pay notes are revised upon maturity to conform to the Bank’s revised loan policy; ensuring satisfactory and perfected collateral documentation; tracking and analyzing credit, collateral, and policy exceptions; providing for accurate risk ratings consistent with the classification standards contained in the Comptroller’s Handbook on “Rating Credit Risk”; providing for identification, measurement, monitoring, and control of concentrations of credit; ensuring compliance with Call Report instructions, the Bank’s lending policies, and laws, rules, and regulations pertaining to the Bank’s lending function; ensuring the accuracy of internal management information systems; and providing adequate training of Bank personnel performing credit analyses in cash flow analysis, particularly analysis using information from tax returns, and implement processes to ensure that additional training is provided as needed.
within sixty (60) days of the Order, the Bank Board must establish a written performance appraisal and salary administration process for loan officers that adequately consider performance relative to job descriptions, policy compliance, documentation standards, accuracy in credit grading, and other loan administration matters.
the Bank must implement and maintain an effective, independent, and on-going loan review program to review, at least quarterly, the Bank’s loan and lease portfolios, to assure the timely identification and categorization of problem credits.
the Bank is also required to implement and adhere to a written program for the maintenance of an adequate Allowance for Loan and Lease Losses, providing for review of the allowance by the Bank Board at least quarterly.
within sixty (60) days of the Order, the Bank Board shall adopt and the Bank (subject to Bank Board review and ongoing monitoring) shall implement and thereafter ensure adherence to a written program designed to protect the Bank’s interest in those assets criticized in the most recent Report of Examination (“ROE”) by the OCC, in any subsequent ROE, by any internal or external loan review, or in any list provided to management by the National Bank Examiners during any examination as “doubtful,” “substandard,” or “special mention.”
within one hundred twenty (120) days of the Order, the Bank Board must revise and maintain a comprehensive liquidity risk management program, which assesses, on an ongoing basis, the Bank’s current and projected funding needs, and ensures that sufficient funds or access to funds exist to meet those needs, which program includes effective methods to achieve and maintain sufficient liquidity and to measure and monitor liquidity risk.
within ninety (90) days of the Order, the Bank Board shall identify and propose for appointment a minimum of two (2) new independent directors that have a background in banking, credit, accounting, or financial reporting, and such appointment will be subject to veto power of the OCC.
within ninety (90) days of the Order, the Bank Board shall adopt, implement, and thereafter ensure adherence to a written consumer compliance program designed to ensure that the Bank is operating in compliance with all applicable consumer protection laws, rules, and regulations.
within ninety (90) days of the Order, the Bank Board shall develop, implement, and thereafter ensure Bank adherence to a written program of policies and procedures to provide for compliance with the Bank Secrecy Act, as amended (31 U.S.C. §§ 5311 et seq.), the regulations promulgated thereunder and regulations of the Office of Foreign Assets Control (“OFAC”), 31 C.F.R. Chapter V, as amended (collectively referred to as the “Bank Secrecy Act” or “BSA”) and for the appropriate identification and monitoring of transactions that pose greater than normal risk for compliance with the BSA.
within ninety (90) days, of the Order, the Bank Board shall: develop, implement, and thereafter ensure Bank adherence to an independent, internal audit program sufficient to detect irregularities and weak practices in the Bank’s operations; determine the Bank’s level of compliance with all applicable laws, rules, and regulations; assess and report the effectiveness of policies, procedures, controls, and management oversight relating to accounting and financial reporting; evaluate the Bank’s adherence to established policies and procedures, with particular emphasis directed to the Bank’s adherence to its loan, consumer compliance, and BSA policies and procedures; evaluate and document the root causes for exceptions; and establish an annual audit plan using a risk-based approach sufficient to achieve these objectives.
within ninety (90) days of the Order, the Bank Board must develop and implement a comprehensive compliance audit function to include an independent review of all products and services offered by the Bank, including without limitation, a risk-based audit program to test for compliance with consumer protection laws, rules, and regulations that includes an adequate level of transaction testing; procedures to ensure that exceptions noted in the audit reports are corrected and responded to by the appropriate Bank personnel; and periodic reporting of the results of the consumer compliance audit to the Bank Board or a committee thereof.
the Bank Board shall require and the Bank shall immediately take all necessary steps to correct each violation of law, rule, or regulation cited in any ROE, or brought to the Bank Board’s or Bank’s attention in writing by management, regulators, auditors, loan review, or other compliance efforts.
The Order permits the OCC to extend the time periods under the Order upon written request. Any material failure to comply with the Order could result in further enforcement actions by the OCC. In addition, if the OCC does not accept the capital plan or the Bank fails to achieve and maintain the minimum capital levels, the Order specifically states that the OCC may require the Corporation to sell, merge or liquidate the Bank.
As a result of the Consent Order, the Bank may not accept, renew or roll over any brokered deposit. This affects the Bank’s ability to obtain funding. In addition, the Bank may not solicit deposits by offering an effective yield that exceeds by more than 75 basis points the prevailing effective yields on insured deposits of comparable maturity in such institution’s normal market area or in the market area in which such deposits are being solicited.
As of December 31, 2011, when considering deadline extensions granted, the Corporation has been informed by the OCC that it has fully complied with two of the thirteen articles of the Consent Order. The two articles in full compliance are Article II - Compliance Committee and Article XIII - Internal Audit Program. The remaining articles are in various stages of compliance and management is working diligently to achieve full compliance. Please see Note 24 for actual capital ratios as of December 31, 2011.
On December 14, 2010, the Corporation entered into a written agreement (the “FRBNY Agreement”) with the Federal Reserve Bank of New York (“FRBNY”). The following is only a summary of the FRBNY Agreement. Pursuant to the FRBNY Agreement, the Corporation’s board of directors is to take appropriate steps to utilize fully the Corporation’s financial and managerial resources to serve as a source of strength to the Bank, including causing the Bank to comply with the Formal Agreement (now superseded) and any other supervisory action taken by the OCC, such as the Order.
In the FRBNY Agreement, the Corporation agreed that it would not declare or pay any dividends without prior written approval of the FRBNY and the Director of the Division of Banking Supervision and Regulation of the Board of Governors of the Federal Reserve System (the “Banking Director”). It further agreed that it would not take dividends or any other form of payment representing a reduction in capital from the Bank without the FRBNY’s prior written approval. The FRBNY Agreement also provides that neither the Corporation nor its nonbank subsidiary will make any distributions of interest, principal or other amounts on subordinated debentures or trust preferred securities without the prior written approval of the FRBNY and the Banking Director.
The FRBNY Agreement further provides that the Corporation shall not incur, increase or guarantee any debt without FRBNY approval. In addition, the Corporation must obtain the prior approval of the FRBNY for the repurchase or redemption of its shares of stock. Additionally, the FRBNY Agreement further provides that in appointing any new director or senior executive officer or changing the responsibilities of any senior executive officer so that the officer would assume a different senior position, the Corporation must notify the Board of Governors of the Federal Reserve System and such board or the FRBNY or the OCC, may veto such appointment or change. The FRBNY Agreement further provides that the Corporation is restricted in making certain severance and indemnification payments. The failure of the Corporation to comply with the FRBNY Agreement could have severe adverse consequences on the Bank and the Corporation.
The Corporation recorded a net loss of $3.7 million in 2011 and a net loss of $7.5 million in 2010 primarily due to significant declines in net interest income and other operating income, along with higher costs for consultants retained to achieve compliance with the provisions of the Formal Agreement and Consent Order, offset by a reduction in the provision for loan losses. However, we are currently not generating sufficient operating income to cover operating expenses before consideration of the provision for loan losses, a condition which is worsening. These ongoing losses will hamper management's ability to achieve compliance with the required capital ratios.
The decrease in real estate values and instability in the market, as well as other macroeconomic factors, such as unemployment, have contributed to a decrease in credit quality and increased provisioning. While the Bank and Corporation are implementing steps to improve their financial performance, there can be no assurance they will be successful. These deteriorating financial results and the failure of the Bank to comply with the OCC’s higher mandated capital ratios under the Consent Order, and the actions that the OCC may take as a result thereof, raise substantial doubt about the Corporation’s and the Bank’s ability to continue as going concerns.
As a result of the Consent Order, collateral requirements for municipal deposit letters of credit issued by the Federal Home Loan Bank are increasing.
Management has developed a plan to address the compliance matters raised by the OCC and the ability to maintain future financial viability and submitted the plan to the OCC for approval. The OCC indicated that they had no objections. The plan provides for the addition of new lines of business and strategic growth initiatives, a restructuring of staff where necessary, and the preparation and use of an Investor Presentation to assist in a capital raise. We have formed a strategic alliance with a third-party online deposit vendor, which we believe will attract new sources of deposits, and have completed the staff restructuring. We are also in process of our capital raise and expect to expand into new lines of business, subject to obtaining the necessary regulatory approvals, upon completion of the capital raise in 2012. However, there can be no assurances that the capital raise will be successful.
v2.4.0.6
Cash and due from banks
12 Months Ended
Dec. 31, 2011
Cash and Due from Banks [Abstract]  
Cash and due from banks
Cash and due from banks
The Bank is required to maintain a reserve balance with the Federal Reserve Bank based primarily on deposit levels. These reserve balances averaged $3.1 million in 2011 and $2.5 million in 2010.
v2.4.0.6
Federal funds sold
12 Months Ended
Dec. 31, 2011
Federal funds sold [Abstract]  
Federal funds sold
Federal funds sold
Federal funds sold averaged $32.6 million during 2011 and $29.5 million in 2010, while the maximum balance outstanding at any month-end during 2011, 2010 and 2009 was $44.3 million, $49.8 million and $70.5 million, respectively.
v2.4.0.6
Investment securities available for sale
12 Months Ended
Dec. 31, 2011
Investment securities available for sale [Abstract]  
Investment securities available for sale
Investment securities available for sale
The amortized cost and fair values at December 31 of investment securities available for sale were as follows:

2011 In thousands
Amortized
Cost
 
Gross
Unrealized
Gains
 
Gross
Unrealized
Losses
 
Fair
Value
U.S. Treasury securities and obligations of U.S. government agencies
$
9,005

 
$
146

 
$

 
$
9,151

Obligations of U.S. government sponsored entities
12,805

 
233

 
11

 
13,027

Obligations of state and political subdivisions
3,326

 
174

 

 
3,500

Mortgage-backed securities
58,373

 
2,059

 

 
60,432

Other debt securities
8,366

 
31

 
2,190

 
6,207

Equity securities:
 
 
 
 
 
 
 
Marketable securities
783

 

 
19

 
764

Nonmarketable securities
115

 

 

 
115

Federal Reserve Bank and Federal Home Loan Bank stock
1,862

 

 

 
1,862

Total
$
94,635

 
$
2,643

 
$
2,220

 
$
95,058


2010 In thousands
Amortized
Cost
 
Gross
Unrealized
Gains
 
Gross
Unrealized
Losses
 
Fair
Value
U.S. Treasury securities and obligations of U.S. government agencies
$
3,389

 
$
64

 
$
24

 
$
3,429

Obligations of U.S. government sponsored entities
15,447

 
100

 
267

 
15,280

Obligations of state and political subdivisions
9,604

 
194

 
285

 
9,513

Mortgage-backed securities
66,037

 
1,892

 
24

 
67,905

Other debt securities
8,358

 
37

 
1,839

 
6,556

Equity securities:
 
 
 
 
 
 
 
Marketable securities
748

 

 
21

 
727

Nonmarketable securities
115

 

 

 
115

Federal Reserve Bank and Federal Home Loan Bank stock
1,895

 

 

 
1,895

Total
$
105,593

 
$
2,287

 
$
2,460

 
$
105,420


The amortized cost and the fair values of investments in debt securities available for sale are distributed by contractual maturity, without regard to normal amortization including mortgage-backed securities, which will have shorter estimated lives as a result of prepayments of the underlying mortgages.

In thousands
Amortized
Cost
 
Fair
Value
Due after one year but within five years:
 
 
 
U.S. Treasury securities and obligations
of U.S. government agencies
$
30

 
$
30

Obligations of U.S. government sponsored
entities
287

 
289

Obligations of state and
political subdivisions

 

Mortgage-backed securities
374

 
391

Other debt securities
1,000

 
950

Due after five years but within ten years:
 
 
 
U.S. Treasury securities and obligations
of U.S. government agencies
82

 
82

Obligations of U.S.
government sponsored entities
3,322

 
3,449

Obligations of state and
political subdivisions
1,680

 
1,761

Mortgage-backed securities
317

 
331

Due after ten years:
 
 
 
U.S. Treasury securities and obligations
of U.S. government agencies
8,893

 
9,039

Obligations of U.S. government sponsored
entities
9,196

 
9,289

Obligations of state and
political subdivisions
1,646

 
1,739

Mortgage-backed securities
57,682

 
59,710

Other debt securities
7,366

 
5,257

Total debt securities
91,875

 
92,317

Equity securities
2,760

 
2,741

Total
$
94,635

 
$
95,058


Sales of investment securities available for sale resulted in gross losses of $0, $92,000 and $1,000 and gross gains of $989,000, $2,172,000 and $12,000 in 2011, 2010 and 2009, respectively. Additionally, impairment charges of 2.3 million were recorded during 2009 while none were recorded in 2011 or 2010. These charges resulted from the determination that the unrealized losses in two CDOs were other than temporary, based on the expectation that it is probable that all principal and interest payments will not be received in accordance with the securities’ contractual terms.
Interest and dividends on investment securities available for sale were as follows:

In thousands
2011
 
2010
 
2009
Taxable
$
3,623

 
$
5,112

 
$
5,732

Tax-exempt
246

 
470

 
68

Total
$
3,869

 
$
5,582

 
$
5,800


Investment securities available for sale with a carrying value of $62 million were pledged to secure U.S. government and municipal deposits and Federal Home Loan Bank borrowings at December 31, 2011. In certain instances, pledging requirements have increased as a result of the Consent Order.
Investment securities available for sale which have had continuous unrealized losses as of December 31 are set forth below.

 
Less than 12 Months
 
12 Months or More
 
Total
2011 In thousands
Fair Value
 
Gross Unrealized
Losses
 
Fair Value
 
Gross Unrealized
Losses
 
Fair Value
 
Gross Unrealized
Losses
U.S. Treasury securities and obligations
of U.S. government agencies
$

 
$

 
$
28

 
$

 
$
28

 
$

Obligations of U.S. Government
sponsored entities
1,527

 

 
1,824

 
11

 
3,351

 
11

Other debt securities
831

 
104

 
4,809

 
2,086

 
5,640

 
2,190

Equity securities

 

 
783

 
19

 
783

 
19

Total
$
2,358

 
$
104

 
$
7,444

 
$
2,116

 
$
9,802

 
$
2,220

 
 
 
 
 
 
 
 
 
 
 
 
 
Less than 12 Months
 
12 Months or More
 
Total
2010 In thousands
Fair Value
 
Gross Unrealized
Losses
 
Fair Value
 
Gross Unrealized
Losses
 
Fair Value
 
Gross Unrealized
Losses
U.S. Treasury securities and
obligations of U.S. government agencies
$
1,054

 
$
23

 
$
162

 
$
1

 
$
1,216

 
$
24

Obligations of U.S. Government
sponsored entities
6,733

 
254

 
2,080

 
13

 
8,813

 
267

Mortgaged-backed securities
6,219

 
24

 

 

 
6,219

 
24

Obligations of state and political
subdivisions
5,147

 
285

 

 

 
5,147

 
285

Other debt securities

 

 
5,050

 
1,839

 
5,050

 
1,839

Equity securities

 

 
727

 
21

 
727

 
21

Total
$
19,153

 
$
586

 
$
8,019

 
$
1,874

 
$
27,172

 
$
2,460


The gross unrealized losses set forth above as of December 31, 2011 were attributable primarily to single-issue trust preferred securities (“TRUPS”) issued by financial institutions, CDOs collateralized primarily by TRUPS issued by banks and other corporate debt, all of which are included with other debt securities. The fair value of these securities has been negatively impacted by the lack of liquidity in the overall TRUPS and corporate debt markets although all issuers continue to perform. The decline in investment securities with continuing unrealized losses was a result of sales of securities with unrealized losses during the fourth quarter of 2011.
The following table presents a rollforward of the credit loss component of other-than-temporary impairment losses (“OTTI”) on debt securities for which a non-credit component of OTTI was recognized in other comprehensive income (loss). The beginning balance represents the credit loss component for debt securities for which OTTI occurred prior to April 1, 2009. OTTI recognized in earnings after that date for credit-impaired debt securities is presented as additions in two components, based upon whether the current period is the first time a debt security was credit-impaired (initial credit impairment) or is not the first time a debt security was credit impaired (subsequent credit impairment).
Changes in the credit loss component of credit-impaired debt securities were as follows:

 
For the Year
Ended
 
For the Year Ended
In thousands
December 31,
2011
 
December 31,
2010
Beginning balance
$

 
$
2,489

Add:
 
 
 
Initial credit
 
 
 
Impairments

 

Additional credit impairments

 

Deduct:
 
 
 
Dispositions

 
(2,489
)
Balance, December 31
$

 
$


We recorded no OTTI charges during 2011 or 2010.

The Bank also owns a CDO with a carrying value of $996,000 and market value of $412,000 on which no impairment losses have been recorded because it is expected that this security will perform in accordance with its original terms and that the carrying value is fully recoverable based on the investment's payment performance, consistent market valuations and a third-party consultant's conclusion that the investment will continue to be fully performing and fully recoverable in accordance with the terms of the agreement. Additional information for this security is presented below.
 
 
In thousands
December 31, 2011
Par value
$
1,000,000

Carrying value
996,000

Fair value
412,000

Unrealized loss
584,000

Number of original issuers
50

Number of currently paying banks in issuance
35

Number of defaulting and deferring banks
12

Percentage of remaining banks expected to default or defer payment (annually)
1.2
%
Subordination
30.60
%
Additionally, the Bank owns a portfolio of six single-issue trust preferred securities with a carrying value of $4.5 million and a market value of $3.3 million. Finally, the Bank also owns two corporate securities with a carrying value of $1.9 million and a market value of $1.6 million that are rated below investment grade. All values are as of December 31, 2011. None of these securities is considered impaired as they are all fully performing and are expected to continue performing.
Available for sale securities in unrealized loss positions are analyzed as part of the Corporation’s ongoing assessment of OTTI. When the Corporation intends to sell available-for-sale securities, the Corporation recognizes an impairment loss equal to the full difference between the amortized cost basis and fair value of those securities. When the Corporation does not intend to sell available for sale securities in an unrealized loss position, potential OTTI is considered based on a variety of factors, including the length of time and extent to which the fair value has been less than cost; adverse conditions specifically related to the industry, the geographic area or financial condition of the issuer or the underlying collateral of a security; the payment structure of the security; changes to the rating of the security by rating agencies; the volatility of the fair value changes; and changes in fair value of the security after the balance sheet date. For debt securities, the Corporation estimates cash flows over the remaining lives of the underlying collateral to assess whether credit losses exist and to determine if any adverse changes in cash flows have occurred. The Corporation’s cash flow estimates take into account expectations of relevant market and economic data as of the end of the reporting period.
Other factors considered in determining whether a loss is temporary include the length of time and the extent to which fair value has been below cost; the severity of the impairment; the cause of the impairment; the financial condition and near-term prospects of the issuer; activity in the market of the issuer which may indicate adverse credit conditions; and the forecasted recovery period using current estimates of volatility in market interest rates (including liquidity and risk premiums).
Management’s assertion regarding its intent not to sell or that it is not more likely than not that the Corporation will be required to sell the security before its anticipated recovery considers a number of factors, including a quantitative estimate of the expected recovery period (which may extend to maturity), and management’s intended strategy with respect to the identified security or portfolio. If management does have the intent to sell or believes it is more likely than not that the Corporation will be required to sell the security before its anticipated recovery, the gross unrealized loss is charged directly to earnings in the Consolidated Statements of Operations.
As of December 31, 2011, the Corporation does not intend to sell the securities with an unrealized loss position in accumulated other comprehensive loss (“AOCL”), and it is not more likely than not that the Corporation will be required to sell these securities before recovery of their amortized cost basis. The Corporation believes that the securities with an unrealized loss in AOCL are not other than temporarily impaired as of December 31, 2011.
v2.4.0.6
Loans
12 Months Ended
Dec. 31, 2011
Receivables [Abstract]  
Loans
Loans
Loans, net of unearned discount and net deferred origination fees and costs at December 31 were as follows:

In thousands
2011
 
2010
Commercial
$
26,516

 
$
38,225

Real estate
181,531

 
206,072

Installment
720

 
718

Total loans
208,767

 
245,015

Less: Unearned income
52

 
60

Loans
$
208,715

 
$
244,955


The Corporation categorizes loans 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. For non-homogeneous loans, such as commercial and commercial real estate loans the Corporation analyzes the loans individually by classifying the loans as to credit risk and assesses the probability of collection for each type of class. The Corporation uses the following definitions for risk ratings:
Pass — Pass assets are well protected by the current net worth and paying capacity of the obligor (or guarantors, if any) or by the fair value, less cost to acquire and sell, of any underlying collateral in a timely manner.
Special Mention — A special mention asset has potential weaknesses that deserve management’s close attention. If left uncorrected, these potential weaknesses may result in deterioration of the repayment prospects for the asset or in the institution’s credit position at some future date. Special mention assets are not adversely classified and do not expose an institution to sufficient risk to warrant adverse classification.
Substandard — A substandard asset is inadequately protected by the current sound worth and paying capacity of the obligor or by the collateral pledged, if any. Assets so classified must have a well-defined weakness, or weaknesses that jeopardize the liquidation of the debt. They are characterized by the distinct possibility that we will sustain some loss if the deficiencies are not corrected.
Doubtful — An asset classified doubtful has all the weaknesses inherent in one classified substandard with the added characteristic that the weaknesses make collection or liquidation in full highly questionable and improbable on the basis of currently known facts, conditions, and values.
Loss — An asset or portion thereof, classified loss is considered uncollectible and of such little value that its continuance on the institution’s books as an asset, without establishment of a specific valuation allowance or charge-off, is not warranted. This classification does not necessarily mean that an asset has no recovery or salvage value; but rather, there is significant doubt about whether, how much, or when the recovery will occur. As such, it is not practical or desirable to defer the write-off.
As of December 31, 2011, and based on the most recent analysis performed, the risk category of loans by class of loans is as follows:

In thousands
Pass
 
Special
Mention
 
Substandard
 
Doubtful
 
Loss
 
Total
Commercial loans
$
23,560

 
$
1,084

 
$
1,656

 
$
216

 
$

 
$
26,516

Real estate loans
 
 
 
 
 
 
 
 
 
 
 
Church
30,133

 
7,105

 
20,220

 

 

 
57,458

Construction - other than
third-party originated
3,115

 

 
7,333

 

 

 
10,448

Construction – third-party
originated

 

 
6,990

 
1,047

 

 
8,037

Multifamily
10,594

 
66

 
1,673

 
273

 

 
12,606

Other
41,903

 
6,907

 
19,878

 
958

 

 
69,646

Residential
20,359

 

 
2,977