NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
NOTE 1. BASIS OF PRESENTATION
The accompanying unaudited consolidated financial statements were prepared in accordance with instructions for Form 10-Q and therefore, do
not include all disclosures required by generally accepted accounting principles for a complete presentation of financial statements. In the opinion of management, the consolidated financial statements contain all adjustments necessary to present
fairly the financial condition of Surrey Bancorp, (the Company), as of September 30, 2013, the results of operations and comprehensive income for the three and nine months ended September 30, 2013 and 2012, and its changes in
stockholders equity and cash flows for the nine months ended September 30, 2013 and 2012. These adjustments are of a normal and recurring nature. The results of operations for the nine months ended September 30, 2013, are not
necessarily indicative of the results expected for the full year. These consolidated financial statements should be read in conjunction with the Companys audited financial statements and related disclosures for the year ended December 31,
2012, included in the Companys Form 10-K. The balance sheet at December 31, 2012, has been taken from the audited financial statements at that date.
Organization
Surrey Bancorp began operation on
May 1, 2003 and was created for the purpose of acquiring all the outstanding shares of common stock of Surrey Bank & Trust. Stockholders of the bank received six shares of Surrey Bancorp common stock for every five shares of Surrey
Bank & Trust common stock owned. The Company is subject to regulation by the Federal Reserve.
Surrey Bank & Trust (the
Bank) was organized and incorporated under the laws of the State of North Carolina on July 15, 1996 and commenced operations on July 22, 1996. The Bank currently serves Surry County, North Carolina and Patrick County, Virginia
and surrounding areas through five banking offices. As a state chartered bank, which is not a member of the Federal Reserve, the Bank is subject to regulation by the State of North Carolina Banking Commission and the Federal Deposit Insurance
Corporation.
Surrey Investment Services, Inc., (Subsidiary) was organized and incorporated under the laws of the State of North Carolina on
February 10, 1998. The subsidiary provides insurance services through SB&T Insurance and investment advice and brokerage services through LPL Financial.
On July 31, 2000, Surrey Bank & Trust formed Freedom Finance, LLC, a subsidiary operation specializing in the purchase of sales finance
contracts from local automobile dealers.
The accounting and reporting policies of the Company, the Bank, and its subsidiaries follow generally accepted
accounting principles and general practices within the financial services industry. Following is a summary of the more significant policies.
Critical Accounting Policies
The notes to the
audited consolidated financial statements for the year ended December 31, 2012 contain a summary of the significant accounting policies. The Company believes our policies with respect to the methodology for the determination of the allowance
for loan losses, and asset impairment judgments, including the recoverability of intangible assets involve a higher degree of complexity and require management to make difficult and subjective judgments which often require assumptions or estimates
about highly uncertain matters. Changes in these judgments, assumptions or estimates could cause reported results to differ materially. These critical policies and their application are periodically reviewed with the Audit Committee and our Board of
Directors. See our Annual Report on Form 10-K for full details on critical accounting policies.
Principles of Consolidation
The consolidated financial statements include the accounts of the Company, the Bank and the subsidiaries. All significant intercompany transactions and
balances have been eliminated in consolidation.
9
SURREY BANCORP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1. BASIS OF PRESENTATION, CONTINUED
Presentation of Cash Flows
For purposes of reporting cash flows, cash and cash equivalents includes cash and amounts due from depository institutions (including cash items in process of
collection). Overnight interest bearing deposits and federal funds sold are shown separately. Federal funds purchased are shown with securities sold under agreements to repurchase.
Investment Securities
Investments classified as
available for sale are intended to be held for indefinite periods of time and include those securities that management may employ as part of asset/liability strategy or that may be sold in response to changes in interest rates, prepayments,
regulatory capital requirements or similar factors. These securities are carried at fair value and are based on quoted market prices, where available. If quoted market prices are not available, fair values are based on quoted market prices of
comparable instruments or significant other observable inputs.
Investment securities classified as held to maturity are those debt securities that the
Bank has the ability and intent to hold to maturity. Accordingly, these securities are carried at cost adjusted for amortization of premiums and accretion of discount, computed by the interest-method over their contractual lives. At
September 30, 2013 and December 31, 2012, the Bank had no investments classified as held to maturity.
Loans Held for Sale
The Bank originates and holds Small Business Administration (SBA) and United States Department of Agriculture (USDA) guaranteed loans in its portfolio in the
normal course of business. Occasionally, the Bank sells the guaranteed portions of these loans into the secondary market. The loans are generally variable rate loans, which eliminates the market risk to the Bank and are therefore carried at cost.
The Bank recognizes gains on the sale of the guaranteed portion upon the consummation of the transaction. The Bank plans to continue to originate guaranteed loans for sales, however no such loans were funded at September 30, 2013 and
December 31, 2012.
Loans Receivable
Loans receivable that management has the intent and ability to hold for the foreseeable future or until maturity or payoff are reported at their outstanding
principal amount adjusted for any charge-offs, the allowance for loan losses, and any deferred fees or cost on originated loans and unamortized premiums or discounts on purchased loans.
Loan origination fees and certain direct origination costs are capitalized and recognized as an adjustment of the yield of the related loan using the interest
method. Discounts and premiums on any purchased residential real estate loans are amortized to income using the interest method over the remaining period to contractual maturity, adjusted for anticipated prepayments. Discounts and premiums on any
purchased consumer loans are recognized over the expected lives of the loans using methods that approximate the interest method.
Interest is accrued and
credited to income based on the principal amount outstanding. The accrual of interest on impaired loans is discontinued when, in managements opinion, the borrower may be unable to meet payments as they become due. When the interest accrual is
discontinued, all unpaid accrued interest is reversed. Interest income is subsequently recognized only to the extent cash payments are received. Payments received on nonaccrual loans are first applied to principal and any residual amounts are then
applied to interest. When facts and circumstances indicate the borrower has regained the ability to meet the required payments, the loan is returned to accrual status. Past due loans are determined on the basis of contractual terms.
10
SURREY BANCORP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1. BASIS OF PRESENTATION, CONTINUED
Allowance for Loan Losses
The allowance for loan losses is established as losses are estimated to have occurred through a provision for loan losses charged to earnings. Loan losses are
charged against the allowance when management believes the uncollectability of a loan balance is confirmed. Subsequent recoveries, if any, are credited to the allowance.
The allowance for loan losses is evaluated on a regular basis by management and is based upon managements periodic review of the collectability of the
loans in light of historical experience, the nature and volume of the loan portfolio, adverse situations that may affect the borrowers ability to repay, estimated value of any underlying collateral and prevailing economic conditions. This
evaluation is inherently subjective as it requires estimates that are susceptible to significant revision as more information becomes available.
The
allowance consists of specific, general and unallocated components. The specific component relates to loans that are classified as impaired. For loans that are classified as impaired, an allowance is established when the discounted cash flows (or
collateral value or observable market price) of the impaired loan is lower than the carrying value of that loan. The general component covers non-impaired loans and is based on historical loss experience adjusted for qualitative factors. An
unallocated component is maintained to cover uncertainties that could affect managements estimate of probable losses. The unallocated component of the allowance reflects the margin of imprecision inherent in the underlying assumptions used in
the methodologies for estimating specific and general losses in the portfolio.
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
borrowers 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 loans effective interest rate, the loans obtainable market price, or the fair value of the collateral if the loan is collateral dependent.
Large groups of smaller balance homogeneous loans are collectively evaluated for impairment. Accordingly, the Company does not separately identify individual
consumer and residential loans for impairment disclosures.
Recent Accounting Pronouncements
The following is a summary of recent authoritative pronouncements:
In July 2012, the Intangibles topic was amended to permit an entity to consider qualitative factors to determine whether it is more likely than not that
indefinite-lived intangible assets are impaired. If it is determined to be more likely than not that indefinite-lived intangible assets are impaired, then the entity is required to determine the fair value of the indefinite-lived intangible asset
and perform the quantitative impairment test by comparing the fair value with the carrying amount. The amendments were effective for annual and interim impairment tests performed for fiscal years beginning after September 15, 2012. The
amendments did not have a material effect on the Companys financial statements.
11
SURREY BANCORP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1. BASIS OF PRESENTATION, CONTINUED
Recent Accounting Pronouncements, continued
The Comprehensive Income topic of the ASC was amended in September 2011. The amendment eliminated the option to present other comprehensive income as a part of
the statement of changes in stockholders equity and required consecutive presentation of the statement of net income and other comprehensive income. The amendments were applicable to the Company January 1, 2012 and have been applied
retrospectively. In December 2011, the topic was further amended to defer the effective date of presenting reclassification adjustments from other comprehensive income to net income on the face of the financial statements while the FASB
redeliberated the presentation requirements for the reclassification adjustments. In February 2013, the FASB further amended the Comprehensive Income topic clarifying the conclusions from such redeliberations. Specifically, the amendments do not
change the current requirements for reporting net income or other comprehensive income in financial statements. However, the amendments do require an entity to provide information about the amounts reclassified out of accumulated other comprehensive
income by component. In addition, in certain circumstances an entity is required to present, either on the face of the statement where net income is presented or in the notes, significant amounts reclassified out of accumulated other comprehensive
income by the respective line items of net income. The amendments were effective for the Company on a prospective basis beginning January 1, 2013. These amendments did not have a material effect on the Companys financial statements.
On April 22, 2013, the FASB issued guidance addressing application of the liquidation basis of accounting. The guidance is intended to clarify when an
entity should apply the liquidation basis of accounting. In addition, the guidance provides principles for the recognition and measurement of assets and liabilities and requirements for financial statements prepared using the liquidation basis of
accounting. The amendments will be effective for entities that determine liquidation is imminent during annual reporting periods beginning after December 15, 2013, and interim reporting periods therein and those requirements should be applied
prospectively from the day that liquidation becomes imminent. Early adoption is permitted. The Company does not expect these amendments to have any effect on its financial statements.
Other accounting standards that have been issued or proposed by the FASB or other standards-setting bodies are not expected to have a material impact on the
Companys financial position, results of operations or cash flows.
Subsequent Events
Subsequent events are events or transactions that occur after the balance sheet date but before financial statements are issued. Recognized subsequent events
are events or transactions that provide additional evidence about conditions that existed at the date of the balance sheet, including the estimates inherent in the process of preparing financial statements. Non-recognized subsequent events are
events that provide evidence about conditions that did not exist at the date of the balance sheet but arose after that date. Management has reviewed events occurring through the date the financial statements were issued and no subsequent events have
occurred requiring accrual or disclosure.
12
SURREY BANCORP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 2. SECURITIES
Debt and equity securities have been classified in the balance sheets according to managements intent. The amortized costs of
securities available for sale and their approximate fair values at September 30, 2013 and December 31, 2012 follow:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amortized
|
|
|
Unrealized
|
|
|
Unrealized
|
|
|
Fair
|
|
|
|
Cost
|
|
|
Gains
|
|
|
Losses
|
|
|
Value
|
|
|
|
|
|
|
September 30, 2013
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Government-sponsored enterprises
|
|
$
|
3,500,000
|
|
|
$
|
2,900
|
|
|
$
|
3,895
|
|
|
$
|
3,499,005
|
|
Mortgage-backed securities
|
|
|
34,067
|
|
|
|
1,077
|
|
|
|
|
|
|
|
35,144
|
|
Corporate bonds
|
|
|
550,000
|
|
|
|
|
|
|
|
99,000
|
|
|
|
451,000
|
|
Equities and mutual funds
|
|
|
520,180
|
|
|
|
28,869
|
|
|
|
5,542
|
|
|
|
543,507
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
4,604,247
|
|
|
$
|
32,846
|
|
|
$
|
108,437
|
|
|
$
|
4,528,656
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2012
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Government-sponsored enterprises
|
|
$
|
2,500,000
|
|
|
$
|
4,875
|
|
|
$
|
|
|
|
$
|
2,504,875
|
|
Mortgage-backed securities
|
|
|
41,659
|
|
|
|
1,316
|
|
|
|
|
|
|
|
42,975
|
|
Corporate bonds
|
|
|
550,000
|
|
|
|
|
|
|
|
107,250
|
|
|
|
442,750
|
|
Equities and mutual funds
|
|
|
508,836
|
|
|
|
3,416
|
|
|
|
|
|
|
|
512,252
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
3,600,495
|
|
|
$
|
9,607
|
|
|
$
|
107,250
|
|
|
$
|
3,502,852
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
At September 30, 2013 and December 31, 2012, substantially all government-sponsored enterprises securities were
pledged as collateral on public deposits and for other purposes as required or permitted by law. The mortgage-backed securities were pledged to the Federal Home Loan Bank.
Maturities of mortgage-backed bonds are stated based on contractual maturities. Actual maturities of these bonds may vary as the underlying mortgages are
prepaid. The scheduled maturities of securities (all available for sale) at September 30, 2013, were as follows:
|
|
|
|
|
|
|
|
|
|
|
Amortized
|
|
|
Fair
|
|
|
|
Cost
|
|
|
Value
|
|
Due in one year or less
|
|
$
|
520,180
|
|
|
$
|
543,507
|
|
Due after one year through five years
|
|
|
4,057,373
|
|
|
|
3,957,431
|
|
Due after five years through ten years
|
|
|
15,739
|
|
|
|
16,354
|
|
Due after ten years
|
|
|
10,955
|
|
|
|
11,364
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
4,604,247
|
|
|
$
|
4,528,656
|
|
|
|
|
|
|
|
|
|
|
The following table shows investments gross unrealized losses and fair value, aggregated by investment category and
length of time that the individual securities have been in a continuous unrealized loss position, at September 30, 2013 and December 31, 2012. These unrealized losses on investment securities are a result of volatility in interest rates
which relate to government-sponsored enterprises and corporate bonds issued by other banks and market volatility as it relates to equity and mutual fund investments at September 30, 2013 and December 31, 2012.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Less Than 12 Months
|
|
|
12 Months or More
|
|
|
Total
|
|
|
|
Fair
|
|
|
Unrealized
|
|
|
Fair
|
|
|
Unrealized
|
|
|
Fair
|
|
|
Unrealized
|
|
|
|
Value
|
|
|
Losses
|
|
|
Value
|
|
|
Losses
|
|
|
Value
|
|
|
Losses
|
|
|
|
|
|
|
|
|
September 30, 2013
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Government-sponsored enterprises
|
|
$
|
1,496,105
|
|
|
$
|
3,895
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
1,496,105
|
|
|
$
|
3,895
|
|
Corporate bonds
|
|
|
|
|
|
|
|
|
|
|
451,000
|
|
|
|
99,000
|
|
|
|
451,000
|
|
|
|
99,000
|
|
Equities and mutual funds
|
|
|
256,350
|
|
|
|
5,542
|
|
|
|
|
|
|
|
|
|
|
|
256,350
|
|
|
|
5,542
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
1,752,455
|
|
|
$
|
9,437
|
|
|
$
|
451,000
|
|
|
$
|
99,000
|
|
|
$
|
2,203,455
|
|
|
$
|
108,437
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2012
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Corporate bonds
|
|
$
|
|
|
|
$
|
|
|
|
$
|
442,750
|
|
|
$
|
107,250
|
|
|
$
|
442,750
|
|
|
$
|
107,250
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
442,750
|
|
|
$
|
107,250
|
|
|
$
|
442,750
|
|
|
$
|
107,250
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
13
SURREY BANCORP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 2. SECURITIES, CONTINUED
Management considers the nature of the investment, the underlying causes of the decline in the market value
and the severity and duration of the decline in market value in determining if impairment is other than temporary. 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 condition 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. Based upon this
evaluation, there are two securities in the portfolio at September 30, 2013, with unrealized losses for a period greater than 12 months. These securities also had unrealized losses for a period greater than 12 months at December 31, 2012.
We have analyzed each individual security for Other Than Temporary Impairment (OTTI) purposes by reviewing delinquencies, loan-to-value ratios, and credit quality and concluded that all unrealized losses presented in the tables above are
not related to an issuers financial condition but are due to changes in the level of interest rates and no declines are deemed to be other than temporary in nature.
The Company had realized gains of $5,297 from the sales of equity and mutual fund investment securities for the nine month periods ended September 30,
2013. Total proceeds from the sales amounted to $47,268. There were no such gains in 2012.
NOTE 3. EARNINGS PER SHARE
Basic earnings per share for the nine and three months ended September 30, 2013 and 2012 were calculated by dividing net income
available to common stockholders by the weighted average number of shares outstanding during the period.
The computation of diluted earnings per share is
similar to the computation of basic earnings per share except that the denominator is increased to include the number of additional common shares that would have been outstanding if dilutive potential common shares had been issued. The numerator is
adjusted for any changes in income or loss that would result from the assumed conversion of those potential common shares. The potential dilutive shares are represented by common stock options and by the Series A and D convertible preferred stock.
Each share of the Series A preferred is convertible into 2.2955 shares of common stock. Each share of Series D preferred is convertible into 1.10 shares of common stock.
NOTE 4. COMMITMENTS AND LETTERS OF CREDIT
At September 30, 2013, the Company had commitments to extend credit, including unused lines of credit of approximately $33,263,000 and
letters of credit outstanding of $1,649,500.
NOTE 5. LOANS
The major components of loans in the balance sheets at September 30, 2013 and December 31, 2012 are below.
|
|
|
|
|
|
|
|
|
|
|
2013
|
|
|
2012
|
|
|
|
|
Commercial
|
|
$
|
67,225,422
|
|
|
$
|
75,914,072
|
|
Real estate:
|
|
|
|
|
|
|
|
|
Construction and land development
|
|
|
4,941,654
|
|
|
|
4,873,512
|
|
Residential, 1-4 families
|
|
|
38,040,049
|
|
|
|
36,091,051
|
|
Residential, 5 or more families
|
|
|
1,561,060
|
|
|
|
1,676,449
|
|
Farmland
|
|
|
2,227,847
|
|
|
|
2,284,155
|
|
Nonfarm, nonresidential, net of discounts of $136,784 in 2013 and $22,001 in 2012
|
|
|
61,366,016
|
|
|
|
48,993,867
|
|
Agricultural
|
|
|
109,993
|
|
|
|
147,860
|
|
Consumer, net of discounts of $10,797 in 2013 and $17,764 in 2012
|
|
|
6,071,806
|
|
|
|
6,703,363
|
|
Other
|
|
|
1,789
|
|
|
|
3,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
181,545,636
|
|
|
|
176,687,329
|
|
|
|
|
Deferred loan origination costs, net of (fees)
|
|
|
273,340
|
|
|
|
293,334
|
|
|
|
|
|
|
|
|
|
|
|
|
|
181,818,976
|
|
|
|
176,980,663
|
|
Allowance for loan losses
|
|
|
(3,299,860
|
)
|
|
|
(3,403,098
|
)
|
|
|
|
|
|
|
|
|
|
|
|
$
|
178,519,116
|
|
|
$
|
173,577,565
|
|
|
|
|
|
|
|
|
|
|
14
SURREY BANCORP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 5. LOANS, CONTINUED
Residential, 1-4 family loans pledged as collateral against FHLB advances approximated $18,141,000 and
$17,765,000 at September 30, 2013 and December 31, 2012, respectively.
NOTE 6. ALLOWANCE FOR LOAN LOSSES
The activity of the allowance for loan losses by loan components during the nine months ended September 30, 2013 and 2012 was as
follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Construction
|
|
|
|
|
|
|
|
|
Commercial
|
|
|
|
|
|
|
|
|
|
|
|
|
&
|
|
|
1-4 Family
|
|
|
Nonfarm,
|
|
|
&
|
|
|
|
|
|
|
|
|
|
|
|
|
Development
|
|
|
Residential
|
|
|
Nonresidential
|
|
|
Industrial
|
|
|
Consumer
|
|
|
Other
|
|
|
Total
|
|
|
|
|
|
|
|
|
|
September 30, 2013
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Allowance for credit losses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Beginning balance
|
|
$
|
86,300
|
|
|
$
|
668,700
|
|
|
$
|
801,999
|
|
|
$
|
1,604,510
|
|
|
$
|
198,789
|
|
|
$
|
42,800
|
|
|
$
|
3,403,098
|
|
Charge-offs
|
|
|
|
|
|
|
(26,967
|
)
|
|
|
(166,517
|
)
|
|
|
(51,028
|
)
|
|
|
(67,988
|
)
|
|
|
|
|
|
|
(312,500
|
)
|
Recoveries
|
|
|
533
|
|
|
|
402
|
|
|
|
1,357
|
|
|
|
34,719
|
|
|
|
24,138
|
|
|
|
|
|
|
|
61,149
|
|
Provision
|
|
|
(4,833
|
)
|
|
|
38,717
|
|
|
|
185,598
|
|
|
|
(86,871
|
)
|
|
|
15,702
|
|
|
|
(200
|
)
|
|
|
148,113
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ending balance
|
|
$
|
82,000
|
|
|
$
|
680,852
|
|
|
$
|
822,437
|
|
|
$
|
1,501,330
|
|
|
$
|
170,641
|
|
|
$
|
42,600
|
|
|
$
|
3,299,860
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ending balance: individually evaluated for impairment
|
|
$
|
|
|
|
$
|
11,652
|
|
|
$
|
201,637
|
|
|
$
|
167,530
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
380,819
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ending balance: collectively evaluated for impairment
|
|
$
|
82,000
|
|
|
$
|
669,200
|
|
|
$
|
620,800
|
|
|
$
|
1,333,800
|
|
|
$
|
170,641
|
|
|
$
|
42,600
|
|
|
$
|
2,919,041
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ending balance: loans acquired with deteriorated credit quality
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loans Receivable:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ending balance
|
|
$
|
4,941,654
|
|
|
$
|
38,040,049
|
|
|
$
|
61,366,016
|
|
|
$
|
67,225,422
|
|
|
$
|
6,071,806
|
|
|
$
|
3,900,689
|
|
|
$
|
181,545,636
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ending balance: individually evaluated for impairment
|
|
$
|
85,562
|
|
|
$
|
330,199
|
|
|
$
|
3,128,863
|
|
|
$
|
2,285,488
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
5,830,112
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ending balance: collectively evaluated for impairment
|
|
$
|
4,856,092
|
|
|
$
|
37,709,850
|
|
|
$
|
58,237,153
|
|
|
$
|
64,939,934
|
|
|
$
|
6,071,806
|
|
|
$
|
3,900,689
|
|
|
$
|
175,715,524
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ending balance: loans acquired with deteriorated credit quality
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
September 30, 2012
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Allowance for credit losses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Beginning balance
|
|
$
|
103,200
|
|
|
$
|
836,860
|
|
|
$
|
865,854
|
|
|
$
|
1,808,260
|
|
|
$
|
210,807
|
|
|
$
|
55,600
|
|
|
$
|
3,880,581
|
|
Charge-offs
|
|
|
(7,286
|
)
|
|
|
(271,224
|
)
|
|
|
(21,831
|
)
|
|
|
(710,645
|
)
|
|
|
(151,102
|
)
|
|
|
|
|
|
|
(1,162,088
|
)
|
Recoveries
|
|
|
250
|
|
|
|
752
|
|
|
|
83,968
|
|
|
|
132,949
|
|
|
|
16,393
|
|
|
|
|
|
|
|
234,312
|
|
Provision
|
|
|
8,105
|
|
|
|
142,712
|
|
|
|
(5,404
|
)
|
|
|
513,462
|
|
|
|
133,797
|
|
|
|
(12,300
|
)
|
|
|
780,372
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ending balance
|
|
$
|
104,269
|
|
|
$
|
709,100
|
|
|
$
|
922,587
|
|
|
$
|
1,744,026
|
|
|
$
|
209,895
|
|
|
$
|
43,300
|
|
|
$
|
3,733,177
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ending balance: individually evaluated for impairment
|
|
$
|
3,869
|
|
|
$
|
|
|
|
$
|
339,087
|
|
|
$
|
185,726
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
528,682
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ending balance: collectively evaluated for impairment
|
|
$
|
100,400
|
|
|
$
|
709,100
|
|
|
$
|
583,500
|
|
|
$
|
1,558,300
|
|
|
$
|
209,895
|
|
|
$
|
43,300
|
|
|
$
|
3,204,495
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ending balance: loans acquired with deteriorated credit quality
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loans Receivable:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ending balance
|
|
$
|
5,585,372
|
|
|
$
|
36,853,785
|
|
|
$
|
48,853,854
|
|
|
$
|
84,317,344
|
|
|
$
|
7,090,254
|
|
|
$
|
4,183,808
|
|
|
$
|
186,884,417
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ending balance: individually evaluated for impairment
|
|
$
|
88,429
|
|
|
$
|
290,489
|
|
|
$
|
3,235,812
|
|
|
$
|
2,457,177
|
|
|
$
|
|
|
|
$
|
207,179
|
|
|
$
|
6,279,086
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ending balance: collectively evaluated for impairment
|
|
$
|
5,496,943
|
|
|
$
|
36,563,296
|
|
|
$
|
45,618,042
|
|
|
$
|
81,860,167
|
|
|
$
|
7,090,254
|
|
|
$
|
3,976,629
|
|
|
$
|
180,605,331
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ending balance: loans acquired with deteriorated credit quality
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
15
SURREY BANCORP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 6. ALLOWANCE FOR LOAN LOSSES, CONTINUED
The following table presents impaired loans individually evaluated by class of loan as of September 30,
2013 and December 31, 2012 and the recognized interest income per the related period:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unpaid
|
|
|
|
|
|
Average
|
|
|
Interest
|
|
|
|
Recorded
|
|
|
Principal
|
|
|
Related
|
|
|
Recorded
|
|
|
Income
|
|
|
|
Investment
|
|
|
Balance
|
|
|
Allowance
|
|
|
Investment
|
|
|
Recognized
|
|
|
|
|
|
|
|
September 30, 2013
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
With no related allowance recorded:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Construction and development
|
|
$
|
85,562
|
|
|
$
|
85,562
|
|
|
$
|
|
|
|
$
|
87,038
|
|
|
$
|
4,033
|
|
1-4 family residential
|
|
|
254,777
|
|
|
|
254,777
|
|
|
|
|
|
|
|
272,985
|
|
|
|
2,003
|
|
Nonfarm, nonresidential
|
|
|
1,660,595
|
|
|
|
1,742,231
|
|
|
|
|
|
|
|
1,830,858
|
|
|
|
41,522
|
|
Commercial and industrial
|
|
|
1,306,985
|
|
|
|
1,481,473
|
|
|
|
|
|
|
|
1,340,485
|
|
|
|
50,391
|
|
Consumer
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other loans
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3,307,919
|
|
|
|
3,564,043
|
|
|
|
|
|
|
|
3,531,366
|
|
|
|
97,949
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
With an allowance recorded:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Construction and development
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
1-4 family residential
|
|
|
75,422
|
|
|
|
75,422
|
|
|
|
11,652
|
|
|
|
79,601
|
|
|
|
1,275
|
|
Nonfarm, nonresidential
|
|
|
1,468,268
|
|
|
|
1,490,099
|
|
|
|
201,637
|
|
|
|
1,536,258
|
|
|
|
11,006
|
|
Commercial and industrial
|
|
|
978,503
|
|
|
|
978,503
|
|
|
|
167,530
|
|
|
|
1,011,624
|
|
|
|
11,601
|
|
Consumer
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other loans
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,522,193
|
|
|
|
2,544,024
|
|
|
|
380,819
|
|
|
|
2,627,483
|
|
|
|
23,882
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Combined:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Construction and development
|
|
$
|
85,562
|
|
|
$
|
85,562
|
|
|
$
|
|
|
|
$
|
87,038
|
|
|
$
|
4,033
|
|
1-4 family residential
|
|
|
330,199
|
|
|
|
330,199
|
|
|
|
11,652
|
|
|
|
352,586
|
|
|
|
3,278
|
|
Nonfarm, nonresidential
|
|
|
3,128,863
|
|
|
|
3,232,330
|
|
|
|
201,637
|
|
|
|
3,367,116
|
|
|
|
52,528
|
|
Commercial and industrial
|
|
|
2,285,488
|
|
|
|
2,459,976
|
|
|
|
167,530
|
|
|
|
2,352,109
|
|
|
|
61,992
|
|
Consumer
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other loans
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
5,830,112
|
|
|
$
|
6,108,067
|
|
|
$
|
380,819
|
|
|
$
|
6,158,849
|
|
|
$
|
121,831
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2012
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
With no related allowance recorded:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Construction and development
|
|
$
|
86,567
|
|
|
$
|
86,567
|
|
|
$
|
|
|
|
$
|
87,668
|
|
|
$
|
4,898
|
|
1-4 family residential
|
|
|
284,884
|
|
|
|
284,884
|
|
|
|
|
|
|
|
287,802
|
|
|
|
19,798
|
|
Nonfarm, nonresidential
|
|
|
1,381,111
|
|
|
|
1,381,111
|
|
|
|
|
|
|
|
1,396,123
|
|
|
|
81,741
|
|
Commercial and industrial
|
|
|
1,372,796
|
|
|
|
1,547,284
|
|
|
|
|
|
|
|
1,312,662
|
|
|
|
67,194
|
|
Consumer
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other loans
|
|
|
195,989
|
|
|
|
195,989
|
|
|
|
|
|
|
|
199,895
|
|
|
|
18,025
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3,321,347
|
|
|
|
3,495,835
|
|
|
|
|
|
|
|
3,284,150
|
|
|
|
191,656
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
With an allowance recorded:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Construction and development
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
1-4 family residential
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nonfarm, nonresidential
|
|
|
1,804,769
|
|
|
|
1,826,600
|
|
|
|
319,699
|
|
|
|
1,813,156
|
|
|
|
70,705
|
|
Commercial and industrial
|
|
|
1,000,379
|
|
|
|
1,000,379
|
|
|
|
195,410
|
|
|
|
1,006,640
|
|
|
|
39,320
|
|
Consumer
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other loans
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,805,148
|
|
|
|
2,826,979
|
|
|
|
515,109
|
|
|
|
2,819,796
|
|
|
|
110,025
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Combined:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Construction and development
|
|
$
|
86,567
|
|
|
$
|
86,567
|
|
|
$
|
|
|
|
$
|
87,668
|
|
|
$
|
4,898
|
|
1-4 family residential
|
|
|
284,884
|
|
|
|
284,884
|
|
|
|
|
|
|
|
287,802
|
|
|
|
19,798
|
|
Nonfarm, nonresidential
|
|
|
3,185,880
|
|
|
|
3,207,711
|
|
|
|
319,699
|
|
|
|
3,209,279
|
|
|
|
152,446
|
|
Commercial and industrial
|
|
|
2,373,175
|
|
|
|
2,547,663
|
|
|
|
195,410
|
|
|
|
2,319,302
|
|
|
|
106,514
|
|
Consumer
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other loans
|
|
|
195,989
|
|
|
|
195,989
|
|
|
|
|
|
|
|
199,895
|
|
|
|
18,025
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
6,126,495
|
|
|
$
|
6,322,814
|
|
|
$
|
515,109
|
|
|
$
|
6,103,946
|
|
|
$
|
301,681
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
16
SURREY BANCORP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 6. ALLOWANCE FOR LOAN LOSSES, CONTINUED
The following presents by class, an aging analysis of the recorded investment in loans.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Recorded
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investment
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
> 90 Days
|
|
|
|
30-59 Days
|
|
|
60-89 Days
|
|
|
90 Days Plus
|
|
|
Total
|
|
|
|
|
|
Financing
|
|
|
and
|
|
|
|
Past Due
|
|
|
Past Due
|
|
|
Past Due
|
|
|
Past Due
|
|
|
Current
|
|
|
Receivables
|
|
|
Accruing
|
|
September 30, 2013
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Construction and development
|
|
$
|
32,174
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
32,174
|
|
|
$
|
4,909,480
|
|
|
$
|
4,941,654
|
|
|
$
|
|
|
1-4 family residential
|
|
|
424,565
|
|
|
|
300,806
|
|
|
|
|
|
|
|
725,371
|
|
|
|
37,314,678
|
|
|
|
38,040,049
|
|
|
|
|
|
Nonfarm, nonresidential
|
|
|
383,177
|
|
|
|
184,056
|
|
|
|
437,363
|
|
|
|
1,004,596
|
|
|
|
60,361,420
|
|
|
|
61,366,016
|
|
|
|
|
|
Commercial and industrial
|
|
|
621,797
|
|
|
|
66,285
|
|
|
|
656,607
|
|
|
|
1,344,689
|
|
|
|
65,880,733
|
|
|
|
67,225,422
|
|
|
|
|
|
Consumer
|
|
|
102,363
|
|
|
|
54,138
|
|
|
|
3,115
|
|
|
|
159,616
|
|
|
|
5,912,190
|
|
|
|
6,071,806
|
|
|
|
3,115
|
|
Other loans
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3,900,689
|
|
|
|
3,900,689
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
1,564,076
|
|
|
$
|
605,285
|
|
|
$
|
1,097,085
|
|
|
$
|
3,266,446
|
|
|
$
|
178,279,190
|
|
|
$
|
181,545,636
|
|
|
$
|
3,115
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Percentage of total loans
|
|
|
0.86
|
%
|
|
|
0.33
|
%
|
|
|
0.61
|
%
|
|
|
1.80
|
%
|
|
|
98.20
|
%
|
|
|
100.00
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-accruals included above
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Construction and development
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
71,010
|
|
|
$
|
71,010
|
|
|
|
|
|
1-4 family residential
|
|
|
54,778
|
|
|
|
|
|
|
|
|
|
|
|
54,778
|
|
|
|
251,538
|
|
|
|
306,316
|
|
|
|
|
|
Nonfarm, nonresidential
|
|
|
376,347
|
|
|
|
70,390
|
|
|
|
437,363
|
|
|
|
884,100
|
|
|
|
1,289,593
|
|
|
|
2,173,693
|
|
|
|
|
|
Commercial and industrial
|
|
|
530,408
|
|
|
|
|
|
|
|
656,607
|
|
|
|
1,187,015
|
|
|
|
132,977
|
|
|
|
1,319,992
|
|
|
|
|
|
Consumer
|
|
|
1,986
|
|
|
|
|
|
|
|
|
|
|
|
1,986
|
|
|
|
2,938
|
|
|
|
4,924
|
|
|
|
|
|
Other loans
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
963,519
|
|
|
$
|
70,390
|
|
|
$
|
1,093,970
|
|
|
$
|
2,127,879
|
|
|
$
|
1,748,056
|
|
|
$
|
3,875,935
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2012
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Construction and development
|
|
$
|
73,572
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
73,572
|
|
|
$
|
4,799,940
|
|
|
$
|
4,873,512
|
|
|
$
|
|
|
1-4 family residential
|
|
|
380,731
|
|
|
|
|
|
|
|
324,357
|
|
|
|
705,088
|
|
|
|
35,385,963
|
|
|
|
36,091,051
|
|
|
|
292,583
|
|
Nonfarm, nonresidential
|
|
|
711,408
|
|
|
|
197,479
|
|
|
|
386,160
|
|
|
|
1,295,047
|
|
|
|
47,698,820
|
|
|
|
48,993,867
|
|
|
|
|
|
Commercial and industrial
|
|
|
256,672
|
|
|
|
53,391
|
|
|
|
429,226
|
|
|
|
739,289
|
|
|
|
75,174,783
|
|
|
|
75,914,072
|
|
|
|
377,494
|
|
Consumer
|
|
|
172,379
|
|
|
|
28,922
|
|
|
|
13,643
|
|
|
|
214,944
|
|
|
|
6,488,419
|
|
|
|
6,703,363
|
|
|
|
13,643
|
|
Other loans
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
4,111,464
|
|
|
|
4,111,464
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
1,594,762
|
|
|
$
|
279,792
|
|
|
$
|
1,153,386
|
|
|
$
|
3,027,940
|
|
|
$
|
173,659,389
|
|
|
$
|
176,687,329
|
|
|
$
|
683,720
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Percentage of total loans
|
|
|
0.90
|
%
|
|
|
0.16
|
%
|
|
|
0.65
|
%
|
|
|
1.71
|
%
|
|
|
98.29
|
%
|
|
|
100.00
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-accruals included above
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Construction and development
|
|
$
|
73,572
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
73,572
|
|
|
$
|
12,995
|
|
|
$
|
86,567
|
|
|
|
|
|
1-4 family residential
|
|
|
84,838
|
|
|
|
|
|
|
|
31,775
|
|
|
|
116,613
|
|
|
|
359,129
|
|
|
|
475,742
|
|
|
|
|
|
Nonfarm, nonresidential
|
|
|
|
|
|
|
89,322
|
|
|
|
386,160
|
|
|
|
475,482
|
|
|
|
1,690,633
|
|
|
|
2,166,115
|
|
|
|
|
|
Commercial and industrial
|
|
|
|
|
|
|
|
|
|
|
51,731
|
|
|
|
51,731
|
|
|
|
760,662
|
|
|
|
812,393
|
|
|
|
|
|
Consumer
|
|
|
1,612
|
|
|
|
|
|
|
|
|
|
|
|
1,612
|
|
|
|
2,306
|
|
|
|
3,918
|
|
|
|
|
|
Other loans
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
195,990
|
|
|
|
195,990
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
160,022
|
|
|
$
|
89,322
|
|
|
$
|
469,666
|
|
|
$
|
719,010
|
|
|
$
|
3,021,715
|
|
|
$
|
3,740,725
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Credit Quality Indicators:
The Company 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. The Company analyzes loans individually by classifying the loans as to credit risk. Loans classified as
substandard or special mention are reviewed quarterly by the Company for further impairment or improvement to determine if appropriately classified. All other loans greater than $500,000, commercial lines greater than $250,000 and personal lines of
credit greater than $100,000, and unsecured loans greater than $100,000 are specifically reviewed at least annually to determine the appropriate loan grading. In addition, during the renewal process of any loan, as well as when a loan becomes past
due, the Company will evaluate the loan grade.
17
SURREY BANCORP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 6. ALLOWANCE FOR LOAN LOSSES, CONTINUED
Loans excluded from the scope of the annual review process above are generally classified as pass credits
until: (a) they become past due; (b) management becomes aware of deterioration in the credit worthiness of the borrower; or (c) the customer contacts the Company for a modification. In these circumstances, the loan is specifically
evaluated for potential classification as to special mention, substandard or even charged off. The Company uses the following definitions for risk ratings:
Special Mention
. Loans classified as special mention have a potential weakness that deserves managements close attention. If left
uncorrected, these potential weaknesses may result in deterioration of the repayment prospects for the loan or of the institutions credit position at some future date.
Substandard
. Loans classified as substandard are inadequately protected by the current net worth and payment capacity of the obligor or
of the collateral pledged, if any. Loans so classified 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 as doubtful have all the weaknesses inherent in those classified as
substandard, with 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.
Loans by credit quality indicator are provided in the following table.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Special
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
Pass Credits
|
|
|
Mention
|
|
|
Substandard
|
|
|
Doubtful
|
|
|
|
|
|
|
|
September 30, 2013
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Construction and development
|
|
$
|
4,941,654
|
|
|
$
|
4,870,644
|
|
|
$
|
71,010
|
|
|
$
|
|
|
|
$
|
|
|
1-4 family residential
|
|
|
38,040,049
|
|
|
|
37,732,683
|
|
|
|
307,366
|
|
|
|
|
|
|
|
|
|
Nonfarm, nonresidential
|
|
|
61,366,016
|
|
|
|
59,047,105
|
|
|
|
2,141,634
|
|
|
|
177,277
|
|
|
|
|
|
Commercial and industrial
|
|
|
67,225,422
|
|
|
|
65,970,308
|
|
|
|
1,255,114
|
|
|
|
|
|
|
|
|
|
Consumer
|
|
|
6,071,806
|
|
|
|
6,071,547
|
|
|
|
259
|
|
|
|
|
|
|
|
|
|
Other loans
|
|
|
3,900,689
|
|
|
|
3,900,689
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
181,545,636
|
|
|
$
|
177,592,976
|
|
|
$
|
3,775,383
|
|
|
$
|
177,277
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
100.0
|
%
|
|
|
97.8
|
%
|
|
|
2.1
|
%
|
|
|
0.1
|
%
|
|
|
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Guaranteed portion of loans
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Construction and development
|
|
$
|
16,268
|
|
|
|
16,268
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
1-4 family residential
|
|
|
707,922
|
|
|
|
662,783
|
|
|
|
45,139
|
|
|
|
|
|
|
|
|
|
Nonfarm, nonresidential
|
|
|
27,167,833
|
|
|
|
26,250,602
|
|
|
|
854,665
|
|
|
|
62,566
|
|
|
|
|
|
Commercial and industrial
|
|
|
16,885,330
|
|
|
|
16,018,413
|
|
|
|
866,917
|
|
|
|
|
|
|
|
|
|
Consumer
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other loans
|
|
|
498,984
|
|
|
|
498,984
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
45,276,337
|
|
|
$
|
43,447,050
|
|
|
$
|
1,766,721
|
|
|
$
|
62,566
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Special
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
Pass Credits
|
|
|
Mention
|
|
|
Substandard
|
|
|
Doubtful
|
|
|
|
|
|
|
|
December 31, 2012
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Construction and development
|
|
$
|
4,873,512
|
|
|
$
|
4,786,945
|
|
|
$
|
86,567
|
|
|
$
|
|
|
|
$
|
|
|
1-4 family residential
|
|
|
36,091,051
|
|
|
|
35,755,061
|
|
|
|
335,990
|
|
|
|
|
|
|
|
|
|
Nonfarm, nonresidential
|
|
|
48,993,867
|
|
|
|
47,500,758
|
|
|
|
1,230,275
|
|
|
|
262,834
|
|
|
|
|
|
Commercial and industrial
|
|
|
75,914,072
|
|
|
|
74,878,901
|
|
|
|
1,035,171
|
|
|
|
|
|
|
|
|
|
Consumer
|
|
|
6,703,363
|
|
|
|
6,696,475
|
|
|
|
6,888
|
|
|
|
|
|
|
|
|
|
Other loans
|
|
|
4,111,464
|
|
|
|
3,915,474
|
|
|
|
195,990
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
176,687,329
|
|
|
$
|
173,533,614
|
|
|
$
|
2,890,881
|
|
|
$
|
262,834
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
100.0
|
%
|
|
|
98.2
|
%
|
|
|
1.6
|
%
|
|
|
0.2
|
%
|
|
|
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
18
SURREY BANCORP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 6. ALLOWANCE FOR LOAN LOSSES, CONTINUED
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Special
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
Pass Credits
|
|
|
Mention
|
|
|
Substandard
|
|
|
Doubtful
|
|
|
|
|
|
|
|
Guaranteed portion of loans
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Construction and development
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
1-4 family residential
|
|
|
752,677
|
|
|
|
752,677
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nonfarm, nonresidential
|
|
|
19,855,775
|
|
|
|
19,654,773
|
|
|
|
201,002
|
|
|
|
|
|
|
|
|
|
Commercial and industrial
|
|
|
22,001,515
|
|
|
|
21,354,422
|
|
|
|
647,093
|
|
|
|
|
|
|
|
|
|
Consumer
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other loans
|
|
|
508,363
|
|
|
|
508,363
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
43,118,330
|
|
|
$
|
42,270,235
|
|
|
$
|
848,095
|
|
|
$
|
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NOTE 7. TROUBLED DEBT RESTRUCTURINGS
For the quarters and nine months ended September 30, 2013 and 2012, the following table presents loans modified during the period that
were considered to be troubled debt restructurings.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the three months ended
September 30, 2013
|
|
|
For the nine months ended
September 30, 2013
|
|
|
|
Number
of
Contracts
|
|
|
Pre-
Modification
Outstanding
Recorded
Investment
|
|
|
Post-
Modification
Outstanding
Recorded
Investment
|
|
|
Number
of
Contracts
|
|
|
Pre-
Modification
Outstanding
Recorded
Investment
|
|
|
Post-
Modification
Outstanding
Recorded
Investment
|
|
Troubled Debt Restructurings
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Construction and development
|
|
|
|
|
|
$
|
|
|
|
$
|
|
|
|
|
|
|
|
$
|
|
|
|
$
|
|
|
1-4 Family residential
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1
|
|
|
|
54,376
|
|
|
|
54,376
|
|
Nonfarm, nonresidential
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1
|
|
|
|
145,219
|
|
|
|
145,219
|
|
Commercial and industrial
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the three months ended
September 30, 2012
|
|
|
For the nine months ended
September 30, 2012
|
|
|
|
Number
of
Contracts
|
|
|
Pre-
Modification
Outstanding
Recorded
Investment
|
|
|
Post-
Modification
Outstanding
Recorded
Investment
|
|
|
Number
of
Contracts
|
|
|
Pre-
Modification
Outstanding
Recorded
Investment
|
|
|
Post-
Modification
Outstanding
Recorded
Investment
|
|
Troubled Debt Restructurings
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Construction and development
|
|
|
|
|
|
$
|
|
|
|
$
|
|
|
|
|
1
|
|
|
$
|
237,883
|
|
|
$
|
237,883
|
|
1-4 Family residential
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1
|
|
|
|
113,743
|
|
|
|
116,438
|
|
Nonfarm, nonresidential
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1
|
|
|
|
96,028
|
|
|
|
96,028
|
|
Commercial and industrial
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2
|
|
|
|
343,060
|
|
|
|
343,060
|
|
During the nine months ended September 30, 2013, no loans that had previously been restructured were in default.
In the determination of the allowance for loan losses, management considers troubled debt restructurings and subsequent defaults in these restructurings by
adjusting the loan grades of such loans, which figure into the environmental factors associated with the allowance. Defaults resulting in charge-offs affect the historical loss experience ratios which are a component of the allowance calculation.
Additionally, specific reserves may be established on restructured loans evaluated individually.
19
SURREY BANCORP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 8. FAIR VALUE
The Company utilizes fair value measurements to record fair value adjustments to certain assets and liabilities and to determine fair value
disclosures. Securities available for sale, trading securities and derivatives, if present, are recorded at fair value on a recurring basis. Additionally, from time to time, the Company may be required to record at fair value other assets on a
nonrecurring basis, such as loans held for sale, loans held for investment and certain other assets. These nonrecurring fair value adjustments typically involve application of lower of cost or market accounting or write-downs of individual assets.
Fair Value Hierarchy
Under the Fair Value
Measurements and Disclosures Topic of the FASB ASC, the Company groups assets and liabilities at fair value in three levels, based on the markets in which the assets and liabilities are traded and the reliability of the assumptions used to determine
fair value. These levels are:
|
|
|
Level 1
|
|
Valuation is based upon quoted prices for identical instruments traded in active markets.
|
|
|
Level 2
|
|
Valuation is based upon quoted prices for similar instruments in active markets, quoted prices for identical or similar instruments in markets that are not active, and model-based valuation techniques for which all significant
assumptions are observable in the market.
|
|
|
Level 3
|
|
Valuation is generated from model-based techniques that use at least one significant assumption not observable in the market. These unobservable assumptions reflect estimates of assumptions that market participants would use in
pricing the asset or liability. Valuation techniques include use of option pricing models, discounted cash flow models and similar techniques.
|
Following is a description of valuation methodologies used for assets and liabilities recorded at fair value.
Investment Securities Available for Sale
Investment securities available for sale are recorded at fair value on a recurring basis. Fair value measurement is based upon quoted prices, if available. If
quoted prices are not available, fair values are measured using independent pricing models or other model-based valuation techniques such as the present value of future cash flows, adjusted for the securitys credit rating, prepayment
assumptions and other factors such as credit loss assumptions. Level 1 securities include those traded on an active exchange, such as the New York Stock Exchange, U.S. Treasury securities that are traded by dealers or brokers in active
over-the-counter markets and money market funds. Level 2 securities include mortgage-backed securities issued by government sponsored entities, municipal bonds and corporate debt securities. Securities classified as Level 3 include asset-backed
securities in less liquid markets.
Loans
The
Company does not record loans at fair value on a recurring basis. However, from time to time, a loan is considered impaired and an allowance for loan losses is established. Loans for which it is probable that payment of interest and principal will
not be made in accordance with the contractual terms of the loan agreement are considered impaired. Once a loan is identified as individually impaired, management measures impairment in accordance with the Receivables Topic of the FASB ASC. The fair
value of impaired loans is estimated using one of several methods, including collateral value, market value of similar debt, enterprise value, liquidation value and discounted cash flows. Those impaired loans not requiring an allowance represent
loans for which the fair value of the expected repayments or collateral exceed the recorded investments in such loans. At September 30, 2013, substantially all of the total impaired loans were evaluated based on the fair value of the
collateral. In accordance with the Fair Value and Measurement Topic of the FASB ASC, impaired loans where an allowance is established based on the fair value of collateral require classification in the fair value hierarchy. When the fair value of
the collateral is based on an observable market price or a current appraised value, the Company records the impaired loan as nonrecurring Level 2. When an appraised value is not available or management determines the fair value of the collateral is
further impaired below the appraised value and there is no observable market price, the Company records the impaired loan as nonrecurring Level 3.
20
SURREY BANCORP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 8. FAIR VALUE, CONTINUED
Servicing Assets
A valuation of loan servicing rights is performed on an individual basis due to the small number of loans serviced. Loans are evaluated on a discounted
earnings basis to determine the present value of future earnings. The present value of the future earnings is the estimated market value for the loan, calculated using consensus assumptions that a first party purchaser would utilize in evaluating a
potential acquisition of the servicing. As such, the Company classifies loan servicing rights as Level 3.
Foreclosed Assets
Foreclosed assets are adjusted to fair value upon transfer of the loans to foreclosed assets. Subsequently, foreclosed assets are carried at the lower of
carrying value or fair value. Fair value is based upon independent market prices, appraised values of the collateral or managements estimation of the value of the collateral. When the fair value of the collateral is based on an observable
market price or a current appraised value, the Company records the foreclosed asset as nonrecurring Level 2. When an appraised value is not available or management determines the fair value of the collateral is further impaired below the appraised
value and there is no observable market price, the Company records the foreclosed asset as nonrecurring Level 3.
Assets and Liabilities Recorded at
Fair Value on a Recurring Basis
The table below presents the recorded amount of assets and liabilities measured at fair value on a recurring
basis.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(in thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
September 30, 2013
|
|
Total
|
|
|
Level 1
|
|
|
Level 2
|
|
|
Level 3
|
|
Government-sponsored enterprises
|
|
$
|
3,499
|
|
|
$
|
|
|
|
$
|
3,499
|
|
|
$
|
|
|
Mortgage-backed securities
|
|
|
35
|
|
|
|
|
|
|
|
35
|
|
|
|
|
|
Corporate bonds
|
|
|
451
|
|
|
|
|
|
|
|
|
|
|
|
451
|
|
Equities and mutual funds
|
|
|
543
|
|
|
|
543
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets at fair value
|
|
$
|
4,528
|
|
|
$
|
543
|
|
|
$
|
3,534
|
|
|
$
|
451
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities at fair value
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(in thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2012
|
|
Total
|
|
|
Level 1
|
|
|
Level 2
|
|
|
Level 3
|
|
Government-sponsored enterprises
|
|
$
|
2,505
|
|
|
$
|
|
|
|
$
|
2,505
|
|
|
$
|
|
|
Mortgage-backed securities
|
|
|
43
|
|
|
|
|
|
|
|
43
|
|
|
|
|
|
Corporate bonds
|
|
|
443
|
|
|
|
|
|
|
|
|
|
|
|
443
|
|
Equities and mutual funds
|
|
|
512
|
|
|
|
512
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets at fair value
|
|
$
|
3,503
|
|
|
$
|
512
|
|
|
$
|
2,548
|
|
|
$
|
443
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities at fair value
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the nine months ended September 30, 2013 and 2012, the changes in Level 3 assets and liabilities measured at fair
value on a recurring basis were as follows:
|
|
|
|
|
|
|
|
|
|
|
Level 3
|
|
|
|
2013
|
|
|
2012
|
|
(in thousands)
|
|
Fair Value
|
|
|
Fair Value
|
|
Corporate Bonds Available for Sale
|
|
|
|
|
|
|
|
|
Balance, January 1
|
|
$
|
443
|
|
|
$
|
451
|
|
Total unrealized gain (loss) included in income
|
|
|
|
|
|
|
|
|
Total unrealized gain (loss) included in other comprehensive income
|
|
|
8
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, September 30
|
|
$
|
451
|
|
|
$
|
451
|
|
|
|
|
|
|
|
|
|
|
21
SURREY BANCORP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 8. FAIR VALUE, CONTINUED
Changes in Level 3 corporate bond assets measured at fair value on a recurring basis for the three month
period ended September 30, 2013 was $2,750 which was included in other comprehensive income. The change in corporate bond assets for the three month period ended September 30, 2012 was $5,500.
Assets and Liabilities Recorded at Fair Value on a Nonrecurring Basis
The Company may be required, from time to time, to measure certain assets or liabilities at fair value on a nonrecurring basis in accordance with U.S.
generally accepted accounting principles. These include assets and liabilities that are measured at the lower of cost or market that were recognized at fair value below cost at the end of the period. Assets and liabilities measured at fair value on
a nonrecurring basis are included in the table below.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(in thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
September 30, 2013
|
|
Total
|
|
|
Level 1
|
|
|
Level 2
|
|
|
Level 3
|
|
Loans-commercial and industrial
|
|
$
|
810
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
810
|
|
Loans-nonfarm, non-residential
|
|
|
1,267
|
|
|
|
|
|
|
|
|
|
|
|
1,267
|
|
Loans-1-4 family residential
|
|
|
64
|
|
|
|
|
|
|
|
|
|
|
|
64
|
|
Foreclosed assets
|
|
|
88
|
|
|
|
|
|
|
|
|
|
|
|
88
|
|
Servicing assets
|
|
|
263
|
|
|
|
|
|
|
|
|
|
|
|
263
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets at fair value
|
|
$
|
2,492
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
2,492
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities at fair value
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(in thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2012
|
|
Total
|
|
|
Level 1
|
|
|
Level 2
|
|
|
Level 3
|
|
Loans-commercial and industrial
|
|
$
|
805
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
805
|
|
Loans-nonfarm, non-residential
|
|
|
1,485
|
|
|
|
|
|
|
|
|
|
|
|
1,485
|
|
Foreclosed assets
|
|
|
491
|
|
|
|
|
|
|
|
|
|
|
|
491
|
|
Servicing assets
|
|
|
63
|
|
|
|
|
|
|
|
|
|
|
|
63
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets at fair value
|
|
$
|
2,884
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
2,884
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities at fair value
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Financial Instruments
The following methods and assumptions were used by the Company in estimating its fair value disclosures for financial instruments:
Cash and due from banks
: The carrying amounts reported in the balance sheet for cash and due from banks approximate their fair values.
Interest-bearing deposits with banks
: Fair values for time deposits are estimated using a discounted cash flow analysis that applies interest rates
currently being offered on certificates to a schedule of aggregated contractual maturities on such time deposits.
Federal funds sold
: Due to the
short-term nature of these assets, the carrying value approximates fair value.
Securities
: Fair values for securities, excluding restricted equity
securities, are based on quoted market prices, where available. If quoted prices are not available, fair values are measured using independent pricing models or other model-based valuation techniques such as the present value of future cash flows,
adjusted for the securitys credit rating, prepayment assumptions and other factors such as credit loss assumptions. The carrying values of restricted equity securities approximate fair values.
22
SURREY BANCORP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 8. FAIR VALUE, CONTINUED
Loans receivable
: For variable-rate loans that reprice frequently and with no significant change in
credit risk, fair values are based on carrying amounts. The fair values for other loans are estimated using discounted cash flow analysis, based on interest rates currently being offered for loans with similar terms to borrowers of similar credit
quality. Loan fair value estimates include judgments regarding future expected loss experience and risk characteristics. The fair value of impaired loans is estimated using one of several methods, including collateral value, market value of similar
debt, enterprise value, liquidation value and discounted cash flows.
Bank owned life insurance:
The carrying amount reported in the balance sheet
approximates the fair value as it represents the cash surrender value of the life insurance.
Deposit liabilities
: The fair values disclosed for
demand and savings deposits are, by definition, equal to the amount payable on demand at the reporting date. The fair values for certificates of deposit are estimated using a discounted cash flow calculation that applies interest rates currently
being offered on certificates to a schedule of aggregated contractual maturities on such time deposits.
Federal funds purchased, securities sold under
agreements to repurchase and short-term debt
: The carrying amounts of federal funds purchased, securities sold under agreements to repurchase and short-term debt approximate their fair values.
Long-term debt:
The fair value of long-term debt is estimated using a discounted cash flow calculation that applies interest rates currently available
on similar instruments.
Other liabilities
: For fixed-rate loan commitments, fair value considers the difference between current levels of interest
rates and the committed rates. The carrying amounts of other liabilities approximate fair value.
The following presents the carrying amount, fair value,
and placement in the fair value hierarchy of the Companys financial instruments as of September 30, 2013 and December 31, 2012. This table excludes financial instruments for which the carrying amount approximates fair value.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair Value Measurements
|
|
(dollars in thousands)
|
|
Carrying
Amount
|
|
|
Fair Value
|
|
|
Quoted
Prices in
Active Markets
for Identical
Assets or
Liabilities
(Level 1)
|
|
|
Significant
Other
Observable
Inputs
(Level 2)
|
|
|
Significant
Unobservable
Inputs
(Level 3)
|
|
|
|
|
|
|
|
September 30, 2013
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Financial Instruments Assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loans
|
|
$
|
178,519
|
|
|
$
|
178,779
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
178,779
|
|
|
|
|
|
|
|
Financial Instruments Liabilities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deposits
|
|
|
193,695
|
|
|
|
176,159
|
|
|
|
|
|
|
|
176,159
|
|
|
|
|
|
Long-Term Debt
|
|
|
7,750
|
|
|
|
8,141
|
|
|
|
|
|
|
|
8,141
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2012
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Financial Instruments Assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loans
|
|
$
|
173,578
|
|
|
$
|
173,813
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
173,813
|
|
|
|
|
|
|
|
Financial Instruments Liabilities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deposits
|
|
|
187,823
|
|
|
|
180,777
|
|
|
|
|
|
|
|
180,777
|
|
|
|
|
|
Long-Term Debt
|
|
|
7,750
|
|
|
|
8,291
|
|
|
|
|
|
|
|
8,291
|
|
|
|
|
|
23