UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 2012
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from _______ to _______
Commission file number 0-21554
DENMARK BANCSHARES, INC.
(Exact name of registrant as specified in its charter)
Wisconsin
|
39-1472124
|
(State or other jurisdiction of
incorporation or
organization)
|
(I.R.S. Employer Identification No.)
|
103 East Main Street, Denmark, Wisconsin 54208-0130
(Address of principal executive offices, zip code)
(920) 863-2161
(Registrant's telephone number, including area code)
(Former name, former address and former fiscal year, if
changed since last report)
Indicate by check mark whether the registrant
(1) has filed all reports required to be filed by Section 13 or 15(d) of the
Securities Exchange Act of 1934 during the preceding 12 months (or for such
shorter period that the registrant was required to file such reports), and (2)
has been subject to such filing requirements for the past 90 days. Yes [X] No [
]
Indicate by check mark whether the registrant
has submitted electronically and posted on its corporate Web site, if any,
every Interactive Data File required to be submitted and posted pursuant to
Rule 405 of Regulation S-T (232.405 of this chapter) during the preceding 12
months (or for such shorter period that the registrant was required to submit
and post such files). Yes [ X ] No [ ]
Indicate by check mark whether the registrant
is a large accelerated filer, an accelerated filer, a non-accelerated filer, or
a smaller reporting company. See definition of "large accelerated filer,"
"accelerated filer" and "smaller reporting company" in Rule 12b-2 of the
Exchange Act. (Check one):
___ Large accelerated filer
Accelerated filer
_
Non-accelerated filer
_
X
_Smaller reporting company
(Do not check if a smaller reporting company)
Indicate by check mark whether the registrant
is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes [ ] No
[X]
As of November 12, 2012, there were 118,568
shares of the registrant's common stock (no par value) outstanding.
DENMARK BANCSHARES, INC.
TABLE OF CONTENTS
Quarterly Report on Form 10-Q
For the Quarter Ended September 30, 2012
Page No.
PART I. Financial Information
Item 1. Financial Statements
Consolidated Statements of Financial Condition 3
Consolidated Statements of Income 4
Consolidated Statements of Comprehensive Income 5
Consolidated Statements of Changes in Stockholders' Equity 5
Consolidated Statements of Cash Flows 6
Notes to Consolidated Financial Statements 7
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations 22
Item 3. Quantitative and Qualitative Disclosures About Market Risk
31
Item 4. Controls and Procedures 31
PART II. Other Information
Item 1A. Risk Factors 31
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
32
Item 6. Exhibits 32
Signatures
32
Item 1. Financial Statements
Denmark Bancshares, Inc. and Subsidiaries
Consolidated Statements of Financial
Condition
|
|
September 30,
|
|
December 31,
|
|
|
2012
|
|
2011
|
|
|
(Unaudited)
|
|
|
Assets
|
|
|
|
|
Cash and
due from banks
|
$19,406,882
|
|
$21,905,812
|
|
Federal
funds sold
|
9,711,000
|
|
20,187,000
|
|
Investment
securities available-for-sale, at fair value
|
81,341,530
|
|
67,610,693
|
|
Loans
|
303,600,177
|
|
297,832,116
|
|
Allowance
for loan losses
|
(6,406,310)
|
|
(6,578,087)
|
|
Net
loans
|
$297,193,867
|
|
$291,254,029
|
|
Loans held
for sale
|
367,806
|
|
485,926
|
|
Premises
and equipment, net
|
7,180,990
|
|
7,085,783
|
|
Other
investments, at cost
|
2,741,480
|
|
4,404,811
|
|
Accrued
interest receivable
|
1,411,433
|
|
1,244,473
|
|
Other
assets
|
10,800,625
|
|
11,807,370
|
|
TOTAL
ASSETS
|
$430,155,613
|
|
$425,985,897
|
|
|
|
|
|
Liabilities
|
|
|
|
|
Deposits
|
|
|
|
|
Noninterest-bearing
|
$43,881,301
|
|
$47,469,622
|
|
Interest-bearing
|
289,016,844
|
|
280,323,469
|
|
Total
Deposits
|
$332,898,145
|
|
$327,793,091
|
|
|
|
|
|
|
Short-term
borrowings
|
10,710,931
|
|
11,558,861
|
|
Accrued
interest payable
|
296,267
|
|
334,178
|
|
Other
liabilities
|
1,133,864
|
|
1,794,808
|
|
Long-term
debt
|
27,057,099
|
|
28,481,999
|
|
Total
Liabilities
|
$372,096,306
|
|
$369,962,937
|
Stockholders' Equity
|
|
|
|
|
Common
stock, no par value, authorized 640,000 shares; outstanding 118,568
shares at 9/30/12 and 118,917 shares at 12/31/11
|
$18,173,975
|
|
$18,173,975
|
|
Treasury
stock shares, at cost (2,962 at 9/30/12 and 2,613 at
12/31/11)
|
(2,272,445)
|
|
(2,125,865)
|
|
Paid in
capital
|
469,986
|
|
469,986
|
|
Retained
earnings
|
41,703,655
|
|
39,918,706
|
|
Accumulated
other comprehensive loss
|
(15,864)
|
|
(413,842)
|
|
Total
Stockholders' Equity
|
$58,059,307
|
|
$56,022,960
|
|
TOTAL
LIABILITIES AND STOCKHOLDERS' EQUITY
|
$430,155,613
|
|
$425,985,897
|
|
|
|
|
|
The accompanying notes are an integral part of these financial
statements.
|
|
|
|
Denmark Bancshares, Inc. and
Subsidiaries
Consolidated Statements of
Income
(Unaudited)
|
|
|
For the Three Months Ended
|
|
For the Nine Months Ended
|
|
|
|
September 30,
|
|
September 30,
|
|
September 30,
|
|
September 30,
|
|
|
|
2012
|
|
2011
|
|
2012
|
|
2011
|
Interest Income
|
|
|
|
|
|
|
|
|
|
Loans
including fees
|
|
$3,820,552
|
|
$3,842,778
|
|
$11,454,139
|
|
$11,766,974
|
|
Investment
securities:
|
|
|
|
|
|
|
|
|
|
Taxable
|
|
290,599
|
|
312,467
|
|
868,726
|
|
859,684
|
|
Exempt from
federal tax
|
|
157,196
|
|
228,527
|
|
536,036
|
|
804,398
|
|
Interest on
federal funds sold
|
|
3,457
|
|
3,579
|
|
10,593
|
|
14,552
|
|
Other
interest income
|
|
20,884
|
|
18,306
|
|
87,778
|
|
91,203
|
|
|
|
$4,292,688
|
|
$4,405,657
|
|
$12,957,272
|
|
$13,536,811
|
Interest Expense
|
|
|
|
|
|
|
|
|
|
Deposits
|
|
$530,389
|
|
$724,852
|
|
$1,754,300
|
|
$2,317,112
|
|
Short-term
borrowings
|
|
14,430
|
|
26,770
|
|
44,808
|
|
84,121
|
|
Long-term
debt
|
|
239,489
|
|
250,967
|
|
728,030
|
|
756,977
|
|
|
|
$784,308
|
|
$1,002,589
|
|
$2,527,138
|
|
$3,158,210
|
|
Net
interest income
|
|
$3,508,380
|
|
$3,403,068
|
|
$10,430,134
|
|
$10,378,601
|
Provision for Loan Losses
|
|
225,000
|
|
150,000
|
|
525,000
|
|
450,000
|
|
Net
interest income after provision for loan losses
|
|
$3,283,380
|
|
$3,253,068
|
|
$9,905,134
|
|
$9,928,601
|
Other Income
|
|
|
|
|
|
|
|
|
|
Service
fees and commissions
|
|
$228,230
|
|
$222,531
|
|
$752,331
|
|
$669,946
|
|
Loan sale
gains
|
|
195,623
|
|
64,087
|
|
430,693
|
|
183,186
|
|
Investment
security gains
|
|
203,183
|
|
0
|
|
203,183
|
|
31,953
|
|
Other
|
|
203,109
|
|
197,324
|
|
544,327
|
|
598,539
|
|
|
|
$830,145
|
|
$483,942
|
|
$1,930,534
|
|
$1,483,624
|
Other-than-Temporary Impairment Losses, Net
|
|
|
|
|
|
|
|
|
|
Total
other-than-temporary impairment losses
|
|
$944,563
|
|
$1,028,888
|
|
$1,733,379
|
|
$1,028,888
|
|
Amount in
other comprehensive income, before taxes
|
|
(901,394)
|
|
(983,401)
|
|
(1,613,025)
|
|
(878,574)
|
|
|
|
$43,169
|
|
$45,487
|
|
$120,354
|
|
$150,314
|
Other Expense
|
|
|
|
|
|
|
|
|
|
Salaries
and employee benefits
|
|
$1,595,732
|
|
$1,553,044
|
|
$4,774,048
|
|
$4,565,844
|
|
Occupancy
expenses
|
|
243,742
|
|
223,936
|
|
694,245
|
|
707,982
|
|
FDIC
Insurance
|
|
75,000
|
|
74,000
|
|
224,463
|
|
320,000
|
|
Data
processing expenses
|
|
242,818
|
|
195,337
|
|
655,940
|
|
588,291
|
|
Professional fees
|
|
102,647
|
|
89,327
|
|
298,704
|
|
274,659
|
|
Amortization of intangibles
|
|
16,032
|
|
48,097
|
|
112,228
|
|
144,293
|
|
Loss on
sale of other real estate
|
|
68,389
|
|
48,143
|
|
231,771
|
|
66,034
|
|
Other real
estate expenses
|
|
6,591
|
|
21,310
|
|
27,624
|
|
175,505
|
|
Other
operating expenses
|
|
210,320
|
|
214,995
|
|
657,960
|
|
664,063
|
|
|
|
$2,561,271
|
|
$2,468,189
|
|
$7,676,983
|
|
$7,506,671
|
|
Income
before income taxes
|
|
$1,509,085
|
|
$1,223,334
|
|
$4,038,331
|
|
$3,755,240
|
|
Income tax
expense
|
|
534,746
|
|
375,241
|
|
1,393,764
|
|
1,126,086
|
|
NET
INCOME
|
|
$974,339
|
|
$848,093
|
|
$2,644,567
|
|
$2,629,154
|
|
Per
Share
|
|
|
|
|
|
|
|
|
|
Net
income
|
|
$8.22
|
|
$7.13
|
|
$22.28
|
|
$22.11
|
|
Dividends
declared
|
|
$7.25
|
|
$7.25
|
|
$7.25
|
|
$7.25
|
|
Weighted
average shares outstanding
|
|
118,568
|
|
118,917
|
|
118,677
|
|
118,917
|
|
|
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of these financial
statements.
|
|
|
|
|
Denmark Bancshares, Inc. and
Subsidiaries
Consolidated Statements of Comprehensive
Income
(Unaudited)
|
|
For the Nine Months Ended
|
|
|
September 30,
|
|
September 30,
|
|
|
2012
|
|
2011
|
Net
income
|
|
$2,644,567
|
|
$2,629,154
|
Other
comprehensive income, net of tax
|
|
|
|
|
Unrealized
gains on securities
|
|
|
|
|
Unrealized
holding gains arising during period
|
|
841,362
|
|
281,978
|
Less:
Reclassification adjustment for gains included in net income
|
|
82,829
|
|
150,314
|
Other
comprehensive income
|
|
758,533
|
|
432,292
|
Income tax
benefit related to items of other comprehensive income
|
|
(360,555)
|
|
(129,249)
|
Other
comprehensive income, net of tax
|
|
$397,978
|
|
$303,043
|
Comprehensive income
|
|
$3,042,545
|
|
$2,932,197
|
Denmark Bancshares, Inc. and
Subsidiaries
Consolidated Statement of Changes in
Stockholders' Equity
(Unaudited)
|
Common Stock
|
|
|
|
|
|
Accumulated
|
|
|
|
|
|
|
|
|
|
|
|
Other
|
|
|
|
|
|
|
|
Paid in
|
|
Retained
|
|
Comprehensive
|
|
|
|
Shares
|
|
Amount
|
|
Capital
|
|
Earnings
|
|
Loss
|
|
Total
|
Balance,
December 31, 2011
|
118,917
|
|
$16,048,110
|
|
$469,986
|
|
$39,918,706
|
|
($413,842)
|
|
$56,022,960
|
Comprehensive income
|
|
|
|
|
|
|
|
|
|
|
|
Net
income
|
|
|
|
|
|
|
2,644,567
|
|
|
|
2,644,567
|
Other
comprehensive income, net of tax
|
|
|
|
|
|
|
|
|
|
|
|
Change in
unrealized loss on securities available-for-sale,
|
|
|
|
|
|
|
|
|
|
|
|
net of
reclassification adjustment
|
|
|
|
|
|
|
|
|
397,978
|
|
397,978
|
Total
comprehensive income
|
|
|
|
|
|
|
|
|
|
|
$3,042,545
|
Treasury
stock acquisitions
|
(349)
|
|
(146,580)
|
|
|
|
|
|
|
|
(146,580)
|
Cash
dividends, $7.25 per share
|
|
|
|
|
|
|
(859,618)
|
|
|
|
(859,618)
|
Balance,
September 30, 2012
|
118,568
|
|
$15,901,530
|
|
$469,986
|
|
$41,703,655
|
|
($15,864)
|
|
$58,059,307
|
|
|
|
|
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of these financial
statements.
|
|
|
|
|
|
|
|
|
Denmark Bancshares, Inc. and
Subsidiaries
Consolidated Statements of Cash
Flows
(Unaudited)
|
|
For the Nine Months Ended
|
|
|
September 30,
|
|
|
2012
|
|
2011
|
Cash Flows from Operating Activities:
|
|
|
|
|
Net
income
|
$2,644,567
|
|
$2,629,154
|
|
Adjustments
to reconcile net income to
|
|
|
|
|
net cash
provided by operating activities:
|
|
|
|
|
Depreciation
|
284,347
|
|
300,391
|
|
Provision
for credit losses
|
525,000
|
|
450,000
|
|
Amortization of intangibles
|
112,228
|
|
144,293
|
|
Gains on
sales of loans
|
(430,693)
|
|
(183,186)
|
|
Loss on
sale of other real estate and other assets
|
231,588
|
|
66,033
|
|
Gains on
sale of securities
|
(203,183)
|
|
(31,953)
|
|
Loss on
investment securities impairment write-downs
|
120,354
|
|
150,314
|
|
Amortization of bond premium
|
593,378
|
|
365,643
|
|
Accretion
of bond discount
|
(66,981)
|
|
(133,183)
|
|
Mortgage
loans originated for sale
|
(26,394,237)
|
|
(12,348,289)
|
|
Proceeds
from sale of mortgage loans
|
26,512,358
|
|
14,846,232
|
|
Income from
bank owned life insurance
|
(202,923)
|
|
(197,648)
|
|
Increase in
interest receivable
|
(166,960)
|
|
(134,469)
|
|
Decrease in
interest payable
|
(37,911)
|
|
(59,536)
|
|
Other,
net
|
473,119
|
|
483,899
|
|
Net Cash
Provided by Operating Activities
|
$3,994,051
|
|
$6,347,695
|
Cash Flows from Investing Activities:
|
|
|
|
|
Maturities
and sales of available-for-sale securities
|
$20,930,183
|
|
$20,127,771
|
|
Purchases
of available-for-sale securities
|
(34,346,055)
|
|
(22,753,354)
|
|
Money
market mutual funds, net
|
0
|
|
(977,224)
|
|
Proceeds
from sale of FHLB common stock
|
1,663,331
|
|
0
|
|
Federal
funds sold, net
|
10,476,000
|
|
7,310,000
|
|
Proceeds
from sale of foreclosed assets
|
420,146
|
|
922,266
|
|
Net
(increase) decrease in loans made to customers
|
(6,220,910)
|
|
1,212,397
|
|
Capital
expenditures
|
(379,554)
|
|
(116,059)
|
|
Net Cash
Provided by (Used in) Investing Activities
|
($7,456,859)
|
|
$5,725,797
|
Cash Flows from Financing Activities:
|
|
|
|
|
Net
increase (decrease) in deposits
|
$5,105,054
|
|
($5,267,324)
|
|
Purchase of
treasury stock
|
(146,580)
|
|
0
|
|
Dividends
paid
|
(1,721,766)
|
|
(1,724,297)
|
|
Debt
proceeds
|
2,227,070
|
|
1,995,815
|
|
Debt
repayments
|
(4,499,900)
|
|
(5,825,000)
|
|
Net Cash
(Provided by) Used in Financing Activities
|
$963,878
|
|
($10,820,806)
|
|
Net
(decrease) increase in cash and cash equivalents
|
($2,498,930)
|
|
$1,252,686
|
|
Cash and
cash equivalents, beginning
|
21,905,812
|
|
16,917,728
|
|
CASH AND
CASH EQUIVALENTS, ENDING
|
$19,406,882
|
|
$18,170,414
|
Noncash Investing Activities:
|
|
|
|
|
Loans
transferred to foreclosed properties
|
$186,764
|
|
$2,018,860
|
|
|
|
|
|
Supplemental Cash Flow Disclosures:
|
|
|
|
|
Cash paid
for interest
|
$2,570,460
|
|
$2,381,061
|
|
Cash paid
for income taxes
|
1,062,000
|
|
766,980
|
|
The accompanying notes are an integral part of these financial
statements.
|
NOTE 1 - FINANCIAL STATEMENTS
The consolidated financial statements
included herein are unaudited. In the opinion of management, these statements
contain all adjustments necessary to present fairly the financial position of
Denmark Bancshares, Inc. ("DBI"), its results of operations and cash flows for
the periods presented. All adjustments necessary for the fair presentation of
the financial statements are of a normal recurring nature. These consolidated
financial statements should be read in conjunction with the consolidated
financial statements and the notes thereto included in DBI's latest annual
report on Form 10-K. DBI's subsidiaries are Denmark State Bank ("DSB"), Denmark
Agricultural Credit Corporation ("DACC"), and DBI Properties, Inc.
("Properties").
Reclassifications
- Certain amounts in the prior period financial statements have
been reclassified for comparative purposes to conform to the presentation in
the current year.
Deregistration
- On August 31, 2012, following passage of the Jumpstart Our
Business Startups Act, which increased the number of shareholders of record
threshold for deregistration under Section 12(g) of the Securities Exchange Act
of 1934 (the "Exchange Act") for banks and bank holding companies, DBI filed a
Schedule 13E-3 and preliminary proxy statement with the Securities and Exchange
Commission ("SEC") related to a proposed going-private transaction that would,
subject to shareholder approval, establish two separate and distinct classes of
DBI's common stock, Class A voting common stock and Class B non-voting common
stock, and reclassify shareholders of record of less than 15 shares of DBI's
common stock into shares of Class B common stock. DBI intends to hold a special
meeting of its shareholders prior to the end of 2012 to approve the
going-private transaction and, if approved, to promptly thereafter file a Form
15 with the SEC giving notice of termination of the registration of DBI's
common stock under Section 12(g) of the Exchange Act. The termination of DBI's
registration would then become effective 90 days after filing the Form 15 and
would result in DBI no longer being required to file annual or periodic reports
under Section 13 or 15(d) of the Exchange Act, including annual reports on Form
10-K, quarterly reports on Form 10- and current reports on Form 8-K, or to
comply with the proxy rules or file proxy materials under section 14 of the
Exchange Act. Furthermore, DBI's directors and executive officers will no
longer be required to comply with the requirements of Section 16 of the
Exchange Act. DBI would not be required to re-register its common stock until
such time as it had 2,000 or more shareholders of record in any one class of
its common stock as of the end of any calendar year.
NOTE 2 - INVESTMENT
SECURITIES
The amortized cost and estimated fair market
value of securities available-for-sale were as follows:
|
|
September 30, 2012
|
|
|
|
|
Gross
|
|
Gross
|
|
Estimated
|
|
|
Amortized
|
|
Unrealized
|
|
Unrealized
|
|
Fair
|
|
|
Cost
|
|
Gains
|
|
Losses
|
|
Value
|
U.S.
Government-sponsored agencies
|
|
$4,500,000
|
|
$11,200
|
|
$0
|
|
$4,511,200
|
U.S.
Government-sponsored agency MBS
|
|
39,395,317
|
|
747,242
|
|
(29,750)
|
|
40,112,809
|
State and
local governments
|
|
27,560,746
|
|
1,101,935
|
|
(46,483)
|
|
28,616,198
|
Asset-backed securities
|
|
2,456,474
|
|
0
|
|
(724)
|
|
2,455,750
|
Residential
mortgage-backed securities
|
|
7,455,432
|
|
20,361
|
|
(1,830,220)
|
|
5,645,573
|
|
|
$81,367,969
|
|
$1,880,738
|
|
($1,907,177)
|
|
$81,341,530
|
|
|
December 31, 2011
|
|
|
|
|
Gross
|
|
Gross
|
|
Estimated
|
|
|
Amortized
|
|
Unrealized
|
|
Unrealized
|
|
Fair
|
|
|
Cost
|
|
Gains
|
|
Losses
|
|
Value
|
U.S.
Government-sponsored agencies
|
|
$3,500,000
|
|
$17,050
|
|
$0
|
|
$3,517,050
|
U.S.
Government-sponsored agency MBS
|
|
31,729,409
|
|
505,292
|
|
(8,172)
|
|
32,226,529
|
State and
local governments
|
|
24,628,519
|
|
1,032,038
|
|
(192,058)
|
|
25,468,499
|
Residential
mortgage-backed securities
|
|
8,537,737
|
|
26,590
|
|
(2,165,712)
|
|
6,398,615
|
|
|
$68,395,665
|
|
$1,580,970
|
|
($2,365,942)
|
|
$67,610,693
|
Proceeds of $4.1 million from normal
pay-downs, $3.0 million from the sale of 15 securities and $0.9 million from
calls were received during the third quarter of 2012. On a year-to-date basis
for 2012, proceeds of $11.1 million from normal pay-downs, $6.1 million from
calls, $3.0 million from securities sales and $0.5 million in maturities were
received. Purchases for the quarter-ended September 30, 2012 comprised $4.0
million in agency mortgage-backed securities ("MBS"), $3.0 million of
tax-exempt municipals, $2.4 million in asset-backed securities, $1.0 million in
agencies and $0.9 million of taxable municipals. For the nine-months ended
September 30, 2012 purchases of $19.1 million in agency MBS, $4.0 million of
agencies, $5.9 million of tax-exempt municipals, $2.9 million of taxable
municipals and $2.4 million in asset-backed securities were made.
The amortized cost and estimated fair values
of securities at September 30, 2012, by maturity were as follows:
|
|
Securities Available-for-Sale
|
|
|
|
|
Estimated
|
|
|
Amortized
|
|
Fair
|
Amounts
Maturing
|
|
Cost
|
|
Value
|
Within one
year
|
|
$4,640,528
|
|
$4,646,691
|
From one
through five years
|
|
40,499,640
|
|
40,409,603
|
From five
through ten years
|
|
24,451,655
|
|
24,491,724
|
After ten
years
|
|
11,776,146
|
|
11,793,512
|
|
|
$81,367,969
|
|
$81,341,530
|
MBS are allocated according to their expected
prepayments rather than their contractual maturities. Certain state and local
governments' securities are allocated according to their put date. Fair values
of securities are estimated based on financial models or prices paid for
similar securities. It is possible interest rates could change considerably
resulting in a material change in the estimated fair value of the
securities.
At September 30, 2012, twenty-two debt
securities have unrealized losses with aggregate depreciation of 9.3% from
DSB's amortized cost basis. Information pertaining to securities with gross
unrealized losses aggregated by investment category and length of time that
individual securities have been in a continuous loss position
follows:
September 30, 2012
|
|
Less Than Twelve Months
|
|
Over Twelve Months
|
|
|
Gross
|
|
Estimated
|
|
Gross
|
|
Estimated
|
|
|
Unrealized
|
|
Fair
|
|
Unrealized
|
|
Fair
|
Securities
Available for Sale
|
|
Losses
|
|
Value
|
|
Losses
|
|
Value
|
U.S.
Government-sponsored agencies
|
|
$0
|
|
$0
|
|
$0
|
|
$0
|
U.S.
Government-sponsored agency MBS
|
|
29,750
|
|
5,918,015
|
|
0
|
|
0
|
State and
local governments
|
|
21,468
|
|
4,935,622
|
|
25,015
|
|
385,482
|
Asset-backed securities
|
|
724
|
|
2,455,750
|
|
0
|
|
0
|
Residential
MBS
|
|
2,058
|
|
295,604
|
|
1,828,162
|
|
4,606,185
|
Total
securities available for sale
|
|
$54,000
|
|
$13,604,991
|
|
$1,853,177
|
|
$4,991,667
|
December
31, 2011
|
|
Less Than Twelve Months
|
|
Over Twelve Months
|
|
|
Gross
|
|
Estimated
|
|
Gross
|
|
Estimated
|
|
|
Unrealized
|
|
Fair
|
|
Unrealized
|
|
Fair
|
Securities
Available for Sale
|
|
Losses
|
|
Value
|
|
Losses
|
|
Value
|
U.S.
Government-sponsored agency MBS
|
|
$8,172
|
|
$2,388,919
|
|
$0
|
|
$0
|
State and
local governments
|
|
14,144
|
|
817,753
|
|
177,914
|
|
1,808,504
|
Residential
MBS
|
|
0
|
|
0
|
|
2,165,712
|
|
5,359,064
|
Total
securities available for sale
|
|
$22,316
|
|
$3,206,672
|
|
$2,343,626
|
|
$7,167,568
|
All securities with unrealized losses are
assessed to determine if the impairment is other-than-temporary. Factors that
are evaluated include the mortgage loan types supporting the securities,
delinquency and foreclosure rates, credit support, weighted average
loan-to-value, and year of origination, among others.
Currently, a quarterly analysis by a third
party is performed on three residential MBS secured by non-traditional loan
types in order to determine whether they are other-than-temporarily impaired
("OTTI"). The purpose of the third party evaluation is to determine if the
present value of the expected cash flows is less than the amortized costs,
thereby resulting in credit loss, in accordance with the authoritative
accounting guidance under
FASB ASC Topic 320.
The third party determines
an estimated fair value for each security based on discounted cash flow
analyses. The estimates are based on the following key valuation assumptions -
collateral, cash flows, prepayment assumptions, default rates, loss severity,
liquidation lag, bond waterfall and internal rate of return. Since there is
currently no active secondary market for these types of securities due to the
non-traditional loan types supporting the securities, these valuations are
considered Level 3 inputs as defined in Note 5 - Fair Value Measurement.
Additional securities may be analyzed in the future if deemed necessary to
determine whether they are OTTI and if so, if any possible credit loss
exists.
Two of the three securities supported by
non-traditional loan types were previously found to have credit losses since a
portion of the unrealized losses is due to an expected cash flow shortfall. As
such, these securities were determined to be OTTI. DBI does not intend to sell
the investments and it is not more likely than not that DBI will be required to
sell the securities before the anticipated recovery of their remaining
amortized cost bases, which may be maturity. The analysis on the third security
did not reveal any credit loss nor was the security found to be OTTI. The total
credit loss that was recognized in earnings through December 31, 2011 was $0.6
million. The analysis performed as of September 30, 2012 resulted in an
additional $43,169 of credit loss that was recorded through the income
statement during the current period on one of the OTTI securities. This results
in a total credit loss for the first nine months of 2012 of $120,354 being
recognized. Unrealized losses on the three securities analyzed by the third
party were recognized through accumulated other comprehensive loss on the
balance sheet as of September 30, 2012, net of tax, in the amount of $1.1
million.
The unrealized losses on the remainder of the
residential MBS are due to the distressed and illiquid markets for
collateralized mortgage obligations. The securities are investments in senior
tranches with adequate credit support from subordinate tranches, are supported
by traditional mortgage loans that originated between 2002 and 2005, have low
delinquency and foreclosure rates, and reasonable loan-to-value ratios. DBI
does not consider these investments to be OTTI at September 30, 2012.
Changes in credit losses recognized for
securities with OTTI were as follows:
|
|
|
|
|
For the Nine Months Ended
|
|
For the Year Ended
|
|
|
|
|
|
September 30,
|
|
December 31,
|
|
|
|
|
|
2012
|
|
2011
|
|
2011
|
Credit losses recognized in earnings, beginning of
period
|
|
($637,245)
|
|
($432,488)
|
|
($432,488)
|
Credit losses for OTTI not previously recognized
|
|
(120,354)
|
|
(150,314)
|
|
(204,757)
|
Credit losses recognized in earnings, end of period
|
|
($757,599)
|
|
($582,802)
|
|
($637,245)
|
NOTE 3 - LOANS
Loans are reported at the principal amount
outstanding, net of the allowance for credit losses. Interest on loans is
calculated and accrued by using the simple interest method on the daily balance
of the principal amount outstanding. Loan origination fees are credited to
income when received and the related loan origination costs are expensed as
incurred. Capitalization of the fees net of the related costs would not have a
material effect on the consolidated financial statements.
DBI's customer information system tracks the
past due status of all loans beginning with the first day a payment is late. On
a weekly basis, lenders are given a report with all loans past due one day or
more to allow them to actively monitor the portfolio and attempt to keep past
due levels to a minimum.
All loans are given an internal risk rating
when the loan is originated. On a quarterly basis, risk rating reports are
distributed to the lenders to ensure that loans are appropriately rated. On an
annual basis, all commercial loans over $100,000 and agricultural loans over
$200,000 are reviewed by the loan officer and/or credit analyst. All loans over
$1 million are independently reviewed annually by the Chief Credit Officer. An
independent third party also performs periodic reviews of risk ratings to
ensure that loans are accurately graded. The internal risk ratings are defined
as:
are assigned a risk rating of 1 - 4, with a one-rated credit
being the highest quality. Non-classified loans have credit quality that
ranges from well above average quality to some inherent industry weaknesses
that may present higher than average risk due to conditions affecting the
borrower, the borrower's industry or economic environment.
are assigned a risk rating of 5. Potential weaknesses exist
that deserve management's close attention. If left uncorrected, the potential
weaknesses may result in deterioration of repayment prospects or in DSB's
credit position at some future date.
are assigned a rating of 6. These loans are inadequately
protected by the current worth and borrowing capacity of the borrower.
Well-defined weaknesses exist that may jeopardize the liquidation of the
debt. There is a possibility of some loss if the deficiencies are not
corrected. At this point, the loan may still be performing and
accruing.
are rated 7 and have all the weaknesses of a substandard
credit plus the added characteristic that the weaknesses make collection or
liquidation in full on the basis of current facts, conditions and values
highly questionable and improbable. The possibility of loss is extremely high
but because of certain important and reasonable specific pending factors,
which may work to the advantage of strengthening the asset, its
classification as an estimated loss is deferred until its more exact status
can be determined.
are internally rated as an 8. A loss amount has been
determined and this has been charged-off against the allowance for loan
losses. All or a portion of the charge-off may be recovered in the future and
any such recoveries would also be recorded through the allowance.
DBI's policy is to place into nonaccrual
status all loans that are contractually past due 90 days or more, along with
other loans as to which reasonable doubt exists to the full and timely
collection of principal and/or interest based on management's view of the
financial condition of the borrower. When a loan is placed on nonaccrual, all
interest previously accrued but not collected is reversed against current
period interest income. Income on such loans is then recognized only to the
extent that cash is received and where the future collection of principal is
probable. Interest accruals are resumed on such loans only when they are
brought current with respect to interest and principal and when, in the
judgment of management, the loans are estimated to be fully collectible as to
both principal and interest.
Loan charge-offs for all loans will occur as
soon as there is a reasonable probability of loss. When the amount of the loss
can be readily calculated, the charge-off will be recorded as soon as practical
within the calendar quarter the loss was identified. Loans that are partially
charged-off will be placed in nonaccrual status unless the remaining loan is
restructured with adequate collateral and payments are assured and
current.
A loan is impaired when, based on current
information and events, it is probable that not all amounts due will be
collected according to the contractual terms of the loan agreement. Interest
income is recognized in the same manner described above for nonaccrual loans.
Further detail on the analysis of impaired loans can be found in the discussion
of the Allowance for Loan Losses, below.
Allowance for Loan Losses
The allowance for loan losses is an estimate
of the losses that have been incurred in the loan portfolio. The allowance is
based on two basic accounting principles: (1)
FASB Accounting Standards
Codification (ASC) Topic 310-10 "Receivables - Overall,"
(formerly FAS
114), which requires that losses be accrued when it is probable that DBI will
not collect all principal and interest payments according to the loan's
contractual terms, and (2)
FASB
ASC Topic 450, "Contingencies,"
(formerly FAS 5), which requires that losses be accrued when they are
probable of occurring and estimable. The FFIEC "Interagency Policy Statement on
the Allowance for Loan and Lease Losses" provides additional guidance on the
allowance methodology.
On a quarterly basis, management utilizes a
systematic methodology to determine an appropriate allowance for loan losses.
This methodology includes a loan grading system that requires quarterly
reviews; identification of loans to be evaluated on an individual basis for
impairment; results of independent reviews of asset quality and the adequacy of
the allowance by regulatory agencies; consideration of current trends and
volumes of nonperforming, past-due, nonaccrual and potential problem loans; as
well as national and local economic trends and industry conditions.
In applying the methodology, all troubled
debt restructurings, regardless of size, are considered impaired and will be
individually evaluated. All nonaccrual and watchlist commercial real estate,
construction and land development, agricultural real estate, multifamily
residential real estate, commercial, and agricultural production loans over
$50,000 are evaluated individually to determine if they are impaired.
Nonaccrual residential real estate or consumer loans with characteristics that
differ from loans that are typical for DBI will also be considered impaired and
evaluated individually as there would be no pool of similar loans to evaluate
these loans under
ASC Topic 450.
Impaired loans are measured at the
estimated fair value of the collateral. If the estimated fair value of the
impaired loan is less than the recorded investment in the loan, an impairment
is recognized by creating a valuation allowance in conjunction with
ASC
Topic 310-10.
Loans that are not impaired are segmented
into groups by type of loan. The following loan types are utilized so each
segment of loans will have similar risk factors: (1) residential real estate,
(2) agricultural real estate, (3) commercial real estate, (4) construction and
land development, (5) commercial, (6) agricultural, (7) consumer, (8)
guaranteed loans and (9) other. These loans are further segmented by internal
risk ratings of non-classified, special mention, substandard and doubtful,
which are defined above.
Risk factor percentages are applied to the
risk rating segments of the non-impaired loans to calculate an allowance
allocation in conjunction with
ASC Topic 450.
The risk factor
percentages are based on historical loan loss experience for each loan type and
are adjusted for current economic conditions and trends as well as internal
loan quality trends. The historical loan loss percentages are applied to the
non-classified portion of the portfolio to determine the required allocation to
the allowance. The historical loan loss percentages are then multiplied by a
factor based on current economic conditions to calculate the allocation for
each of the remaining risk rating categories of the non-impaired loans. The
current economic conditions take into account items such as vacancy rates for
rental properties; property values based on actual sales transactions; income
projections based on current prices such as dairy commodities; and other
available economic data.
The above steps result in calculations that
estimate the loan losses inherent in the portfolio at that time. The
calculations are used to confirm the adequacy and appropriateness of the actual
balance of the allowance, recognizing that the allowance represents an
aggregation of judgments and estimates by management. Such calculations will
influence the amount of future provisions for loan losses charged to
expense.
The calculation is submitted to DSB's Board
of Directors quarterly along with a recommendation for the amount of the
monthly provision to the allowance. If the mix and amount of future charge-offs
differ significantly from those assumptions used by management in making its
determination, the allowance and provision expense could be materially
affected.
Major categories of loans included in the
loan portfolio are as follows:
|
|
|
September 30,
|
|
December 31,
|
|
|
|
2012
|
|
2011
|
|
Real
Estate:
|
|
|
|
|
|
|
Residential
|
|
|
$70,114,164
|
|
$72,655,569
|
Commercial
|
|
|
59,090,321
|
|
60,864,761
|
Agricultural
|
|
|
76,039,949
|
|
78,767,692
|
Construction
|
|
|
13,304,574
|
|
11,655,550
|
|
|
|
218,549,008
|
|
223,943,572
|
|
|
|
|
|
|
|
|
Commercial
|
|
|
41,007,441
|
|
35,178,049
|
Agricultural
|
|
|
33,433,291
|
|
27,661,420
|
Consumer and
other
|
|
|
10,610,437
|
|
11,049,075
|
TOTAL
|
|
|
$303,600,177
|
|
$297,832,116
|
The following table presents information
related to the average recorded investment and interest income recognized on
impaired loans for the nine months ended September 30, 2012 and September 30,
2011:
|
|
|
Nine months ended
|
|
|
|
September 30, 2012
|
|
September 30, 2011
|
|
$(000)s
|
|
Average
|
|
Interest
|
|
Average
|
|
Interest
|
|
|
|
Recorded
|
|
Income
|
|
Recorded
|
|
Income
|
|
|
|
Investment
|
|
Recognized
|
|
Investment
|
|
Recognized
|
With no related allowance:
|
|
|
|
|
|
|
|
|
Residential Real Estate
|
|
$1,353
|
|
$16
|
|
$579
|
|
$10
|
Commercial Real Estate
|
|
2,256
|
|
22
|
|
2,054
|
|
28
|
Construction & Land Dev
|
|
366
|
|
4
|
|
2,941
|
|
80
|
Agricultural Real Estate
|
|
0
|
|
0
|
|
0
|
|
0
|
Commercial
|
|
810
|
|
12
|
|
1,228
|
|
10
|
Agricultural
|
|
0
|
|
0
|
|
0
|
|
0
|
Consumer
|
|
0
|
|
0
|
|
44
|
|
1
|
|
|
|
|
|
|
|
|
|
|
With a related allowance:
|
|
|
|
|
|
|
|
|
Residential Real Estate
|
|
$1,071
|
|
$16
|
|
$1,088
|
|
$2
|
Commercial Real Estate
|
|
1,872
|
|
32
|
|
2,964
|
|
(6)
|
Construction & Land Dev
|
|
4,492
|
|
39
|
|
2,835
|
|
60
|
Agricultural Real Estate
|
|
0
|
|
0
|
|
246
|
|
2
|
Commercial
|
|
58
|
|
0
|
|
103
|
|
2
|
Agricultural
|
|
0
|
|
0
|
|
0
|
|
0
|
Consumer
|
|
0
|
|
0
|
|
148
|
|
0
|
|
|
|
|
|
|
|
|
|
|
Total:
|
|
|
|
|
|
|
|
|
Residential Real Estate
|
|
$2,424
|
|
$32
|
|
$1,667
|
|
$12
|
Commercial Real Estate
|
|
4,128
|
|
54
|
|
5,018
|
|
22
|
Construction & Land Dev
|
|
4,858
|
|
43
|
|
5,776
|
|
140
|
Agricultural Real Estate
|
|
0
|
|
0
|
|
246
|
|
2
|
Commercial
|
|
868
|
|
12
|
|
1,331
|
|
12
|
Agricultural
|
|
0
|
|
0
|
|
0
|
|
0
|
Consumer
|
|
0
|
|
0
|
|
192
|
|
1
|
|
Total
|
|
$12,278
|
|
$141
|
|
$14,230
|
|
$189
|
The following tables show the investment in
impaired loans and the corresponding allowance for those loans as of September
30, 2012 and December 31, 2011:
Impaired Loans
|
$(000)s
|
|
|
|
Unpaid
|
|
|
|
|
|
Recorded
|
|
Principal
|
|
Related
|
September 30, 2012
|
|
Investment
|
|
Balance
|
|
Allowance
|
With no related allowance:
|
|
|
|
|
|
|
Residential Real Estate
|
|
$1,174
|
|
$1,333
|
|
$0
|
Commercial Real Estate
|
|
1,785
|
|
2,079
|
|
0
|
Construction & Land Dev
|
|
243
|
|
243
|
|
0
|
Agricultural Real Estate
|
|
0
|
|
0
|
|
0
|
Commercial
|
|
836
|
|
895
|
|
0
|
Agricultural
|
|
0
|
|
0
|
|
0
|
Consumer
|
|
0
|
|
0
|
|
0
|
|
|
|
|
|
|
|
|
With a related allowance:
|
|
|
|
|
|
|
Residential Real Estate
|
|
$973
|
|
$1,067
|
|
$168
|
Commercial Real Estate
|
|
1,706
|
|
1,841
|
|
505
|
Construction & Land Dev
|
|
4,420
|
|
4,470
|
|
1,030
|
Agricultural Real Estate
|
|
0
|
|
0
|
|
0
|
Commercial
|
|
51
|
|
57
|
|
27
|
Agricultural
|
|
0
|
|
0
|
|
0
|
Consumer
|
|
0
|
|
0
|
|
0
|
|
|
|
|
|
|
|
|
Total:
|
|
|
|
|
|
|
Residential Real Estate
|
|
$2,147
|
|
$2,400
|
|
$168
|
Commercial Real Estate
|
|
3,491
|
|
3,920
|
|
505
|
Construction & Land Dev
|
|
4,663
|
|
4,713
|
|
1,030
|
Agricultural Real Estate
|
|
0
|
|
0
|
|
0
|
Commercial
|
|
887
|
|
952
|
|
27
|
Agricultural
|
|
0
|
|
0
|
|
0
|
Consumer
|
|
0
|
|
0
|
|
0
|
|
Total
|
|
$11,188
|
|
$11,985
|
|
$1,730
|
|
$(000)s
|
|
|
|
Unpaid
|
|
|
|
|
|
Recorded
|
|
Principal
|
|
Related
|
December 31, 2011
|
|
Investment
|
|
Balance
|
|
Allowance
|
With no related allowance:
|
|
|
|
|
|
|
Residential Real Estate
|
|
$805
|
|
$841
|
|
$0
|
Commercial Real Estate
|
|
1,433
|
|
1,698
|
|
0
|
Construction & Land Dev
|
|
2,658
|
|
2,658
|
|
0
|
Agricultural Real Estate
|
|
0
|
|
0
|
|
0
|
Commercial
|
|
890
|
|
935
|
|
0
|
Agricultural
|
|
0
|
|
0
|
|
0
|
Consumer
|
|
43
|
|
43
|
|
0
|
|
|
|
|
|
|
|
|
With a related allowance:
|
|
|
|
|
|
|
Residential Real Estate
|
|
$1,190
|
|
$1,392
|
|
$171
|
Commercial Real Estate
|
|
2,482
|
|
2,615
|
|
721
|
Construction & Land Dev
|
|
2,832
|
|
2,832
|
|
580
|
Agricultural Real Estate
|
|
0
|
|
0
|
|
0
|
Commercial
|
|
38
|
|
41
|
|
14
|
Agricultural
|
|
0
|
|
0
|
|
0
|
Consumer
|
|
142
|
|
144
|
|
129
|
|
|
|
|
|
|
|
|
Total:
|
|
|
|
|
|
|
Residential Real Estate
|
|
$1,995
|
|
$2,233
|
|
$171
|
Commercial Real Estate
|
|
3,915
|
|
4,313
|
|
721
|
Construction & Land Dev
|
|
5,490
|
|
5,490
|
|
580
|
Agricultural Real Estate
|
|
0
|
|
0
|
|
0
|
Commercial
|
|
928
|
|
976
|
|
14
|
Agricultural
|
|
0
|
|
0
|
|
0
|
Consumer
|
|
185
|
|
187
|
|
129
|
|
Total
|
|
$12,513
|
|
$13,199
|
|
$1,615
|
Recorded Investment in Financing
Receivables
|
|
|
September 30,
|
|
|
|
|
|
|
|
2012
|
|
2011
|
|
December 31, 2011
|
|
|
|
|
|
Ending Balance
|
|
|
|
Ending Balance
|
|
|
|
Ending Balance
|
|
|
|
|
|
Individually
|
|
|
|
Individually
|
|
|
|
Individually
|
|
$(000)s
|
|
Ending
|
|
Evaluated
|
|
Ending
|
|
Evaluated
|
|
Ending
|
|
Evaluated
|
|
|
|
Balance
|
|
for Impairment
|
|
Balance
|
|
for Impairment
|
|
Balance
|
|
for Impairment
|
Residential Real Estate
|
|
$70,114
|
|
$2,147
|
|
$75,384
|
|
$1,632
|
|
$72,656
|
|
$1,995
|
Commercial Real Estate
|
|
59,090
|
|
3,491
|
|
60,420
|
|
4,491
|
|
60,865
|
|
3,915
|
Construction & Land Dev
|
|
13,305
|
|
4,663
|
|
13,144
|
|
5,769
|
|
11,655
|
|
5,490
|
Agricultural Real Estate
|
|
76,040
|
|
0
|
|
76,893
|
|
246
|
|
78,768
|
|
0
|
Commercial
|
|
41,008
|
|
887
|
|
35,090
|
|
1,083
|
|
35,178
|
|
928
|
Agricultural
|
|
33,433
|
|
0
|
|
24,104
|
|
0
|
|
27,661
|
|
0
|
Consumer
|
|
10,610
|
|
0
|
|
10,476
|
|
189
|
|
11,049
|
|
185
|
Unallocated
|
|
0
|
|
0
|
|
0
|
|
0
|
|
0
|
|
0
|
Total
|
|
$303,600
|
|
$11,188
|
|
$295,511
|
|
$13,410
|
|
$297,832
|
|
$12,513
|
Allowance for Loan Losses
For the Nine Months Ended September 30,
2012 and 2011
|
$(000)s
|
|
|
|
|
|
|
|
|
|
|
|
Ending Balance
|
|
|
|
Beginning
|
|
|
|
|
|
|
|
Ending
|
|
Individually
|
|
|
|
Balance
|
|
|
|
|
|
|
|
Balance
|
|
Evaluated
|
2012
|
|
1/1/2012
|
|
Charge-offs
|
|
Recoveries
|
|
Provision
|
|
9/30/2012
|
|
for Impairment
|
Residential Real Estate
|
|
$1,132
|
|
($414)
|
|
$14
|
|
$350
|
|
$1,082
|
|
$168
|
Commercial Real Estate
|
|
2,858
|
|
(180)
|
|
13
|
|
(245)
|
|
2,446
|
|
505
|
Construction & Land Dev
|
|
1,163
|
|
0
|
|
0
|
|
673
|
|
1,836
|
|
1,030
|
Agricultural Real Estate
|
|
198
|
|
0
|
|
0
|
|
162
|
|
360
|
|
0
|
Commercial
|
|
202
|
|
(6)
|
|
16
|
|
56
|
|
268
|
|
27
|
Agricultural
|
|
263
|
|
0
|
|
0
|
|
35
|
|
298
|
|
0
|
Consumer
|
|
150
|
|
(151)
|
|
11
|
|
11
|
|
21
|
|
0
|
Unallocated
|
|
612
|
|
0
|
|
0
|
|
(517)
|
|
95
|
|
0
|
Total
|
|
$6,578
|
|
($751)
|
|
$54
|
|
$525
|
|
$6,406
|
|
$1,730
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ending Balance
|
|
$(000)s
|
|
Beginning
|
|
|
|
|
|
|
|
Ending
|
|
Individually
|
|
|
|
Balance
|
|
|
|
|
|
|
|
Balance
|
|
Evaluated
|
2011
|
|
1/1/2011
|
|
Charge-offs
|
|
Recoveries
|
|
Provision
|
|
9/30/2011
|
|
for Impairment
|
Residential Real Estate
|
|
$1,429
|
|
($50)
|
|
$124
|
|
($125)
|
|
$1,378
|
|
$230
|
Commercial Real Estate
|
|
2,849
|
|
(461)
|
|
6
|
|
174
|
|
2,568
|
|
693
|
Construction & Land Dev
|
|
880
|
|
(225)
|
|
25
|
|
459
|
|
1,139
|
|
478
|
Agricultural Real Estate
|
|
204
|
|
0
|
|
0
|
|
48
|
|
252
|
|
40
|
Commercial
|
|
278
|
|
(252)
|
|
40
|
|
173
|
|
239
|
|
52
|
Agricultural
|
|
347
|
|
0
|
|
7
|
|
(131)
|
|
223
|
|
0
|
Consumer
|
|
160
|
|
(15)
|
|
4
|
|
4
|
|
153
|
|
131
|
Unallocated
|
|
718
|
|
0
|
|
0
|
|
(152)
|
|
566
|
|
0
|
Total
|
|
$6,865
|
|
($1,003)
|
|
$206
|
|
$450
|
|
$6,518
|
|
$1,624
|
Nonaccrual loans totaled $6.2 million and $8.7 million at
September 30, 2012 and December 31, 2011, respectively. There were no loans
past due ninety days or more and still accruing. A schedule of loans by the
number of days past due (including nonaccrual loans) along with a schedule of
credit quality indicators follows:
Age Analysis of Past Due Financing Receivables
|
|
|
30-89 Days
|
|
90 Days
|
|
Total
|
|
|
|
Total Financing
|
|
$(000)s
|
|
Past Due
|
|
& Over
|
|
Past Due
|
|
Current
|
|
Receivables
|
|
|
|
|
|
|
|
|
|
|
|
|
|
September 30, 2012
|
|
|
|
|
|
|
|
|
|
|
Residential Real Estate
|
|
$929
|
|
$332
|
|
$1,261
|
|
$68,853
|
|
$70,114
|
Commercial Real Estate
|
|
127
|
|
681
|
|
808
|
|
58,282
|
|
59,090
|
Construction & Land Dev
|
|
0
|
|
714
|
|
714
|
|
12,591
|
|
13,305
|
Agricultural Real Estate
|
|
1,085
|
|
116
|
|
1,201
|
|
74,839
|
|
76,040
|
Commercial
|
|
8
|
|
360
|
|
368
|
|
40,640
|
|
41,008
|
Agricultural
|
|
90
|
|
0
|
|
90
|
|
33,343
|
|
33,433
|
Consumer
|
|
19
|
|
26
|
|
45
|
|
10,565
|
|
10,610
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$2,258
|
|
$2,229
|
|
$4,487
|
|
$299,113
|
|
$303,600
|
|
|
|
30-89 Days
|
|
90 Days
|
|
Total
|
|
|
|
Total Financing
|
|
$(000)s
|
|
Past Due
|
|
& Over
|
|
Past Due
|
|
Current
|
|
Receivables
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2011
|
|
|
|
|
|
|
|
|
|
|
Residential Real Estate
|
|
$1,319
|
|
$866
|
|
$2,185
|
|
$70,471
|
|
$72,656
|
Commercial Real Estate
|
|
1,103
|
|
1,074
|
|
2,177
|
|
58,688
|
|
60,865
|
Construction & Land Dev
|
|
0
|
|
1,452
|
|
1,452
|
|
10,203
|
|
11,655
|
Agricultural Real Estate
|
|
0
|
|
0
|
|
0
|
|
78,768
|
|
78,768
|
Commercial
|
|
185
|
|
200
|
|
385
|
|
34,793
|
|
35,178
|
Agricultural
|
|
0
|
|
0
|
|
0
|
|
27,661
|
|
27,661
|
Consumer
|
|
63
|
|
81
|
|
144
|
|
10,905
|
|
11,049
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$2,670
|
|
$3,673
|
|
$6,343
|
|
$291,489
|
|
$297,832
|
Credit Quality Indicators
|
$(000)s
|
|
|
|
Special
|
|
|
|
|
|
|
|
September 30, 2012
|
|
Non-Classified
|
|
Mention
|
|
Substandard
|
|
Doubtful
|
|
Total
|
Residential Real Estate
|
|
$57,241
|
|
$5,848
|
|
$5,280
|
|
$1,745
|
|
$70,114
|
Commercial Real Estate
|
|
48,261
|
|
5,703
|
|
2,725
|
|
2,401
|
|
59,090
|
Construction & Land Dev
|
|
7,106
|
|
931
|
|
2,712
|
|
2,556
|
|
13,305
|
Agricultural Real Estate
|
|
69,852
|
|
5,363
|
|
825
|
|
0
|
|
76,040
|
Commercial
|
|
37,313
|
|
2,383
|
|
1,132
|
|
180
|
|
41,008
|
Agricultural
|
|
30,884
|
|
2,549
|
|
0
|
|
0
|
|
33,433
|
Consumer
|
|
10,483
|
|
78
|
|
28
|
|
21
|
|
10,610
|
Total
|
|
$261,140
|
|
$22,855
|
|
$12,702
|
|
$6,903
|
|
$303,600
|
|
$(000)s
|
|
|
|
Special
|
|
|
|
|
|
|
|
December 31, 2011
|
|
Non-Classified
|
|
Mention
|
|
Substandard
|
|
Doubtful
|
|
Total
|
Residential Real Estate
|
|
$58,960
|
|
$6,277
|
|
$6,501
|
|
$918
|
|
$72,656
|
Commercial Real Estate
|
|
49,547
|
|
3,668
|
|
4,787
|
|
2,863
|
|
60,865
|
Construction & Land Dev
|
|
4,691
|
|
898
|
|
4,154
|
|
1,912
|
|
11,655
|
Agricultural Real Estate
|
|
70,412
|
|
8,356
|
|
0
|
|
0
|
|
78,768
|
Commercial
|
|
32,600
|
|
1,250
|
|
1,164
|
|
164
|
|
35,178
|
Agricultural
|
|
23,779
|
|
3,882
|
|
0
|
|
0
|
|
27,661
|
Consumer
|
|
10,678
|
|
102
|
|
127
|
|
142
|
|
11,049
|
Total
|
|
$250,667
|
|
$24,433
|
|
$16,733
|
|
$5,999
|
|
$297,832
|
Modifications
As of September 30, 2012
|
|
|
|
|
Pre-Modification
|
|
Post-Modification
|
|
Recorded
|
|
Impact to
|
|
$(000)s
|
|
Number of
|
|
Recorded
|
|
Recorded
|
|
Investment
|
|
Allowance
|
|
|
|
Contracts
|
|
Investment
|
|
Investment
|
|
as of 9/30/2012
|
|
for Credit Losses
|
Residential Real Estate
|
|
5
|
|
$480
|
|
$354
|
|
$353
|
|
$254
|
Total
|
|
5
|
|
$480
|
|
$354
|
|
$353
|
|
$254
|
Since December 31, 2011 there were no loans that were
modified as troubled debt restructurings that subsequently defaulted.
NOTE 4 - NEW ACCOUNTING
PRONOUNCEMENTS
In April 2011, FASB issued ASU No. 2011-03
Reconsideration of Effective Control for Repurchase Agreements.
This
update to
Topic 860, "Transfers and Servicing,"
modifies the criteria
for determining when repurchase agreements would be accounted for as a secured
borrowing rather than a sale. The provisions of ASU No. 2011-03 remove from the
assessment of effective control the criterion requiring the transferor to have
the ability to repurchase or redeem the financial assets on substantially the
agreed terms, even in the event of default by the transferee and the collateral
maintenance implementation guidance related to that criterion. This update does
not change the other existing criteria used in the assessment of effective
control. ASU No. 2011-03 is effective prospectively for transactions, or
modifications of existing transactions, that occur on or after January 1, 2012.
These amendments did not have any impact on DBI's financial
statements.
In May 2011, FASB issued ASU No. 2011-04
Amendments to Achieve Common Fair Value Measurement and Disclosure
Requirements in U.S. GAAP and IFRSs.
These amendments to
Topic 820,
"Fair Value Measurement,"
result in common fair value measurement and
disclosure requirements in U.S. GAAP and International Financial Reporting
Standards ("IFRS"). The changes to U.S. GAAP as a result of ASU No. 2011-04 are
as follows; (a) the concepts of highest and best use and valuation premise are
only relevant when measuring the fair value of nonfinancial assets; (b) U.S.
GAAP currently prohibits application of a blockage factor in valuing financial
instruments with quoted prices in active markets, however ASU No. 2011-04
extends that prohibition to all fair value measurements; (c) an exception is
provided to the basic fair value measurement principles for an entity that
holds a group of financial assets and financial liabilities with offsetting
positions in market risks or counterparty credit risk that are managed on the
basis of the entity's net exposure to either of those risks which allows the
entity, if certain criteria are met, to measure the fair value of the net asset
or liability position in a manner consistent with how market participants would
price the net risk position; (d) aligns the fair value measurement of
instruments classified within an entity's shareholders' equity with the
guidance for liabilities; and (e) disclosure requirements have been enhanced
for recurring Level 3 fair value measurements to disclose quantitative
information about unobservable inputs and assumptions used, to describe the
valuation processes used by the entity, and to describe the sensitivity of fair
value measurements to changes in unobservable inputs and interrelationships
between those inputs. In addition, entities must report the level in the fair
value hierarchy of items that are not measured at fair value in the statement
of condition but whose fair value must be disclosed. The provisions of ASU No.
2011-04 are effective for interim reporting periods beginning on or after
December 15, 2011. See Note 5 for the impact that the adoption of ASU No.
2011-04 had on DBI's financial statements.
In June 2011, FASB issued ASU No. 2011-05,
Presentation of Comprehensive Income.
This update to
Topic 220,
"Comprehensive Income,"
allows an entity the option to present the total of
comprehensive income, the components of net income and the components of other
comprehensive income either in a single continuous statement of comprehensive
income or in two separate but consecutive statements. In both choices, an
entity is required to present each component of net income along with total net
income, each component of other comprehensive income along with a total for
other comprehensive income, and a total amount for comprehensive income. The
statement(s) are required to be presented with equal prominence as the other
primary financial statements. ASU No. 2011-05 eliminates the option to present
the components of other comprehensive income as part of the statement of
changes in shareholders' equity but does not change the items that must be
reported in other comprehensive income or when an item of other comprehensive
must be reclassified to net income. ASU No. 2011-05 is effective for interim
reporting periods beginning on or after December 15, 2011, with retrospective
application required. The adoption of ASU No. 2011-05 changed the presentation
of DBI's income statement and the addition of a statement of other
comprehensive income. The adoption did not have any impact on DBI's statement
of financial condition.
In September 2011, FASB issued ASU No.
2011-08,
Testing Goodwill for Impairment.
This update to
Topic 350,
"Intangibles - Goodwill and Other,"
permits an entity to first assess
qualitative factors to determine whether it is more likely than not that the
fair value of a reporting unit is less than its carrying amount as a basis for
determining whether it is necessary to perform the two-step goodwill impairment
test described in Topic 350. The more-likely-than-not threshold is defined as
having a likelihood of more than 50 percent. Previous guidance under Topic 350
required an entity to test goodwill for impairment on at least an annual basis
by comparing the fair value of a reporting unit with its carrying amount (step
one). If the fair value of a reporting unit is less than its carrying amount,
then the second step of the test must be performed to measure the amount of the
impairment loss, if any. Under the amendments of this update, an entity is not
required to calculate the fair value of a reporting unit unless the entity
determines that it is more likely than not that its fair value is less than its
carrying amount. If after assessing the totality of events or circumstances, an
entity determines it is not more likely than not that the fair value of a
reporting unit is less than its carrying amount, then performing the two-step
impairment test is unnecessary. An entity has the option under this update to
bypass the qualitative assessment for any reporting unit in any period and
proceed directly to performing the first step of the two-step goodwill
impairment test. The amendments are effective for annual and interim goodwill
impairment tests performed for fiscal years beginning after December 15, 2011.
Early adoption was permitted. The adoption of ASU No. 2011-08 had no impact on
DBI's financial statements.
In July 2012, FASB issued ASU No. 2012-02,
Testing Indefinite-Lived Intangible Assets for Impairment.
The
provisions of this update permit an entity to first assess qualitative factors
to determine whether it is more likely than not that an indefinite-lived
intangible asset is impaired as a basis for determining whether it is necessary
to perform a quantitative impairment test, as is currently required by GAAP.
ASU No. 2012-02 is effective for annual and interim impairment tests performed
for fiscal years beginning after September 15, 2012. Since DBI does not have
any indefinite-lived intangible asses, the adoption of ASU No. 2012-02 is not
anticipated to have any impacted on DBI's financial statements.
NOTE 5 - FAIR VALUE
MEASURMENT
Fair value is the exchange price that would
be received for an asset or paid to transfer a liability in the principal or
most advantageous market for the asset or liability in a transaction between
market participants on the measurement date. Some assets and liabilities are
measured on a recurring basis while others are measured on a non-recurring
basis, as required by U.S. GAAP, which also establishes a fair value hierarchy
that requires an entity to maximize the use of observable inputs and minimize
the use of unobservable inputs when measuring fair value. Fair value estimates
are made at a specific point in time based on relevant market information and
information about the financial instrument. The three levels of inputs defined
in the standard that may be used to measure fair value are as
follows:
Level 1: Quoted prices for identical assets
or liabilities in active markets that the entity has the ability to access as
of the measurement date.
Level 2: Significant other observable inputs
other than Level 1 prices, such as quoted prices for similar assets or
liabilities, quoted prices in markets that are not active, and other inputs
that are observable or can be corroborated by observable market data.
Level 3: Significant unobservable inputs that
are supported by little, if any, market activity. These unobservable inputs
reflect estimates that market participants would use in pricing the assets or
liability.
DBI used the following methods and
significant assumptions to estimate fair value:
Cash, Cash Equivalents, and Federal Funds
Sold:
For cash, cash equivalents and federal funds
sold, the carrying amount is a reasonable estimate of fair value.
Investment Securities:
Investment securities available-for-sale
("AFS") are recorded at fair value on a recurring basis. The fair value
measurement of most of DBI's AFS securities is currently determined by an
independent provider using Level 2 inputs (except as noted below). The
measurement is based upon quoted prices for similar assets, if available. If
quoted prices are not available, fair values are measured using matrix pricing
models, or other model-based valuation techniques requiring observable inputs
other than quoted prices such as yield curves, prepayment speed and default
rates. Two of DBI's AFS MBS that are secured by non-traditional mortgage loans
and one AFS MBS secured by traditional mortgage loans that was previously
downgraded were analyzed by a third party in order to determine an estimated
fair value. The estimated fair values were based on discounted cash flow
analyses and are considered Level 3 inputs.
Refer to Note 2 - Investment Securities for
additional detail on the assumptions used in determining the estimated fair
values, the valuation techniques and significant unobservable inputs for Level
3 assets as well as additional disclosures regarding DBI's investment
securities. For other securities held as investments, fair value equals quoted
market price, if available. If a quoted market price is not available, fair
value is estimated using quoted market prices for similar securities.
Loans Receivable, net:
The fair value of loans is estimated by
discounting the future cash flows using the current rates at which similar
loans would be made to borrowers with similar characteristics and for the same
remaining maturities.
Loans Held for Sale:
Mortgage loans held for sale are recorded at the lower of cost
or market value. The fair value is based on a market commitment for the sale of
the loan in the secondary market. These loans are typically sold within one
week of funding. DBI classifies mortgage loans held for sale as nonrecurring
Level 2 assets.
Impaired Loans:
As defined below in the
Glossary of Loan
Terms
section, a loan is considered impaired when, based on current
information or events, it is probable that not all amounts due will be
collected according to the contractual terms of the loan agreement. Impairment
is measured based on the fair value of the underlying collateral. The
collateral value is determined based on appraisals and other market valuations
for similar assets. Under
FASB ASC Topic 820, "Fair Value Measurements and
Disclosures,"
the fair value of impaired loans is reported before selling
costs of the related collateral, while
FASB ASC Topic 310, "Receivables,"
requires that impaired loans be reported on the balance sheet net of
estimated selling costs. Therefore, significant estimated selling costs would
result in the reported fair value of impaired loans being greater than the
measurement value of impaired loans as maintained on the balance sheet. In most
instances, selling costs were estimated for real estate-secured collateral and
included broker commissions, legal and title transfer fees and closing costs.
Given the valuation technique and significant unobservable inputs utilized to
determine the fair value, impaired loans are classified as nonrecurring Level 3
assets.
Other Investments:
For other investments, the carrying amount is
a reasonable estimate of fair value.
Other Real Estate Owned:
Real estate that DBI has taken control of in
partial or full satisfaction of debt is valued at the lower of book value or
fair value. The fair value is determined by analyzing the collateral value of
the real estate using appraisals and other market valuations for similar assets
less any estimated selling costs. The value carried on the balance sheet for
other real estate owned is estimated fair value of the properties. Other real
estate owned is classified as a nonrecurring Level 2 asset.
Bank Owned Life Insurance:
The carrying amount of bank owned life
insurance approximates fair value.
Deposit Liabilities:
The fair value of demand deposits, savings
accounts and certain money market deposits is the amount payable on demand at
the reporting date. The fair value of fixed-maturity certificates of deposit is
the estimate of discounted cash flows using the rates currently offered for
deposits of similar remaining maturities.
Borrowings:
Rates currently available to DSB for debt
with similar terms and remaining maturities are used to estimate fair value of
existing debt.
Commitments to Extend Credit, Standby
Letters of Credit and Financial Guarantees Written:
The fair value of commitments is estimated
using the fees currently charged to enter into similar agreements, taking into
account the remaining terms of the agreements and the present creditworthiness
of the counterparties. For fixed rate loan commitments, fair value also
considers the difference between current levels of interest rates and the
committed rates. The fair value of guarantees and letters of credit is not
material.
Assets Recorded at Fair Value on a
Recurring Basis
Assets measured at fair value on a recurring
basis, are summarized in the table below:
|
September 30, 2012
|
|
Fair Value Measurements Using
|
|
|
Description
|
Level 1
|
|
Level 2
|
|
Level 3
|
|
Fair Value
|
U.S.
Government-sponsored agencies
|
$0
|
|
$4,511,200
|
|
$0
|
|
$4,511,200
|
U.S.
Government-sponsored agency MBS
|
0
|
|
40,112,809
|
|
0
|
|
40,112,809
|
State and
local governments
|
0
|
|
28,616,198
|
|
0
|
|
28,616,198
|
Asset-backed securities
|
0
|
|
2,455,750
|
|
0
|
|
2,455,750
|
Residential
MBS
|
0
|
|
2,047,348
|
|
3,598,225
|
|
5,645,573
|
Total
securities available for sale
|
$0
|
|
$77,743,305
|
|
$3,598,225
|
|
$81,341,530
|
|
December 31, 2011
|
|
Fair Value Measurements Using
|
|
|
Description
|
Level 1
|
|
Level 2
|
|
Level 3
|
|
Fair Value
|
U.S.
Government-sponsored agencies
|
$0
|
|
$3,517,050
|
|
$0
|
|
$3,517,050
|
U.S.
Government-sponsored agency MBS
|
0
|
|
32,226,529
|
|
0
|
|
32,226,529
|
State and
local governments
|
0
|
|
25,468,499
|
|
0
|
|
25,468,499
|
Residential
MBS
|
0
|
|
2,355,680
|
|
4,042,935
|
|
6,398,615
|
Total
securities available for sale
|
$0
|
|
$63,567,758
|
|
$4,042,935
|
|
$67,610,693
|
The table below presents a reconciliation and
income statement classification of gains and losses for all assets measured at
fair value on a recurring basis using significant unobservable inputs (Level 3)
for the nine months ended September 30, 2012.
Fair Value Measurements Using Significant Unobservable Inputs
(Level 3)
|
|
|
|
|
|
|
|
|
|
Available-
|
|
|
|
|
|
for-Sale
|
|
|
|
|
|
Securities
|
|
|
Beginning
balance, January 1, 2012
|
|
|
$4,042,935
|
|
|
Total
realized and unrealized gains/(losses):
|
|
|
|
|
|
Included in
earnings
|
|
|
(120,354)
|
|
|
Included in
other comprehensive income
|
|
|
194,999
|
|
|
Purchases,
issuances, sales and settlements
|
|
|
|
|
|
Purchases
|
|
|
0
|
|
|
Issuances
|
|
|
0
|
|
|
Sales
|
|
|
0
|
|
|
Settlements
|
|
|
(519,355)
|
|
|
Transfers
into Level 3
|
|
|
0
|
|
|
Transfers
out of Level 3
|
|
|
0
|
|
|
Ending
balance, September 30, 2012
|
|
|
$3,598,225
|
|
|
Assets Recorded at Fair Value on a
Nonrecurring Basis
Assets measured at fair value on a
nonrecurring basis, are summarized in the following table:
|
September 30, 2012
|
|
Fair Value Measurements Using
|
|
|
Description
|
Level 1
|
|
Level 2
|
|
Level 3
|
|
Fair Value
|
Loans held
for sale
|
$0
|
|
$367,806
|
|
$0
|
|
$367,806
|
Other real
estate owned
|
0
|
|
336,719
|
|
0
|
|
336,719
|
Impaired
loans
|
0
|
|
0
|
|
10,634,032
|
|
10,634,032
|
Total
Assets
|
$0
|
|
$704,525
|
|
$10,634,032
|
|
$11,338,557
|
|
December 31, 2011
|
|
Fair Value Measurements Using
|
|
|
Description
|
Level 1
|
|
Level 2
|
|
Level 3
|
|
Fair Value
|
Loans held
for sale
|
$0
|
|
$485,926
|
|
$0
|
|
$485,926
|
Other real
estate owned
|
0
|
|
801,689
|
|
0
|
|
801,689
|
Impaired
loans
|
0
|
|
0
|
|
13,260,619
|
|
13,260,619
|
Total
Assets
|
$0
|
|
$1,287,615
|
|
$13,260,619
|
|
$14,548,234
|
The tables below summarize fair value of
financial assets and liabilities at September 30, 2012 and December 31,
2011.
|
September 30, 2012
|
|
Carrying
|
|
Fair
|
|
Fair Value Hierarchy Level
|
|
Amount
|
|
Value
|
|
Level 1
|
|
Level 2
|
|
Level 3
|
$(000s)
|
|
|
|
|
|
|
|
|
|
Financial Assets
|
|
|
|
|
|
|
|
|
|
Cash and
federal funds sold
|
$29,118
|
|
$29,118
|
|
$29,118
|
|
$0
|
|
$0
|
Investment
securities
|
81,341
|
|
81,341
|
|
0
|
|
77,743
|
|
3,598
|
Loans, net
of allowance for loan losses
|
297,194
|
|
298,277
|
|
0
|
|
0
|
|
298,277
|
Loans held
for sale
|
368
|
|
368
|
|
0
|
|
368
|
|
0
|
Bank owned
life insurance
|
7,286
|
|
7,286
|
|
0
|
|
7,286
|
|
0
|
Other
investments, at cost
|
2,741
|
|
2,741
|
|
0
|
|
0
|
|
2,741
|
TOTAL
|
$418,048
|
|
$419,131
|
|
$29,118
|
|
$85,397
|
|
$304,616
|
Financial Liabilities
|
|
|
|
|
|
|
|
|
|
Deposits
|
$332,898
|
|
$334,074
|
|
$0
|
|
$0
|
|
$334,074
|
Borrowings
|
37,768
|
|
39,873
|
|
0
|
|
0
|
|
39,873
|
TOTAL
|
$370,666
|
|
$373,947
|
|
$0
|
|
$0
|
|
$373,947
|
|
December 31, 2011
|
|
Carrying
|
|
Fair
|
|
Fair Value Hierarchy Level
|
|
Amount
|
|
Value
|
|
Level 1
|
|
Level 2
|
|
Level 3
|
$(000s)
|
|
|
|
|
|
|
|
|
|
Financial Assets
|
|
|
|
|
|
|
|
|
|
Cash and
federal funds sold
|
$42,093
|
|
$42,093
|
|
$42,093
|
|
$0
|
|
$0
|
Investment
securities
|
67,611
|
|
67,611
|
|
0
|
|
63,568
|
|
4,043
|
Loans, net
of allowance for loan losses
|
291,254
|
|
291,427
|
|
0
|
|
0
|
|
291,427
|
Loans held
for sale
|
486
|
|
486
|
|
0
|
|
486
|
|
0
|
Bank owned
life insurance
|
7,083
|
|
7,083
|
|
0
|
|
7,083
|
|
0
|
Other
investments, at cost
|
4,405
|
|
4,405
|
|
0
|
|
0
|
|
4,405
|
TOTAL
|
$412,932
|
|
$413,105
|
|
$42,093
|
|
$71,137
|
|
$299,875
|
Financial Liabilities
|
|
|
|
|
|
|
|
|
|
Deposits
|
$327,793
|
|
$328,864
|
|
$0
|
|
$0
|
|
$328,864
|
Borrowings
|
40,041
|
|
41,935
|
|
0
|
|
0
|
|
41,935
|
TOTAL
|
$367,834
|
|
$370,799
|
|
$0
|
|
$0
|
|
$370,799
|
Item 2. Management's Discussion and
Analysis of Financial Condition and Results of Operations
Denmark Bancshares, Inc. and
Subsidiaries
|
Selected Quarterly Financial
Data
|
(Unaudited)
|
|
|
|
|
|
|
|
|
|
|
Financial Highlights
|
|
|
|
|
|
|
|
|
|
|
3rd Qtr
|
|
2nd Qtr
|
|
1st Qtr
|
|
4th Qtr
|
|
3rd Qtr
|
($000s,
except per share data)
|
2012
|
|
2012
|
|
2012
|
|
2011
|
|
2011
|
|
|
|
|
|
|
|
|
|
|
Operating Results
|
|
|
|
|
|
|
|
|
|
Interest
income
|
$4,292
|
|
$4,360
|
|
$4,305
|
|
$4,340
|
|
$4,406
|
Interest
expense
|
784
|
|
847
|
|
896
|
|
946
|
|
1,003
|
Net
interest income
|
3,508
|
|
3,513
|
|
3,409
|
|
3,394
|
|
3,403
|
Provision
for loan losses
|
225
|
|
150
|
|
150
|
|
150
|
|
150
|
Noninterest
income
|
830
|
|
505
|
|
596
|
|
539
|
|
484
|
Noninterest
expense
|
2,604
|
|
2,621
|
|
2,572
|
|
2,328
|
|
2,514
|
Net income
|
974
|
|
821
|
|
849
|
|
982
|
|
848
|
|
|
|
|
|
|
|
|
|
|
Per
Share Data
|
|
|
|
|
|
|
|
|
|
Net income
per share
|
$8.22
|
|
$6.93
|
|
$7.14
|
|
$8.26
|
|
$7.13
|
Book value
per share
|
$489.67
|
|
$480.21
|
|
$479.09
|
|
$471.11
|
|
$470.88
|
|
|
|
|
|
|
|
|
|
|
Financial Condition (1)
|
|
|
|
|
|
|
|
|
|
Total
Loans
|
$303,600
|
|
$304,594
|
|
$301,606
|
|
$297,832
|
|
$295,511
|
Allowance
for credit losses
|
6,406
|
|
6,585
|
|
6,603
|
|
6,578
|
|
6,518
|
Investment
securities
|
81,342
|
|
78,031
|
|
76,787
|
|
67,611
|
|
65,757
|
Assets
|
430,156
|
|
421,540
|
|
422,731
|
|
425,986
|
|
412,560
|
Deposits
|
332,898
|
|
324,367
|
|
324,922
|
|
327,793
|
|
315,232
|
Other
borrowed funds
|
37,768
|
|
38,151
|
|
39,683
|
|
40,041
|
|
39,759
|
Stockholders' equity
|
58,059
|
|
56,938
|
|
56,804
|
|
56,023
|
|
55,996
|
|
|
|
|
|
|
|
|
|
|
Financial Ratios
|
|
|
|
|
|
|
|
|
|
Return on
average equity
|
6.77%
|
|
5.77%
|
|
5.99%
|
|
7.14%
|
|
6.20%
|
Return on
average assets
|
0.93%
|
|
0.79%
|
|
0.80%
|
|
0.96%
|
|
0.83%
|
Interest
rate spread
|
3.33%
|
|
3.33%
|
|
3.17%
|
|
3.37%
|
|
3.29%
|
Average
equity to average assets
|
13.67%
|
|
13.60%
|
|
13.39%
|
|
13.23%
|
|
13.37%
|
Allowance
for loan losses
|
|
|
|
|
|
|
|
|
|
to total
loans (1)
|
2.11%
|
|
2.16%
|
|
2.19%
|
|
2.21%
|
|
2.21%
|
Non-performing loans to allowance for
|
|
|
|
|
|
|
|
|
|
loan losses
(1)
|
96%
|
|
109%
|
|
137%
|
|
132%
|
|
125%
|
(1) As of
the period ending.
|
|
|
|
|
|
|
|
|
|
Forward Looking Statements
This report may contain certain
forward-looking statements, including without limitation, statements regarding
results of operations, the appropriateness of the allowance for loan losses,
the amounts of charge-offs and recoveries, capital to asset ratios, capacity
for paying dividends and liquidity. These statements speak of DBI's plans,
goals, beliefs or expectations, and refer to estimates or use of similar terms.
Forward-looking statements can generally be identified because they contain
words and phrases such as "may," "project," "are confident," "should,"
"predict," "believe," "plan," "expect," "estimate," "anticipate," and similar
expressions. These forward-looking statements are inherently uncertain and
actual results may differ from DBI's expectations. The factors that, among
others, could impact current and future performance include but are not limited
to: (i) adverse changes in asset quality and resulting credit risk-related
losses and expenses; (ii) adverse changes in the local economy; (iii)
fluctuations in market rates and prices which can negatively affect net
interest margin, asset valuations and expense expectations; (iv) changes in
regulatory requirements of federal and state agencies applicable to banks and
bank holding companies; and (v) the factors set forth in Item 1A of DBI's
Annual Report on Form 10-K for the year ended December 31, 2011 (the "2011
Annual Report"), which item is incorporated herein by reference, as well as
other risks identified in this Report. When reviewing forward-looking
statements to make decisions with respect to DBI, investors and others are
cautioned to consider these and other risks and uncertainties. All
forward-looking statements contained in this report are based upon information
presently available and DBI assumes no obligation to update any forward-looking
statements.
The Dodd-Frank Wall Street Reform and
Consumer Protection Act
On July 21, 2010, President Obama signed the
Dodd-Frank Wall Street Reform and Consumer Protection Act ("Dodd-Frank Act")
into law. This legislation makes extensive changes to the laws regulating
financial services firms and requires significant rulemaking, some of which has
yet to be finalized. In addition, the legislation mandates multiple studies,
which could result in additional legislative or regulatory action. While the
full effects of the legislation on DBI and DSB cannot yet be determined, this
legislation is generally perceived as negatively impacting the banking
industry. This legislation may result in higher compliance and other costs,
reduced revenues and higher capital and liquidity requirements, among other
things, which could adversely affect DBI's and DSB's business.
Critical Accounting Policies
The accounting and reporting policies of DBI
are in accordance with accounting principles generally accepted in the United
States of America and conform to general practices in the banking industry. The
preparation of financial statements in conformity with these principles
requires management to make estimates and assumptions that affect the reported
amounts of assets and liabilities at the date of the financial statements, and
the reported amounts of revenues and expenses during the reporting period.
These estimates and assumptions are based on information available at the date
of the financial statements. Certain policies inherently have a greater
reliance on the use of estimates, assumptions, and judgments and as such have a
greater possibility of producing results that could be materially different
than originally reported. Management believes that DBI's critical accounting
policies are those relating to the allowance for loan losses, the valuation of
investment securities and intangible assets.
Allowance for Loan Losses
The allowance for loan losses ("ALL") is an
estimate of the losses that may be sustained in the loan portfolio. Please
refer to the Allowance for Loan Losses section of Note 3 - Loans for detail on
the allowance methodology. Management believes the ALL is appropriate as of
September 30, 2012.
Valuation of Investment
Securities
Investment securities are classified as
available-for-sale and are valued at their fair market value. Please refer to
Note 2 - Investment Securities and Note 5 - Fair Value Measurement for
additional details on the valuation of investment securities.
Other Real Estate Owned
Real estate that DBI has taken control of in
partial or full satisfaction of debt is valued at the lower of book value or
market value. Please refer to Note 5 - Fair Value Measurement for additional
information on the accounting polices related to the valuation of other real
estate owned.
Glossary of Loan Terms
Impaired Loan -
A loan is impaired when, based on current information and events, it is
probable that not all amounts due will be collected according to the
contractual terms of the loan agreement. Impaired loans are measured at the
estimated fair value of the collateral. If the estimated fair value of the
impaired loan is less than the recorded investment in the loan, an impairment
is recognized by creating a valuation allowance.
Nonaccrual Loan -
DSB's policy is to place in nonaccrual status all loans which are contractually
past due 90 days or more as to any payment of principal or interest and all
other loans for which reasonable doubt exists as to the full, timely collection
of interest or principal based on management's view of the financial condition
of the borrower. When a loan is placed on nonaccrual, all interest previously
accrued but not collected is reversed against current period interest income.
Income on such loans is then recognized only to the extent that cash is
received and where the collection of principal is probable. Interest accruals
are resumed on such loans only when they are brought fully current with respect
to interest and principal and when, in the judgment of management, the loans
are estimated to be fully collectible as to both principal and interest.
Non-Performing Assets -
Non-performing assets include nonaccrual loans as defined above and real and
personal properties acquired in satisfaction of debts previously owed.
Past Due Accruing Loans -
A loan on which all or part of a scheduled payment is delinquent by more than
30 days but less than 90 days, except loans that are considered nonaccrual.
Potential Problem Loans -
Potential problem loans are accruing loans in which there exists doubt as to
the ability of the borrower to comply with present loan repayment terms.
Management's decision to place loans in this category does not necessarily mean
that DBI expects losses to occur on these loans, but that management recognizes
that a higher degree of risk is associated with these accruing loans and they
deserve closer scrutiny.
Restructured Loans -
Restructured loans involve the granting of some concession to the borrower
involving the modification of terms of the loan, such as changes in the payment
schedule, the amortization term, the interest rate, or a combination of these.
Risk Rating -
Risk rating, which is also sometimes referred to as loan grade, is the credit
quality grade assigned to each loan. Loans are assigned a risk rating upon
origination. Lenders and credit review analysts conduct periodic reviews and
evaluations and make adjustments to the assigned grades when appropriate. The
range of categories from the best quality to the worst is as follows: highest
quality, solid quality, some weakness, inherent industry weakness, special
mention, substandard, doubtful and loss. Impaired loans are generally rated a
substandard or lower risk rating.
Special Mention Loans -
Loans classified "special mention" are one step above substandard loans as
described below. These loans contain some weaknesses, which if not corrected or
improved upon could lead to further deterioration and a lower rating.
Substandard -
A "substandard" loan is a loan that is inadequately protected by the current
net worth and paying capacity of the borrower or the value of the collateral.
Loans classified "substandard" have well-defined weaknesses that jeopardize
prospects for liquidation and are characterized by the distinct possibility
that some loss will be sustained if the deficiencies are not corrected.
Results of Operations
Net income for the quarter ended September
30, 2012, was $1.0 million, an increase of $0.1 million or 14.9% from $0.9
million for the corresponding period in 2011. This increase was primarily the
result of $0.2 million security sales gains, a $0.1 million increase in loan
sales gains and a $0.1 million improvement in net interest income from the same
period during 2011. These items were partially offset by a $0.1 million
increase in the provision for loan losses and a $0.2 million increase in tax
expense for the period.
Year-to-date net income for the first nine
months of 2012 was steady at $2.6 million when compared to the same period in
2011.
Net interest income was $3.5 million for the
quarter ended September 30, 2012, an increase of $0.1 million or 3.1% from $3.4
million during the third quarter of 2011. Net interest income for the first
nine months of 2012 as well as the first nine months of 2011 was $10.4 million.
The following tables set forth a summary of the changes in average balances of
interest-earning assets and interest-bearing liabilities as well as the amount
of interest earned and interest paid with the resulting average yield or rate
for both the current quarter and year-to-date 2012:
|
Three Months Ended September
30,
|
|
2012
|
|
2011
|
|
($000s)
|
Average
|
Income
|
Average
|
|
Average
|
Income
|
Average
|
|
|
Daily
|
and
|
Yield or
|
|
Daily
|
and
|
Yield or
|
|
|
Balance
|
Expense
|
Rate
|
|
Balance
|
Expense
|
Rate
|
|
ASSETS
|
|
|
|
|
|
|
|
|
Interest-earning assets:
|
|
|
|
|
|
|
|
|
Loans (1)
(2)
|
$304,839
|
$3,825
|
5.02%
|
|
$296,619
|
$3,847
|
5.19%
|
|
Investment
securities: (3)
|
|
|
|
|
|
|
|
|
Taxable
securities
|
62,521
|
291
|
1.86%
|
|
50,388
|
313
|
2.48%
|
|
Nontaxable
securities (2)
|
15,148
|
238
|
6.29%
|
|
18,142
|
346
|
7.63%
|
|
Federal
funds sold
|
9,776
|
3
|
0.14%
|
|
10,677
|
4
|
0.13%
|
|
Other
investments
|
6,616
|
21
|
1.26%
|
|
11,250
|
18
|
0.65%
|
|
Total
earning assets
|
$398,900
|
$4,378
|
4.39%
|
|
$387,076
|
$4,528
|
4.68%
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES AND STOCKHOLDERS' EQUITY
|
|
|
|
|
|
Interest-bearing liabilities:
|
|
|
|
|
|
|
|
NOW
accounts
|
$23,184
|
$11
|
0.18%
|
|
$19,765
|
$9
|
0.18%
|
|
Savings
accounts
|
23,240
|
16
|
0.28%
|
|
21,201
|
16
|
0.30%
|
|
Money
market accounts
|
136,063
|
140
|
0.41%
|
|
123,042
|
229
|
0.74%
|
|
Time
deposits
|
102,517
|
363
|
1.42%
|
|
111,291
|
471
|
1.69%
|
|
Other
borrowed funds
|
37,812
|
254
|
2.69%
|
|
42,533
|
278
|
2.61%
|
|
Total
interest-bearing liabilities
|
$322,816
|
$784
|
0.97%
|
|
$317,832
|
$1,003
|
1.26%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net interest
income and rate spread
|
|
$3,594
|
3.42%
|
|
|
$3,525
|
3.42%
|
|
|
|
|
|
|
|
|
|
|
Net yield on
interest earning assets
|
|
|
3.60%
|
|
|
|
3.64%
|
|
|
|
|
|
|
|
|
|
|
|
Nine Months Ended September 30,
|
|
2012
|
|
2011
|
|
($000s)
|
Average
|
Income
|
Average
|
|
Average
|
Income
|
Average
|
|
|
Daily
|
and
|
Yield or
|
|
Daily
|
and
|
Yield or
|
|
|
Balance
|
Expense
|
Rate
|
|
Balance
|
Expense
|
Rate
|
|
ASSETS
|
|
|
|
|
|
|
|
|
Interest-earning assets:
|
|
|
|
|
|
|
|
|
Loans (1)
(2)
|
$302,308
|
$11,466
|
5.06%
|
|
$297,729
|
$11,779
|
5.28%
|
|
Investment
securities: (3)
|
|
|
|
|
|
|
|
|
Taxable
securities
|
60,499
|
869
|
1.91%
|
|
45,397
|
860
|
2.52%
|
|
Nontaxable
securities (2)
|
15,291
|
812
|
7.08%
|
|
21,465
|
1,219
|
7.57%
|
|
Federal
funds sold
|
10,104
|
10
|
0.14%
|
|
12,234
|
15
|
0.16%
|
|
Other
investments
|
11,821
|
88
|
0.99%
|
|
10,944
|
91
|
1.11%
|
|
Total
earning assets
|
$400,023
|
$13,245
|
4.41%
|
|
$387,769
|
$13,964
|
4.80%
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES AND STOCKHOLDERS' EQUITY
|
|
|
|
|
|
Interest-bearing liabilities:
|
|
|
|
|
|
|
|
NOW
accounts
|
$22,316
|
$30
|
0.18%
|
|
$20,596
|
$29
|
0.19%
|
|
Savings
accounts
|
22,448
|
49
|
0.29%
|
|
20,787
|
50
|
0.32%
|
|
Money
market accounts
|
135,816
|
538
|
0.53%
|
|
120,383
|
693
|
0.77%
|
|
Time
deposits
|
103,892
|
1,137
|
1.46%
|
|
115,068
|
1,545
|
1.79%
|
|
Other
borrowed funds
|
38,862
|
773
|
2.65%
|
|
43,386
|
841
|
2.58%
|
|
Total
interest-bearing liabilities
|
$323,334
|
$2,527
|
1.04%
|
|
$320,220
|
$3,158
|
1.32%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net interest
income and rate spread
|
|
$10,718
|
3.37%
|
|
|
$10,806
|
3.48%
|
|
|
|
|
|
|
|
|
|
|
Net yield on
interest earning assets
|
|
|
3.57%
|
|
|
|
3.72%
|
|
(1) Nonaccrual loans are included in the
average daily balance figure, but interest income associated with these loans
is recognized under the cash basis method of accounting.
(2) The yield on tax-exempt loans and
securities is computed on a fully taxable equivalent basis assuming a tax rate
of 34%.
(3) Securities are shown at amortized
cost.
Net interest income for the quarter-ended
September 30, 2012 was stable when compared to the same period of 2011. The net
interest rate spread on a tax equivalent basis was 3.42% for both the quarter
ended September 30, 2012 and 2011. DBI's yield on earning assets declined 29
basis points from 4.68% for the quarter ended September 30, 2011 to 4.39% as of
the quarter ended September 30, 2012. This was due in large part to a decline
in the yield on tax-exempt securities of 134 basis points and a decline of 62
basis points in the yield on taxable securities for the current quarter when
compared to the same period of 2011. The reduction in the yield on earning
assets was offset by a decline in the cost of funds of 29 basis points from
1.26% for the quarter ended September 30, 2011 to 0.97% during the third
quarter of 2012. This reduction in the cost of funds was primarily impacted by
a 33 basis point reduction in the rate on money market accounts and a shift in
average balances from higher cost certificates of deposits to lower cost money
market accounts.
During the first nine months of 2012, the net
interest rate spread on a tax equivalent basis fell 11 basis points compared to
the first nine months of the prior year from 3.48% at September 30, 2011 to
3.37% at September 30, 2012. The yield on earning assets fell 39 basis points
during this period from 4.80% in 2011 to 4.41% in 2012 due in large part to a
22 basis point decline in the yield on loans as well as a 61 basis point
reduction in the yield on taxable securities during this same period. This
decline in the yield on earning assets was partially offset by a decrease in
the cost of funds of 28 basis points from 1.32% year-to-date 2011 to 1.04% for
the same period in 2012. The reduction in the cost of funds was primarily
impacted by a 33 basis point reduction in the rate and an $11.2 million decline
in the average balances on certificates of deposits.
DBI's provision for loan losses was $0.2
million for both the third quarter of 2012 and the same period of 2011. Net
charge-offs of $0.4 million were recognized in the third quarter of 2012
compared to nominal net charge-offs during the corresponding period in 2011.
For both the nine months ended September 30, 2012 and 2011 DBI's provision for
loan losses totaled $0.5 million. Net charge-offs for the nine-month period
ended September 30, 2012 totaled $0.7 million versus $0.8 million for the
comparable period in 2011.
Noninterest income for the three months ended
September 30, 2012 was $0.8 million, an increase of $0.3 million or 71.5%
compared to $0.5 million during the corresponding period in 2011. During the
third quarter of 2012, gains on the sale of securities of $0.2 million were
recognized while no gains were recorded during the same period during 2011. For
tax purposes, thirteen taxable municipals were sold during the most recent
quarter along with two agency pools resulting in the recorded gains. Also,
gains on the sale of loans to the secondary market were $0.1 million higher
than the same period for 2011. This is due to an increase in the volume of
loans sold by $4.3 million to $11.2 million in the third quarter of 2012.
Noninterest income for the nine months ended September 30, 2012 was $1.9
million an increase of $0.4 million or 30.1% versus $1.5 million recorded
during the nine months ended September 30, 2011. This was primarily due to an
increase of $0.2 million in gains on both the sale of loans as well as
securities sales during the first nine months of 2012 compared to the same
period of 2011.
Noninterest expense increased $0.1 million or
3.8% to $2.6 million for the quarter ended September 30, 2012 compared to $2.5
million for the third quarter of 2011. Slight increases in data processing
expenses along with salaries and employee benefits for the current quarter
compared to the same period of 2011 are the primary reasons for this increase.
Higher health insurance costs along with additional staffing led to this
increase. For the nine months ended September 30, 2012, noninterest expense
increased $0.2 million or 2.3% to $7.7 million compared to $7.5 million for the
nine months ended September 30, 2011. Salaries and employee benefits were $0.2
million higher during the first three quarters of 2012 when compared to the
same period for 2011. In addition to higher health insurance costs and
staffing, there was an accrual adjustment made during the first quarter of 2011
to correct an over-accrual for 2010 bonuses. This adjustment was not repeated
during 2012. A decline of $0.1 million in FDIC insurance premiums for the first
nine months of 2012 compared to the same period of 2011 partially offset the
increase in salaries and employee benefit costs. The lower FDIC insurance
premiums resulted from a new premium structure implemented by the FDIC
effective April 1, 2011.
Additional OTTI credit loss was recognized
during the most recent quarter on one of the two securities previously
determined to be other-than-temporarily-impaired. The credit loss recognized
through the income statement was nominal during the three months ended
September 30, 2012 and the third quarter of 2011 on the same security. For the
nine months ended September 30, 2012 OTTI credit losses recognized on two
securities previously determined to be other-than-temporarily-impaired totaled
$0.1 million compared to $0.2 million for the same period in 2011.
For the three months ended September 30, 2012
DBI recorded combined federal and state income tax expense of $0.5 million, an
increase of $0.2 million or 42.5% compared to income tax expense recorded for
the third quarter of 2011. These provisions reflect effective income tax rates
of 35% for the third quarter of 2012 and 31% for the third quarter of 2011.
DBI's combined statutory tax rate is 39%. The lower effective income tax rates
are primarily due to certain federally tax exempt interest earned on state and
local government investment securities. The effective tax rates for the nine
months ended September 30, 2012 and 2011 were 35% and 30%,
respectively.
Financial Condition
Total assets increased by $4.2 million
between December 31, 2011 and September 30, 2012. Increases in investment
securities of $13.7 million, or 20.3%, and loans of $5.8 million, or 1.9%,
during the first nine months of 2012 were the primary factors for the higher
assets at September 30, 2012. Cash, cash equivalents and fed funds sold
decreased by $13.0 million, or 30.8%, since December 31, 2011, and other
investments declined $1.7 million, or 37.8%, during the same period to
partially offset these increases.
The following table sets forth major types of
loans, excluding loans held for sale, by primary collateral and the percentage
of total loans for each type:
|
September 30, 2012
|
|
December 31, 2011
|
$(000)s
|
Amount
|
|
%
|
|
Amount
|
|
%
|
Real
Estate:
|
|
|
|
|
|
|
|
Residential
|
$70,114
|
|
23.1%
|
|
$72,656
|
|
24.4%
|
Commercial
|
59,090
|
|
19.5%
|
|
60,865
|
|
20.4%
|
Agricultural
|
76,040
|
|
25.0%
|
|
78,768
|
|
26.5%
|
Construction
|
13,305
|
|
4.4%
|
|
11,655
|
|
3.9%
|
|
$218,549
|
|
72.0%
|
|
$223,944
|
|
75.2%
|
Commercial
|
41,008
|
|
13.5%
|
|
35,178
|
|
11.8%
|
Agricultural
|
33,433
|
|
11.0%
|
|
27,661
|
|
9.3%
|
Consumer and
other
|
10,610
|
|
3.5%
|
|
11,049
|
|
3.7%
|
TOTAL
|
$303,600
|
|
100.0%
|
|
$297,832
|
|
100.0%
|
During 2011, management made the decision to
purchase government guaranteed loans given the lack of quality loan growth
potential currently available within DSB's lending market. As of September 30,
2012 there were approximately $12.9 million of government guaranteed loans
recorded, of which $9.3 million are secured by agricultural real estate and
$3.6 million by commercial real estate. The average maturity of the loans
purchased is approximately 10 years. The premiums on the loans are being
amortized over a three year period. Management will continue to evaluate DSB's
loan portfolio and may make additional purchases as deemed appropriate.
Management is authorized to invest up to $15 million in government guaranteed
loan purchases.
The allowance for loan losses declined $0.2
million during the first nine months of 2012 to $6.4 million. Provisions of
$0.5 million were added to the allowance in the first nine months of 2012,which
were offset by net charge-offs of approximately $0.7 million during the period.
The allowance equals 2.11% of total loans as of September 30, 2012 compared to
2.21% at December 31, 2011. Nonaccrual loans totaled $6.2 million at September
30, 2012, a decrease of approximately $2.5 million compared to nonaccrual loans
of $8.7 million at December 31, 2011.
The following table sets forth nonaccrual
loans by major category:
|
September 30,
|
|
December 31,
|
$(000)s
|
2012
|
|
2011
|
Secured By
Real Estate:
|
|
|
|
Residential
|
$1,282
|
|
$2,195
|
Agricultural
|
116
|
|
0
|
Commercial
|
1,755
|
|
2,299
|
Construction
|
2,556
|
|
3,364
|
Subtotal Real
Estate Loans
|
5,709
|
|
7,858
|
Secured by
commercial assets
|
406
|
|
563
|
Secured by
agricultural assets
|
0
|
|
0
|
Secured by
other assets
|
43
|
|
235
|
TOTAL
|
$6,158
|
|
$8,656
|
DBI's ratio of loans more than 30 days past
due (including nonaccrual loans) to total loans was 2.78% at September 30,
2012, compared to 3.58% at year-end 2011. As of September 30, 2012, management
had identified $42.8 million of potential problem loans compared to $38.2
million at year-end 2011. Loan quality continues to be a concern and improving
the portfolio is the primary focus for management. DBI has no accruing loans
that are past due 90 days or more at September 30, 2012.
DBI's investment in other real estate
(property acquired through foreclosure or in satisfaction of loans) decreased
$0.5 million in the first nine months of 2012. At September 30, 2012 the $0.3
million balance in other real estate comprised three construction/land
development properties totaling approximately $0.2 million, one property
secured by agricultural-related real estate with an estimated value of $0.1
million and one nominal residential real estate property. This compares to the
seven parcels held at year-end 2011 consisting of $0.3 million in
construction/land development properties, $0.2 million in commercial real
estate, $0.2 million in agricultural-related real estate and $0.1 million in
residential real estate.
The following table sets forth certain data
concerning nonaccrual loans, past due accruing loans, restructured loans and
other real estate:
|
September 30, 2012
|
|
December 31, 2011
|
|
|
|
% of Total
|
|
|
|
% of Total
|
$(000)s
|
Amount
|
|
Loans
|
|
Amount
|
|
Loans
|
|
|
|
|
|
|
|
|
Nonaccrual
Loans (1)
|
$6,158
|
|
2.0%
|
|
$8,656
|
|
2.9%
|
Restructured
Accruing Loans
|
5,393
|
|
1.7%
|
|
4,449
|
|
1.4%
|
Accruing Loans
Past Due
|
|
|
|
|
|
|
|
90 Days or
More
|
0
|
|
0.0%
|
|
0
|
|
0.0%
|
Total
|
$11,551
|
|
3.7%
|
|
$13,105
|
|
4.3%
|
Other Real
Estate
|
$337
|
|
|
|
$802
|
|
|
(1) Includes restructured loans of $2.7
million as of September 30, 2012 and $4.3 million as of December 31,
2011.
Total deposits increased $5.1 million at
September 30, 2012 compared to balances at December 31, 2011.
Noninterest-bearing deposits decreased by $3.6 million, or 7.6%, during the
first nine months of 2012. Interest-bearing deposits increased $8.7 million or
3.1% between December 31, 2011 and September 30, 2012. Money market accounts
increased $8.5 million or 6.5% during the first nine months of 2012 and savings
accounts increased $2.5 million or 11.6% during the same period. The trend in
money market balances continues to increase given the current rate environment
and depositors reluctance to commit to long-term rates. NOW account balances
increased $1.7 million or 7.5% since year-end 2011, while certificates of
deposit declined $4.0 million, or 3.7%, during the same period. Given the
current interest rate environment, there has been a shift away from
certificates of deposit into money market accounts as customers are reluctant
to lock into a rate at this time. DBI's money market rates are comparable to
its rates for short-term certificates of deposit.
Interest-bearing deposits consisted of the
following:
$(000)s
|
|
|
9/30/2012
|
|
12/31/2011
|
NOW
accounts
|
|
|
$23,945
|
|
$22,278
|
Savings
accounts
|
|
|
23,585
|
|
21,129
|
Money
market accounts
|
|
|
139,490
|
|
130,959
|
Certificates of deposit
|
|
|
101,997
|
|
105,957
|
TOTAL
|
|
|
$289,017
|
|
$280,323
|
Short-term borrowings decreased $0.8 million
or 7.3% as of September 30, 2012 compared to December 31, 2011. Loan volume for
DACC was relatively stable during the first quarter of 2012, thereby
eliminating the need to advance funds against the line of credit at Agribank,
FCB. Long-term borrowings declined $1.4 million or 5.0% since year-end 2011 due
to maturities of FHLB advances.
Capital Resources
Stockholders' equity increased by $2.0
million to $58.0 million as of September 30, 2012 from $56.0 million at
December 31, 2011 due primarily to earnings for the period of $2.6 million and
a decrease in other comprehensive loss of $0.4 million that were partially
offset by the dividend payment of $0.9 million and purchase of treasury stock
of $0.1 million. As of September 30, 2012 DBI's leverage ratio was 13.8%, its
risk-based core capital ratio was 18.7% and its risk-based total capital ratio
was 19.9%. As of September 30, 2012, DSB's leverage ratio was 10.6% and its
risk-based total capital ratio was 16.4%. DBI and DSB continue to maintain
capital levels well above regulatory minimum levels established for
"well-capitalized" institutions. DBI believes its and DSB's capital positions
as of September 30, 2012 are adequate under current economic
conditions.
Liquidity
Liquidity refers to the ability of DBI to
generate adequate amounts of cash to meet its needs. DBI maintains liquid
assets and established lines of credit to meet its liquidity needs. DBI's Board
of Directors annually approves a Consolidated Contingent Liquidity Plan, which
reviews the sources and uses of liquidity for DBI, DSB and DACC. Cash, cash
equivalents and federal funds sold decreased $13.0 million or 30.8% to $29.1
million during the first nine months of 2012 primarily due to the increases in
investment securities of $13.7 million and loans of $5.8 million during this
period. The major sources and uses of cash are detailed in the accompanying
Consolidated Statements of Cash Flows.
In addition to on-balance sheet sources of
funds, DBI also has off-balance sheet sources available to meet liquidity
needs. Specifically, DBI has unused lines of credit of $49.1 million as of
September 30, 2012. This includes a $20.0 million line of credit with the
Federal Reserve Bank of Chicago that was established in 1999. DSB has not
borrowed on this line. DBI also has $80.1 million of eligible loans and
securities that could be pledged to increase its available credit. Management
believes DBI's and DSB's liquidity positions as of September 30, 2012 are
adequate under current economic conditions.
Off-Balance Sheet
Arrangements
DBI and its subsidiaries are parties to
financial instruments with off-balance sheet risk in the normal course of
business to meet the financing needs of their customers. These financial
instruments include commitments to extend credit and stand-by letters of
credit. Those instruments involve, to varying degrees, elements of credit and
interest rate risk in excess of the amount recognized in the statement of
financial condition. The contract or notional amounts of those instruments
reflect the extent of involvement DBI and its subsidiaries have in particular
classes of financial instruments.
The exposure of DBI and its subsidiaries to
credit loss in the event of nonperformance by the other party to the financial
instrument for commitments to extend credit and standby letters of credit is
represented by the contractual or notional amount of these instruments. DBI and
its subsidiaries use the same credit policies in making commitments and
conditional obligations as for on-balance sheet instruments. DBI and its
subsidiaries require collateral or other security to support financial
instruments with credit risk. The following table sets forth DBI's commitments
to extend credit and standby letters of credit:
|
|
|
|
|
|
Contract or
|
|
|
|
|
|
|
|
|
Notional Amount
|
|
Secured
|
(In
thousands)
|
|
|
|
|
|
September 30, 2012
|
|
Portion
|
Financial instruments whose contract amounts represent credit
risk:
|
|
|
|
|
|
Commitments to extend credit
|
|
|
|
|
$43,722
|
|
|
$40,251
|
Standby letters of credit and financial guarantees
written
|
|
1,424
|
|
|
1,424
|
Commitments to extend credit are agreements
to lend to a customer as long as there is no violation of any condition
established in the contract. Commitments generally have fixed expiration dates
or other termination clauses and may require payment of a fee. Since many of
the commitments are expected to expire without being drawn upon, the total
commitment amounts do not necessarily represent future cash requirements. DBI
and its subsidiaries evaluate each customer's creditworthiness on a
case-by-case basis. Collateral held varies but may include accounts receivable,
inventory, property, plant and equipment and income-producing commercial
properties.
Standby letters of credit are conditional
commitments issued by DSB to guarantee the performance of a customer to a third
party. Those guarantees are primarily issued to support commercial business
transactions. When a customer fails to perform according to the terms of the
agreement, DSB honors drafts drawn by the third party in amounts up to the
contract amount. A majority of the letters of credit expire within one year.
The credit risk involved in issuing letters of credit is essentially the same
as that involved in extending loans to customers. Collateral held varies but
may include accounts receivable, inventory, property, plant and equipment and
income-producing commercial properties and residential properties. All letters
of credit are fully collateralized.
Item 3. Quantitative and Qualitative
Disclosures About Market Risk
DBI's primary market risk position has not
materially changed from that disclosed in DBI's 2011 Annual Report.
Item 4. Controls and
Procedures
As required by Rule 13a-15(e) under the
Securities Exchange Act of 1934, as amended, DBI's management, under the
supervision and with the participation of DBI's principal executive officer and
principal financial officer, has evaluated DBI's disclosure controls and
procedures as of the end of the period covered by this Report. Based on that
evaluation, DBI's principal executive officer and principal financial officer
believe that DBI's disclosure controls and procedures are effective as of the
end of the period covered by this Report.
Because of its inherent limitations, internal
control over financial reporting may not prevent or detect misstatements. Also,
projections of any evaluation of effectiveness of future periods are subject to
the risk that controls may become inadequate because of changes in conditions,
or that the degree of compliance with the policies or procedures may
deteriorate.
There were no significant changes in DBI's
internal controls over financial reporting or in other factors that have
significantly affected those controls during the fiscal quarter covered by this
Report, including any correction actions with regard to significant
deficiencies and material weaknesses.
Part II. Other Information
Item 1A. Risk Factors
In addition to the other information set
forth in this Report, you should carefully consider the factors discussed in
Item 1A - Risk Factors of DBI's 2011 Annual Report, which could materially
affect DBI's business, financial condition or future results. There have been
no material changes in risk factors as described in such Report.
Item 2. Unregistered Sales of Equity
Securities and Use of Proceeds
During the quarter ended September 30, 2012,
DBI did not sell any equity securities which were not registered under the
Securities Act of 1033, as amended, or repurchase any of its equity
securities.
The Federal Reserve Board ("the Board") has
adopted regulations that deal with the measure of capitalization for bank
holding companies. The Board has also issued a policy statement on the payment
of cash dividends by bank holding companies, wherein the Board has stated that
a bank holding company experiencing earnings weaknesses should not pay cash
dividends exceeding its net income or which could only be funded in ways that
weaken the bank holding company's financial health, such as by
borrowing.
The ability of DBI to pay dividends on its
common stock is largely dependent upon the ability of DSB to pay dividends on
its stock held by DBI. DSB's ability to pay dividends is restricted by both
state and federal laws and regulations. DSB is subject to policies and
regulations issued by the FDIC and the Division of Banking of the Wisconsin
Department of Financial Institutions ("the Division"), which, in part,
establish minimum acceptable capital requirements for banks, thereby limiting
the ability of such banks to pay dividends. In addition, Wisconsin law provides
that state chartered banks may declare and pay dividends out of undivided
profits but only after provision has been made for all expenses, losses,
required reserves, taxes and interest accrued or due from the bank. Payments of
dividends in some circumstances may require the written consent of the
Division.
Item 6. Exhibits
(a) Exhibits:
31.1 Certification by the Chief Executive
Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
31.2 Certification by the Chief Financial
Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
32.1 Certification of Periodic Financial
Report by the Chief Executive Officer and Chief Financial Officer Pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002.
101 Interactive data files pursuant to
Rule 405 of Regulation S-T: (i) Consolidated Statements of Financial Condition,
(ii) Consolidated Statements of Income, (iii) Consolidated Statements of
Comprehensive Income, (iv) Consolidated Statements of Changes in Stockholders'
Equity, (v) Consolidated Statements of Cash Flows, and (vi) Notes to
Consolidated Financial Statements tagged as blocks of text. *
* As provided in Rule 406T of Regulation S-T,
this information is furnished and not filed for purposes of Sections 11 and 12
of the Securities Act of 1933 and Section 18 of the Securities Exchange Act of
1934.
SIGNATURES
Pursuant to the requirements of the
Securities Exchange Act of 1934, the registrant has duly caused this report to
be signed on its behalf by the undersigned, thereunto duly
authorized.
DENMARK BANCSHARES, INC.
Date: November 12, 2012
/s/ John P. Olsen
John P. Olsen
President and CEO
Date: November 12, 2012
/s/ Dennis J. Heim
Dennis J. Heim
Vice President, CFO and Treasurer
Denmark Bancshares (QX) (USOTC:DMKBA)
Historical Stock Chart
From May 2024 to Jun 2024
Denmark Bancshares (QX) (USOTC:DMKBA)
Historical Stock Chart
From Jun 2023 to Jun 2024