Get Started for Free Contexxia identifies hard-to-find pieces of information in SEC filings. No more highlighters, no more redlining, no more poring over huge documents. COMMUNITY FINANCIAL CORP /VA/ (850606) 10-Q published on Nov 13, 2012 at 2:56 pm
Reporting Period: Sep 29, 2012
The Dodd-Frank Wall Street Reform and Consumer Protection Act enacted on July 21, 2010, provides, among other things, for new restrictions and an expanded framework of regulatory oversight for financial institutions and their holding companies, including the Company and the Bank. Under the new law, the Bank’s primary regulator, the Office of Thrift Supervision, was eliminated and existing federal thrifts are subject to regulation and supervision by the Office of Comptroller of the Currency, which supervises and regulates all national banks. In addition all financial institution holding companies, including the Company, are now regulated by the Board of Governors of the Federal Reserve System, and this regulation will eventually include the application of federal capital requirements similar to those imposed on all commercial bank holding companies and may result in additional restrictions on investments and other holding company activities. The law also created a new consumer financial protection bureau that has the authority to promulgate rules intended to protect consumers in the financial products and services market. The creation of this independent bureau could result in new regulatory requirements and raise the cost of regulatory compliance. In addition, new regulations mandated by this Act could require changes in regulatory capital requirements, loan loss provisioning practices and compensation practices and will require holding companies to serve as a source of strength for their financial institution subsidiaries. Effective July 21, 2011, financial institutions may pay interest on demand deposits, which could increase our future interest expense. We cannot determine the impact of the new law on our business and operations at this time. Any legislative or regulatory changes in the future could adversely affect our operations and financial condition.
Interest Income. Total interest income decreased $1.5 million, or 11.3%, to $12.0 million for the six months ended September 30, 2012, from $13.5 million for the six months ended September 30, 2011 primarily due to a decrease in average loan balances. The yield on loans and securities decreased from 5.61% to 5.22% for the same periods.
Interest Expense. Total interest expense decreased $569,000, or 30.0%, to $1.3 million for the six months ended September 30, 2012, from $1.9 million for the six months ended September 30, 2011. Interest on deposits decreased $575,000 to $1.2 million for the six months ended September 30, 2012, from $1.8 million for the same period last year primarily due to a decrease in the average rate paid on deposit balances. The rate paid on deposits decreased from .98% for the six months ended September 30, 2011 to .68% for the same period in the current fiscal year. The decrease in the average rate paid on deposits was due primarily to market changes as well as a change in our deposit mix to more low cost transaction account deposits and less higher cost certificate accounts. The average rate paid on all interest bearing liabilities was .81% for the six months ended September 30, 2011 compared to .60% for the six month period ended September 30, 2012.
Provision for Loan Losses. The provision for loan losses increased $158,000, or 8.7%, to $2.0 million for the six months ended September 30, 2012 from $1.8 million for the six months ended September 30, 2011, primarily as a result of the increased level of specific allowances on an increased level of non-performing loans, partially offset by a decreased level of charge-offs during the period. Charge-offs totaled $777,000 during the six month period ended September 30, 2012, compared to $2.2 million during the same period in 2011, were related to residential real estate loans, commercial business loans, commercial real estate loans and repossessed vehicles.
In July 2012, the FASB issued ASU 2012-02, “Intangibles – Goodwill and Other (Topic 350): Testing Indefinite-Lived Intangible Assets for Impairment.” The amendments in this ASU apply to all entities that have indefinite-lived intangible assets, other than goodwill, reported in their financial statements. The amendments in this ASU provide an entity with the option to make a qualitative assessment about the likelihood that an indefinite-lived intangible asset is impaired to determine whether it should perform a quantitative impairment test. The amendments also enhance the consistency of impairment testing guidance among long-lived asset categories by permitting an entity to assess qualitative factors to determine whether it is necessary to calculate the asset’s fair value when testing an indefinite-lived intangible asset for impairment. The amendments are effective for annual and interim impairment tests performed for fiscal years beginning after September 15, 2012. Early adoption is permitted. The Company does not expect the adoption of ASU 2012-02 to have a material impact on its consolidated financial statements.
In October 2012, the FASB issued ASU 2012-06, “Business Combinations (Topic 805): Subsequent Accounting for an Indemnification Asset Recognized at the Acquisition Date as a Result of a Government-Assisted Acquisition of a Financial Institution.” The amendments in this ASU clarify the applicable guidance for subsequently measuring an indemnification asset recognized as a result of a government-assisted acquisition of a financial institution. In addition, the amendments should resolve current diversity in practice on the subsequent measurement of these types of indemnification assets. The amendments are effective for fiscal years, and interim periods within those years, beginning on or after December 15, 2012. Early adoption is permitted. The amendments should be applied prospectively to any new indemnification assets acquired after the date of adoption and to indemnification assets existing as of the date of adoption arising from a government-assisted acquisition of a financial institution. The Company does not expect the adoption of ASU 2012-06 to have a material impact on its consolidated financial statements.