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F&M BANK CORP – 10-Q – MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
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F & M Bank Corp. (Company) incorporated inVirginia in 1983, is a one-bank holding company pursuant to section 3(a)(1) of the Bank Holding Company Act of 1956, which provides financial services through its wholly-owned subsidiary Farmers & Merchants Bank (Bank).TEB Life Insurance Company (TEB) and Farmers &Merchants Financial Services (FMFS) are wholly-owned subsidiaries of the Bank. The Bank also holds a majority ownership inVBS Mortgage LLC (VBS). The Bank is a full service commercial bank offering a wide range of banking and financial services through its nine branch offices. TEB reinsures credit life and accident and health insurance sold by the Bank in connection with its lending activities. FMFS provides title insurance, brokerage services and property/casualty insurance to customers of the Bank. VBS originates conventional and government sponsored mortgages through their offices inHarrisonburg andWoodstock .
The Company's primary trade area services customers in
Management's discussion and analysis is presented to assist the reader in understanding and evaluating the financial condition and results of operations of the Company. The analysis focuses on the consolidated financial statements, footnotes, and other financial data presented. The discussion highlights material changes from prior reporting periods and any identifiable trends which may affect the Company. Amounts have been rounded for presentation purposes. This discussion and analysis should be read in conjunction with the Consolidated Financial Statements and the Notes to the Consolidated Financial Statements presented in Item 1, Part 1 of this Form 10-Q.
Forward-Looking Statements
Certain statements in this report may constitute "forward-looking statements" within the meaning of the Private Securities Litigation Reform Act of 1995. Forward-looking statements are statements that include projections, predictions, expectations or beliefs about future events or results or otherwise are not statements of historical fact. Such statements are often characterized by the use of qualified words (and their derivatives) such as "expect," "believe," "estimate," "plan," "project," or other statements concerning opinions or judgment of the Company and its management about future events. Although the Company believes that its expectations with respect to certain forward-looking statements are based upon reasonable assumptions within the bounds of its existing knowledge of its business and operations, there can be no assurance that actual results, performance or achievements of the Company will not differ materially from any future results, performance or achievements expressed or implied by such forward-looking statements. Actual future results and trends may differ materially from historical results or those anticipated depending on a variety of factors, including, but not limited to, the effects of and changes in: general economic conditions, the interest rate environment, legislative and regulatory requirements, competitive pressures, new products and delivery systems, inflation, changes in the stock and bond markets, technology, and consumer spending and savings habits.
We do not update any forward-looking statements that may be made from time to time by or on behalf of the Company.
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS (CONTINUED)
Critical Accounting Policies General The Company's financial statements are prepared in accordance with accounting principles generally accepted inthe United States of America ("GAAP"). The financial information contained within the statements is, to a significant extent, financial information that is based on measures of the financial effects of transactions and events that have already occurred. A variety of factors could affect the ultimate value that is obtained either when earning income, recognizing an expense, recovering an asset or relieving a liability. The Company uses historical loss factors as one factor in determining the inherent loss that may be present in its loan portfolio. Actual losses could differ significantly from the historical factors that are used. The fair value of the investment portfolio is based on period end valuations but changes daily with the market. In addition, GAAP itself may change from one previously acceptable method to another method. Although the economics of these transactions would be the same, the timing of events that would impact these transactions could change.
Allowance for Loan Losses
The allowance for loan losses is an estimate of the losses that may be sustained in the loan portfolio. The allowance is based on two basic principles of accounting: (i) ASC 450 "Contingencies", which requires that losses be accrued when they are probable of occurring and estimable and (ii) ASC 310 "Receivables", which requires that losses be accrued based on the differences between the value of collateral, present value of future cash flows or values that are observable in the secondary market and the loan balance. For further discussion refer to page 28 in the Management Discussion and Analysis.
Goodwill and Intangibles
ASC 805 "Business Combinations" and ASC 350 "Intangibles" require that the purchase method of accounting be used for all business combinations initiated afterJune 30, 2001 . Additionally, it further clarifies the criteria for the initial recognition and measurement of intangible assets separate from goodwill. ASC 350 prescribes the accounting for goodwill and intangible assets subsequent to initial recognition. The provisions of ASC 350 discontinue the amortization of goodwill and intangible assets with indefinite lives. Instead, these assets will be subject to at least an annual impairment review and more frequently if certain impairment indicators are in evidence. ASC 350 also requires that reporting units be identified for the purpose of assessing potential future impairments of goodwill. Core deposit intangibles are amortized on a straight-line basis over ten years. The Company adopted ASC 350 onJanuary 1, 2002 and determined that the core deposit intangible would continue to be amortized over the estimated useful life. As ofFebruary 2011 the Bank completed its amortization of the core deposit intangible arising from the branch purchase which occurred inFebruary 2001 . Securities Impairment
For a complete discussion of securities impairment see Note 2 of the Notes to Consolidated Financial Statements.
Overview
Net income for the three months endedMarch 31, 2012 was$1,135,000 or$.46 per share, compared to$686,000 or$.29 in the same period in 2011, an increase of 65.45%. During the three months endedMarch 31, 2012 , noninterest income, exclusive of securities transactions, decreased 2.02% and noninterest expense decreased .64% during the same period. Net income from Bank operations adjusted for income or loss from Parent activities is as follows: In thousands 2012 2011 Net Income from Bank Operations $ 1,104 $ 771
Income or (loss) from Parent Company Activities 31 (85 ) Net Income for the three months ended
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS (CONTINUED)
Core operating earnings, (exclusive of non-recurring tax adjustments and non-recurring historic rehabilitation credits related to the investment in low income housing projects) totaled$1,048,000 in 2012 and$694,000 in 2011, an increase of 51.00%. Income from core operations increased in 2012 primarily due to a decrease in interest expense. A reconciliation of core earnings follows: In thousands 2012 2011 Net Income $ 1,135 $ 686 Non-recurring Tax Items (87 ) 8
Non-recurring Securities Transactions, net of tax - - Core Earnings for the three months ended
Management and the Board of Directors use Core Earnings (a non-GAAP financial measure) in a variety of ways, including comparing various operating units (branches) to prior periods, establishing goals and incentive plans that are based on Core Earnings. Results of Operations As shown in Table I, the 2012 year to date tax equivalent net interest income increased$429,000 or 9.35% compared to the same period in 2011. The yield on earning assets decreased .07%, while the cost of funds decreased .31% compared to the same period in 2011. Year to date, the combination of the decrease in both yield on assets and the decrease in cost of funds coupled with changes in balance sheet leverage has resulted in the net interest margin increasing to 3.88%, an increase of .23% when compared to the same period in 2011. A schedule of the net interest margin for the three month periods endedMarch 31, 2012 and 2011 can be found in Table I on page 30. The Interest Sensitivity Analysis contained in Table II on page 31 indicates the Company is in an asset sensitive position in the one year time horizon. As the notes to the table indicate, the data was based in part on assumptions as to when certain assets or liabilities would mature or reprice. Approximately 49.96% of rate sensitive assets and 38.27% of rate sensitive liabilities are subject to repricing within one year. Due to the relatively flat yield curve, management has aggressively cut deposit rates and has lengthened the term on some of its fixed rate borrowings with the FHLB. These actions and the increase in interest bearing deposits (which are allocated based on FDICIA 305) have resulted in the increase in the positive GAP position in the one year time period. Noninterest income decreased$16,000 or 2.02% for the three month period endingMarch 31, 2012 . The decrease was primarily due to a gain on the sale of fixed assets in the prior year and a decrease in Bank Owned Life Insurance income. These decreases were offset by an increase in service charge income. Noninterest expense decreased$21,000 for the three month period of 2012 as compared to 2011. Salary and benefits expense increased$136,000 (7.68%) throughMarch 2012 . This increase is due to increases in professional personnel as well as salary increases, health insurance and retirement plan expenses. Exclusive of personnel expenses, other noninterest expenses decreased at a rate of 10.46% for the first three months of 2012 as compared to 2011. The primary reason for the decrease in these expenses relates to the revisions to the FDIC Assessment calculation which resulted in a lower quarterly assessment. Operating costs continue to compare very favorably to the peer group. As stated in the most recently available (December 31, 2011 ) Bank Holding Company Performance Report, the Company's and peer's noninterest expenses averaged 2.32% and 3.09% of average assets, respectively. The Company's operating costs have always compared favorably to the peer group due to an excellent asset to employee ratio and below average facilities costs. 24 --------------------------------------------------------------------------------
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS (CONTINUED)
Financial Condition
Federal Funds Sold and Interest Bearing Bank Deposits
The Company's subsidiary bank invests a portion of its excess liquidity in either federal funds sold or interest bearing bank deposits. Federal funds sold offer daily liquidity and pay market rates of interest that at quarter end were benchmarked at 0% to .25% by the Federal Reserve. Actual rates received vary slightly based upon money supply and demand among banks. Interest bearing bank deposits are held either in money market accounts or as short-term certificates of deposits. Combined balances in fed funds sold and interest bearing bank deposits have increased due to the decrease in Loans Held for Sale.
Securities
The Company's securities portfolio serves several purposes. Portions of the portfolio are held to assist the Company with liquidity, asset liability management and as security for certain public funds and repurchase agreements.
The securities portfolio consists of investment securities commonly referred to as securities held to maturity and securities available for sale. Securities are classified as Held to Maturity investment securities when management has the intent and ability to hold the securities to maturity. Held toMaturity Investment securities are carried at amortized cost. Securities available for sale include securities that may be sold in response to general market fluctuations, liquidity needs and other similar factors. Securities available for sale are recorded at market value. Unrealized holding gains and losses on available for sale securities are excluded from earnings and reported (net of deferred income taxes) as a separate component of stockholders' equity. As ofMarch 31, 2012 , the market value of securities available for sale exceeded their cost by$25,000 . This includes an increase in the value of government obligations held by the Bank. Investments in debt securities have increased approximately$5 million sinceDecember 31, 2011 , however that was a temporary investment that matures inApril 2012 . The portfolio is made up of primarily agency securities with an average portfolio life of just over one year. This short average life results in less portfolio volatility and positions the Bank to redeploy assets in response to rising rates. There are no scheduled maturities for the remainder of 2012. In reviewing investments as ofMarch 31, 2012 , there were no securities which met the definition for other than temporary impairment. Management continues to re-evaluate the portfolio for impairment on a quarterly basis.
Loan Portfolio
The Company operates in a predominately rural area that includes the counties ofRockingham ,Page andShenandoah in the western portion ofVirginia . The local economy benefits from a variety of businesses including agri-business, manufacturing, service businesses and several universities and colleges. The Bank is an active residential mortgage and residential construction lender and generally makes commercial loans to small and mid size businesses and farms within its primary service area. The allowance for loan losses (see subsequent section) provides for the risk that borrowers will be unable to repay their obligations and is reviewed quarterly for adequacy. The risk associated with real estate and installment notes to individuals is based upon employment, the local and national economies and consumer confidence. All of these affect the ability of borrowers to repay indebtedness. The risk associated with commercial lending is substantially based on the strength of the local and national economies. 25 --------------------------------------------------------------------------------
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS (CONTINUED)
While lending is geographically diversified within the service area, the Company does have loan concentrations in agricultural (primarily poultry farming), construction/development, hotels, and multifamily housing. Management and the Board of Directors review these concentrations quarterly. Due to the sluggish economy, the first three months of 2012 resulted in a decrease of$769 thousand in the Bank's core loan portfolio. Nonperforming loans include nonaccrual loans and loans 90 days or more past due. Nonaccrual loans are loans on which interest accruals have been suspended or discontinued permanently. Nonperforming loans totaled$17,704,000 atMarch 31, 2012 compared to$14,776,000 atDecember 31, 2011 . Although the potential exists for loan losses, management believes the bank is generally well secured and continues to actively work with its customers to effect payment. As ofMarch 31, 2012 , the Company holds$2,098,000 of real estate which was acquired through foreclosure. This is a reduction of$976,000 compared toDecember 31, 2011 .
The following is a summary of information pertaining to risk elements and nonperforming loans (in thousands):
March 31, December 31, 2012 2011 Nonaccrual Loans Real Estate $ 9,649 $ 7,671 Commercial 5,788 5,888 Home Equity 183 266 Other 93 39 15,713 13,864
Loans past due 90 days or more (excluding nonaccrual)
Real Estate 1,723 646 Commercial 55 - Home Equity 189 260 Other 24 6 1,991 912 Total Nonperforming loans $ 17,704 $ 14,776
Nonperforming loans as a percentage of loans held for investment 3.93 %
3.27 % Net Charge Offs to total loans held for investment .12 % .63 % Allowance for loan and lease losses to nonperforming loans 41.31 % 46.95 % 26
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS (CONTINUED)
Allowance for Loan Losses
Management evaluates the allowance for loan losses on a quarterly basis in light of national and local economic trends, changes in the nature and volume of the loan portfolio and trends in past due and criticized loans. Specific factors evaluated include internally generated loan review reports, past due reports, historical loan loss experience and changes in the financial strength of individual borrowers that have been included on the Bank's watch list or schedule of classified loans. In evaluating the portfolio, loans are segregated into loans with identified potential losses and pools of loans by type (commercial, residential, consumer, credit cards). Loans with identified potential losses include examiner and bank classified loans. Classified relationships in excess of$200,000 are reviewed individually for impairment under ASC 310. A variety of factors are taken into account when reviewing these credits including borrower cash flow, payment history, fair value of collateral, company management, the industry in which the borrower is involved and economic factors. Loan relationships that are determined to have no impairment are placed back into the appropriate loan pool and reviewed under ASC 450. Loan pools are further segmented into watch list, past due over 90 days and all other loans by type. Watch list loans include loans that are 60 days past due, and may include restructured loans, borrowers that are highly leveraged, loans that have been upgraded from classified or loans that contain policy exceptions (term, collateral coverage, etc.). Loss estimates on these loans reflect the increased risk associated with these assets due to any of the above factors. The past due pools contain loans that are currently 90 days or more past due. Loss rates assigned reflect the fact that these loans bear a significantly higher risk of charge-off. Loss rates vary by loan type to reflect the likelihood that collateral values will offset a portion of the anticipated losses. The remainder of the portfolio falls into pools by type of homogenous loans that do not exhibit any of the above described weaknesses. Loss rates are assigned based on historical loss rates over the prior two years. A multiplier has been applied to these loss rates to reflect the time for loans to season within the portfolio and the inherent imprecision of these estimates. All potential losses are evaluated within a range of low to high. An unallocated reserve has been established to reflect other unidentified losses within the portfolio. This helps to offset the increased risk of loss associated with fluctuations in past due trends, changes in the local and national economies, and other unusual events. The Board approves the loan loss provision for the following quarter based on this evaluation and an effort is made to keep the actual allowance at or above the midpoint of the range established by the evaluation process. The allowance for loan losses of$7,314,000 atMarch 31, 2012 is equal to 1.62% of loans held for investment. This compares to an allowance of$6,937,000 (1.54%) atDecember 31, 2011 . Based on the evaluation of the loan portfolio described above, management has funded the allowance a total of$900,000 in the first three months of 2012. Net charge-offs year to date totaled$523,000 . The overall level of the allowance is below its peer group average, but has been increasing in recent quarters. Management feels a lower reserve is appropriate based on its loan loss history and the composition of its loan portfolio. Based on historical losses, delinquency rates, collateral values of delinquent loans and a thorough review of the loan portfolio, management is of the opinion that the allowance for loan losses fairly states the estimated losses in the current portfolio. 27
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS (CONTINUED)
Deposits and Other Borrowings
The Company's main source of funding is comprised of deposits received from individuals, governmental entities and businesses located within the Company's service area. Deposit accounts include demand deposits, savings, money market and certificates of deposit. Total deposits have increased$8,987,000 sinceDecember 31, 2011 . Time deposits increased$1,292,000 during this period while demand deposits and savings deposits increased$7,695,000 . The increase in certificates of deposits is a result of an increase in core time deposits. The increase in demand deposits and savings deposits is a result of new account growth during the year. The Bank also participates in the CDARS program. CDARS (Certificate of Deposit Account Registry Service) is a program that allows the bank to accept customer deposits in excess ofFDIC limits and through reciprocal agreements with other network participating banks by offeringFDIC insurance up to as much as$50 million in deposits. The CDARS program also allows the Bank to purchase funds through its One-Way Buy program. At quarter end the Bank had a total of$11.2 million in CDARS funding, an increase of$3 million sinceDecember 31, 2011 .
Short-term debt
Short-term debt consists of federal funds purchased, daily rate credit obtained from theFederal Home Loan Bank (FHLB) and commercial repurchase agreements (repos). Commercial customers deposit operating funds into their checking account and by mutual agreement with the bank their excess funds are swept daily into the repurchase accounts. These accounts are not considered deposits and are not insured by theFDIC . The Bank pledges securities held in its investment portfolio as collateral for these short-term loans. Federal funds purchased are overnight borrowings obtained from the Bank's primary correspondent bank to manage short-term liquidity needs. Daily rate credit from the FHLB has been used to finance loans held for sale and also to finance the increase in short-term residential and commercial construction loans. As ofMarch 31, 2012 the daily rate credit was been paid down by the reduction in loans held for sale.
Long-term debt
Borrowings from the FHLB continue to be an important source of funding. The Company's subsidiary bank borrows funds on a fixed rate basis. These borrowings are used to fund loan growth and also assist the Bank in matching the maturity of its fixed rate real estate loan portfolio with the maturity of its debt and thus reduce its exposure to interest rate changes. Scheduled repayments totaled$5,607,000 throughMarch 31, 2012 . There were no additional borrowings throughMarch 31, 2012 . InAugust 2009 , the Company began issuing Subordinated debt agreements with local investors with terms of 7 to 10 years. Interest rates are fixed on the notes for the full term but vary by maturity. Rates range from 7.0% on the 7 year note to 8.05% on the 10 year note. As ofMarch 31, 2012 the balance outstanding was$10,191,000 .
Capital
The Company seeks to maintain a strong capital base to expand facilities, promote public confidence, support current operations and grow at a manageable level. As ofMarch 31, 2012 , the Company's total risk based capital and leverage ratios were 14.62% and 8.36%, respectively. For the same period, Bank only total risk based capital and leverage ratios were 14.60% and 8.36%, respectively. For both the Company and the Bank these ratios are in excess of regulatory minimums. The Company completed a stock rights offering during the first quarter of 2011 that resulted in the issuance of 179,699 shares and$2,381,000 in additional capital. 28
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS (CONTINUED)
Liquidity
Liquidity is the ability to meet present and future financial obligations through either the sale or maturity of existing assets or the acquisition of additional funds through liability management. Liquid assets include cash, interest-bearing deposits with banks, federal funds sold, investments and loans maturing within one year. The Company's ability to obtain deposits and purchase funds at favorable rates determines its liquidity exposure. As a result of the Company's management of liquid assets and the ability to generate liquidity through liability funding, management believes that the Company maintains overall liquidity sufficient to satisfy its depositors' requirements and meet its customers' credit needs. Additional sources of liquidity available to the Company include, but are not limited to, loan repayments, the ability to obtain deposits through the adjustment of interest rates and the purchasing of federal funds. To further meet its liquidity needs, the Company's subsidiary bank also maintains a line of credit with its primary correspondent financial institution. The Bank also has a line of credit with the Federal Home Loan Bank ofAtlanta that allows for secured borrowings.
Interest Rate Sensitivity
In conjunction with maintaining a satisfactory level of liquidity, management must also control the degree of interest rate risk assumed on the balance sheet. Managing this risk involves regular monitoring of interest sensitive assets relative to interest sensitive liabilities over specific time intervals. The Company monitors its interest rate sensitivity periodically and makes adjustments as needed. There are no off balance sheet items that will impair future liquidity. As ofMarch 31, 2012 , the Company had a cumulative Gap Rate Sensitivity Ratio of 18.33% for the one year repricing period. This generally indicates that earnings would increase in an increasing interest rate environment as assets reprice more quickly than liabilities. However, in actual practice, this may not be the case as balance sheet leverage, funding needs and competitive factors within the market could dictate the need to raise deposit rates more quickly. Management constantly monitors the Company's interest rate risk and has decided the current position is acceptable for a well-capitalized community bank.
A summary of asset and liability repricing opportunities is shown in Table II, on page 31.
Stock Repurchase OnSeptember 18, 2008 , the Company's Board of Directors approved an increase in the number of shares of common stock that the Company can repurchase under the share repurchase program from 150,000 to 200,000 shares. However, due to the impact on capital ratios resulting from the growth in the balance sheet, other than temporary impairment securities write downs in 2009 and increased funding of the allowance for loan losses, the stock repurchase plan has been suspended. There have been no stock repurchases in 2012.
Effect of Newly Issued Accounting Standards
The following is a summary of recent authoritative pronouncements:
InSeptember 2011 , the Intangibles topic was amended to permit an entity to consider 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. This amendment was effective for the Company onJanuary 1, 2012 and is not expected to have a material effect on the Company's financial position.
Other accounting standards that have been issued by the FASB or other standards-setting bodies are not expected to have a material effect on the Company's financial position, result of operations or cash flows.
Existence of
29 -------------------------------------------------------------------------------- TABLE I F & M BANK CORP. Net Interest Margin Analysis (on a fully taxable equivalent basis) (Dollar Amounts in Thousands) Three Months Ended Three Months Ended March 31, 2012 March 31, 2011 Income/ Average Income/ Average Average Balance2,4 Expense Rates5
Balance2,4 Expense Rates5 Interest income Loans held for investment1,2,3 $ 450,331 $ 6,281 5.59 % $ 449,823 $ 6,392 5.76 % Loans held for sale 40,877 379 3.73 % 9,978 97 3.94 % Federal funds sold 13,021 7 .22 % 32,047 18 .23 % Interest bearing deposits 1,489 2 .27 % 2,756 7 1.03 % Investments Taxable 3 13,181 45 1.37 % 12,499 75 2.40 % Partially taxable 3 108 - 1.86 % 3,417 33 3.86 % Total earning assets $ 519,007 $ 6,715 5.19 % $ 510,520 $ 6,622 5.26 % Interest Expense Demand deposits 121,169 346 1.15 % $ 117,971 $ 431 1.48 % Savings 41,808 49 .48 % 36,894 47 .52 % Time deposits 206,206 776 1.51 % 215,031 927 1.75 % Short-term debt 6,428 6 .37 % 5,169 5 .39 % Long-term debt 52,248 519 3.98 % 58,689 622 4.30 % Total interest bearing liabilities $ 427,859 $ 1,696 1.59 % $ 433,754 $ 2,032 1.90 % Tax equivalent net interest income 1 $ 5,019 $ 4,590 Net interest margin 3.88 % 3.65 %
___________________________________
1 Interest income on loans includes loan fees. 2 Loans held for investment include nonaccrual loans. 3 An incremental income tax rate of 34% was used to calculate the tax equivalent income on nontaxable and partially taxable investments and loans. 4 Average balance information is reflective of historical cost and has not been adjusted for changes in market value annualized. 30 --------------------------------------------------------------------------------
TABLE IIF & M BANK CORP. Interest Sensitivity AnalysisMarch 31, 2012 (In Thousands of Dollars)
The following table presents the Company's interest sensitivity.
0 - 3 4 - 12 1 - 5 Over 5 Not Months Months Years Years Classified Total Uses of funds Loans Commercial $ 41,161 $ 16,006 $ 106,119 $ 4,956 $ - $ 168,242 Installment 5,037 853 6,442 151 - 12,483 Real estate loans for investments 108,689 30,636 115,163 12,919 - 267,407 Loans held for sale 25,160 - - - - 25,160 Credit cards 2,669 - - - - 2,669 Federal funds sold 22,921 - - - - 22,921 Interest bearing bank deposits 419 - 248 - - 667 Investment securities 5,108 - 11,061 2,021 - 18,190 Total $ 211,164 $ 47,495 $ 239,033 $ 20,047 $ - $ 517,739 Sources of funds Interest bearing demand deposits $ - $ 32,097 $ 71,566 $ 19,734 $ - $ 123,397 Savings deposits - 8,711 26,133 8,711 - 43,555 Certificates of deposit $100,000 and over 13,336 21,878 33,848 - - 69,062 Other certificates of deposit 17,970 46,908 70,710 - - 135,588 Short-term borrowings 4,661 - - - - 4,661
Long-term borrowings 4,429 13,786 24,241 9,235
- 51,691 Total $ 40,396 $ 123,380 $ 226,498 $ 37,680 $ - $ 427,954 Discrete Gap $ 170,768 $ (75,885 ) $ 12,535 $ (17,633 ) $ - $ 89,785 Cumulative Gap $ 170,768 $ 94,883 $ 107,418 $ 89,785 $ 89,785 Ratio of Cumulative Gap to Total Earning Assets 32.98 % 18.33 % 20.75 % 17.34 % 17.34 % Table II reflects the earlier of the maturity or repricing dates for various assets and liabilities as ofMarch 31, 2012 . In preparing the above table, no assumptions were made with respect to loan prepayments. Loan principal payments are included in the earliest period in which the loan matures or can reprice. Principal payments on installment loans scheduled prior to maturity are included in the period of maturity or repricing. Proceeds from the redemption of investments and deposits are included in the period of maturity. Estimated maturities of deposits, which have no stated maturity dates, were derived from guidance contained in FDICIA 305. 31
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