XNAS:SYBT Stock Yards Bancorp Inc Quarterly Report 10-Q Filing - 3/31/2012

Effective Date 3/31/2012

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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

Washington, D.C.  20549

 

FORM 10-Q

 

x  Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934.

 

For the quarterly period ended March 31, 2012

 

OR

 

o  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     1-13661

 

S.Y. BANCORP, INC.

(Exact name of registrant as specified in its charter)

 

Kentucky

 

61-1137529

(State or other jurisdiction of

 

(I.R.S. Employer

incorporation or organization)

 

Identification No.)

 

1040 East Main Street, Louisville, Kentucky 40206

(Address of principal executive offices including zip code)

 

(502) 582-2571

(Registrant’s telephone number, including area code)

 

Not Applicable

(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 o

 

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 o

 

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 the definitions of “large accelerated filer”, “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act:

 

Large accelerated filer o

 

Accelerated filer x

 

 

 

Non-accelerated filer o

 

Smaller reporting company o

(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 o  No x

 

The number of shares of the registrant’s Common Stock, no par value, outstanding as of April 30, 2012, was 13,870,567.

 

 

 



 

S.Y. BANCORP, INC. AND SUBSIDIARY

 

Index

 

PART I — FINANCIAL INFORMATION

 

Item 1.  Financial Statements

 

The following consolidated financial statements of S.Y. Bancorp, Inc. and Subsidiary, Stock Yards Bank & Trust Company, are submitted herewith:

 

·                 Consolidated Balance Sheets
March 31, 2012 (Unaudited) and December 31, 2011

 

·                 Consolidated Statements of Income
for the three months ended March 31, 2012 and 2011 (Unaudited)

 

·                 Consolidated Statements of Comprehensive Income 
for the three months ended March 31, 2012 and 2011 (Unaudited)

 

·                 Consolidated Statements of Cash Flows
for the three months ended March 31, 2012 and 2011  (Unaudited)

 

·                 Consolidated Statement of Changes in Stockholders’ Equity
for the three months ended March 31, 2012 (Unaudited)

 

·                 Notes to Consolidated Financial Statements

 

Item 2.    Management’s Discussion and Analysis of Financial Condition and Results of Operations

 

Item 3.    Quantitative and Qualitative Disclosures about Market Risk

 

Item 4.    Controls and Procedures

 

PART II — OTHER INFORMATION

 

Item 2.    Unregistered Sales of Equity Securities and Use of Proceeds

 

Item 6.    Exhibits

 

1



 

S.Y. BANCORP, INC. AND SUBSIDIARY

Consolidated Balance Sheets

March 31, 2012 and December 31, 2011

(In thousands, except share data)

 

 

 

March 31,

 

December 31,

 

 

 

2012

 

2011

 

 

 

(Unaudited)

 

 

 

Assets

 

 

 

 

 

 

 

 

 

 

 

Cash and due from banks

 

$

30,919

 

$

32,901

 

Federal funds sold

 

23,032

 

22,019

 

Mortgage loans held for sale

 

6,935

 

4,381

 

Securities available for sale (amortized cost of $339,625 in 2012 and $343,059 in 2011)

 

348,699

 

352,185

 

Federal Home Loan Bank stock

 

4,948

 

4,948

 

Other securities

 

1,001

 

1,001

 

Loans

 

1,531,740

 

1,544,845

 

Less allowance for loan losses

 

31,206

 

29,745

 

 

 

 

 

 

 

Net loans

 

1,500,534

 

1,515,100

 

 

 

 

 

 

 

Premises and equipment, net

 

37,928

 

36,611

 

Bank owned life insurance

 

27,400

 

27,143

 

Accrued interest receivable

 

5,811

 

5,964

 

Other assets

 

53,382

 

50,844

 

 

 

 

 

 

 

Total assets

 

$

2,040,589

 

$

2,053,097

 

 

 

 

 

 

 

Liabilities and Stockholders’ Equity

 

 

 

 

 

 

 

 

 

 

 

Deposits:

 

 

 

 

 

Non-interest bearing

 

$

328,575

 

$

313,587

 

Interest bearing

 

1,298,742

 

1,304,152

 

Total deposits

 

1,627,317

 

1,617,739

 

Securities sold under agreements to repurchase

 

59,506

 

66,026

 

Federal funds purchased

 

20,633

 

37,273

 

Accrued interest payable

 

234

 

232

 

Other liabilities

 

49,748

 

42,810

 

Federal Home Loan Bank advances

 

60,428

 

60,431

 

Subordinated debentures

 

30,900

 

40,900

 

 

 

 

 

 

 

Total liabilities

 

1,848,766

 

1,865,411

 

 

 

 

 

 

 

Stockholders’ equity:

 

 

 

 

 

Preferred stock, no par value. Authorized 1,000,000 shares; no shares issued or outstanding

 

 

 

Common stock, no par value. Authorized 20,000,000 shares; issued and outstanding 13,872,332 and 13,819,319 shares in 2012 and 2011, respectively

 

7,130

 

6,953

 

Additional paid-in capital

 

15,959

 

14,599

 

Retained earnings

 

163,307

 

160,672

 

Accumulated other comprehensive income

 

5,427

 

5,462

 

 

 

 

 

 

 

Total stockholders’ equity

 

191,823

 

187,686

 

 

 

 

 

 

 

Total liabilities and stockholders’ equity

 

$

2,040,589

 

$

2,053,097

 

 

See accompanying notes to unaudited consolidated financial statements.

 

2



 

S.Y.  BANCORP, INC. AND SUBSIDIARY

Consolidated Statements of Income

For the three months ended March 31, 2012 and 2011 (Unaudited)

(In thousands, except per share data)

 

 

 

2012

 

2011

 

Interest income:

 

 

 

 

 

Loans

 

$

19,880

 

$

19,600

 

Federal funds sold

 

72

 

46

 

Mortgage loans held for sale

 

63

 

63

 

Securities — taxable

 

1,477

 

1,232

 

Securities — tax-exempt

 

320

 

347

 

 

 

 

 

 

 

Total interest income

 

21,812

 

21,288

 

Interest expense:

 

 

 

 

 

Deposits

 

2,046

 

2,671

 

Fed funds purchased

 

8

 

13

 

Securities sold under agreements to repurchase

 

49

 

67

 

Federal Home Loan Bank advances

 

363

 

361

 

Subordinated debentures

 

796

 

861

 

 

 

 

 

 

 

Total interest expense

 

3,262

 

3,973

 

 

 

 

 

 

 

Net interest income

 

18,550

 

17,315

 

 

 

 

 

 

 

Provision for loan losses

 

4,075

 

2,800

 

Net interest income after provision for loan losses

 

14,475

 

14,515

 

Non-interest income:

 

 

 

 

 

Investment management and trust services

 

3,490

 

3,537

 

Service charges on deposit accounts

 

2,055

 

1,924

 

Bankcard transaction revenue

 

965

 

877

 

Gains on sales of mortgage loans held for sale

 

739

 

382

 

Brokerage commissions and fees

 

541

 

513

 

Bank owned life insurance income

 

257

 

249

 

Other

 

1,198

 

523

 

Total non-interest income

 

9,245

 

8,005

 

Non-interest expenses:

 

 

 

 

 

Salaries and employee benefits

 

9,052

 

8,400

 

Net occupancy expense

 

1,369

 

1,230

 

Data processing expense

 

1,313

 

1,137

 

Furniture and equipment expense

 

292

 

355

 

FDIC insurance expense

 

351

 

621

 

Other

 

2,359

 

3,084

 

 

 

 

 

 

 

Total non-interest expenses

 

14,736

 

14,827

 

Income before income taxes

 

8,984

 

7,693

 

Income tax expense

 

2,482

 

2,202

 

Net income

 

$

6,502

 

$

5,491

 

 

 

 

 

 

 

 

 

Net income per share:

 

 

 

 

 

 

 

 

 

 

 

Basic

 

$

0.47

 

$

0.40

 

Diluted

 

$

0.47

 

$

0.40

 

 

 

 

 

 

 

Average common shares:

 

 

 

 

 

 

 

 

 

 

 

Basic

 

13,844

 

13,747

 

Diluted

 

13,890

 

13,837

 

 

See accompanying notes to unaudited consolidated financial statements.

 

3



 

S.Y. BANCORP, INC. AND SUBSIDIARY

Consolidated Statements of Comprehensive Income

For the three months ended March 31, 2012 and 2011 (Unaudited)

(In thousands)

 

 

 

Three months ended

 

 

 

March 31,

 

 

 

2012

 

2011

 

Net income

 

$

6,502

 

$

5,491

 

Other comprehensive income, net of tax:

 

 

 

 

 

Unrealized (losses) gains on securities available for sale:

 

 

 

 

 

Unrealized (losses) gains arising during the period (net of tax of ($19) and $73, respectively)

 

(35

)

137

 

Other comprehensive (loss) income

 

(35

)

137

 

Comprehensive income

 

6,467

 

5,628

 

 

See accompanying notes to unaudited consolidated financial statements.

 

4



 

S.Y. BANCORP, INC. AND SUBSIDIARY

Consolidated Statements of Cash Flows

For the three months ended March 31, 2012 and 2011  (Unaudited)

(In thousands)

 

 

 

2012

 

2011

 

Operating activities:

 

 

 

 

 

Net income

 

$

6,502

 

$

5,491

 

Adjustments to reconcile net income to net cash provided by operating activities:

 

 

 

 

 

Provision for loan losses

 

4,075

 

2,800

 

Depreciation, amortization and accretion, net

 

1,185

 

466

 

Deferred income tax benefit

 

(714

)

(147

)

Gain on sales of mortgage loans held for sale

 

(739

)

(382

)

Origination of mortgage loans held for sale

 

(47,362

)

(20,812

)

Proceeds from sale of mortgage loans held for sale

 

45,547

 

31,313

 

Bank owned life insurance income

 

(257

)

(249

)

Increase in value of private investment fund

 

(627

)

(106

)

Loss on the disposal of premises and equipment

 

 

313

 

(Gain) loss on the sale of other real estate

 

(25

)

8

 

Stock compensation expense

 

349

 

247

 

Excess tax benefits from share-based compensation arrangements

 

(15

)

(44

)

Increase in accrued interest receivable and other assets

 

(335

)

(205

)

Increase (decrease) in accrued interest payable and other liabilities

 

6,955

 

(5,886

)

Net cash provided by operating activities

 

14,539

 

12,807

 

Investing activities:

 

 

 

 

 

Purchases of securities available for sale

 

(121,008

)

(61,999

)

Proceeds from maturities of securities available for sale

 

124,133

 

47,758

 

Proceeds from maturities of securities held to maturity

 

 

4

 

Net decrease (increase) in loans

 

9,029

 

(15,211

)

Purchases of premises and equipment

 

(2,105

)

(2,179

)

Proceeds from sale of other real estate

 

707

 

252

 

Net cash provided by (used in) investing activities

 

10,756

 

(31,375

)

Financing activities:

 

 

 

 

 

Net increase in deposits

 

9,578

 

22,997

 

Net decrease in securities sold under agreements to repurchase and federal funds purchased

 

(23,160

)

(3,342

)

Net decrease in other short-term borrowings

 

 

(844

)

Repayments of Federal Home Loan Bank advances

 

(3

)

(3

)

Repayments of subordinated debentures

 

(10,000

)

 

Issuance of common stock for options and dividend reinvestment plan

 

130

 

220

 

Excess tax benefits from share-based compensation arrangements

 

15

 

44

 

Common stock repurchases

 

(189

)

(165

)

Cash dividends paid

 

(2,635

)

(2,474

)

Net cash (used in) provided by financing activities

 

(26,264

)

16,433

 

Net decrease in cash and cash equivalents

 

(969

)

(2,135

)

Cash and cash equivalents at beginning of period

 

54,920

 

41,655

 

Cash and cash equivalents at end of period

 

$

53,951

 

$

39,520

 

Supplemental cash flow information:

 

 

 

 

 

Income tax payments

 

 

 

Cash paid for interest

 

3,260

 

4,000

 

Supplemental non-cash activity:

 

 

 

 

 

Transfers from loans to other real estate owned

 

$

1,462

 

$

4,463

 

 

See accompanying notes to unaudited consolidated financial statements.

 

5



 

S.Y. BANCORP, INC. AND SUBSIDIARY

Consolidated Statement of Changes in Stockholders’ Equity

For the three months ended March 31, 2012 (Unaudited)

(In thousands, except per share data)

 

 

 

 

 

 

 

 

 

 

 

Accumulated

 

 

 

 

 

Common stock

 

 

 

 

 

other

 

 

 

 

 

Number of

 

 

 

Additional

 

Retained

 

comprehensive

 

 

 

 

 

shares

 

Amount

 

paid-in capital

 

earnings

 

income

 

Total

 

Balance December 31, 2011

 

13,819

 

$

6,953

 

$

14,599

 

$

160,672

 

$

5,462

 

$

187,686

 

Net income

 

 

 

 

6,502

 

 

6,502

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Other comprehensive income, net of tax

 

 

 

 

 

(35

)

(35

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Stock compensation expense

 

 

 

349

 

 

 

349

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Stock issued for stock options exercised and dividend reinvestment plan

 

7

 

23

 

122

 

 

 

145

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Stock issued for non- vested restricted stock

 

56

 

185

 

1,075

 

(1,260

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Cash dividends, $0.19 per share

 

 

 

 

(2,635

)

 

(2,635

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Shares repurchased or cancelled

 

(9

)

(31

)

(186

)

28

 

 

(189

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance March 31, 2012

 

13,873

 

$

7,130

 

$

15,959

 

$

163,307

 

$

5,427

 

$

191,823

 

 

See accompanying notes to unaudited consolidated financial statements.

 

6



 

S.Y. BANCORP, INC. AND SUBSIDIARY

 

(1)                     Summary of Significant Accounting Policies

 

The accompanying consolidated financial statements have been prepared in accordance with the instructions to Form 10-Q and do not include all information and footnotes required by U.S. generally accepted accounting principles (US GAAP) for complete financial statements.  The consolidated financial statements of S.Y. Bancorp, Inc. (“Bancorp”) and its subsidiary reflect all adjustments (consisting only of adjustments of a normal recurring nature) which are, in the opinion of management, necessary for a fair presentation of financial condition and results of operations for the interim periods.

 

The consolidated financial statements include the accounts of S.Y. Bancorp, Inc. and its wholly-owned subsidiary, Stock Yards Bank & Trust Company (“Bank”).  S.Y. Bancorp Capital Trust II is a Delaware statutory trust that is a wholly-owned unconsolidated finance subsidiary of S.Y. Bancorp, Inc. Significant intercompany transactions and accounts have been eliminated in consolidation.

 

A description of other significant accounting policies is presented in the notes to the Consolidated Financial Statements for the year ended December 31, 2011 included in S.Y. Bancorp, Inc.’s Annual Report on Form 10-K.  Certain reclassifications have been made in the prior year financial statements to conform to current year classifications.

 

Interim results for the three month period ended March 31, 2012 are not necessarily indicative of the results for the entire year.

 

Critical Accounting Policies

 

Management has identified the accounting policy related to the allowance and provision for loan losses as critical to the understanding of Bancorp’s results of operations and discussed this conclusion with the Audit Committee of the Board of Directors.  Since the application of this policy requires significant management assumptions and estimates, it could result in materially different amounts to be reported if conditions or underlying circumstances were to change.  Assumptions include many factors such as changes in borrowers’ financial condition which can change quickly or historical loss ratios related to certain loan portfolios which may or may not be indicative of future losses.  To the extent that management’s assumptions prove incorrect, the results from operations could be materially affected by a higher or lower provision for loan losses.  The accounting policy related to the allowance for loan losses is applicable to the commercial banking segment of Bancorp.

 

Additionally, management has identified the accounting policy related to accounting for income taxes as critical to the understanding of Bancorp’s results of operations and discussed this conclusion with the Audit Committee of the Board of Directors.  The objectives of accounting for income taxes are to recognize the amount of taxes payable or refundable for the current year and deferred tax liabilities and assets for the future tax consequences of events that have been recognized in an entity’s financial statements or tax returns.  Judgment is required in assessing the future tax consequences of events that have been recognized in Bancorp’s financial statements or tax returns. Fluctuations in the actual outcome of these future tax consequences, including the effects of periodic IRS and state agency examinations, could materially impact Bancorp’s financial position and its results from operations.

 

7



 

Recently Adopted Accounting Pronouncements

 

In May 2011, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) No. 2011-04, Amendments to Achieve Common Fair Value Measurement and Disclosure Requirements in U.S. GAAP and International Financial Reporting Standards (Topic 820)-Fair Value Measurement (ASU 2011-04), to provide a consistent definition of fair value and ensure that the fair value measurement and disclosure requirements are similar between U.S. GAAP and International Financial Reporting Standards. ASU 2011-04 changes certain fair value measurement principles and enhances the disclosure requirements particularly for level 3 fair value measurements. ASU 2011-04 is effective for Bancorp in its first quarter of fiscal 2012 and was applied prospectively.  The adoption of ASU 2011-04 resulted in additional disclosures in Note 13 and 14.

 

In June 2011, the FASB issued ASU No. 2011-05, Presentation of Comprehensive Income, which requires that an entity present the components of net income and comprehensive income in either one or two consecutive financial statements. The ASU eliminates the option to present other comprehensive income in the statement of changes in equity. Entities are required to present reclassification adjustments within other comprehensive income either on the face of the statement that reports other comprehensive income or in the notes to the financial statements. The ASUs is effective for Bancorp in its first quarter of fiscal 2012 and was applied prospectively. The adoption of ASU 2011-05 did not have an impact on the financial statements of Bancorp.

 

(2)                    Securities

 

The amortized cost, unrealized gains and losses, and fair value of securities available for sale follow:

 

March 31, 2012

 

Amortized

 

Unrealized

 

 

 

Securities available for sale

 

Cost

 

Gains

 

Losses

 

Fair Value

 

(in thousands)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

U.S. Treasury and other U.S. government obligations

 

$

95,001

 

$

 

$

 

$

95,001

 

Government sponsored enterprise obligations

 

45,860

 

2,656

 

 

48,516

 

Mortgage-backed securities

 

129,225

 

3,773

 

26

 

132,972

 

Obligations of states and political subdivisions

 

68,539

 

2,666

 

42

 

71,163

 

Trust preferred securities of financial institutions

 

1,000

 

47

 

 

1,047

 

 

 

 

 

 

 

 

 

 

 

Total securities available for sale

 

$

339,625

 

$

9,142

 

$

68

 

$

348,699

 

 

8



 

December 31, 2011

 

Amortized

 

Unrealized

 

 

 

Securities available for sale

 

Cost

 

Gains

 

Losses

 

Fair Value

 

(in thousands)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

U.S. Treasury and other U.S. government obligations

 

$

115,001

 

$

 

$

 

$

115,001

 

Government sponsored enterprise obligations

 

43,349

 

2,837

 

 

46,186

 

Mortgage-backed securities

 

116,954

 

3,564

 

23

 

120,495

 

Obligations of states and political subdivisions

 

66,755

 

2,779

 

33

 

69,501

 

Trust preferred securities of financial institutions

 

1,000

 

2

 

 

1,002

 

 

 

 

 

 

 

 

 

 

 

Total securities available for sale

 

$

343,059

 

$

9,182

 

$

56

 

$

352,185

 

 

The investment portfolio includes a significant level of obligations of states and political subdivisions.  The issuers of these bonds are generally school districts or essential-service public works projects.  The issuers are concentrated in Kentucky, with a small percentage in Indiana and Ohio. Each of these securities has a rating of A or better by a recognized bond rating agency.

 

In addition to the available for sale portfolio, investment securities held by Bancorp include certain securities which are not readily marketable, and are carried at cost. This category includes holdings of Federal Home Loan Bank of Cincinnati (FHLB) stock which are required for borrowing availability and are classified as restricted securities. Other securities consist of a Community Reinvestment Act (CRA) investment which matures in 2014, and is fully collateralized with a government agency security of similar duration.

 

A summary of the available for sale investment securities by maturity groupings as of March 31, 2012 is shown below. Actual maturities may differ from contractual maturities because some issuers have the right to call or prepay obligations. The investment portfolio includes agency mortgage-backed securities, which are guaranteed by agencies such as the FHLMC, FNMA, and GNMA. These securities differ from traditional debt securities primarily in that they may have uncertain principal payment dates and are priced based on estimated prepayment rates on the underlying collateral. Bancorp does not have exposure to subprime originated mortgage-backed or collateralized debt obligation instruments.

 

Securities available for sale

 

Amortized Cost

 

Fair Value

 

(in thousands)

 

 

 

 

 

 

 

 

 

 

 

Due within 1 year

 

110,567

 

110,721

 

Due after 1 but within 5 years

 

59,432

 

61,768

 

Due after 5 but within 10 years

 

39,401

 

42,191

 

Due after 10 years

 

1,000

 

1,047

 

Mortgage-backed securities

 

129,225

 

132,972

 

 

 

 

 

 

 

Total securities available for sale

 

$

339,625

 

$

348,699

 

 

9



 

Securities with unrealized losses at March 31, 2012 and December 31, 2011, not recognized in income are as follows:

 

 

 

Less than 12 months

 

12 months or more

 

Total

 

 

 

Fair

 

Unrealized

 

Fair

 

Unrealized

 

Fair

 

Unrealized

 

(in thousands)

 

Value

 

Losses

 

Value

 

Losses

 

Value

 

Losses

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

March 31, 2012

 

 

 

 

 

 

 

 

 

 

 

 

 

Mortgage-backed securities

 

$

15,697

 

$

26

 

$

 

$

 

$

15,697

 

$

26

 

Obligations of states and political subdivisions

 

5,090

 

22

 

1,013

 

20

 

6,103

 

42

 

Total temporarily impaired securities

 

$

20,787

 

$

48

 

$

1,013

 

$

20

 

$

21,800

 

$

68

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

December 31, 2011

 

 

 

 

 

 

 

 

 

 

 

 

 

Mortgage-backed securities

 

$

5,122

 

$

23

 

$

 

$

 

5,122

 

23

 

Obligations of states and political subdivisions

 

2,644

 

17

 

1,021

 

16

 

3,665

 

33

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total temporarily impaired securities

 

$

7,766

 

$

40

 

$

1,021

 

$

16

 

$

8,787

 

$

56

 

 

Unrealized losses on Bancorp’s investment securities portfolio have not been recognized in income because the securities are of high credit quality, and the decline in fair values is largely due to changes in the prevailing interest rate environment since the purchase date.  The fair value is expected to recover as the securities reach their maturity date and/or the interest rate environment returns to conditions similar to when the securities were purchased.  These investments consist of seven and five separate investment positions as of March 31, 2012 and December 31, 2011, respectively, which are not considered other-than-temporarily impaired.  Because management does not intend to sell the investments, and it is not likely that Bancorp will be required to sell the investments before recovery of their amortized cost bases, which may be at maturity, Bancorp does not consider these securities to be other-than-temporarily impaired at March 31, 2012.

 

(3)                     Loans

 

The composition of loans primary loan classification follows:

 

(in thousands)

 

March 31, 2012

 

December 31, 2011

 

Commercial and industrial

 

$

371,430

 

$

393,729

 

Construction and development

 

143,337

 

147,637

 

Real estate mortgage

 

981,004

 

966,665

 

Consumer

 

35,969

 

36,814

 

 

 

 

 

 

 

Total loans

 

$

1,531,740

 

$

1,544,845

 

 

10



 

The following table presents the balance in the recorded investment in loans and allowance for loan losses by portfolio segment and based on impairment method as of March 31, 2012 and December 31, 2011.

 

 

 

Type of Loan

 

 

 

 

 

March 31, 2012

 

Commercial

 

Construction

 

Real estate

 

 

 

 

 

 

 

(in thousands)

 

and industrial

 

and development

 

mortgage

 

Consumer

 

 

 

Total

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Loans

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance

 

$

371,430

 

$

143,337

 

$

981,004

 

$

35,969

 

 

 

$

1,531,740

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance: individually evaluated for impairment

 

$

12,229

 

$

4,122

 

$

12,321

 

$

3

 

 

 

$

28,675

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance: collectively evaluated for impairment

 

$

359,201

 

$

139,215

 

$

968,683

 

$

35,966

 

 

 

$

1,503,065

 

 

 

 

Commercial

 

Construction

 

Real estate

 

 

 

 

 

 

 

 

 

and industrial

 

and development

 

mortgage

 

Consumer

 

Unallocated

 

Total

 

Allowance for loan losses

 

 

 

 

 

 

 

 

 

 

 

 

 

Beginning balance December 31, 2011

 

$

7,364

 

$

3,546

 

$

11,182

 

$

540

 

$

7,113

 

$

29,745

 

Provision

 

571

 

1,537

 

1,857

 

(164

)

274

 

4,075

 

Charge-offs

 

(2,274

)

(23

)

(542

)

(160

)

 

(2,999

)

Recoveries

 

1

 

 

60

 

324

 

 

385

 

Ending balance March 31, 2012

 

$

5,662

 

$

5,060

 

$

12,557

 

$

540

 

$

7,387

 

$

31,206

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance: individually evaluated for impairment

 

$

1,652

 

$

1,355

 

$

755

 

$

 

 

 

$

3,762

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance: collectively evaluated for impairment

 

$

4,010

 

$

3,705

 

$

11,802

 

$

540

 

$

7,387

 

$

27,444

 

 

 

 

Type of Loan

 

 

 

 

 

December 31, 2011

 

Commercial

 

Construction

 

Real estate

 

 

 

 

 

 

 

(in thousands)

 

and industrial

 

and development

 

mortgage

 

Consumer

 

 

 

Total

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Loans

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance

 

$

393,729

 

$

147,637

 

$

966,665

 

$

36,814

 

 

 

$

1,544,845

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance: individually evaluated for impairment

 

$

5,459

 

$

2,416

 

$

14,170

 

$

94

 

 

 

$

22,139

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance: collectively evaluated for impairment

 

$

388,270

 

$

145,221

 

$

952,495

 

$

36,720

 

 

 

$

1,522,706

 

 

 

 

Commercial

 

Construction

 

Real estate

 

 

 

 

 

 

 

 

 

and industrial

 

and development

 

mortgage

 

Consumer

 

Unallocated

 

Total

 

Allowance for loan losses

 

 

 

 

 

 

 

 

 

 

 

 

 

Beginning balance December 31, 2010

 

$

2,796

 

$

2,280

 

$

12,272

 

$

623

 

$

7,572

 

$

25,543

 

Provision

 

5,475

 

2,859

 

4,592

 

133

 

(459

)

12,600

 

Charge-offs

 

(1,015

)

(1,593

)

(5,840

)

(673

)

 

(9,121

)

Recoveries

 

108

 

 

158

 

457

 

 

723

 

Ending balance December 31, 2011

 

$

7,364

 

$

3,546

 

$

11,182

 

$

540

 

$

7,113

 

$

29,745

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance: individually evaluated for impairment

 

$

954

 

$

10

 

$

1,597

 

$

 

 

 

$

2,561

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance: collectively evaluated for impairment

 

$

6,410

 

$

3,536

 

$

9,585

 

$

540

 

$

7,113

 

$

27,184

 

 

11



 

Bancorp did not have any loans acquired with deteriorated credit quality at March 31, 2012 or December 31, 2011.

 

Management uses the following portfolio segments of loans when assessing and monitoring the risk and performance of the loan portfolio:

 

·                  Commercial and industrial

·                  Construction and development

·                  Real estate mortgage

·                  Consumer

 

The following table presents loans individually evaluated for impairment as of March 31, 2012 and December 31, 2011.

 

 

 

 

 

Unpaid

 

 

 

Average

 

March 31, 2012

 

Recorded

 

principal

 

Related

 

recorded

 

(in thousands)

 

investment

 

balance

 

allowance

 

investment

 

 

 

 

 

 

 

 

 

 

 

Loans with no related allowance recorded

 

 

 

 

 

 

 

 

 

Commercial and industrial

 

$

7,822

 

$

7,822

 

 

 

$

4,258

 

Construction and development

 

2,316

 

2,316

 

 

 

2,316

 

Real estate mortgage

 

6,698

 

6,698

 

 

 

6,576

 

Consumer

 

3

 

3

 

 

 

49

 

Subtotal

 

16,839

 

16,839

 

 

 

13,199

 

 

 

 

 

 

 

 

 

 

 

Loans with an allowance recorded

 

 

 

 

 

 

 

 

 

Commercial and industrial

 

$

4,407

 

$

4,407

 

$

1,652

 

$

4,586

 

Construction and development

 

1,806

 

1,806

 

1,355

 

953

 

Real estate mortgage

 

5,623

 

7,873

 

755

 

6,670

 

Consumer

 

 

 

 

 

Subtotal

 

11,836

 

14,086

 

3,762

 

12,209

 

 

 

 

 

 

 

 

 

 

 

Total

 

 

 

 

 

 

 

 

 

Commercial and industrial

 

$

12,229

 

$

12,229

 

$

1,652

 

$

8,844

 

Construction and development

 

4,122

 

4,122

 

1,355

 

3,269

 

Real estate mortgage

 

12,321

 

14,571

 

755

 

13,246

 

Consumer

 

3

 

3

 

 

49

 

Total

 

$

28,675

 

$

30,925

 

$

3,762

 

$

25,408

 

 

12



 

 

 

 

 

Unpaid

 

 

 

Average

 

December 31, 2011

 

Recorded

 

principal

 

Related

 

recorded

 

(in thousands)

 

investment

 

balance

 

allowance

 

investment

 

 

 

 

 

 

 

 

 

 

 

Loans with no related allowance recorded

 

 

 

 

 

 

 

 

 

Commercial and industrial

 

$

694

 

$

920

 

 

 

$

951

 

Construction and development

 

2,316

 

2,316

 

 

 

1,979

 

Real estate mortgage

 

6,453

 

6,453

 

 

 

6,353

 

Consumer

 

94

 

94

 

 

 

83

 

Subtotal

 

9,557

 

9,783

 

 

 

9,366

 

 

 

 

 

 

 

 

 

 

 

Loans with an allowance recorded

 

 

 

 

 

 

 

 

 

Commercial and industrial

 

$

4,765

 

$

6,415

 

$

954

 

$

2,447

 

Construction and development

 

100

 

100

 

10

 

20

 

Real estate mortgage

 

7,717

 

11,962

 

1,597

 

7,249

 

Consumer

 

 

 

 

10

 

Subtotal

 

12,582

 

18,477

 

2,561

 

9,726

 

 

 

 

 

 

 

 

 

 

 

Total

 

 

 

 

 

 

 

 

 

Commercial and industrial

 

$

5,459

 

$

7,335

 

$

954

 

$

3,398

 

Construction and development

 

2,416

 

2,416

 

10

 

1,999

 

Real estate mortgage

 

14,170

 

18,415

 

1,597

 

13,602

 

Consumer

 

94

 

94

 

 

93

 

Total

 

$

22,139

 

$

28,260

 

$

2,561

 

$

19,092

 

 

Differences between the recorded investment amounts and the unpaid principal balance amounts are due to partial charge-offs which have occurred over the life of the loans.

 

Impaired loans include non-accrual loans and loans accounted for as troubled debt restructuring (TDR), which continue to accrue interest. Non-performing loans include the balance of impaired loans plus any loans over 90 days past due and still accruing interest.  Loans past due more than 90 days or more and still accruing interest amounted to $394,000 at March 31, 2012, and $1,160,000 at December 31, 2011.

 

The following table presents the recorded investment in non-accrual loans as of March 31, 2012 and December 31, 2011.

 

(in thousands)

 

March 31, 2012

 

December 31, 2011

 

 

 

 

 

 

 

Commercial and industrial

 

$

3,652

 

$

2,665

 

Construction and development

 

4,122

 

2,416

 

Real estate mortgage

 

11,455

 

13,562

 

Consumer

 

3

 

94

 

 

 

 

 

 

 

Total

 

$

19,232

 

$

18,737

 

 

13



 

The following table presents the recorded investment in loans accounted for as TDR as of March 31, 2012 and December 31, 2011.

 

 

 

 

 

Pre-modification

 

Post-modification

 

March 31, 2012

 

Number of

 

outstanding recorded

 

outstanding recorded

 

(dollars in thousands)

 

contracts

 

investment

 

investment

 

 

 

 

 

 

 

 

 

Commercial & industrial

 

7

 

$

8,577

 

$

8,577

 

Real estate mortgage

 

3

 

866

 

866

 

 

 

 

 

 

 

 

 

Total

 

10

 

$

9,443

 

$

9,443

 

 

 

 

 

 

Pre-modification

 

Post-modification

 

December 31, 2011

 

Number of

 

outstanding recorded

 

outstanding recorded

 

(dollars in thousands)

 

contracts

 

investment

 

investment

 

 

 

 

 

 

 

 

 

Commercial & industrial

 

4

 

$

2,794

 

$

2,794

 

Real estate mortgage

 

2

 

608

 

608

 

 

 

 

 

 

 

 

 

Total

 

6

 

$

3,402

 

$

3,402

 

 

The following table presents the recorded investment in loans accounted for as TDR that have defaulted as of March 31, 2012.

 

March 31, 2012

 

Number of

 

 

 

(dollars in thousands)

 

Contracts

 

Recorded Investment

 

 

 

 

 

 

 

Commercial & industrial

 

3

 

$

1,584

 

Real estate mortgage

 

1

 

361

 

 

 

 

 

 

 

Total

 

4

 

$

1,945

 

 

The loans in the table above are all related to one borrower and have a related allowance allocation of $750,000, which management estimates to be the total loss exposure to this credit.  Prior to 2012, Bancorp had not experienced loans accounted for as TDR that have subsequently defaulted.  At March 31, 2012, loans accounted for as TDR included modifications from original terms due to bankruptcy proceedings and modifications of amortization periods due to customer financial difficulties.  Some loans accounted for as TDR included temporary suspension of principal payments, resulting in payment of interest only.  There has been no forgiveness of principal for loans accounted for as TDR.  Loans accounted for as TDR are individually evaluated for impairment and, at March 31, 2012, had a total allowance allocation of $1,032,000, compared to $1,167,000 at December 31, 2011.

 

14



 

The following table presents the aging of the recorded investment in past due loans as of March 31, 2012 and December 31, 2011.

 

 

 

 

 

 

 

Greater

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

than

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

90 days

 

 

 

 

 

 

 

Recorded

 

 

 

 

 

 

 

past due

 

 

 

 

 

 

 

investment >

 

March 31, 2012

 

30-59 days

 

60-89 days

 

(includes

 

Total

 

 

 

Total

 

90 days and

 

(in thousands)

 

past due

 

past due

 

non-accrual)

 

past due

 

Current

 

loans

 

accruing

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Commercial and industrial

 

$

1,746

 

$

1,127

 

$

3,652

 

$

6,525

 

$

364,905

 

$

371,430

 

$

 

Construction and development

 

187

 

 

4,122

 

4,309

 

139,028

 

143,337

 

 

Real estate mortgage

 

4,839

 

2,070

 

11,832

 

18,741

 

962,263

 

981,004

 

377

 

Consumer

 

14

 

16

 

20

 

50

 

35,919

 

35,969

 

17

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total

 

$

6,786

 

$

3,213

 

$

19,626

 

$

29,625

 

$

1,502,115

 

$

1,531,740

 

$

394

 

 

 

 

 

 

 

 

Greater

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

than

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

90 days

 

 

 

 

 

 

 

Recorded

 

 

 

 

 

 

 

past due

 

 

 

 

 

 

 

investment >

 

December 31, 2011

 

30-59 days

 

60-89 days

 

(includes

 

Total

 

 

 

Total

 

90 days and

 

(in thousands)

 

past due

 

past due

 

non-accrual)

 

past due

 

Current

 

loans

 

accruing

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Commercial and industrial

 

$

989

 

$

162

 

$

2,665

 

$

3,816

 

$

389,913

 

$

393,729

 

$

 

Construction and development

 

86

 

 

2,416

 

2,502

 

145,135

 

147,637

 

 

Real estate mortgage

 

8,520

 

957

 

14,722

 

24,199

 

942,466

 

966,665

 

1,160

 

Consumer

 

336

 

 

94

 

430

 

36,384

 

36,814

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total

 

$

9,931<