XNAS:SYBT S.Y. Bancorp, Inc. Quarterly Report 10-Q Filing - 6/30/2012

Effective Date 6/30/2012

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Table of Contents

 

 

 

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 June 30, 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 July 30, 2012, was 13,879,187.

 

 

 



Table of Contents

 

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 June 30, 2012 (Unaudited) and December 31, 2011

 

 

 

 

Consolidated Statements of Income for the three and six months ended June 30, 2012 and 2011 (Unaudited)

 

 

 

 

Consolidated Statements of Comprehensive Income for the three and six months ended June 30, 2012 and 2011 (Unaudited)

 

 

 

 

Consolidated Statements of Cash Flows for the six months ended June 30, 2012 and 2011 (Unaudited)

 

 

 

 

Consolidated Statement of Changes in Stockholders’ Equity for the six months ended June 30, 2012 (Unaudited)

 

 

 

 

Notes to Unaudited 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



Table of Contents

 

S.Y. BANCORP, INC. AND SUBSIDIARY

Consolidated Balance Sheets

June 30, 2012 and December 31, 2011

(In thousands, except share data)

 

 

 

June 30,

 

December 31,

 

 

 

2012

 

2011

 

 

 

(Unaudited)

 

 

 

Assets

 

 

 

 

 

Cash and due from banks

 

$

34,789

 

$

32,901

 

Federal funds sold

 

35,533

 

22,019

 

Mortgage loans held for sale

 

6,608

 

4,381

 

Securities available for sale (amortized cost of $323,359 in 2012 and $343,059 in 2011)

 

333,143

 

352,185

 

Federal Home Loan Bank stock

 

5,180

 

4,948

 

Other securities

 

1,000

 

1,001

 

Loans

 

1,577,826

 

1,544,845

 

Less allowance for loan losses

 

31,773

 

29,745

 

Net loans

 

1,546,053

 

1,515,100

 

Premises and equipment, net

 

37,891

 

36,611

 

Bank owned life insurance

 

27,660

 

27,143

 

Accrued interest receivable

 

5,727

 

5,964

 

Other assets

 

50,044

 

50,844

 

Total assets

 

$

2,083,628

 

$

2,053,097

 

Liabilities and Stockholders’ Equity

 

 

 

 

 

Deposits:

 

 

 

 

 

Non-interest bearing

 

$

341,128

 

$

313,587

 

Interest bearing

 

1,323,161

 

1,304,152

 

Total deposits

 

1,664,289

 

1,617,739

 

Securities sold under agreements to repurchase

 

50,700

 

66,026

 

Federal funds purchased

 

36,736

 

37,273

 

Accrued interest payable

 

280

 

232

 

Other liabilities

 

43,995

 

42,810

 

Federal Home Loan Bank advances

 

60,426

 

60,431

 

Subordinated debentures

 

30,900

 

40,900

 

Total liabilities

 

1,887,326

 

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 13,878,261 and 13,819,319 shares in 2012 and 2011, respectively

 

7,149

 

6,953

 

Additional paid-in capital

 

16,452

 

14,599

 

Retained earnings

 

166,812

 

160,672

 

Accumulated other comprehensive income

 

5,889

 

5,462

 

Total stockholders’ equity

 

196,302

 

187,686

 

Total liabilities and stockholders’ equity

 

$

2,083,628

 

$

2,053,097

 

 

See accompanying notes to unaudited consolidated financial statements.

 

2



Table of Contents

 

S.Y.  BANCORP, INC. AND SUBSIDIARY

Consolidated Statements of Income

For the three and six months ended June 30, 2012 and 2011

(In thousands, except per share data)

 

 

 

For three months ended

 

For six months ended

 

 

 

June 30,

 

June 30,

 

 

 

2012

 

2011

 

2012

 

2011

 

Interest income:

 

 

 

 

 

 

 

 

 

Loans

 

$

19,473

 

$

19,875

 

$

39,353

 

$

39,475

 

Federal funds sold

 

62

 

49

 

134

 

95

 

Mortgage loans held for sale

 

56

 

34

 

119

 

97

 

Securities – taxable

 

1,453

 

1,260

 

2,930

 

2,492

 

Securities – tax-exempt

 

319

 

348

 

639

 

695

 

Total interest income

 

21,363

 

21,566

 

43,175

 

42,854

 

Interest expense:

 

 

 

 

 

 

 

 

 

Deposits

 

1,881

 

2,654

 

3,927

 

5,325

 

Fed funds purchased

 

8

 

10

 

16

 

23

 

Securities sold under agreements to repurchase

 

43

 

64

 

92

 

131

 

Federal Home Loan Bank advances

 

364

 

364

 

727

 

725

 

Subordinated debentures

 

772

 

863

 

1,568

 

1,724

 

Total interest expense

 

3,068

 

3,955

 

6,330

 

7,928

 

Net interest income

 

18,295

 

17,611

 

36,845

 

34,926

 

Provision for loan losses

 

2,475

 

2,600

 

6,550

 

5,400

 

Net interest income after provision for loan losses

 

15,820

 

15,011

 

30,295

 

29,526

 

Non-interest income:

 

 

 

 

 

 

 

 

 

Investment management and trust services

 

3,670

 

3,661

 

7,160

 

7,198

 

Service charges on deposit accounts

 

2,125

 

2,034

 

4,180

 

3,958

 

Bankcard transaction revenue

 

1,017

 

960

 

1,982

 

1,837

 

Gains on sales of mortgage loans held for sale

 

866

 

441

 

1,605

 

823

 

Brokerage commissions and fees

 

652

 

530

 

1,193

 

1,043

 

Bank owned life insurance income

 

260

 

255

 

517

 

504

 

Other

 

700

 

271

 

1,898

 

794

 

Total non-interest income

 

9,290

 

8,152

 

18,535

 

16,157

 

Non-interest expenses:

 

 

 

 

 

 

 

 

 

Salaries and employee benefits

 

9,426

 

8,648

 

18,478

 

17,048

 

Net occupancy expense

 

1,464

 

1,357

 

2,833

 

2,587

 

Data processing expense

 

1,522

 

1,346

 

2,835

 

2,483

 

Furniture and equipment expense

 

326

 

337

 

618

 

692

 

FDIC insurance expense

 

346

 

339

 

697

 

960

 

Other

 

3,424

 

2,698

 

5,783

 

5,782

 

Total non-interest expenses

 

16,508

 

14,725

 

31,244

 

29,552

 

Income before income taxes

 

8,602

 

8,438

 

17,586

 

16,131

 

Income tax expense

 

2,499

 

2,441

 

4,981

 

4,643

 

Net income

 

6,103

 

5,997

 

12,605

 

11,488

 

Net income per share:

 

 

 

 

 

 

 

 

 

Basic

 

$

0.44

 

$

0.43

 

$

0.91

 

$

0.83

 

Diluted

 

$

0.44

 

$

0.43

 

$

0.91

 

$

0.83

 

Average common shares:

 

 

 

 

 

 

 

 

 

Basic

 

13,874

 

13,789

 

13,859

 

13,768

 

Diluted

 

13,941

 

13,879

 

13,916

 

13,857

 

 

See accompanying notes to unaudited consolidated financial statements.

 

3



Table of Contents

 

S.Y. BANCORP, INC. AND SUBSIDIARY

Consolidated Statements of Comprehensive Income

For the three and six months ended June 30, 2012 and 2011

(In thousands)

 

 

 

Three months ended

 

Six months ended

 

 

 

June 30,

 

June 30,

 

 

 

2012

 

2011

 

2012

 

2011

 

Net income

 

$

6,103

 

$

5,997

 

$

12,605

 

$

11,488

 

Other comprehensive income, net of tax:

 

 

 

 

 

 

 

 

 

Unrealized gains on securities available for sale:

 

 

 

 

 

 

 

 

 

Unrealized gains arising during the period (net of tax of $249, $775, $231 and $849, respectively)

 

462

 

1,440

 

427

 

1,577

 

Comprehensive income

 

$

6,565

 

$

7,437

 

$

13,032

 

$

13,065

 

 

See accompanying notes to unaudited consolidated financial statements.

 

4



Table of Contents

 

S.Y. BANCORP, INC. AND SUBSIDIARY

Consolidated Statements of Cash Flows

For the six months ended June 30, 2012 and 2011

(In thousands)

 

 

 

2012

 

2011

 

Operating activities:

 

 

 

 

 

Net income

 

$

12,605

 

$

11,488

 

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

 

 

 

 

 

Provision for loan losses

 

6,550

 

5,400

 

Depreciation, amortization and accretion, net

 

2,417

 

1,917

 

Deferred income tax benefit

 

(1,057

)

(635

)

Gain on sales of mortgage loans held for sale

 

(1,605

)

(823

)

Origination of mortgage loans held for sale

 

(95,702

)

(42,953

)

Proceeds from sale of mortgage loans held for sale

 

95,080

 

51,724

 

Bank owned life insurance income

 

(517

)

(504

)

(Increase) decrease in value of private investment fund

 

(637

)

102

 

Proceeds from liquidation of private investment fund

 

2,846

 

 

Loss on the disposal of equipment

 

43

 

382

 

Loss on the sale of other real estate

 

208

 

32

 

Stock compensation expense

 

740

 

564

 

Excess tax benefits from share-based compensation arrangements

 

(30

)

(77

)

(Increase) decrease in accrued interest receivable and other assets

 

(1,273

)

951

 

Increase (decrease) in accrued interest payable and other liabilities

 

1,263

 

(8,864

)

Net cash provided by operating activities

 

20,931

 

18,704

 

Investing activities:

 

 

 

 

 

Purchases of securities available for sale

 

(214,345

)

(132,819

)

Proceeds from sale of securities available for sale

 

 

 

Proceeds from maturities of securities available for sale

 

233,171

 

121,840

 

Proceeds from maturities of securities held to maturity

 

 

20

 

Net increase in loans

 

(39,173

)

(41,503

)

Purchases of premises and equipment

 

(2,920

)

(4,750

)

Proceeds from disposal of premises and equipment

 

 

7

 

Proceeds from sale of foreclosed assets

 

2,211

 

5,293

 

Net cash used in investing activities

 

(21,056

)

(51,912

)

Financing activities:

 

 

 

 

 

Net increase in deposits

 

46,550

 

38,903

 

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

 

(15,863

)

2,273

 

Net decrease in other short-term borrowings

 

 

(755

)

Repayments of Federal Home Loan Bank advances

 

(5

)

(5

)

Repayments of subordinated debentures

 

(10,000

)

 

Issuance of common stock for options and dividend reinvestment plan

 

288

 

381

 

Excess tax benefits from share-based compensation arrangements

 

30

 

77

 

Common stock repurchases

 

(202

)

(167

)

Cash dividends paid

 

(5,271

)

(4,956

)

Net cash provided by financing activities

 

15,527

 

35,751

 

Net increase in cash and cash equivalents

 

15,402

 

2,543

 

Cash and cash equivalents at beginning of period

 

54,920

 

41,655

 

Cash and cash equivalents at end of period

 

$

70,322

 

$

44,198

 

Supplemental cash flow information:

 

 

 

 

 

Income tax payments

 

$

5,200

 

$

985

 

Cash paid for interest

 

6,282

 

8,053

 

Supplemental non-cash activity:

 

 

 

 

 

Transfers from loans to other real estate owned

 

$

1,670

 

$

7,599

 

 

See accompanying notes to unaudited consolidated financial statements.

 

5



Table of Contents

 

S.Y. BANCORP, INC. AND SUBSIDIARY

Consolidated Statement of Changes in Stockholders’ Equity

For the six months ended June 30, 2012

(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

 

 

 

 

12,605

 

 

12,605

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Other comprehensive income, net of tax

 

 

 

 

 

427

 

427

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Stock compensation expense

 

 

 

740

 

 

 

740

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Stock issued for stock options exercised and dividend reinvestment plan

 

15

 

50

 

267

 

 

 

317

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Stock issued for non- vested restricted stock

 

56

 

185

 

1,075

 

(1,260

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Cash dividends, $0.38 per share

 

 

 

 

(5,271

)

 

(5,271

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Shares repurchased or cancelled

 

(12

)

(39

)

(229

)

66

 

 

(202

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance June 30, 2012

 

13,878

 

$

7,149

 

$

16,452

 

$

166,812

 

$

5,889

 

$

196,302

 

 

See accompanying notes to unaudited consolidated financial statements.

 

6



Table of Contents

 

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 and six month periods ended June 30, 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.

 

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Table of Contents

 

(2)                     Securities

 

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

 

June 30, 2012

 

Amortized

 

Unrealized

 

 

 

Securities available for sale

 

cost

 

Gains

 

Losses

 

Fair value

 

(in thousands)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

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

 

$

45,000

 

$

 

$

 

$

45,000

 

Government sponsored enterprise obligations

 

74,561

 

2,711

 

 

77,272

 

Mortgage-backed securities

 

135,178

 

4,115

 

17

 

139,276

 

Obligations of states and political subdivisions

 

67,620

 

2,957

 

16

 

70,561

 

Trust preferred securities of financial institutions

 

1,000

 

34

 

 

1,034

 

 

 

 

 

 

 

 

 

 

 

Total securities available for sale

 

$

323,359

 

$

9,817

 

$

33

 

$

333,143

 

 

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.

 

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Table of Contents

 

A summary of the available for sale investment securities by maturity groupings as of June 30, 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

 

$

85,877

 

$

86,041

 

Due after 1 but within 5 years

 

68,145

 

70,549

 

Due after 5 but within 10 years

 

33,159

 

36,243

 

Due after 10 years

 

1,000

 

1,034

 

Mortgage-backed securities

 

135,178

 

139,276

 

Total securities available for sale

 

$

323,359

 

$

333,143

 

 

Securities with unrealized losses at June 30, 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

 

June 30, 2012

 

 

 

 

 

 

 

 

 

 

 

 

 

Mortgage-backed securities

 

$

5,234

 

$

17

 

$

 

$

 

$

5,234

 

$

17

 

Obligations of states and political subdivisions

 

 

 

1,013

 

16

 

1,013

 

16

 

Total temporarily impaired securities

 

$

5,234

 

$

17

 

$

1,013

 

$

16

 

$

6,247

 

$

33

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

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 two and five separate investment positions as of June 30, 2012 and December 31, 2011, respectively.  Because management does not intend to sell the investments, and it is not likely that Bancorp will be required to sell the investments before

 

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recovery of their amortized cost bases, which may be at maturity, Bancorp does not consider these securities to be other-than-temporarily impaired at June 30, 2012.

 

(3)                     Loans

 

The composition of loans by primary loan classification follows:

 

(in thousands)

 

June 30, 2012

 

December 31, 2011

 

Commercial and industrial

 

$

417,112

 

$

393,729

 

Construction and development

 

139,328

 

147,637

 

Real estate mortgage

 

985,647

 

966,665

 

Consumer

 

35,739

 

36,814

 

 

 

 

 

 

 

Total loans

 

$

1,577,826

 

$

1,544,845

 

 

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 June 30, 2012 and December 31, 2011.

 

 

 

Type of loan

 

 

 

 

 

June 30, 2012

 

Commercial

 

Construction

 

Real estate

 

 

 

 

 

 

 

(in thousands)

 

and industrial

 

and development

 

mortgage

 

Consumer

 

 

 

Total

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Loans

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance

 

$

417,112

 

$

139,328

 

$

985,647

 

$

35,739

 

 

 

$

1,577,826

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance: loans with an allowance recorded

 

$

11,516

 

$

13,237

 

$

10,695

 

$

 

 

 

$

35,448

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance: loans with no related allowance recorded

 

$

405,596

 

$

126,091

 

$

974,952

 

$

35,739

 

 

 

$

1,542,378

 

 

 

 

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

 

3,475

 

369

 

3,913

 

(327

)

(880

)

6,550

 

Charge-offs

 

(3,500

)

(123

)

(1,121

)

(368

)

 

(5,112

)

Recoveries

 

5

 

 

134

 

451

 

 

590

 

Ending balance June 30, 2012

 

$

7,344

 

$

3,792

 

$

14,108

 

$

296

 

$

6,233

 

$

31,773

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance: allowance for loans with related allowance recorded

 

$

1,758

 

$

3,597

 

$

527

 

$

 

 

 

$

5,882

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance: allowance for loans with no related allowance recorded

 

$

5,586

 

$

195

 

$

13,581

 

$

296

 

$

6,233

 

$

25,891

 

 

10



Table of Contents

 

 

 

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: loans with an allowance recorded

 

$

5,459

 

$

2,416

 

$

14,170

 

$

94

 

 

 

$

22,139

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance: loans with no related allowance recorded

 

$

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: allowance for loans with related allowance recorded

 

$

954

 

$

10

 

$

1,597

 

$

 

 

 

$

2,561

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance: allowance for loans with no related allowance recorded

 

$

6,410

 

$

3,536

 

$

9,585

 

$

540

 

$

7,113

 

$

27,184

 

 

Bancorp did not have any loans acquired with deteriorated credit quality at June 30, 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

 

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The following table presents loans individually evaluated for impairment as of June 30, 2012 and December 31, 2011.

 

 

 

 

 

Unpaid

 

 

 

Average

 

June 30, 2012

 

Recorded

 

principal

 

Related

 

recorded

 

(in thousands)

 

investment

 

balance

 

allowance

 

investment

 

 

 

 

 

 

 

 

 

 

 

Loans with no related allowance recorded

 

 

 

 

 

 

 

 

 

Commercial and industrial

 

$

7,714

 

$

7,714

 

 

 

$

5,410

 

Construction and development

 

117

 

117

 

 

 

1,583

 

Real estate mortgage

 

5,384

 

5,384

 

 

 

6,178

 

Consumer

 

 

 

 

 

32

 

Subtotal

 

13,215

 

13,215

 

 

 

13,203

 

 

 

 

 

 

 

 

 

 

 

Loans with an allowance recorded

 

 

 

 

 

 

 

 

 

Commercial and industrial

 

3,802

 

3,802

 

1,758

 

4,325

 

Construction and development

 

13,120

 

13,120

 

3,597

 

5,009

 

Real estate mortgage

 

5,311

 

7,561

 

527

 

6,217

 

Consumer

 

 

 

 

 

Subtotal

 

22,233

 

24,483

 

5,882

 

15,551

 

 

 

 

 

 

 

 

 

 

 

Total

 

 

 

 

 

 

 

 

 

Commercial and industrial

 

$

11,516

 

$

11,516

 

$

1,758

 

$

9,735

 

Construction and development

 

13,237

 

13,237

 

3,597

 

6,592

 

Real estate mortgage

 

10,695

 

12,945

 

527

 

12,395

 

Consumer

 

 

 

 

32

 

Total

 

$

35,448

 

$

37,698

 

$

5,882

 

$

28,754

 

 

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Table of Contents

 

 

 

 

 

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 $112,000 at June 30, 2012, and $1,160,000 at December 31, 2011.

 

The following table presents the recorded investment in non-accrual loans as of June 30, 2012 and December 31, 2011.

 

(in thousands)

 

June 30, 2012

 

December 31, 2011

 

 

 

 

 

 

 

Commercial and industrial

 

$

4,478

 

$

2,665

 

Construction and development

 

13,237

 

2,416

 

Real estate mortgage

 

10,192

 

13,562

 

Consumer

 

 

94

 

 

 

 

 

 

 

Total

 

$

27,907

 

$

18,737

 

 

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Table of Contents

 

On June 30, 2012 and 2011, Bancorp had $7.5 million and $250,000 of loans classified as TDR, respectively.  The following table presents the recorded investment in loans modified and classified as TDR during the six months ended June 30, 2012.

 

 

 

 

 

Pre-modification

 

Post-modification

 

 

 

Number of

 

outstanding recorded

 

outstanding recorded

 

(dollars in thousands)

 

contracts

 

investment

 

investment

 

 

 

 

 

 

 

 

 

Commercial & industrial

 

3

 

$

5,788

 

$

5,788

 

Real estate mortgage

 

2

 

503

 

503

 

Total

 

5

 

$

6,291

 

$

6,291

 

 

Bancorp did not modify and classify any loans as TDR during the six months ended June 30, 2011.

 

The following table presents the recorded investment in loans accounted for as TDR that have defaulted as of June 30, 2012.

 

June 30, 2012

 

Number of

 

 

 

(dollars in thousands)

 

Contracts

 

Recorded investment

 

 

 

 

 

 

 

Commercial & industrial

 

3

 

$

1,583

 

Real estate mortgage

 

1

 

361

 

 

 

 

 

 

 

Total

 

4

 

$

1,944

 

 

The loans in the table above are all related to one borrower and have a related allowance allocation of $493,000, 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 June 30, 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, which have not defaulted, are individually evaluated for impairment and, at June 30, 2012, had a total allowance allocation of $300,000, compared to $1,167,000 at December 31, 2011.

 

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Table of Contents

 

The following table presents the aging of the recorded investment in past due loans as of June 30, 2012 and December 31, 2011.

 

 

 

 

 

 

 

Greater

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

than

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

90 days

 

 

 

 

 

 

 

Recorded

 

 

 

 

 

 

 

past due

 

 

 

 

 

 

 

investment >

 

June 30, 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

 

$

483

 

$

311

 

$

4,478

 

$

5,272

 

$

411,840

 

$

417,112

 

$

 

Construction and development

 

413

 

86

 

13,237

 

13,736

 

125,592

 

139,328

 

 

Real estate mortgage

 

6,025

 

2,626

 

10,284

 

18,935

 

966,712

 

985,647

 

92

 

Consumer

 

41

 

4

 

20

 

65

 

35,674

 

35,739

 

20

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total

 

$

6,962

 

$

3,027

 

$

28,019

 

$

38,008

 

$

1,539,818

 

$

1,577,826

 

$

112

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

December 31, 2011

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

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