XOTC:NWIN Northwest Indiana Bancorp Quarterly Report 10-Q Filing - 6/30/2012

Effective Date 6/30/2012

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SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

 

FORM 10-Q 

 

(Mark One)

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

 

 For the quarterly period ended June 30, 2012 or

 

¨ Transition report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934.

 

 For the transition period from ______ to ______

 

 Commission File Number: 0-26128

 

NorthWest Indiana Bancorp

(Exact name of registrant as specified in its charter)

 

                          Indiana                                            35-1927981                 
(State or other jurisdiction of incorporation (I.R.S. Employer
or organization)  Identification Number)

 

9204 Columbia Avenue        
                 Munster, Indiana                                   46321                 
(Address of principal executive offices) (ZIP code)

 

Registrant's telephone number, including area code: (219) 836-4400

 

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. Yesx No ¨

 

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes x No ¨

 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer”, “accelerated filer”, and “smaller reporting company” in Rule 12b-2 of the Exchange Act (Check one):

 

Large accelerated filer ¨ Accelerated filer ¨ Non-accelerated filer ¨ Smaller Reporting Company x
        (Do not check if a smaller reporting company)

 

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ¨ No x

 

There were 2,839,224 shares of the registrant’s Common Stock, without par value, outstanding at June 30, 2012.

 

 
 

 

NorthWest Indiana Bancorp

Index

  Page
  Number
PART I. Financial Information  
   
Item 1. Unaudited Financial Statements
   
 Consolidated Balance Sheets, June 30, 2012 and December 31, 2011 1
   
 Consolidated Statements of Income, Three and Six Months Ended June 30, 2012 and 2011 2
   
 Consolidated Statements of Comprehensive Income, Three and Six Months ended June 30, 2012 and 2011 3
   
 Consolidated Statements of Changes in Stockholders' Equity, Three and Six Months ended June 30, 2012 and 2011 4
   
 Consolidated Statements of Cash Flows, Six Months ended June 30, 2012 and 2011 5
   
 Notes to Consolidated Financial Statements 6-20
   
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations 21-33
   
Item 3. Quantitative and Qualitative Disclosures About Market Risk  33
   
Item 4. Controls and Procedures 33
   
PART II. Other Information 34
   
SIGNATURES 35
   
EXHIBITS  
31.1 Rule 13a-14(a)/15d-14(a) Certification of Chief Executive Officer
31.2 Rule 13a-14(a)/15d-14(a) Certification of Chief Financial Officer
32.1 Section 1350 Certifications
101 XBRL Interactive Data File  

 

 
 

 

NorthWest Indiana Bancorp
Consolidated Balance Sheets
             

   June 30,     
   2012   December 31, 
(Dollars in thousands)  (unaudited)   2011 
           
ASSETS          
           
Cash and non-interest bearing balances in financial institutions  $14,283   $9,875 
Interest bearing balances in financial institutions   474    10,676 
Federal funds sold   4,658    5,816 
Total cash and cash equivalents   19,415    26,367 
           
Securities available-for-sale   192,705    186,962 
Loans receivable   431,356    401,401 
Less: allowance for loan losses   (8,044)   (8,005)
Net loans receivable   423,312    393,396 
Federal Home Loan Bank stock   3,086    3,086 
Accrued interest receivable   2,547    2,554 
Premises and equipment   17,860    18,242 
Foreclosed real estate   2,245    2,457 
Cash value of bank owned life insurance   13,043    12,850 
Prepaid FDIC insurance premium   1,252    1,523 
Other assets   4,616    4,321 
           
Total assets  $680,081   $651,758 
           
LIABILITIES AND STOCKHOLDERS' EQUITY          
           
Deposits:          
Non-interest bearing  $59,710   $55,577 
Interest bearing   487,790    471,304 
Total   547,500    526,881 
Repurchase agreements   21,010    15,395 
Borrowed funds   38,054    36,618 
Accrued expenses and other liabilities   8,596    9,904 
           
Total liabilities   615,160    588,798 
           
Stockholders' Equity:          
Preferred stock, no par or stated value;          
10,000,000 shares authorized, none outstanding   -    - 
Common stock, no par or stated value; 10,000,000 shares authorized;          
shares issued:  June 30, 2012 - 2,888,902   361    361 
December 31, 2011 - 2,888,902          
shares outstanding:  June 30, 2012 - 2,839,224          
December 31, 2011 - 2,835,403          
Additional paid in capital   5,181    5,173 
Accumulated other comprehensive income   2,416    2,536 
Retained earnings   58,026    56,032 
Treasury stock, common shares at cost:  June 30, 2012 - 49,678          
December 31, 2011 - 53,499   (1,063)   (1,142)
           
Total stockholders' equity   64,921    62,960 
           
Total liabilities and stockholders' equity  $680,081   $651,758 

 

See accompanying notes to consolidated financial statements.

 

1
 

 

NorthWest Indiana Bancorp
Consolidated Statements of Income
(unaudited)

 

   Three Months Ended   Six Months Ended 
(Dollars in thousands, except per share data)  June 30,   June 30, 
   2012   2011   2012   2011 
Interest income:                    
Loans receivable                    
Real estate loans  $4,276   $4,317   $8,526   $8,703 
Commercial loans   876    874    1,726    1,833 
Consumer loans   9    11    18    25 
Total loan interest   5,161    5,202    10,270    10,561 
                     
Securities   1,386    1,581    2,772    3,101 
Other interest earning assets   7    5    11    12 
                     
Total interest income   6,554    6,788    13,053    13,674 
                     
Interest expense:                    
Deposits   410    674    854    1,385 
Repurchase agreements   21    29    41    57 
Borrowed funds   183    153    364    327 
                     
Total interest expense   614    856    1,259    1,769 
                     
Net interest income   5,940    5,932    11,794    11,905 
Provision for loan losses   550    955    1,075    2,065 
                     
Net interest income after provision for loan losses   5,390    4,977    10,719    9,840 
                     
Noninterest income:                    
Fees and service charges   610    637    1,248    1,221 
Wealth management operations   314    310    646    584 
Gain on sale of securities, net   251    237    617    500 
Gain on sale of loans held-for-sale, net   272    29    347    110 
Increase in cash value of bank owned life insurance   97    101    194    202 
(Loss)/Gain on foreclosed real estate, net   (120)   728    (84)   788 
Other-than-temporary credit impairment of debt securities   (6)   -    (6)   - 
Noncredit portion of other-than-tmporary                    
impairment of debt securities recognized in other comprehensive income   -    -    -    - 
Other   5    8    58    28 
                     
Total noninterest income   1,423    2,050    3,020    3,433 
                     
Noninterest expense:                    
Compensation and benefits   2,507    2,546    5,132    4,911 
Occupancy and equipment   763    844    1,582    1,691 
Data processing   277    249    548    501 
Federal deposit insurance premiums   147    265    291    596 
Marketing   83    75    158    216 
Other   928    957    2,216    1,922 
                     
Total noninterest expense   4,705    4,936    9,927    9,837 
                     
Income before income tax expenses   2,108    2,091    3,812    3,436 
Income tax expenses   488    412    838    585 
                     
Net income  $1,620   $1,679   $2,974   $2,851 
                     
Earnings per common share:                    
Basic  $0.57   $0.59   $1.05   $1.01 
Diluted  $0.57   $0.59   $1.05   $1.01 
                     
Dividends declared per common share  $0.19   $0.15   $0.34   $0.30 

 

See accompanying notes to consolidated financial statements.      

 

2
 

 

NorthWest Indiana Bancorp
Consolidated Statements of Comprehensive Income
(unaudited)

 

   Three Months Ended   Six Months Ended 
(Dollars in thousands)  June 30,   June 30, 
   2012   2011   2012   2011 
                 
Net income  $1,620   $1,679   $2,974   $2,851 
                     
Net change in net unrealized gains and losses:                    
on securities available-for-sale:                    
Unrealized gains arising during the period   318    1,118    428    2,015 
Less: reclassification adjustment for gains included in net income   (245)   (237)   (611)   (500)
Net securities (loss)/gain during the period   73    881    (183)   1,515 
Tax effect   (23)   (305)   66    (523)
Net of tax amount   50    576    (117)   992 
                     
Net change in unrecognized gain on postretirement benefit:                    
Net loss on post retirement benefit   -    -    -    - 
Amortization of net actuarial gain   (1)   (2)   (3)   (4)
Net loss during the period   (1)   (2)   (3)   (4)
Tax effect   -    -    -    - 
Net of tax amount   (1)   (2)   (3)   (4)
Other comprehensive (loss)/income, net of tax   49    574    (120)   988 
                     
Comprehensive income, net of tax  $1,669   $2,253   $2,854   $3,839 

 

See accompanying notes to consolidated financial statements.

 

3
 

 

NorthWest Indiana Bancorp
Consolidated Statements of Changes in Stockholders' Equity
(unaudited)

 

   Three Months Ended   Six Months Ended 
(Dollars in thousands)  June 30,   June 30, 
   2012   2011   2012   2011 
                 
Balance at beginning of period  $63,755   $57,291   $62,960   $56,089 
                     
Comprehensive income:                    
Net income   1,620    1,679    2,974    2,851 
Net unrealized change on securities                    
available-for-sale, net of reclassifications and tax effects   50    576    (117)   992 
Amortization of unrecognized gain on postretirement benefit   (1)   (2)   (3)   (4)
Comprehensive income   1,669    2,253    2,854    3,839 
                     
Stock based compensation expense   4    9    8    18 
                     
Sale of treasury stock   32    30    63    61 
                     
Cash dividends   (539)   (425)   (964)   (849)
                     
Balance at end of period  $64,921   $59,158   $64,921   $59,158 

 

See accompanying notes to consolidated financial statements.              

 

4
 

 

NorthWest Indiana Bancorp
Consolidated Statements of Cash Flows
(unaudited)

 

   Six Months Ended 
(Dollars in thousands)  June 30, 
   2012   2011 
CASH FLOWS FROM OPERATING ACTIVITIES:          
  Net income  $2,974   $2,851 
  Adjustments to reconcile net income to          
    net cash provided by operating activities:          
      Origination of loans for sale   (5,926)   (3,866)
      Sale of loans originated for sale   6,055    4,286 
      Depreciation and amortization, net of accretion   1,173    1,076 
      Amortization of mortgage servicing rights   57    75 
      Stock based compensation expense   8    18 
      Gain on sale of securities, net   (617)   (500)
      Gain on sale of loans held-for-sale, net   (347)   (110)
      Other-than-temporary credit impairment of debt securities   6    - 
      Loss/(gain) on foreclosed real estate, net   84    (788)
      Provision for loan losses   1,075    2,065 
      Net change in:          
         Interest receivable   7    (78)
         Other assets   32    957 
         Accrued expenses and other liabilities   (1,421)   7,079 
            Total adjustments   186    10,214 
            Net cash - operating activities   3,160    13,065 
           
CASH FLOWS FROM INVESTING ACTIVITIES:          
  Proceeds from maturities and pay downs of securities available-for-sale   30,137    18,679 
  Proceeds from sales of securities available-for-sale   13,283    10,267 
  Purchases of securities available-for-sale   (49,198)   (47,154)
  Proceeds from maturities and pay downs of securities held-to-maturity   -    960 
  Proceeds from sale of loans receivable transferred to loans held-for-sale   3,591    - 
  Proceeds from sale of Federal Home Loan Bank Stock   -    296 
  Loan participations purchased   (9,393)   - 
  Net change in loans receivable   (25,707)   9,789 
  Proceeds from sales of foreclosed real estate   809    2,146 
  Purchase of premises and equipment, net   (323)   (114)
  Cash value of bank owned life insurance   (194)   (202)
     Net cash - investing activities   (36,995)   (5,333)
           
CASH FLOWS FROM FINANCING ACTIVITIES:          
  Net change in deposits   20,619    (2,023)
  Proceeds from  FHLB advances   2,000    3,000 
  Repayment of FHLB advances   (2,000)   (3,000)
  Change in other borrowed funds   7,051    2,106 
  Proceeds from sale of treasury stock   63    61 
  Dividends paid   (850)   (849)
     Net cash - financing activities   26,883    (705)
     Net change in cash and cash equivalents   (6,952)   7,027 
  Cash and cash equivalents at beginning of period   26,367    10,938 
  Cash and cash equivalents at end of period  $19,415   $17,965 
           
SUPPLEMENTAL CASH FLOW INFORMATION:          
  Cash paid during the period for:          
     Interest  $1,261   $1,784 
     Income taxes   1,263    738 
SUPPLEMENTAL NONCASH INFORMATION:          
  Transfers from loans to foreclosed real estate  $930   $120 
  Transfers from loans receivable to loans held-for-sale   3,428    - 

 

 

See accompanying notes to consolidated financial statements.            

 

5
 

NorthWest Indiana Bancorp

 

Notes to Consolidated Financial Statements

 

Note 1 - Basis of Presentation

 

The consolidated financial statements include the accounts of NorthWest Indiana Bancorp (the “Bancorp”), its wholly-owned subsidiary, Peoples Bank SB (the “Bank”), and the Bank’s wholly-owned subsidiaries, Peoples Service Corporation, NWIN, LLC, NWIN Funding, Inc, and Columbia Development Company, LLC. The Bancorp has no other business activity other than being a holding company for the Bank. The Bancorp’s earnings are dependent upon the earnings of the Bank. The accompanying unaudited consolidated financial statements were prepared in accordance with instructions for Form 10-Q and, therefore, do not include all disclosures required by U.S. generally accepted accounting principles for complete presentation of consolidated financial statements. In the opinion of management, the consolidated financial statements contain all adjustments necessary to present fairly the consolidated balance sheets of the Bancorp as of June 30, 2012 and December 31, 2011, and the consolidated statements of income, comprehensive income, and changes in stockholders’ equity, for the three and six months ended June 30, 2012 and 2011, and consolidated statements of cash flows for the six months ended June 30, 2012 and 2011. The income reported for the six month period ended June 30, 2012 is not necessarily indicative of the results to be expected for the full year.

 

Note 2 - Use of Estimates

 

Preparing financial statements in conformity with U.S. generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities and disclosure of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenue and expenses during the reporting period, as well as the disclosures provided. Actual results could differ from those estimates. Estimates associated with the allowance for loan losses, fair values of foreclosed real estate, loan servicing rights, investment securities, deferred tax assets, and the status of contingencies are particularly susceptible to material change in the near term.

 

Note 3 - Securities

 

The fair value of available-for-sale securities and the related gross unrealized gains and losses recognized in accumulated other comprehensive income (loss) were as follows:

 

   (Dollars in thousands) 
        Gross   Gross   Estimated 
   Cost   Unrealized   Unrealized   Fair 
   Basis   Gains   Losses   Value 
June 30, 2012                    
U.S. government sponsored entities  $15,850   $91   $(1)  $15,940 
Collateralized mortgage obligations and                    
residential mortgage-backed securities   113,097    3,727    (19)   116,805 
Municipal securities   54,903    3,834    (24)   58,713 
Collateralized debt obligations   5,207    -    (3,960)   1,247 
Total securities available-for-sale  $189,057   $7,652   $(4,004)  $192,705 
                     
December 31, 2011                    
U.S. government sponsored entities  $15,610   $41   $(3)  $15,648 
Collateralized mortgage obligations and                    
residential mortgage-backed securities   107,569    3,630    (2)   111,197 
Municipal securities   54,738    4,018    -    58,756 
Collateralized debt obligations   5,214    -    (3,853)   1,361 
Total securities available-for-sale  $183,131   $7,689   $(3,858)  $186,962 

 

6
 

 

The fair value of available-for-sale debt securities and carrying amount, if different, at June 30, 2012 by contractual maturity, were as follows. Securities not due at a single maturity date, primarily mortgage-backed securities, are shown separately.

 

   (Dollars in thousands) 
   Available-for-sale 
   Estimated      
   Fair   Tax-Equivalent 
June 30, 2012  Value   Yield (%) 
Due in one year or less  $987    5.93 
Due from one to five years   9,272    3.75 
Due from five to ten years   35,848    4.14 
Due over ten years   29,793    5.69 
Collateralized mortgage obligations and          
residential mortgage-backed securities   116,805    3.05 
Total  $192,705    3.71 

  

Sales of available-for-sale securities were as follows:

 

   (Dollars in thousands) 
   June 30,   June 30, 
   2012   2011 
         
Proceeds  $13,283   $10,267 
Gross gains   617    509 
Gross losses   -    (9)

 

Accumulated other comprehensive income/(loss) balances, net of tax, related to available-for-sale securities, were as follows:

 

    (Dollars in thousands) 
    Unrealized
gain/(loss)
 
 Beginning balance, December 31, 2011   $2,476 
 Current period change    (117)
 Ending balance, June 30, 2012   $2,359 

 

Securities with carrying values of approximately $33,858,000 and $70,412,000 were pledged as of June 30, 2012 and December 31, 2011, respectively, as collateral for repurchase agreements, public funds, and for other purposes as permitted or required by law. At June 30, 2012, the Bancorp was no longer required to pledge securities for public funds on deposit.

 

7
 

 

Securities with unrealized losses at June 30, 2012 and December 31, 2011 not recognized in income are as follows:

 

   (Dollars in thousands) 
   Less than 12 months   12 months or longer   Total 
   Estimated        Estimated        Estimated      
   Fair   Unrealized   Fair   Unrealized   Fair   Unrealized 
   Value   Losses   Value   Losses   Value   Losses 
June 30, 2012                              
U.S. government sponsored entities  $998   $(1)  $-   $-   $998   $(1)
Collateralized mortgage obligations and                              
residential mortgage-backed securities   2,138    (19)   -    -    2,138    (19)
Municipal securities   2,415    (24)   -    -    2,415    (24)
Collateralized debt obligations   -    -    1,247    (3,960)   1,247    (3,960)
Total temporarily impaired  $5,551   $(44)  $1,247   $(3,960)  $6,798   $(4,004)
Number of securities        14         4         18 

 

 

   (Dollars in thousands) 
   Less than 12 months   12 months or longer   Total 
   Estimated        Estimated         Estimated      
   Fair   Unrealized   Fair   Unrealized   Fair   Unrealized 
   Value   Losses   Value   Losses   Value   Losses 
December 31, 2011                              
U.S. government sponsored entities  $1,287   $(3)  $-   $-   $1,287   $(3)
Collateralized mortgage obligations and                              
residential mortgage-backed securities   2,030    (2)   -    -    2,030    (2)
Municipal securities   -    -    -    -    -    - 
Collateralized debt obligations   -    -    1,361    (3,853)   1,361    (3,853)
Total temporarily impaired  $3,317   $(5)  $1,361   $(3,853)  $4,678   $(3,858)
Number of securities        2         4         6 

 

Unrealized losses on securities have not been recognized into income because the securities are of high credit quality or have undisrupted cash flows. Management has the intent and ability to hold those securities for the foreseeable future, and the decline in fair value is largely due to changes in interest rates and volatility in securities markets. The fair value is expected to recover as the securities approach maturity.

 

Note 4 - Loans Receivable

 

   (Dollars in thousands) 
   June 30, 2012   December 31, 2011 
Loans secured by real estate:          
Construction and land development  $20,618   $21,143 
Residential, including home equity   156,783    154,426 
Commercial real estate and other dwelling   177,465    153,715 
Total loans secured by real estate   354,866    329,284 
Consumer loans   482    472 
Commercial business   68,688    63,384 
Government and other   7,661    8,643 
Subtotal   431,697    401,783 
Less:          
Net deferred loan origination fees   (282)   (264)
Undisbursed loan funds   (59)   (118)
Loans receivable  $431,356   $401,401 

 

8
 

 

(Dollars in thousands)  Residential Real Estate, Including Home Equity   Consumer Loans   Commercial Real Estate, Construction & Land Development, and Other Dwellings   Commercial Participations Purchased   Commercial Business Loans   Government   Total 
                             
The Bancorp's activity in the allowance for loan losses is summarized below for the six months ended June 30, 2012:
                             
Allowance for loan losses:                                   
Beginning Balance  $1,161   $15   $3,329   $2,399   $1,101   $-   $8,005 
Charge-offs   (205)   (9)   (381)   (484)   -    -    (1,079)
Recoveries   -    4    9    -    30    -    43 
Provisions   210    22    978    121    (256)   -    1,075 
Ending Balance  $1,166   $32   $3,935   $2,036   $875   $-   $8,044 
                                    
The Bancorp's activity in the allowance for loan losses is summarized below for the six months ended June 30, 2011:  
                                    
Allowance for loan losses:                                   
Beginning Balance  $994   $30   $2,773   $4,704   $620   $-   $9,121 
Charge-offs   (235)   (4)   (567)   (2,417)   (111)   -   $(3,334)
Recoveries   102    10    174    -    -    -   $286 
Provisions   245    (18)   682    950    206    -   $2,065 
Ending Balance  $1,106   $18   $3,062   $3,237   $715   $-   $8,138 
                                    
The Bancorp's allowance for loan losses impairment evaluation at June 30, 2012:  
                                    
Ending balance: individually                                   
evaluated for impairment  $14   $-   $1,144   $-   $136   $-   $1,294 
                                    
Ending balance: collectively                                   
evaluated for impairment  $1,152   $32   $2,791   $2,036   $739   $-   $6,750 
                                    
Ending balance: loans acquired                                   
with deteriorated credit quality  $-   $-   $-   $-   $-   $-   $- 
                                    
FINANCING RECEIVABLES                                   
Ending balance  $156,470   $481   $169,749   $28,334   $68,661   $7,661   $431,356 
                                    
Ending balance: individually                                   
evaluated for impairment  $935   $-   $10,990   $6,632   $1,734   $-   $20,291 
                                    
Ending balance: collectively                                   
evaluated for impairment  $155,535   $481   $158,759   $21,702   $66,927   $7,661   $411,065 
                                    
The Bancorp's allowance for loan losses impairment evaluation at December 31, 2011:  
                                    
Ending balance: individually                                   
evaluated for impairment  $10   $-   $1,043   $252   $304   $-   $1,609 
                                    
Ending balance: collectively                                   
evaluated for impairment  $1,151   $15   $2,286   $2,147   $797   $-   $6,396 
                                    
Ending balance: loans acquired                                   
with deteriorated credit quality  $-   $-   $-   $-   $-   $-   $- 
                                    
FINANCING RECEIVABLES                                   
Ending balance  $154,135   $472   $154,618   $20,240   $63,293   $8,643   $401,401 
                                    
Ending balance: individually                                   
evaluated for impairment  $1,282   $-   $11,007   $7,170   $2,214   $-   $21,673 
                                    
Ending balance: collectively                                   
evaluated for impairment  $152,853   $472   $143,611   $13,070   $61,079   $8,643   $379,728 

 

9
 

 

The Bancorp's credit quality indicators, are summarized below at June 30, 2012 and December 31, 2011:

 

   (Dollars in thousands)  
    Corporate Credit Exposure - Credit Risk Portfolio By Creditworthiness Category 
    Commercial Real Estate, Construction
& Land Development, and Other Dwellings
   Commercial Participations Purchased    Commercial Business Loans    Government  
Loan Grades  2012   2011   2012   2011   2012   2011   2012   2011 
2   Moderate risk  $22   $25   $-   $-   $6,051   $4,467   $-   $- 
3   Acceptable risk   104,445    85,703    11,809    2,387    42,141    37,713    7,661    8,643 
4   Pass/monitor   50,835    51,429    3,400    5,903    17,011    17,532    -    - 
5   Special mention (watch)   3,348    5,509    6,493    4,780    1,371    978    -    - 
6   Substandard   11,099    11,952    6,632    7,170    2,087    2,603    -    - 
7   Doubtful   -    -    -    -    -    -    -    - 
Total  $169,749   $154,618   $28,334   $20,240   $68,661   $63,293   $7,661   $8,643 

  

    (Dollars in thousands)  
    Consumer Credit Exposure - Credit Risk Profile Based On Payment Activity  
    Residential Real Estate,
Including Home Equity
   Consumer Loans  
    2012   2011   2012   2011 
 Performing   $154,477   $151,375   $467   $472 
 Nonperforming    1,993    2,760    14    - 
 Total   $156,470   $154,135   $481   $472 

 

The Bancorp has established a standard loan grading system to assist management, lenders and review personnel in their analysis and supervision of the loan portfolio. The use and application of theses grades by the Bancorp is uniform and conforms to regulatory definitions. The loan grading system is as follows:

 

2 - Moderate risk

Borrower consistently internally generates sufficient cash flow to fund debt service, working assets, and some capital expenditures. Risk of default considered low.

 

3 – Acceptable risk

Borrower generates sufficient cash flow to fund debt service, but most working asset and all capital expansion needs are provided from external sources. Profitability ratios and key balance sheet ratios are usually close to peers but one or more ratios (e.g. leverage) may be higher than peer. Earnings may be trending down over the last three years. Borrower may be able to obtain similar financing from other banks with comparable or less favorable terms. Risk of default is acceptable but requires collateral protection.

 

4 – Pass/monitor

The borrower has significant weaknesses resulting from performance trends or management concerns. The financial condition of the company has taken a negative turn and may be temporarily strained. Cash flow may be weak but cash reserves remain adequate to meet debt service. Management weaknesses are evident. Borrowers in this category will warrant more than the normal level of supervision and more frequent reporting.

 

5 – Special mention (watch)

Special mention credits are considered bankable assets with no apparent loss of principal or interest envisioned but requiring a high level of management attention. Assets in this category are currently protected but are potentially weak. These borrowers are subject to economic, industry, or management factors having an adverse impact upon their prospects for orderly service of debt. The perceived risk in continued lending is considered to have increased beyond the level where such loans would normally be granted. These assets constitute an undue and unwarranted credit risk, but not to the point of justifying a classification of Substandard.

 

6 – Substandard

This classification consists of loans which are inadequately protected by the current sound worth and paying capacity of the obligor or of the collateral pledged. Financial statements normally reveal some or all of the following: poor trends, lack of earnings and cash flow, excessive debt, lack of liquidity, and the absence of creditor protection. Loans are still considered collectible, but due to increased risks and defined weaknesses of the credit, some loss could be incurred in collection if the deficiencies are not corrected.

 

7 – Doubtful

This classification consists of loans where the possibility of loss is high after collateral liquidation based upon existing facts, market conditions, and value. Loss is deferred until certain important and reasonably specific pending factors which may strengthen the credit can be exactly determined. These factors may include proposed acquisitions, liquidation procedures, capital injection and receipt of additional collateral, mergers or refinancing plans.

  

Performing loans are loans that are paying as agreed and are less than ninety days past due on payments of interest and principal.

 

10
 

 

The Bancorp's cumulative outstanding troubled debt restructurings are summarized below:

 

   (Dollars in thousands) 
   Number of Contracts   Pre-Modification Outstanding Recorded Investment   Post-Modification Outstanding Recorded Investment   Number of Contracts   Pre-Modification Outstanding Recorded Investment   Post-Modification Outstanding Recorded Investment 
   June 30, 2012   December 31, 2011 
Troubled debt restructurings outstanding at                              
the end of the periods presented:                              
Residential real estate, including home equity   9   $937   $935    14   $1,290   $1,282 
Consumer loans   -    -    -    -    -    - 
Commercial real estate, construction & land                              
 development, and other dwellings   5    8,902    8,449    3    8,097    7,836 
Commercial participations purchased   2    7,975    5,544    2    7,975    5,635 
Commercial business loans   -    -    -    -    -    - 
Government   -    -    -    -    -    - 

 

   Number of Contracts   Recorded Investment   Number of Contracts   Recorded Investment 
   June 30, 2012   December 31, 2011 
Troubled debt restructurings that subsequently                    
defaulted during the periods presented:                    
Residential real estate, including home equity   -   $-    -   $- 
Consumer loans   -    -    -    - 
Commercial real estate, construction & land                    
 development, and other dwellings   -    -    1    376 
Commercial participations purchased   -    -    -    - 
Commercial business loans   -    -    -    - 
Government   -    -    -    - 

 

Troubled debt restructurings that subsequently defaulted during the period are loans that were restructured and, subsequent to restructuring, were unable perform within the guidelines of the restructured note. Troubled debt restructurings that subsequently defaulted are presented for comparison purposes and are relevant only to the period in which the subsequent default occurred.

11
 

 

The Bancorp's individually evaluated impaired loans are summarized below:          

 

   As of June 30, 2012   For the six months ended
June 30, 2012
 
(Dollars in thousands)  Recorded Investment   Unpaid Principal Balance   Related Allowance   Average Recorded Investment   Interest Income Recognized 
With no related allowance recorded:                         
                          
Residential real estate, including home equity  $-   $-   $-   $-   $- 
Commercial real estate, construction & land                         
 development, and other dwellings   1,095    1,221    -    708    5 
Commercial participations purchased   6,632    12,792    -    3,501    90 
Commercial business loans   1,039    1,164    -    645    31 
With an allowance recorded:                         
Residential real estate, including home equity   935    1,213    14    596    6 
Commercial real estate, construction & land                         
 development, and other dwellings   9,895    9,914    1,144    9,817    356 
Commercial participations purchased   -    -    -    5,406    - 
Commercial business loans   695    696    136    1,103    28 
Total:                         
Residential real estate, including home equity  $935   $1,213   $14   $596   $6 
Commercial real estate, construction & land                         
 development, and other dwellings  $10,990   $11,135   $1,144   $10,525   $361 
Commercial participations purchased  $6,632   $12,792   $-   $8,907   $90 
Commercial business loans  $1,734   $1,860   $136   $1,748   $59 

 

   As of December 31, 2011   For the six months ended
June 30, 2011
 
(Dollars in thousands)  Recorded investment   Unpaid principal balance   Related allowance   Average Recorded Investment   Interest Income Recognized 
With no related allowance recorded:                         
                          
Residential real estate, including home equity  $-   $-   $-   $-   $- 
Commercial real estate, construction & land                         
 development, and other dwellings   690    880    -    746    12 
Commercial participations purchased   2,483    8,158    -    3,473    128 
Commercial business loans   793    818    -    177    - 
With an allowance recorded:                         
Residential real estate, including home equity   1,282    1,282    10    -    - 
Commercial real estate, construction & land                         
 development, and other dwellings   10,317    12,662    1,043    9,685    358 
Commercial participations purchased   4,687    4,687    252    9,718    216 
Commercial business loans   1,421    1,421    304    260    9 
Total:                         
Residential real estate, including home equity  $1,282   $1,282   $10   $-   $- 
Commercial real estate, construction & land                         
 development, and other dwellings  $11,007   $13,542   $1,043   $10,431   $370 
Commercial participations purchased  $7,170   $12,845   $252   $13,191   $344 
Commercial business loans  $2,214   $2,239   $304   $437   $9 

 

 

12
 

 

The Bancorp's age analysis of past due financing receivables is summarized below:

 

(Dollars in thousands)
   30-59 Days Past Due   60-89 Days Past Due   Greater Than 90 Days Past Due   Total Past Due