PINX:FGBI First Guaranty Bancshares Inc Quarterly Report 10-Q Filing - 6/30/2012

Effective Date 6/30/2012

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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
 
Form 10-Q
 
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
 
For the Quarter Ended June 30, 2012
 
Commission File Number 000-52748
 

FIRST GUARANTY BANCSHARES, INC.
(Exact name of registrant as specified in its charter)
 
 
 
Louisiana
26-0513559
(State or other jurisdiction incorporation or organization)
(I.R.S. Employer Identification Number)
   
400 East Thomas Street
 
Hammond, Louisiana
70401
(Address of principal executive office)
(Zip Code)
   
(985) 345-7685
(Telephone number, including area code)
 
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 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, or a non-accelerated filer. See definition of “accelerated filer and large accelerated filer” in Rule 12b-2 of the Exchange Act. (Check one):
 
Large accelerated filer o Accelerated filer o   Non-accelerated filer o   Smaller reporting company x
 
 
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
 
As of August 10, 2012 the registrant had 6,293,067 shares of $1 par value common stock outstanding.
 
 

 
Table of Contents
     
   
Page
Part I.
Financial Information
 
     
Item1.
3
     
 
3
     
 
4
     
 
5
     
 
6
     
 
7
     
Item 2.
22
     
Item 3. 33
     
Item 4. 35
     
Part II.
Other Information
35
     
Item 1. 35
     
Item 1A. 35
     
Item 2. 35
   
Signatures
36
 
2

PART I.   FINANCIAL INFORMATION
 
Item 1.   Consolidated Financial
FIRST GUARANTY BANCSHARES, INC. AND SUBSIDIARY
 
CONSOLIDATED BALANCE SHEETS (unaudited)
 
   
(in thousands, except share data)
June 30, 2012
 
December 31, 2011
 
Assets
       
Cash and cash equivalents:
       
  Cash and due from banks
$
42,802
 
$
43,810
 
  Interest-earning demand deposits with banks
 
21
   
2
 
  Federal funds sold
 
1,925
   
68,630
 
Cash and cash equivalents
 
44,748
 
 
112,442
 
             
Interest-earning time deposits with banks
 
747
   
-
 
             
Investment securities:
           
  Available for sale, at fair value
 
627,366
 
 
520,497
 
  Held to maturity, at cost (estimated fair value of $33,333 and $113,197, respectively)
 
32,983
   
112,666
 
Investment securities
 
660,349
 
 
633,163
 
             
Federal Home Loan Bank stock, at cost
 
1,087
 
 
643
 
Loans held for sale
 
441
   
-
 
             
Loans, net of unearned income
 
596,570
 
 
573,100
 
Less: allowance for loan losses
 
9,141
   
8,879
 
Net loans
 
587,429
 
 
564,221
 
             
Premises and equipment, net
 
19,694
 
 
19,921
 
Goodwill
 
1,999
   
1,999
 
Intangible assets, net
 
2,608
   
2,811
 
Other real estate, net
 
6,851
   
5,709
 
Accrued interest receivable
 
7,724
   
8,128
 
Other assets
 
30,451
   
 4,829
 
Total Assets
$
1,364,128
 
$
1,353,866
 
             
Liabilities and Stockholders' Equity
           
Deposits:
           
  Noninterest-bearing demand
$
170,665
 
$
167,925
 
  Interest-bearing demand
 
300,527
   
289,408
 
  Savings
 
59,157
   
57,452
 
  Time
 
675,397
   
692,517
 
Total deposits
 
1,205,746
 
 
1,207,302
 
             
Short-term borrowings
 
19,405
 
 
12,223
 
Accrued interest payable
 
3,409
   
3,509
 
Long-term borrowing
 
1,400
   
3,200
 
Other liabilities
 
2,749
   
1,030
 
Total Liabilities
 
1,232,709
 
 
1,227,264
 
             
Stockholders' Equity
           
Preferred stock:
           
Series C - $1,000 par value - authorized 39,435 shares; issued and outstanding 39,435
 
39,435
   
39,435
 
Common stock: ¹
           
$1 par value - authorized 100,600,000 shares; issued 6,294,227
 
6,294
   
6,294
 
Surplus
 
39,387
   
39,387
 
Treasury Stock, at cost, 1,160 and 0 shares, respectively
 
(21
)
 
-
 
Retained earnings
 
40,026
   
37,019
 
Accumulated other comprehensive income
 
6,298
   
4,467
 
Total Stockholders' Equity
 
131,419
 
 
126,602
 
Total Liabilities and Stockholders' Equity
$
1,364,128
 
$
1,353,866
 
See Notes to the Consolidated Financial Statements.
           
¹2011 share amounts have been restated to reflect the ten percent stock dividend paid February 24, 2012 to stockholders of record as of February 17, 2012.
 
3

 
FIRST GUARANTY BANCSHARES, INC. AND SUBSIDIARY
 
CONSOLIDATED STATEMENTS OF INCOME (unaudited)
 
   
 
Six Months Ended June 30,
 
Three Months Ended June 30,
 
(in thousands, except share data)
2012
 
2011
 
2012
 
2011
 
Interest Income:
       
  Loans (including fees)
$
17,634
 
$
16,701
 
$
8,862
 
$
8,240
 
  Loans held for sale
 
1
   
5
   
-
   
4
 
  Deposits with other banks
 
36
   
23
   
21
   
13
 
  Securities (including FHLB stock)
 
10,938
   
9,797
   
5,308
   
5,035
 
  Federal funds sold
 
7
   
9
   
4
   
4
 
Total Interest Income
 
28,616
 
 
26,535
 
 
14,195
 
 
13,296
 
                         
Interest Expense:
                       
  Demand deposits
 
700
 
 
405
   
357
 
 
179
 
  Savings deposits
 
27
   
22
   
13
   
11
 
  Time deposits
 
6,123
   
 7,030
   
2,950
   
3,524
 
  Borrowings
 
73
   
14
   
34
   
7
 
Total Interest Expense
 
6,923
 
 
7,471
 
 
3,354
 
 
3,721
 
                         
Net Interest Income
 
21,693
 
 
19,064
 
 
10,841
 
 
9,575
 
Less: Provision for loan losses
 
2,104
   
3,351
   
904
   
2,887
 
Net Interest Income after Provision for Loan Losses
 
19,589
 
 
15,713
 
 
9,937
 
 
6,688
 
                         
Noninterest Income:
                       
  Service charges, commissions and fees
 
2,385
 
 
2,117
   
1,196
 
 
1,107
 
  Net gains on securities
 
1,483
   
2,217
   
755
   
2,176
 
  Loss on securities impairment
 
-
   
(97
)
 
-
   
-
 
  Net gain (loss) on sale of loans
 
(27
 
95
   
1
   
48
 
  Other
 
810
   
638
   
437
   
350
 
Total Noninterest Income
 
4,651
 
 
4,970
   
2,389
 
 
3,681
 
                         
Noninterest Expense:
                       
  Salaries and employee benefits
 
6,731
 
 
5,983
 
 
3,361
 
 
2,948
 
  Occupancy and equipment expense
 
1,855
   
1,610
   
935
   
797
 
  Other
 
6,541
   
5,730
   
3,581
   
2,943
 
Total Noninterest Expense
 
15,127
 
 
13,323
 
 
7,877
 
 
6,688
 
                         
Income Before Income Taxes
 
9,113
 
 
7,360
 
 
4,449
 
 
3,681
 
Less: Provision for income taxes
 
3,098
   
2,571
   
1,486
   
1,287
 
Net Income
 
6,015
 
 
4,789
 
 
2,963
 
 
2,394
 
Preferred Stock Dividends
 
(986
)
 
(666
 
(502
)
 
(333
)
Income Available to Common Shareholders
$
5,029
 
$
4,123
 
$
2,461
 
$
2,061
 
                         
Per Common Share:1
                       
Earnings
$
0.80
 
$
0.67
 
$
0.39
 
$
0.34
 
Cash dividends paid
$
0.32
 
$
0.29
 
$
0.16
 
$
0.15
 
                         
Average Common Shares Outstanding1
 
6,294,004
   
6,115,608
   
6,293,436
   
6,115,608
 
See Notes to Consolidated Financial Statements
                       
12011 share amounts have been restated to reflect the ten percent stock dividend paid February 24, 2012 to stockholders of record as of February 17, 2012.
 
4

 
FIRST GUARANTY BANCSHARES, INC. AND SUBSIDIARY
 
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY (unaudited)
 
   
 
Series A
 
Series B
  Series C                  
Accumulated
     
 
Preferred
 
Preferred
  Preferred  
Common
             
Other
     
 
Stock
 
Stock
  Stock  
Stock
     
Treasury
 
Retained
 
Comprehensive
     
(in thousands, except per share data)
$1,000 Par
 
$1,000 Par
  $1,000 Par  
$1 Par
 
Surplus
 
Stock
 
Earnings
 
Income/(Loss)
 
 Total
 
Balance December 31, 2010
$
19,859
 
$
1,116
 
$
-
 
$
6,116
 
$
36,240
 
$
-
 
$
34,866
 
$
(259
)
$
97,938
 
Net income
 
-
   
-
   
-
   
-
   
-
   
-
   
4,789
   
-
   
4,789
 
Change in unrealized loss on AFS securities, net of reclassification adjustments and taxes
 
-
   
-
   
-
   
-
   
-
   
-
   
-
   
744
   
744
 
Comprehensive Income
                                                 
5,533
 
Cash dividends on common stock ($0.29 per share) 
 
-
   
-
   
-
   
-
   
-
   
-
   
(1,779
)
 
-
   
(1,779
)
Preferred stock dividend, amortization and accretion
 
113
   
(11
)
 
-
   
-
   
-
   
-
   
(666
)
 
-
   
(564
)
Balance June 30, 2011 (unaudited)
$
19,972
 
$
1,105
 
$
-
 
$
6,116
 
$
36,240
 
$
-
 
$
37,210
 
$
485
 
$
101,128
 
                                                       
Balance December 31, 2011
$
-
 
$
-
 
$
39,435
 
$
6,294
 
$
39,387
 
$
-
 
$
37,019
 
$
4,467
 
 $
126,602
 
Net Income
 
-
   
-
   
-
   
-
   
-
   
-
   
6,015
   
-
   
6,015
 
Change in unrealized loss on AFS securities, net of reclassification adjustments and taxes
 
-
   
-
   
-
   
-
   
-
   
-
   
-
   
1,831
   
1,831
 
Comprehensive Income
                                                 
7,846
 
Cash dividends on common stock ($0.32 per share)
 
-
   
-
   
-
   
-
   
-
   
-
   
  (2,022
)
 
-
   
(2,022
)
Treasury shares purchased, at cost, 1,160 shares
 
-
   
-
   
-
   
-
   
-
   
(21
)
 
-
   
-
   
(21
)
Preferred stock dividend
 
-
   
-
   
-
   
-
   
-
   
-
   
  (986
)
 
-
   
(986
)
Balance June 30, 2012 (unaudited)
$
-
 
$
-
 
$
39,435
 
$
6,294
 
$
39,387
 
$
(21
)
$
40,026
 
$
6,298
 
 $
131,419
 
See Notes to Consolidated Financial Statements
 
5

 
CONSOLIDATED STATEMENTS OF CASH FLOWS (unaudited)
     
 
Six months ended June 30,
 
(in thousands)
2012
 
2011
 
Cash Flows From Operating Activities
       
Net income
$
6,015
 
$
4,789
 
Adjustments to reconcile net income to net cash provided by operating activities:
           
Provision for loan losses
 
2,104
   
3,351
 
Depreciation and amortization
 
1,035
   
738
 
Amortization/Accretion of investments
 
864
   
390
 
Gain on calls and sales of securities
 
(1,483
)
 
(2,217
)
Loss on sale of assets
 
59
   
-
 
Other than temporary impairment charge on securities
 
-
   
97
 
ORE write-downs and losses on disposition, net of gains
 
549
   
112
 
FHLB stock dividends
 
(1
)
 
(2
)
Net increase in loans held for sale
 
(441
)
 
(343
)
Change in other assets and liabilities, net
 
403
   
(7,101
)
Net Cash Provided By Operating Activities
 
9,104
 
 
(186
)
             
Cash Flows From Investing Activities
           
Net increase in called bonds receivable
 
(25,000
)
 
-
 
Funds invested in certificates of deposit
 
(747
)
 
-
 
Proceeds from maturities and calls of HTM securities
 
120,640
   
19,945
 
Proceeds from maturities, calls and sales of AFS securities
 
311,243
   
58,180
 
Funds invested in HTM securities
 
(40,901
 
(95,913
)
Funds Invested in AFS securities
 
(414,776
)
 
(41,515
)
Proceeds from sale/redemption of Federal Home Loan Bank stock
 
1,244
   
1,028
 
Funds invested in Federal Home Loan Bank stock
 
(1,687
)
 
(1,081
)
Net (increase) decrease in loans
 
(28,640
)
 
22,355
 
Purchase of premises and equipment
 
(831
 
(1,202
)
Proceeds from sales of premises and equipment
 
223
   
-
 
Proceeds from sales of other real estate owned
 
1,637
   
183
 
Net Cash Used In Investing Activities
 
(77,595
 
(38,020
)
             
Cash Flows From Financing Activities
           
Net increase (decrease) in deposits
 
(1,556
)
 
38,017
 
Net increase (decrease) in federal funds purchased and short-term borrowings
 
7,182
   
(7,127
)
Proceeds from long-term borrowings
 
-
   
3,500
 
Repayment of long-term borrowings
 
(1,800
)
 
-
 
Purchase of treasury stock
 
(21
)
 
-
 
Dividends paid
 
(3,008
 
(2,343
)
Net Cash Provided By Financing Activities
 
797
 
 
32,047
 
             
Net Decrease In Cash and Cash Equivalents
 
(67,694
)
 
(6,159
)
Cash and Cash Equivalents at the Beginning of the Period
 
112,442
   
44,837
 
Cash and Cash Equivalents at the End of the Period
$
44,748
 
$
38,678
 
             
Noncash Activities:
           
Loans transferred to foreclosed assets
$
3,328
 
$
3,250
 
             
Cash Paid During The Period:
           
Interest on deposits and borrowed funds
$
7,023
 
$
7,206
 
Income taxes
$
3,400
 
$
1,550
 
See Notes to the Consolidated Financial Statements.
           
 
6

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
 
Note 1. Basis of Presentation
 
The accompanying unaudited consolidated financial statements have been prepared in accordance with generally accepted accounting principles for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by generally accepted accounting principles. The consolidated financial statements and the footnotes of First Guaranty Bancshares, Inc. (the “Company”) thereto should be read in conjunction with the audited financial statements and note disclosures for the Company previously filed with the Securities and Exchange Commission in the Company’s Annual Report filed on Form 10-K for the year ended December 31, 2011.
 
The consolidated financial statements include the accounts of First Guaranty Bancshares, Inc. and its wholly owned subsidiary First Guaranty Bank.  All significant intercompany balances and transactions have been eliminated in consolidation.
 
In the opinion of management, the accompanying unaudited consolidated financial statements contain all adjustments necessary for a fair presentation of the consolidated financial statements. Those adjustments are of a normal recurring nature. The results of operations for the three and six month periods ended June 30, 2012 and 2011 are not necessarily indicative of the results expected for the full year. The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the amounts reported in the consolidated financial statements and accompanying notes. Actual results could differ from those estimates. Material estimates that are susceptible to significant change in the near term are the allowance for loan losses, valuation of goodwill, intangible assets and other purchase accounting adjustments.
 
Note 2.  Recent Accounting Pronouncements
 
There are no recent accounting pronouncements to disclose for the first six months of 2012.
 
7

Note 3. Securities
 
A summary comparison of securities by type at June 30, 2012 and December 31, 2011 is shown below.
 
 
June 30, 2012
 
December 31, 2011
 
(in thousands)
Amortized Cost
 
Gross Unrealized Gains
 
Gross Unrealized Losses
 
Fair Value
 
Amortized Cost
 
Gross Unrealized Gains
 
Gross Unrealized Losses
 
Fair Value
 
Available for sale:
                               
U.S Government Treasuries
$
19,500
 
$
-
 
$
-
 
$
19,500
 
$
-
 
$
-
 
$
-
 
$
-
 
U.S. Government Agencies
 
402,979
   
1,095
   
(167
)
 
403,907
 
 
319,113
   
1,422
   
(328
)
 
320,207
 
Corporate debt securities
 
174,194
   
8,180
   
(511
)
 
181,863
   
171,927
   
6,250
   
(1,222
)
 
176,955
 
Mutual funds or other equity securities
 
2,564
   
43
   
-
   
2,607
   
2,773
   
38
   
-
   
2,811
 
Municipal bonds
 
18,586
   
903
   
-
   
19,489
   
19,916
   
609
   
(1
)
 
20,524
 
Total available for sale securities
$
617,823
 
$
10,221
 
$
(678
)
$
627,366
  
$
513,729
 
$
8,319
 
$
(1,551
)
$
520,497
 
                                                 
Held to maturity:
                                               
U.S. Government Agencies
$
32,983
 
$
350
 
$
(-
)
$
33,333
 
$
112,666
 
$
535
 
$
(4
)
$
113,197
 
Total held to maturity securities
$
32,983
 
$
350
 
$
(-
)
$
33,333
  
$
112,666
 
$
535
 
$
(4
)
$
113,197
 
 
The scheduled maturities of securities at June 30, 2012, by contractual maturity, are shown below. Expected maturities may differ from contractual maturities because borrowers may have the right to call or prepay obligations with or without call or prepayment penalties.
 
 
June 30, 2012
 
(in thousands)
Amortized Cost
 
Fair Value
 
Available For Sale:
       
Due in one year or less
$
39,101
 
$
39,507
 
Due after one year through five years
 
131,625
   
133,601
 
Due after five years through 10 years
 
245,175
   
250,737
 
Over 10 years
 
201,922
   
203,521
 
Total available for sale securities
$
617,823
 
$
627,366
 
             
Held to Maturity:
           
Due in one year or less
$
-
 
$
-
 
Due after one year through five years
 
4,016
   
4,034
 
Due after five years through 10 years
 
21,971
   
22,271
 
Over 10 years
 
6,996
   
7,028
 
Total held to maturity securities
$
32,983
 
$
33,333
 
 
At June 30, 2012 approximately $443.2 million in securities were pledged to secure public fund deposits, and for other purposes required or permitted by law.
 
The following is a summary of the fair value of securities with gross unrealized losses and an aging of those gross unrealized losses at June 30, 2012.
 
 
Less Than 12 Months
 
12 Months or More
 
Total
 
(in thousands)
Fair Value
 
Gross Unrealized Losses
 
Fair Value
 
Gross Unrealized Losses
 
Fair Value
 
Gross Unrealized Losses
 
Available for sale:
                       
U.S. Government Treasuries
$
19,500
 
$
-
 
$
-
 
$
-
 
$
19,500
 
$
-
 
U.S. Government agencies
 
169,616
   
(167
)
 
-
   
-
   
169,616
   
(167
)
Corporate debt securities
 
12,862
   
(176
)
 
2,325
   
(335
)
 
15,187
   
(511
)
Mutual funds or other equity securities
 
-
   
-
   
-
   
-
   
-
   
-
 
Municipals
 
-
   
-
   
-
   
-
   
-
   
-
 
Total available for sale securities
$
201,978
 
$
(343
)
$
2,325
 
$
(335
)
$
204,303
 
$
(678
)
                                     
Held to maturity:
                                   
U.S. Government agencies
$
-
 
$
(-
)
$
-
 
$
-
 
$
-
 
$
(-
)
Total held to maturity securities
$
-
 
$
(-
)
$
-
 
$
-
 
$
-
 
$
(-
)
 
8

At June 30, 2012, 88 debt securities have gross unrealized losses of $0.7 million or 0.33% of amortized cost. All securities with unrealized losses were classified as available for sale at June 30, 2012. The Company believes that it will collect all amounts contractually due and has the intent and the ability to hold these securities until the fair value is at least equal to the carrying value. The Company had 1 U.S. Treasury security, 18 U.S. Government agency securities and 62 corporate debt securities that had gross unrealized losses for less than 12 months. The Company had 7 corporate debt securities which have been in a continuous unrealized loss position for 12 months or longer. Securities with unrealized losses greater than 12 months had a total amortized cost of $2.7 million. Securities with unrealized losses less than 12 months had a total amortized cost of $202.6 million.
 
If an equity security has an impairment that is other than temporary, then an impairment loss shall be recognized in earnings equal to the entire difference between the investment's cost and its fair value at the balance sheet date of the reporting period for which the assessment is made. The fair value of the investment would then become the new amortized cost basis of the investment and is not adjusted for subsequent recoveries in fair value. For debt securities, other than temporary impairment loss is recognized in earnings if the Company is required to sell or is more likely than not to sell the security before recovery of its amortized cost. If the Company is not required to sell the security or does intend to sell the security, the other-than-temporary impairment is separated into the amount representing credit loss and the amount related to all other factors. The amount related to credit loss is recognized in earnings and the amount related to all other factors is recognized in other comprehensive income. The previous amortized cost basis less the other-than-temporary impairment recognized in earnings shall become the new amortized cost basis of the investment. Management evaluates securities for other-than-temporary impairment at least quarterly and more frequently when economic or market conditions warrant such evaluation. Consideration is given to (i) the length of time and the extent to which the fair value has been less than cost, (ii) the financial condition and near-term prospects of the issuer, (iii) the recovery of contractual principal and interest and (iv) the intent and ability of the Company to retain its investment in the issuer for a period of time sufficient to allow for any anticipated recovery in fair value. In analyzing an issuer’s financial condition, Management considers whether the securities are issued by the federal government or its agencies, whether downgrades by bond rating agencies have occurred and industry reports.
 
The number of investment securities issued by U.S. government and government agencies with unrealized losses and the amount of unrealized losses on those investment securities are primarily the result of market interest rates. At June 30, 2012 the Company had the ability and intent to hold these securities in its current portfolio until recovery, which may be until maturity.
 
The corporate debt securities consist primarily of corporate bonds issued by the following types of organizations: financial, insurance, utilities, manufacturing, industrial, consumer products and oil and gas. Also included in corporate debt securities are trust preferred capital securities, many issued by national and global financial services firms. The Company believes that the each of the issuers will be able to fulfill the obligations of these securities. At June 30, 2012 the Company had the ability and intent to hold these securities until they recover, which could be at their maturity dates.
 
The held to maturity portfolio is comprised of government sponsored enterprise securities such as FHLB, FNMA, FHLMC, and FFCB.  The securities have maturities of 15 years or less and the securities are used to collateralize public funds.  As of June 30, 2012 public funds deposits totaled $452.5 million. The Company has maintained public funds in excess of $175.0 million since December 2007.   Management believes that public funds will continue to be a significant part of the Company's deposit base and will need to be collateralized by securities in the investment portfolio. 
  
Securities with unrealized losses are currently performing according to their contractual terms. Management has the intent and ability to hold these securities for the foreseeable future. The fair value is expected to recover as the securities approach their maturity or repricing date or if market yields for such investments decline. As a result of uncertainties in the market affecting companies in the financial services industry, it is at least reasonably possible that a change in the estimate will occur in the near term.
  
The Company did not record an impairment write-down on its securities for the first six months of 2012. During the first quarter of 2011, the Company recorded an impairment write-down on securities from one issuer of $0.1 million. This write-down was partially offset by a subsequent gain on sale of the securities of $45,000 in the third quarter of 2011.
 
At June 30, 2012, the Company's exposure to investment securities issuers that exceeded 10% of stockholders’ equity was as follows:
 
 
At June 30, 2012
 
(in thousands)
Amortized Cost
 
Fair Value
 
Federal Home Loan Bank (FHLB)
$
103,921
 
$
104,192
 
Federal Home Loan Mortgage Corporation (Freddie Mac-FHLMC)
 
103,609
   
104,308
 
Federal National Mortgage Association (Fannie Mae-FNMA)
 
164,802
   
164,930
 
Federal Farm Credit Bank (FFCB)
 
63,630
   
63,810
 
U.S. Government Treasuries
 
19,500
   
19,500
 
Total
$
455,462
 
$
456,740
 
 
9

Note 4. Loans
 
The following table summarizes the components of the Company's loan portfolio as of June 30, 2012 and December 31, 2011:
 
 
June 30, 2012
 
December 31, 2011
 
(in thousands)
Balance
 
As % of Category
 
Balance
 
As % of Category
 
Real Estate:
               
  Construction & land development
$
58,209
 
9.7
%
$
78,614
 
13.7
%
  Farmland
 
10,594
 
1.8
%
 
11,577
 
2.0
%
  1- 4 Family
 
89,377
 
15.0
%
 
89,202
 
15.6
%
  Multifamily
 
16,617
 
2.8
%
 
16,914
 
2.9
%
  Non-farm non-residential
 
292,812
 
49.0
%
 
268,618
 
46.8
%
    Total Real Estate
 
467,609
 
78.3
%
 
464,925
 
81.0
%
 Non-real Estate:
                   
  Agricultural
 
25,372
 
4.2
%
 
17,338
 
3.0
%
  Commercial and industrial
 
80,571
 
13.5
%
 
68,025
 
11.9
%
  Consumer and other
 
23,999
 
4.0
%
 
23,455
 
4.1
%
    Total Non-real Estate
 
129,942
 
21.7
%
 
108,818
 
19.0
%
Total loans before unearned income
 
597,551
 
100.0
%
 
573,743
 
100.0
%
Less: Unearned income
 
(981
)
     
(643
)
   
Total loans net of unearned income
$
596,570
     
$
573,100
     
 
The following table summarizes fixed and floating rate loans by maturity and repricing frequencies as of June 30, 2012 and December 31, 2011:
 
 
June 30, 2012
 
December 31, 2011
 
(in thousands)
Fixed
 
Floating
 
Total
 
Fixed
 
Floating
 
Total
 
One year or less
$
119,019
 
$
114,685
 
$
233,704
 
$
108,276
 
$
124,052
 
$
232,328
 
One to five years
 
171,015
   
101,255
   
272,270
   
160,191
   
98,972
   
259,163
 
Five to 15 years
 
21,832
   
34,816
   
56,648
   
8,393
   
36,891
   
45,284
 
Over 15 years
 
8,599
   
6,671
   
15,270
   
8,464
   
6,054
   
14,518
 
  Total (excluding nonaccrual loans)
$
320,465
 
$
257,427
 
 
577,892
 
$
285,324
 
$
265,969
 
 
551,293
 
Nonaccrual loans
             
19,659
               
22,450
 
Total loans before unearned income
           
 
597,551
             
 
573,743
 
Less: Unearned income
             
(981
)
             
 (643
)
Total loans net of unearned income
           
$
596,570
             
$
573,100
 
 
The majority of floating rate loans have interest rate floors. As of June 30, 2012, $255.6 million of these loans were at the floor rate. Nonaccrual loans have been excluded from the calculation.
 
The following tables present the age analysis of past due loans at June 30, 2012 and December 31, 2011:
 
 
As of June 30, 2012
 
(in thousands)
30-89 Days Past Due
 
90 Days or Greater
 
Total Past Due
 
Current
 
Total Loans
 
Recorded Investment  90 Days Accruing
 
Real Estate:
                                   
  Construction & land development
$
1,252
 
$
1,519
 
$
2,771
 
$
55,438
 
$
58,209
 
$
-
 
  Farmland
 
48
   
786
   
834
   
9,760
   
10,594
   
-
 
  1 - 4 family
 
3,880
   
6,184
   
10,064
   
79,313
   
89,377
   
756
 
  Multifamily
 
-
   
592
   
592
   
16,025
   
16,617
   
-
 
  Non-farm non-residential
 
5,873
   
9,450
   
15,323
   
277,489
   
292,812
   
-
 
    Total Real Estate
 
11,053
 
 
18,531
 
 
29,584
 
 
438,025
 
 
467,609
 
 
756
 
Non-Real Estate:
                                   
  Agricultural
 
173
 
 
739
 
 
912
 
 
24,460
 
 
25,372
 
 
-
 
  Commercial and industrial
 
2,968
   
1,068
   
4,036
   
76,535
   
80,571
   
-
 
  Consumer and other
 
171
   
77
   
248
   
23,751
   
23,999
   
-
 
    Total Non-Real Estate
 
3,312
 
 
1,884
 
 
5,196
 
 
124,746
 
 
129,942
 
 
-
 
Total loans before unearned income
$
14,365
 
$
20,415
 
$
34,780
 
$
562,771
 
 
597,551
 
$
756
 
Less: unearned income
                         
(981
     
Total loans net of unearned income
                       
$
596,570
       
 
10

 
 
As of December 31, 2011
 
(in thousands)
30-89 Days Past Due
 
90 Days or Greater
 
Total Past Due
 
Current
 
Total Loans
 
Recorded Investment  90 Days Accruing
 
Real estate:
                                   
  Construction & land development
$
240
 
$
1,520
 
$,
1,760
 
$
76,854
 
$
78,614
 
$
-
 
  Farmland
 
45
   
562
   
607
   
10,970
   
11,577
   
-
 
  1 - 4 family
 
2,812
   
5,957
   
8,769
   
80,433
   
89,202
   
309
 
  Multifamily
 
617
   
-
   
617
   
16,297
   
16,914
   
-
 
  Non-farm non-residential
 
878
   
12,818
   
13,696
   
254,922
   
268,618
   
419
 
    Total Real Estate
 
4,592
 
 
20,857
 
 
25,449
 
 
439,476
 
 
464,925
 
 
728
 
Non-Real Estate:
                                   
  Agricultural
 
90
 
 
315
 
 
405
   
16,933
 
 
17,338
 
 
-
 
  Commercial and industrial
 
147
   
1,986
   
2,133
   
65,892
   
68,025
   
-
 
  Consumer and other
 
389
   
28
   
417
   
23,038
   
23,455
   
8
 
    Total Non-Real Estate
 
626
 
 
2,329
 
 
2,955
 
 
105,863
 
 
108,818
 
 
8
 
Total loans before unearned income
$
5,218
 
$
23,186
 
$
28,404
 
$
545,339
 
 
573,743
 
$
736
 
Less: unearned income
                         
(643
     
Total loans net of unearned income
                       
$
573,100
       
 
The Company's management monitors the credit quality of its loans on an ongoing basis. Measurement of delinquency and past due status are based on the contractual terms of each loan.
 
For all loan classes, past due loans are reviewed on a monthly basis to identify loans for nonaccrual status. Generally, when collection in full of the principal and interest is jeopardized, the loan is placed on nonaccrual. The accrual of interest income on commercial and most consumer loans generally is discontinued when a loan becomes 90 to 120 days past due as to principal or interest.  When interest accruals are discontinued, unpaid interest recognized in income is reversed.  The Company's method of income recognition for loans that are classified as nonaccrual is to recognize interest income on a cash basis or apply the cash receipt to principal when the ultimate collectability of principal is in doubt.  Nonaccrual loans will not normally be returned to accrual status unless all past due principal and interest has been paid.
 
The following is a summary of nonaccrual loans by class:
 
(in thousands)
As of June 30, 2012
 
 As of December 31, 2011
 
Real Estate:
           
  Construction & land development
$
1,519
 
$
1,520
 
  Farmland
 
786
   
562
 
  1 - 4 family 
 
5,428
   
5,647
 
  Multifamily
 
592
   
-
 
  Non-farm non-residential
 
9,450
   
12,400
 
    Total Real Estate
 
17,775
 
 
20,129
 
Non-real Estate:
           
  Agricultural
 
739
 
 
315
 
  Commercial and industrial
 
1,068
   
1,986
 
  Consumer and other
 
77
   
20
 
    Total Non-Real Estate
 
1,884
 
 
2,321
 
Total Nonaccrual Loans
$
19,659
 
$
22,450
 
 
11

The Company assigns credit quality indicators of pass, special mention, substandard, and doubtful to its loans. For the Company's loans with a commercial and consumer credit exposure, the Company internally assigns a grade based on the creditworthiness of the borrower. For loans with a consumer credit exposure, the Bank internally assigns a grade based upon an individual loan’s delinquency status. Loans included in the Pass category are performing loans with satisfactory debt coverage ratios, collateral, payment history, and documentation.
 
Special mention loans have potential weaknesses that deserve management’s close attention. If left uncorrected, these potential weaknesses may result in deterioration of the repayment prospects for the loans or in the Company's credit position at some future date. Borrowers may be experiencing adverse operating trends (declining revenues or margins) or an ill proportioned balance sheet (e.g., increasing inventory without an increase in sales, high leverage, tight liquidity). Adverse economic or market conditions, such as interest rate increases or the entry of a new competitor, may also support a special mention rating. Nonfinancial reasons for rating a credit exposure special mention include management problems, pending litigation, an ineffective loan agreement or other material structural weakness, and any other significant deviation from prudent lending practices.
 
A substandard loan with a commercial and consumer credit exposure is inadequately protected by the current sound worth and paying capacity of the obligor or of the collateral pledged, if any. Loans so classified have a well-defined weakness, or weaknesses, that jeopardize the liquidation of the debt by the borrower. They are characterized by the distinct possibility that the Company will sustain some loss if the deficiencies are not corrected. These loans require more intensive supervision by management. Substandard loans are generally characterized by current or expected unprofitable operations, inadequate debt service coverage, inadequate liquidity, or marginal capitalization. Repayment may depend on collateral or other credit risk mitigates. For some substandard loans, the likelihood of full collection of interest and principal may be in doubt and thus, placed on nonaccrual. For loans with a consumer credit exposure, loans that are 90 days or more past due or that have been placed on nonaccrual are considered substandard.
 
Doubtful loans have the weaknesses of substandard loans with the additional characteristic that the weaknesses make collection or liquidation in full questionable and there is a high probability of loss based on currently existing facts, conditions and values.
 
The Company periodically reassesses its credit quality indicators and has revised its methodology in 2012 contributing to the increase in special mention credits over the previous periods.
 
The following table identifies the Commercial and Consumer  Credit Exposure of the Loan Portfolio by specific credit ratings:
 
 
As of June 30, 2012
 
As of December 31, 2011
 
(in thousands)
Pass
 
Special Mention
 
Substandard
 
Doubtful
 
Total
 
Pass
 
Special Mention
 
Substandard
 
Doubtful
 
Total
 
Real Estate:
                                                           
  Construction & land development
$
40,600
 
$
7,104
 
$
10,505
 
$
-
 
$
58,209
 
$
67,602
 
$
82
 
$
10,930
 
$
-
 
$
78,614
 
  Farmland
 
10,047
   
386
   
161
   
-
   
10,594
   
11,485
   
-
   
92
   
-
   
11,577
 
  1 - 4 family
 
77,487
   
5,105
   
6,785
   
-
   
89,377
   
80,053
   
1,770
   
7,379
   
-
   
89,202
 
  Multifamily
 
8,200
   
490
   
7,927
   
-
   
16,617
   
9,545
   
-
   
7,369
   
-
   
16,914
 
  Non-farm non-residential
 
247,876
   
15,001
   
29,935
   
-
   
292,812
   
235,448
   
372
   
32,798
   
-
   
268,618
 
    Total real estate
 
384,210
 
 
28,086
 
 
55,313
 
 
-
 
 
467,609
 
 
404,133
   
2,224
 
 
58,568
 
 
-
 
 
464,925
 
Non-Real Estate:
                                                           
  Agricultural
 
24,933
 
 
-
 
 
439
 
 
-
 
 
25,372
 
 
17,304
 
 
-
 
 
34
 
 
-
 
 
17,338
 
  Commercial and industrial
 
72,691
   
6,512
   
1,368
   
-
   
80,571
   
65,553
   
93
   
2,379
   
-
   
68,025
 
  Consumer and other
 
23,863
   
61
   
75
   
-
   
23,999
   
23,345
   
43
   
67
   
-
   
23,455
 
    Total Non-Real Estate
 
121,487
 
 
6,573
 
 
1,882
 
 
-
 
 
129,942
 
 
106,202
 
 
136
 
 
2,480
 
 
-
 
 
108,818
 
Total loans before unearned income
$
505,697
 
$
34,659
 
$
57,195
 
$
-
 
 
597,551
 
$
510,335
 
$
2,360
 
$
61,048
 
$
-
 
 
573,743
 
Less: unearned income
                         
 (981
)
                         
 (643
)
Total loans net of unearned income
                       
$
596,570
                         
$
573,100
 
 
12

ASC 310-30 Loans
 
The Company has loans that were acquired through the acquisition of  Greensburg Bancshares, for which there was, at acquisition, evidence of deterioration of credit quality since origination and for which it is probable, at acquisition, that all contractually required payments would not be collected. These loans are subject to ASC Topic 310-30. The carrying amount of those loans is included in the balance sheet amounts of loans receivable at June 30, 2012. The amounts of loans subject to ASC Topic 310-30 at June 30, 2012 and December 31, 2011 are as follows:
 
 
June 30, 2012
  December 31, 2011  
(in thousands)
Contractual Amount
 
Carrying Value
 
Contractual Amount
 
Carrying Value
 
Real Estate:
                       
  Construction & land development
$
536
 
$
300
  $ 536   $ 301  
  Farmland
 
-
   
-
    -     -  
  1 - 4 family
 
511
   
443
    704     573  
  Multifamily
 
-
          -     -  
  Non-farm non-residential
 
139
   
139
    352     352  
    Total real estate
 
1,186
 
$
882
    1,592     1,226  
Non-real Estate:
                       
  Agricultural
 
-
 
 
 -
    -     -  
  Commercial and industrial
 
-
   
-
    -     -  
  Consumer and other
 
-
   
-
    -     -  
    Total Non-Real Estate
 
-
 
 
-
    -     -  
Total
$
1,186
 
$
882
  $ 1,592   $ 1,226  
 
There have been no additional provisions made to the allowance for loan losses subsequent to acquisition of these loans. The loans acquired in the acquisition of  Greensburg Bancshares, that are within the scope of Topic ASC 310-30, are not accounted for using the income recognition model of the Topic because the Company cannot reasonably estimate cash flows expected to be collected.
 
13

Note 5. Allowance for Loan Losses
 
The allowance for loan losses is reviewed by the Company's management on a monthly basis and additions thereto are recorded pursuant to the results of such reviews. In assessing the allowance, several internal and external factors that might impact the performance of individual loans are considered. These factors include, but are not limited to, economic conditions and their impact upon borrowers' ability to repay loans, respective industry trends, borrower estimates and independent appraisals. Periodic changes in these factors impact the assessment of each loan and its overall impact on the allowance for loan losses.
 
The monitoring of credit risk also extends to unfunded credit commitments, such as unused commercial credit lines and letters of credit. A reserve is established as needed for estimates of probable losses on such commitments.
 
A summary of changes in the allowance for loan losses, by portfolio type, for the six months ended June 30, 2012 and 2011 are as follows:
 
 
As of June 30, 2012
 
 
Real Estate Loans:
 
Non-Real Estate Loans:
     
 
(in thousands)
Construction and Land Development
 
Farmland
 
1-4 Family
 
Multi-family
 
Non-farm non-residential
 
Agricultural
 
Commercial and Industrial
 
Consumer and other
 
Unallocated
 
Total
 
Allowance for Credit Losses:
                                                           
Beginning balance (12/31/11)
$
1,002
 
$
65
 
$
1,917
 
$
780
 
$
2,980
 
$
125
 
 $
1,407
 
$
314
 
$
289
 
$
8,879
 
  Charge-offs
 
(53
)
 
-
   
(951
)
 
-
   
(459
)
 
(25
)
 
(424
)
 
(266
)
 
-
   
(2,178
)
  Recoveries
 
7
   
1
   
21
   
-
   
106
   
1
   
59
   
141
   
-
   
336
 
  Provision
 
294
   
(17
)
 
833
   
79
   
504
   
(41
 
534
   
122
   
(204
)
 
2,104
 
Ending Balance (6/30/12)
$
1,250
 
$
49
 
$
1,820
 
$
859
 
$
3,131
 
$
60
 
$
1,576
 
$
311
 
$
85
 
$
9,141
 
 
 
 
As of June 30, 2011
 
 
Real Estate Loans:
 
Non-Real Estate Loans:
     
 
(in thousands)
Construction and Land Development
 
Farmland
 
1-4 Family
 
Multi-family
 
Non-farm non-residential
 
Agricultural
 
Commercial and Industrial
 
Consumer and other
 
Unallocated
 
Total
 
Allowance for Credit Losses:
                                                           
Beginning balance (12/31/10)
$
977
 
$
46
 
$
1,891
 
$
487
 
$
3,423
 
$
80
 
 $
510
 
$
390
 
$
513
 
$
8,317
 
  Charge-offs
 
(417
 
-
   
(333
 
-
   
(1,764
 
(20
)
 
(1,482
 
(170
)
 
-
   
(4,186
)
  Recoveries
 
-
   
-
   
87
   
-
   
10
   
3
   
105
   
98
   
-
   
303
 
  Provision
 
173
   
(5
)
 
139
   
(325
)
 
1,376
   
165
   
2,306
   
(59