XNAS:CZFC Citizens First Corp Quarterly Report 10-Q Filing - 3/31/2012

Effective Date 3/31/2012

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Table of Contents

 

 

 

UNITED STATES

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 March 31, 2012

 

Or

 

o  TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the transition period from              to            

 

Commission file number: 001-33126

 


 

CITIZENS FIRST CORPORATION

(Exact name of registrant as specified in its charter)

 


 

Kentucky

 

61-0912615

(State or other jurisdiction of
incorporation or organization)

 

(I.R.S. Employer
Identification No.)

 

 

 

1065 Ashley Street, Bowling Green, Kentucky

 

42103

(Address of principal executive offices)

 

(Zip Code)

 

(270) 393-0700

(Registrant’s 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 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   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

 

Indicate the number of shares outstanding of each of the issuer’s class of common stock, as of the latest practicable date.

 

1,968,777 shares of Common Stock, no par value, were outstanding at April 30, 2012.

 

 

 




Table of Contents

 

Part 1. Financial Information

Item 1. Financial Statements

 

Citizens First Corporation

Consolidated Balance Sheets

 

 

 

(In Thousands, Except Share Data)

 

 

 

March 31,
2012

 

December 31,
2011

 

 

 

Unaudited

 

 

 

Assets

 

 

 

 

 

Cash and due from financial institutions

 

$

12,155

 

$

12,439

 

Federal funds sold

 

9,820

 

18,110

 

Cash and cash equivalents

 

21,975

 

30,549

 

Available-for-sale securities

 

50,188

 

50,718

 

Loans held for sale

 

69

 

180

 

Loans, net of allowance for loan losses of $5,928 and $5,865 at March 31, 2012 and December 31, 2011, respectively

 

297,851

 

288,487

 

Premises and equipment, net

 

11,808

 

11,849

 

Bank owned life insurance (BOLI)

 

7,390

 

7,324

 

Federal Home Loan Bank (FHLB) stock, at cost

 

2,025

 

2,025

 

Accrued interest receivable

 

1,823

 

1,858

 

Deferred income taxes

 

3,400

 

2,973

 

Goodwill

 

4,097

 

4,097

 

Core deposit intangible

 

1,258

 

1,346

 

Other real estate owned

 

608

 

637

 

Other assets

 

1,304

 

1,751

 

Total Assets

 

$

403,796

 

$

403,794

 

Liabilities

 

 

 

 

 

Deposits

 

 

 

 

 

Noninterest bearing

 

41,161

 

38,352

 

Savings, NOW and money market

 

114,903

 

116,968

 

Time

 

174,989

 

177,411

 

Total deposits

 

331,053

 

332,731

 

Securities sold under repurchase agreements

 

 

 

FHLB advances

 

25,000

 

25,000

 

Subordinated debentures

 

5,000

 

5,000

 

Accrued interest payable

 

267

 

275

 

Other liabilities

 

2,984

 

1,916

 

Total Liabilities

 

$

364,304

 

$

364,922

 

Stockholders’ Equity

 

 

 

 

 

6.5% cumulative preferred stock; no par value, authorized 250 shares, aggregate liquidation preference of $7,998; issued and outstanding 250 shares at March 31, 2012 and December 31, 2011, respectively

 

$

7,659

 

$

7,659

 

 

 

 

 

 

 

5.0% Series A cumulative preferred stock; no par value, authorized 250 shares, aggregate liquidation preference of $6,567; issued and outstanding 187 shares at March 31, 2012 and December 31, 2011 respectively

 

6,483

 

6,471

 

 

 

 

 

 

 

Common stock, no par value, authorized 5,000,000 shares; issued and outstanding 1,968,777 shares at March 31, 2012 and December 31, 2011, respectively

 

27,072

 

27,072

 

 

 

 

 

 

 

Retained Earnings (deficit)

 

(2,122

)

(2,706

)

Accumulated other comprehensive income (loss)

 

400

 

376

 

Total stockholders’ equity

 

$

39,492

 

$

38,872

 

Total liabilities and stockholders’ equity

 

$

403,796

 

$

403,794

 

 

See Notes to Unaudited Consolidated Financial Statements

 

3



Table of Contents

 

Citizens First Corporation
Unaudited Consolidated Statements of Operations

 

 

 

(In Thousands, Except Per Share Data)

 

 

 

March 31, 2012

 

March 31, 2011

 

Interest and dividend income

 

 

 

 

 

Loans

 

$

4,261

 

$

3,954

 

Taxable securities

 

161

 

153

 

Non-taxable securities

 

163

 

179

 

Federal funds sold and other

 

33

 

33

 

Total interest and dividend income

 

4,618

 

4,319

 

Interest expense

 

 

 

 

 

Deposits

 

803

 

997

 

FHLB advances

 

95

 

77

 

Subordinated debentures

 

28

 

24

 

Short-term borrowings

 

0

 

2

 

Total interest expense

 

926

 

1,100

 

Net interest income

 

3,692

 

3,219

 

Provision for loan losses

 

370

 

225

 

Net interest income after provision for loan losses

 

3,322

 

2,994

 

Non-interest income

 

 

 

 

 

Service charges on deposit accounts

 

318

 

321

 

Other service charges and fees

 

120

 

99

 

Gain on sale of mortgage loans

 

90

 

69

 

Non-deposit brokerage fees

 

34

 

28

 

Lease income

 

68

 

57

 

BOLI income

 

66

 

67

 

Other

 

0

 

21

 

Total non-interest income

 

696

 

662

 

Non-interest expenses

 

 

 

 

 

Salaries and employee benefits

 

1,409

 

1,306

 

Net occupancy expense

 

459

 

476

 

Advertising and public relations

 

75

 

66

 

Professional fees

 

143

 

114

 

Data processing services

 

229

 

176

 

Franchise shares and deposit tax

 

125

 

114

 

FDIC Insurance

 

72

 

103

 

Core deposit intangible amortization

 

88

 

65

 

Postage and office supplies

 

50

 

35

 

Telephone and other communication

 

42

 

41

 

Other real estate owned expenses

 

45

 

50

 

Other

 

189

 

158

 

Total non-interest expenses

 

2,926

 

2,704

 

Income before income taxes

 

1,092

 

952

 

Provision for income taxes

 

284

 

236

 

Net income

 

$

808

 

$

716

 

Dividends and accretion on preferred stock

 

224

 

285

 

Net income available for common stockholders

 

$

584

 

$

431

 

Basic earnings per common share

 

$

0.30

 

$

0.22

 

Diluted earnings per common share

 

$

0.29

 

$

0.21

 

Other comprehensive income, net of tax

 

 

 

 

 

Change in unrealized gain (loss) on available for sale securities, net

 

$

24

 

$

317

 

Comprehensive income

 

$

832

 

$

1,033

 

 

See Notes to Unaudited Consolidated Financial Statements

 

4



Table of Contents

 

Citizens First Corporation

Unaudited Consolidated Statements of Changes in Stockholders’ Equity

Dollars in thousands, except share data

 

 

 

Preferred
Stock

 

Common
Stock

 

Retained
Earnings
(Deficit)

 

Accumulated Other
Comprehensive
Income (Loss)

 

Total

 

Balance, January 1, 2011

 

$

16,245

 

$

27,072

 

$

(4,357

)

$

(651

)

$

38,309

 

Net income

 

 

 

 

 

716

 

 

 

716

 

Repayment of 63 shares Series A preferred stock

 

(2,212

)

 

 

 

 

 

 

(2,212

)

Accretion on Series A preferred stock

 

61

 

 

 

(61

)

 

 

 

Change in unrealized gain (loss) on available for sale securities, net

 

 

 

 

 

 

 

317

 

317

 

Dividend declared and paid on preferred stock

 

 

 

 

 

(224

)

 

 

(224

)

Balance, March 31, 2011

 

$

14,094

 

$

27,072

 

$

(3,926

)

$

(334

)

$

36,906

 

 

 

 

Preferred
Stock

 

Common
Stock

 

Retained
Earnings
(Deficit)

 

Accumulated Other
Comprehensive
Income (Loss)

 

Total

 

Balance, January 1, 2012

 

$

14,130

 

$

27,072

 

$

(2,706

)

$

376

 

$

38,872

 

Net income

 

 

 

 

 

808

 

 

 

808

 

Accretion on Series A preferred stock

 

12

 

 

 

(12

)

 

 

 

Change in unrealized gain (loss) on available for sale securities, net

 

 

 

 

 

 

 

24

 

24

 

Dividend declared and paid on preferred stock

 

 

 

 

 

(212

)

 

 

(212

)

 

 

 

 

 

 

 

 

 

 

 

 

Balance, March 31, 2012

 

$

14,142

 

$

27,072

 

$

(2,122

)

$

400

 

$

39,492

 

 

See Notes to Unaudited Consolidated Financial Statements

 

5



Table of Contents

 

Citizens First Corporation

Unaudited Consolidated Statements of Cash Flows

 

 

 

(In Thousands)

 

 

 

March 31, 2012

 

March 31, 2011

 

Operating Activities

 

 

 

 

 

Net income

 

$

808

 

$

716

 

Items not requiring (providing) cash:

 

 

 

 

 

Depreciation and amortization

 

159

 

189

 

Provision for loan losses

 

370

 

225

 

Amortization of premiums and discounts on securities

 

83

 

50

 

Amortization of core deposit intangible

 

88

 

65

 

Deferred income taxes

 

(440

)

(365

)

Bank-owned life insurance

 

(66

)

(67

)

Proceeds from sale of mortgage loans held for sale

 

4,992

 

2,150

 

Origination of mortgage loans held for sale

 

(4,791

)

(1,930

)

Gains on sales of loans

 

(90

)

(69

)

Losses on sale of other real estate owned

 

29

 

32

 

Loss/(Gain) on sale premises and equipment

 

(4

)

(4

)

Changes in:

 

 

 

 

 

Interest receivable

 

35

 

17

 

Other assets

 

447

 

414

 

Interest payable and other liabilities

 

1,060

 

45

 

Net cash provided by operating activities

 

2,680

 

1,468

 

Investing Activities

 

 

 

 

 

Loan originations and payments, net

 

(9,734

)

(1,895

)

Purchase of premises and equipment

 

(118

)

(77

)

Proceeds from maturities of available-for-sale securities

 

2,524

 

463

 

Proceeds from sales of other real estate owned

 

1

 

305

 

Purchase of available-for-sale securities

 

(2,041

)

(2,041

)

Proceeds from sales of premises and equipment

 

4

 

9

 

Net cash provided by/(used in) investing activities

 

(9,364

)

(3,236

)

Financing Activities

 

 

 

 

 

Net change in demand deposits, money market, NOW and savings accounts

 

744

 

9,108

 

Net change in time deposits

 

(2,422

)

3,483

 

Partial Repayment of TARP preferred stock

 

 

(2,212

)

Net change in fed funds purchased and repurchase agreements

 

 

(165

)

Dividends paid on preferred stock

 

(212

)

(224

)

Net cash provided by/(used in) financing activities

 

(1,890

)

9,990

 

Increase in (decrease) Cash and Cash Equivalents

 

(8,574

)

8,222

 

Cash and Cash Equivalents, Beginning of Year

 

30,549

 

14,811

 

Cash and Cash Equivalents, End of Quarter

 

$

21,975

 

$

23,033

 

 

 

 

 

 

 

Supplemental Cash Flows Information

 

 

 

 

 

Interest paid

 

$

934

 

$

1,081

 

Income taxes paid

 

$

95

 

$

80

 

Loans transferred to other real estate owned

 

$

 

$

348

 

 

See Notes to Unaudited Consolidated Financial Statements

 

6



Table of Contents

 

Citizens First Corporation

Notes to Unaudited Consolidated Financial Statements

 

Note 1 — Nature of Operations and Summary of Significant Accounting Policies

 

The accounting and reporting policies of Citizens First Corporation (the “Company”) and its subsidiary, Citizens First Bank, Inc. (the “Bank”), conform to U.S. generally accepted accounting principles and general practices within the banking industry.  The consolidated financial statements include the accounts of the Company and the Bank.  All significant intercompany transactions and accounts have been eliminated in consolidation.

 

Certain information and note disclosures normally included in the Company’s annual financial statements prepared in accordance with U.S. generally accepted accounting principles have been condensed or omitted.  These consolidated financial statements should be read in conjunction with the consolidated financial statements and notes thereto included in the Company’s 2011 Annual Report on Form 10-K filed with the Securities and Exchange Commission.

 

The preparation of 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 and liabilities and disclosure of contingent assets and liabilities as of the date of the financial statements and the reported amounts of revenues and expenses during the reporting period.  Estimates used in the preparation of the financial statements are based on various factors including the current interest rate environment and the general strength of the local economy.  Changes in the overall interest rate environment can significantly affect the Company’s net interest income and the value of its recorded assets and liabilities.  Actual results could differ from those estimates used in the preparation of the financial statements.

 

In the opinion of management, all adjustments considered necessary for a fair presentation have been reflected in the accompanying unaudited financial statements.  Those adjustments consist only of normal recurring adjustments. Results of interim periods are not necessarily indicative of results to be expected for the full year.  The consolidated balance sheet of the Company as of December 31, 2011 has been derived from the audited consolidated balance sheet of the Company as of that date.

 

Note 2 -  Reclassifications

 

Certain reclassifications have been made to the consolidated financial statements of prior periods to conform to the current period presentation.  These reclassifications do not affect net income or total shareholders’ equity as previously reported.

 

7



Table of Contents

 

Note 3 - Adoption of New Accounting Standards

 

Effect of newly issued accounting standards:

 

The FASB issued new guidance under ASU 2011-04, Fair Value Measurement (Topic 820)—Amendments to Achieve Common Fair Value Measurement and Disclosure Requirements in U.S. GAAP and IFRSs. These amendments result in common fair value measurement and disclosure requirements in U.S. generally accepted accounting principles (“U.S. GAAP”) and International Financial Reporting Standards (“IFRSs”). Consequently, the amendments change the wording used to describe many of the requirements in U.S. GAAP for measuring fair value and for disclosing information about fair value measurements.  ASU 2011-04 will be effective during interim and annual periods beginning after December 15, 2011, and should be applied prospectively.  Early adoption is not permitted.  Adoption of ASU 2011-04 did not have a significant impact on the Company’s financial statements.

 

The FASB issued ASU No. 2011-05, Presentation of Comprehensive Income (Topic 220). This guidance requires companies to present comprehensive income in a single statement below net income or in a separate statement of comprehensive income immediately following the income statement. The guidance eliminates the option to present the components of other comprehensive income as part of the statement of changes in stockholders’ equity, which is our current presentation. This guidance does not change which items are reported in other comprehensive income or the requirement to report reclassifications of items from other comprehensive income to net income.  The amendments in this guidance are effective for fiscal years and interim periods within that year, beginning after December 15, 2011.

 

The FASB issued ASU No. 2011-08, Intangibles—Goodwill and Other (Topic 350). This guidance is designed to simplify how entities test goodwill for impairment. The amendments in this guidance permit an entity to first assess qualitative factors to determine whether it is more likely than not that the fair value of a reporting unit is less than its carrying amount as a basis for determining whether it is necessary to perform the two-step goodwill impairment test described in Topic 350. The more-likely-than-not threshold is defined as having a likelihood of more than 50 percent.  This guidance is effective for fiscal years and interim periods beginning after December 15, 2011.  Early adoption is permitted.  Adoption of ASU 2011-08 did not have a significant impact on the Company’s financial statements.

 

The FASB issued ASU No. 2011-12, Comprehensive Income (Topic 220). This guidance defers the effective date for amendments to the presentation of reclassifications of items out of accumulated other comprehensive income in ASU No. 2011-05.  This guidance is effective for fiscal years, and interim periods within those years, beginning after December 15, 2011.

 

8



Table of Contents

 

Note 4 - Available-For-Sale Securities

 

The following table summarizes the amortized cost and fair value of the available for sale investment securities portfolio at March 31, 2012 and December 31, 2011 and the corresponding amounts of gross unrealized gains and losses recognized in accumulated other comprehensive income (loss):

 

 

 

(Dollars in Thousands)

 

 

 

Amortized
Cost

 

Gross
Unrealized
Gains

 

Gross
Unrealized
Losses

 

Fair
Value

 

March 31, 2012

 

 

 

 

 

 

 

 

 

U. S. government agencies and government sponsored entities

 

$

11,534

 

$

18

 

$

(20

)

$

11,532

 

 

 

 

 

 

 

 

 

 

 

State and municipal

 

17,606

 

1,088

 

 

18,694

 

 

 

 

 

 

 

 

 

 

 

Agency mortgage-backed securities: residential

 

18,576

 

386

 

 

18,962

 

 

 

 

 

 

 

 

 

 

 

Trust preferred security

 

1,865

 

 

(865

)

1,000

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total investment securities

 

$

49,581

 

$

1,492

 

$

(885

)

$

50,188

 

 

 

 

 

 

 

 

 

 

 

December 31, 2011

 

 

 

 

 

 

 

 

 

U. S. government agencies and government sponsored entities

 

$

11,555

 

$

27

 

$

(13

)

$

11,569

 

 

 

 

 

 

 

 

 

 

 

State and municipal

 

18,390

 

1,126

 

(2

)

19,514

 

 

 

 

 

 

 

 

 

 

 

Agency mortgage-backed securities: residential

 

18,337

 

305

 

(7

)

18,635

 

 

 

 

 

 

 

 

 

 

 

Trust preferred security

 

1,865

 

 

(865

)

1,000

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total investment securities

 

$

50,147

 

$

1,458

 

$

(887

)

$

50,718

 

 

The amortized cost and fair value of investment securities at March 31, 2012 by contractual maturity were as follows.  Securities not due at a single maturity date, primarily mortgage-backed securities, are shown separately.

 

 

 

March 31, 2012
(Dollars in Thousands)

 

 

 

Available for Sale

 

 

 

Amortized Cost

 

Fair Value

 

Due in one year or less

 

1,300

 

1,301

 

Due from one to five years

 

6,768

 

6,923

 

Due from five to ten years

 

11,863

 

12,383

 

Due after ten years

 

11,074

 

10,619

 

Agency mortgage-backed: residential

 

18,576

 

18,962

 

 

 

 

 

 

 

Total

 

$

49,581

 

$

50,188

 

 

9



Table of Contents

 

The following table summarizes the investment securities with unrealized losses at March 31, 2012 and December 31, 2011, aggregated by investment category and length of time that individual securities have been in continuous unrealized loss position:

 

 

 

(Dollars in Thousands)

 

 

 

Less than 12 Months

 

12 Months or More

 

Total

 

Description of
Securities

 

Fair Value

 

Unrealized
Losses

 

Fair Value

 

Unrealized
Losses

 

Fair Value

 

Unrealized
Losses

 

March 31, 2012:

 

 

 

 

 

 

 

 

 

 

 

 

 

U.S. government agencies and government sponsored entities

 

$

7,491

 

$

(20

)

$

 

$

 

$

7,491

 

$

(20

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Trust preferred security

 

 

 

1,000

 

(865

)

1,000

 

(865

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total temporarily impaired

 

$

7,491

 

$

(20

)

$

1,000

 

$

(865

)

$

8,491

 

$

(885

)

 

 

 

(Dollars in Thousands)

 

 

 

Less than 12 Months

 

12 Months or More

 

Total

 

Description of
Securities

 

Fair Value

 

Unrealized
Losses

 

Fair Value

 

Unrealized
Losses

 

Fair Value

 

Unrealized
Losses

 

December 31, 2011:

 

 

 

 

 

 

 

 

 

 

 

 

 

U.S. government agencies and government sponsored entities

 

$

4,505

 

$

(13

)

$

 

$

 

$

4,505

 

$

(13

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Agency mortgage backed securities - residential

 

2,569

 

(7

)

 

 

2,569

 

(7

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

State and municipal

 

304

 

(2

)

 

 

304

 

(2

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Trust preferred security

 

 

 

1,000

 

(865

)

1,000

 

(865

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total temporarily impaired

 

$

7,378

 

$

(22

)

$

1,000

 

$

(865

)

$

8,378

 

$

(887

)

 

Other-Than-Temporary-Impairment

 

Management evaluates securities for other-than-temporary impairment (“OTTI”) at least on a quarterly basis, and more frequently when economic or market conditions warrant such an evaluation.  Investment securities classified as available for sale are generally evaluated for OTTI under ASC Topic 320, “Investments - Debt and Equity Securities.”

 

In determining OTTI under the ASC Topic 320 model, management considers many factors, including: (1) the length of time and the extent to which the fair value has been less than cost, (2) the financial condition and near-term prospects of the issuer, (3) whether the market decline was affected by macroeconomic conditions, and (4) whether the entity has the intent to sell the debt security or more likely than not will be required to sell the debt security before its anticipated recovery.  The assessment of whether an other-than-temporary decline exists involves a high degree of subjectivity and judgment and is based on the information available to management at a point in time.

 

10



Table of Contents

 

As of March 31, 2012, our securities portfolio consisted of $50.2 million fair value of securities, $8.5 million, or 8 securities, of which were in an unrealized loss position.

 

All rated securities are investment grade.  For those that are not rated, the financial condition has been evaluated and no adverse conditions were identified related to repayment.  Declines in fair value are a function of rate differences in the market and market illiquidity.  The Company does not intend or is not expected to be required to sell these securities before recovery of their amortized cost basis.

 

The Company’s unrealized losses relate primarily to its investment in a single trust preferred security.  The security is a single-issuer trust preferred that is not rated.  While market conditions have allowed some increase in the fair market value of the trust preferred security since its lowest point, a full recovery has not yet occurred.  No impairment charge is being taken as no loss of principal or interest is anticipated.  All principal and interest payments are being received as scheduled.  On a quarterly basis, we evaluate the creditworthiness of the issuer, a bank holding company with operations in the state of Kentucky.  Based on the issuer’s continued profitability and well-capitalized position, we do not deem that there is credit loss.  The decline in fair value is primarily attributable to illiquidity affecting these markets and not to the expected cash flows of the individual securities.  We have evaluated the financial condition and near term prospects of the issuer and expect to fully recover our cost basis.  This security continues to pay interest as agreed and future payments are expected to be made as agreed.  This security is not considered to be other-than-temporarily impaired.

 

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Table of Contents

 

Note 5 - Loans and Allowance for Loan Losses

 

Categories of loans include:

 

 

 

(Dollars in Thousands)

 

 

 

March 31,
2012

 

December 31,
2011

 

 

 

 

 

 

 

Commercial

 

$

55,327

 

$

58,853

 

Commercial real estate:

 

 

 

 

 

Construction

 

13,366

 

13,720

 

Other

 

146,219

 

130,300

 

Residential real estate

 

81,411

 

83,486

 

Consumer:

 

 

 

 

 

Auto

 

3,702

 

3,998

 

Other

 

3,754

 

3,995

 

Total loans

 

303,779

 

294,352

 

Less allowance for loan losses

 

(5,928

)

(5,865

)

 

 

 

 

 

 

Net loans

 

$

297,851

 

$

288,487

 

 

Activity in our allowance for loan losses was as follows:

 

 

 

(Dollars In Thousands)

 

 

 

Commercial

 

Commercial
Real Estate

 

Residential
Real Estate

 

Consumer

 

Unallocated

 

Total

 

March 31, 2012 Allowance for loan losses:

 

 

 

 

 

 

 

 

 

 

 

 

 

Beginning balance

 

$

2,667

 

$

1,986

 

$

858

 

$

81

 

$

273

 

$

5,865

 

Provision for loan losses

 

(652

)

642

 

321

 

6

 

53

 

370

 

Loans charged-off

 

(100

)

 

(199

)

(12

)

 

(311

)

Recoveries

 

 

 

1

 

3

 

 

4

 

Total ending allowance balance

 

$

1,915

 

$

2,628

 

$

981

 

$

78

 

$

326

 

$

5,928

 

 

 

 

(Dollars In Thousands)

 

 

 

Commercial

 

Commercial
Real Estate

 

Residential
Real Estate

 

Consumer

 

Unallocated

 

Total

 

March  31, 2011 Allowance for loan losses:

 

 

 

 

 

 

 

 

 

 

 

 

 

Beginning balance

 

$

3,212

 

$

902

 

$

604

 

$

200

 

$

83

 

$

5,001

 

Provision for loan losses

 

(825

)

755

 

82

 

2

 

211

 

225

 

Loans charged-off

 

(187

)

 

(33

)

(15

)

 

(235

)

Recoveries

 

4

 

 

5

 

3

 

 

12

 

Total ending allowance balance

 

$

2,204

 

$

1,657

 

$

658

 

$

190

 

$

294

 

$

5,003

 

 

12



Table of Contents

 

The following tables present the balance in the allowance for loan losses and the recorded investment in loans by portfolio segment and based on the impairment method as of March 31, 2012 and December 31, 2011.  As of March 31, 2012 and December 31, 2011, accrued interest receivable of $1.5 million and $1.6 million, respectively, and net deferred loan fees of $131 thousand and $96 thousand, respectively, are not considered significant and therefore not included in the recorded investment in loans presented in the following tables.

 

 

 

(Dollars In Thousands)

 

March 31, 2012

 

Commercial

 

Commercial
Real Estate

 

Residential
Real Estate

 

Consumer

 

Unallocated

 

Total

 

Allowance for loan losses:

 

 

 

 

 

 

 

 

 

 

 

 

 

Ending allowance balance attributable to loans:

 

 

 

 

 

 

 

 

 

 

 

 

 

Individually evaluated for impairment

 

$

1,557

 

$

1,772

 

$

288

 

$

16

 

$

 

$

3,633

 

Collectively evaluated

 

358

 

856

 

693

 

62

 

326

 

2,295

 

Total ending allowance balance

 

$

1,915

 

$

2,628

 

$

981

 

$

78

 

$

326

 

$

5,928

 

Loans:

 

 

 

 

 

 

 

 

 

 

 

 

 

Individually evaluated for impairment

 

$

4,128

 

$

7,514

 

$

778

 

$

16

 

$

 

$

12,436

 

Collectively evaluated

 

51,199

 

152,070

 

80,634

 

7,440

 

 

291,343

 

Total ending allowance balance

 

$

55,327

 

$

159,584

 

$

81,412

 

$

7,456

 

$

 

$

303,779

 

 

 

 

(Dollars In Thousands)

 

December 31, 2011

 

Commercial

 

Commercial
Real Estate

 

Residential
Real Estate

 

Consumer

 

Unallocated

 

Total

 

Allowance for loan losses:

 

 

 

 

 

 

 

 

 

 

 

 

 

Ending allowance balance attributable to loans:

 

 

 

 

 

 

 

 

 

 

 

 

 

Individually evaluated for impairment

 

$

1,738

 

$

973

 

$

310

 

$

6

 

$

 

$

3,027

 

Collectively evaluated

 

929

 

1,013

 

548

 

75

 

273

 

2,838

 

Total ending allowance balance

 

$

2,667

 

$

1,986

 

$

858

 

$

81

 

$

273

 

$

5,865

 

Loans:

 

 

 

 

 

 

 

 

 

 

 

 

 

Individually evaluated for impairment

 

$

4,186

 

$

3,624

 

$

971

 

$

6

 

$

 

$

8,787

 

Collectively evaluated

 

54,667

 

140,396

 

82,515

 

7,987

 

 

285,565

 

Total ending allowance balance

 

$

58,853

 

$

144,020

 

$

83,486

 

$

7,993

 

$

 

$

294,352

 

 

13



Table of Contents

 

The following table presents information related to impaired loans by class of loans as of March 31, 2012 and for the year ended December 31, 2011. In this table presentation the unpaid principal balance of the loans has been reduced by net charge-offs and is equivalent to the recorded investment.

 

 

 

Unpaid

Principal
Balance

 

Allowance
for Loan
Losses
Allocated

 

Average
Recorded
Investment

 

Interest
Income
Recognized

 

Cash Basis
Interest
Recognized

 

March 31, 2012 

 

 

 

 

 

 

 

 

 

 

 

With no related allowance recorded:

 

 

 

 

 

 

 

 

 

 

 

Commercial

 

$

1,933

 

$

 

$

1,976

 

$

14

 

$

14

 

Commercial real estate:

 

 

 

 

 

 

 

 

 

 

 

Construction

 

 

 

 

 

 

Other

 

652

 

 

826

 

11

 

 

Residential real estate

 

304

 

 

339

 

4

 

 

Consumer:

 

 

 

 

 

 

 

 

 

 

 

Auto

 

 

 

 

 

 

Other

 

 

 

 

 

 

Subtotal

 

2,889

 

 

3,141

 

29

 

14

 

With an allowance recorded:

 

 

 

 

 

 

 

 

 

 

 

Commercial

 

2,195

 

1,557

 

2,180

 

27

 

4

 

Commercial real estate:

 

 

 

 

 

 

 

 

 

 

 

Construction

 

 

 

 

 

 

Other

 

6,862

 

1,772

 

4,744

 

103

 

85

 

Residential real estate

 

474

 

287

 

535

 

8

 

 

Consumer:

 

 

 

 

 

 

 

 

 

 

 

Auto

 

15

 

15

 

10

 

 

 

Other

 

1

 

1

 

1

 

 

 

Subtotal

 

9,547

 

3,632

 

7,470

 

138

 

89

 

Total

 

$

12,436

 

$

3,632

 

$

10,611

 

$

167

 

$

103

 

 

14



Table of Contents

 

 

 

Unpaid
Principal
Balance

 

Allowance
for Loan
Losses
Allocated

 

Average
Recorded
Investment

 

Interest
Income
Recognized

 

Cash Basis
Interest
Recognized

 

December 31, 2011

 

 

 

 

 

 

 

 

 

 

 

With no related allowance recorded:

 

 

 

 

 

 

 

 

 

 

 

Commercial

 

$

2,020

 

$

 

$

3,099

 

$

204

 

$

204

 

Commercial real estate:

 

 

 

 

 

 

 

 

 

 

 

Construction

 

 

 

95

 

 

 

Other

 

999

 

 

1,574

 

96

 

56

 

Residential real estate

 

374

 

 

252

 

12

 

9

 

Consumer:

 

 

 

 

 

 

 

 

 

 

 

Auto

 

 

 

 

 

 

Other

 

 

 

 

 

 

Subtotal

 

3,393

 

 

5,020

 

312

 

269

 

With an allowance recorded:

 

 

 

 

 

 

 

 

 

 

 

Commercial

 

2,166

 

1,738

 

2,228

 

158

 

158

 

Commercial real estate:

 

 

 

 

 

 

 

 

 

 

 

Construction

 

 

 

 

 

 

Other

 

2,625

 

973

 

2,059

 

108

 

105

 

Residential real estate

 

597

 

310

 

450

 

33

 

10

 

Consumer:

 

 

 

 

 

 

 

 

 

 

 

Auto

 

5

 

5

 

9

 

1

 

1

 

Other

 

1

 

1

 

1

 

 

 

Subtotal

 

5,394

 

3,027

 

4,747

 

300

 

274

 

Total

 

$

8,787

 

$

3,027

 

$

9,767

 

$

612

 

$

543

 

 

The recorded investment in nonaccrual and loans past due over 90 days still on accrual by class of loans as of March 31, 2012 and December 31, 2011 are summarized below:

 

 

 

(Dollars in Thousands)
As of March 31, 2012

 

 

 

Loans Past Due
Over 90 Days and
Still Accruing

 

Nonaccrual

 

 

 

 

 

 

 

Commercial

 

$

 

$

1,394

 

Commercial real estate:

 

 

 

 

 

Construction

 

 

 

Other

 

 

1,700

 

Residential real estate

 

 

900

 

Consumer:

 

 

 

 

 

Auto

 

 

15

 

Other

 

 

1

 

Total

 

$

 

$

4,010

 

 

15



Table of Contents

 

 

 

(Dollars in Thousands)
As of December 31, 2011

 

 

 

Loans Past Due
Over 90 Days and
Still Accruing

 

Nonaccrual

 

 

 

 

 

 

 

Commercial

 

$

 

$

1,553

 

Commercial real estate:

 

 

 

 

 

Construction

 

 

 

Other

 

 

1,735

 

Residential real estate

 

 

970

 

Consumer:

 

 

 

 

 

Auto

 

 

5

 

Other

 

 

1

 

Total

 

$

 

$

4,264

 

 

Nonaccrual loans and loans past due 90 days still on accrual include individually classified impaired loans.

 

The following tables present the aging of the recorded investment in past due loans as of March 31, 2012 and December 31, 2011 by class of loans.  Non-accrual loans are included and have been categorized based on their payment status:

 

 

 

(Dollars In Thousands)

 

 

 

30-59
Days
Past Due

 

60-89
Days
Past Due

 

Over 90
Days
Past Due

 

Total
Past Due

 

Loans Not
Past Due

 

Total

 

March 31, 2012

 

 

 

 

 

 

 

 

 

 

 

 

 

Commercial

 

$

211

 

$

134

 

$

 

$

345

 

$

54,982

 

$

55,327

 

Commercial real estate:

 

 

 

 

 

 

 

 

 

 

 

 

 

Construction

 

181

 

 

 

181

 

13,185

 

13,366

 

Other

 

1,038

 

 

466

 

1,504

 

144,715

 

146,219

 

Residential real estate

 

149

 

 

510

 

659

 

80,752

 

81,411

 

Consumer:

 

 

 

 

 

 

 

 

 

 

 

 

 

Auto

 

6

 

11

 

15

 

32

 

3,670

 

3,702

 

Other

 

3

 

2

 

 

5

 

3,749

 

3,754

 

Total

 

$

1,588

 

$

147

 

$

991

 

$

2,726

 

$

301,053

 

$

303,779

 

 

16



Table of Contents

 

 

 

(Dollars In Thousands)

 

 

 

30-59
Days
Past Due

 

60-89
Days
Past Due

 

Over 90
Days
Past Due

 

Total
Past Due

 

Loans Not
Past Due

 

Total

 

December 31, 2011

 

 

 

 

 

 

 

 

 

 

 

 

 

Commercial

 

$

640

 

$

100

 

$

 

$

740

 

$

58,113

 

$

58,853

 

Commercial real estate:

 

 

 

 

 

 

 

 

 

 

 

 

 

Construction

 

 

 

 

 

13,720

 

13,720

 

Other

 

102

 

 

559

 

661

 

129,639

 

130,300

 

Residential real estate

 

278

 

310

 

515

 

1,103

 

82,383

 

83,486

 

Consumer:

 

 

 

 

 

 

 

 

 

 

 

 

 

Auto

 

26

 

 

 

26

 

3,972

 

3,998

 

Other

 

 

 

 

 

3,995

 

3,995

 

Total

 

$

1,046

 

$

410

 

$

1,074

 

$

2,530

 

$

291,822

 

$

294,352

 

 

Troubled Debt Restructurings:

 

The Company reported total troubled debt restructurings of $3.6 million and $2.9 million as of March 31, 2012 and December 31, 2011, respectively.  The Company has no commitments to lend additional amounts to customers with outstanding loans that are classified as troubled debt restructurings.  Troubled debt restructurings are included in impaired loans.

 

During the quarter ending March 31, 2012, two additional loans were modified as troubled debt restructurings.  The modification of the terms of such loans would include one or a combination of the following: a reduction of the stated interest rate of the loan; an extension of the maturity date at a stated rate of interest lower than the current market rate for new debt with similar risk; or a permanent reduction of the recorded investment in the loan.

 

The following table presents loans by class modified as troubled debt restructurings that occurred during the quarter ending March 31, 2012:

 

 

 

 

 

(Dollars in thousands)

 

 

 

Number of
Loans

 

Pre-Modification
Outstanding
Recorded
Investment

 

Post-Modification
Outstanding Recorded
Investment

 

Troubled Debt Restructurings:

 

 

 

 

 

 

 

Commercial

 

2

 

$

791

 

$

791

 

Commercial real estate:

 

 

 

 

 

 

 

Construction

 

 

 

 

Other

 

 

 

 

Residential real estate

 

 

 

 

Consumer:

 

 

 

 

 

 

 

Auto

 

 

 

 

Other

 

 

 

 

Total

 

2

 

$

791

 

$

791

 

 

17



Table of Contents

 

Specific allocations of $1,660,000 and $925,000 were reported for the troubled debt restructurings as of March 31, 2012 and December 31, 2011.  No payment defaults or charge offs were reported for troubled debt restructurings during the quarter ending March 31, 2012.

 

The terms of certain other loans were modified during the three months ending March 31, 2012 that did not meet the definition of a troubled debt restructuring.  These loans modified during the three months ending March 31, 2012 have a total recorded investment of $4.1 million as of March 31, 2012.  The modification of these loans involved either a modification of the terms of a loan to borrowers who were not experiencing financial difficulties or a delay in a payment that was considered to be insignificant.

 

In order to determine whether a borrower is experiencing financial difficulty, an evaluation is performed of the probability that the borrower will be in payment default on any of its debt in the foreseeable future without the modification. This evaluation is performed under the company’s internal underwriting policy.

 

Credit Quality Indicators:

 

The Company categorizes loans into risk categories based on relevant information about the ability of borrowers to service their debt such as, current financial information, historical payment experience, credit documentation, public information, and current economic trends, among other factors.  The Company analyzes loans individually by classifying the loans as to credit risk.  This analysis includes commercial and commercial real estate loans with an outstanding balance greater than $25 thousand and is reviewed on a monthly basis. For residential real estate and consumer loans the analysis primarily involves monitoring the past due status of these loans and at such time that these loans are past due, the Company evaluates the loans to determine if a change in risk category is warranted. The Company uses the following definitions for risk ratings:

 

Special Mention.  Loans classified as special mention have a potential weakness that deserves management’s close attention. If left uncorrected, these potential weaknesses may result in deterioration of the repayment prospects for the loan or of the institution’s credit position at some future date.

 

Substandard.  Loans classified as substandard are inadequately protected by the current net 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. They are characterized by the distinct possibility that the institution will sustain some loss if the deficiencies are not corrected.

 

Doubtful.  Loans classified as doubtful have all the weaknesses inherent in those classified as substandard, with the added characteristic that the weaknesses make collection or liquidation in full, on the basis of currently existing facts, conditions, and values, highly questionable and improbable.

 

Loans not meeting the criteria above that are analyzed individually as part of the above described process are considered to be Pass rated loans.  All loans in all loan

 

18



Table of Contents

 

categories are assigned risk ratings.  Based on the most recent analyses performed, the risk category of loans by class of loans is as follows:

 

 

 

Pass

 

Special
Mention

 

Substandard