XNAS:CZFC Citizens First Corp Quarterly Report 10-Q Filing - 6/30/2012

Effective Date 6/30/2012

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XNAS:CZFC (Citizens First Corp): Fair Value Uncertainty
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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 June 30, 2012

 

Or

 

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

 

For the transition period from              to             

 

Commission file number: 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 July 26, 2012.

 

 

 




Table of Contents

 

Part 1. Financial Information

Item 1. Financial Statements

 

Citizens First Corporation

Consolidated Balance Sheets

 

 

 

(In Thousands, Except Share Data)

 

 

 

June 30,
2012

 

December 31,
2011

 

 

 

Unaudited

 

 

 

Assets

 

 

 

 

 

Cash and due from financial institutions

 

$

9,478

 

$

12,439

 

Federal funds sold

 

12,540

 

18,110

 

Cash and cash equivalents

 

22,018

 

30,549

 

Available-for-sale securities

 

47,915

 

50,718

 

Loans held for sale

 

99

 

180

 

Loans, net of allowance for loan losses of $5,899 and $5,865 at June 30, 2012 and December 31, 2011, respectively

 

294,129

 

288,487

 

Premises and equipment, net

 

11,704

 

11,849

 

Bank owned life insurance (BOLI)

 

7,456

 

7,324

 

Federal Home Loan Bank (FHLB) stock, at cost

 

2,025

 

2,025

 

Accrued interest receivable

 

1,761

 

1,858

 

Deferred income taxes

 

2,968

 

2,973

 

Goodwill

 

4,097

 

4,097

 

Core deposit intangible

 

1,170

 

1,346

 

Other real estate owned

 

214

 

637

 

Other assets

 

1,336

 

1,751

 

Total Assets

 

$

396,892

 

$

403,794

 

Liabilities

 

 

 

 

 

Deposits

 

 

 

 

 

Noninterest bearing

 

41,797

 

38,352

 

Savings, NOW and money market

 

107,996

 

116,968

 

Time

 

171,055

 

177,411

 

Total deposits

 

320,848

 

332,731

 

FHLB advances

 

29,000

 

25,000

 

Subordinated debentures

 

5,000

 

5,000

 

Accrued interest payable

 

247

 

275

 

Other liabilities

 

1,623

 

1,916

 

Total Liabilities

 

$

356,718

 

$

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 June 30, 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 June 30, 2012 and December 31, 2011 respectively

 

6,495

 

6,471

 

Common stock, no par value, authorized 5,000,000 shares; issued and outstanding 1,968,777 shares at June 30, 2012 and December 31, 2011, respectively

 

27,072

 

27,072

 

Retained Earnings (deficit)

 

(1,619

)

(2,706

)

Accumulated other comprehensive income

 

567

 

376

 

Total stockholders’ equity

 

$

40,174

 

$

38,872

 

Total liabilities and stockholders’ equity

 

$

396,892

 

$

403,794

 

 

See Notes to Unaudited Consolidated Financial Statements

 

3



Table of Contents

 

Citizens First Corporation
Unaudited Consolidated Statements of Operations

 

 

 

Three months ended
(In Thousands, Except Per Share Data)

 

 

 

June 30, 2012

 

June 30, 2011

 

Interest and dividend income

 

 

 

 

 

Loans

 

$

4,219

 

$

3,943

 

Taxable securities

 

152

 

157

 

Non-taxable securities

 

162

 

183

 

Federal funds sold and other

 

33

 

35

 

Total interest and dividend income

 

4,566

 

4,318

 

Interest expense

 

 

 

 

 

Deposits

 

758

 

984

 

FHLB advances

 

105

 

77

 

Subordinated debentures

 

28

 

25

 

Short-term borrowings

 

0

 

2

 

Total interest expense

 

891

 

1,088

 

Net interest income

 

3,675

 

3,230

 

Provision for loan losses

 

450

 

300

 

Net interest income after provision for loan losses

 

3,225

 

2,930

 

Non-interest income

 

 

 

 

 

Service charges on deposit accounts

 

340

 

334

 

Other service charges and fees

 

143

 

113

 

Gain on sale of mortgage loans

 

64

 

56

 

Non-deposit brokerage fees

 

57

 

60

 

Lease income

 

68

 

68

 

BOLI income

 

66

 

68

 

Gain on sale of securities available-for-sale

 

55

 

61

 

Total non-interest income

 

793

 

760

 

Non-interest expenses

 

 

 

 

 

Salaries and employee benefits

 

1,414

 

1,201

 

Net occupancy expense

 

479

 

463

 

Advertising and public relations

 

93

 

102

 

Professional fees

 

149

 

171

 

Data processing services

 

221

 

172

 

Franchise shares and deposit tax

 

141

 

114

 

FDIC Insurance

 

73

 

112

 

Core deposit intangible amortization

 

88

 

65

 

Postage and office supplies

 

59

 

44

 

Telephone and other communication

 

44

 

36

 

Other real estate owned expenses

 

105

 

87

 

Other

 

179

 

154

 

Total non-interest expenses

 

3,045

 

2,721

 

Income before income taxes

 

973

 

969

 

Provision for income taxes

 

247

 

241

 

Net income

 

$

726

 

$

728

 

Dividends and accretion on preferred stock

 

223

 

223

 

Net income available for common stockholders

 

$

503

 

$

505

 

Basic earnings per common share

 

$

0.25

 

$

0.26

 

Diluted earnings per common share

 

$

0.24

 

$

0.25

 

Comprehensive income, net of tax

 

 

 

 

 

Net Income

 

726

 

728

 

Other comprehensive income

 

 

 

 

 

Reclassification adjustment for losses (gains) included in net income, net

 

(36

)

(40

)

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

 

203

 

477

 

Comprehensive income

 

$

893

 

$

1,165

 

 

See Notes to Unaudited Consolidated Financial Statements

 

4



Table of Contents

 

Citizens First Corporation
Unaudited Consolidated Statements of Operations

 

 

 

Six months ended
(In Thousands, Except Per Share Data)

 

 

 

June 30, 2012

 

June 30, 2011

 

Interest and dividend income

 

 

 

 

 

Loans

 

$

8,479

 

$

7,898

 

Taxable securities

 

314

 

310

 

Non-taxable securities

 

325

 

361

 

Federal funds sold and other

 

66

 

68

 

Total interest and dividend income

 

9,184

 

8,637

 

Interest expense

 

 

 

 

 

Deposits

 

1,561

 

1,982

 

FHLB advances

 

200

 

154

 

Subordinated debentures

 

55

 

49

 

Short-term borrowings

 

0

 

3

 

Total interest expense

 

1,816

 

2,188

 

Net interest income

 

7,368

 

6,449

 

Provision for loan losses

 

820

 

525

 

Net interest income after provision for loan losses

 

6,548

 

5,924

 

Non-interest income

 

 

 

 

 

Service charges on deposit accounts

 

659

 

655

 

Other service charges and fees

 

262

 

233

 

Gain on sale of mortgage loans

 

154

 

125

 

Non-deposit brokerage fees

 

91

 

88

 

Lease income

 

136

 

125

 

BOLI income

 

132

 

135

 

Gain on sale of securities available-for-sale

 

55

 

61

 

Total non-interest income

 

1,489

 

1,422

 

Non-interest expenses

 

 

 

 

 

Salaries and employee benefits

 

2,823

 

2,507

 

Net occupancy expense

 

938

 

938

 

Advertising and public relations

 

168

 

168

 

Professional fees

 

292

 

285

 

Data processing services

 

450

 

348

 

Franchise shares and deposit tax

 

266

 

228

 

FDIC Insurance

 

145

 

215

 

Core deposit intangible amortization

 

176

 

131

 

Postage and office supplies

 

109

 

77

 

Telephone and other communication

 

86

 

79

 

Other real estate owned expenses

 

150

 

137

 

Other

 

369

 

312

 

Total non-interest expenses

 

5,972

 

5,425

 

Income before income taxes

 

2,065

 

1,921

 

Provision for income taxes

 

531

 

477

 

Net income

 

$

1,534

 

$

1,444

 

Dividends and accretion on preferred stock

 

447

 

508

 

Net income available for common stockholders

 

$

1,087

 

$

936

 

Basic earnings per common share

 

$

0.55

 

$

0.47

 

Diluted earnings per common share

 

$

0.53

 

$

0.46

 

Comprehensive income, net of tax

 

 

 

 

 

Net Income

 

1,534

 

1,444

 

Other comprehensive income

 

 

 

 

 

Reclassification adjustment for losses (gains) included in net income, net

 

(36

)

(40

)

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

 

227

 

794

 

Comprehensive income

 

$

1,725

 

$

2,198

 

 

See Notes to Unaudited Consolidated Financial Statements

 

5



Table of Contents

 

Citizens First Corporation

Unaudited Consolidated Statements of Changes in Stockholders’ Equity

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

 

 

 

 

 

1,444

 

 

 

1,444

 

Repayment of 63 shares Series A preferred stock

 

(2,212

)

 

 

 

 

 

 

(2,212

)

Accretion on Series A preferred stock

 

73

 

 

 

(73

)

 

 

 

Change in other comprehensive income, net

 

 

 

 

 

 

 

754

 

754

 

Dividend declared and paid on preferred stock

 

 

 

 

 

(435

)

 

 

(435

)

Balance, June 30, 2011

 

$

14,106

 

$

27,072

 

$

(3,421

)

$

103

 

$

37,860

 

 

 

 

Preferred
Stock

 

Common
Stock

 

Retained
Earnings
(Deficit)

 

Accumulated
Other
Comprehensive
Income

 

Total

 

Balance, January 1, 2012

 

$

14,130

 

$

27,072

 

$

(2,706

)

$

376

 

$

38,872

 

Net income

 

 

 

 

 

1,534

 

 

 

1,534

 

Accretion on Series A preferred stock

 

24

 

 

 

(24

)

 

 

 

Change in other comprehensive income, net

 

 

 

 

 

 

 

191

 

191

 

Dividend declared and paid on preferred stock

 

 

 

 

 

(423

)

 

 

(423

)

Balance, June 30, 2012

 

$

14,154

 

$

27,072

 

$

(1,619

)

$

567

 

$

40,174

 

 

See Notes to Unaudited Consolidated Financial Statements

 

6



Table of Contents

 

Citizens First Corporation

Unaudited Consolidated Statements of Cash Flows

 

 

 

(In Thousands)

 

 

 

June 30, 2012

 

June 30, 2011

 

Operating Activities

 

 

 

 

 

Net income

 

$

1,534

 

$

1,444

 

Items not requiring (providing) cash:

 

 

 

 

 

Depreciation and amortization

 

320

 

370

 

Provision for loan losses

 

820

 

525

 

Amortization of premiums and discounts on securities

 

131

 

101

 

Amortization of core deposit intangible

 

176

 

131

 

Deferred income taxes

 

(93

)

(177

)

Bank-owned life insurance

 

(132

)

(135

)

Proceeds from sale of mortgage loans held for sale

 

8,086

 

4,299

 

Origination of mortgage loans held for sale

 

(7,851

)

(4,117

)

Gains on sales of available-for- sale securities

 

(55

)

(61

)

Gains on sales of loans

 

(154

)

(125

)

Losses on sale of other real estate owned

 

116

 

91

 

Gain on sale premises and equipment

 

(8

)

(9

)

Changes in:

 

 

 

 

 

Interest receivable

 

97

 

24

 

Other assets

 

415

 

569

 

Interest payable and other liabilities

 

(321

)

(21

)

Net cash provided by operating activities

 

$

3,081

 

2,909

 

Investing Activities

 

 

 

 

 

Loan originations and payments, net

 

(6,550

)

(2,079

)

Purchase of premises and equipment

 

(174

)

(89

)

Proceeds from maturities of available-for-sale securities

 

9,749

 

6,583

 

Proceeds from sales of available-for-sale securities

 

962

 

1,100

 

Proceeds from sales of other real estate owned

 

395

 

778

 

Purchase of available-for-sale securities

 

(7,696

)

(9,855

)

Proceeds from sales of premises and equipment

 

8

 

11

 

Net cash (used in) investing activities

 

(3,306

)

(3,551

)

Financing Activities

 

 

 

 

 

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

 

(5,527

)

7,941

 

Net change in time deposits

 

(6,356

)

(3,387

)

Partial Repayment of TARP preferred stock

 

 

(2,212

)

Proceeds from FHLB advances

 

9,000

 

 

Repayment of FHLB advances

 

(5,000

)

 

Net change in fed funds purchased and repurchase agreements

 

 

245

 

Dividends paid on preferred stock

 

(423

)

(435

)

Net cash provided by (used in) financing activities

 

(8,306

)

2,152

 

Increase in Cash and Cash Equivalents

 

(8,531

)

1,510

 

Cash and Cash Equivalents, Beginning of Year

 

30,549

 

14,811

 

Cash and Cash Equivalents, End of Quarter

 

$

22,018

 

$

16,321

 

 

 

 

 

 

 

Supplemental Cash Flows Information

 

 

 

 

 

Interest paid

 

$

1,844

 

$

2,213

 

Income taxes paid

 

$

475

 

$

270

 

Loans transferred to other real estate owned

 

$

88

 

$

402

 

 

See Notes to Unaudited Consolidated Financial Statements

 

7



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.

 

8



Table of Contents

 

Note 3 - Available-For-Sale Securities

 

The following table summarizes the amortized cost and fair value of the available-for sale securities portfolio at June 30, 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

 

June 30, 2012

 

 

 

 

 

 

 

 

 

U. S. government agencies and government sponsored entities

 

$

7,536

 

$

16

 

$

(4

)

$

7,548

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

State and municipal

 

17,850

 

1,270

 

(1

)

19,119

 

Agency mortgage-backed securities: residential

 

19,804

 

394

 

 

20,198

 

 

 

 

 

 

 

 

 

 

 

Trust preferred security

 

1,866

 

 

(816

)

1,050

 

 

 

 

 

 

 

 

 

 

 

Total investment securities

 

$

47,056

 

$

1,680

 

$

(821

)

$

47,915

 

 

 

 

 

 

 

 

 

 

 

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 June 30, 2012 by contractual maturity were as follows.  Securities not due at a single maturity date, primarily mortgage-backed securities, are shown separately.

 

 

 

June 30, 2012
(Dollars in Thousands)

 

 

 

Available-For-Sale

 

 

 

Amortized Cost

 

Fair Value

 

Due in one year or less

 

250

 

258

 

Due from one to five years

 

5,935

 

6,120

 

Due from five to ten years

 

11,729

 

12,319

 

Due after ten years

 

9,338

 

9,020

 

Agency mortgage-backed: residential

 

19,804

 

20,198

 

 

 

 

 

 

 

Total

 

$

47,056

 

$

47,915

 

 

9



Table of Contents

 

The following table summarizes the investment securities with unrealized losses at June 30, 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

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

June 30, 2012:

 

 

 

 

 

 

 

 

 

 

 

 

 

U.S. government agencies and government sponsored entities

 

$

1,009

 

$

(4

)

$

 

$

 

$

1,009

 

$

(4

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

State and municipal

 

317

 

(1

)

 

 

317

 

(1

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Trust preferred security

 

 

 

1,050

 

(816

)

1,050

 

(816

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total temporarily impaired

 

$

1,326

 

$

(5

)

$

1,050

 

$

(816

)

$

2,376

 

$

(821

)

 

 

 

(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.

 

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Table of Contents

 

As of June 30, 2012, our securities portfolio consisted of $47.9 million fair value of securities, $2.4 million, or 3 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 at June 30, 2012, 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 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.

 

Note 4 - Loans and Allowance for Loan Losses

 

Categories of loans include:

 

 

 

(Dollars in Thousands)

 

 

 

June 30,
2012

 

December 31,
2011

 

 

 

 

 

 

 

Commercial

 

$

51,707

 

$

58,853

 

Commercial real estate:

 

 

 

 

 

Construction

 

11,589

 

13,720

 

Other

 

147,850

 

130,300

 

Residential real estate

 

81,693

 

83,486

 

Consumer:

 

 

 

 

 

Auto

 

3,615

 

3,998

 

Other

 

3,574

 

3,995

 

Total loans

 

300,028

 

294,352

 

Less allowance for loan losses

 

(5,899

)

(5,865

)

 

 

 

 

 

 

Net loans

 

$

294,129

 

$

288,487

 

 

The following table sets forth an analysis of our allowance for loan losses for the three months ending June 30, 2012 and 2011.

 

11



Table of Contents

 

 

 

(Dollars In Thousands)

 

 

 

Commercial

 

Commercial
Real Estate

 

Residential
Real Estate

 

Consumer

 

Unallocated

 

Total

 

June 30, 2012 Allowance for loan losses:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Beginning balance

 

$

1,915

 

$

2,628

 

$

981

 

$

78

 

$

326

 

$

5,928

 

Provision for loan losses

 

340

 

194

 

19

 

(9

)

(94

)

450

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Loans charged-off

 

(200

)

(85

)

(209

)

(1

)

 

(495

)

Recoveries

 

 

 

14

 

2

 

 

16

 

Total ending allowance balance

 

$

2,055

 

$

2,737

 

$

805

 

$

70

 

$

232

 

$

5,899

 

 

 

 

(Dollars In Thousands)

 

 

 

Commercial

 

Commercial
Real Estate

 

Residential
Real Estate

 

Consumer

 

Unallocated

 

Total

 

June  30, 2011 Allowance for loan losses:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Beginning balance

 

$

2,204

 

$

1,657

 

$

659

 

$

190

 

$

294

 

$

5,004

 

Provision for loan losses

 

(3

)

49

 

256

 

(34

)

32

 

300

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Loans charged-off

 

 

 

(89

)

(11

)

 

(100

)

Recoveries

 

8

 

 

 

3

 

 

11

 

Total ending allowance balance

 

$

2,209

 

$

1,706

 

$

826

 

$

148

 

$

326

 

$

5,215

 

 

The following table sets forth an analysis of our allowance for loan losses for the six months ending June 30, 2012 and 2011.

 

 

 

(Dollars In Thousands)

 

 

 

Commercial

 

Commercial
Real Estate

 

Residential
Real Estate

 

Consumer

 

Unallocated

 

Total

 

June 30, 2012 Allowance for loan losses:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Beginning balance

 

$

2,667

 

$

1,986

 

$

858

 

$

81

 

$

273

 

$

5,865

 

Provision for loan losses

 

(312

)

836

 

339

 

(3

)

(40

)

820

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Loans charged-off

 

(300

)

(85

)

(408

)

(13

)

 

(806

)

Recoveries

 

 

 

15

 

5

 

 

20

 

Total ending allowance balance

 

$

2,055

 

$

2,737

 

$

804

 

$

70

 

$

233

 

$

5,899

 

 

 

 

(Dollars In Thousands)

 

 

 

Commercial

 

Commercial
Real Estate

 

Residential
Real Estate

 

Consumer

 

Unallocated

 

Total

 

June  30, 2011 Allowance for loan losses:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Beginning balance

 

$

3,212

 

$

902

 

$

604

 

$

200

 

$

83

 

$

5,001

 

Provision for loan losses

 

(828

)

804

 

337

 

(32

)

244

 

525

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Loans charged-off

 

(187

)

 

(121

)

(27

)

 

(335

)

Recoveries

 

12

 

 

6

 

6

 

 

24

 

Total ending allowance balance

 

$

2,209

 

$

1,706

 

$

826

 

$

147

 

$

327

 

$

5,215

 

 

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 June 30, 2012 and December 31, 2011.  As of June 30, 2012 and December 31, 2011, accrued interest receivable of $1.7 million and $1.6 million, respectively, and net deferred loan fees of $144 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)

 

June 30, 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

 

$

1,465

 

$

2,060

 

$

94

 

$

16

 

$

 

$

3,635

 

Collectively evaluated

 

590

 

677

 

710

 

54

 

233

 

2,264

 

Total ending allowance balance

 

$

2,055

 

$

2,737

 

$

804

 

$

70

 

$

233

 

$

5,899

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Loans:

 

 

 

 

 

 

 

 

 

 

 

 

 

Individually evaluated for impairment

 

$

4,167

 

$

7,322

 

$

682

 

$

22

 

$

 

$

12,193

 

Collectively evaluated

 

47,540

 

152,117

 

81,011

 

7,167

 

 

287,835

 

Total ending loans balance

 

$

51,707

 

$

159,439

 

$

81,693

 

$

7,189

 

$

 

$

300,028

 

 

 

 

(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 loans balance

 

$

58,853

 

$

144,020

 

$

83,486

 

$

7,993

 

$

 

$

294,352

 

 

The following table presents information related to impaired loans by class of loans as of June 30, 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.

 

13



Table of Contents

 

 

 

(Dollars in Thousands)
June 30, 2012

 

(Dollars in Thousands)
December 31, 2011

 

 

 

Unpaid
Principal 
Balance

 

Allowance
for Loan
Losses 
Allocated

 

Unpaid
Principal
Balance

 

Allowance
for Loan
Losses
Allocated

 

 

 

 

 

 

 

 

 

 

 

Commercial

 

$

2,349

 

$

 

$

2,020

 

$

 

Commercial real estate:

 

 

 

 

 

 

 

 

 

Construction

 

 

 

 

 

Other

 

632

 

 

999

 

 

Residential real estate

 

399

 

 

374

 

 

Consumer:

 

 

 

 

 

 

 

 

 

Auto

 

4

 

 

 

 

Other

 

2

 

 

 

 

Subtotal

 

3,386

 

 

3,393

 

 

 

 

 

 

 

 

 

 

 

 

With an allowance recorded:

 

 

 

 

 

 

 

 

 

Commercial

 

1,818

 

1,465

 

2,166

 

1,738

 

Commercial real estate:

 

 

 

 

 

 

 

 

 

Construction

 

 

 

 

 

Other

 

6,690

 

2,060

 

2,625

 

973

 

Residential real estate

 

283

 

94

 

597

 

310

 

Consumer:

 

 

 

 

 

 

 

 

 

Auto

 

16

 

16

 

5

 

5

 

Other

 

0

 

0

 

1

 

1

 

Subtotal

 

8,807

 

3,635

 

5,394

 

3,027

 

Total

 

$

12,193

 

$

3,635

 

$

8,787

 

$

3,027

 

 

Information on impaired loans for the three months ending June 30, 2012 and 2011 is as follows:

 

 

 

(Dollars in Thousands)
June 30, 2012

 

(Dollars in Thousands)
June 30, 2011

 

 

 

Average
Recorded
Investment

 

Interest
Income
Recognized

 

Cash Basis
Interest
Recognized

 

Average
Recorded
Investment

 

Interest
Income
Recognized

 

Cash Basis
Interest
Recognized

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Commercial

 

$

4,148

 

28

 

6

 

$

2,956

 

37

 

38

 

Commercial real estate:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Construction

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Other

 

7,418

 

121

 

94

 

3,629

 

35

 

27

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Residential real estate

 

729

 

9

 

1

 

953

 

7

 

 

Consumer:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Auto

 

17

 

 

 

6

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Other

 

2

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total

 

$

12,314

 

$

158

 

$

101

 

$

7,544

 

$

79

 

$

65

 

 

Information on impaired loans for the six months ending June 30, 2012 and 2011 is as follows:

 

14



Table of Contents

 

 

 

(Dollars in Thousands)
June 30, 2012

 

(Dollars in Thousands)
June 30, 2011

 

 

 

Average
Recorded
Investment

 

Interest
Income
Recognized