PINX:SLRK Solera National Bancorp 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
(Mark one)
 
þ
QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended June 30, 2012

¨
TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

Commission File Number 000-53181
 
SOLERA NATIONAL BANCORP, INC.
(Exact name of registrant as specified in its charter)

Delaware
 
02-0774841
(State or other jurisdiction
of incorporation or organization)
 
(IRS Employer
Identification No.)
 
319 S. Sheridan Blvd.
Lakewood, CO 80226
303-209-8600
(Address and telephone number of principal executive offices and principal place of business)

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 þ  No ¨
 
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).    
Yes þ  No ¨
 
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company.
 
Large accelerated filer o Accelerated filer o
Non-accelerated filer o Smaller reporting company þ
 
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). 
Yes ¨  No þ

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the last practicable date:  As of August 8, 2012, 2,553,671 shares of the registrant’s common stock, $0.01 par value, were issued and outstanding.
 


 
 

 
FORM 10-Q
SOLERA NATIONAL BANCORP, INC.

INDEX
 
       
PAGE
 
           
INTRODUCTORY NOTE.  CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING INFORMATION AND RISK FACTORS     3  
         
PART I - FINANCIAL INFORMATION     4  
         
ITEM 1.
FINANCIAL STATEMENTS (unaudited)
    4  
 
Balance Sheets as of June 30, 2012 and December 31, 2011
    4  
 
Statements of Operations and Comprehensive Income (Loss) for the Three and Six Months Ended June 30, 2012 and 2011
    5  
 
Statements of Changes in Stockholders’ Equity for the Six Months Ended June 30, 2012 and 2011
    6  
 
Statements of Cash Flows for the Six Months Ended June 30, 2012 and 2011
    7  
 
Unaudited Condensed Notes to Consolidated Financial Statements
    9  
ITEM 2.
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
    34  
ITEM 3.
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
    50  
ITEM 4.
CONTROLS AND PROCEDURES
    50  
         
PART II - OTHER INFORMATION     51  
         
ITEM 1.
LEGAL PROCEEDINGS
    51  
ITEM 1A.
RISK FACTORS
    51  
ITEM 2.
UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
    51  
ITEM 3.
DEFAULTS UPON SENIOR SECURITIES
    51  
ITEM 4.
MINE SAFETY DISCLOSURE
    51  
ITEM 5.
OTHER INFORMATION
    51  
ITEM 6.
EXHIBITS
    51  
SIGNATURES     52  
EXHIBIT INDEX     53  
 
 
2

 
 
INTRODUCTORY NOTE.  CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING INFORMATION AND RISK FACTORS

This Quarterly Report on Form 10-Q contains “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995 about Solera National Bancorp, Inc. (the “Company”) and our subsidiary, Solera National Bank (the “Bank,” collectively with the Company, sometimes referred to as “we,” “us” and “our”) that are subject to risks and uncertainties.  Forward-looking statements include information concerning future financial performance, business strategy, projected plans and objectives.  Statements preceded by, followed by or that otherwise include the words “anticipates,” “believes,” “estimates,” “expects,” “intends,” “plans,” “may increase,” “may fluctuate” and similar expressions of future or conditional verbs such as “will,” “should,” “would,” and “could” are generally forward-looking in nature and not historical facts.  Actual results may differ materially from those projected, implied, anticipated or expected in the forward-looking statements.  Readers of this quarterly report should not rely solely on the forward-looking statements and should consider all uncertainties and risks throughout this report. The statements are representative only as of the date they are made, and Solera National Bancorp, Inc. undertakes no obligation to update any forward-looking statement.

These forward-looking statements, implicitly and explicitly, include the assumptions underlying the statements and other information with respect to the Company's beliefs, plans, objectives, goals, expectations, anticipations, estimates, financial condition, results of operations, future performance and business, including management's expectations and estimates with respect to revenues, expenses, return on equity, return on assets, efficiency ratio, asset quality and other financial data and capital and performance ratios.

Although the Company believes that the expectations reflected in the forward-looking statements are reasonable, these statements involve risks and uncertainties that are subject to change based on various important factors, some of which are beyond the control of the Company. The following factors, among others, could cause the Company's results or financial performance to differ materially from its goals, plans, objectives, intentions, expectations and other forward-looking statements:

management of Solera National Bank may be unable to limit credit risk associated with our loan portfolio, which would affect the Company’s profitability;
 
general economic conditions in the U.S. and within our market area may be less favorable than expected, causing an adverse impact on our financial performance;
 
the Company is subject to extensive regulatory oversight, which could restrain our growth and profitability;
 
interest rate volatility could adversely impact our business;
 
the Company may not be able to raise additional capital on terms favorable to us;
 
the Company continues to hold other real estate owned which may be vulnerable to declines in real estate values;
 
the recently proposed Basel capital standards may negatively impact our capital ratios, profitability and ability to lend;
 
the liquidity of our common stock is affected by its limited trading market; and
 
the Company faces competition from a variety of competitors.

For a discussion of these and other risks and uncertainties that could cause actual results to differ from those contained in the forward-looking statements, see “Risk Factors” in Item 1A of the Company’s 2011 Annual Report filed on Form 10-K with the SEC, which is available on the SEC’s website at www.sec.gov.  All forward-looking statements are qualified in their entirety by this cautionary statement, and the Company undertakes no obligation to revise or update this Quarterly Report on Form 10-Q to reflect events or circumstances after the date hereof.  New factors emerge from time to time, and we cannot predict which factors, if any, will arise.  In addition, the Company cannot assess the impact of each factor on the Company’s business or the extent to which any factor, or combination of factors, may cause actual results to differ materially from those contained in any forward-looking statements.
 
 
3

 
 
PART I - FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS (unaudited)

Solera National Bancorp, Inc.

Balance Sheets as of June 30, 2012 and December 31, 2011
(unaudited)
 
($ in thousands, except share data)
 
June 30,
   
December 31,
 
   
2012
   
2011
 
ASSETS
             
Cash and cash equivalents
  $ 849     $ 1,800  
Interest-bearing deposits with banks
    357       1,357  
Investment securities, available-for-sale
    89,141       83,195  
Gross loans
    58,537       55,645  
Net deferred expenses/(fees)
    94       (77 )
Allowance for loan and lease losses
    (1,009 )     (1,067 )
Net loans
    57,622       54,501  
Federal Home Loan Bank (FHLB) and Federal Reserve Bank stocks
    1,164       1,134  
Bank-owned life insurance
    2,027       -  
Other real estate owned
    1,776       1,776  
Premises and equipment, net
    550       599  
Accrued interest receivable
    718       584  
Other assets
    348       420  
Total assets
  $ 154,552     $ 145,366  
                 
LIABILITIES AND STOCKHOLDERS’ EQUITY
                 
Deposits
               
Noninterest-bearing demand
  $ 3,312     $ 3,550  
Interest-bearing demand
    8,950       9,355  
Savings and money market
    56,740       58,854  
Time deposits
    56,199       47,225  
Total deposits
    125,201       118,984  
                 
Securities sold under agreements to repurchase and federal funds purchased
    814       253  
Accrued interest payable
    63       56  
Accounts payable and other liabilities
    336       534  
FHLB advances
    8,500       6,500  
Total liabilities
  $ 134,914     $ 126,327  
                 
COMMITMENTS AND CONTINGENCIES (see Notes 10 and 12)
               
                 
STOCKHOLDERS’ EQUITY
               
Common stock, $0.01 par value; 5,000,000 shares authorized; 2,553,671 shares issued and outstanding
  $ 26     $ 26  
Additional paid-in capital
    26,172       26,146  
Accumulated deficit
    (7,546 )     (7,640 )
Accumulated other comprehensive income
    986       507  
Total stockholders’ equity
  $ 19,638     $ 19,039  
Total liabilities and stockholders’ equity
  $ 154,552     $ 145,366  

See Notes to Consolidated Financial Statements.
 
 
4

 
 
Solera National Bancorp, Inc.

Statements of Operations and Comprehensive Income (Loss) for
the Three and Six Months Ended June 30, 2012 and 2011
(unaudited)
 
($ in thousands, except share data)
 
For the Three Months
Ended June 30,
   
For the Six Months
Ended June 30,
 
   
2012
   
2011
   
2012
   
2011
 
INTEREST INCOME:
                       
Interest and fees on loans
  $ 787     $ 847     $ 1,575     $ 1,671  
Interest on investment securities
    540       646       1,043       1,319  
Dividends on FHLB and FRB stocks
    10       8       18       17  
Other interest income
    3       2       5       3  
Total interest income
    1,340       1,503       2,641       3,010  
INTEREST EXPENSE:
                               
Deposits
    279       354       579       723  
FHLB advances
    33       49       64       106  
Other borrowings
    2       3       3       7  
Total interest expense
    314       406       646       836  
NET INTEREST INCOME BEFORE PROVISION
    1,026       1,097       1,995       2,174  
Provision for loan and lease losses
    -       120       -       120  
NET INTEREST INCOME AFTER PROVISION
    1,026       977       1,995       2,054  
NONINTEREST INCOME:
                               
Service charges and fees
    19       18       34       35  
Other income
    20       1       29       2  
Gain on loans sold
    25       -       25       -  
Gain on sale of available-for-sale securities
    166       225       280       223  
Total noninterest income
    230       244       368       260  
NONINTEREST EXPENSE:
                               
  Salaries and employee benefits
    587       612       1,154       1,317  
  Occupancy
    120       127       247       260  
  Professional fees
    78       99       222       225  
  Other general and administrative
    338       283       646       595  
Total noninterest expense
    1,123       1,121       2,269       2,397  
INCOME (LOSS) BEFORE INCOME TAXES
    133       100       94       (83 )
Provision for income taxes
    -       -       -       -  
NET INCOME (LOSS)
  $ 133     $ 100     $ 94     $ (83 )
                                 
OTHER COMPREHENSIVE INCOME, NET OF TAX:
                               
Change in net unrealized gains on securities
    209       1,023       759       1,096  
Less: Reclassification adjustment for net gains included in net income (loss)
    (166 )     (225     (280     (223
OTHER COMPREHENSIVE INCOME
  $ 43     $ 798     $ 479     $ 873  
                                 
COMPREHENSIVE INCOME
  $ 176     $ 898     $ 573     $ 790  
                                 
NET INCOME (LOSS) AVAILABLE TO COMMON STOCKHOLDERS
  $ 133     $ 100     $ 94     $ (83 )
                                 
INCOME (LOSS) PER COMMON SHARE
                               
Basic
  $ 0.05     $ 0.04     $ 0.04     $ (0.03 )
Weighted-average common shares outstanding - basic
    2,553,671       2,553,671       2,553,671       2,553,671  
Diluted
  $ 0.05     $ 0.04     $ 0.04     $ (0.03 )
Weighted-average common shares outstanding - diluted
    2,558,283       2,553,671       2,558,283       2,553,671  

See Notes to Consolidated Financial Statements.
 
 
5

 

Solera National Bancorp, Inc.

Statements of Changes in Stockholders’ Equity for
the Six Months Ended June 30, 2012 and 2011
(unaudited)

($ in thousands, except share data)
 
Shares
Outstanding
   
Common Stock
   
Additional
Paid-in Capital
   
Accumulated Deficit
   
Accumulated Other
Comprehensive
Income
   
Total
 
                                     
Balance at December 31, 2010
    2,553,671     $ 26     $ 25,980     $ (7,882 )   $ 201     $ 18,325  
Stock-based compensation
    -       -       115       -       -       115  
Comprehensive income:
                                               
   Net loss
    -       -       -       (83 )     -       (83 )
   Other comprehensive income
    -       -       -       -       873       873  
Total comprehensive income
                                            790  
Balance at June 30, 2011
    2,553,671     $ 26     $ 26,095     $ (7,965 )   $ 1,074     $ 19,230  

Balance at December 31, 2011
    2,553,671     $ 26     $ 26,146     $ (7,640 )   $ 507     $ 19,039  
Stock-based compensation
    -       -       26       -       -       26  
Comprehensive income:
                                               
   Net income
    -       -       -       94       -       94  
   Other comprehensive income
    -       -       -       -       479       479  
Total comprehensive income
                                            573  
Balance at June 30, 2012
    2,553,671     $ 26     $ 26,172     $ (7,546 )   $ 986     $ 19,638  

See Notes to Consolidated Financial Statements.
 
 
6

 

Solera National Bancorp, Inc.

Statements of Cash Flows for the
Six Months Ended June 30, 2012 and 2011
(unaudited)
 
   
For the Six Months
 
   
Ended June 30,
 
($ in thousands)  
2012
   
2011
 
             
CASH FLOWS FROM OPERATING ACTIVITIES
           
Net income (loss)
  $ 94     $ (83 )
Adjustments to reconcile net income (loss) to net cash provided by operating activities:
               
   Depreciation and amortization
    61       76  
   Provision for loan and lease losses
    -       120  
   Net accretion of deferred loan fees/expenses
    (6 )     (12 )
   Net amortization of premiums on investment securities
    728       308  
   Gain on sale of available-for-sale investment securities
    (280 )     (223 )
   Federal Home Loan Bank stock dividend
    (2 )     (2 )
   Recognition of stock-based compensation on stock options
    26       115  
   Increase in bank-owned life insurance cash surrender value
    (27 )     -  
Changes in operating assets and liabilities:
               
   Accrued interest receivable
    (134 )     116  
   Other assets
    72       41  
   Prepaid FDIC premiums
    -       111  
   Accrued interest payable
    7       (27 )
   Accounts payable and other liabilities
    (174 )     -  
   Deferred loan fees/expenses, net
    (165 )     (8 )
Net cash provided by operating activities
  $ 200     $ 532  
                 
CASH FLOWS FROM INVESTING ACTIVITIES
               
Purchase of investment securities, available-for-sale
  $ (32,369 )   $ (27,307 )
Proceeds from sales of investment securities, available-for-sale
    19,444       25,058  
Proceeds from maturities/calls/pay downs of investment securities, available-for-sale
    7,010       5,060  
Loan originations funded, net
    (2,950 )     (58 )
(Purchase) / redemption of Federal Reserve Bank stock
    (28 )     53  
Purchase of bank-owned life insurance
    (2,000 )     -  
Purchase of premises and equipment
    (12 )     (2 )
Proceeds from sale of foreclosed properties
    -       1,838  
Purchase of interest-bearing deposits with banks
    -       (1,000 )
Maturity of interest-bearing deposits with banks
    1,000       160  
Net cash (used in) / provided by investing activities
  $ (9,905 )   $ 3,802  
                 
CASH FLOWS FROM FINANCING ACTIVITIES
               
Net increase in deposits
  $ 6,217     $ 2,538  
Net increase in securities sold under agreements to repurchase and federal funds purchased
    561       137  
Increase / (decrease) in FHLB advances
    2,000       (3,500 )
Principal payments on capital lease
    (24 )     (22 )
Net cash provided by / (used in) financing activities
  $ 8,754     $ (847 )
                 
Net (decrease) / increase in cash and cash equivalents
  $ (951 )   $ 3,487  
                 
CASH AND CASH EQUIVALENTS
               
Beginning of period
    1,800       936  
End of period
  $ 849     $ 4,423  
(continued)
               
 
 
7

 
 
Solera National Bancorp, Inc.

Statements of Cash Flows for the
Six Months Ended June 30, 2012 and 2011, (continued)
(unaudited)
 
    For the Six Months
Ended June 30,
 
($ in thousands)   2012     2011  
             
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION            
Cash paid during the period for:
           
Interest
  $ 639     $ 863  
Income taxes paid
  $ -     $ -  
Non-cash investing transactions:
               
Unrealized gain on investment securities, available-for-sale   $ 479     $ 873  
 
See Notes to Consolidated Financial Statements.
 
 
8

 

SOLERA NATIONAL BANCORP, INC.
 
UNAUDITED CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 1 - SUMMARY OF ORGANIZATION

Solera National Bancorp, Inc. (the “Company”), is a Delaware corporation that was incorporated in 2006 to organize and serve as the holding company for Solera National Bank (the “Bank”), a national bank that opened for business on September 10, 2007.  Solera National Bank is a full-service community, commercial bank headquartered in Lakewood, Colorado primarily serving the six-county Denver metropolitan area.

NOTE 2 - BASIS OF PRESENTATION

The accompanying unaudited condensed consolidated financial statements contain all adjustments (consisting only of normal recurring adjustments) which, in the opinion of management, are necessary to present fairly the financial position of the Company as of June 30, 2012, and the results of its operations for the three and six months ended June 30, 2012 and 2011.  Cash flows are presented for the six months ended June 30, 2012 and 2011.  Certain reclassifications have been made to the consolidated financial statements and related notes of prior periods to conform to the current presentation.  These reclassifications had no impact on stockholders’ equity or net income (loss) for the periods.  Additionally, certain information and footnote disclosures normally included in financial statements have been condensed or omitted pursuant to rules and regulations of the U.S. Securities and Exchange Commission.  The Company believes that the disclosures in the unaudited condensed consolidated financial statements are adequate to make the information presented not misleading.  However, these unaudited condensed consolidated financial statements should be read in conjunction with the consolidated financial statements and footnotes thereto included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2011.

The attainment of sustained profitable operations are dependent on future events, including the successful execution of the Company’s business plan and achieving a level of revenue adequate to support the Company’s cost structure.

Critical Accounting Policies

The following is a description of the Company’s significant accounting policies used in the preparation of the accompanying consolidated financial statements.
 
Provision and allowance for loan and lease losses:  Implicit in the Company’s lending activities is the fact that loan and lease losses will be experienced and that the risk of loss will vary with the type of loans being made and the creditworthiness of the borrowers over the terms of the loans.  The allowance for loan and lease losses represents the Company’s recognition of the risks of extending credit and its evaluation of the loan portfolio.  The evaluation of the allowance is inherently subjective as it requires estimates that are susceptible to significant revision as more information becomes available.  The allowance for loan and lease losses is maintained at a level considered adequate to provide for probable loan and lease losses based on management’s assessment of various factors affecting the loan portfolio, including a review of problem loans, business conditions, historical loss experience, evaluation of the quality of the underlying collateral, and holding and disposal costs.  In addition, because the Bank has limited history on which to base future loan and lease losses, a comparison of peer group allowance ratios to gross loans is made with the intention of maintaining similar levels until the Bank has sufficient historical data to see trends in our own loss history.  The allowance for loan and lease losses is increased by provisions charged to expense and reduced by loans and leases charged-off, net of recoveries.  Loan and lease losses are charged against the allowance for loan and lease losses when management believes the balance is uncollectible.
 
 
9

 

The Company has established a formal process for determining an adequate allowance for loan and lease losses.  The allowance for loan and lease losses calculation has two components.  The first component represents the allowance for loan and lease losses for impaired loans; that is loans where the Company believes collection of the contractual principal and interest payments is not probable.  To determine this component of the calculation, impaired loans and leases are individually evaluated by either discounting the expected future cash flows or determining the fair value of the collateral, if repayment is expected solely from collateral.  The fair value of the collateral is determined using internal analyses as well as third-party information, such as appraisals.  That value, less estimated costs to sell, is compared to the recorded investment in the loan and any shortfall is charged-off.  Unsecured loans and loans that are not collateral-dependent are evaluated by calculating the discounted cash flow of the payments expected over the life of the loan using the loan’s effective interest rate and giving consideration to currently existing factors that would impact the amount or timing of the cash flows.  The shortfall between the recorded investment in the loan and the discounted cash flows, or the fair value of the collateral less estimated costs to sell, represents the first component of the allowance for loan and lease losses.

The second component of the allowance for loan and lease losses represents contingent losses – the estimated probable losses inherent within the portfolio due to uncertainties.  To determine this component, management calculates a weighted-average loss rate based on actual loss rates over the last two to three years for all banks in Colorado and for similarly-sized commercial banks with two or fewer locations in a metropolitan area.  Management then adjusts the loss rate for environmental factors which include, but are not limited to, 1) historical and current trends in downgraded loans; 2) the level of the allowance in relation to total loans; 3) the levels and trends in non-performing and past due loans; and 4) management’s assessment of economic conditions and certain qualitative factors as defined by bank regulatory guidance, including but not limited to, changes in the size, composition and concentrations of the loan portfolio, changes in the legal and regulatory environment, and changes in lending management.  The qualitative factors also consider the risk elements within each segment of the loan portfolio.  The primary risk comes from the difference between the expected and actual cash flows of the borrower and is influenced by the type of collateral securing the loans.  For real estate secured loans, conditions in the real estate markets as well as the general economy influence real estate values and may impact the Company’s ability to recover its investment due to declines in the fair value of the underlying collateral.  The risks in non-real estate secured loans include general economic conditions as well as interest rate changes.  Classified and criticized loans, which are closely monitored by management, are taken out of their original category for calculating their contingent loss rate and are assigned a loss rate ranging between 2.50% and 17.50% of the loan’s principal balance.  The aggregate of above described segments represents the contingent losses in the portfolio.

The recorded allowance for loan and lease losses is the aggregate of the impaired loan and lease component and the contingent loss component.  We aggregate our loans into portfolio segments including:  Commercial Real Estate Secured; Residential Real Estate Secured; Commercial and Industrial; and Consumer.  These segments are based upon the loan’s categorization in the Consolidated Report of Condition and Income, as set forth by banking regulators, (the “Call Report”).  Our methodology for estimating the allowance has not changed during the current or prior reporting period and is consistent across all portfolio segments and classes of loans. 

At June 30, 2012, the Company had an allowance for loan and lease losses of $1.0 million.  We believe that this is adequate to cover probable losses based on currently available evidence.  Future additions to the allowance for loan and lease losses may be required based on management’s continuing evaluation of the inherent risks in the portfolio.  Additional provisions for loan and lease losses may be needed if the economy declines, asset quality deteriorates, or the loss experience changes.

 
10

 

Loans receivable:  Loans receivable that the Company has the intent and ability to hold for the foreseeable future or until maturity or payoff are reported at their outstanding unpaid principal balances net of any deferred fees or costs, and reduced by any charge-offs and the allowance for loan and lease losses.

Credit and loan decisions are made by management and the Board of Directors’ Credit Committee in conformity with established loan policies.  The Company’s practice is to charge-off any loan or portion of a loan when the loan is determined to be uncollectible due to the borrower’s failure to meet repayment terms, the borrower’s deteriorated financial condition, the depreciation of the underlying collateral, the loan’s classification as a loss, or for other reasons.

The Company considers a loan to be impaired when it is probable that the Company will be unable to collect all amounts due (principal and interest) according to the contractual terms of the loan agreement.  Measurement of impairment is based on the expected future cash flows of an impaired loan, which are to be discounted at the loan’s effective interest rate, or measured by reference to an observable market value, if one exists, or the fair value of the collateral for a collateral-dependent loan.  The Company selects the measurement method on a loan-by-loan basis except that collateral-dependent loans for which foreclosure is probable are measured at the fair value of the collateral.  The Company recognizes interest income on impaired loans based on its existing methods of recognizing interest income on nonaccrual loans (see Interest and fees on loans, below).

Interest and fees on loans:  Interest income is recognized daily in accordance with the terms of the note based on the outstanding principal balance.  Loans on which the accrual of interest has been discontinued are designated as nonaccrual loans.  The accrual of interest on loans is discontinued when principal or interest is 90 days past due based on contractual terms of the loan or when, in the opinion of management, there is reasonable doubt as to collectability.  When loans are placed on nonaccrual status, all interest previously accrued but not collected is reversed against current period interest income.  Income on nonaccrual loans is subsequently recognized only to the extent that cash is received and the Bank's recorded investment in the loan (the customer's balance less any partial charge-offs) is deemed collectible.  Interest accruals are resumed on such loans only when they are brought current with respect to interest and principal and when, in the judgment of management, the loans are estimated to be fully collectible as to all interest and the Bank's recorded investment.

Generally, for all classes of loans, loans are considered past due when contractual payments are delinquent by 30 days or more.

Loan origination fees and certain direct origination costs are capitalized and recognized as an adjustment of the yield of the related loan using the effective interest method and without anticipating prepayments.

Share-based compensation:  The Company grants stock options as incentive compensation to employees and directors.  The cost of employee/director services received in exchange for an award of equity instruments is based on the grant-date fair value of the award, which is determined using a Black-Scholes-Merton model.  This cost, net of estimated forfeitures, is expensed to salaries and employee benefits over the period in which the recipient is required to provide services in exchange for the award, generally the vesting period.
 
 
11

 

Estimation of fair value:  The estimation of fair value is significant to a number of the Company’s assets, including available-for-sale investment securities.  These are all recorded at either fair value or at the lower of cost or fair value.  Furthermore, accounting principles generally accepted in the United States require disclosure of the fair value of financial instruments as a part of the notes to the consolidated financial statements.  Fair values are volatile and may be influenced by a number of factors, including market interest rates, prepayment speeds, discount rates and the shape of the yield curve.  Fair value is the exchange price that would be received for an asset or paid to transfer a liability (exit price) in the most advantageous market for the asset or liability in an orderly transaction between market participants.  The fair value hierarchy requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value.  Current accounting standards describe three levels of inputs that may be used to measure fair values:

Level 1 –
inputs are unadjusted quoted prices in active markets for identical assets or liabilities that the Company has the ability to access at the measurement date.

Level 2 –
inputs are other than quoted prices included in Level 1 that are observable for the asset or liability either directly or indirectly, such as quoted prices for similar assets or liabilities; quoted prices in markets that are not active; or model-based valuation techniques for which all significant assumptions are observable in the market.

Level 3 –
valuation is generated from model-based techniques that use at least one significant assumption not observable in the market.  These unobservable assumptions reflect estimates of assumptions that market participants would use in pricing the asset or liability.  Valuation techniques include use of option pricing models, discounted cash flow models and similar techniques.

Impairment of investment securities:  Investment securities are evaluated for impairment on at least a quarterly basis and more frequently when economic or market conditions warrant such an evaluation to determine whether a decline in their value below amortized cost is other-than-temporary.  Securities are evaluated for impairment utilizing criteria such as the magnitude and duration of the decline, current market conditions, payment history, the credit worthiness of the obligor, the intent of the Company to retain the security or whether it is more likely than not that the Company will be required to sell the security before recovery of the value, as well as other qualitative factors.  If a decline in value below amortized cost is determined to be other-than-temporary, which does not necessarily indicate that the decline is permanent, but indicates that the prospects for a near-term recovery of value is not favorable, the security is reviewed in more detail in order to determine the portion of the impairment that relates to credit (resulting in a charge to earnings) versus the portion of the impairment that is noncredit related (resulting in a charge to accumulated other comprehensive income).  If it is more likely than not that sale of the security will be required prior to recovery of its amortized cost, the entire impairment is recognized in earnings equal to the difference between the amortized cost basis and the fair value.  A credit loss is determined by comparing the amortized cost basis to the present value of cash flows expected to be collected, computed using the original yield as the discount rate.

Income (loss) per common share:  Basic earnings per common share is based on the weighted-average number of common shares outstanding during the period.  Diluted earnings per share is similar to basic earnings per share except that the weighted-average number of common shares outstanding is increased by the number of additional common shares that would have been outstanding if the dilutive potential common shares had been issued.  As of June 30, 2012, there were 4,612 dilutive stock options outstanding that increased the weighted-average diluted shares outstanding.  Since the vast majority of the Company’s stock options were out of the money during 2011, there were no dilutive potential common shares at June 30, 2011.

Recent Accounting Pronouncements

In May 2011, the Financial Accounting Standards Board, (“FASB”), issued an accounting standards update intended to improve the comparability of fair value accounting and reporting requirements between United States Generally Accepted Accounting Principles (U.S. GAAP) and International Financial Reporting Standards (IFRS).  Additional disclosures required by the update are incorporated in Note 11 and include: (i) disclosure of quantitative information regarding the unobservable inputs used in any  Level 3 measurement  including an explanation of the valuation techniques used and the sensitivity to changes in the values assigned to unobservable inputs; (ii) categorization by level for the fair value of financial instruments; and (iii) instances where the fair values disclosed for non-financial assets were based on a highest and best use assumption when in fact the assets are not being utilized in that capacity.  The amendments in the update are effective for the Company’s interim and annual reports beginning with the first quarter 2012.  The provisions of this update did not have a material impact on the Company’s financial position, results of operations or cash flows but did cause changes to the Company’s fair value disclosure (see Note 11).
 
 
12

 

In June 2011, the FASB issued an accounting standards update to increase the prominence of items included in Other Comprehensive Income and facilitate the convergence of U.S. GAAP with IFRS.  The update prohibits continued exclusive presentation of Other Comprehensive Income in the statement of stockholders’ equity.  The update requires that all non-owner changes in stockholders’ equity be presented in either a single continuous statement of comprehensive income or in two separate but continuous statements.  The amendments in the update are effective for the Company’s interim and annual reports beginning with the first quarter 2012.  The provisions of this update did not have a material impact on the Company’s financial position, results of operations or cash flows but did cause changes to the presentation of the Company’s Statements of Operations.

During the first and second quarters of 2012, the FASB issued other accounting standards updates which may impact the banking community or other entities but do not, and are not expected to, have a material impact on our financial position, results of operations or cash flows.

NOTE 3 - INVESTMENTS

The amortized costs and estimated fair values of investment securities as of June 30, 2012 and December 31, 2011 are as follows:

($ in thousands)
June 30, 2012
 
     
Gross
 
Gross
     
 
Amortized
 
Unrealized
 
Unrealized
 
Estimated
 
 
Cost
 
Gains
 
Losses
 
Fair Value
 
Securities available-for-sale:
                       
Corporate
  $ 16,207     $ 327     $ (255 )   $ 16,279  
State and municipal
    16,143       296       (32 )     16,407  
Residential agency mortgage-backed securities (“MBS”)
    55,805       701       (51 )     56,455  
Total securities available-for-sale
  $ 88,155     $ 1,324     $ (338 )   $ 89,141  


($ in thousands)
December 31, 2011
 
     
Gross
 
Gross
     
 
Amortized
 
Unrealized
 
Unrealized
 
Estimated
 
 
Cost
 
Gains
 
Losses
 
Fair Value
 
Securities available-for-sale:
                       
Corporate
  $ 15,117     $ 161     $ (460 )   $ 14,818  
State and municipal
    3,691       198       (4 )     3,885  
Residential agency MBS
    63,880       747       (135 )     64,492  
Total securities available-for-sale
  $ 82,688     $ 1,106     $ (599 )   $ 83,195  

The amortized cost and estimated fair value of investment securities by contractual maturity at June 30, 2012 and December 31, 2011 are shown below.  The timing of principal payments received differs from the contractual maturity because borrowers may be required to make contractual principal payments and often have the right to call or prepay obligations with or without call or prepayment penalties.  As a result, the timing with which principal payments are received on mortgage-backed securities (“MBS”) is not represented in the tables below.  For instance, we received $7.0 million in proceeds from the maturity/call/prepayment of securities during the six months ended June 30, 2012 (see our Consolidated Statements of Cash Flows on page 7) versus no dollars contractually maturing within one year as of December 31, 2011, as set forth in the table below.
 
 
13

 
 
($ in thousands)
 
June 30, 2012
   
December 31, 2011
 
         
 
   
 
 
Securities available-for-sale:  
Amortized
Cost
   
Estimated Fair
Value
   
Amortized
Cost
   
Estimated Fair
Value
 
Due within one year
  $ 499     $ 519     $ -     $ -  
Due after one year through five years
    6,887       7,017       8,540       8,583  
Due after five years through ten years
    23,661       23,889       13,799       13,720  
Due after ten years
    57,108       57,716       60,349       60,892  
Total securities available-for-sale
  $ 88,155     $ 89,141     $ 82,688     $ 83,195  

The following tables show the estimated fair value and gross unrealized losses, aggregated by investment category and length of time the individual securities have been in a continuous loss position as of June 30, 2012 and December 31, 2011.

 
June 30, 2012
 
($ in thousands)
Less than 12 months
   
12 months or more
   
Total
 
Description of securities:
Estimated Fair Value
 
Unrealized
Losses
   
# of
Securities
   
Estimated Fair Value
 
Unrealized
Losses
   
# of
Securities
   
Estimated Fair Value
 
Unrealized
 Losses
   
# of
Securities
 
Corporate
  $ 2,547     $ (96 )     5     $ 4,341     $ (159 )     7     $ 6,888     $ (255 )     12  
State and municipal
    3,951       (32 )     8       -       -       -       3,951       (32 )     8  
Residential agency MBS
    9,488       (45 )     11       931       (6 )     1       10,419       (51 )     12  
Total temporarily-impaired
  $ 15,986     $ (173 )     24     $ 5,272     $ (165 )     8     $ 21,258     $ (338 )     32  


 
December 31, 2011
 
($ in thousands)
Less than 12 months
   
12 months or more
   
Total
 
Description of securities:
Estimated Fair Value
 
Unrealized
Losses
   
# of
Securities
   
Estimated Fair Value
 
Unrealized
Losses
   
# of
Securities
   
Estimated Fair Value
 
Unrealized
Losses
   
# of
Securities
 
Corporate
  $ 4,033     $ (180 )     8     $ 4,220     $ (280 )     7     $ 8,253     $ (460 )     15  
State and municipal
    502       (4 )     1       -       -       -       502       (4 )     1  
Residential agency MBS
    18,266       (135 )     20       -       -       -       18,266       (135 )     20  
Total temporarily-impaired
  $ 22,801     $ (319 )     29     $ 4,220     $ (280 )     7     $ 27,021     $ (599 )     36  

 
14

 

Management evaluates investment securities for other-than-temporary impairment taking into consideration the extent and length of time the fair value has been less than cost, the financial condition of the issuer, whether the Company has the intent to retain the security and whether it is more-likely-than-not that the Company will be required to sell the security before recovery of the value, as well as other qualitative factors.  As of June 30, 2012, no declines were deemed to be other than temporary.  The seven corporate securities that were in a continuous loss position for 12 months or longer at June 30, 2012 fluctuated in value primarily as a result of changes in market interest rates and the widening of spreads due to an increase in the perceived risk of these bonds largely due to the problems with European banks rather than due to a material deterioration in credit quality.  Further, the amount of unrealized loss on these seven corporate bonds has improved by approximately $121,000 since December 31, 2011.  The one residential agency MBS in a continuous loss position for 12 months or longer at June 30, 2012 was primarily due to an expected acceleration in prepayment speeds given the bond’s relatively high coupon.  The Company has determined there is no credit impairment since the bond carries the implicit guarantee of the U.S. government.  Further, the Company has the intent to hold the securities in an unrealized loss position as of June 30, 2012 and does not anticipate that these securities will be required to be sold before recovery of value, which may be upon maturity.  Accordingly, the securities detailed in the table above, are not other than temporarily impaired.  Similarly, management’s evaluation of the securities in an unrealized loss position at December 31, 2011, determined these securities were not other than temporarily impaired.

The Company recorded a net unrealized gain in the investment portfolio of $986,000 at June 30, 2012, a 94% increase over the $507,000 net unrealized gain at December 31, 2011.

Sales of available-for-sale securities were as follows:
 
($ in thousands)  
Three Months Ended June 30,
   
Six Months Ended June 30,
 
   
2012
   
2011
   
2012
   
2011
 
                         
Proceeds
  $ 11,961     $ 13,708     $ 19,444     $ 25,058  
Gross gains
  $ 166     $ 206     $ 280     $ 352  
Gross losses
  $ -     $ (48 )   $ -     $ (129 )

Realized gains and losses on sales are computed on a specific identification basis based on amortized cost on the date of sale.  During the first quarter 2011, the Company recognized $67,000 of loss on available-for-sale securities related to other than temporary impairment on five securities that management had the intent to sell before recovery of value.  Those five securities were sold during the second quarter for a net loss of $48,000, a $19,000 improvement from their March 31, 2011 estimated fair values.

Securities with carrying values of $24.0 million at June 30, 2012 and $20.4 million at December 31, 2011, were pledged as collateral to secure public deposits, borrowings from the FHLB, repurchase agreements and for other purposes as required or permitted by law.
 
 
15

 

NOTE 4 - LOANS

The following table sets forth the composition of the loan portfolio according to the loan’s purpose, which may differ from the categorization of the loan in subsequent tables which categorize the loan according to its underlying collateral:
 
($ in thousands)
 
June 30,
2012
   
December 31,
2011
 
Commercial real estate (“CRE”)
  $ 38,163     $ 37,862  
Commercial and industrial
    7,832       5,971  
Residential real estate
    11,083       10,460  
Construction and land development
    1,405       1,307  
Consumer
    54       45  
GROSS LOANS
    58,537       55,645  
Net deferred loan expenses / (fees)
    94       (77 )
Allowance for loan and lease losses
    (1,009 )     (1,067 )
LOANS, NET
  $ 57,622     $ 54,501  
 
During the first six months of 2012, the Bank purchased ten loans with principal balances totaling approximately $2.3 million.  No loans were purchased during the first or second quarter of 2011.  During the second quarter 2012, the Bank sold the guaranteed portion of an SBA 7A note and recognized a $25,000 gain on sale.  No loans were sold during the first quarter of 2012 or during the first or second quarters of 2011.

In the ordinary course of business, and only if consistent with permissible exceptions to Section 402 of the Sarbanes- Oxley Act of 2002, the Bank may make loans to directors, executive officers, principal stockholders (holders of more than five percent of the outstanding common shares) and the businesses with which they are associated.  In the Company’s opinion, all loans and loan commitments to such parties are made on substantially the same terms, including interest rates and collateral, as those prevailing at the time for comparable transactions with other persons. There were approximately $223,000 and $481,000 in loans receivable from related parties at June 30, 2012 and December 31, 2011, respectively.

The Company’s loan portfolio generally consists of loans to borrowers within Colorado.  Although the Company seeks to avoid concentrations of loans to a single industry or based upon a single class of collateral, the Company’s loan portfolio consists primarily of real estate loans secured by real estate located in Colorado, making the value of the portfolio more susceptible to declines in real estate values and other changes in economic conditions in Colorado.  No single borrower can be approved for a loan over the Bank’s current legal lending limit of approximately $2.6 million.  This regulatory requirement helps to ensure the Bank’s exposure to one individual customer is limited.
 
 
16

 

NOTE 5 - ALLOWANCE FOR LOAN AND LEASE LOSSES
 
Activity in the allowance for loan and lease losses for the three and six months ended June 30, 2012 and 2011 is summarized as follows:
 
($ in thousands)
 
Three Months Ended
June 30,
   
Six Months Ended
June 30,
 
   
2012
   
2011
   
2012
   
2011
 
                         
Balance, beginning of period
  $ 1,077     $ 1,175     $ 1,067     $ 1,175  
Charge-offs
    (85 )     (11 )     (88     (11 )    
Recoveries
    17       -       30       -  
Provision for loan and lease losses
    -       120       -       120  
Balance, end of period
  $ 1,009     $ 1,284     $ 1,009     $ 1,284  

The following allowance for loan and lease loss disclosures are broken out by portfolio segment.  Portfolio segment is defined, under current U.S. GAAP, as the level of aggregation used by the Company to calculate its allowance for loan and lease losses.  Our portfolio segments are based on how loans are categorized on the Call Report, which is primarily based on the collateral securing the loan.  We have four main portfolio segments as follows:
 
Commercial Real Estate (CRE) Secured – loans secured by nonfarm, nonresidential properties
Residential Real Estate Secured – loans secured by 1-4 family residential properties or land
Commercial and Industrial – loans to businesses not secured by real estate, and
Consumer – loans to individuals not secured by real estate.
 
The portfolio segment categorization of loans differs from the categorization shown in Note 4 – Loans.  Portfolio segment categorization is based on the Call Report and the loan’s underlying collateral while the loan categorization in Note 4 – Loans is based on the loan’s purpose as determined during the underwriting process.

The tables below provide a rollforward, by portfolio segment, of the allowance for loan and lease losses for the three and six months ended June 30, 2012 and 2011, respectively.

Rollforward of Allowance for Loan and Lease Losses by Portfolio Segment
 
Three Months Ended June 30, 2012
 
($ in thousands)
Commercial Real
 Estate Secured
 
Residential Real
Estate Secured
 
Commercial and
Industrial
 
Consumer
 
Total
 
                     
Balance at March 31, 2012
  $ 699     $ 247     $ 130     $ 1     $ 1,077  
Charge-offs
    -       -       (85 )     -       (85 )
Recoveries
    -       17       -       -       17  
Provision for loan and lease losses
    (34 )     (17 )     51       -       -  
Balance at June 30, 2012
  $ 665     $ 247     $ 96     $ 1     $ 1,009  

 
17

 

Rollforward of Allowance for Loan and Lease Losses by Portfolio Segment
Six Months Ended June 30, 2012
($ in thousands)
Commercial Real
Estate Secured
 
Residential Real
Estate Secured
 
Commercial and
Industrial
 
Consumer
 
Total
                                         
Balance at December 31, 2011
  $ 726     $ 244     $ 97     $ -     $ 1,067  
Charge-offs
    -               (85 )     (3 )     (88 )
Recoveries
    -       30       -       -       30  
Provision for loan and lease losses
    (61 )     (27 )     84       4       -  
Balance at June 30, 2012
  $ 665     $ 247     $ 96     $ 1     $ 1,009  

The components of the provision for loan and lease losses have changed during the three and six months ended June 30, 2012 primarily due to the need to replenish the allowance for commercial and industrial loans after the $85,000 charge-off which didn’t require provision expense during these periods due to improving asset quality in both commercial and residential real estate secured loans.

Rollforward of Allowance for Loan and Lease Losses by Portfolio Segment
 
Three Months Ended June 30, 2011
 
($ in thousands)
Commercial Real
 Estate Secured
 
Residential Real
Estate Secured
 
Commercial and
Industrial
 
Consumer
 
Total
 
                                         
Balance at March 31, 2011
  $ 581     $ 338     $ 255     $ 1     $ 1,175  
Charge-offs
    (11 )     -       -       -       (11 )
Recoveries
    -       -       -       -       -  
Provision for loan and lease losses
    153       94       (127 )     -       120  
Balance at June 30, 2011
  $ 723     $ 432     $ 128     $ 1     $ 1,284  


Rollforward of Allowance for Loan and Lease Losses by Portfolio Segment
 
Six Months Ended June 30, 2011
 
($ in thousands)
Commercial Real
 Estate Secured
 
Residential Real
Estate Secured
 
Commercial and
Industrial
 
Consumer
 
Total
 
                                         
Balance at December 31, 2010
  $ 524     $ 314     $ 336     $ 1     $ 1,175  
Charge-offs
    (11 )     -       -       -       (11 )
Recoveries
    -       -       -       -       -  
Provision for loan and lease losses
    210       118       (208 )     -       120  
Balance at June 30, 2011
  $ 723     $ 432     $ 128     $ 1     $ 1,284  
 
 
18

 
 
The following tables present the ending balance in loans and allowance for loan and lease losses, broken down by portfolio segment as of June 30, 2012 and December 31, 2011.  The tables also identify the recorded investment in loans and the related allowance that correspond to individual versus collective impairment evaluation as derived from the Company’s methodology of estimating the allowance for loan and lease losses (see additional discussion about our allowance methodology under Note 2:  Critical Accounting Policies, Provision and allowance for loan and lease losses).

Ending Balances in Loans and Allowance for Loan and Lease Losses by Portfolio Segment
 
June 30, 2012
 
($ in thousands)
 
Commercial Real
 Estate Secured
   
Residential Real
 Estate Secured
   
Commercial and Industrial
   
Consumer
   
Total
 
Loans
                             
Individually evaluated for impairment
  $ 214     $ -     $ 93     $ -     $ 307  
Collectively evaluated for impairment
    34,501       16,313       7,362       54       58,230  
Total
  $ 34,715     $ 16,313     $ 7,455     $ 54     $ 58,537  
Allowance for loan losses
                                       
Individually evaluated for impairment
  $ -     $ -     $ -     $ -     $ -  
Collectively evaluated for impairment
    665       247       96       1       1,009  
Total
  $ 665     $ 247     $ 96     $ 1     $ 1,009  
 
Ending Balances in Loans and Allowance for Loan and Lease Losses by Portfolio Segment
 
December 31, 2011
 
($ in thousands)
 
Commercial Real
 Estate Secured
   
Residential Real
 Estate Secured
   
Commercial and Industrial
   
Consumer
   
Total
 
Loans
                             
Individually evaluated for impairment
  $ 274     $ -     $ 336     $ -     $ 610  
Collectively evaluated for impairment
    35,159       14,586       5,245       45       55,035  
Total
  $ 35,433     $ 14,586     $ 5,581     $ 45     $ 55,645  
Allowance for loan losses
                                       
Individually evaluated for impairment
  $ -     $ -     $ -     $ -     $ -  
Collectively evaluated for impairment
    726       244       97       -       1,067  
Total
  $ 726     $ 244     $ 97     $ -     $ 1,067  
 
 
19

 
 
The remaining tables in the allowance for loan and lease losses footnote provide detail about loans according to their class, rather than their segment, as reflected above.  The class level provides more detail than the portfolio segment level.  The following tables contain reconciliation information between the portfolio segment levels and class levels:

Reconciliation between Portfolio Segment and Class
 
June 30, 2012 (Principal Balance)
 
($ in thousands)
 
Portfolio Segment
 
Class
 
Commercial Real
 Estate Secured
   
Residential Real
 Estate Secured
   
Commercial and
Industrial
   
Consumer
   
Total
 
                                         
CRE – owner occupied
  $ 18,104     $ -     $ -     $ -     $ 18,104  
CRE – non-owner occupied
    15,883       -       -       -       15,883  
Commercial and industrial
    -       -       7,455       -       7,455  
Residential real estate
    -       15,636       -       -       15,636  
Construction and land development
    728       677       -       -       1,405  
Consumer
    -       -       -       54       54  
Total
  $ 34,715     $ 16,313     $ 7,455     $ 54     $ 58,537  
 
Reconciliation between Portfolio Segment and Class
 
December 31, 2011 (Principal Balance)
 
($ in thousands)
 
Portfolio Segment
 
Class
 
Commercial Real
 Estate Secured
   
Residential Real
 Estate Secured
   
Commercial and
Industrial
   
Consumer
   
Total
 
                                         
CRE – owner occupied
  $ 16,337     $ -     $ -     $ -     $ 16,337  
CRE – non-owner occupied
    18,367       -       -       -       18,367  
Commercial and industrial
    -       -       5,581       -       5,581  
Residential real estate
    -       14,008       -       -       14,008  
Construction and land development
    729       578       -       -       1,307  
Consumer
    -       -       -       45       45  
Total
  $ 35,433     $ 14,586     $ 5,581     $ 45     $ 55,645  

 
20

 

Impaired Loans
The following tables provide detail of impaired loans broken out according to class as of June 30, 2012 and December 31, 2011.  The class level represents a slightly more detailed level than the portfolio segment level.  There were two impaired loans, totaling $307,000, as of June 30, 2012 compared to three impaired loans totaling $610,000 as of December 31, 2011.  The recorded investment represents the customer balance less any partial charge-offs and excludes any accrued interest receivable since the majority of the loans are on nonaccrual status and therefore do not have interest accruing.  The unpaid principal balance represents the unpaid principal prior to any partial charge-off.

 
Impaired Loans by Class as of June 30, 2012
 
($ in thousands)
 
Recorded
 Investment
   
Unpaid Principal Balance
   
Related
Allowance
   
Average Recorded Investment YTD
   
Interest Income Recognized YTD
 
Impaired loans with no related allowance
                         
CRE – owner occupied
  $ -     $ -     $ -     $ -     $ -  
CRE – non-owner occupied
    214       434       -       243       -  
Commercial and industrial
    93       93       -       309       2  
Residential real estate
    -       -       -       -       -  
Construction and land development
    -       -       -       -       -  
Consumer
    -       -       -       -       -  
Total
  $ 307     $ 527     $ -     $ 552     $ 2  
                                         
Impaired loans with a related allowance
                                 
CRE – owner occupied
  $ -     $ -     $ -     $ -     $ -  
CRE – non-owner occupied
    -       -       -       -       -  
Commercial and industrial
    -       -       -       -       -  
Residential real estate
    -       -       -       -       -  
Construction and land development
    -       -       -       -       -  
Consumer
    -       -       -       -       -  
Total
  $ -     $ -     $ -     $ -     $ -  
                                         
Total impaired loans
                                       
CRE – owner occupied
  $ -     $ -     $ -     $ -     $ -  
CRE – non-owner occupied
    214       434       -       243       -  
Commercial and industrial
    93       93       -       309       2  
Residential real estate
    -       -       -       -       -  
Construction and land development
    -       -       -       -       -  
Consumer
    -       -       -       -       -  
Total
  $ 307     $ 527     $ -     $ 552     $ 2  

 
21

 
 
 
Impaired Loans by Class as of December 31, 2011
 
($ in thousands)
 
Recorded
Investment
   
Unpaid Principal Balance
   
Related
 Allowance
   
Average Recorded Investment YTD
   
Interest Income Recognized YTD
 
Impaired loans with no related allowance
                         
CRE – owner occupied
  $ -     $ -     $ -     $ -     $ -  
CRE – non-owner occupied
    274       494       -       345       -  
Commercial and industrial
    336       336       -       517       15  
Residential real estate
    -       -       -       -