XOTC:PFNS Quarterly Report 10-Q Filing - 6/30/2012

Effective Date 6/30/2012

Table of Contents

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

 

FORM 10-Q

 

 

 

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

For the quarterly period ended June 30, 2012

OR

 

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

Commission file number 000-23777

 

 

PENSECO FINANCIAL SERVICES CORPORATION

Incorporated pursuant to the laws of Pennsylvania

 

 

Internal Revenue Service — Employer Identification No. 23-2939222

150 North Washington Avenue, Scranton, Pennsylvania 18503-1848

(570) 346-7741

 

 

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes  x    No  ¨

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 (Section 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).    Yes  x    No  ¨

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

 

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

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

The total number of shares of the registrant’s Common Stock, $0.01 par value, outstanding on August 1, 2012 was 3,276,079.

 

 

 


Table of Contents

PENSECO FINANCIAL SERVICES CORPORATION

 

     Page  

Part I — FINANCIAL INFORMATION

  

Item 1. Unaudited Financial Statements — Consolidated

  

Balance Sheets:

  

June 30, 2012

     3   

December 31, 2011

     3   

Statements of Income:

  

Three Months Ended June 30, 2012

     4   

Three Months Ended June 30, 2011

     4   

Six Months Ended June 30, 2012

     5   

Six Months Ended June 30, 2011

     5   

Statements of Comprehensive Income:

  

Three Months Ended June 30, 2012

     6   

Three Months Ended June 30, 2011

     6   

Six Months Ended June 30, 2012

     6   

Six Months Ended June 30, 2011

     6   

Statements of Changes in Stockholders’ Equity:

  

Three Months Ended June 30, 2012

     7   

Three Months Ended June 30, 2011

     7   

Six Months Ended June 30, 2012

     8   

Six Months Ended June 30, 2011

     8   

Statements of Cash Flows:

  

Six Months Ended June 30, 2012

     9   

Six Months Ended June 30, 2011

     9   

Notes to Unaudited Consolidated Financial Statements

     10   

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

     34   

Item 3. Quantitative and Qualitative Disclosures About Market Risk

     56   

Item 4. Controls and Procedures

     56   

Part II — OTHER INFORMATION

  

Item 1. Legal Proceedings

     57   

Item 1A. Risk Factors

     57   

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

     57   

Item 3. Defaults Upon Senior Securities

     57   

Item 4. Mine Safety Disclosures

     57   

Item 5. Other Information

     57   

Item 6. Exhibits

     57   

Signatures

     58   

 

2


Table of Contents

PART I. FINANCIAL INFORMATION, Item 1 — Financial Statements

PENSECO FINANCIAL SERVICES CORPORATION

CONSOLIDATED BALANCE SHEETS

(unaudited)

(in thousands, except share and per share amounts)

 

     June 30,
2012
     December 31,
2011 *
 

ASSETS

     

Cash and due from banks

   $ 11,236       $ 13,184   

Interest bearing balances with banks

     8,805         21,296   

Federal funds sold

     —           —     
  

 

 

    

 

 

 

Cash and Cash Equivalents

     20,041         34,480   

Investment securities:

     

Available-for-sale, at fair value

     165,277         167,486   

Held-to-maturity (fair value of $20,734 and $24,969, respectively)

     19,609         23,722   
  

 

 

    

 

 

 

Total Investment Securities

     184,886         191,208   

Loans, net of unearned income

     638,970         631,522   

Less: Allowance for loan and lease losses

     6,938         6,711   
  

 

 

    

 

 

 

Loans, Net

     632,032         624,811   

Bank premises and equipment

     14,423         13,095   

Other real estate owned

     726         1,571   

Accrued interest receivable

     3,093         3,252   

Goodwill

     26,398         26,398   

Bank owned life insurance

     17,361         15,870   

Federal Home Loan Bank stock

     5,268         4,953   

Other assets

     10,165         9,894   
  

 

 

    

 

 

 

Total Assets

   $ 914,393       $ 925,532   
  

 

 

    

 

 

 

LIABILITIES

     

Deposits:

     

Non-interest bearing

   $ 139,183       $ 134,799   

Interest bearing

     573,217         585,719   
  

 

 

    

 

 

 

Total Deposits

     712,400         720,518   

Other borrowed funds:

     

Securities sold under agreements to repurchase

     10,488         9,981   

Short-term borrowings

     —           —     

Long-term borrowings

     51,792         58,220   

Accrued interest payable

     756         1,010   

Other liabilities

     8,590         8,470   
  

 

 

    

 

 

 

Total Liabilities

     784,026         798,199   
  

 

 

    

 

 

 

STOCKHOLDERS’ EQUITY

     

Common stock; $ .01 par value, 15,000,000 shares authorized,

     

3,276,079 shares issued and outstanding

     33         33   

Surplus

     48,875         48,865   

Retained earnings

     81,290         78,713   

Accumulated other comprehensive income

     169         (278
  

 

 

    

 

 

 

Total Stockholders’ Equity

     130,367         127,333   
  

 

 

    

 

 

 

Total Liabilities and Stockholders’ Equity

   $ 914,393       $ 925,532   
  

 

 

    

 

 

 

 

* as restated see note 18

(See accompanying Notes to Unaudited Consolidated Financial Statements)

 

3


Table of Contents

PENSECO FINANCIAL SERVICES CORPORATION

CONSOLIDATED STATEMENTS OF INCOME

(unaudited)

(in thousands, except share and per share amounts)

 

     Three Months Ended
June 30, 2012
     Three Months Ended
June 30, 2011 *
 

INTEREST INCOME

     

Interest and fees on loans and leases

   $ 8,179       $ 8,328   

Interest and dividends on investments:

     

U.S. Treasury securities and U.S. Agency obligations

     615         745   

States & political subdivisions

     667         857   

Other securities

     13         15   

Interest on Federal funds sold

     —           —     

Interest on balances with banks

     2         4   
  

 

 

    

 

 

 

Total Interest Income

     9,476         9,949   
  

 

 

    

 

 

 

INTEREST EXPENSE

     

Interest on time deposits of $100,000 or more

     300         363   

Interest on other deposits

     614         955   

Interest on other borrowed funds

     493         604   
  

 

 

    

 

 

 

Total Interest Expense

     1,407         1,922   
  

 

 

    

 

 

 

Net Interest Income

     8,069         8,027   

Provision for loan and lease losses

     114         899   
  

 

 

    

 

 

 

Net Interest Income After Provision for Loan and Lease Losses

     7,955         7,128   
  

 

 

    

 

 

 

NON-INTEREST INCOME

     

Trust department income

     341         385   

Service charges on deposit accounts

     468         519   

Merchant transaction income

     891         931   

Brokerage fee income

     84         77   

Other fee income

     461         431   

Bank-owned life insurance income

     131         125   

Other operating income

     181         315   

Impairment losses on investment securities

     —           —     

Realized gains (losses) on securities, net

     69         272   
  

 

 

    

 

 

 

Total Non-Interest Income

     2,626         3,055   
  

 

 

    

 

 

 

NON-INTEREST EXPENSES

     

Salaries and employee benefits

     3,490         3,313   

Expense of premises and equipment, net

     715         806   

Merchant transaction expenses

     596         666   

FDIC insurance assessments

     120         180   

Other operating expenses

     2,340         1,971   
  

 

 

    

 

 

 

Total Non-Interest Expenses

     7,261         6,936   
  

 

 

    

 

 

 

Income before income taxes

     3,320         3,247   

Applicable income taxes

     721         685   
  

 

 

    

 

 

 

Net Income

   $ 2,599       $ 2,562   
  

 

 

    

 

 

 

Weighted average shares outstanding — Basic

     3,276,079         3,276,079   

Weighted average shares outstanding — Diluted

     3,276,122         3,276,079   

Earnings per Common Share — Basic

   $ 0.79       $ 0.78   

Earnings per Common Share — Diluted

   $ 0.79       $ 0.78   

Cash Dividends Declared Per Common Share

   $ 0.42       $ 0.42   

 

* as restated see note 18

(See accompanying Notes to Unaudited Consolidated Financial Statements)

 

4


Table of Contents

PENSECO FINANCIAL SERVICES CORPORATION

CONSOLIDATED STATEMENTS OF INCOME

(unaudited)

(in thousands, except share and per share amounts)

 

     Six Months Ended
June 30, 2012
     Six Months Ended
June 30, 2011 *
 

INTEREST INCOME

     

Interest and fees on loans and leases

   $ 16,466       $ 16,670   

Interest and dividends on investments:

     

U.S. Treasury securities and U.S. Agency obligations

     1,254         1,560   

States & political subdivisions

     1,382         1,724   

Other securities

     29         29   

Interest on Federal funds sold

     —           —     

Interest on balances with banks

     4         6   
  

 

 

    

 

 

 

Total Interest Income

     19,135         19,989   
  

 

 

    

 

 

 

INTEREST EXPENSE

     

Interest on time deposits of $100,000 or more

     612         733   

Interest on other deposits

     1,258         1,847   

Interest on other borrowed funds

     1,018         1,239   
  

 

 

    

 

 

 

Total Interest Expense

     2,888         3,819   
  

 

 

    

 

 

 

Net Interest Income

     16,247         16,170   

Provision for loan and lease losses

     306         1,268   
  

 

 

    

 

 

 

Net Interest Income After Provision for Loan and Lease Losses

     15,941         14,902   
  

 

 

    

 

 

 

NON-INTEREST INCOME

     

Trust department income

     703         783   

Service charges on deposit accounts

     927         991   

Merchant transaction income

     2,098         2,173   

Brokerage fee income

     141         133   

Other fee income

     864         809   

Bank-owned life insurance income

     249         245   

Other operating income

     431         945   

Impairment losses on investment securities

     —           —     

Realized gains (losses) on securities, net

     116         280   
  

 

 

    

 

 

 

Total Non-Interest Income

     5,529         6,359   
  

 

 

    

 

 

 

NON-INTEREST EXPENSES

     

Salaries and employee benefits

     7,204         6,903   

Expense of premises and equipment, net

     1,552         1,827   

Merchant transaction expenses

     1,327         1,499   

FDIC insurance assessments

     230         422   

Other operating expenses

     4,288         3,800   
  

 

 

    

 

 

 

Total Non-Interest Expenses

     14,601         14,451   
  

 

 

    

 

 

 

Income before income taxes

     6,869         6,810   

Applicable income taxes

     1,540         1,522   
  

 

 

    

 

 

 

Net Income

   $ 5,329       $ 5,288   
  

 

 

    

 

 

 

Weighted average shares outstanding — Basic

     3,276,079         3,276,079   

Weighted average shares outstanding — Diluted

     3,276,100         3,276,079   

Earnings per Common Share — Basic

   $ 1.63       $ 1.61   

Earnings per Common Share — Diluted

   $ 1.63       $ 1.61   

Cash Dividends Declared Per Common Share

   $ 0.84       $ 0.84   

 

* as restated see note 18

(See accompanying Notes to Unaudited Consolidated Financial Statements)

 

5


Table of Contents

PENSECO FINANCIAL SERVICES CORPORATION

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(unaudited)

(in thousands)

 

     Three Months Ended
June 30, 2012
     Three Months Ended
June 30, 2011 *
 

Net Income

   $ 2,599       $ 2,562   
  

 

 

    

 

 

 

Other comprehensive income, net of tax:

     

Unrealized gains (losses) on securities:

     

Unrealized holding gains (losses) arising during the period

     415         1,617   

Less: reclassification adjustment for gains included in net income

     40         179   
  

 

 

    

 

 

 

Other comprehensive income (loss)

     375         1,438   
  

 

 

    

 

 

 

Comprehensive Income

   $ 2,974       $ 4,000   
  

 

 

    

 

 

 
     Six Months Ended
June 30, 2012
     Six Months Ended
June 30, 2011 *
 

Net Income

   $ 5,329       $ 5,288   
  

 

 

    

 

 

 

Other comprehensive income, net of tax:

     

Unrealized gains (losses) on securities:

     

Unrealized holding gains (losses) arising during the period

     518         1,580   

Less: reclassification adjustment for gains included in net income

     71         182   
  

 

 

    

 

 

 

Other comprehensive income (loss)

     447         1,398   
  

 

 

    

 

 

 

Comprehensive Income

   $ 5,776       $ 6,686   
  

 

 

    

 

 

 

 

* as restated see note 18

(See accompanying Notes to Unaudited Consolidated Financial Statements)

 

6


Table of Contents

PENSECO FINANCIAL SERVICES CORPORATION

CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY

THREE MONTHS ENDED JUNE 30, 2012 AND 2011

(unaudited)

(in thousands, except per share amounts)

 

     Common
Stock
     Surplus      Retained
Earnings
    Accumulated
Other
Comprehensive
Income
    Total
Stockholders’
Equity
 

Balance, March 31, 2011 *

   $ 33       $ 48,865       $ 75,036      $ (2,158   $ 121,776   

Net income *

     —           —           2,562        —          2,562   

Other comprehensive income (loss)

             1,438        1,438   

Cash dividends declared ($0.42 per share)

     —           —           (1,376     —          (1,376
  

 

 

    

 

 

    

 

 

   

 

 

   

 

 

 

Balance, June 30, 2011 *

   $ 33       $ 48,865       $ 76,222      $ 720      $ 124,400   
  

 

 

    

 

 

    

 

 

   

 

 

   

 

 

 

Balance, March 31, 2012 *

   $ 33       $ 48,865       $ 80,067      $ 206      $ 128,759   

Stock-based compensation

        10             10   

Net income

     —           —           2,599        —          2,599   

Other comprehensive income (loss)

             375        375   

Cash dividends declared ($0.42 per share)

     —           —           (1,376     —          (1,376
  

 

 

    

 

 

    

 

 

   

 

 

   

 

 

 

Balance, June 30, 2012

   $ 33       $ 48,875       $ 81,290      $ 169      $ 130,367   
  

 

 

    

 

 

    

 

 

   

 

 

   

 

 

 

 

* as restated see note 18

(See accompanying Notes to Unaudited Consolidated Financial Statements)

 

7


Table of Contents

PENSECO FINANCIAL SERVICES CORPORATION

CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY

SIX MONTHS ENDED JUNE 30, 2012 AND 2011

(unaudited)

(in thousands, except per share amounts)

 

     Common
Stock
     Surplus      Retained
Earnings
    Accumulated
Other
Comprehensive
Income
    Total
Stockholders’
Equity
 

Balance, December 31, 2010 *

   $ 33       $ 48,865       $ 73,686      $ (2,118   $ 120,466   

Net income *

     —           —           5,288        —          5,288   

Other comprehensive income

             1,398        1,398   

Cash dividends declared ($0.84 per share)

     —           —           (2,752     —          (2,752
  

 

 

    

 

 

    

 

 

   

 

 

   

 

 

 

Balance, June 30, 2011 *

   $ 33       $ 48,865       $ 76,222      $ (720   $ 124,400   
  

 

 

    

 

 

    

 

 

   

 

 

   

 

 

 

Balance, December 31, 2011 *

   $ 33       $ 48,865       $ 78,713      $ (278   $ 127,333   

Stock-based compensation

        10             10   

Net income

     —           —           5,329        —          5,329   

Other comprehensive income

             447        447   

Cash dividends declared ($0.84 per share)

     —           —           (2,752     —          (2,752
  

 

 

    

 

 

    

 

 

   

 

 

   

 

 

 

Balance, June 30, 2012

   $ 33       $ 48,875       $ 81,290      $ 169      $ 130,367   
  

 

 

    

 

 

    

 

 

   

 

 

   

 

 

 

* as restated see Note 18

(See accompanying Notes to Unaudited Consolidated Financial Statements)

 

8


Table of Contents

PENSECO FINANCIAL SERVICES CORPORATION

CONSOLIDATED STATEMENTS OF CASH FLOWS

(unaudited)

(in thousands)

 

     Six Months Ended     Six Months Ended  
     June 30, 2012     June 30, 2011 *  

OPERATING ACTIVITIES

  

Net Income

   $ 5,329      $ 5,288   

Adjustments to reconcile net income to net cash provided by operating activities:

  

Depreciation

     455        543   

Provision for loan and lease losses

     306        1,268   

Stock-based compensation

     10        —     

Deferred income tax provision (benefit)

     72        129   

Amortization of securities, (net of accretion)

     134        247   

Net realized (gains) losses on securities

     (116     (280

(Gain) loss on other real estate

     (27     (245

Decrease (increase) in interest receivable

     159        407   

(Increase) decrease in bank owned life insurance

     (249     (245

(Increase) decrease in other assets

     (343     (1,314

Increase (decrease) in income taxes payable

     1,510        1,567   

(Decrease) increase in interest payable

     (254     (112

(Decrease) increase in other liabilities

     (1,283     (2,927
  

 

 

   

 

 

 

Net cash provided (used) by operating activities

     5,703        4,326   
  

 

 

   

 

 

 

INVESTING ACTIVITIES

  

Purchase of investment securities available-for-sale

     (7,343     (5,255

Purchase of investment securities to be held-to-maturity

     —          —     

Proceeds from investment securities available-for-sale

     7,368        29,985   

Proceeds from repayments of investment securities available-for-sale

     2,871        1,865   

Proceeds from repayments of investment securities held-to-maturity

     4,083        8,759   

Net loans (originated) repaid

     (8,336     (4,741

Proceeds from other real estate

     1,346        864   

Investment in premises and equipment

     (1,783     (420

Purchase of bank owned life insurance

     (1,242     —     

Purchase of Federal Home Loan Bank stock

     (840     —     

Proceeds from Federal Home Loan Bank share buyback

     525        593   
  

 

 

   

 

 

 

Net cash (used) provided by investing activities

     (3,351     31,650   
  

 

 

   

 

 

 

FINANCING ACTIVITIES

  

Net increase (decrease) in demand and savings deposits

     9,814        23,993   

Net (payments) proceeds on time deposits

     (17,932     1,830   

Increase (decrease) in securities sold under agreements to repurchase

     507        2,771   

Net (decrease) increase in short-term borrowings

     —          (8,281

Increase in long-term borrowings

     —          —     

Payments on long-term borrowings

     (6,428     (6,268

Cash dividends paid

     (2,752     (2,752
  

 

 

   

 

 

 

Net cash (used) provided by financing activities

     (16,791     11,293   
  

 

 

   

 

 

 

Net (decrease) increase in cash and cash equivalents

     (14,439     47,269   

Cash and cash equivalents at January 1

     34,480        14,219   
  

 

 

   

 

 

 

Cash and cash equivalents at June 30

   $ 20,041      $ 61,488   
  

 

 

   

 

 

 

The Company paid interest and income taxes of $3,142 and $950 and $3,931 and $1,840 during the six months ended June 30, 2012 and 2011, respectively.

 

* as restated see note 18

(See accompanying Notes to Unaudited Consolidated Financial Statements)

 

9


Table of Contents

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

For the Three and Six Months Ended June 30, 2012

(unaudited)

These Notes to Unaudited Consolidated Financial Statements reflect events subsequent to December 31, 2011, through the date of this Quarterly Report on Form 10-Q. These Notes to Unaudited Consolidated Financial Statements should be read in conjunction with Parts I and II of this Report and the Company’s Annual Report on Form 10-K for the year ended December 31, 2011, which was filed with the Securities and Exchange Commission (SEC) on March 14, 2012.

NOTE 1 — Principles of Consolidation

Penseco Financial Services Corporation (Company) is a financial holding company incorporated under the laws of Pennsylvania. It is the parent company of Penn Security Bank and Trust Company (Bank), a Pennsylvania state chartered bank.

The Financial Statements of the Company have been consolidated with those of the Bank and its subsidiaries, eliminating all intercompany items and transactions.

The accounting policies of the Company conform with accounting principles generally accepted in the United States of America (GAAP) and with general practices within the banking industry.

NOTE 2 — Basis of Presentation

The unaudited consolidated financial statements have been prepared in accordance with applicable rules and regulations of the Securities and Exchange Commission (SEC), the instructions to SEC Form 10-Q and GAAP for interim financial information. In the opinion of management, all adjustments that are of a normal recurring nature and are considered necessary for a fair presentation have been included. The unaudited consolidated financial statements, as so adjusted, are not, however, necessarily indicative of the results of consolidated operations for a full year or any other period.

All dollar amounts are presented in thousands of dollars, except per share amounts.

For further information, refer to the audited consolidated financial statements and accompanying notes included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2011.

NOTE 3 — Earnings per Share

Basic earnings per share is computed on the weighted average number of common shares outstanding during each reporting period. Diluted earnings per share include restricted stock awards, issuable after a vesting period, calculated on the “Treasury Stock Method”. Restricted stock awards are issued subject to forfeiture during the vesting period.

 

Three months ended June 30, 2012

   Income
(Numerator)
     Shares
(Denominator)
     Per-share
Amount
 

Basic EPS

        

Income available

   $ 2,599         3,276,079       $ 0.79   

Shares includable

     —           43         —     
  

 

 

    

 

 

    

 

 

 

Diluted EPS

   $ 2,599         3,276,122       $ 0.79   
  

 

 

    

 

 

    

 

 

 

Three months ended June 30, 2011 *

   Income
(Numerator)
     Shares
(Denominator)
     Per-share
Amount
 

Basic EPS

        

Income available

   $ 2,562         3,276,079       $ 0.78   

Shares includable

     —           —           —     
  

 

 

    

 

 

    

 

 

 

Diluted EPS

   $ 2,562         3,276,079       $ 0.78   
  

 

 

    

 

 

    

 

 

 
* as restated see note 18

 

10


Table of Contents

Six months ended June 30, 2012

   Income
(Numerator)
     Shares
(Denominator)
     Per-share
Amount
 

Basic EPS

        

Income available

   $ 5,329         3,276,079       $ 1.63   

Shares includable

     —           21         —     
  

 

 

    

 

 

    

 

 

 

Diluted EPS

   $ 5,329         3,276,100       $ 1.63   
  

 

 

    

 

 

    

 

 

 

Six months ended June 30, 2011 *

   Income
(Numerator)
     Shares
(Denominator)
     Per-share
Amount
 

Basic EPS

        

Income available

   $ 5,288         3,276,079       $ 1.61   

Shares includable

     —           —           —     
  

 

 

    

 

 

    

 

 

 

Diluted EPS

   $ 5,288         3,276,079       $ 1.61   
  

 

 

    

 

 

    

 

 

 
* as restated see note 18

NOTE 4 — Use of Estimates

The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the financial statements, and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.

Material estimates that are particularly susceptible to significant change relate to the determination of the allowance for loan and lease losses and the valuation of property that is included in “other real estate owned” on our consolidated balance sheet and that was acquired in connection with foreclosures or in satisfaction of loans. In connection with the determination of the allowances for loan and lease losses and valuation of other real estate owned, management obtains independent appraisals for significant properties.

NOTE 5 — Reclassifications

Certain prior year amounts have been reclassified to conform to the current year presentation.

NOTE 6 — Investment Securities

Investments in securities are classified in two categories and accounted for as follows:

Securities Held-to-Maturity – Bonds, notes, debentures and mortgage-backed securities for which the Company has the positive intent and ability to hold to maturity are reported at cost, adjusted for amortization of premiums and accretion of discounts computed on the straight-line basis, which approximates the interest method, over the remaining period to maturity.

Securities Available-for-Sale – Bonds, notes, debentures, mortgage-backed securities not classified as securities to be held to maturity and certain equity securities are classified as available-for-sale and carried at fair value with unrealized holding gains and losses, net of tax, reported as a net amount in a separate component of stockholders’ equity until realized.

The amortization of premiums on mortgage-backed securities is done based on management’s estimate of the lives of the securities, adjusted, when necessary, for advanced prepayments in excess of those estimates.

Realized gains and losses on the sale of securities available-for-sale are determined using the specific identification method and are reported as a separate component of other income in the Statements of Income. Unrealized gains and losses are included as a separate item in computing comprehensive income.

Investment securities are evaluated periodically to determine whether a decline in their value is other than temporary. Management utilizes criteria such as the magnitude and duration of the decline, in addition to the reasons underlying the decline, to determine whether the loss in value is other than temporary. The term “other than temporary” is not intended to indicate that the decline is permanent. It indicates that the prospects for a near term recovery of value are not necessarily favorable, or that there is a lack of evidence to support fair values equal to, or greater than, the carrying value of the security. Once a decline in value is determined to be other than temporary, the value of the security is reduced and a corresponding charge to earnings is recognized.

 

11


Table of Contents

The amortized cost and fair value of investment securities at June 30, 2012 and December 31, 2011 are as follows:

Available-for-Sale

 

June 30, 2012

   Amortized
Cost
     Gross
Unrealized
Gains
     Gross
Unrealized
Losses
     Fair
Value
 

U.S. Agency securities

   $ 77,086       $ 781       $ —         $ 77,867   

Mortgage-backed securities

     25,604         998         —           26,602   

States & political subdivisions

     55,161         4,520         —           59,681   

Corporate securities

     —           —           —           —     
  

 

 

    

 

 

    

 

 

    

 

 

 

Total Debt Securities

     157,851         6,299         —           164,150   

Equity securities

     800         344         17         1,127   
  

 

 

    

 

 

    

 

 

    

 

 

 

Total Available-for-Sale

   $ 158,651       $ 6,643       $ 17       $ 165,277   
  

 

 

    

 

 

    

 

 

    

 

 

 

Available-for-Sale

 

December 31, 2011

   Amortized
Cost
     Gross
Unrealized
Gains
     Gross
Unrealized
Losses
     Fair
Value
 

U.S. Agency securities

   $ 77,150       $ 847       $ 12       $ 77,985   

Mortgage-backed securities

     21,270         896         —           22,166   

States & political subdivisions

     61,405         3,987         4         65,388   

Corporate securities

     1,002         2         —           1,004   
  

 

 

    

 

 

    

 

 

    

 

 

 

Total Debt Securities

     160,827         5,732         16         166,543   

Equity securities

     709         288         54         943   
  

 

 

    

 

 

    

 

 

    

 

 

 

Total Available-for-Sale

   $ 161,536       $ 6,020       $ 70       $ 167,486   
  

 

 

    

 

 

    

 

 

    

 

 

 

Held-to-Maturity

 

June 30, 2012

   Amortized
Cost
     Gross
Unrealized
Gains
     Gross
Unrealized
Losses
     Fair
Value
 

Mortgage-backed securities

   $ 18,291       $ 1,104       $ —         $ 19,395   

States & political subdivisions

     1,318         21         —           1,339   
  

 

 

    

 

 

    

 

 

    

 

 

 

Total Held-to-Maturity

   $ 19,609       $ 1,125       $ —         $ 20,734   
  

 

 

    

 

 

    

 

 

    

 

 

 

Held-to-Maturity

 

December 31, 2011

   Amortized
Cost
     Gross
Unrealized
Gains
     Gross
Unrealized
Losses
     Fair
Value
 

Mortgage-backed securities

   $ 21,912       $ 1,207       $ —         $ 23,119   

States & political subdivisions

     1,810         40         —           1,850   
  

 

 

    

 

 

    

 

 

    

 

 

 

Total Held-to-Maturity

   $ 23,722       $ 1,247       $ —         $ 24,969   
  

 

 

    

 

 

    

 

 

    

 

 

 

Equity securities at June 30, 2012 and December 31, 2011 consisted primarily of common stock of companies in the financial services industry.

 

12


Table of Contents

A summary of transactions involving available-for-sale debt securities for the six months ended June 30, 2012 and 2011 are as follows:

 

      June 30,
2012
     June 30,
2011
 

Proceeds from sales

   $ —         $ 15,318   

Gross realized gains

     —           145   

Gross realized losses

     —           —     

The amortized cost and fair value of debt securities at June 30, 2012 by contractual maturity are shown in the following table. Expected maturities will differ from contractual maturities because borrowers may have the right to call or prepay obligations with or without call or prepayment penalties.

 

      Available-for-Sale      Held-to-Maturity  

June 30, 2012

   Amortized
Cost
     Fair
Value
     Amortized
Cost
     Fair
Value
 

Due in one year or less:

           

U.S. Agency securities

   $ 20,085       $ 20,204       $ —         $ —     

After one year through five years:

           

U.S. Agency securities

     57,001         57,663         —           —     

States & political subdivisions

     169         173         —           —     

After five years through ten years:

           

States & political subdivisions

     1,422         1,557         1,318         1,339   

After ten years:

           

States & political subdivisions

     53,570         57,951         —           —     
  

 

 

    

 

 

    

 

 

    

 

 

 

Subtotal

     132,247         137,548         1,318         1,339   

Mortgage-backed securities

     25,604         26,602         18,291         19,395   
  

 

 

    

 

 

    

 

 

    

 

 

 

Total Debt Securities

   $ 157,851       $ 164,150       $ 19,609       $ 20,734   
  

 

 

    

 

 

    

 

 

    

 

 

 

The gross fair value and unrealized losses of the Company’s investments aggregated by investment category and length of time that individual securities have been in a continuous unrealized loss position, at June 30, 2012 and December 31, 2011 are as follows:

 

     Less than twelve months      Twelve months or more      Totals  

June 30, 2012

   Fair
Value
     Unrealized
Losses
     Fair
Value
     Unrealized
Losses
     Fair
Value
     Unrealized
Losses
 

U.S. Agency securities

   $ —         $ —         $ —         $ —         $ —         $ —     

States & political subdivisions

     —           —           —           —           —           —     

Equities

     61         5         89         12         150         17   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total

   $ 61       $ 5       $ 89       $ 12       $ 150       $ 17   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 
     Less than twelve months      Twelve months or more      Totals  

December 31, 2011

   Fair
Value
     Unrealized
Losses
     Fair
Value
     Unrealized
Losses
     Fair
Value
     Unrealized
Losses
 

U.S. Agency securities

   $ 13,001       $ 12       $ —         $ —         $ 13,001       $ 12   

States & political subdivisions

     489         4         —           —           489         4   

Equities

     136         29         100         25         236         54   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total

   $ 13,626       $ 45       $ 100       $ 25       $ 13,726       $ 70   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

At June 30, 2012, three securities had unrealized losses for less than twelve months and two securities had been in an unrealized loss position for twelve or more months. At December 31, 2011, ten securities had unrealized losses for less than twelve months and five securities had been in an unrealized loss position for twelve or more months.

 

13


Table of Contents

U.S. Agency Securities

The unrealized losses on the Company’s investments in U.S. Agency securities were caused by interest rate fluctuations and not credit quality. The contractual terms of these investments do not permit the issuer to settle the securities at a price less than the par value of the investment. Because the Company does not intend to sell the investments and it is not more likely than not that the Company will be required to sell the investments before recovery of their amortized cost bases, which may be maturity, the Company does not consider those investments to be other-than-temporarily impaired at June 30, 2012.

Mortgage-backed Securities

The unrealized losses on the Company’s investments in mortgage-backed securities were caused by interest rate fluctuations and not credit quality. The contractual cash flows of these investments are guaranteed by an agency of the U.S. Government. Accordingly, it is expected that these securities would not be settled at a price less than the amortized cost of the Company’s investment. Because the Company does not intend to sell the investments and it is not more likely than not that the Company will be required to sell the investments before recovery of their amortized cost bases, which may be maturity, the Company does not consider those investments to be other-than-temporarily impaired at June 30, 2012.

States and Political Subdivisions

The unrealized losses on the Company’s investments in states and political subdivisions were caused by interest rate fluctuations and not credit quality. The contractual terms of these investments do not permit the issuer to settle the securities at a price less than the par value of the investment. Because the Company does not intend to sell the investments and it is not more likely than not that the Company will be required to sell the investments before recovery of their amortized cost bases, which may be maturity, the Company does not consider those investments to be other-than-temporarily impaired at June 30, 2012.

Marketable Equity Securities

The unrealized losses on the Company’s investments in marketable equity securities were caused by interest rate fluctuations and general market conditions. The Company’s investments in marketable equity securities consist primarily of investments in common stock of companies in the financial services industry. The Company has analyzed its equity portfolio and determined that the market value fluctuation in these equity securities is not a cause for recognition of a current loss. Because the Company does not intend to sell the investments and it is not more likely than not that the Company will be required to sell the investments before recovery of their cost bases, the Company does not consider those investments to be other-than-temporarily impaired at June 30, 2012.

 

14


Table of Contents

NOTE 7 — Loan Portfolio

Details regarding the Company’s loan portfolio during the periods indicated are as follows:

 

     June 30,      December 31,  

As of:

   2012      2011  

Loans secured by real estate:

     

Construction and land development

     

Residential real estate

   $ 4,642       $ 5,064   

Commercial real estate

     18,521         20,541   

Secured by 1-4 family residential properties:

     

Revolving, open-end loans

     30,241         30,897   

Secured by first liens

     201,606         214,198   

Secured by junior liens

     20,468         21,858   

Secured by multi-family properties

     14,811         9,626   

Secured by non-farm, non-residential properties

     189,204         188,334   

Commercial and industrial loans to U.S. addressees

     62,755         55,482   

Loans to individuals for household, family and other personal expenditures:

     

Credit card and related plans

     3,051         3,242   

Other (installment and student loans, etc.)

     48,790         49,574   

Obligations of states & political subdivisions

     30,857         23,110   

All other loans

     14,024         9,596   
  

 

 

    

 

 

 

Gross Loans

     638,970         631,522   

Less: Unearned income on loans

     —           —     
  

 

 

    

 

 

 

Loans, net of unearned income

   $ 638,970       $ 631,522   
  

 

 

    

 

 

 

The Company has not engaged in any sub-prime residential mortgage lending. Therefore, the Company is not subject to any credit risks associated with such loans. The Company’s loan portfolio consists primarily of residential and commercial mortgage loans secured by properties located in Northeastern Pennsylvania and subject to what the Company believes are conservative underwriting standards.

Age Analysis of Past Due Loans

As of June 30, 2012

 

     30-59
Days
Past Due
     60-89
Days
Past Due
     Greater
Than 90
Days
     Total
Past Due
     Current      Total Loans      Recorded
Investment
> 90 Days
and
Accruing
 

Commercial

   $ 41       $ 73       $ 423       $ 537       $ 107,099       $ 107,636       $ —     

Commercial real estate:

                    

Commercial real estate — construction

     —           —           —           —           18,521         18,521         —     

Commercial real estate — other

     316         —           145         461         188,743         189,204         —     

Consumer:

                    

Consumer — credit card

     23         1         12         36         3,015         3,051         12   

Consumer — other

     2         —           —           2         4,755         4,757         —     

Consumer — auto

     109         19         32         160         30,399         30,559         1   

Student loans — TERI

     137         39         28         204         6,394         6,598         —     

Student loans — other

     139         151         96         386         6,490         6,876         96   

Residential:

                    

Residential — prime

     543         904         2,832         4,279         267,489         271,768         1,447   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total

   $ 1,310       $ 1,187       $ 3,568       $ 6,065       $ 632,905       $ 638,970       $ 1,556   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

 

15


Table of Contents

Age Analysis of Past Due Loans

As of December 31, 2011

 

     30-59
Days
Past Due
     60-89
Days
Past Due
     Greater
Than 90
Days
     Total
Past Due
     Current      Total Loans      Recorded
Investment
> 90 Days
and
Accruing
 

Commercial

   $ 23       $ —         $ 477       $ 500       $ 87,688       $ 88,188       $ —     

Commercial real estate:

                    

Commercial real estate construction

     —           —           —           —           20,541         20,541         —     

Commercial real estate — other

     331         —           602         933         187,401         188,334         11   

Consumer:

                    

Consumer — credit card

     34         11         6         51         3,191         3,242         6   

Consumer — other

     28         —           10         38         6,825         6,863         —     

Consumer — auto

     156         5         24         185         29,889         30,074         3   

Student loans — TERI

     14         62         61         137         6,117         6,254         —     

Student loans — other

     243         103         113         459         5,924         6,383         113   

Residential:

                    

Residential — prime

     2,429         1,155         2,647         6,231         275,412         281,643         641   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total

   $ 3,258       $ 1,336       $ 3,940       $ 8,534       $ 622,988       $ 631,522       $ 774   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Credit Quality Indicators. As part of the on-going monitoring of the credit quality of the Bank’s loan portfolio, management tracks certain credit quality indicators, including trends related to loan delinquency, the level of classified commercial loans, net charge-offs, non-performing loans (see details above) and the general economic conditions in the Company’s market area.

The Bank utilizes a risk grading matrix to assign a risk grade to each of its commercial loans. Loans are graded on a scale of 1 to 8. A description of the general characteristics of the 8 risk grades is as follows:

Pass 1 (Minimal Risk)

This classification includes loans which are fully secured by liquid collateral or loans to very high quality borrowers who demonstrate exceptional credit fundamentals, including stable and predictable profit margins and cash flows, strong liquidity, a conservative balance sheet, superior asset quality and good management with an excellent track record.

Pass 2 (Average Risk)

This classification includes loans which have no identifiable risk of collection and conform in all aspects to the Bank’s policies and procedures as well as federal and state regulations. Documentation exceptions are minimal, in the process of correction and not of a type that could subsequently introduce loan loss risk.

Pass 3 (Acceptable Risk)

This classification includes loans to borrowers of acceptable credit quality and risk. Such borrowers are differentiated from Pass 2 in terms of secondary sources of repayment or lesser stature in other key credit metrics in that they may be over-leveraged, undercapitalized, inconsistent in performance or in an industry that is known to have a higher level of risk, volatility, or susceptibility to weaknesses in the economy.

Pass 4 (Watch List)

This classification is intended to be utilized on a temporary basis for pass grade borrowers where a significant risk-modifying action is anticipated in the near term. It is assigned to loans where, for example, the financial condition of the company has taken a negative turn and may be temporarily strained; borrowers may exhibit excessive growth, declining earnings, strained cash flow, increasing leverage and/or weakening market position that indicate above-average risk. Interim losses and/or adverse trends may occur (but not to the level that would affect the Bank’s position) and cash flow may be weak but minimally acceptable.

Criticized 5 (Other Assets Especially Mentioned)

This classification is also intended to be temporary and includes loans to borrowers whose credit quality has clearly deteriorated and are at risk of further decline unless active measures are taken to correct the situation.

 

16


Table of Contents

Classified 6 (Substandard)

This classification includes loans with well-defined weaknesses that are inadequately protected by current net worth, repayment capacity or pledged collateral of the borrower. Loans are substandard when they have one or more weaknesses that could jeopardize debt repayment and/or liquidation, primarily resulting in the possibility that the Bank may sustain some loss if the deficiencies are not corrected.

Classified 7 (Doubtful)

This classification includes loans that have all weaknesses inherent in the substandard category and where collection or liquidation in full is highly improbable. The possibility of loss is high, but because of certain important and reasonably specific pending factors, its classification as an estimated loss is deferred until its more exact status may be determined.

Classified 8 (Loss)

This classification includes loans considered uncollectible and of such little value that continuance as bankable assets is not warranted and, therefore, should be charged-off. This classification does not mean that the loans have absolutely no recovery or salvage value, but rather it is not practical or desirable to defer writing off these assets even though partial recovery may occur in the future.

Credit Quality Indicators as of June 30, 2012

Commercial Credit Exposure

Credit Risk Profile by Creditworthiness Category

 

     Commercial      Commercial
Real Estate -
Construction
     Commercial
Real Estate -
Other
 

Pass / Watch

   $ 105,683       $ 16,765       $ 177,768   

Criticized

     1,031         1,756         3,024   

Substandard

     922         —           8,412   
  

 

 

    

 

 

    

 

 

 

Total

   $ 107,636       $ 18,521       $ 189,204   
  

 

 

    

 

 

    

 

 

 

Consumer Credit Exposure

Credit Risk Profile by Payment Activity

 

      Residential
Real Estate
     Consumer -
Credit Card
     Consumer -
Other
     Consumer -
Auto
     Student
Loans -
TERI
     Student
Loans -
Other
 

Performing

   $ 270,382       $ 3,039       $ 4,757       $ 30,527       $ 6,570       $ 6,780   

Non-performing

     1,386         12         —           32         28         96   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total

   $ 271,768       $ 3,051       $ 4,757       $ 30,559       $ 6,598       $ 6,876   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Non-performing loans are those past due 90 days or more and not accruing.

Credit Quality Indicators as of December 31, 2011

Commercial Credit Exposure

Credit Risk Profile by Creditworthiness Category

 

     Commercial      Commercial
Real Estate -
Construction
     Commercial
Real Estate -
Other
 

Pass / Watch

   $ 84,431       $ 18,036       $ 172,072   

Criticized

     2,790         2,505         7,811   

Substandard

     967         —           8,451   
  

 

 

    

 

 

    

 

 

 

Total

   $ 88,188       $ 20,541       $ 188,334   
  

 

 

    

 

 

    

 

 

 

 

17


Table of Contents

Consumer Credit Exposure

Credit Risk Profile by Payment Activity

 

     Residential
Real Estate
     Consumer -
Credit Card
     Consumer -
Other
     Consumer -
Auto
     Student
Loans -
TERI
     Student
Loans -
Other
 

Performing

   $ 278,996       $ 3,236       $ 6,853       $ 30,050       $ 6,193       $ 6,270   

Non-performing

     2,647         6         10         24         61         113   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total

   $ 281,643       $ 3,242       $ 6,863       $ 30,074       $ 6,254       $ 6,383   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Impaired Loans. Loans are considered impaired when, based on current information and events, it is probable the Company will be unable to collect all amounts due in accordance with the original contractual terms of the loan agreement, including scheduled principal and interest payments. If a loan is impaired, a specific valuation allowance is allocated, if necessary, so that the loan is reported net, at the present value of estimated future cash flows using the loan’s existing rate or at the fair value of collateral if repayment is expected solely from the collateral. Interest payments on impaired loans are typically applied to principal unless collectability of the principal amount is reasonably assured, in which case interest is recognized on a cash basis. Impaired loans, or portions thereof, are charged off when deemed uncollectible.

Impaired Loans

June 30, 2012

 

     Recorded
Investment
     Unpaid
Principal
Balance
     Related
Allowance
     Average
Recorded
Investment
     Interest
Income
Recognized
 

With no related allowance recorded:

              

Commercial real estate

   $ 145       $ 145       $ —         $ 145       $ —     

Commercial

     423         423         —           423         —     

Consumer — TERI

     28         28         —           30         —     

Consumer — other

     —           —           —           —           —     

Consumer — auto

     30         30         —           23         —     

Residential real estate

     822         822         —           853         —     

With an allowance recorded:

              

Commercial real estate — construction

     —           —           —           —           —     

Commercial real estate — other

     2,576         2,576         600         2,535         73   

Commercial

     358         358         358         358         11   

Residential real estate

     564         564         335         566         21   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total:

   $ 4,946       $ 4,946       $ 1,293       $ 4,933       $ 105   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Commercial real estate

   $ 2,721       $ 2,721       $ 600       $ 2,680       $ 73   

Commercial

   $ 781       $ 781       $ 358       $ 781       $ 11   

Consumer

   $ 58       $ 58       $ —         $ 53       $ —     

Residential real estate

   $ 1,386       $ 1,386       $ 335       $ 1,419       $ 21   

 

18


Table of Contents

Impaired Loans

December 31, 2011

 

     Recorded
Investment
     Unpaid
Principal
Balance
     Related
Allowance
     Average
Recorded
Investment
     Interest
Income
Recognized
 

With no related allowance recorded:

              

Commercial real estate

   $ 591       $ 591       $ —         $ 390       $ —     

Commercial

     —           —           —           —           —     

Consumer — TERI

     61         61         —           65         —     

Consumer — other

     10         10         —           10         —     

Consumer — auto

     21         21         —           32         —     

Residential real estate

     806         806         —           1,081         —     

With an allowance recorded:

              

Commercial real estate — construction

     —           —           —           —           —     

Commercial real estate — other

     —           —           —           —           —     

Commercial

     845         845         443         1,000         28   

Residential real estate

     1,200         1,200         215         1,057         —     
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total:

   $ 3,534       $ 3,534       $ 658       $ 3,635       $ 28   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Commercial real estate

   $ 591       $ 591       $ —         $ 390       $ —     

Commercial

   $ 845       $ 845       $ 443       $ 1,000       $ 28   

Consumer

   $ 92       $ 92       $ —         $ 107       $ —     

Residential real estate

   $ 2,006       $ 2,006       $ 215       $ 2,138       $ —     

Non-Accrual and Past Due Loans. Loans are considered past due if the required principal and interest payments have not been received as of the date such payments were due. Loans are placed on non-accrual status when, in management’s opinion, the borrower may be unable to meet payment obligations as they become due, as well as when required by regulatory provisions. Loans may be placed on non-accrual status regardless of whether or not such loans are considered past due. When interest accrual is discontinued, all unpaid accrued interest income is reversed. Interest income is subsequently recognized only to the extent cash payments are received in excess of principal due. Loans are returned to accrual status when all the principal and interest amounts contractually due are brought current and future payments are reasonably assured with the minimum of a six month positive payment history.

Period-end non-accrual loans, segregated by class of loans, were as follows:

 

     June 30,
2012
     December 31,
2011
 

Commercial

   $ 423       $ 477   

Commercial real estate:

     

Commercial real estate — construction

     —           —     

Commercial real estate — other

     145         591   

Consumer:

     

Student loans — TERI

     28         61   

Student loans — other

     —           —     

Consumer — other

     —           10   

Consumer — auto

     30         21   

Residential:

     

Residential real estate

     1,386         2,006   
  

 

 

    

 

 

 

Total

   $ 2,012       $ 3,166   
  

 

 

    

 

 

 

 

19


Table of Contents

The Allowance for Loan and Lease Losses and Recorded Investment in Loans for the six months ended June 30, 2012 is as follows:

 

     Commercial     Commercial
Real Estate
    Consumer     Residential      Credit
Card
    Unallocated      Total  

Allowance for Loan and Lease Losses:

                

Beginning balance 12/31/11

   $ 793      $ 2,294      $ 450      $ 2,855       $ 319      $ —         $ 6,711   

Charge-offs

     (5     (33     (75     —           (18     —           (131

Recoveries

     —          5        46        1         —          —           52   

Provision

     18        76        173        —           39        —           306   
  

 

 

   

 

 

   

 

 

   

 

 

    

 

 

   

 

 

    

 

 

 

Ending balance 06/30/12

   $ 806      $ 2,342      $ 594      $ 2,856       $ 340      $ —         $ 6,938   

Ending balance: Individually evaluated for impairment

     358        600        —          335         —          —           1,293   
  

 

 

   

 

 

   

 

 

   

 

 

    

 

 

   

 

 

    

 

 

 

Ending balance: Collectively evaluated for impairment

   $ 448      $ 1,742      $ 594      $ 2,521       $ 340      $ —         $ 5,645   
  

 

 

   

 

 

   

 

 

   

 

 

    

 

 

   

 

 

    

 

 

 

Ending balance: Loans acquired with deteriorated credit quality

   $ —        $ —        $ —        $ —         $ —        $ —         $ —     
  

 

 

   

 

 

   

 

 

   

 

 

    

 

 

   

 

 

    

 

 

 

Loans:

                

Ending balance

   $ 107,636      $ 207,725      $ 48,790      $ 271,768       $ 3,051      $ —         $ 638,970   
  

 

 

   

 

 

   

 

 

   

 

 

    

 

 

   

 

 

    

 

 

 

Ending balance: Individually evaluated for impairment

     781        2,721        58        1,386         —          —           4,946   
  

 

 

   

 

 

   

 

 

   

 

 

    

 

 

   

 

 

    

 

 

 

Ending balance: Collectively evaluated for impairment

   $ 106,855      $ 205,004      $ 48,732      $ 270,382       $ 3,051      $ —         $ 634,024   
  

 

 

   

 

 

   

 

 

   

 

 

    

 

 

   

 

 

    

 

 

 

Ending balance: Loans acquired with deteriorated credit quality

   $ —        $ —        $ —        $ —         $ —        $ —         $ —     
  

 

 

   

 

 

   

 

 

   

 

 

    

 

 

   

 

 

    

 

 

 

The Allowance for Loan and Lease Losses and Recorded Investment in Loans for the year ended December 31, 2011 is as follows:

 

     Commercial     Commercial
Real Estate
    Consumer     Residential     Credit
Card
    Unallocated      Total  

Allowance for Loan and Lease Losses:

               

Beginning balance 12/31/10

   $ 1,957      $ 2,067      $ 1,380      $ 753      $ 343      $ —         $ 6,500   

Charge-offs

     (100     (663     (153     (1,275     (109     —           (2,300

Recoveries

     3        18        45        58        6        —           130   

Provision

     (1,067     872        (822     3,319        79        —           2,381   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

    

 

 

 

Ending balance 12/31/11

   $ 793      $ 2,294      $ 450      $ 2,855      $ 319      $ —         $ 6,711   

Ending balance: Individually evaluated for impairment

     443        —          —          215        —          —           658   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

    

 

 

 

Ending balance: Collectively evaluated for impairment

   $ 350      $ 2,294      $ 450      $ 2,640      $ 319      $ —         $ 6,053   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

    

 

 

 

Ending balance: Loans acquired with deteriorated credit quality

   $ —        $ —        $ —        $ —        $ —        $ —         $ —     
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

    

 

 

 

Loans:

               

Ending balance

   $ 88,188      $ 208,875      $ 49,574      $ 281,643      $ 3,242      $ —         $ 631,522   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

    

 

 

 

Ending balance: Individually evaluated for impairment

     845        591        92        2,006        —          —           3,534   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

    

 

 

 

Ending balance: Collectively evaluated for impairment

   $ 87,343      $ 208,284      $ 49,482      $ 279,637      $ 3,242      $ —         $ 627,988   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

    

 

 

 

Ending balance: Loans acquired with deteriorated credit quality

   $ —        $ —        $ —        $ —        $ —        $ —         $ —     
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

    

 

 

 

 

20


Table of Contents

The Company had one commercial loan whose terms had been modified in a troubled debt restructuring as of June 30, 2012 and December 31, 2011; monthly payments were lowered to accommodate the borrower’s financial needs for a period of time.

 

Modification

June 30, 2012

 

            Pre-Modification      Post-Modification  
     Number of      Outstanding Recorded      Outstanding Recorded  
     Contracts      Investment      Investment  

Troubled Debt Restructurings

        

Commercial

     1       $ 808       $ 358   

There were no troubled debt restructurings that subsequently defaulted during the six months ended June 30, 2012.

Modification

December 31, 2011

 

            Pre-Modification      Post-Modification  
     Number of      Outstanding Recorded      Outstanding Recorded  
     Contracts      Investment      Investment  

Troubled Debt Restructurings

        

Commercial

     1       $ 808       $ 368   

The loan above, classified as a Troubled Debt Restructuring (TDR), was charged down during 2010 to a balance of $401 and the entire pre-modification balance was split into two notes. The customer is currently paying principal and interest on one note and interest only on the other note. Nonetheless, the loan is fully reserved based on management’s evaluation of both the customer’s ability to maintain its cash flow and the value of the underlying collateral.

NOTE 8 — Loan Servicing

The Company generally retains the right to service mortgage loans sold to third parties. The cost allocated to the mortgage servicing rights retained has been recognized as a separate asset within other assets and is amortized in proportion to and over the period of estimated net servicing income.

Mortgage servicing rights are evaluated for impairment based on the fair value of those rights. Fair values are estimated using discounted cash flows based on current market rates of interest and expected future prepayment rates. For purposes of measuring impairment, the rights must be stratified by one or more predominant risk characteristics of the underlying loans. The Company stratifies its capitalized mortgage servicing rights based on the product type, interest rate and term of the underlying loans. The amount of impairment recognized is the amount, if any, by which the amortized cost of the rights for each stratum exceed the fair value.

NOTE 9 — Goodwill

Goodwill represents the excess of the purchase price over the underlying fair value of merged entities. Goodwill is assessed for impairment at least annually and as triggering events occur. In making this assessment, management considers a number of factors including, but not limited to, operating results, business plans, economic projections, anticipated future cash flows, and current market data. There are inherent uncertainties related to these factors and management’s judgment in applying them to the analysis of goodwill impairment. Changes in economic and operating conditions, as well as other factors, could result in goodwill impairment in future periods.

 

21


Table of Contents

NOTE 10 — Other Intangible Assets

Intangible assets include the premium assigned to the core deposit relationships acquired in connection with our acquisition of Old Forge Bank in 2009. The core deposit intangible is being amortized over ten years from the date of acquisition on a sum-of-the-years-digits basis. Amortization expense is expected to be as follows:

 

June 30,

      

2013

   $ 248   

2014

     212   

2015

     175   

2016

     138   

2017

     102   

Thereafter

     92   
  

 

 

 

Total

   $ 967   
  

 

 

 

NOTE 11 — Long-Term Debt

The Company has established credit facilities with the Federal Home Loan Bank of Pittsburgh, which are secured by all of the Company’s assets. Additionally, in connection with the credit facilities, the Company has agreed to maintain sufficient qualifying collateral to fully secure the borrowings below.

A summary of long-term debt, including amortizing principal and interest payments, at June 30, 2012 is as follows:

 

Monthly Installment

   Fixed Rate     Maturity Date      Balance  

Amortizing loans

       

    $    29

     1.84     08/28/12       $ 57   

          90

     3.10     02/28/13         712   

        430

     3.74     03/13/13         3,811   

          18

     2.66     08/28/14         450   

          67

     3.44     03/02/15         2,048   

          13

     3.48     03/31/15         422   

          10

     3.83     04/02/18         629   

        186

     4.69     03/13/23         18,863   
       

 

 

 

Total amortizing

          26,992   
       

 

 

 

Non-amortizing loans

       
     3.49     02/28/13         7,000   
     2.89     11/28/14         2,000   
     2.58     05/18/15         6,300   
     3.32     11/27/15         3,000   
     2.36     09/22/17         6,500   
       

 

 

 

Total non-amortizing

          24,800   
       

 

 

 

Total long-term debt

        $ 51,792   
       

 

 

 

Aggregate maturities of long-term debt at June 30, 2012 are as follows:

 

June 30,

   Principal  

2013

   $ 14,160   

2014

     2,686   

2015

     10,608   

2016

     4,701   

2017

     1,781   

Thereafter

     17,856   
  

 

 

 

Total

   $ 51,792   
  

 

 

 

 

22


Table of Contents

NOTE 12 — Employee Benefit Plans

The Company provides an Employee Stock Ownership Plan (ESOP), a Retirement Profit Sharing 401(k) Plan, an Employees’ Pension Plan, an unfunded supplemental executive defined benefit plan (currently frozen) and a defined contribution plan, a Postretirement Life Insurance Plan, a Stock Appreciation Rights Plan (SAR), and a Long-Term Incentive Plan.

The components of the net periodic benefit cost are as follows:

 

     Pension Benefits     Other Benefits  

Six months ended June 30,

   2012     2011     2012      2011 *  

Service cost

   $ —        $ —        $ 24       $ 22   

Interest cost

     336        350        70         73   

Expected return on plan assets

     (404     (452     —           —     

Amortization of prior service cost

     —          —          —           4   

Amortization of net loss (gain)

     68        42        55         52   
  

 

 

   

 

 

   

 

 

    

 

 

 

Net periodic benefit cost

   $ —        $ (60   $ 149       $ 151   
  

 

 

   

 

 

   

 

 

    

 

 

 

 

* as restated see Note 18

The Company previously disclosed in the financial statements included in its Annual Report on Form 10-K for the year ended December 31, 2011 that it expected to contribute $350 to its pension plan in 2012. As of June 30, 2012, the Company expects to contribute $363 to its pension plan and $20 to its post-retirement plan during 2012 for retirees. Readers should refer to the Company’s Annual Report on Form 10-K for the year ended December 31, 2011 for further details on the Company’s defined benefit pension plan.

The Company sponsors a 401(k) profit sharing plan for all eligible employees. The Company’s profit sharing expense for the six months ended June 30, 2012 and 2011 was $246 and $231, respectively.

The Company granted restricted stock awards during the six months ended June 30, 2012 and 2011 valued at $300 and $56, respectively.

NOTE 13 — Stock Awards

Under the 2008 Long-Term Incentive Plan (the “2008 plan”), the Compensation Committee of the board of directors has broad authority with respect to awards granted under the 2008 plan, including, without limitation, the authority to:

 

   

Designate the individuals eligible to receive awards under the 2008 plan.

 

   

Determine the size, type and date of grant for individual awards, provided that awards approved by the Committee are not effective unless and until ratified by the board of directors.

 

   

Interpret the 2008 plan and award agreements issued with respect to individual participants.

Persons eligible to receive awards under the 2008 Plan include directors, officers, employees, consultants and other service providers of the Company and its subsidiaries, except that incentive stock option may be granted only to individuals who are employees on the date of grant.

The total number of shares of the Company’s common stock available for grant awards under the 2008 plan shall not exceed in the aggregate five percent of the outstanding shares of the Company’s common stock as of February 15, 2008, or 107,400 shares of the Company’s common stock.

The 2008 plan authorizes grants of stock options, stock appreciation rights, dividend equivalents, performance awards, restricted stock and restricted stock units.

 

23


Table of Contents

 

      Restricted Stock  

Nonvested shares

   Number
of
Shares
     Weighted-
Average
Grant-Date
Fair Value
 

Nonvested, January 1, 2012

     —         $ —     

Granted

     7,731       $ 38.80   

Vested

     —         $ —     

Forfeited

     —         $ —     
  

 

 

    

 

 

 

Nonvested, June 30, 2012

     7,731       $ 38.80   
  

 

 

    

 

 

 

Restricted stock granted to officers vest after five years. The weighted average period over which these expenses will be recognized is approximately five years.

In accordance with GAAP, the Company began to expense the fair value of all-share based compensation over the requisite service periods. The fair value of restricted stock is expensed on a straight-line basis. The Company classifies share-based compensation for employees within “salaries and employee benefits” on the Consolidated Statements of Income.

For 2012, the Company recognized $10 of compensation expense for stock awards granted in the six months ended June 30, 2012.

As of June 30, 2012, the following is unrecognized compensation expense:

 

Restricted stock

   $ 290   

NOTE 14 — Comprehensive Income

Changes in each component of accumulated other comprehensive income for the three months ended June 30, 2012 and 2011 were as follows:

 

      Unrealized
Gains on
Investment
Securities
     Defined
Benefit
Plans *
    Total  

Balance, March 31, 2012

   $ 3,999       $ (4,205   $ (206

Current period change

     375         —          375   
  

 

 

    

 

 

   

 

 

 

Balance, June 30, 2012

   $ 4,374       $ (4,205   $ 169   
  

 

 

    

 

 

   

 

 

 

Balance, March 31, 2011

   $ 1,060       $ (3,218   $ (2,158

Current period change

     1,438         —          1,438   
  

 

 

    

 

 

   

 

 

 

Balance, June 30, 2011

   $ 2,498       $ (3,218   $ (720
  

 

 

    

 

 

   

 

 

 

 

* as restated see Note 18

Changes in each component of accumulated other comprehensive income for the six months ended June 30, 2012 and 2011 were as follows:

 

      Unrealized
Gains on
Investment
Securities
     Defined
Benefit
Plans *
    Total  

Balance, December 31, 2011

   $ 3,927       $ (4,205   $ (278

Current period change

     447         —          447   
  

 

 

    

 

 

   

 

 

 

Balance, June 30, 2012

   $ 4,374       $ (4,205   $ 169   
  

 

 

    

 

 

   

 

 

 

Balance, December 31, 2010

   $ 1,100       $ (3,218   $ (2,118

Current period change

     1,398         —          1,398   
  

 

 

    

 

 

   

 

 

 

Balance, June 30, 2011

   $ 2,498       $ (3,218   $ (720
  

 

 

    

 

 

   

 

 

 

 

* as restated see Note 18

 

24


Table of Contents

Other Comprehensive Income

The components of other comprehensive income are reported net of related tax effects in the Consolidated Statements of Comprehensive Income.

A reconciliation of other comprehensive income for the three months ended June 30, 2012 and 2011 is as follows:

 

Three Months Ended June 30, 2012

   Pre-Tax
Amount
    Tax
(Expense)
Benefit
    Net-of-
Tax
Amount
 

Unrealized gains on securities

      

Unrealized holding gains arising during the period

   $ 629      $ (214   $ 415   

Reclassification adjustment for gains recognized in net income

     (61     21        (40
  

 

 

   

 

 

   

 

 

 

Net unrealized gains

     568        (193     375   
  

 

 

   

 

 

   

 

 

 

Other comprehensive income

   $ 568      $ (193   $ 375   
  

 

 

   

 

 

   

 

 

 

Three Months Ended June 30, 2011

   Pre-Tax
Amount
    Tax
(Expense)
Benefit
    Net-of-
Tax
Amount
 

Unrealized gains on securities

      

Unrealized holding gains arising during the period

   $ 2,450      $ (833   $ 1,617   

Reclassification adjustment for gains recognized in net income

     (271     92        (179
  

 

 

   

 

 

   

 

 

 

Net unrealized gains

     2,179        (741     1,438   
  

 

 

   

 

 

   

 

 

 

Other comprehensive income

   $ 2,179      $ (741   $ 1,438   
  

 

 

   

 

 

   

 

 

 

A reconciliation of other comprehensive income for the six months ended June 30, 2012 and 2011 is as follows:

 

Six Months Ended June 30, 2012

   Pre-Tax
Amount
    Tax
(Expense)
Benefit
    Net-of-
Tax
Amount
 

Unrealized gains on securities

      

Unrealized holding gains arising during the period

   $ 785      $ (267   $ 518   

Reclassification adjustment for gains recognized in net income

     (108     37        (71
  

 

 

   

 

 

   

 

 

 

Net unrealized gains

     677        (230     447   
  

 

 

   

 

 

   

 

 

 

Other comprehensive income

   $ 677      $ (230   $ 447   
  

 

 

   

 

 

   

 

 

 

Six Months Ended June 30, 2011

   Pre-Tax
Amount
    Tax
(Expense)
Benefit
    Net-of-
Tax
Amount
 

Unrealized gains on securities

      

Unrealized holding gains arising during the period

   $ 2,394      $ (814   $ 1,580   

Reclassification adjustment for gains recognized in net income

     (276     94        (182
  

 

 

   

 

 

   

 

 

 

Net unrealized gains

     2,118        (720     1,398   
  

 

 

   

 

 

   

 

 

 

Other comprehensive income

   $ 2,118      $ (720   $ 1,398   
  

 

 

   

 

 

   

 

 

 

 

25


Table of Contents

NOTE 15 — Regulatory Matters

The Company and the Bank are subject to various regulatory capital requirements administered by the Federal Deposit Insurance Corporation (FDIC) and the Board of Governors of the Federal Reserve System (Federal Reserve Board). Failure to meet minimum capital requirements can initiate certain mandatory–and possibly additional discretionary–actions by regulators that, if undertaken, could have a direct material effect on the Company and the Bank’s Consolidated Financial Statements. Under capital adequacy guidelines and the regulatory framework for prompt corrective action, the Company and the Bank must meet specific capital guidelines that involve quantitative measures of their assets, liabilities, and certain off-balance sheet items as calculated under regulatory accounting practices. The Company and the Bank’s capital amounts and classifications are also subject to qualitative judgments by the regulators about components, risk weightings and other factors.

Quantitative measures established by regulation to ensure capital adequacy require the Company and the Bank to maintain minimum amounts and ratios (set forth in the following Capital Adequacy table) of Tier 1 and Total Capital to risk-weighted assets and of Tier 1 Capital to average assets (Leverage ratio). The table also presents the Company’s actual capital amounts and ratios. Management believes, as of June 30, 2012, that the Company and the Bank meet all capital adequacy requirements to which they are subject.

As of June 30, 2012, the most recent regulatory notifications categorized the Bank as “well capitalized” under the regulatory framework for prompt corrective action. To be categorized as “well capitalized”, the Bank must maintain minimum Tier 1 Capital, Total Capital and Leverage ratios as set forth in the Capital Adequacy table. There are no conditions or events since that notification that management believes have changed the Company’s categorization by the FDIC.

The Company and Bank are also subject to minimum capital levels, which could limit the payment of dividends. As of June 30, 2012, the Company and Bank have capital levels that are in excess of the minimum capital level ratios required.

The Pennsylvania Banking Code restricts capital funds available for payment of dividends to the retained earnings of the Bank. The balances in the capital stock and surplus accounts are unavailable for dividends. Dividends from the Bank are the Company’s primary source of funds.

In addition, the Bank is subject to restrictions imposed by Federal law on certain transactions with the Company’s affiliates. These transactions include extensions of credit, purchases of or investments in stock issued by an affiliate, purchases of assets subject to certain exceptions, acceptance of securities issued by an affiliate as collateral for loans, and the issuance of guarantees, acceptances, and letters of credit on behalf of affiliates. These restrictions prevent the Company’s affiliates from borrowing from the Bank unless the loans are secured by obligations of designated amounts. Further, the aggregate value of such transactions between the Bank and a single affiliate is limited in amount to 10 percent of the Bank’s capital stock and surplus, and the aggregate value of such transactions with all affiliates is limited to 20 percent of the Bank’s capital stock and surplus. The Federal Reserve System has interpreted “capital stock and surplus” to include undivided profits.

 

26


Table of Contents

 

Actual

    Regulatory Requirements  
                         For Capital
Adequacy Purposes
           To Be
“Well Capitalized”
 

As of June 30, 2012

   Amount      Ratio            Amount            Ratio            Amount             Ratio  

Total Capital (to Risk Weighted Assets)

                          

PFSC (Company)

   $ 107,585         17.04     >       $ 50,514        >         8.0     >         N/A         >         N/A   

PSB (Bank)

   $ 103,853         16.47     >       $ 50,456        >         8.0     >       $ 63,070         >         10.0

Tier 1 Capital (to Risk Weighted Assets)

                          

PFSC (Company)

   $ 100,500         15.92     >       $ 25,257        >         4.0     >         N/A         >         N/A   

PSB (Bank)

   $ 96,915         15.37     >       $ 25,228        >         4.0     >       $ 37,842         >         6.0

Tier 1 Capital (to Average Assets)

                          

PFSC (Company)

   $ 100,500         11.23     >       $          >                  >         N/A         >         N/A   

PSB (Bank)

   $ 96,915         10.88     >       $          >                  >       $ 44,535         >         5.0

PFSC — *3.0% ($26,852), 4.0% ($35,803) or 5.0% ($44,754) depending on the bank’s CAMELS Rating and other regulatory risk factors.

PSB — *3.0% ($26,721), 4.0% ($35,628) or 5.0% ($44,535) depending on the bank’s CAMELS Rating and other regulatory risk factors.

 

Actual

           Regulatory Requirements  
                         For Capital
Adequacy Purposes
           To Be
“Well Capitalized”
 

As of December 31, 2011 *

   Amount      Ratio            Amount            Ratio            Amount             Ratio  

Total Capital (to Risk Weighted Assets)

                          

PFSC (Company)

   $ 103,609         16.74     >       $ 49,503        >         8.0     >         N/A         >         N/A   

PSB (Bank)

   $ 99,953         16.17     >       $ 49,457        >         8.0     >       $ 61,820         >         10.0

Tier 1 Capital (to Risk Weighted Assets)

                          

PFSC (Company)

   $ 96,793         15.64     >       $ 24,751        >         4.0     >         N/A         >         N/A   

PSB (Bank)

   $ 93,242         15.08     >       $ 24,728        >         4.0     >       $ 37,091         >         6.0

Tier 1 Capital (to Average Assets)

                          

PFSC (Company)

   $ 96,793         10.73     >       $          >                  >         N/A         >         N/A   

PSB (Bank)

   $ 93,242         10.39     >       $          >                  >       $ 44,874         >         5.0

PFSC — *3.0% ($27,053), 4.0% ($36,071) or 5.0% ($45,089) depending on the bank’s CAMELS Rating and other regulatory risk factors.

PSB — *3.0% ($26,925), 4.0% ($35,899) or 5.0% ($44,874) depending on the bank’s CAMELS Rating and other regulatory risk factors.

 

* as restated see Note 18

NOTE 16 — Merger

An Agreement and Plan of Merger (the “Agreement”) by and between the Company, the Bank and Old Forge Bank, was entered into on December 5, 2008. The Agreement provided for, among other things, the Company to acquire 100% of the outstanding common shares of Old Forge Bank through a two-step merger transaction. The Company consummated the acquisition of Old Forge Bank on April 1, 2009, at which time Old Forge Bank was merged with and into the Bank (the “Merger”). Following the Merger, the Bank continues to operate as a banking subsidiary of the Company.

In connection with its acquisition of Old Forge Bank, the Company acquired loans with evidence of credit deterioration that have been accounted for under ASC 310-30. As of June 30, 2012, there were two such loans remaining with a carrying value of $208 and a credit fair value adjustment of $208. As of December 31, 2011, these same loans had a carrying value of $211 and a credit fair value adjustment of $211. As of June 30, 2011, these loans had a carrying value of $228 with a credit fair value adjustment of $228. There is no accretable yield for the specific loans accounted for under Accounting Standard Codification 310-30-30. There were no significant prepayment estimates by management in the determination of contractual cash flows and cash flows expected to be collected.

 

27


Table of Contents

Changes in the credit fair value adjustment on specific loans purchased are as follows:

 

Six Months Ended June 30, 2012

 
           Credit        
     Carrying     Fair Value     Net  
     Value     Adjustment     Amount  

Balance, December 31, 2011

      

Residential Mortgages

   $ —        $ —        $ —     

Commercial

     211        211        —     

Consumer / Other

     —          —          —     
  

 

 

   

 

 

   

 

 

 
     211        211        —     

Charge-offs

      

Residential Mortgages

     —          —          —     

Commercial

     —          —          —     

Consumer / Other

     —          —          —     
  

 

 

   

 

 

   

 

 

 

Total Charge-offs

     —          —          —     

Loans transferred to other real estate owned

      

Residential Mortgages

     —          —          —     

Commercial

     —          —          —     

Consumer / Other

     —          —          —     
  

 

 

   

 

 

   

 

 

 

Total loans transferred to other real estate owned

     —          —          —     

Payments

      

Residential Mortgages

     —          —          —     

Commercial

     (3     (3     —     

Consumer / Other

     —          —          —     
  

 

 

   

 

 

   

 

 

 

Total Payments

     (3     (3     —     
  

 

 

   

 

 

   

 

 

 

Balance, June 30, 2012

   $ 208      $ 208      $ —     
  

 

 

   

 

 

   

 

 

 

 

Six Months Ended June 30, 2011

 
           Credit        
     Carrying     Fair Value     Net  
     Value     Adjustment     Amount  

Balance, December 31, 2010

      

Residential Mortgages

   $ —        $ —        $ —     

Commercial

     229        229        —     

Consumer / Other

     —          —          —     
  

 

 

   

 

 

   

 

 

 
     229        229        —     

Charge-offs