SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549 |
FORM 10-Q
(Mark One)
x Quarterly report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934.
For the quarterly period ended June 30, 2012 or
¨ Transition report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934.
For the transition period from ______ to ______
Commission File Number: 0-26128
NorthWest Indiana Bancorp
(Exact name of registrant as specified in its charter)
Indiana | 35-1927981 |
(State or other jurisdiction of incorporation | (I.R.S. Employer |
or organization) | Identification Number) |
9204 Columbia Avenue | |
Munster, Indiana | 46321 |
(Address of principal executive offices) | (ZIP code) |
Registrant's telephone number, including area code: (219) 836-4400
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. Yesx 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 (§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 (Check one):
Large accelerated filer ¨ Accelerated
filer ¨ Non-accelerated filer ¨ Smaller
Reporting Company x
(Do not check if a 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
There were 2,839,224 shares of the registrant’s Common Stock, without par value, outstanding at June 30, 2012.
NorthWest Indiana Bancorp
Index
Page | |
Number | |
PART I. Financial Information | |
Item 1. Unaudited Financial Statements | |
Consolidated Balance Sheets, June 30, 2012 and December 31, 2011 | 1 |
Consolidated Statements of Income, Three and Six Months Ended June 30, 2012 and 2011 | 2 |
Consolidated Statements of Comprehensive Income, Three and Six Months ended June 30, 2012 and 2011 | 3 |
Consolidated Statements of Changes in Stockholders' Equity, Three and Six Months ended June 30, 2012 and 2011 | 4 |
Consolidated Statements of Cash Flows, Six Months ended June 30, 2012 and 2011 | 5 |
Notes to Consolidated Financial Statements | 6-20 |
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations | 21-33 |
Item 3. Quantitative and Qualitative Disclosures About Market Risk | 33 |
Item 4. Controls and Procedures | 33 |
PART II. Other Information | 34 |
SIGNATURES | 35 |
EXHIBITS | |
31.1 Rule 13a-14(a)/15d-14(a) Certification of Chief Executive Officer | |
31.2 Rule 13a-14(a)/15d-14(a) Certification of Chief Financial Officer | |
32.1 Section 1350 Certifications | |
101 XBRL Interactive Data File |
NorthWest Indiana Bancorp | ||||||
Consolidated Balance Sheets | ||||||
June 30, | ||||||||
2012 | December 31, | |||||||
(Dollars in thousands) | (unaudited) | 2011 | ||||||
ASSETS | ||||||||
Cash and non-interest bearing balances in financial institutions | $ | 14,283 | $ | 9,875 | ||||
Interest bearing balances in financial institutions | 474 | 10,676 | ||||||
Federal funds sold | 4,658 | 5,816 | ||||||
Total cash and cash equivalents | 19,415 | 26,367 | ||||||
Securities available-for-sale | 192,705 | 186,962 | ||||||
Loans receivable | 431,356 | 401,401 | ||||||
Less: allowance for loan losses | (8,044 | ) | (8,005 | ) | ||||
Net loans receivable | 423,312 | 393,396 | ||||||
Federal Home Loan Bank stock | 3,086 | 3,086 | ||||||
Accrued interest receivable | 2,547 | 2,554 | ||||||
Premises and equipment | 17,860 | 18,242 | ||||||
Foreclosed real estate | 2,245 | 2,457 | ||||||
Cash value of bank owned life insurance | 13,043 | 12,850 | ||||||
Prepaid FDIC insurance premium | 1,252 | 1,523 | ||||||
Other assets | 4,616 | 4,321 | ||||||
Total assets | $ | 680,081 | $ | 651,758 | ||||
LIABILITIES AND STOCKHOLDERS' EQUITY | ||||||||
Deposits: | ||||||||
Non-interest bearing | $ | 59,710 | $ | 55,577 | ||||
Interest bearing | 487,790 | 471,304 | ||||||
Total | 547,500 | 526,881 | ||||||
Repurchase agreements | 21,010 | 15,395 | ||||||
Borrowed funds | 38,054 | 36,618 | ||||||
Accrued expenses and other liabilities | 8,596 | 9,904 | ||||||
Total liabilities | 615,160 | 588,798 | ||||||
Stockholders' Equity: | ||||||||
Preferred stock, no par or stated value; | ||||||||
10,000,000 shares authorized, none outstanding | - | - | ||||||
Common stock, no par or stated value; 10,000,000 shares authorized; | ||||||||
shares issued: June 30, 2012 - 2,888,902 | 361 | 361 | ||||||
December 31, 2011 - 2,888,902 | ||||||||
shares outstanding: June 30, 2012 - 2,839,224 | ||||||||
December 31, 2011 - 2,835,403 | ||||||||
Additional paid in capital | 5,181 | 5,173 | ||||||
Accumulated other comprehensive income | 2,416 | 2,536 | ||||||
Retained earnings | 58,026 | 56,032 | ||||||
Treasury stock, common shares at cost: June 30, 2012 - 49,678 | ||||||||
December 31, 2011 - 53,499 | (1,063 | ) | (1,142 | ) | ||||
Total stockholders' equity | 64,921 | 62,960 | ||||||
Total liabilities and stockholders' equity | $ | 680,081 | $ | 651,758 |
See accompanying notes to consolidated financial statements. |
1 |
NorthWest Indiana Bancorp |
Consolidated Statements of Income |
(unaudited) |
Three Months Ended | Six Months Ended | |||||||||||||||
(Dollars in thousands, except per share data) | June 30, | June 30, | ||||||||||||||
2012 | 2011 | 2012 | 2011 | |||||||||||||
Interest income: | ||||||||||||||||
Loans receivable | ||||||||||||||||
Real estate loans | $ | 4,276 | $ | 4,317 | $ | 8,526 | $ | 8,703 | ||||||||
Commercial loans | 876 | 874 | 1,726 | 1,833 | ||||||||||||
Consumer loans | 9 | 11 | 18 | 25 | ||||||||||||
Total loan interest | 5,161 | 5,202 | 10,270 | 10,561 | ||||||||||||
Securities | 1,386 | 1,581 | 2,772 | 3,101 | ||||||||||||
Other interest earning assets | 7 | 5 | 11 | 12 | ||||||||||||
Total interest income | 6,554 | 6,788 | 13,053 | 13,674 | ||||||||||||
Interest expense: | ||||||||||||||||
Deposits | 410 | 674 | 854 | 1,385 | ||||||||||||
Repurchase agreements | 21 | 29 | 41 | 57 | ||||||||||||
Borrowed funds | 183 | 153 | 364 | 327 | ||||||||||||
Total interest expense | 614 | 856 | 1,259 | 1,769 | ||||||||||||
Net interest income | 5,940 | 5,932 | 11,794 | 11,905 | ||||||||||||
Provision for loan losses | 550 | 955 | 1,075 | 2,065 | ||||||||||||
Net interest income after provision for loan losses | 5,390 | 4,977 | 10,719 | 9,840 | ||||||||||||
Noninterest income: | ||||||||||||||||
Fees and service charges | 610 | 637 | 1,248 | 1,221 | ||||||||||||
Wealth management operations | 314 | 310 | 646 | 584 | ||||||||||||
Gain on sale of securities, net | 251 | 237 | 617 | 500 | ||||||||||||
Gain on sale of loans held-for-sale, net | 272 | 29 | 347 | 110 | ||||||||||||
Increase in cash value of bank owned life insurance | 97 | 101 | 194 | 202 | ||||||||||||
(Loss)/Gain on foreclosed real estate, net | (120 | ) | 728 | (84 | ) | 788 | ||||||||||
Other-than-temporary credit impairment of debt securities | (6 | ) | - | (6 | ) | - | ||||||||||
Noncredit portion of other-than-tmporary | ||||||||||||||||
impairment of debt securities recognized in other comprehensive income | - | - | - | - | ||||||||||||
Other | 5 | 8 | 58 | 28 | ||||||||||||
Total noninterest income | 1,423 | 2,050 | 3,020 | 3,433 | ||||||||||||
Noninterest expense: | ||||||||||||||||
Compensation and benefits | 2,507 | 2,546 | 5,132 | 4,911 | ||||||||||||
Occupancy and equipment | 763 | 844 | 1,582 | 1,691 | ||||||||||||
Data processing | 277 | 249 | 548 | 501 | ||||||||||||
Federal deposit insurance premiums | 147 | 265 | 291 | 596 | ||||||||||||
Marketing | 83 | 75 | 158 | 216 | ||||||||||||
Other | 928 | 957 | 2,216 | 1,922 | ||||||||||||
Total noninterest expense | 4,705 | 4,936 | 9,927 | 9,837 | ||||||||||||
Income before income tax expenses | 2,108 | 2,091 | 3,812 | 3,436 | ||||||||||||
Income tax expenses | 488 | 412 | 838 | 585 | ||||||||||||
Net income | $ | 1,620 | $ | 1,679 | $ | 2,974 | $ | 2,851 | ||||||||
Earnings per common share: | ||||||||||||||||
Basic | $ | 0.57 | $ | 0.59 | $ | 1.05 | $ | 1.01 | ||||||||
Diluted | $ | 0.57 | $ | 0.59 | $ | 1.05 | $ | 1.01 | ||||||||
Dividends declared per common share | $ | 0.19 | $ | 0.15 | $ | 0.34 | $ | 0.30 |
See accompanying notes to consolidated financial statements. |
2 |
NorthWest Indiana Bancorp |
Consolidated Statements of Comprehensive Income |
(unaudited) |
Three Months Ended | Six Months Ended | |||||||||||||||
(Dollars in thousands) | June 30, | June 30, | ||||||||||||||
2012 | 2011 | 2012 | 2011 | |||||||||||||
Net income | $ | 1,620 | $ | 1,679 | $ | 2,974 | $ | 2,851 | ||||||||
Net change in net unrealized gains and losses: | ||||||||||||||||
on securities available-for-sale: | ||||||||||||||||
Unrealized gains arising during the period | 318 | 1,118 | 428 | 2,015 | ||||||||||||
Less: reclassification adjustment for gains included in net income | (245 | ) | (237 | ) | (611 | ) | (500 | ) | ||||||||
Net securities (loss)/gain during the period | 73 | 881 | (183 | ) | 1,515 | |||||||||||
Tax effect | (23 | ) | (305 | ) | 66 | (523 | ) | |||||||||
Net of tax amount | 50 | 576 | (117 | ) | 992 | |||||||||||
Net change in unrecognized gain on postretirement benefit: | ||||||||||||||||
Net loss on post retirement benefit | - | - | - | - | ||||||||||||
Amortization of net actuarial gain | (1 | ) | (2 | ) | (3 | ) | (4 | ) | ||||||||
Net loss during the period | (1 | ) | (2 | ) | (3 | ) | (4 | ) | ||||||||
Tax effect | - | - | - | - | ||||||||||||
Net of tax amount | (1 | ) | (2 | ) | (3 | ) | (4 | ) | ||||||||
Other comprehensive (loss)/income, net of tax | 49 | 574 | (120 | ) | 988 | |||||||||||
Comprehensive income, net of tax | $ | 1,669 | $ | 2,253 | $ | 2,854 | $ | 3,839 |
See accompanying notes to consolidated financial statements. |
3 |
NorthWest Indiana Bancorp |
Consolidated Statements of Changes in Stockholders' Equity |
(unaudited) |
Three Months Ended | Six Months Ended | |||||||||||||||
(Dollars in thousands) | June 30, | June 30, | ||||||||||||||
2012 | 2011 | 2012 | 2011 | |||||||||||||
Balance at beginning of period | $ | 63,755 | $ | 57,291 | $ | 62,960 | $ | 56,089 | ||||||||
Comprehensive income: | ||||||||||||||||
Net income | 1,620 | 1,679 | 2,974 | 2,851 | ||||||||||||
Net unrealized change on securities | ||||||||||||||||
available-for-sale, net of reclassifications and tax effects | 50 | 576 | (117 | ) | 992 | |||||||||||
Amortization of unrecognized gain on postretirement benefit | (1 | ) | (2 | ) | (3 | ) | (4 | ) | ||||||||
Comprehensive income | 1,669 | 2,253 | 2,854 | 3,839 | ||||||||||||
Stock based compensation expense | 4 | 9 | 8 | 18 | ||||||||||||
Sale of treasury stock | 32 | 30 | 63 | 61 | ||||||||||||
Cash dividends | (539 | ) | (425 | ) | (964 | ) | (849 | ) | ||||||||
Balance at end of period | $ | 64,921 | $ | 59,158 | $ | 64,921 | $ | 59,158 |
See accompanying notes to consolidated financial statements. |
4 |
NorthWest Indiana Bancorp |
Consolidated Statements of Cash Flows |
(unaudited) |
Six Months Ended | ||||||||
(Dollars in thousands) | June 30, | |||||||
2012 | 2011 | |||||||
CASH FLOWS FROM OPERATING ACTIVITIES: | ||||||||
Net income | $ | 2,974 | $ | 2,851 | ||||
Adjustments to reconcile net income to | ||||||||
net cash provided by operating activities: | ||||||||
Origination of loans for sale | (5,926 | ) | (3,866 | ) | ||||
Sale of loans originated for sale | 6,055 | 4,286 | ||||||
Depreciation and amortization, net of accretion | 1,173 | 1,076 | ||||||
Amortization of mortgage servicing rights | 57 | 75 | ||||||
Stock based compensation expense | 8 | 18 | ||||||
Gain on sale of securities, net | (617 | ) | (500 | ) | ||||
Gain on sale of loans held-for-sale, net | (347 | ) | (110 | ) | ||||
Other-than-temporary credit impairment of debt securities | 6 | - | ||||||
Loss/(gain) on foreclosed real estate, net | 84 | (788 | ) | |||||
Provision for loan losses | 1,075 | 2,065 | ||||||
Net change in: | ||||||||
Interest receivable | 7 | (78 | ) | |||||
Other assets | 32 | 957 | ||||||
Accrued expenses and other liabilities | (1,421 | ) | 7,079 | |||||
Total adjustments | 186 | 10,214 | ||||||
Net cash - operating activities | 3,160 | 13,065 | ||||||
CASH FLOWS FROM INVESTING ACTIVITIES: | ||||||||
Proceeds from maturities and pay downs of securities available-for-sale | 30,137 | 18,679 | ||||||
Proceeds from sales of securities available-for-sale | 13,283 | 10,267 | ||||||
Purchases of securities available-for-sale | (49,198 | ) | (47,154 | ) | ||||
Proceeds from maturities and pay downs of securities held-to-maturity | - | 960 | ||||||
Proceeds from sale of loans receivable transferred to loans held-for-sale | 3,591 | - | ||||||
Proceeds from sale of Federal Home Loan Bank Stock | - | 296 | ||||||
Loan participations purchased | (9,393 | ) | - | |||||
Net change in loans receivable | (25,707 | ) | 9,789 | |||||
Proceeds from sales of foreclosed real estate | 809 | 2,146 | ||||||
Purchase of premises and equipment, net | (323 | ) | (114 | ) | ||||
Cash value of bank owned life insurance | (194 | ) | (202 | ) | ||||
Net cash - investing activities | (36,995 | ) | (5,333 | ) | ||||
CASH FLOWS FROM FINANCING ACTIVITIES: | ||||||||
Net change in deposits | 20,619 | (2,023 | ) | |||||
Proceeds from FHLB advances | 2,000 | 3,000 | ||||||
Repayment of FHLB advances | (2,000 | ) | (3,000 | ) | ||||
Change in other borrowed funds | 7,051 | 2,106 | ||||||
Proceeds from sale of treasury stock | 63 | 61 | ||||||
Dividends paid | (850 | ) | (849 | ) | ||||
Net cash - financing activities | 26,883 | (705 | ) | |||||
Net change in cash and cash equivalents | (6,952 | ) | 7,027 | |||||
Cash and cash equivalents at beginning of period | 26,367 | 10,938 | ||||||
Cash and cash equivalents at end of period | $ | 19,415 | $ | 17,965 | ||||
SUPPLEMENTAL CASH FLOW INFORMATION: | ||||||||
Cash paid during the period for: | ||||||||
Interest | $ | 1,261 | $ | 1,784 | ||||
Income taxes | 1,263 | 738 | ||||||
SUPPLEMENTAL NONCASH INFORMATION: | ||||||||
Transfers from loans to foreclosed real estate | $ | 930 | $ | 120 | ||||
Transfers from loans receivable to loans held-for-sale | 3,428 | - |
See accompanying notes to consolidated financial statements. |
5 |
NorthWest Indiana Bancorp
Notes to Consolidated Financial Statements
Note 1 - Basis of Presentation
The consolidated financial statements include the accounts of NorthWest Indiana Bancorp (the “Bancorp”), its wholly-owned subsidiary, Peoples Bank SB (the “Bank”), and the Bank’s wholly-owned subsidiaries, Peoples Service Corporation, NWIN, LLC, NWIN Funding, Inc, and Columbia Development Company, LLC. The Bancorp has no other business activity other than being a holding company for the Bank. The Bancorp’s earnings are dependent upon the earnings of the Bank. The accompanying unaudited consolidated financial statements were prepared in accordance with instructions for Form 10-Q and, therefore, do not include all disclosures required by U.S. generally accepted accounting principles for complete presentation of consolidated financial statements. In the opinion of management, the consolidated financial statements contain all adjustments necessary to present fairly the consolidated balance sheets of the Bancorp as of June 30, 2012 and December 31, 2011, and the consolidated statements of income, comprehensive income, and changes in stockholders’ equity, for the three and six months ended June 30, 2012 and 2011, and consolidated statements of cash flows for the six months ended June 30, 2012 and 2011. The income reported for the six month period ended June 30, 2012 is not necessarily indicative of the results to be expected for the full year.
Note 2 - Use of Estimates
Preparing financial statements in conformity with U.S. generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities and disclosure of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenue and expenses during the reporting period, as well as the disclosures provided. Actual results could differ from those estimates. Estimates associated with the allowance for loan losses, fair values of foreclosed real estate, loan servicing rights, investment securities, deferred tax assets, and the status of contingencies are particularly susceptible to material change in the near term.
Note 3 - Securities
The fair value of available-for-sale securities and the related gross unrealized gains and losses recognized in accumulated other comprehensive income (loss) were as follows:
(Dollars in thousands) | ||||||||||||||||
Gross | Gross | Estimated | ||||||||||||||
Cost | Unrealized | Unrealized | Fair | |||||||||||||
Basis | Gains | Losses | Value | |||||||||||||
June 30, 2012 | ||||||||||||||||
U.S. government sponsored entities | $ | 15,850 | $ | 91 | $ | (1 | ) | $ | 15,940 | |||||||
Collateralized mortgage obligations and | ||||||||||||||||
residential mortgage-backed securities | 113,097 | 3,727 | (19 | ) | 116,805 | |||||||||||
Municipal securities | 54,903 | 3,834 | (24 | ) | 58,713 | |||||||||||
Collateralized debt obligations | 5,207 | - | (3,960 | ) | 1,247 | |||||||||||
Total securities available-for-sale | $ | 189,057 | $ | 7,652 | $ | (4,004 | ) | $ | 192,705 | |||||||
December 31, 2011 | ||||||||||||||||
U.S. government sponsored entities | $ | 15,610 | $ | 41 | $ | (3 | ) | $ | 15,648 | |||||||
Collateralized mortgage obligations and | ||||||||||||||||
residential mortgage-backed securities | 107,569 | 3,630 | (2 | ) | 111,197 | |||||||||||
Municipal securities | 54,738 | 4,018 | - | 58,756 | ||||||||||||
Collateralized debt obligations | 5,214 | - | (3,853 | ) | 1,361 | |||||||||||
Total securities available-for-sale | $ | 183,131 | $ | 7,689 | $ | (3,858 | ) | $ | 186,962 |
6 |
The fair value of available-for-sale debt securities and carrying amount, if different, at June 30, 2012 by contractual maturity, were as follows. Securities not due at a single maturity date, primarily mortgage-backed securities, are shown separately.
(Dollars in thousands) | ||||||||
Available-for-sale | ||||||||
Estimated | ||||||||
Fair | Tax-Equivalent | |||||||
June 30, 2012 | Value | Yield (%) | ||||||
Due in one year or less | $ | 987 | 5.93 | |||||
Due from one to five years | 9,272 | 3.75 | ||||||
Due from five to ten years | 35,848 | 4.14 | ||||||
Due over ten years | 29,793 | 5.69 | ||||||
Collateralized mortgage obligations and | ||||||||
residential mortgage-backed securities | 116,805 | 3.05 | ||||||
Total | $ | 192,705 | 3.71 |
Sales of available-for-sale securities were as follows:
(Dollars in thousands) | ||||||||
June 30, | June 30, | |||||||
2012 | 2011 | |||||||
Proceeds | $ | 13,283 | $ | 10,267 | ||||
Gross gains | 617 | 509 | ||||||
Gross losses | - | (9 | ) |
Accumulated other comprehensive income/(loss) balances, net of tax, related to available-for-sale securities, were as follows:
(Dollars in thousands) | ||||||
Unrealized gain/(loss) | ||||||
Beginning balance, December 31, 2011 | $ | 2,476 | ||||
Current period change | (117 | ) | ||||
Ending balance, June 30, 2012 | $ | 2,359 |
Securities with carrying values of approximately $33,858,000 and $70,412,000 were pledged as of June 30, 2012 and December 31, 2011, respectively, as collateral for repurchase agreements, public funds, and for other purposes as permitted or required by law. At June 30, 2012, the Bancorp was no longer required to pledge securities for public funds on deposit.
7 |
Securities with unrealized losses at June 30, 2012 and December 31, 2011 not recognized in income are as follows:
(Dollars in thousands) | ||||||||||||||||||||||||
Less than 12 months | 12 months or longer | Total | ||||||||||||||||||||||
Estimated | Estimated | Estimated | ||||||||||||||||||||||
Fair | Unrealized | Fair | Unrealized | Fair | Unrealized | |||||||||||||||||||
Value | Losses | Value | Losses | Value | Losses | |||||||||||||||||||
June 30, 2012 | ||||||||||||||||||||||||
U.S. government sponsored entities | $ | 998 | $ | (1 | ) | $ | - | $ | - | $ | 998 | $ | (1 | ) | ||||||||||
Collateralized mortgage obligations and | ||||||||||||||||||||||||
residential mortgage-backed securities | 2,138 | (19 | ) | - | - | 2,138 | (19 | ) | ||||||||||||||||
Municipal securities | 2,415 | (24 | ) | - | - | 2,415 | (24 | ) | ||||||||||||||||
Collateralized debt obligations | - | - | 1,247 | (3,960 | ) | 1,247 | (3,960 | ) | ||||||||||||||||
Total temporarily impaired | $ | 5,551 | $ | (44 | ) | $ | 1,247 | $ | (3,960 | ) | $ | 6,798 | $ | (4,004 | ) | |||||||||
Number of securities | 14 | 4 | 18 |
(Dollars in thousands) | ||||||||||||||||||||||||
Less than 12 months | 12 months or longer | Total | ||||||||||||||||||||||
Estimated | Estimated | Estimated | ||||||||||||||||||||||
Fair | Unrealized | Fair | Unrealized | Fair | Unrealized | |||||||||||||||||||
Value | Losses | Value | Losses | Value | Losses | |||||||||||||||||||
December 31, 2011 | ||||||||||||||||||||||||
U.S. government sponsored entities | $ | 1,287 | $ | (3 | ) | $ | - | $ | - | $ | 1,287 | $ | (3 | ) | ||||||||||
Collateralized mortgage obligations and | ||||||||||||||||||||||||
residential mortgage-backed securities | 2,030 | (2 | ) | - | - | 2,030 | (2 | ) | ||||||||||||||||
Municipal securities | - | - | - | - | - | - | ||||||||||||||||||
Collateralized debt obligations | - | - | 1,361 | (3,853 | ) | 1,361 | (3,853 | ) | ||||||||||||||||
Total temporarily impaired | $ | 3,317 | $ | (5 | ) | $ | 1,361 | $ | (3,853 | ) | $ | 4,678 | $ | (3,858 | ) | |||||||||
Number of securities | 2 | 4 | 6 |
Unrealized losses on securities have not been recognized into income because the securities are of high credit quality or have undisrupted cash flows. Management has the intent and ability to hold those securities for the foreseeable future, and the decline in fair value is largely due to changes in interest rates and volatility in securities markets. The fair value is expected to recover as the securities approach maturity.
Note 4 - Loans Receivable
(Dollars in thousands) | ||||||||
June 30, 2012 | December 31, 2011 | |||||||
Loans secured by real estate: | ||||||||
Construction and land development | $ | 20,618 | $ | 21,143 | ||||
Residential, including home equity | 156,783 | 154,426 | ||||||
Commercial real estate and other dwelling | 177,465 | 153,715 | ||||||
Total loans secured by real estate | 354,866 | 329,284 | ||||||
Consumer loans | 482 | 472 | ||||||
Commercial business | 68,688 | 63,384 | ||||||
Government and other | 7,661 | 8,643 | ||||||
Subtotal | 431,697 | 401,783 | ||||||
Less: | ||||||||
Net deferred loan origination fees | (282 | ) | (264 | ) | ||||
Undisbursed loan funds | (59 | ) | (118 | ) | ||||
Loans receivable | $ | 431,356 | $ | 401,401 |
8 |
(Dollars in thousands) | Residential Real Estate, Including Home Equity | Consumer Loans | Commercial Real Estate, Construction & Land Development, and Other Dwellings | Commercial Participations Purchased | Commercial Business Loans | Government | Total | |||||||||||||||||||||
The Bancorp's activity in the allowance for loan losses is summarized below for the six months ended June 30, 2012: | ||||||||||||||||||||||||||||
Allowance for loan losses: | ||||||||||||||||||||||||||||
Beginning Balance | $ | 1,161 | $ | 15 | $ | 3,329 | $ | 2,399 | $ | 1,101 | $ | - | $ | 8,005 | ||||||||||||||
Charge-offs | (205 | ) | (9 | ) | (381 | ) | (484 | ) | - | - | (1,079 | ) | ||||||||||||||||
Recoveries | - | 4 | 9 | - | 30 | - | 43 | |||||||||||||||||||||
Provisions | 210 | 22 | 978 | 121 | (256 | ) | - | 1,075 | ||||||||||||||||||||
Ending Balance | $ | 1,166 | $ | 32 | $ | 3,935 | $ | 2,036 | $ | 875 | $ | - | $ | 8,044 | ||||||||||||||
The Bancorp's activity in the allowance for loan losses is summarized below for the six months ended June 30, 2011: | ||||||||||||||||||||||||||||
Allowance for loan losses: | ||||||||||||||||||||||||||||
Beginning Balance | $ | 994 | $ | 30 | $ | 2,773 | $ | 4,704 | $ | 620 | $ | - | $ | 9,121 | ||||||||||||||
Charge-offs | (235 | ) | (4 | ) | (567 | ) | (2,417 | ) | (111 | ) | - | $ | (3,334 | ) | ||||||||||||||
Recoveries | 102 | 10 | 174 | - | - | - | $ | 286 | ||||||||||||||||||||
Provisions | 245 | (18 | ) | 682 | 950 | 206 | - | $ | 2,065 | |||||||||||||||||||
Ending Balance | $ | 1,106 | $ | 18 | $ | 3,062 | $ | 3,237 | $ | 715 | $ | - | $ | 8,138 | ||||||||||||||
The Bancorp's allowance for loan losses impairment evaluation at June 30, 2012: | ||||||||||||||||||||||||||||
Ending balance: individually | ||||||||||||||||||||||||||||
evaluated for impairment | $ | 14 | $ | - | $ | 1,144 | $ | - | $ | 136 | $ | - | $ | 1,294 | ||||||||||||||
Ending balance: collectively | ||||||||||||||||||||||||||||
evaluated for impairment | $ | 1,152 | $ | 32 | $ | 2,791 | $ | 2,036 | $ | 739 | $ | - | $ | 6,750 | ||||||||||||||
Ending balance: loans acquired | ||||||||||||||||||||||||||||
with deteriorated credit quality | $ | - | $ | - | $ | - | $ | - | $ | - | $ | - | $ | - | ||||||||||||||
FINANCING RECEIVABLES | ||||||||||||||||||||||||||||
Ending balance | $ | 156,470 | $ | 481 | $ | 169,749 | $ | 28,334 | $ | 68,661 | $ | 7,661 | $ | 431,356 | ||||||||||||||
Ending balance: individually | ||||||||||||||||||||||||||||
evaluated for impairment | $ | 935 | $ | - | $ | 10,990 | $ | 6,632 | $ | 1,734 | $ | - | $ | 20,291 | ||||||||||||||
Ending balance: collectively | ||||||||||||||||||||||||||||
evaluated for impairment | $ | 155,535 | $ | 481 | $ | 158,759 | $ | 21,702 | $ | 66,927 | $ | 7,661 | $ | 411,065 | ||||||||||||||
The Bancorp's allowance for loan losses impairment evaluation at December 31, 2011: | ||||||||||||||||||||||||||||
Ending balance: individually | ||||||||||||||||||||||||||||
evaluated for impairment | $ | 10 | $ | - | $ | 1,043 | $ | 252 | $ | 304 | $ | - | $ | 1,609 | ||||||||||||||
Ending balance: collectively | ||||||||||||||||||||||||||||
evaluated for impairment | $ | 1,151 | $ | 15 | $ | 2,286 | $ | 2,147 | $ | 797 | $ | - | $ | 6,396 | ||||||||||||||
Ending balance: loans acquired | ||||||||||||||||||||||||||||
with deteriorated credit quality | $ | - | $ | - | $ | - | $ | - | $ | - | $ | - | $ | - | ||||||||||||||
FINANCING RECEIVABLES | ||||||||||||||||||||||||||||
Ending balance | $ | 154,135 | $ | 472 | $ | 154,618 | $ | 20,240 | $ | 63,293 | $ | 8,643 | $ | 401,401 | ||||||||||||||
Ending balance: individually | ||||||||||||||||||||||||||||
evaluated for impairment | $ | 1,282 | $ | - | $ | 11,007 | $ | 7,170 | $ | 2,214 | $ | - | $ | 21,673 | ||||||||||||||
Ending balance: collectively | ||||||||||||||||||||||||||||
evaluated for impairment | $ | 152,853 | $ | 472 | $ | 143,611 | $ | 13,070 | $ | 61,079 | $ | 8,643 | $ | 379,728 |
9 |
The Bancorp's credit quality indicators, are summarized below at June 30, 2012 and December 31, 2011: |
(Dollars in thousands) | ||||||||||||||||||||||||||||||||
Corporate Credit Exposure - Credit Risk Portfolio By Creditworthiness Category | ||||||||||||||||||||||||||||||||
Commercial
Real Estate, Construction & Land Development, and Other Dwellings | Commercial Participations Purchased | Commercial Business Loans | Government | |||||||||||||||||||||||||||||
Loan Grades | 2012 | 2011 | 2012 | 2011 | 2012 | 2011 | 2012 | 2011 | ||||||||||||||||||||||||
2 Moderate risk | $ | 22 | $ | 25 | $ | - | $ | - | $ | 6,051 | $ | 4,467 | $ | - | $ | - | ||||||||||||||||
3 Acceptable risk | 104,445 | 85,703 | 11,809 | 2,387 | 42,141 | 37,713 | 7,661 | 8,643 | ||||||||||||||||||||||||
4 Pass/monitor | 50,835 | 51,429 | 3,400 | 5,903 | 17,011 | 17,532 | - | - | ||||||||||||||||||||||||
5 Special mention (watch) | 3,348 | 5,509 | 6,493 | 4,780 | 1,371 | 978 | - | - | ||||||||||||||||||||||||
6 Substandard | 11,099 | 11,952 | 6,632 | 7,170 | 2,087 | 2,603 | - | - | ||||||||||||||||||||||||
7 Doubtful | - | - | - | - | - | - | - | - | ||||||||||||||||||||||||
Total | $ | 169,749 | $ | 154,618 | $ | 28,334 | $ | 20,240 | $ | 68,661 | $ | 63,293 | $ | 7,661 | $ | 8,643 |
(Dollars in thousands) | ||||||||||||||||||
Consumer Credit Exposure - Credit Risk Profile Based On Payment Activity | ||||||||||||||||||
Residential Real Estate, Including Home Equity | Consumer Loans | |||||||||||||||||
2012 | 2011 | 2012 | 2011 | |||||||||||||||
Performing | $ | 154,477 | $ | 151,375 | $ | 467 | $ | 472 | ||||||||||
Nonperforming | 1,993 | 2,760 | 14 | - | ||||||||||||||
Total | $ | 156,470 | $ | 154,135 | $ | 481 | $ | 472 |
The Bancorp has established a standard loan grading system to assist management, lenders and review personnel in their analysis and supervision of the loan portfolio. The use and application of theses grades by the Bancorp is uniform and conforms to regulatory definitions. The loan grading system is as follows:
2 - Moderate risk
Borrower consistently internally generates sufficient cash flow to fund debt service, working assets, and some capital expenditures. Risk of default considered low.
3 – Acceptable risk
Borrower generates sufficient cash flow to fund debt service, but most working asset and all capital expansion needs are provided from external sources. Profitability ratios and key balance sheet ratios are usually close to peers but one or more ratios (e.g. leverage) may be higher than peer. Earnings may be trending down over the last three years. Borrower may be able to obtain similar financing from other banks with comparable or less favorable terms. Risk of default is acceptable but requires collateral protection.
4 – Pass/monitor
The borrower has significant weaknesses resulting from performance trends or management concerns. The financial condition of the company has taken a negative turn and may be temporarily strained. Cash flow may be weak but cash reserves remain adequate to meet debt service. Management weaknesses are evident. Borrowers in this category will warrant more than the normal level of supervision and more frequent reporting.
5 – Special mention (watch)
Special mention credits are considered bankable assets with no apparent loss of principal or interest envisioned but requiring a high level of management attention. Assets in this category are currently protected but are potentially weak. These borrowers are subject to economic, industry, or management factors having an adverse impact upon their prospects for orderly service of debt. The perceived risk in continued lending is considered to have increased beyond the level where such loans would normally be granted. These assets constitute an undue and unwarranted credit risk, but not to the point of justifying a classification of Substandard.
6 – Substandard
This classification consists of loans which are inadequately protected by the current sound worth and paying capacity of the obligor or of the collateral pledged. Financial statements normally reveal some or all of the following: poor trends, lack of earnings and cash flow, excessive debt, lack of liquidity, and the absence of creditor protection. Loans are still considered collectible, but due to increased risks and defined weaknesses of the credit, some loss could be incurred in collection if the deficiencies are not corrected.
7 – Doubtful
This classification consists of loans where the possibility of loss is high after collateral liquidation based upon existing facts, market conditions, and value. Loss is deferred until certain important and reasonably specific pending factors which may strengthen the credit can be exactly determined. These factors may include proposed acquisitions, liquidation procedures, capital injection and receipt of additional collateral, mergers or refinancing plans.
Performing loans are loans that are paying as agreed and are less than ninety days past due on payments of interest and principal.
10 |
The Bancorp's cumulative outstanding troubled debt restructurings are summarized below: |
(Dollars in thousands) | ||||||||||||||||||||||||
Number of Contracts | Pre-Modification Outstanding Recorded Investment | Post-Modification Outstanding Recorded Investment | Number of Contracts | Pre-Modification Outstanding Recorded Investment | Post-Modification Outstanding Recorded Investment | |||||||||||||||||||
June 30, 2012 | December 31, 2011 | |||||||||||||||||||||||
Troubled debt restructurings outstanding at | ||||||||||||||||||||||||
the end of the periods presented: | ||||||||||||||||||||||||
Residential real estate, including home equity | 9 | $ | 937 | $ | 935 | 14 | $ | 1,290 | $ | 1,282 | ||||||||||||||
Consumer loans | - | - | - | - | - | - | ||||||||||||||||||
Commercial real estate, construction & land | ||||||||||||||||||||||||
development, and other dwellings | 5 | 8,902 | 8,449 | 3 | 8,097 | 7,836 | ||||||||||||||||||
Commercial participations purchased | 2 | 7,975 | 5,544 | 2 | 7,975 | 5,635 | ||||||||||||||||||
Commercial business loans | - | - | - | - | - | - | ||||||||||||||||||
Government | - | - | - | - | - | - |
Number of Contracts | Recorded Investment | Number of Contracts | Recorded Investment | |||||||||||||
June 30, 2012 | December 31, 2011 | |||||||||||||||
Troubled debt restructurings that subsequently | ||||||||||||||||
defaulted during the periods presented: | ||||||||||||||||
Residential real estate, including home equity | - | $ | - | - | $ | - | ||||||||||
Consumer loans | - | - | - | - | ||||||||||||
Commercial real estate, construction & land | ||||||||||||||||
development, and other dwellings | - | - | 1 | 376 | ||||||||||||
Commercial participations purchased | - | - | - | - | ||||||||||||
Commercial business loans | - | - | - | - | ||||||||||||
Government | - | - | - | - |
Troubled debt restructurings that subsequently defaulted during the period are loans that were restructured and, subsequent to restructuring, were unable perform within the guidelines of the restructured note. Troubled debt restructurings that subsequently defaulted are presented for comparison purposes and are relevant only to the period in which the subsequent default occurred.
11 |
The Bancorp's individually evaluated impaired loans are summarized below: |
As of June 30, 2012 | For
the six months ended June 30, 2012 | |||||||||||||||||||
(Dollars in thousands) | Recorded Investment | Unpaid Principal Balance | Related Allowance | Average Recorded Investment | Interest Income Recognized | |||||||||||||||
With no related allowance recorded: | ||||||||||||||||||||
Residential real estate, including home equity | $ | - | $ | - | $ | - | $ | - | $ | - | ||||||||||
Commercial real estate, construction & land | ||||||||||||||||||||
development, and other dwellings | 1,095 | 1,221 | - | 708 | 5 | |||||||||||||||
Commercial participations purchased | 6,632 | 12,792 | - | 3,501 | 90 | |||||||||||||||
Commercial business loans | 1,039 | 1,164 | - | 645 | 31 | |||||||||||||||
With an allowance recorded: | ||||||||||||||||||||
Residential real estate, including home equity | 935 | 1,213 | 14 | 596 | 6 | |||||||||||||||
Commercial real estate, construction & land | ||||||||||||||||||||
development, and other dwellings | 9,895 | 9,914 | 1,144 | 9,817 | 356 | |||||||||||||||
Commercial participations purchased | - | - | - | 5,406 | - | |||||||||||||||
Commercial business loans | 695 | 696 | 136 | 1,103 | 28 | |||||||||||||||
Total: | ||||||||||||||||||||
Residential real estate, including home equity | $ | 935 | $ | 1,213 | $ | 14 | $ | 596 | $ | 6 | ||||||||||
Commercial real estate, construction & land | ||||||||||||||||||||
development, and other dwellings | $ | 10,990 | $ | 11,135 | $ | 1,144 | $ | 10,525 | $ | 361 | ||||||||||
Commercial participations purchased | $ | 6,632 | $ | 12,792 | $ | - | $ | 8,907 | $ | 90 | ||||||||||
Commercial business loans | $ | 1,734 | $ | 1,860 | $ | 136 | $ | 1,748 | $ | 59 |
As of December 31, 2011 | For
the six months ended June 30, 2011 | |||||||||||||||||||
(Dollars in thousands) | Recorded investment | Unpaid principal balance | Related allowance | Average Recorded Investment | Interest Income Recognized | |||||||||||||||
With no related allowance recorded: | ||||||||||||||||||||
Residential real estate, including home equity | $ | - | $ | - | $ | - | $ | - | $ | - | ||||||||||
Commercial real estate, construction & land | ||||||||||||||||||||
development, and other dwellings | 690 | 880 | - | 746 | 12 | |||||||||||||||
Commercial participations purchased | 2,483 | 8,158 | - | 3,473 | 128 | |||||||||||||||
Commercial business loans | 793 | 818 | - | 177 | - | |||||||||||||||
With an allowance recorded: | ||||||||||||||||||||
Residential real estate, including home equity | 1,282 | 1,282 | 10 | - | - | |||||||||||||||
Commercial real estate, construction & land | ||||||||||||||||||||
development, and other dwellings | 10,317 | 12,662 | 1,043 | 9,685 | 358 | |||||||||||||||
Commercial participations purchased | 4,687 | 4,687 | 252 | 9,718 | 216 | |||||||||||||||
Commercial business loans | 1,421 | 1,421 | 304 | 260 | 9 | |||||||||||||||
Total: | ||||||||||||||||||||
Residential real estate, including home equity | $ | 1,282 | $ | 1,282 | $ | 10 | $ | - | $ | - | ||||||||||
Commercial real estate, construction & land | ||||||||||||||||||||
development, and other dwellings | $ | 11,007 | $ | 13,542 | $ | 1,043 | $ | 10,431 | $ | 370 | ||||||||||
Commercial participations purchased | $ | 7,170 | $ | 12,845 | $ | 252 | $ | 13,191 | $ | 344 | ||||||||||
Commercial business loans | $ | 2,214 | $ | 2,239 | $ | 304 | $ | 437 | $ | 9 |
12 |
The Bancorp's age analysis of past due financing receivables is summarized below: |
(Dollars in thousands) | ||||||||||||||||||||||||||||
30-59 Days Past Due | 60-89 Days Past Due | Greater Than 90 Days Past Due | Total Past Due | Current | Total Financing Receivables | Recorded Investments Greater than 90 Days and Accruing | ||||||||||||||||||||||
June 30, 2012 | ||||||||||||||||||||||||||||
Residential real estate, including home equity | $ | 3,246 | $ | 866 | $ | 1,589 | $ | 5,701 | $ | 150,769 | $ | 156,470 | $ | 7 | ||||||||||||||
Consumer loans | - | 14 | - | 14 | 467 | 481 | - | |||||||||||||||||||||
Commercial real estate, construction & land | ||||||||||||||||||||||||||||
development, and other dwellings | 1,158 | 495 | 2,686 | 4,339 | 165,410 | 169,749 | - | |||||||||||||||||||||
Commercial participations purchased | - | 6 | 6,633 | 6,639 | 21,695 | 28,334 | - | |||||||||||||||||||||
Commercial business loans | 528 | - | 507 |