10-Q 1 a12-19897_110q.htm 10-Q

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 September 30, 2012

 

OR

 

o

Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

 

For the transition period from                            to                               .

 

Commission file number 1-13661

 

S.Y. BANCORP, INC.

(Exact name of registrant as specified in its charter)

 

Kentucky

 

61-1137529

(State or other jurisdiction of

 

(I.R.S. Employer

incorporation or organization)

 

Identification No.)

 

1040 East Main Street, Louisville, Kentucky 40206

(Address of principal executive offices including zip code)

 

(502) 582-2571

(Registrant’s telephone number, including area code)

 

Not Applicable

(Former name, former address and former fiscal year, if changed since last report)

 

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 o

 

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).  Yes x No o

 

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

 

Large accelerated filer o

 

Accelerated filer x

 

 

 

Non-accelerated filer o

 

Smaller reporting company o

(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 o No x

 

The number of shares of the registrant’s Common Stock, no par value, outstanding as of October 29, 2012, was 13,895,401.

 

 

 



Table of Contents

 

S.Y. BANCORP, INC. AND SUBSIDIARY

 

Index

 

PART I — FINANCIAL INFORMATION

 

 

 

Item 1. Financial Statements

 

 

 

The following consolidated financial statements of S.Y. Bancorp, Inc. and Subsidiary, Stock Yards Bank & Trust Company, are submitted herewith:

 

 

 

Consolidated Balance Sheets September 30, 2012 (Unaudited) and December 31, 2011

 

 

 

 

Consolidated Statements of Income for the three and nine months ended September 30, 2012 and 2011 (Unaudited)

 

 

 

 

Consolidated Statements of Comprehensive Income for the three and nine months ended September 30, 2012 and 2011 (Unaudited)

 

 

 

 

Consolidated Statements of Cash Flows for the nine months ended September 30, 2012 and 2011 (Unaudited)

 

 

 

 

Consolidated Statement of Changes in Stockholders’ Equity for the nine months ended September 30, 2012 (Unaudited)

 

 

 

 

Notes to Unaudited Consolidated Financial Statements

 

 

 

 

 

Item 2.

Management’s Discussion and Analysis of Financial Condition and Results of Operations

 

 

 

 

Item 3.

Quantitative and Qualitative Disclosures about Market Risk

 

 

 

 

Item 4.

Controls and Procedures

 

 

 

 

PART II — OTHER INFORMATION

 

 

 

 

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

 

 

 

 

Item 6.

Exhibits

 

 

1



Table of Contents

 

S.Y. BANCORP, INC. AND SUBSIDIARY

Consolidated Balance Sheets

September 30, 2012 and December 31, 2011

(In thousands, except share data)

 

 

 

September 30,

 

December 31,

 

 

 

2012

 

2011

 

 

 

(Unaudited)

 

 

 

Assets

 

 

 

 

 

Cash and due from banks

 

$

35,032

 

$

32,901

 

Federal funds sold

 

17,351

 

22,019

 

Mortgage loans held for sale

 

13,417

 

4,381

 

Securities available for sale (amortized cost of $350,586 in 2012 and $343,059 in 2011)

 

360,946

 

352,185

 

Federal Home Loan Bank stock

 

5,180

 

4,948

 

Other securities

 

1,000

 

1,001

 

Loans

 

1,578,290

 

1,544,845

 

Less allowance for loan losses

 

31,245

 

29,745

 

Net loans

 

1,547,045

 

1,515,100

 

Premises and equipment, net

 

37,436

 

36,611

 

Bank owned life insurance

 

27,886

 

27,143

 

Accrued interest receivable

 

5,954

 

5,964

 

Other assets

 

51,342

 

50,844

 

Total assets

 

$

2,102,589

 

$

2,053,097

 

Liabilities and Stockholders’ Equity

 

 

 

 

 

Deposits:

 

 

 

 

 

Non-interest bearing

 

$

359,097

 

$

313,587

 

Interest bearing

 

1,330,933

 

1,304,152

 

Total deposits

 

1,690,030

 

1,617,739

 

Securities sold under agreements to repurchase

 

54,127

 

66,026

 

Federal funds purchased

 

19,308

 

37,273

 

Accrued interest payable

 

202

 

232

 

Other liabilities

 

46,177

 

42,810

 

Federal Home Loan Bank advances

 

60,423

 

60,431

 

Subordinated debentures

 

30,900

 

40,900

 

Total liabilities

 

1,901,167

 

1,865,411

 

Stockholders’ equity:

 

 

 

 

 

Preferred stock, no par value. Authorized 1,000,000 shares; no shares issued or outstanding

 

 

 

Common stock, no par value. Authorized 20,000,000 shares; issued and outstanding 13,894,540 and 13,819,319 shares in 2012 and 2011, respectively

 

7,204

 

6,953

 

Additional paid-in capital

 

17,046

 

14,599

 

Retained earnings

 

170,908

 

160,672

 

Accumulated other comprehensive income

 

6,264

 

5,462

 

Total stockholders’ equity

 

201,422

 

187,686

 

Total liabilities and stockholders’ equity

 

$

2,102,589

 

$

2,053,097

 

 

See accompanying notes to unaudited consolidated financial statements.

 

2



Table of Contents

 

S.Y.  BANCORP, INC. AND SUBSIDIARY

Consolidated Statements of Income

For the three and nine months ended September 30, 2012 and 2011

(In thousands, except per share data)

 

 

 

For three months ended

 

For nine months ended

 

 

 

September 30,

 

September 30,

 

 

 

2012

 

2011

 

2012

 

2011

 

Interest income:

 

 

 

 

 

 

 

 

 

Loans

 

$

19,874

 

$

19,868

 

$

59,227

 

$

59,343

 

Federal funds sold

 

82

 

72

 

216

 

167

 

Mortgage loans held for sale

 

98

 

46

 

217

 

143

 

Securities — taxable

 

1,379

 

1,319

 

4,309

 

3,811

 

Securities — tax-exempt

 

259

 

311

 

898

 

1,006

 

Total interest income

 

21,692

 

21,616

 

64,867

 

64,470

 

Interest expense:

 

 

 

 

 

 

 

 

 

Deposits

 

1,725

 

2,520

 

5,652

 

7,845

 

Fed funds purchased

 

8

 

8

 

24

 

31

 

Securities sold under agreements to repurchase

 

46

 

68

 

138

 

199

 

Federal Home Loan Bank advances

 

345

 

368

 

1,072

 

1,093

 

Subordinated debentures

 

773

 

862

 

2,341

 

2,586

 

Total interest expense

 

2,897

 

3,826

 

9,227

 

11,754

 

Net interest income

 

18,795

 

17,790

 

55,640

 

52,716

 

Provision for loan losses

 

2,475

 

4,100

 

9,025

 

9,500

 

Net interest income after provision for loan losses

 

16,320

 

13,690

 

46,615

 

43,216

 

Non-interest income:

 

 

 

 

 

 

 

 

 

Investment management and trust services

 

3,515

 

3,347

 

10,675

 

10,545

 

Service charges on deposit accounts

 

2,161

 

2,167

 

6,341

 

6,125

 

Bankcard transaction revenue

 

985

 

945

 

2,967

 

2,782

 

Gains on sales of mortgage loans held for sale

 

1,277

 

574

 

2,882

 

1,397

 

Brokerage commissions and fees

 

651

 

570

 

1,844

 

1,613

 

Bank owned life insurance income

 

226

 

257

 

743

 

761

 

Other non-interest income

 

980

 

(2

)

2,878

 

792

 

Total non-interest income

 

9,795

 

7,858

 

28,330

 

24,015

 

Non-interest expenses:

 

 

 

 

 

 

 

 

 

Salaries and employee benefits

 

9,711

 

7,528

 

28,189

 

24,576

 

Net occupancy expense

 

1,365

 

1,314

 

4,198

 

3,901

 

Data processing expense

 

1,296

 

1,283

 

4,131

 

3,766

 

Furniture and equipment expense

 

347

 

306

 

965

 

998

 

FDIC insurance expense

 

398

 

339

 

1,095

 

1,299

 

Other non-interest expense

 

3,928

 

2,532

 

9,711

 

8,314

 

Total non-interest expenses

 

17,045

 

13,302

 

48,289

 

42,854

 

Income before income taxes

 

9,070

 

8,246

 

26,656

 

24,377

 

Income tax expense

 

2,388

 

2,472

 

7,369

 

7,115

 

Net income

 

6,682

 

5,774

 

19,287

 

17,262

 

Net income per share:

 

 

 

 

 

 

 

 

 

Basic

 

$

0.48

 

$

0.42

 

$

1.39

 

$

1.25

 

Diluted

 

$

0.48

 

$

0.42

 

$

1.38

 

$

1.25

 

Average common shares:

 

 

 

 

 

 

 

 

 

Basic

 

13,883

 

13,799

 

13,867

 

13,778

 

Diluted

 

13,966

 

13,838

 

13,929

 

13,844

 

 

See accompanying notes to unaudited consolidated financial statements.

 

3



Table of Contents

 

S.Y. BANCORP, INC. AND SUBSIDIARY

Consolidated Statements of Comprehensive Income

For the three and nine months ended September 30, 2012 and 2011

(In thousands)

 

 

 

Three months ended

 

Nine months ended

 

 

 

September 30,

 

September 30,

 

 

 

2012

 

2011

 

2012

 

2011

 

Net income

 

$

6,682

 

$

5,774

 

$

19,287

 

$

17,262

 

Other comprehensive income, net of tax:

 

 

 

 

 

 

 

 

 

Unrealized gains on securities available for sale:

 

 

 

 

 

 

 

 

 

Unrealized gains arising during the period (net of tax of $202, $555, $432 and $1,404, respectively)

 

375

 

1,031

 

802

 

2,608

 

Comprehensive income

 

$

7,057

 

$

6,805

 

$

20,089

 

$

19,870

 

 

See accompanying notes to unaudited consolidated financial statements.

 

4



Table of Contents

 

S.Y. BANCORP, INC. AND SUBSIDIARY

Consolidated Statements of Cash Flows

For the nine months ended September 30, 2012 and 2011

(In thousands)

 

 

 

2012

 

2011

 

Operating activities:

 

 

 

 

 

Net income

 

$

19,287

 

$

17,262

 

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

 

 

 

 

 

Provision for loan losses

 

9,025

 

9,500

 

Depreciation, amortization and accretion, net

 

3,685

 

2,943

 

Deferred income tax benefit

 

(1,487

)

(1,181

)

Gain on sales of mortgage loans held for sale

 

(2,882

)

(1,397

)

Origination of mortgage loans held for sale

 

(166,297

)

(76,270

)

Proceeds from sale of mortgage loans held for sale

 

160,143

 

79,042

 

Bank owned life insurance income

 

(743

)

(761

)

(Increase) decrease in value of private investment fund

 

(637

)

703

 

Proceeds from liquidation of private investment fund

 

2,846

 

 

Loss on the disposal of equipment

 

47

 

382

 

Loss on the sale of other real estate

 

1,177

 

37

 

Stock compensation expense

 

1,118

 

869

 

Excess tax benefits from share-based compensation arrangements

 

(57

)

(87

)

(Increase) decrease in accrued interest receivable and other assets

 

(1,382

)

3,337

 

Increase (decrease) in accrued interest payable and other liabilities

 

3,394

 

(8,666

)

Net cash provided by operating activities

 

27,237

 

25,713

 

Investing activities:

 

 

 

 

 

Purchases of securities available for sale

 

(330,192

)

(249,429

)

Proceeds from maturities of securities available for sale

 

321,404

 

211,106

 

Proceeds from maturities of securities held to maturity

 

 

20

 

Net increase in loans

 

(44,306

)

(46,435

)

Purchases of premises and equipment

 

(3,231

)

(6,280

)

Proceeds from disposal of premises and equipment

 

 

7

 

Proceeds from sale of foreclosed assets

 

2,475

 

5,953

 

Net cash used in investing activities

 

(53,850

)

(85,058

)

Financing activities:

 

 

 

 

 

Net increase in deposits

 

72,291

 

83,092

 

Net (decrease) increase in securities sold under agreements to repurchase and federal funds purchased

 

(29,864

)

(2,281

)

Net decrease in other short-term borrowings

 

 

(733

)

Proceeds from Federal Home Loan Bank advances

 

30,000

 

 

Repayments of Federal Home Loan Bank advances

 

(30,008

)

(8

)

Prepayment penalty on modification of Federal Home Loan Bank advances

 

(872

)

 

Repayments of subordinated debentures

 

(10,000

)

 

Issuance of common stock for options and dividend reinvestment plan

 

585

 

474

 

Excess tax benefits from share-based compensation arrangements

 

57

 

87

 

Common stock repurchases

 

(204

)

(167

)

Cash dividends paid

 

(7,909

)

(7,441

)

Net cash provided by financing activities

 

24,076

 

73,023

 

Net (decrease) increase in cash and cash equivalents

 

(2,537

)

13,678

 

Cash and cash equivalents at beginning of period

 

54,920

 

41,655

 

Cash and cash equivalents at end of period

 

$

52,383

 

$

55,333

 

Supplemental cash flow information:

 

 

 

 

 

Income tax payments

 

$

8,025

 

$

2,599

 

Cash paid for interest

 

9,257

 

11,903

 

Supplemental non-cash activity:

 

 

 

 

 

Transfers from loans to other real estate owned

 

$

3,336

 

$

9,828

 

 

See accompanying notes to unaudited consolidated financial statements.

 

5



Table of Contents

 

S.Y. BANCORP, INC. AND SUBSIDIARY

Consolidated Statement of Changes in Stockholders’ Equity

For the nine months ended September 30, 2012

(In thousands, except per share data)

 

 

 

 

 

 

 

 

 

 

 

Accumulated

 

 

 

 

 

Common stock

 

 

 

 

 

other

 

 

 

 

 

Number of

 

 

 

Additional

 

Retained

 

comprehensive

 

 

 

 

 

shares

 

Amount

 

paid-in capital

 

earnings

 

income

 

Total

 

Balance December 31, 2011

 

13,819

 

$

6,953

 

$

14,599

 

$

160,672

 

$

5,462

 

$

187,686

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net income

 

 

 

 

19,287

 

 

19,287

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Other comprehensive income, net of tax

 

 

 

 

 

802

 

802

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Stock compensation expense

 

 

 

1,118

 

 

 

1,118

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Stock issued for stock options exercised and dividend reinvestment plan

 

34

 

114

 

529

 

(2

)

 

641

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Stock issued for non-vested restricted stock

 

57

 

190

 

1,108

 

(1,298

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Cash dividends, $0.57 per share

 

 

 

 

(7,909

)

 

(7,909

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Shares repurchased or cancelled

 

(15

)

(53

)

(308

)

158

 

 

(203

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance September 30, 2012

 

13,895

 

$

7,204

 

$

17,046

 

$

170,908

 

$

6,264

 

$

201,422

 

 

See accompanying notes to unaudited consolidated financial statements.

 

6



Table of Contents

 

S.Y. BANCORP, INC. AND SUBSIDIARY

 

(1)                     Summary of Significant Accounting Policies

 

The accompanying consolidated financial statements have been prepared in accordance with the instructions to Form 10-Q and do not include all information and footnotes required by U.S. generally accepted accounting principles (US GAAP) for complete financial statements.  The consolidated financial statements of S.Y. Bancorp, Inc. (“Bancorp”) and its subsidiary reflect all adjustments (consisting only of adjustments of a normal recurring nature) which are, in the opinion of management, necessary for a fair presentation of financial condition and results of operations for the interim periods.

 

The consolidated financial statements include the accounts of S.Y. Bancorp, Inc. and its wholly-owned subsidiary, Stock Yards Bank & Trust Company (“Bank”).  S.Y. Bancorp Capital Trust II is a Delaware statutory trust that is a wholly-owned unconsolidated finance subsidiary of S.Y. Bancorp, Inc. Significant intercompany transactions and accounts have been eliminated in consolidation.

 

A description of other significant accounting policies is presented in the notes to the Consolidated Financial Statements for the year ended December 31, 2011 included in S.Y. Bancorp, Inc.’s Annual Report on Form 10-K.  Certain reclassifications have been made in the prior year financial statements to conform to current year classifications.

 

Interim results for the three and nine month periods ended September 30, 2012 are not necessarily indicative of the results for the entire year.

 

Critical Accounting Policies

 

Management has identified the accounting policy related to the allowance and provision for loan losses as critical to the understanding of Bancorp’s results of operations and discussed this conclusion with the Audit Committee of the Board of Directors.  Since the application of this policy requires significant management assumptions and estimates, it could result in materially different amounts to be reported if conditions or underlying circumstances were to change.  Assumptions include many factors such as changes in borrowers’ financial condition which can change quickly or historical loss ratios related to certain loan portfolios which may or may not be indicative of future losses.  To the extent that management’s assumptions prove incorrect, the results from operations could be materially affected by a higher or lower provision for loan losses.  The accounting policy related to the allowance for loan losses is applicable to the commercial banking segment of Bancorp.

 

Additionally, management has identified the accounting policy related to accounting for income taxes as critical to the understanding of Bancorp’s results of operations and discussed this conclusion with the Audit Committee of the Board of Directors.  The objectives of accounting for income taxes are to recognize the amount of taxes payable or refundable for the current year and deferred tax liabilities and assets for the future tax consequences of events that have been recognized in an entity’s financial statements or tax returns.  Judgment is required in assessing the future tax consequences of events that have been recognized in Bancorp’s financial statements or tax returns. Fluctuations in the actual outcome of these future tax consequences, including the effects of periodic IRS and state agency examinations, could materially impact Bancorp’s financial position and its results from operations.

 

7



Table of Contents

 

(2)                     Securities

 

The amortized cost, unrealized gains and losses, and fair value of securities available for sale follow:

 

September 30, 2012

 

Amortized

 

Unrealized

 

 

 

Securities available for sale

 

cost

 

Gains

 

Losses

 

Fair value

 

(in thousands)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

U.S. Treasury and other U.S. government obligations

 

$

60,000

 

$

 

$

 

$

60,000

 

Government sponsored enterprise obligations

 

103,819

 

2,853

 

 

106,672

 

Mortgage-backed securities

 

127,272

 

4,280

 

 

131,552

 

Obligations of states and political subdivisions

 

58,495

 

3,189

 

 

61,684

 

Trust preferred securities of financial institutions

 

1,000

 

38

 

 

1,038

 

 

 

 

 

 

 

 

 

 

 

Total securities available for sale

 

$

350,586

 

$

10,360

 

$

 

$

360,946

 

 

December 31, 2011

 

Amortized

 

Unrealized

 

 

 

Securities available for sale

 

cost

 

Gains

 

Losses

 

Fair value

 

(in thousands)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

U.S. Treasury and other U.S. government obligations

 

$

115,001

 

$

 

$

 

$

115,001

 

Government sponsored enterprise obligations

 

43,349

 

2,837

 

 

46,186

 

Mortgage-backed securities

 

116,954

 

3,564

 

23

 

120,495

 

Obligations of states and political subdivisions

 

66,755

 

2,779

 

33

 

69,501

 

Trust preferred securities of financial institutions

 

1,000

 

2

 

 

1,002

 

 

 

 

 

 

 

 

 

 

 

Total securities available for sale

 

$

343,059

 

$

9,182

 

$

56

 

$

352,185

 

 

The investment portfolio includes a significant level of obligations of states and political subdivisions.  The issuers of these bonds are generally school districts or essential-service public works projects.  The issuers are concentrated in Kentucky, with a small percentage in Indiana and Ohio. Each of these securities has a rating of A or better by a recognized bond rating agency.

 

In addition to the available for sale portfolio, investment securities held by Bancorp include certain securities which are not readily marketable, and are carried at cost. This category includes holdings of Federal Home Loan Bank of Cincinnati (FHLB) stock which are required for borrowing availability and are classified as restricted securities. Other securities consist of a Community Reinvestment Act (CRA) investment which matures in 2014, and is fully collateralized by a government agency security of similar duration.

 

8



Table of Contents

 

A summary of the available for sale investment securities by maturity groupings as of September 30, 2012 is shown below. Actual maturities may differ from contractual maturities because some issuers have the right to call or prepay obligations. The investment portfolio includes agency mortgage-backed securities, which are guaranteed by agencies such as the FHLMC, FNMA, and GNMA. These securities differ from traditional debt securities primarily in that they may have uncertain principal payment dates and are priced based on estimated prepayment rates on the underlying collateral. Bancorp does not have exposure to subprime originated mortgage-backed or collateralized debt obligation instruments.

 

Securities available for sale

 

Amortized cost

 

Fair value

 

(in thousands)

 

 

 

 

 

 

 

 

 

 

 

Due within 1 year

 

$

127,449

 

$

127,602

 

Due after 1 but within 5 years

 

62,614

 

65,142

 

Due after 5 but within 10 years

 

32,251

 

35,612

 

Due after 10 years

 

1,000

 

1,038

 

Mortgage-backed securities

 

127,272

 

131,552

 

Total securities available for sale

 

$

350,586

 

$

360,946

 

 

Bancorp had no securities with unrealized losses at September 30, 2012.  Securities with unrealized losses, consisting of five separate investment positions, at December 31, 2011, not recognized in income were as follows:

 

 

 

Less than 12 months

 

12 months or more

 

Total

 

 

 

Fair

 

Unrealized

 

Fair

 

Unrealized

 

Fair

 

Unrealized

 

(in thousands)

 

value

 

losses

 

value

 

losses

 

value

 

losses

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

December 31, 2011

 

 

 

 

 

 

 

 

 

 

 

 

 

Mortgage-backed securities

 

$

5,122

 

$

23

 

$

 

$

 

5,122

 

23

 

Obligations of states and political subdivisions

 

2,644

 

17

 

1,021

 

16

 

3,665

 

33

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total temporarily impaired securities

 

$

7,766

 

$

40

 

$

1,021

 

$

16

 

$

8,787

 

$

56

 

 

9



Table of Contents

 

(3)                     Loans

 

The composition of loans by primary loan portfolio segment follows:

 

(in thousands)

 

September 30, 2012

 

December 31, 2011

 

Commercial and industrial

 

$

419,568

 

$

393,729

 

Construction and development

 

138,165

 

147,637

 

Real estate mortgage

 

980,179

 

966,665

 

Consumer

 

40,378

 

36,814

 

 

 

 

 

 

 

Total loans

 

$

1,578,290

 

$

1,544,845

 

 

The following table presents the balance in the recorded investment in loans and allowance for loan losses by portfolio segment and based on impairment method as of September 30, 2012 and December 31, 2011.

 

 

 

Type of loan

 

 

 

 

 

September 30, 2012

 

Commercial

 

Construction

 

Real estate

 

 

 

 

 

 

 

(in thousands)

 

and industrial

 

and development

 

mortgage

 

Consumer

 

 

 

Total

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Loans

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance

 

$

419,568

 

$

138,165

 

$

980,179

 

$

40,378

 

 

 

$

1,578,290

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance: loans with an allowance recorded

 

$

9,730

 

$

12,038

 

$

8,187

 

$

4

 

 

 

$

29,959

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance: loans with no related allowance recorded

 

$

409,838

 

$

126,127

 

$

971,992

 

$

40,374

 

 

 

$

1,548,331

 

 

 

 

Commercial

 

Construction

 

Real estate

 

 

 

 

 

 

 

 

 

and industrial

 

and development

 

mortgage

 

Consumer

 

Unallocated

 

Total

 

Allowance for loan losses

 

 

 

 

 

 

 

 

 

 

 

 

 

Beginning balance December 31, 2011

 

$

7,364

 

$

3,546

 

$

11,182

 

$

540

 

$

7,113

 

$

29,745

 

Provision

 

2,658

 

1,476

 

3,551

 

(203

)

1,543

 

9,025

 

Charge-offs

 

(4,464

)

(1,334

)

(1,980

)

(589

)

 

(8,367

)

Recoveries

 

19

 

 

215

 

608

 

 

842

 

Ending balance September 30, 2012

 

$

5,577

 

$

3,688

 

$

12,968

 

$

356

 

$

8,656

 

$

31,245

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance: allowance for loans with related allowance recorded

 

$

427

 

$

2,308

 

$

279

 

$

 

 

 

$

3,014

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance: allowance for loans with no related allowance recorded

 

$

5,150

 

$

1,380

 

$

12,689

 

$

356

 

$

8,656

 

$

28,231

 

 

10



Table of Contents

 

 

 

Type of loan

 

 

 

 

 

December 31, 2011

 

Commercial

 

Construction

 

Real estate

 

 

 

 

 

 

 

(in thousands)

 

and industrial

 

and development

 

mortgage

 

Consumer

 

 

 

Total

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Loans

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance

 

$

393,729

 

$

147,637

 

$

966,665

 

$

36,814

 

 

 

$

1,544,845

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance: loans with an allowance recorded

 

$

5,459

 

$

2,416

 

$

14,170

 

$

94

 

 

 

$

22,139

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance: loans with no related allowance recorded

 

$

388,270

 

$

145,221

 

$

952,495

 

$

36,720

 

 

 

$

1,522,706

 

 

 

 

Commercial

 

Construction

 

Real estate

 

 

 

 

 

 

 

 

 

and industrial

 

and development

 

mortgage

 

Consumer

 

Unallocated

 

Total

 

Allowance for loan losses

 

 

 

 

 

 

 

 

 

 

 

 

 

Beginning balance December 31, 2010

 

$

2,796

 

$

2,280

 

$

12,272

 

$

623

 

$

7,572

 

$

25,543

 

Provision

 

5,475

 

2,859

 

4,592

 

133

 

(459

)

12,600

 

Charge-offs

 

(1,015

)

(1,593

)

(5,840

)

(673

)

 

(9,121

)

Recoveries

 

108

 

 

158

 

457

 

 

723

 

Ending balance December 31, 2011

 

$

7,364

 

$

3,546

 

$

11,182

 

$

540

 

$

7,113

 

$

29,745

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance: allowance for loans with related allowance recorded

 

$

954

 

$

10

 

$

1,597

 

$

 

 

 

$

2,561

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance: allowance for loans with no related allowance recorded

 

$

6,410

 

$

3,536

 

$

9,585

 

$

540

 

$

7,113

 

$

27,184

 

 

Bancorp did not have any loans acquired with deteriorated credit quality at September 30, 2012 or December 31, 2011.

 

Management uses the following portfolio segments of loans when assessing and monitoring the risk and performance of the loan portfolio:

 

·                  Commercial and industrial

·                  Construction and development

·                  Real estate mortgage

·                  Consumer

 

11



Table of Contents

 

The following table presents loans individually evaluated for impairment as of September 30, 2012 and December 31, 2011.

 

 

 

 

 

Unpaid

 

 

 

Average

 

September 30, 2012

 

Recorded

 

principal

 

Related

 

recorded

 

(in thousands)

 

investment

 

balance

 

allowance

 

investment

 

 

 

 

 

 

 

 

 

 

 

Loans with no related allowance recorded

 

 

 

 

 

 

 

 

 

Commercial and industrial

 

$

8,165

 

$

12,827

 

 

 

$

6,099

 

Construction and development

 

118

 

381

 

 

 

2,534

 

Real estate mortgage

 

6,722

 

9,674

 

 

 

4,997

 

Consumer

 

4

 

29

 

 

 

25

 

Subtotal

 

15,009

 

22,911

 

 

 

13,655

 

 

 

 

 

 

 

 

 

 

 

Loans with an allowance recorded

 

 

 

 

 

 

 

 

 

Commercial and industrial

 

1,565

 

1,565

 

427

 

3,635

 

Construction and development

 

11,920

 

13,745

 

2,308

 

4,784

 

Real estate mortgage

 

1,465

 

1,465

 

279

 

6,981

 

Consumer

 

 

 

 

 

Subtotal

 

14,950

 

16,775

 

3,014

 

15,400

 

 

 

 

 

 

 

 

 

 

 

Total

 

 

 

 

 

 

 

 

 

Commercial and industrial

 

$

9,730

 

$

14,392

 

$

427

 

$

9,734

 

Construction and development

 

12,038

 

14,126

 

2,308

 

7,318

 

Real estate mortgage

 

8,187

 

11,139

 

279

 

11,978

 

Consumer

 

4

 

29

 

 

25

 

Total

 

$

29,959

 

$

39,686

 

$

3,014

 

$

29,055

 

 

12



Table of Contents

 

 

 

 

 

Unpaid

 

 

 

Average

 

December 31, 2011

 

Recorded

 

principal

 

Related

 

recorded

 

(in thousands)

 

investment

 

balance

 

allowance

 

investment

 

 

 

 

 

 

 

 

 

 

 

Loans with no related allowance recorded

 

 

 

 

 

 

 

 

 

Commercial and industrial

 

$

694

 

$

920

 

 

 

$

951

 

Construction and development

 

2,316

 

2,316

 

 

 

1,979

 

Real estate mortgage

 

6,453

 

6,453

 

 

 

6,353

 

Consumer

 

94

 

94

 

 

 

83

 

Subtotal

 

9,557

 

9,783

 

 

 

9,366

 

 

 

 

 

 

 

 

 

 

 

Loans with an allowance recorded

 

 

 

 

 

 

 

 

 

Commercial and industrial

 

4,765

 

6,415

 

954

 

2,447

 

Construction and development

 

100

 

100

 

10

 

20

 

Real estate mortgage

 

7,717

 

11,962

 

1,597

 

7,249

 

Consumer

 

 

 

 

10

 

Subtotal

 

12,582

 

18,477

 

2,561

 

9,726

 

 

 

 

 

 

 

 

 

 

 

Total

 

 

 

 

 

 

 

 

 

Commercial and industrial

 

$

5,459

 

$

7,335

 

$

954

 

$

3,398

 

Construction and development

 

2,416

 

2,416

 

10

 

1,999

 

Real estate mortgage

 

14,170

 

18,415

 

1,597

 

13,602

 

Consumer

 

94

 

94

 

 

93

 

Total

 

$

22,139

 

$

28,260

 

$

2,561

 

$

19,092

 

 

Differences between the recorded investment amounts and the unpaid principal balance amounts are due to partial charge-offs which have occurred over the life of the loans.

 

Impaired loans include non-accrual loans and loans accounted for as troubled debt restructuring (TDR), which continue to accrue interest. Non-performing loans include the balance of impaired loans plus any loans over 90 days past due and still accruing interest.  Loans past due more than 90 days or more and still accruing interest amounted to $1,228,000 at September 30, 2012, and $1,160,000 at December 31, 2011.

 

The following table presents the recorded investment in non-accrual loans as of September 30, 2012 and December 31, 2011.

 

(in thousands)

 

September 30, 2012

 

December 31, 2011

 

 

 

 

 

 

 

Commercial and industrial

 

$

2,720

 

$

2,665

 

Construction and development

 

12,038

 

2,416

 

Real estate mortgage

 

7,686

 

13,562

 

Consumer

 

4

 

94

 

 

 

 

 

 

 

Total

 

$

22,448

 

$

18,737

 

 

13



Table of Contents

 

On September 30, 2012 and 2011, Bancorp had $7.5 million and $3.9 million of loans classified as TDR, respectively.  The following table presents the recorded investment in loans modified and classified as TDR during the nine months ended September 30, 2012 and 2011.

 

 

 

 

 

Pre-modification

 

Post-modification

 

September 30, 2012

 

Number of

 

outstanding recorded

 

outstanding recorded

 

(dollars in thousands)

 

contracts

 

investment

 

investment

 

 

 

 

 

 

 

 

 

Commercial & industrial

 

3

 

$

5,752

 

$

5,752

 

Real estate mortgage

 

2

 

505

 

505

 

Total

 

5

 

$

6,257

 

$

6,257

 

 

 

 

 

 

Pre-modification

 

Post-modification

 

September 30, 2011

 

Number of

 

outstanding recorded

 

outstanding recorded

 

(dollars in thousands)

 

contracts

 

investment

 

investment

 

 

 

 

 

 

 

 

 

Commercial & industrial

 

3

 

$

1,583

 

$

1,583

 

Real estate mortgage

 

2

 

2,099

 

2,099

 

Total

 

5

 

$

3,682

 

$

3,682

 

 

The following table presents the recorded investment in loans accounted for as TDR that have defaulted as of September 30, 2012.

 

September 30, 2012

 

Number of

 

 

 

(dollars in thousands)

 

Contracts

 

Recorded investment

 

 

 

 

 

 

 

Commercial & industrial

 

1

 

$

619

 

Real estate mortgage

 

1

 

294

 

Total

 

2

 

$

913

 

 

The loans in the table above are related to one borrower and management estimates minimal loss exposure to this credit after consideration of collateral.  Prior to 2012, Bancorp had not experienced loans accounted for as TDR that subsequently defaulted.  At September 30, 2012, loans accounted for as TDR included modifications from original terms due to bankruptcy proceedings and modifications of amortization periods due to customer financial difficulties.  Some loans accounted for as TDR included temporary suspension of principal payments, resulting in payment of interest only.  There has been no forgiveness of principal for loans accounted for as TDR.  Loans accounted for as TDR, which have not defaulted, are individually evaluated for impairment and, at September 30, 2012, had a total allowance allocation of $298,000, compared to $1,167,000 at December 31, 2011.

 

14



Table of Contents

 

The following table presents the aging of the recorded investment in past due loans as of September 30, 2012 and December 31, 2011.

 

 

 

 

 

 

 

Greater

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

than

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

90 days

 

 

 

 

 

 

 

Recorded

 

 

 

 

 

 

 

past due

 

 

 

 

 

 

 

investment >

 

September 30, 2012

 

30-59 days

 

60-89 days

 

(includes

 

Total

 

 

 

Total

 

90 days and

 

(in thousands)

 

past due

 

past due

 

non-accrual)

 

past due

 

Current

 

loans

 

accruing

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Commercial and industrial

 

$

1,735

 

$

608

 

$

2,720

 

$

5,063

 

$

414,505

 

$

419,568

 

$

 

Construction and development

 

413

 

86

 

12,038

 

12,537

 

125,628

 

138,165

 

 

Real estate mortgage

 

11,034

 

3,710

 

7,686

 

22,430

 

957,749

 

980,179

 

1,228

 

Consumer

 

13

 

2

 

1,232

 

1,247

 

39,131

 

40,378

 

 

Total

 

$

13,195

 

$

4,406

 

$

23,676

 

$

41,277

 

$

1,537,013

 

$

1,578,290

 

$

1,228

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

December 31, 2011

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Commercial and industrial

 

$

989

 

$

162

 

$

2,665

 

$

3,816

 

$

389,913

 

$

393,729

 

$

 

Construction and development

 

86

 

 

2,416

 

2,502

 

145,135

 

147,637

 

 

Real estate mortgage

 

8,520

 

957

 

14,722

 

24,199

 

942,466

 

966,665

 

1,160

 

Consumer

 

336

 

 

94

 

430

 

36,384

 

36,814

 

 

Total

 

$

9,931

 

$

1,119

 

$

19,897

 

$

30,947

 

$

1,513,898

 

$

1,544,845

 

$

1,160

 

 

Bancorp categorizes loans into credit risk categories based on relevant information about the ability of borrowers to service their debt such as:  current financial information, historical payment experience, credit documentation, public information and current economic trends.  Pass-rated loans included all risk-rated loans other than those classified as special mention, substandard, and doubtful, which are defined below:

 

·                  Special Mention:  Loans classified as special mention have a potential weakness that deserves management’s close attention.  These potential weaknesses may result in deterioration of repayment prospects for the loan or of the Bank’s credit position at some future date.

 

·                  Substandard:  Loans classified as substandard are inadequately protected by the current net worth and paying capacity of the obligor or of collateral pledged, if any.  Loans so classified have a well-defined weakness or weaknesses that jeopardize repayment of the debt.  They are characterized by the distinct possibility that the Bank will sustain some loss if the deficiencies are not corrected.

 

·                  Substandard non-performing:  Loans classified as substandard-non-performing have all the characteristics of substandard loans and have been placed on non-accrual status or have been accounted for as troubled debt restructurings.

 

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

 

15



Table of Contents

 

As of September 30, 2012 and December 31, 2011, the risk categories of loans were as follows:

 

Credit risk profile by internally assigned grade

(in thousands)

 

 

 

Commercial
and industrial

 

Construction
and
development

 

Real estate
mortgage

 

Consumer

 

Total

 

September 30, 2012

 

 

 

 

 

 

 

 

 

 

 

Grade

 

 

 

 

 

 

 

 

 

 

 

Pass

 

$

396,682

 

$

119,296

 

$

917,279

 

$

40,374

 

$

1,473,631

 

Special mention

 

11,097

 

6,831

 

26,770

 

 

44,698

 

Substandard

 

3,317

 

 

26,711

 

 

30,028

 

Substandard non-performing

 

8,472

 

12,038

 

9,419

 

4

 

29,933

 

Doubtful

 

 

 

 

 

 

Total

 

$

419,568

 

$

138,165

 

$

980,179

 

$

40,378

 

$

1,578,290

 

 

 

 

 

 

 

 

 

 

 

 

 

December 31, 2011

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Grade

 

 

 

 

 

 

 

 

 

 

 

Pass

 

$

356,090

 

$

132,846

 

$

896,217

 

$

36,709

 

$

1,421,862