10-Q 1 a13-8427_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 March 31, 2013

 

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
(Do not check if a smaller reporting company)

 

Smaller reporting company o

 

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 April 26, 2013, was 13,958,931.

 

 

 



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
March 31, 2013 (Unaudited) and December 31, 2012

 

 

 

 

Consolidated Statements of Income
for the three months ended March 31, 2013 and 2012 (Unaudited)

 

 

 

 

Consolidated Statements of Comprehensive Income
for the three months ended March 31, 2013 and 2012 (Unaudited)

 

 

 

 

Consolidated Statements of Cash Flows
for the three months ended March 31, 2013 and 2012 (Unaudited)

 

 

 

 

Consolidated Statement of Changes in Stockholders’ Equity
for the three months ended March 31, 2013 (Unaudited)

 

 

 

 

Notes to 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

March 31, 2013 and December 31, 2012

(In thousands, except share data)

 

 

 

March 31,

 

December 31,

 

 

 

2013

 

2012

 

 

 

(Unaudited)

 

 

 

Assets

 

 

 

 

 

Cash and due from banks

 

$

31,715

 

$

42,610

 

Federal funds sold

 

27,745

 

25,093

 

Mortgage loans held for sale

 

4,576

 

14,047

 

Securities available for sale (amortized cost of $354,583 in 2013 and $377,383 in 2012)

 

362,904

 

386,440

 

Federal Home Loan Bank stock

 

5,180

 

5,180

 

Other securities

 

1,000

 

1,000

 

Loans

 

1,600,960

 

1,584,594

 

Less allowance for loan losses

 

32,022

 

31,881

 

Net loans

 

1,568,938

 

1,552,713

 

Premises and equipment, net

 

36,094

 

36,532

 

Bank owned life insurance

 

28,402

 

28,149

 

Accrued interest receivable

 

5,342

 

5,091

 

Other assets

 

49,170

 

51,407

 

Total assets

 

$

2,121,066

 

$

2,148,262

 

 

 

 

 

 

 

Liabilities and Stockholders’ Equity

 

 

 

 

 

Deposits:

 

 

 

 

 

Non-interest bearing

 

$

376,972

 

$

396,159

 

Interest bearing

 

1,359,912

 

1,385,534

 

Total deposits

 

1,736,884

 

1,781,693

 

Securities sold under agreements to repurchase

 

50,879

 

59,045

 

Federal funds purchased

 

36,821

 

16,552

 

Accrued interest payable

 

140

 

166

 

Other liabilities

 

24,673

 

22,949

 

Federal Home Loan Bank advances

 

31,872

 

31,882

 

Subordinated debentures

 

30,900

 

30,900

 

Total liabilities

 

1,912,169

 

1,943,187

 

 

 

 

 

 

 

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 13,958,482 and 13,915,265 shares in 2013 and 2012, respectively

 

7,416

 

7,273

 

Additional paid-in capital

 

19,118

 

17,731

 

Retained earnings

 

177,420

 

174,650

 

Accumulated other comprehensive income

 

4,943

 

5,421

 

Total stockholders’ equity

 

208,897

 

205,075

 

Total liabilities and stockholders’ equity

 

$

2,121,066

 

$

2,148,262

 

 

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 months ended March 31, 2013 and 2012 (Unaudited)

(In thousands, except per share data)

 

 

 

2013

 

2012

 

Interest income:

 

 

 

 

 

Loans

 

$

19,049

 

$

19,880

 

Federal funds sold

 

80

 

72

 

Mortgage loans held for sale

 

64

 

63

 

Securities – taxable

 

1,370

 

1,477

 

Securities – tax-exempt

 

272

 

320

 

Total interest income

 

20,835

 

21,812

 

Interest expense:

 

 

 

 

 

Deposits

 

1,339

 

2,046

 

Fed funds purchased

 

8

 

8

 

Securities sold under agreements to repurchase

 

35

 

49

 

Federal Home Loan Bank advances

 

217

 

363

 

Subordinated debentures

 

773

 

796

 

Total interest expense

 

2,372

 

3,262

 

Net interest income

 

18,463

 

18,550

 

Provision for loan losses

 

2,325

 

4,075

 

Net interest income after provision for loan losses

 

16,138

 

14,475

 

Non-interest income:

 

 

 

 

 

Investment management and trust services

 

3,886

 

3,490

 

Service charges on deposit accounts

 

2,000

 

2,055

 

Bankcard transaction revenue

 

961

 

965

 

Gains on sales of mortgage loans held for sale

 

867

 

739

 

Brokerage commissions and fees

 

615

 

541

 

Bank owned life insurance income

 

252

 

257

 

Other

 

647

 

1,198

 

Total non-interest income

 

9,228

 

9,245

 

Non-interest expenses:

 

 

 

 

 

Salaries and employee benefits

 

9,657

 

9,052

 

Net occupancy expense

 

1,231

 

1,369

 

Data processing expense

 

1,356

 

1,313

 

Furniture and equipment expense

 

291

 

292

 

FDIC insurance expense

 

350

 

351

 

Other

 

2,694

 

2,359

 

Total non-interest expenses

 

15,579

 

14,736

 

Income before income taxes

 

9,787

 

8,984

 

Income tax expense

 

3,019

 

2,482

 

Net income

 

$

6,768

 

$

6,502

 

Net income per share:

 

 

 

 

 

Basic

 

$

0.49

 

$

0.47

 

Diluted

 

$

0.49

 

$

0.47

 

Average common shares:

 

 

 

 

 

Basic

 

13,814

 

13,844

 

Diluted

 

13,851

 

13,890

 

 

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 months ended March 31, 2013 and 2012 (Unaudited)

(In thousands)

 

 

 

Three months ended

 

 

 

March 31,

 

 

 

2013

 

2012

 

Net income

 

$

6,768

 

$

6,502

 

Other comprehensive income, net of tax:

 

 

 

 

 

Unrealized losses on securities available for sale:

 

 

 

 

 

Unrealized losses arising during the period (net of tax of ($257) and ($19), respectively)

 

(478

)

(35

)

Other comprehensive loss

 

(478

)

(35

)

Comprehensive income

 

6,290

 

6,467

 

 

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 three months ended March 31, 2013 and 2012  (Unaudited)

(In thousands)

 

 

 

2013

 

2012

 

Operating activities:

 

 

 

 

 

Net income

 

$

6,768

 

$

6,502

 

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

 

 

 

 

 

Provision for loan losses

 

2,325

 

4,075

 

Depreciation, amortization and accretion, net

 

1,232

 

1,185

 

Deferred income tax benefit

 

(1,152

)

(714

)

Gain on sales of mortgage loans held for sale

 

(867

)

(739

)

Origination of mortgage loans held for sale

 

(47,036

)

(47,362

)

Proceeds from sale of mortgage loans held for sale

 

57,374

 

45,547

 

Bank owned life insurance income

 

(252

)

(257

)

Increase in value of private investment fund

 

 

(627

)

Loss (gain) on the sale of other real estate

 

35

 

(25

)

Stock compensation expense

 

531

 

349

 

Excess tax benefits from share-based compensation arrangements

 

(18

)

(15

)

Decrease (increase) in accrued interest receivable and other assets

 

1,593

 

(335

)

Increase in accrued interest payable and other liabilities

 

1,716

 

6,955

 

Net cash provided by operating activities

 

22,249

 

14,539

 

Investing activities:

 

 

 

 

 

Purchases of securities available for sale

 

(106,748

)

(121,008

)

Proceeds from maturities of securities available for sale

 

129,192

 

124,133

 

Net (increase) decrease in loans

 

(18,649

)

9,029

 

Purchases of premises and equipment

 

(350

)

(2,105

)

Proceeds from sale of other real estate

 

1,778

 

707

 

Net cash provided by investing activities

 

5,223

 

10,756

 

Financing activities:

 

 

 

 

 

Net (decrease) increase in deposits

 

(44,809

)

9,578

 

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

 

12,103

 

(23,160

)

Repayments of Federal Home Loan Bank advances

 

(10

)

(3

)

Repayments of subordinated debentures

 

 

(10,000

)

Issuance of common stock for options and dividend reinvestment plan

 

61

 

130

 

Excess tax benefits from share-based compensation arrangements

 

18

 

15

 

Common stock repurchases

 

(286

)

(189

)

Cash dividends paid

 

(2,792

)

(2,635

)

Net cash used in financing activities

 

(35,715

)

(26,264

)

Net decrease in cash and cash equivalents

 

(8,243

)

(969

)

Cash and cash equivalents at beginning of period

 

67,703

 

54,920

 

Cash and cash equivalents at end of period

 

$

59,460

 

$

53,951

 

Supplemental cash flow information:

 

 

 

 

 

Income tax payments

 

400

 

 

Cash paid for interest

 

2,398

 

3,260

 

Supplemental non-cash activity:

 

 

 

 

 

Transfers from loans to other real estate owned

 

$

99

 

$

1,462

 

 

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 three months ended March 31, 2013 (Unaudited)

(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, 2012

 

13,915

 

$

7,273

 

$

17,731

 

$

174,650

 

$

5,421

 

$

205,075

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net income

 

 

 

 

6,768

 

 

6,768

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Other comprehensive loss, net of tax

 

 

 

 

 

(478

)

(478

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Stock compensation expense

 

 

 

531

 

 

 

531

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Stock issued for stock options exercised and dividend reinvestment plan

 

3

 

10

 

69

 

 

 

79

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Stock issued for non-vested restricted stock

 

55

 

184

 

1,083

 

(1,267

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Cash dividends, $0.20 per share

 

 

 

 

(2,792

)

 

(2,792

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Shares repurchased or cancelled

 

(15

)

(51

)

(296

)

61

 

 

(286

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance March 31, 2013

 

13,958

 

$

7,416

 

$

19,118

 

$

177,420

 

$

4,943

 

$

208,897

 

 

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, 2012 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 month period ended March 31, 2013 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:

 

March 31, 2013

 

Amortized

 

Unrealized

 

 

 

Securities available for sale

 

cost

 

Gains

 

Losses

 

Fair value

 

(in thousands)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

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

 

$

40,000

 

$

 

$

 

$

40,000

 

Government sponsored enterprise obligations

 

122,445

 

2,680

 

71

 

125,054

 

Mortgage-backed securities

 

133,772

 

3,512

 

567

 

136,717

 

Obligations of states and political subdivisions

 

57,366

 

2,748

 

15

 

60,099

 

Trust preferred securities of financial institutions

 

1,000

 

34

 

 

1,034

 

 

 

 

 

 

 

 

 

 

 

Total securities available for sale

 

$

354,583

 

$

8,974

 

$

653

 

$

362,904

 

 

December 31, 2012

 

Amortized

 

Unrealized

 

 

 

Securities available for sale

 

cost

 

Gains

 

Losses

 

Fair value

 

(in thousands)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

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

 

$

98,000

 

$

 

$

 

$

98,000

 

Government sponsored enterprise obligations

 

83,015

 

2,789

 

56

 

85,748

 

Mortgage-backed securities

 

137,407

 

3,594

 

120

 

140,881

 

Obligations of states and political subdivisions

 

57,961

 

2,844

 

12

 

60,793

 

Trust preferred securities of financial institutions

 

1,000

 

18

 

 

1,018

 

 

 

 

 

 

 

 

 

 

 

Total securities available for sale

 

$

377,383

 

$

9,245

 

$

188

 

$

386,440

 

 

No securities were sold in 2013 or 2012.  There are no securities held to maturity as of March 31, 2013 or December 31, 2012.

 

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 with a government agency security of similar duration.

 

Bancorp reviewed the investment in FHLB stock as of March 31, 2013, considering the FHLB equity position, its continuance of dividend payments, liquidity position, and positive year-to-date net income.  Based on this review, Bancorp is of the opinion that its investment in FHLB stock is not impaired.

 

8



Table of Contents

 

A summary of the available for sale investment securities by maturity groupings as of March 31, 2013 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

 

$

97,066

 

$

97,129

 

Due after 1 but within 5 years

 

74,088

 

77,078

 

Due after 5 but within 10 years

 

30,895

 

32,992

 

Due after 10 years

 

18,762

 

18,988

 

Mortgage-backed securities

 

133,772

 

136,717

 

 

 

 

 

 

 

Total securities available for sale

 

$

354,583

 

$

362,904

 

 

Securities with unrealized losses at March 31, 2013 and December 31, 2012, not recognized in income are 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

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

March 31, 2013

 

 

 

 

 

 

 

 

 

 

 

 

 

Government sponsored enterprise obligations

 

$

60,030

 

$

71

 

$

 

$

 

$

60,030

 

$

71

 

Mortgage-backed securities

 

25,613

 

567

 

 

 

25,613

 

567

 

Obligations of states and political subdivisions

 

2,022

 

15

 

 

 

2,022

 

15

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total temporarily impaired securities

 

$

87,665

 

$

653

 

$

 

$

 

$

87,665

 

$

653

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

December 31, 2012

 

 

 

 

 

 

 

 

 

 

 

 

 

Government sponsored enterprise obligations

 

$

29,996

 

$

56

 

$

 

$

 

$

29,996

 

$

56

 

Mortgage-backed securities

 

16,609

 

120

 

 

 

16,609

 

120

 

Obligations of states and political subdivisions

 

2,292

 

12

 

 

 

2,292

 

12

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total temporarily impaired securities

 

$

48,897

 

$

188

 

$

 

$

 

$

48,897

 

$

188

 

 

9



Table of Contents

 

Unrealized losses on Bancorp’s investment securities portfolio have not been recognized in income because the securities are of high credit quality, and the decline in fair values is largely due to changes in the prevailing interest rate environment since the purchase date.  The fair value is expected to recover as the securities reach their maturity date and/or the interest rate environment returns to conditions similar to when the securities were purchased.   These investments consist of 13 and 14 separate investment positions as of March 31, 2013 and December 31, 2012, respectively, which are not considered other-than-temporarily impaired.   Because management does not intend to sell the investments, and it is not likely that Bancorp will be required to sell the investments before recovery of their amortized cost bases, which may be maturity, Bancorp does not consider these securities to be other-than-temporarily impaired at March 31, 2013.

 

(3)                     Loans

 

The composition of loans by primary loan portfolio segment follows:

 

(in thousands)

 

March 31, 2013

 

December 31, 2012

 

Commercial and industrial

 

$

455,258

 

$

426,930

 

Construction and development

 

125,624

 

131,253

 

Real estate mortgage

 

985,135

 

989,631

 

Consumer

 

34,943

 

36,780

 

 

 

 

 

 

 

Total loans

 

$

1,600,960

 

$

1,584,594

 

 

10



Table of Contents

 

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 March 31, 2013 and December 31, 2012.

 

 

 

Type of loan

 

 

 

 

 

March 31, 2013

 

Commercial

 

Construction

 

Real estate

 

 

 

 

 

 

 

(in thousands)

 

and industrial

 

and development

 

mortgage

 

Consumer

 

 

 

Total

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Loans

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance

 

$

455,258

 

$

125,624

 

$

985,135

 

$

34,943

 

 

 

$

1,600,960

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance: loans individually evaluated for impairment

 

$

8,653

 

$

12,795

 

$

10,110

 

$

1

 

 

 

$

31,559

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance: loans collectively evaluated for impairment

 

$

446,605

 

$

112,829

 

$

975,025

 

$

34,942

 

 

 

$

1,569,401

 

 

 

 

Commercial

 

Construction

 

Real estate

 

 

 

 

 

 

 

 

 

and industrial

 

and development

 

mortgage

 

Consumer

 

Unallocated

 

Total

 

Allowance for loan losses

 

 

 

 

 

 

 

 

 

 

 

 

 

Beginning balance December 31, 2012

 

$

5,949

 

$

4,536

 

$

14,288

 

$

362

 

$

6,746

 

$

31,881

 

Provision

 

198

 

1,961

 

(201

)

(18

)

385

 

2,325

 

Charge-offs

 

(62

)

(2,000

)

(341

)

(172

)

 

(2,575

)

Recoveries

 

33

 

164

 

20

 

174

 

 

391

 

Ending balance March 31, 2013

 

$

6,118

 

$

4,661

 

$

13,766

 

$

346

 

$

7,131

 

$

32,022

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance: allowance for loans individually evaluated for impairment

 

$

283

 

$

2,898

 

$

1,260

 

$

 

 

 

$

4,441

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance: allowance for loans collectively evaluated for impairment

 

$

5,835

 

$

1,763

 

$

12,506

 

$

346

 

$

7,131

 

$

27,581

 

 

 

 

Type of loan

 

 

 

 

 

December 31, 2012

 

Commercial

 

Construction

 

Real estate

 

 

 

 

 

 

 

(in thousands)

 

and industrial

 

and development

 

mortgage

 

Consumer

 

 

 

Total

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Loans

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance

 

$

426,930

 

$

131,253

 

$

989,631

 

$

36,780

 

 

 

$

1,584,594

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance: loans individually evaluated for impairment

 

$

8,667

 

$

10,863

 

$

9,795

 

$

4

 

 

 

$

29,329

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance: loans collectively evaluated for impairment

 

$

418,263

 

$

120,390

 

$

979,836

 

$

36,776

 

 

 

$

1,555,265

 

 

 

 

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

 

3,024

 

2,716

 

6,308

 

(181

)

(367

)

11,500

 

Charge-offs

 

(4,523

)

(1,726

)

(3,451

)

(798

)

 

(10,498

)

Recoveries

 

84

 

 

249

 

801

 

 

1,134

 

Ending balance December 31, 2012

 

$

5,949

 

$

4,536

 

$

14,288

 

$

362

 

$

6,746

 

$

31,881

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance: allowance for loans individually evaluated for impairment

 

$

156

 

$

2,898

 

$

563

 

$

 

 

 

$

3,617

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance: allowance for loans collectively evaluated for impairment

 

$

5,793

 

$

1,638

 

$

13,725

 

$

362

 

$

6,746

 

$

28,264

 

 

11


 


Table of Contents

 

Bancorp did not have any loans acquired with deteriorated credit quality at March 31, 2013 or December 31, 2012.

 

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

 

The following table presents loans individually evaluated for impairment as of March 31, 2013 and December 31, 2012.

 

 

 

 

 

Unpaid

 

 

 

Average

 

March 31, 2013

 

Recorded

 

principal

 

Related

 

recorded

 

(in thousands)

 

investment

 

balance

 

allowance

 

investment

 

 

 

 

 

 

 

 

 

 

 

Loans with no related allowance recorded

 

 

 

 

 

 

 

 

 

Commercial and industrial

 

$

6,770

 

$

10,797

 

 

 

$

6,753

 

Construction and development

 

285

 

1,957

 

 

 

319

 

Real estate mortgage

 

4,445

 

5,360

 

 

 

5,721

 

Consumer

 

1

 

17

 

 

 

3

 

Subtotal

 

11,501

 

18,131

 

 

 

12,796

 

 

 

 

 

 

 

 

 

 

 

Loans with an allowance recorded

 

 

 

 

 

 

 

 

 

Commercial and industrial

 

$

1,883

 

$

1,883

 

$

283

 

$

1,908

 

Construction and development

 

12,510

 

15,135

 

2,898

 

11,510

 

Real estate mortgage

 

5,665

 

5,912

 

1,260

 

4,232

 

Subtotal

 

20,058

 

22,930

 

4,441

 

17,650

 

 

 

 

 

 

 

 

 

 

 

Total

 

 

 

 

 

 

 

 

 

Commercial and industrial

 

$

8,653

 

$

12,680

 

$

283

 

$

8,661

 

Construction and development

 

12,795

 

17,092

 

2,898

 

11,829

 

Real estate mortgage

 

10,110

 

11,272

 

1,260

 

9,953

 

Consumer

 

1

 

17

 

 

3

 

Total

 

$

31,559

 

$

41,061

 

$

4,441

 

$

30,446

 

 

12



Table of Contents

 

 

 

 

 

Unpaid

 

 

 

Average

 

December 31, 2012

 

Recorded

 

principal

 

Related

 

recorded

 

(in thousands)

 

investment

 

balance

 

allowance

 

investment

 

 

 

 

 

 

 

 

 

 

 

Loans with no related allowance recorded

 

 

 

 

 

 

 

 

 

Commercial and industrial

 

$

6,735

 

$

7,591

 

 

 

$

6,226

 

Construction and development

 

352

 

2,187

 

 

 

2,097

 

Real estate mortgage

 

6,996

 

7,752

 

 

 

5,397

 

Consumer

 

4

 

25

 

 

 

21

 

Subtotal

 

14,087

 

17,555

 

 

 

13,741

 

 

 

 

 

 

 

 

 

 

 

Loans with an allowance recorded

 

 

 

 

 

 

 

 

 

Commercial and industrial

 

1,932

 

5,103

 

156

 

3,294

 

Construction and development

 

10,511

 

11,135

 

2,898

 

5,929

 

Real estate mortgage

 

2,799

 

2,948

 

563

 

6,145

 

Subtotal

 

15,242

 

19,186

 

3,617

 

15,368

 

 

 

 

 

 

 

 

 

 

 

Total

 

 

 

 

 

 

 

 

 

Commercial and industrial

 

$

8,667

 

$

12,694

 

$

156

 

$

9,520

 

Construction and development

 

10,863

 

13,322

 

2,898

 

8,026

 

Real estate mortgage

 

9,795

 

10,700

 

563

 

11,542

 

Consumer

 

4

 

25

 

 

21

 

Total

 

$

29,329

 

$

36,741

 

$

3,617

 

$

29,109

 

 

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 restructurings (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 $1,952,000 at March 31, 2013, and $719,000 at December 31, 2012.

 

The following table presents the recorded investment in non-accrual loans as of March 31, 2013 and December 31, 2012.

 

(in thousands)

 

March 31, 2013

 

December 31, 2012

 

 

 

 

 

 

 

Commercial and industrial

 

$

1,500

 

$

1,554

 

Construction and development

 

12,795

 

10,863

 

Real estate mortgage

 

6,265

 

5,939

 

Consumer

 

1

 

4

 

Total

 

$

20,561

 

$

18,360

 

 

13



Table of Contents

 

For both March 31, 2013 and December 31, 2012, Bancorp had $11.0 million of loans classified as TDR.  Bancorp did not modify and classify any loans as TDR during the three months ended March 31, 2013.  The following table presents the recorded investment in loans modified and classified as TDR during the three months ended March 31, 2012.

 

 

 

 

 

Pre-modification

 

Post-modification

 

March 31, 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

 

 

Bancorp did not have any loans that were restructured and experience a payment default within the previous 12 months as of March 31, 2013. The following table presents the recorded investment in loans accounted for as TDR that were restructured and experienced a payment default within the previous 12 months as of March 31, 2012.

 

March 31, 2012

 

Number of

 

 

 

(dollars in thousands)

 

Contracts

 

Recorded Investment

 

 

 

 

 

 

 

Commercial & industrial

 

3

 

$

1,583

 

Real estate mortgage

 

2

 

2,099

 

Total

 

5

 

$

3,682

 

 

At March 31, 2012, loans accounted for as TDR included modifications from original terms due to bankruptcy proceedings, modifications of amortization periods due to customer financial difficulties, and limited forgiveness of principal.  Some loans accounted for as TDR included temporary suspension of principal payments, resulting in payment of interest only.  Loans accounted for as TDR, which have not defaulted, are individually evaluated for impairment and, at March 31, 2013, had a total allowance allocation of $1,133,000, compared to $295,000 at December 31, 2012.

 

At March 31, 2013 and December 31, 2012, Bancorp had outstanding commitments to lend additional funds totaling $146,000 and $187,000, respectively, to borrowers who have had loans modified as TDR.

 

14



Table of Contents

 

The following table presents the aging of the recorded investment in past due loans as of March 31, 2013 and December 31, 2012.

 

 

 

 

 

 

 

Greater

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

than

 

 

 

 

 

 

 

Recorded

 

 

 

 

 

 

 

90 days

 

 

 

 

 

 

 

investment

 

 

 

 

 

 

 

past due

 

 

 

 

 

 

 

> 90 days

 

March 31, 2013

 

30-59 days

 

60-89 days

 

(includes

 

Total

 

 

 

Total

 

and

 

(in thousands)

 

past due

 

past due

 

non-accrual)

 

past due

 

Current

 

loans

 

accruing

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Commercial and industrial

 

$

253

 

$

331

 

$

2,156

 

$

2,740

 

$

452,518

 

$

455,258

 

$

656

 

Construction and development

 

510

 

103

 

12,795

 

13,408

 

112,216

 

125,624

 

 

Real estate mortgage

 

3,670

 

1,291

 

7,561

 

12,522

 

972,613

 

985,135

 

1,296

 

Consumer

 

26

 

7

 

1

 

34

 

34,909

 

34,943

 

 

Total

 

$

4,459

 

$

1,732

 

$

22,513

 

$

28,704

 

$

1,572,256

 

$

1,600,960

 

$

1,952

 

 

 

 

 

 

 

 

Greater

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

than

 

 

 

 

 

 

 

Recorded

 

 

 

 

 

 

 

90 days

 

 

 

 

 

 

 

investment

 

 

 

 

 

 

 

past due

 

 

 

 

 

 

 

> 90 days

 

December 31, 2012

 

30-59 days

 

60-89 days

 

(includes

 

Total

 

 

 

Total

 

and

 

(in thousands)

 

past due

 

past due

 

non-accrual)

 

past due

 

Current

 

loans

 

accruing

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Commercial and industrial

 

$

212

 

$

42

 

$

1,554

 

$

1,808

 

$

425,122

 

$

426,930

 

$

 

Construction and development

 

 

4,284

 

10,862

 

15,146

 

116,107

 

131,253

 

 

Real estate mortgage

 

3,771

 

1,952

 

6,424

 

12,147

 

977,484

 

989,631

 

485

 

Consumer

 

79

 

 

238

 

317

 

36,463

 

36,780

 

234

 

Total

 

$

4,062

 

$

6,278

 

$

19,078

 

$

29,418

 

$

1,555,176

 

$

1,584,594

 

$

719

 

 

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.

 

15



Table of Contents

 

·                  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.

 

As of March 31, 2013 and December 31, 2012, 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

 

March 31, 2013

 

 

 

 

 

 

 

 

 

 

 

Grade

 

 

 

 

 

 

 

 

 

 

 

Pass

 

$

434,275

 

$

100,714

 

$

921,847

 

$

34,942

 

$

1,491,778

 

Special mention

 

9,988

 

7,012

 

29,323

 

 

46,323

 

Substandard

 

8,839

 

5,103

 

26,404

 

 

40,346

 

Substandard non-performing

 

2,156

 

12,795

 

7,561

 

1

 

22,513

 

Doubtful

 

 

 

 

 

 

Total

 

$

455,258

 

$

125,624

 

$

985,135

 

$

34,943

 

$

1,600,960

 

 

 

 

 

 

 

 

 

 

 

 

 

December 31, 2012

 

 

 

 

 

 

 

 

 

 

 

Grade

 

 

 

 

 

 

 

 

 

 

 

Pass

 

$

404,045

 

$

113,559

 

$

925,674

 

$

36,542

 

$

1,479,820

 

Special mention

 

11,097

 

6,831

 

26,770

 

 

44,698

 

Substandard

 

4,482

 

 

26,901

 

 

31,383

 

Substandard non-performing

 

7,306

 

10,863

 

10,286

 

238

 

28,693

 

Doubtful

 

 

 

 

 

 

Total

 

$

426,930

 

$

131,253

 

$

989,631

 

$

36,780

 

$

1,584,594

 

 

(4)                     Federal Home Loan Bank Advances

 

The Bank had outstanding borrowings of $31.9 million at March 31, 2013, via five separate advances.  For two advances totaling $30 million, both of which are non-callable, interest payments are due monthly, with principal due at maturity.  For the third advance of $417,000, principal and interest payments are due monthly based on a 15 year amortization schedule.  For the final two advances totaling $1,455,000, principal and interest payments are due monthly based on a 30 year amortization schedule.

 

16


 


Table of Contents

 

The following is a summary of the contractual maturities and average effective rates of outstanding advances:

 

<

 

 

March 31, 2013

 

December 31, 2012

 

(In thousands)

 

Advance

 

Rate

 

Advance

 

Rate

 

2013

 

$

10,000

 

1.90

%

$

10,000

 

1.90

%

2014

 

 

 

 

 

2015

 

20,000

 

3.34

%

20,000

 

3.34

%

2024

 

417

 

2.40

%

420

 

2.40

%

2028

 

1,455

 

1.46

%

1,462

 

1.46

%

 

 

 

 

 

 

 

 

 

 

 

 

$