The following consolidated financial statements of Porter Bancorp, Inc. and subsidiary, PBI Bank, Inc. are submitted:
Notes to Unaudited Consolidated Financial Statements
Note 1 Basis of Presentation and Summary of Significant Accounting Policies
Basis of Presentation
The consolidated financial statements include Porter Bancorp, Inc. (Company or PBI) and
its subsidiary, PBI Bank (Bank). The Company owns a 100% interest in the Bank. All significant inter-company transactions and accounts have been eliminated in consolidation.
The accompanying unaudited consolidated financial statements have been prepared in accordance with U.S. generally accepted accounting
principles (GAAP) for interim financial information and with the instructions to Form 10-Q and Rule 10-01 of Regulation S-X. Accordingly, the financial statements do not include all of the information and footnotes required by U.S. generally
accepted accounting principles for complete financial statements. In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation have been included. Operating results
for nine months ended September 30, 2013 are not necessarily indicative of the results that may be expected for the entire year. 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 the Companys Annual Report on Form 10-K.
Use of Estimates
To prepare financial statements in conformity with U.S. generally accepted accounting principles, management makes estimates and assumptions based on available information. These estimates and assumptions affect the amounts reported in
the financial statements and the disclosures provided, and future results could differ. The allowance for loan losses, fair values of financial instruments, stock compensation, deferred tax assets, other intangibles, and fair values of other
real estate owned are particularly subject to change.
Reclassifications
Some items in the prior year financial statements
were reclassified to conform to the current presentation. The reclassifications did not impact net income or stockholders equity.
Note 2 Going Concern Considerations and Future Plans
The consolidated financial statements have been prepared on a going concern basis, which contemplates the realization of
assets and the satisfaction of liabilities in the normal course of business for the foreseeable future. However, the events and circumstances described in this Note raise substantial doubt about the Companys ability to continue as a going
concern.
During the first nine months of 2013, we reported net loss to common shareholders of $2.4 million, compared with net loss to
common shareholders of $26.4 million for the first nine months of 2012. This was primarily due to a reduction in provision for loan loss expense of $32.6 million, and a $3.6 million decrease in non-interest expense, countered by a $7.9 million
reduction in net interest income, driven by the reduction of the size of our loan portfolio.
For the year ended December 31, 2012,
we reported net loss to common shareholders of $33.4 million. This loss was attributable primarily to $40.3 million of provision for loan losses expense. A decline in credit quality in our portfolio during the year resulted in net charge-offs of
$36.1 million, and OREO expense of $10.5 million resulting from fair value write-downs driven by new appraisals and reduced marketing prices, net loss on sales, and ongoing operating expense. We also had lower net interest margin due to lower
average loans outstanding, loans re-pricing at lower rates, and the level of non-performing loans in our portfolio. Net loss to common shareholders of $33.4 million, for the year ended December 31, 2012, compares with net loss to common
shareholders of $105.2 million for the year ended December 31, 2011.
In the fourth quarter of 2011, we began deferring the payment
of regular quarterly cash dividends on our Series A Preferred Stock issued to the U.S. Treasury. At September 30, 2013, cumulative accrued and unpaid dividends on this stock totaled $3.7 million. We have deferred dividend payments for more
than six quarters and the holder of our Series A Preferred Stock (currently the U.S. Treasury) has the right to appoint up to two representatives to our Board of Directors. We continue to accrue deferred dividends, which are deducted from income to
common shareholders for financial statement purposes.
In June 2011, the Bank agreed to a Consent Order with the FDIC and KDFI in which
the Bank agreed, among other things, to improve asset quality, reduce loan concentrations, and maintain a minimum Tier 1 leverage ratio of 9% and a minimum total risk based capital ratio of 12%. The Consent Order was included in our Current
Report on 8-K filed on June 30, 2011. In October 2012, the Bank entered into a new Consent Order with the FDIC and KDFI again agreeing to maintain a minimum Tier 1 leverage ratio of 9% and a minimum total risk based capital ratio of 12%. The
Bank also agreed that if it should be unable to reach the required capital levels, and if directed in writing by the FDIC, then the Bank would within 30 days develop, adopt and implement a written plan to sell or merge itself into another federally
insured financial institution or otherwise immediately obtain a sufficient capital investment into the Bank to fully meet the capital requirements.
7
We expect to continue to work with our regulators toward capital ratio compliance as outlined in
the written capital plan previously submitted by the Bank. The new Consent Order also requires the Bank to continue to adhere to the plans implemented in response to the June 2011 Consent Order, and includes the substantive provisions of the June
2011 Consent Order. The new Consent Order was included in our Current Report on 8-K filed on September 19, 2012. As of September 30, 2013, the capital ratios required by the Consent Order were not met.
In order to meet these capital requirements, the Board of Directors and management are continuing to evaluate strategies to achieve the
following objectives:
|
|
|
Increasing capital through a possible public offering or private placement of common stock to new and existing shareholders. We have engaged a
financial advisor to assist our Board in evaluating our options for increasing capital and redeeming our Series A preferred stock issued to the US Treasury in 2008 under the Capital Purchase Program.
|
|
|
|
Continuing to operate the Company and Bank in a safe and sound manner. This strategy may require us to continue to reduce the size of our
balance sheet, reduce our lending concentrations, consider selling loans, and reduce other noninterest expense through the disposition of OREO.
|
|
|
|
Continuing with succession planning and adding resources to the management team. John T. Taylor was named President and CEO for PBI Bank and
appointed to the Board of Directors in July 2012. Mr. Taylor has been named to succeed Maria Bouvette as CEO of the Company pending regulatory approval following Ms. Bouvettes retirement effective July 31, 2013. John R.
Davis was appointed Chief Credit Officer of PBI Bank in August 2012, with responsibility for establishing and executing the credit quality policies and overseeing credit administration for the organization. We have augmented our staffing in the
commercial lending area, now led by Joe C. Seiler.
|
|
|
|
Evaluating our internal processes and procedures, distribution of labor, and work-flow to ensure we have adequately and appropriately deployed
resources in an efficient manner in the current environment. To this end, we believe the opportunity exists to centralize key processes that will lead to improved execution and cost savings.
|
|
|
|
Executing on our commitment to improve credit quality and reduce loan concentrations and balance sheet risk.
|
|
|
|
We have reduced the size of our loan portfolio significantly from $1.3 billion at December 31, 2010, to $1.1 billion at December 31,
2011, to $899.1 million at December 31, 2012, and $734.2 million at September 30, 2013.
|
|
|
|
Our Consent Order calls for us to reduce our construction and development loans to not more than 75% of total risk-based capital. We are now in
compliance as construction and development loans totaled $52.0 million, or 62% of total risk-based capital, at September 30, 2013, down from $70.3 million, or 82% of total risk-based capital, at December 31, 2012.
|
|
|
|
Our Consent Order also requires us to reduce non-owner occupied commercial real estate loans, construction and development loans, and multi-family
residential real estate loans as a group, to not more than 250% of total risk-based capital. While we have made significant progress over the last year, we were not in compliance with this concentration limit at September 30,
2013. These loans totaled $250.1 million, or 300% of total risk-based capital, at September 30, 2013 and $311.1 million, or 362% of total risk-based capital, at December 31, 2012.
|
|
|
|
We are working to reduce our loan concentrations by curtailing new construction and development lending and new non-owner occupied commercial real
estate lending. We are also receiving principal reductions from amortizing credits and pay-downs from our customers who sell properties built for resale. We have reduced the construction loan portfolio from $199.5 million at
December 31, 2010 to $52.0 million at September 30, 2013. Our non-owner occupied commercial real estate loans declined from $293.3 million at December 31, 2010 to $152.0 million at September 30, 2013.
|
|
|
|
Executing on our commitment to sell other real estate owned and reinvest in quality income producing assets.
|
|
|
|
The remediation process for loans secured by real estate has led the Bank to acquire significant levels of OREO in 2012, 2011, and 2010. This
trend has continued at a slower pace in 2013. The Bank acquired $33.5 million, $41.9 million, and $90.8 million during 2012, 2011, and 2010, respectively. For the first nine months of 2013, we acquired $18.5 million of OREO.
|
8
|
|
|
We have incurred significant losses in disposing of this real estate. We incurred losses totaling $9.3 million, $42.8 million, and $13.9
million in 2012, 2011, and 2010, respectively, from sales at less than carrying values and fair value write-downs attributable to declines in appraisal valuations and changes in our pricing strategies. During the nine month period ended
September 30, 2013, we incurred OREO losses totaling $1.8 million, which consisted of $190,000 in loss on sale and $1.6 million from declining values as evidenced by new appraisals and reduced marketing prices in connection with our sales
strategies.
|
|
|
|
To ensure we maximize the value we receive upon the sale of OREO, we continually evaluate sales opportunities. We are targeting multiple sales
opportunities through internal marketing and the use of brokers, auctions, technology sales platforms, and bulk sale strategies. Proceeds from the sale of OREO totaled $18.6 million during the nine months ended September 30, 2013 and $22.5
million, $26.0 million and $25.0 million during 2012, 2011, and 2010, respectively.
|
|
|
|
At December 31, 2012, the OREO portfolio consisted of 51% construction, development, and land assets. At September 30, 2013 this
concentration had declined to 48%. This is consistent with our reduction of construction, development and other land loans, which have declined to $52.0 million at September 30, 2013 compared to $70.3 million at December 31,
2012. Commercial real estate represents 34% of the portfolio at September 30, 2013 compared with 35% at December 31, 2012. 1-4 family residential properties represent 15% of the portfolio at September 30, 2013 compared with 12%
at December 31, 2012.
|
|
|
|
Evaluating other strategic alternatives, such as the sale of assets or branches.
|
Bank regulatory agencies can exercise discretion when an institution does not meet the terms of a consent order. Based on individual
circumstances, the agencies may issue mandatory directives, impose monetary penalties, initiate changes in management, or take more serious adverse actions.
9
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:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amortized
Cost
|
|
|
Gross
Unrealized
Gains
|
|
|
Gross
Unrealized
Losses
|
|
|
Fair
Value
|
|
|
|
(in thousands)
|
|
September 30, 2013:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. Government and federal agency
|
|
$
|
29,184
|
|
|
$
|
328
|
|
|
$
|
(1,599
|
)
|
|
$
|
27,913
|
|
Agency mortgage-backed: residential
|
|
|
85,583
|
|
|
|
519
|
|
|
|
(1,529
|
)
|
|
|
84,573
|
|
State and municipal
|
|
|
58,150
|
|
|
|
962
|
|
|
|
(1,965
|
)
|
|
|
57,147
|
|
Corporate bonds
|
|
|
23,123
|
|
|
|
915
|
|
|
|
(473
|
)
|
|
|
23,565
|
|
Other
|
|
|
572
|
|
|
|
34
|
|
|
|
|
|
|
|
606
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total debt securities
|
|
|
196,612
|
|
|
|
2,758
|
|
|
|
(5,566
|
)
|
|
|
193,804
|
|
Equity
|
|
|
135
|
|
|
|
42
|
|
|
|
|
|
|
|
177
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
196,747
|
|
|
$
|
2,800
|
|
|
$
|
(5,566
|
)
|
|
$
|
193,981
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2012:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. Government and federal agency
|
|
$
|
5,603
|
|
|
$
|
530
|
|
|
$
|
|
|
|
$
|
6,133
|
|
Agency mortgage-backed: residential
|
|
|
94,298
|
|
|
|
1,141
|
|
|
|
(257
|
)
|
|
|
95,182
|
|
State and municipal
|
|
|
52,485
|
|
|
|
2,335
|
|
|
|
(87
|
)
|
|
|
54,733
|
|
Corporate bonds
|
|
|
18,851
|
|
|
|
1,150
|
|
|
|
(37
|
)
|
|
|
19,964
|
|
Other
|
|
|
572
|
|
|
|
46
|
|
|
|
|
|
|
|
618
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total debt securities
|
|
|
171,809
|
|
|
|
5,202
|
|
|
|
(381
|
)
|
|
|
176,630
|
|
Equity
|
|
|
1,359
|
|
|
|
487
|
|
|
|
|
|
|
|
1,846
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
173,168
|
|
|
$
|
5,689
|
|
|
$
|
(381
|
)
|
|
$
|
178,476
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sales and calls of available for sale securities were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
September 30,
|
|
|
Nine Months Ended
September 30,
|
|
|
|
2013
|
|
|
2012
|
|
|
2013
|
|
|
2012
|
|
|
|
(in thousands)
|
|
|
(in thousands)
|
|
Proceeds
|
|
$
|
804
|
|
|
$
|
|
|
|
$
|
2,712
|
|
|
$
|
65,695
|
|
Gross gains
|
|
|
24
|
|
|
|
|
|
|
|
728
|
|
|
|
3,530
|
|
Gross losses
|
|
|
|
|
|
|
|
|
|
|
1
|
|
|
|
|
|
The amortized cost and fair value of the debt investment securities portfolio are shown by contractual
maturity. Contractual maturities may differ from actual maturities if issuers have the right to call or prepay obligations with or without call or prepayment penalties. Mortgage-backed securities not due at a single maturity date are detailed
separately.
|
|
|
|
|
|
|
|
|
|
|
September 30, 2013
|
|
|
|
Amortized
Cost
|
|
|
Fair
Value
|
|
|
|
(in thousands)
|
|
Maturity
|
|
|
|
|
|
|
|
|
Available-for-sale
|
|
|
|
|
|
|
|
|
Within one year
|
|
$
|
17,229
|
|
|
$
|
16,810
|
|
One to five years
|
|
|
15,513
|
|
|
|
16,690
|
|
Five to ten years
|
|
|
69,908
|
|
|
|
67,557
|
|
Beyond ten years
|
|
|
8,379
|
|
|
|
8,174
|
|
Agency mortgage-backed: residential
|
|
|
85,583
|
|
|
|
84,573
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
196,612
|
|
|
$
|
193,804
|
|
|
|
|
|
|
|
|
|
|
10
Securities pledged at September 30, 2013 and December 31, 2012 had carrying values of
approximately $59.3 million and $76.4 million, respectively, and were pledged to secure public deposits and repurchase agreements.
The
Company evaluates securities for other than temporary impairment (OTTI) on at least a quarterly basis, and more frequently when economic or market concerns warrant such evaluation. Consideration is given to the length of time and the extent to
which the fair value has been less than cost, the financial condition and near-term prospects of the issuer, underlying credit quality of the issuer, and the intent and ability of the Company to retain its investment in the issuer for a period of
time sufficient to allow for any anticipated recovery in fair value. In analyzing an issuers financial condition, the Company may consider whether the securities are issued by the federal government or its agencies, whether downgrades by
bond rating agencies have occurred, the sector or industry trends and cycles affecting the issuer, and the results of reviews of the issuers financial condition. Management currently intends to hold all securities with unrealized losses
until recovery, which for fixed income securities may be at maturity. As of September 30, 2013, management does not believe securities within our portfolio with unrealized losses should be classified as other than temporarily impaired.
At September 30, 2013, the Company held one equity security. This security was in an unrealized gain position as of
September 30, 2013. Management monitors the underlying financial condition of the issuers and current market pricing for this equity security monthly.
Securities with unrealized losses at September 30, 2013 and December 31, 2012, aggregated by investment category and length of time
the individual securities have been in a continuous unrealized loss position, are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Less than 12 Months
|
|
|
12 Months or More
|
|
|
Total
|
|
Description of Securities
|
|
Fair
Value
|
|
|
Unrealized
Loss
|
|
|
Fair
Value
|
|
|
Unrealized
Loss
|
|
|
Fair
Value
|
|
|
Unrealized
Loss
|
|
|
|
(in thousands)
|
|
September 30, 2013:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S Government & federal agency
|
|
$
|
22,104
|
|
|
$
|
(1,599
|
)
|
|
$
|
|
|
|
$
|
|
|
|
$
|
22,104
|
|
|
$
|
(1,599
|
)
|
Agency mortgage-backed: residential
|
|
|
43,799
|
|
|
|
(1,195
|
)
|
|
|
7,864
|
|
|
|
(334
|
)
|
|
|
51,663
|
|
|
|
(1,529
|
)
|
State and municipal
|
|
|
34,048
|
|
|
|
(1,897
|
)
|
|
|
1,068
|
|
|
|
(68
|
)
|
|
|
35,116
|
|
|
|
(1,965
|
)
|
Corporate bonds
|
|
|
12,822
|
|
|
|
(473
|
)
|
|
|
|
|
|
|
|
|
|
|
12,822
|
|
|
|
(473
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total temporarily impaired
|
|
$
|
112,773
|
|
|
$
|
(5,164
|
)
|
|
$
|
8,932
|
|
|
$
|
(402
|
)
|
|
$
|
121,705
|
|
|
$
|
(5,566
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2012:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Agency mortgage-backed: residential
|
|
$
|
23,375
|
|
|
$
|
(257
|
)
|
|
$
|
|
|
|
$
|
|
|
|
$
|
23,375
|
|
|
$
|
(257
|
)
|
State and municipal
|
|
|
7,961
|
|
|
|
(87
|
)
|
|
|
|
|
|
|
|
|
|
|
7,961
|
|
|
|
(87
|
)
|
Corporate bonds
|
|
|
3,777
|
|
|
|
(37
|
)
|
|
|
|
|
|
|
|
|
|
|
3,777
|
|
|
|
(37
|
)
|
Equity
|
|
|
2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total temporarily impaired
|
|
$
|
35,115
|
|
|
$
|
(381
|
)
|
|
$
|
|
|
|
$
|
|
|
|
$
|
35,115
|
|
|
$
|
(381
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
11
Note 4 Loans
|
|
|
|
|
|
|
|
|
|
|
September 30,
|
|
|
December 31,
|
|
|
|
2013
|
|
|
2012
|
|
|
|
(in thousands)
|
|
Loans were as follows:
|
|
|
|
|
|
|
|
|
Commercial
|
|
$
|
51,572
|
|
|
$
|
52,567
|
|
Commercial Real Estate:
|
|
|
|
|
|
|
|
|
Construction
|
|
|
51,994
|
|
|
|
70,284
|
|
Farmland
|
|
|
73,159
|
|
|
|
80,825
|
|
Nonfarm nonresidential
|
|
|
236,579
|
|
|
|
322,687
|
|
Residential Real Estate:
|
|
|
|
|
|
|
|
|
Multi-family
|
|
|
46,052
|
|
|
|
50,986
|
|
1-4 Family
|
|
|
234,759
|
|
|
|
278,273
|
|
Consumer
|
|
|
15,709
|
|
|
|
20,383
|
|
Agriculture
|
|
|
23,669
|
|
|
|
22,317
|
|
Other
|
|
|
747
|
|
|
|
770
|
|
|
|
|
|
|
|
|
|
|
Subtotal
|
|
|
734,240
|
|
|
|
899,092
|
|
Less: Allowance for loan losses
|
|
|
(31,754
|
)
|
|
|
(56,680
|
)
|
|
|
|
|
|
|
|
|
|
Loans, net
|
|
$
|
702,486
|
|
|
$
|
842,412
|
|
|
|
|
|
|
|
|
|
|
The following table presents the activity in the allowance for loan losses by portfolio segment for the three
months ended September 30, 2013 and 2012:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial
|
|
|
Commercial
Real Estate
|
|
|
Residential
Real Estate
|
|
|
Consumer
|
|
|
Agriculture
|
|
|
Other
|
|
|
Total
|
|
|
|
(in thousands)
|
|
September 30, 2013:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Beginning balance
|
|
$
|
4,648
|
|
|
$
|
21,022
|
|
|
$
|
10,790
|
|
|
$
|
594
|
|
|
$
|
487
|
|
|
$
|
18
|
|
|
$
|
37,559
|
|
Provision for loan losses
|
|
|
(539
|
)
|
|
|
196
|
|
|
|
612
|
|
|
|
61
|
|
|
|
(67
|
)
|
|
|
(13
|
)
|
|
|
250
|
|
Loans charged off
|
|
|
(965
|
)
|
|
|
(4,726
|
)
|
|
|
(1,272
|
)
|
|
|
(99
|
)
|
|
|
(9
|
)
|
|
|
|
|
|
|
(7,071
|
)
|
Recoveries
|
|
|
443
|
|
|
|
456
|
|
|
|
63
|
|
|
|
44
|
|
|
|
10
|
|
|
|
|
|
|
|
1,016
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ending balance
|
|
$
|
3,587
|
|
|
$
|
16,948
|
|
|
$
|
10,193
|
|
|
$
|
600
|
|
|
$
|
421
|
|
|
$
|
5
|
|
|
$
|
31,754
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
September 30, 2012:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Beginning balance
|
|
$
|
3,811
|
|
|
$
|
31,049
|
|
|
$
|
15,587
|
|
|
$
|
792
|
|
|
$
|
343
|
|
|
$
|
12
|
|
|
$
|
51,594
|
|
Provision for loan losses
|
|
|
2,630
|
|
|
|
17,412
|
|
|
|
4,326
|
|
|
|
366
|
|
|
|
763
|
|
|
|
3
|
|
|
|
25,500
|
|
Loans charged off
|
|
|
(2,400
|
)
|
|
|
(16,192
|
)
|
|
|
(3,824
|
)
|
|
|
(375
|
)
|
|
|
(696
|
)
|
|
|
|
|
|
|
(23,487
|
)
|
Recoveries
|
|
|
27
|
|
|
|
324
|
|
|
|
16
|
|
|
|
24
|
|
|
|
21
|
|
|
|
|
|
|
|
412
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ending balance
|
|
$
|
4,068
|
|
|
$
|
32,593
|
|
|
$
|
16,105
|
|
|
$
|
807
|
|
|
$
|
431
|
|
|
$
|
15
|
|
|
$
|
54,019
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
12
The following table presents the activity in the allowance for loan losses by portfolio segment
for the nine months ended September 30, 2013 and 2012:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial
|
|
|
Commercial
Real Estate
|
|
|
Residential
Real Estate
|
|
|
Consumer
|
|
|
Agriculture
|
|
|
Other
|
|
|
Total
|
|
|
|
(in thousands)
|
|
September 30, 2013:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Beginning balance
|
|
$
|
4,402
|
|
|
$
|
34,768
|
|
|
$
|
16,235
|
|
|
$
|
857
|
|
|
$
|
403
|
|
|
$
|
15
|
|
|
$
|
56,680
|
|
Provision for loan losses
|
|
|
94
|
|
|
|
72
|
|
|
|
522
|
|
|
|
140
|
|
|
|
(118
|
)
|
|
|
(10
|
)
|
|
|
700
|
|
Loans charged off
|
|
|
(2,073
|
)
|
|
|
(18,904
|
)
|
|
|
(6,748
|
)
|
|
|
(620
|
)
|
|
|
(92
|
)
|
|
|
|
|
|
|
(28,437
|
)
|
Recoveries
|
|
|
1,164
|
|
|
|
1,012
|
|
|
|
184
|
|
|
|
223
|
|
|
|
228
|
|
|
|
|
|
|
|
2,811
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ending balance
|
|
$
|
3,587
|
|
|
$
|
16,948
|
|
|
$
|
10,193
|
|
|
$
|
600
|
|
|
$
|
421
|
|
|
$
|
5
|
|
|
$
|
31,754
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
September 30, 2012:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Beginning balance
|
|
$
|
4,207
|
|
|
$
|
33,024
|
|
|
$
|
14,217
|
|
|
$
|
792
|
|
|
$
|
325
|
|
|
$
|
14
|
|
|
$
|
52,579
|
|
Provision for loan losses
|
|
|
2,641
|
|
|
|
19,187
|
|
|
|
9,528
|
|
|
|
687
|
|
|
|
1,206
|
|
|
|
1
|
|
|
|
33,250
|
|
Loans charged off
|
|
|
(2,866
|
)
|
|
|
(20,055
|
)
|
|
|
(7,715
|
)
|
|
|
(747
|
)
|
|
|
(1,124
|
)
|
|
|
|
|
|
|
(32,507
|
)
|
Recoveries
|
|
|
86
|
|
|
|
437
|
|
|
|
75
|
|
|
|
75
|
|
|
|
24
|
|
|
|
|
|
|
|
697
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ending balance
|
|
$
|
4,068
|
|
|
$
|
32,593
|
|
|
$
|
16,105
|
|
|
$
|
807
|
|
|
$
|
431
|
|
|
$
|
15
|
|
|
$
|
54,019
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The following table presents the balance in the allowance for loan losses and the recorded investment in loans
by portfolio segment and based on the impairment method as of September 30, 2013:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial
|
|
|
Commercial
Real Estate
|
|
|
Residential
Real Estate
|
|
|
Consumer
|
|
|
Agriculture
|
|
|
Other
|
|
|
Total
|
|
|
|
(in thousands)
|
|
Allowance for loan losses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ending allowance balance attributable to loans:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Individually evaluated for impairment
|
|
$
|
381
|
|
|
$
|
3,267
|
|
|
$
|
1,046
|
|
|
$
|
68
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
4,762
|
|
Collectively evaluated for impairment
|
|
|
3,206
|
|
|
|
13,681
|
|
|
|
9,147
|
|
|
|
532
|
|
|
|
421
|
|
|
|
5
|
|
|
|
26,992
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total ending allowance balance
|
|
$
|
3,587
|
|
|
$
|
16,948
|
|
|
$
|
10,193
|
|
|
$
|
600
|
|
|
$
|
421
|
|
|
$
|
5
|
|
|
$
|
31,754
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loans:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loans individually evaluated for impairment
|
|
$
|
5,226
|
|
|
$
|
99,437
|
|
|
$
|
49,741
|
|
|
$
|
148
|
|
|
$
|
332
|
|
|
$
|
533
|
|
|
$
|
155,417
|
|
Loans collectively evaluated for impairment
|
|
|
46,346
|
|
|
|
262,295
|
|
|
|
231,070
|
|
|
|
15,561
|
|
|
|
23,337
|
|
|
|
214
|
|
|
|
578,823
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total ending loans balance
|
|
$
|
51,572
|
|
|
$
|
361,732
|
|
|
$
|
280,811
|
|
|
$
|
15,709
|
|
|
$
|
23,669
|
|
|
$
|
747
|
|
|
$
|
734,240
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
13
The following table presents the balance in the allowance for loan losses and the recorded
investment in loans by portfolio segment and based on the impairment method as of December 31, 2012:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial
|
|
|
Commercial
Real Estate
|
|
|
Residential
Real Estate
|
|
|
Consumer
|
|
|
Agriculture
|
|
|
Other
|
|
|
Total
|
|
|
|
(in thousands)
|
|
Allowance for loan losses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ending allowance balance attributable to loans:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Individually evaluated for impairment
|
|
$
|
263
|
|
|
$
|
16,046
|
|
|
$
|
4,641
|
|
|
$
|
68
|
|
|
$
|
5
|
|
|
$
|
11
|
|
|
$
|
21,034
|
|
Collectively evaluated for impairment
|
|
|
4,139
|
|
|
|
18,722
|
|
|
|
11,594
|
|
|
|
789
|
|
|
|
398
|
|
|
|
4
|
|
|
|
35,646
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total ending allowance balance
|
|
$
|
4,402
|
|
|
$
|
34,768
|
|
|
$
|
16,235
|
|
|
$
|
857
|
|
|
$
|
403
|
|
|
$
|
15
|
|
|
$
|
56,680
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loans:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loans individually evaluated for impairment
|
|
$
|
5,296
|
|
|
$
|
125,922
|
|
|
$
|
56,799
|
|
|
$
|
212
|
|
|
$
|
55
|
|
|
$
|
524
|
|
|
$
|
188,808
|
|
Loans collectively evaluated for impairment
|
|
|
47,271
|
|
|
|
347,874
|
|
|
|
272,460
|
|
|
|
20,171
|
|
|
|
22,262
|
|
|
|
246
|
|
|
|
710,284
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total ending loans balance
|
|
$
|
52,567
|
|
|
$
|
473,796
|
|
|
$
|
329,259
|
|
|
$
|
20,383
|
|
|
$
|
22,317
|
|
|
$
|
770
|
|
|
$
|
899,092
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Impaired Loans
Impaired loans include restructured loans and commercial, construction, agriculture and commercial real estate loans on nonaccrual or
classified as either doubtful, whereby collection of the total amount is improbable, or loss, whereby all or a portion of the loan has been written off or a specific allowance for loss has been provided.
The following table presents information related to loans individually evaluated for impairment by class of loans as of and for the three and
nine months ended September 30, 2013:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
September 30, 2013
|
|
|
Nine Months Ended
September 30, 2013
|
|
|
|
Unpaid
Principal
Balance
|
|
|
Recorded
Investment
|
|
|
Allowance
For Loan
Losses
Allocated
|
|
|
Average
Recorded
Investment
|
|
|
Interest
Income
Recognized
|
|
|
Average
Recorded
Investment
|
|
|
Interest
Income
Recognized
|
|
|
Cash Basis
Income
Recognized
|
|
|
|
(in thousands)
|
|
With No Related Allowance Recorded:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial
|
|
$
|
1,853
|
|
|
$
|
1,556
|
|
|
$
|
|
|
|
$
|
1,727
|
|
|
$
|
30
|
|
|
$
|
1,644
|
|
|
$
|
30
|
|
|
$
|
30
|
|
Commercial real estate:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Construction
|
|
|
311
|
|
|
|
195
|
|
|
|
|
|
|
|
193
|
|
|
|
153
|
|
|
|
574
|
|
|
|
164
|
|
|
|
164
|
|
Farmland
|
|
|
4,641
|
|
|
|
4,575
|
|
|
|
|
|
|
|
4,439
|
|
|
|
5
|
|
|
|
4,349
|
|
|
|
177
|
|
|
|
177
|
|
Nonfarm nonresidential
|
|
|
2,209
|
|
|
|
1,980
|
|
|
|
|
|
|
|
1,753
|
|
|
|
109
|
|
|
|
1,803
|
|
|
|
366
|
|
|
|
366
|
|
Residential real estate:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Multi-family
|
|
|
447
|
|
|
|
395
|
|
|
|
|
|
|
|
516
|
|
|
|
|
|
|
|
579
|
|
|
|
|
|
|
|
|
|
1-4 Family
|
|
|
10,953
|
|
|
|
10,078
|
|
|
|
|
|
|
|
10,538
|
|
|
|
33
|
|
|
|
11,896
|
|
|
|
90
|
|
|
|
90
|
|
Consumer
|
|
|
14
|
|
|
|
14
|
|
|
|
|
|
|
|
8
|
|
|
|
|
|
|
|
25
|
|
|
|
|
|
|
|
|
|
Agriculture
|
|
|
410
|
|
|
|
332
|
|
|
|
|
|
|
|
266
|
|
|
|
|
|
|
|
186
|
|
|
|
|
|
|
|
|
|
Other
|
|
|
18
|
|
|
|
18
|
|
|
|
|
|
|
|
18
|
|
|
|
|
|
|
|
9
|
|
|
|
|
|
|
|
|
|
With An Allowance Recorded:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial
|
|
|
3,776
|
|
|
|
3,670
|
|
|
|
381
|
|
|
|
4,110
|
|
|
|
19
|
|
|
|
4,016
|
|
|
|
80
|
|
|
|
|
|
Commercial real estate:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Construction
|
|
|
20,462
|
|
|
|
19,316
|
|
|
|
388
|
|
|
|
20,831
|
|
|
|
10
|
|
|
|
22,900
|
|
|
|
78
|
|
|
|
|
|
Farmland
|
|
|
8,000
|
|
|
|
5,606
|
|
|
|
194
|
|
|
|
5,575
|
|
|
|
11
|
|
|
|
5,914
|
|
|
|
33
|
|
|
|
|
|
Nonfarm nonresidential
|
|
|
83,138
|
|
|
|
67,765
|
|
|
|
2,685
|
|
|
|
74,620
|
|
|
|
327
|
|
|
|
78,285
|
|
|
|
1,009
|
|
|
|
|
|
Residential real estate:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Multi-family
|
|
|
14,199
|
|
|
|
12,490
|
|
|
|
395
|
|
|
|
12,713
|
|
|
|
51
|
|
|
|
13,372
|
|
|
|
158
|
|
|
|
|
|
1-4 Family
|
|
|
28,795
|
|
|
|
26,778
|
|
|
|
651
|
|
|
|
27,283
|
|
|
|
140
|
|
|
|
27,963
|
|
|
|
358
|
|
|
|
|
|
Consumer
|
|
|
202
|
|
|
|
134
|
|
|
|
68
|
|
|
|
122
|
|
|
|
1
|
|
|
|
146
|
|
|
|
2
|
|
|
|
|
|
Agriculture
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3
|
|
|
|
|
|
|
|
|
|
Other
|
|
|
514
|
|
|
|
515
|
|
|
|
|
|
|
|
516
|
|
|
|
5
|
|
|
|
520
|
|
|
|
13
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
179,942
|
|
|
$
|
155,417
|
|
|
$
|
4,762
|
|
|
$
|
165,228
|
|
|
$
|
894
|
|
|
$
|
174,184
|
|
|
$
|
2,558
|
|
|
$
|
827
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
14
The following table presents loans individually evaluated for impairment by class of loan as of December 31,
2012:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unpaid
Principal
Balance
|
|
|
Recorded
Investment
|
|
|
Allowance
For Loan
Losses
Allocated
|
|
|
Average
Recorded
Investment
|
|
|
Interest
Income
Recognized
|
|
|
Cash
Basis
Income
Recognized
|
|
|
|
(in thousands)
|
|
With No Related Allowance Recorded:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial
|
|
$
|
1,460
|
|
|
$
|
1,234
|
|
|
$
|
|
|
|
$
|
1,637
|
|
|
$
|
5
|
|
|
$
|
4
|
|
Commercial real estate:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Construction
|
|
|
1,155
|
|
|
|
1,109
|
|
|
|
|
|
|
|
1,745
|
|
|
|
2
|
|
|
|
2
|
|
Farmland
|
|
|
4,448
|
|
|
|
4,448
|
|
|
|
|
|
|
|
4,706
|
|
|
|
57
|
|
|
|
57
|
|
Nonfarm nonresidential
|
|
|
2,134
|
|
|
|
1,892
|
|
|
|
|
|
|
|
3,436
|
|
|
|
3
|
|
|
|
3
|
|
Residential real estate:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Multi-family
|
|
|
643
|
|
|
|
643
|
|
|
|
|
|
|
|
910
|
|
|
|
|
|
|
|
|
|
1-4 Family
|
|
|
13,539
|
|
|
|
13,158
|
|
|
|
|
|
|
|
11,291
|
|
|
|
56
|
|
|
|
56
|
|
Consumer
|
|
|
70
|
|
|
|
70
|
|
|
|
|
|
|
|
219
|
|
|
|
8
|
|
|
|
5
|
|
Agriculture
|
|
|
45
|
|
|
|
45
|
|
|
|
|
|
|
|
366
|
|
|
|
2
|
|
|
|
|
|
Other
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
With An Allowance Recorded:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial
|
|
|
4,108
|
|
|
|
4,062
|
|
|
|
263
|
|
|
|
3,964
|
|
|
|
169
|
|
|
|
27
|
|
Commercial real estate:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Construction
|
|
|
26,645
|
|
|
|
25,455
|
|
|
|
1,543
|
|
|
|
19,514
|
|
|
|
348
|
|
|
|
5
|
|
Farmland
|
|
|
8,557
|
|
|
|
6,456
|
|
|
|
734
|
|
|
|
5,794
|
|
|
|
43
|
|
|
|
2
|
|
Nonfarm nonresidential
|
|
|
97,699
|
|
|
|
86,562
|
|
|
|
13,769
|
|
|
|
83,087
|
|
|
|
2,011
|
|
|
|
185
|
|
Residential real estate:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Multi-family
|
|
|
14,906
|
|
|
|
14,906
|
|
|
|
1,643
|
|
|
|
11,187
|
|
|
|
468
|
|
|
|
|
|
1-4 Family
|
|
|
31,021
|
|
|
|
28,092
|
|
|
|
2,998
|
|
|
|
27,404
|
|
|
|
787
|
|
|
|
9
|
|
Consumer
|
|
|
142
|
|
|
|
142
|
|
|
|
68
|
|
|
|
29
|
|
|
|
|
|
|
|
|
|
Agriculture
|
|
|
10
|
|
|
|
10
|
|
|
|
5
|
|
|
|
6
|
|
|
|
|
|
|
|
|
|
Other
|
|
|
524
|
|
|
|
524
|
|
|
|
11
|
|
|
|
533
|
|
|
|
17
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
207,106
|
|
|
$
|
188,808
|
|
|
$
|
21,034
|
|
|
$
|
175,828
|
|
|
$
|
3,976
|
|
|
$
|
355
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Troubled Debt Restructuring
A troubled debt restructuring (TDR) occurs when the Company has agreed to a loan modification in the form of a concession for a borrower who is
experiencing financial difficulty. The majority of the Companys TDRs involve a reduction in interest rate, a deferral of principal for a stated period of time, or an interest only period. All TDRs are considered impaired and the
Company has allocated reserves for these loans to reflect the present value of the concessionary terms granted to the borrower.
15
The following table presents the types of TDR loan modifications by portfolio segment outstanding
as of September 30, 2013 and December 31, 2012:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
TDRs
Performing to
Modified
Terms
|
|
|
TDRs Not
Performing to
Modified
Terms
|
|
|
Total
TDRs
|
|
|
|
(in thousands)
|
|
September 30, 2013
|
|
|
|
|
|
|
|
|
Commercial
|
|
|
|
|
|
|
|
|
Rate reduction
|
|
$
|
1,957
|
|
|
$
|
|
|
|
$
|
1,957
|
|
Principal deferral
|
|
|
|
|
|
|
875
|
|
|
|
875
|
|
Commercial Real Estate:
|
|
|
|
|
|
|
|
|
|
|
|
|
Construction
|
|
|
|
|
|
|
|
|
|
|
|
|
Rate reduction
|
|
|
277
|
|
|
|
6,362
|
|
|
|
6,639
|
|
Principal deferral
|
|
|
499
|
|
|
|
|
|
|
|
499
|
|
Farmland
|
|
|
|
|
|
|
|
|
|
|
|
|
Rate reduction
|
|
|
150
|
|
|
|
|
|
|
|
150
|
|
Principal deferral
|
|
|
701
|
|
|
|
2,438
|
|
|
|
3,139
|
|
Nonfarm nonresidential
|
|
|
|
|
|
|
|
|
|
|
|
|
Rate reduction
|
|
|
23,511
|
|
|
|
21,678
|
|
|
|
45,189
|
|
Interest only payments
|
|
|
2,448
|
|
|
|
1,489
|
|
|
|
3,937
|
|
Residential Real Estate:
|
|
|
|
|
|
|
|
|
|
|
|
|
Multi-family
|
|
|
|
|
|
|
|
|
|
|
|
|
Rate reduction
|
|
|
4,385
|
|
|
|
6,728
|
|
|
|
11,113
|
|
Interest only payments
|
|
|
644
|
|
|
|
|
|
|
|
644
|
|
1-4 Family
|
|
|
|
|
|
|
|
|
|
|
|
|
Rate reduction
|
|
|
8,805
|
|
|
|
9,685
|
|
|
|
18,490
|
|
Consumer
|
|
|
|
|
|
|
|
|
|
|
|
|
Rate reduction
|
|
|
77
|
|
|
|
|
|
|
|
77
|
|
Other
|
|
|
|
|
|
|
|
|
|
|
|
|
Rate reduction
|
|
|
514
|
|
|
|
|
|
|
|
514
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total TDRs
|
|
$
|
43,968
|
|
|
$
|
49,255
|
|
|
$
|
93,223
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
16
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
TDRs
Performing to
Modified
Terms
|
|
|
TDRs Not
Performing to
Modified
Terms
|
|
|
Total
TDRs
|
|
|
|
(in thousands)
|
|
December 31, 2012
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial
|
|
|
|
|
|
|
|
|
|
|
|
|
Rate reduction
|
|
$
|
1,972
|
|
|
$
|
|
|
|
$
|
1,972
|
|
Principal deferral
|
|
|
887
|
|
|
|
|
|
|
|
887
|
|
Interest only payments
|
|
|
|
|
|
|
958
|
|
|
|
958
|
|
Commercial Real Estate:
|
|
|
|
|
|
|
|
|
|
|
|
|
Construction
|
|
|
|
|
|
|
|
|
|
|
|
|
Rate reduction
|
|
|
4,834
|
|
|
|
4,459
|
|
|
|
9,293
|
|
Farmland
|
|
|
|
|
|
|
|
|
|
|
|
|
Rate reduction
|
|
|
150
|
|
|
|
|
|
|
|
150
|
|
Principal deferral
|
|
|
725
|
|
|
|
2,438
|
|
|
|
3,163
|
|
Nonfarm nonresidential
|
|
|
|
|
|
|
|
|
|
|
|
|
Rate reduction
|
|
|
36,515
|
|
|
|
22,631
|
|
|
|
59,146
|
|
Principal deferral
|
|
|
1,195
|
|
|
|
|
|
|
|
1,195
|
|
Interest only payments
|
|
|
2,466
|
|
|
|
2,107
|
|
|
|
4,573
|
|
Residential Real Estate:
|
|
|
|
|
|
|
|
|
|
|
|
|
Multi-family
|
|
|
|
|
|
|
|
|
|
|
|
|
Rate reduction
|
|
|
13,087
|
|
|
|
|
|
|
|
13,087
|
|
Interest only payments
|
|
|
652
|
|
|
|
|
|
|
|
652
|
|
1-4 Family
|
|
|
|
|
|
|
|
|
|
|
|
|
Rate reduction
|
|
|
14,323
|
|
|
|
7,871
|
|
|
|
22,194
|
|
Consumer
|
|
|
|
|
|
|
|
|
|
|
|
|
Rate reduction
|
|
|
14
|
|
|
|
|
|
|
|
14
|
|
Other
|
|
|
|
|
|
|
|
|
|
|
|
|
Rate reduction
|
|
|
524
|
|
|
|
|
|
|
|
524
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total TDRs
|
|
$
|
77,344
|
|
|
$
|
40,464
|
|
|
$
|
117,808
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
At September 30, 2013 and December 31, 2012, 47% and 66%, respectively, of the Companys TDRs
were performing according to their modified terms. The Company allocated $3.5 million and $15.1 million in reserves to borrowers whose loan terms have been modified in TDRs as of September 30, 2013, and December 31, 2012,
respectively. The Company has committed to lend additional amounts totaling $262,000 and $259,000 as of September 30, 2013 and December 31, 2012, respectively, to borrowers with outstanding loans classified as TDRs.
17
The following tables present a summary of the types of TDR loan modifications by portfolio type
that occurred during the three months ended September 30, 2013 and 2012:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
TDRs
Performing to
Modified
Terms
|
|
|
TDRs Not
Performing to
Modified
Terms
|
|
|
Total
TDRs
|
|
|
|
(in thousands)
|
|
September 30, 2013
|
|
|
|
|
|
|
|
|
Residential Real Estate:
|
|
|
|
|
|
|
|
|
|
|
|
|
1-4 Family
|
|
|
|
|
|
|
|
|
|
|
|
|
Rate reduction
|
|
$
|
363
|
|
|
$
|
|
|
|
$
|
363
|
|
Consumer
|
|
|
|
|
|
|
|
|
|
|
|
|
Rate reduction
|
|
|
26
|
|
|
|
|
|
|
|
26
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total TDRs
|
|
$
|
389
|
|
|
$
|
|
|
|
$
|
389
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
TDRs
Performing to
Modified
Terms
|
|
|
TDRs Not
Performing to
Modified
Terms
|
|
|
Total
TDRs
|
|
|
|
(in thousands)
|
|
September 30, 2012
|
|
|
|
|
|
|
|
|
Commercial Real Estate:
|
|
|
|
|
|
|
|
|
|
|
|
|
Farmland
|
|
|
|
|
|
|
|
|
|
|
|
|
Rate reduction
|
|
$
|
150
|
|
|
$
|
|
|
|
$
|
150
|
|
Nonfarm nonresidential
|
|
|
|
|
|
|
|
|
|
|
|
|
Rate reduction
|
|
|
5,549
|
|
|
|
|
|
|
|
5,549
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total TDRs
|
|
$
|
5,699
|
|
|
$
|
|
|
|
$
|
5,699
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of September 30, 2013 and 2012, 100% of the Companys TDRs that occurred during the three months
ended September 30, 2013 and 2012 were performing according to their modified terms. The Company allocated $36,000 and $489,000 in reserves to borrowers whose loan terms have been modified during the three months ended September 30,
2013 and 2012, respectively. For modifications occurring during the three month period ended September 30, 2013 and 2012, the post-modification balances approximate the pre-modification balances.
The following tables present a summary of the types of TDR loan modifications by portfolio type that occurred during the nine months ended
September 30, 2013 and 2012:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
TDRs
Performing to
Modified
Terms
|
|
|
TDRs Not
Performing to
Modified
Terms
|
|
|
Total
TDRs
|
|
|
|
(in thousands)
|
|
September 30, 2013
|
|
|
|
|
|
|
|
|
Commercial:
|
|
|
|
|
|
|
|
|
|
|
|
|
Rate reduction
|
|
$
|
39
|
|
|
$
|
|
|
|
$
|
39
|
|
Commercial Real Estate:
|
|
|
|
|
|
|
|
|
|
|
|
|
Construction
|
|
|
|
|
|
|
|
|
|
|
|
|
Rate reduction
|
|
|
|
|
|
|
1,291
|
|
|
|
1,291
|
|
Principal deferral
|
|
|
499
|
|
|
|
|
|
|
|
499
|
|
Nonfarm nonresidential
|
|
|
|
|
|
|
|
|
|
|
|
|
Rate reduction
|
|
|
388
|
|
|
|
|
|
|
|
388
|
|
Residential Real Estate:
|
|
|
|
|
|
|
|
|
|
|
|
|
1-4 Family
|
|
|
|
|
|
|
|
|
|
|
|
|
Rate reduction
|
|
|
1,254
|
|
|
|
|
|
|
|
1,254
|
|
Consumer:
|
|
|
|
|
|
|
|
|
|
|
|
|
Rate reduction
|
|
|
64
|
|
|
|
|
|
|
|
64
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total TDRs
|
|
$
|
2,244
|
|
|
$
|
1,291
|
|
|
$
|
3,535
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
18
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
TDRs
Performing to
Modified
Terms
|
|
|
TDRs Not
Performing to
Modified
Terms
|
|
|
Total
TDRs
|
|
|
|
(in thousands)
|
|
September 30, 2012
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial:
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest only payments
|
|
$
|
|
|
|
$
|
1,019
|
|
|
$
|
1,019
|
|
Commercial Real Estate:
|
|
|
|
|
|
|
|
|
|
|
|
|
Construction
|
|
|
|
|
|
|
|
|
|
|
|
|
Rate reduction
|
|
|
|
|
|
|
849
|
|
|
|
849
|
|
Farmland
|
|
|
|
|
|
|
|
|
|
|
|
|
Rate reduction
|
|
|
150
|
|
|
|
|
|
|
|
150
|
|
Nonfarm nonresidential
|
|
|
|
|
|
|
|
|
|
|
|
|
Rate reduction
|
|
|
16,700
|
|
|
|
|
|
|
|
16,700
|
|
Principal deferral
|
|
|
1,196
|
|
|
|
|
|
|
|
1,196
|
|
Interest only payments
|
|
|
2,467
|
|
|
|
2,174
|
|
|
|
4,641
|
|
Residential Real Estate:
|
|
|
|
|
|
|
|
|
|
|
|
|
Multi-family
|
|
|
|
|
|
|
|
|
|
|
|
|
Rate reduction
|
|
|
12,848
|
|
|
|
31
|
|
|
|
12,879
|
|
1-4 Family
|
|
|
|
|
|
|
|
|
|
|
|
|
Rate reduction
|
|
|
7,440
|
|
|
|
|
|
|
|
7,440
|
|
Principal deferral
|
|
|
|
|
|
|
384
|
|
|
|
384
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total TDRs
|
|
$
|
40,801
|
|
|
$
|
4,457
|
|
|
$
|
45,258
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of September 30, 2013 and 2012, 63% and 90%, respectively, of the Companys TDRs that occurred
during the nine months ended September 30, 2013 and 2012, were performing according to their modified terms. The Company allocated $336,000 and $3.9 million in reserves to borrowers whose loan terms have been modified during the nine
months ended September 30, 2013 and 2012, respectively. For modifications occurring during the nine month period ended September 30, 2013 and 2012, the post-modification balances approximate the pre-modification balances.
During the first nine months of 2013, approximately $1.3 million TDRs defaulted on their restructured loan within the 12 month period
following the loan modification. These defaults were construction and development loans. A default is considered to have occurred once the TDR is past due 90 days or more or it has been placed on nonaccrual. During the first nine months of 2012,
approximately $9.9 million TDRs defaulted on their restructured loan within the 12 month period following the loan modification. These defaults consisted of $6.9 million in commercial real estate loans, $1.2 million in commercial loans, and $1.7
million in 1-4 family residential real estate loans.
19
Nonperforming Loans
Nonperforming loans include impaired loans not on accrual and smaller balance homogeneous loans, such as residential mortgage and consumer
loans, that are collectively evaluated for impairment.
The following table presents the recorded investment in nonaccrual and loans past
due 90 days and still on accrual by class of loan as of September 30, 2013, and December 31, 2012:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nonaccrual
|
|
|
Loans Past
Due 90 Days
And Over Still
Accruing
|
|
|
|
September 30,
2013
|
|
|
December 31,
2012
|
|
|
September 30,
2013
|
|
|
December 31,
2012
|
|
|
|
(in thousands)
|
|
Commercial
|
|
$
|
3,084
|
|
|
$
|
2,437
|
|
|
$
|
|
|
|
$
|
36
|
|
Commercial Real Estate:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Construction
|
|
|
18,734
|
|
|
|
7,808
|
|
|
|
|
|
|
|
|
|
Farmland
|
|
|
9,187
|
|
|
|
10,030
|
|
|
|
|
|
|
|
|
|
Nonfarm nonresidential
|
|
|
40,394
|
|
|
|
46,036
|
|
|
|
|
|
|
|
|
|
Residential Real Estate:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Multi-family
|
|
|
7,647
|
|
|
|
1,516
|
|
|
|
|
|
|
|
|
|
1-4 Family
|
|
|
27,455
|
|
|
|
26,501
|
|
|
|
|
|
|
|
50
|
|
Consumer
|
|
|
71
|
|
|
|
135
|
|
|
|
|
|
|
|
|
|
Agriculture
|
|
|
332
|
|
|
|
54
|
|
|
|
|
|
|
|
|
|
Other
|
|
|
18
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
106,922
|
|
|
$
|
94,517
|
|
|
$
|
|
|
|
$
|
86
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The following table presents the aging of the recorded investment in past due loans as of September 30,
2013 and December 31, 2012:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
30 59
Days
Past Due
|
|
|
60 89
Days
Past Due
|
|
|
90 Days
And Over
Past Due
|
|
|
Nonaccrual
|
|
|
Total
Past Due
And
Nonaccrual
|
|
|
|
(in thousands)
|
|
September 30, 2013
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial
|
|
$
|
4,290
|
|
|
$
|
174
|
|
|
$
|
|
|
|
$
|
3,084
|
|
|
$
|
7,548
|
|
Commercial Real Estate:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Construction
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
18,734
|
|
|
|
18,734
|
|
Farmland
|
|
|
289
|
|
|
|
97
|
|
|
|
|
|
|
|
9,187
|
|
|
|
9,573
|
|
Nonfarm nonresidential
|
|
|
771
|
|
|
|
5,968
|
|
|
|
|
|
|
|
40,394
|
|
|
|
47,133
|
|
Residential Real Estate:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Multi-family
|
|
|
1,185
|
|
|
|
|
|
|
|
|
|
|
|
7,647
|
|
|
|
8,832
|
|
1-4 Family
|
|
|
3,267
|
|
|
|
1,219
|
|
|
|
|
|
|
|
27,455
|
|
|
|
31,941
|
|
Consumer
|
|
|
198
|
|
|
|
35
|
|
|
|
|
|
|
|
71
|
|
|
|
304
|
|
Agriculture
|
|
|
18
|
|
|
|
89
|
|
|
|
|
|
|
|
332
|
|
|
|
439
|
|
Other
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
18
|
|
|
|
18
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
10,018
|
|
|
$
|
7,582
|
|
|
$
|
|
|
|
$
|
106,922
|
|
|
$
|
124,522
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
20
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
30 59
Days
Past Due
|
|
|
60 89
Days
Past Due
|
|
|
90 Days
And Over
Past Due
|
|
|
Nonaccrual
|
|
|
Total
Past Due
And
Nonaccrual
|
|
|
|
(in thousands)
|
|
December 31, 2012
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial
|
|
$
|
1,279
|
|
|
$
|
90
|
|
|
$
|
36
|
|
|
$
|
2,437
|
|
|
$
|
3,842
|
|
Commercial Real Estate:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Construction
|
|
|
10,510
|
|
|
|
5,815
|
|
|
|
|
|
|
|
7,808
|
|
|
|
24,133
|
|
Farmland
|
|
|
922
|
|
|
|
58
|
|
|
|
|
|
|
|
10,030
|
|
|
|
11,010
|
|
Nonfarm non residential
|
|
|
5,138
|
|
|
|
13,037
|
|
|
|
|
|
|
|
46,036
|
|
|
|
64,211
|
|
Residential Real Estate:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Multi-family
|
|
|
8,762
|
|
|
|
|
|
|
|
|
|
|
|
1,516
|
|
|
|
10,278
|
|
1-4 Family
|
|
|
11,145
|
|
|
|
1,221
|
|
|
|
50
|
|
|
|
26,501
|
|
|
|
38,917
|
|
Consumer
|
|
|
310
|
|
|
|
75
|
|
|
|
|
|
|
|
135
|
|
|
|
520
|
|
Agriculture
|
|
|
153
|
|
|
|
7
|
|
|
|
|
|
|
|
54
|
|
|
|
214
|
|
Other
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
38,219
|
|
|
$
|
20,303
|
|
|
$
|
86
|
|
|
$
|
94,517
|
|
|
$
|
153,125
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Credit Quality Indicators
We categorize loans into risk categories at origination based upon original underwriting. Thereafter, we categorize loans into 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, among other
factors. Loans are analyzed individually by classifying the loans as to credit risk. This analysis includes loans with an outstanding balance greater than $500,000 and non-homogeneous loans, such as commercial and commercial real estate
loans. This analysis is performed on a quarterly basis. We do not have any non-rated loans. The following definitions are used for risk ratings:
Watch
Loans classified as watch are those loans which have experienced a potentially adverse development which necessitates
increased monitoring.
Special Mention
Loans classified as special mention do not have all of the characteristics of
substandard or doubtful loans. They have one or more deficiencies which warrant special attention and which corrective action, such as accelerated collection practices, may remedy.
Substandard
Loans classified as substandard are those loans with clear and defined weaknesses such as a highly leveraged
position, unfavorable financial ratios, uncertain repayment sources or poor financial condition which may jeopardize the repayment of the debt as contractually agreed. They are characterized by the distinct possibility we will sustain some losses if
the deficiencies are not corrected.
Doubtful
Loans classified as doubtful are those loans which have characteristics
similar to substandard loans but with an increased risk that collection or liquidation in full is highly questionable and improbable.
21
Loans not meeting the criteria above that are analyzed individually as part of the above
described process are considered to be Pass rated loans. As of September 30, 2013, and December 31, 2012, and based on the most recent analysis performed, the risk category of loans by class of loans is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pass
|
|
|
Watch
|
|
|
Special
Mention
|
|
|
Substandard
|
|
|
Doubtful
|
|
|
Total
|
|
|
|
(in thousands)
|
|
September 30, 2013
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial
|
|
$
|
33,519
|
|
|
$
|
8,203
|
|
|
$
|
706
|
|
|
$
|
9,100
|
|
|
$
|
44
|
|
|
$
|
51,572
|
|
Commercial Real Estate:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Construction
|
|
|
17,072
|
|
|
|
11,404
|
|
|
|
2,248
|
|
|
|
21,270
|
|
|
|
|
|
|
|
51,994
|
|
Farmland
|
|
|
45,172
|
|
|
|
11,568
|
|
|
|
879
|
|
|
|
15,540
|
|
|
|
|
|
|
|
73,159
|
|
Nonfarm nonresidential
|
|
|
87,574
|
|
|
|
62,363
|
|
|
|
2,982
|
|
|
|
83,414
|
|
|
|
246
|
|
|
|
236,579
|
|
Residential Real Estate:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Multi-family
|
|
|
15,230
|
|
|
|
15,397
|
|
|
|
|
|
|
|
15,425
|
|
|
|
|
|
|
|
46,052
|
|
1-4 Family
|
|
|
131,240
|
|
|
|
46,734
|
|
|
|
2,428
|
|
|
|
54,357
|
|
|
|
|
|
|
|
234,759
|
|
Consumer
|
|
|
13,845
|
|
|
|
1,079
|
|
|
|
6
|
|
|
|
779
|
|
|
|
|
|
|
|
15,709
|
|
Agriculture
|
|
|
20,853
|
|
|
|
2,125
|
|
|
|
|
|
|
|
691
|
|
|
|
|
|
|
|
23,669
|
|
Other
|
|
|
215
|
|
|
|
514
|
|
|
|
|
|
|
|
18
|
|
|
|
|
|
|
|
747
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
364,720
|
|
|
$
|
159,387
|
|
|
$
|
9,249
|
|
|
$
|
200,594
|
|
|
$
|
290
|
|
|
$
|
734,240
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pass
|
|
|
Watch
|
|
|
Special
Mention
|
|
|
Substandard
|
|
|
Doubtful
|
|
|
Total
|
|
|
|
(in thousands)
|
|
December 31, 2012
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial
|
|
$
|
27,085
|
|
|
$
|
10,153
|
|
|
$
|
6,495
|
|
|
$
|
8,772
|
|
|
$
|
62
|
|
|
$
|
52,567
|
|
Commercial Real Estate:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Construction
|
|
|
26,085
|
|
|
|
21,713
|
|
|
|
3,647
|
|
|
|
18,839
|
|
|
|
|
|
|
|
70,284
|
|
Farmland
|
|
|
47,017
|
|
|
|
13,461
|
|
|
|
3,532
|
|
|
|
16,815
|
|
|
|
|
|
|
|
80,825
|
|
Nonfarm nonresidential
|
|
|
122,603
|
|
|
|
66,223
|
|
|
|
14,955
|
|
|
|
118,635
|
|
|
|
271
|
|
|
|
322,687
|
|
Residential Real Estate:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Multi-family
|
|
|
18,387
|
|
|
|
14,637
|
|
|
|
|
|
|
|
17,962
|
|
|
|
|
|
|
|
50,986
|
|
1-4 Family
|
|
|
159,975
|
|
|
|
47,030
|
|
|
|
5,167
|
|
|
|
66,101
|
|
|
|
|
|
|
|
278,273
|
|
Consumer
|
|
|
17,232
|
|
|
|
2,211
|
|
|
|
35
|
|
|
|
842
|
|
|
|
63
|
|
|
|
20,383
|
|
Agriculture
|
|
|
19,256
|
|
|
|
1,467
|
|
|
|
869
|
|
|
|
725
|
|
|
|
|
|
|
|
22,317
|
|
Other
|
|
|
246
|
|
|
|
524
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
770
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
437,886
|
|
|
$
|
177,419
|
|
|
$
|
34,700
|
|
|
$
|
248,691
|
|
|
$
|
396
|
|
|
$
|
899,092
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Note 5 Other Real Estate Owned
Other real estate owned (OREO) is real estate acquired as a result of foreclosure or by deed in lieu of foreclosure. It
is classified as real estate owned until such time as it is sold. When property is acquired as a result of foreclosure or by deed in lieu of foreclosure, it is recorded at its fair market value less cost to sell. Any write-down of the
property at the time of acquisition is charged to the allowance for loan losses. Subsequent reductions in fair value are recorded as non-interest expense. To determine the fair value of OREO for smaller dollar single family homes, we
consult with internal real estate sales staff and external realtors, investors, and appraisers. If the internally evaluated market price is below our underlying investment in the property, appropriate write-downs are taken.
For larger dollar residential and commercial real estate properties, we obtain a new appraisal of the subject property in connection with the
transfer to other real estate owned. We typically obtain updated appraisals each year on the anniversary date of ownership unless a sale is imminent.
22
The following table presents the major categories of OREO at the period-ends indicated:
|
|
|
|
|
|
|
|
|
|
|
September 30,
2013
|
|
|
December 31,
2012
|
|
|
|
(in thousands)
|
|
Commercial Real Estate:
|
|
|
|
|
|
|
|
|
Construction
|
|
$
|
20,546
|
|
|
$
|
22,912
|
|
Farmland
|
|
|
545
|
|
|
|
618
|
|
Other
|
|
|
14,410
|
|
|
|
15,577
|
|
Residential Real Estate:
|
|
|
|
|
|
|
|
|
Multi-family
|
|
|
517
|
|
|
|
200
|
|
1-4 Family
|
|
|
6,436
|
|
|
|
5,518
|
|
|
|
|
|
|
|
|
|
|
|
|
|
42,454
|
|
|
|
44,825
|
|
Valuation allowance
|
|
|
(597
|
)
|
|
|
(1,154
|
)
|
|
|
|
|
|
|
|
|
|
|
|
$
|
41,857
|
|
|
$
|
43,671
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Three
Months Ended
September 30,
|
|
|
For the Nine
Months Ended
September 30,
|
|
|
|
2013
|
|
|
2012
|
|
|
2013
|
|
|
2012
|
|
|
|
(in thousands)
|
|
|
(in thousands)
|
|
OREO Valuation Allowance Activity:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Beginning balance
|
|
$
|
747
|
|
|
$
|
1,724
|
|
|
$
|
1,154
|
|
|
$
|
1,667
|
|
Provision to allowance
|
|
|
300
|
|
|
|
4,260
|
|
|
|
1,584
|
|
|
|
5,090
|
|
Write-downs
|
|
|
(450
|
)
|
|
|
(4,189
|
)
|
|
|
(2,141
|
)
|
|
|
(4,962
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ending balance
|
|
$
|
597
|
|
|
$
|
1,795
|
|
|
$
|
597
|
|
|
$
|
1,795
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net activity relating to other real estate owned during the nine months ended September 30, 2013 and 2012
is as follows:
|
|
|
|
|
|
|
|
|
|
|
2013
|
|
|
2012
|
|
|
|
(in thousands)
|
|
OREO Activity
|
|
|
|
|
|
|
|
|
OREO as of January 1
|
|
$
|
43,671
|
|
|
$
|
41,449
|
|
Real estate acquired
|
|
|
18,542
|
|
|
|
31,531
|
|
Valuation adjustments for declining market values
|
|
|
(1,584
|
)
|
|
|
(5,090
|
)
|
Improvements
|
|
|
|
|
|
|
1
|
|
Loss on sale
|
|
|
(190
|
)
|
|
|
(1,481
|
)
|
Proceeds from sale of properties
|
|
|
(18,582
|
)
|
|
|
(17,573
|
)
|
|
|
|
|
|
|
|
|
|
OREO as of September 30
|
|
$
|
41,857
|
|
|
$
|
48,837
|
|
|
|
|
|
|
|
|
|
|
Expenses related to other real estate owned include:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
September 30,
|
|
|
Nine Months Ended
September 30,
|
|
|
|
2013
|
|
|
2012
|
|
|
2013
|
|
|
2012
|
|
|
|
(in thousands)
|
|
|
(in thousands)
|
|
Net loss (gain) on sales
|
|
$
|
(169
|
)
|
|
$
|
533
|
|
|
$
|
190
|
|
|
$
|
1,481
|
|
Provision to allowance
|
|
|
300
|
|
|
|
4,260
|
|
|
|
1,584
|
|
|
|
5,090
|
|
Operating expense
|
|
|
538
|
|
|
|
411
|
|
|
|
1,343
|
|
|
|
1,095
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
669
|
|
|
$
|
5,204
|
|
|
$
|
3,117
|
|
|
$
|
7,666
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
23
Note 6 Deposits
The following table shows deposits by category:
|
|
|
|
|
|
|
|
|
|
|
September 30,
2013
|
|
|
December 31,
2012
|
|
|
|
(in thousands)
|
|
Non-interest bearing
|
|
$
|
101,191
|
|
|
$
|
114,310
|
|
Interest checking
|
|
|
71,851
|
|
|
|
87,234
|
|
Money market
|
|
|
77,292
|
|
|
|
63,715
|
|
Savings
|
|
|
37,622
|
|
|
|
39,227
|
|
Certificates of deposit
|
|
|
658,940
|
|
|
|
760,573
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
946,896
|
|
|
$
|
1,065,059
|
|
|
|
|
|
|
|
|
|
|
Time deposits of $100,000 or more were $279.3 million and $319.5 million at September 30, 2013 and
December 31, 2012, respectively.
Scheduled maturities of total time deposits at September 30, 2013 are as follows (in
thousands):
|
|
|
|
|
Year 1
|
|
$
|
378,763
|
|
Year 2
|
|
|
236,022
|
|
Year 3
|
|
|
25,836
|
|
Year 4
|
|
|
10,350
|
|
Year 5
|
|
|
7,930
|
|
Thereafter
|
|
|
39
|
|
|
|
|
|
|
|
|
$
|
658,940
|
|
|
|
|
|
|
Historically, the Bank used brokered and wholesale deposits to supplement its funding strategy. At
December 31, 2012, the Bank held $15.0 million in brokered deposits, which matured and were redeemed in the second quarter of 2013. As stipulated in the Consent Order, PBI Bank is currently restricted from accepting, renewing, or rolling-over
brokered deposits without the prior receipt of a waiver on a case-by-case basis from our regulators.
Note 7 Advances from the Federal Home Loan Bank
Advances from the Federal Home Loan Bank were as follows:
|
|
|
|
|
|
|
|
|
|
|
September 30,
2013
|
|
|
December 31,
2012
|
|
|
|
(in thousands)
|
|
Monthly amortizing advances with fixed rates from 0.00% to 5.25% and maturities ranging from 2013 through 2033, averaging 3.13% for
2013
|
|
$
|
4,741
|
|
|
$
|
5,604
|
|
|
|
|
|
|
|
|
|
|
Each advance is payable per terms on agreement, with a prepayment penalty. The advances are
collateralized by first mortgage loans. The borrowing capacity is based on the market value of the underlying pledged loans rather than the unpaid principal balance of the pledged loans. At September 30, 2013, our additional borrowing
capacity with the FHLB was $16.4 million. The availability of our borrowing capacity could be affected by our financial position and the FHLB could require additional collateral or, among other things, exercise its right to deny a funding request,
at its discretion. Additionally, any new advances are limited to a one year maturity or less.
Note 8 Fair Values Measurement
Fair value is the exchange price that would be received for an asset or paid to transfer a liability (exit price) in the
principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. We use various valuation techniques to determine fair value, including market, income and cost
approaches. There are three levels of inputs that may be used to measure fair values:
Level 1:
Quoted prices
(unadjusted) for identical assets or liabilities in active markets an entity has the ability to access as of the measurement date, or observable inputs.
24
Level 2:
Significant other observable inputs other than Level 1 prices,
such as quoted prices for similar assets or liabilities, quoted prices in markets that are not active, and other inputs that are observable or can be corroborated by observable market data.
Level 3:
Significant unobservable inputs that reflect an entitys own assumptions about the assumptions that market
participants would use in pricing an asset or liability.
In certain cases, the inputs used to measure fair value may fall into different
levels of the fair value hierarchy. When that occurs, we classify the fair value hierarchy on the lowest level of input that is significant to the fair value measurement. We used the following methods and significant assumptions to
estimate fair value.
Securities:
The fair values of securities available for sale are determined by obtaining
quoted prices on nationally recognized securities exchanges, if available. This valuation method is classified as Level 1 in the fair value hierarchy. For securities where quoted prices are not available, fair values are calculated on market prices
of similar securities, or matrix pricing, which is a mathematical technique used widely in the industry to value debt securities without relying exclusively on quoted prices for the specific securities but rather by relying on the securities
relationship to other benchmark quoted securities. Matrix pricing relies on the securities relationship to similarly traded securities, benchmark curves, and the benchmarking of like securities. Matrix pricing utilizes observable market inputs
such as benchmark yields, reported trades, broker/dealer quotes, issuer spreads, two-sided markets, benchmark securities, bids, offers, reference data, and industry and economic events. In instances where broker quotes are used, these quotes are
obtained from market makers or broker-dealers recognized to be market participants. This valuation method is classified as Level 2 in the fair value hierarchy. For securities where quoted prices or market prices of similar securities are not
available, fair values are calculated using discounted cash flows or other market indicators. This valuation method is classified as Level 3 in the fair value hierarchy. Discounted cash flows are calculated using spread to swap and LIBOR curves that
are updated to incorporate loss severities, volatility, credit spread and optionality. During times when trading is more liquid, broker quotes are used (if available) to validate the model. Rating agency and industry research reports as well as
defaults and deferrals on individual securities are reviewed and incorporated into the calculations.
Impaired
Loans:
An impaired loan is evaluated at the time the loan is identified as impaired and is recorded at fair value less costs to sell. Fair value is measured based on the value of the collateral securing the loan and is classified as Level 3 in
the fair value hierarchy. Fair value is determined using several methods. Generally, the fair value of real estate is determined based on appraisals by qualified licensed appraisers. These appraisals may utilize a single valuation approach or a
combination of approaches including comparable sales and the income approach.
Adjustments are routinely made in the
appraisal process by the appraisers to adjust for differences between the comparable sales and income data available. These routine adjustments are made to adjust the value of a specific property relative to comparable properties for variations in
qualities such as location, size, and income production capacity relative to the subject property of the appraisal. Such adjustments are typically significant and result in a Level 3 classification of the inputs for determining fair value.
We routinely apply an internal discount to the value of appraisals used in the fair value evaluation of our impaired loans. The
deductions to the appraisal take into account changing business factors and market conditions, as well as potential value impairment in cases where the date of the appraisal of the collateral predates a likely change in market conditions. These
deductions range from 10% for routine real estate collateral to 30% for real estate that is determined (1) to have a thin trading market or (2) to be for unique use. This is in addition to estimated discounts for cost to sell of ten
percent.
We also apply discounts to the expected fair value of collateral for impaired loans where the likely resolution
involves litigation of foreclosure. Resolution of this nature generally results in receiving lower values for real estate collateral in a more aggressive sales environment. We have utilized discounts ranging from 10% to 33% in our impairment
evaluations when applicable.
Impaired loans are evaluated quarterly for additional impairment. We obtain updated
appraisals on properties securing our loans when circumstances are warranted such as at the time of renewal or when market conditions have significantly changed. This determination is made on a property-by-property basis in light of circumstances in
the broader economic climate and our assessment of deterioration of real estate values in the market in which the property is located. The first stage of our assessment involves managements inspection of the property in
question. Management also engages in conversations with local real estate professionals, investors, and market makers to determine the likely marketing time and value range for the property. The second stage involves an assessment of
current trends in the regional market. After thorough consideration of these factors, management will either internally evaluate fair value or order a new appraisal.
25
Other Real Estate Owned (OREO)
: OREO is evaluated at the time of
acquisition and recorded at fair value as determined by independent appraisal or internal market evaluation less cost to sell. Our quarterly evaluations of OREO for impairment are driven by property type. For smaller dollar single family
homes, we consult with internal real estate sales staff and external realtors, investors, and appraisers. Based on these consultations, we determine asking prices for OREO properties we are marketing for sale. If the internally evaluated fair
value is below our recorded investment in the property, appropriate write-downs are taken.
For larger dollar commercial
real estate properties, we obtain a new appraisal of the subject property in connection with the transfer to other real estate owned. In some of these circumstances, an appraisal is in process at quarter end, and we must make our best estimate
of fair value based on our internal evaluation of the property, review of the most recent appraisal, and discussions with the currently engaged appraiser. We typically obtain updated appraisals on the anniversary date of ownership unless a sale
is imminent.
We routinely apply an internal discount to the value of appraisals used in the fair value evaluation of our
OREO. The deductions to the appraisal take into account changing business factors and market conditions, as well as potential value impairment in cases where our appraisal date predates a likely change in market conditions. These deductions
range from 10% for routine real estate to 30% for real estate that is determined (1) to have a thin trading market or (2) to be for unique use. This is in addition to estimated discounts for cost to sell of ten percent.
Financial assets measured at fair value on a recurring basis at September 30, 2013 and December 31, 2012 are summarized below:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair Value Measurements at September 30, 2013 Using
|
|
|
|
|
|
|
(in thousands)
|
|
|
|
|
|
|
Description
|
|
Carrying
Value
|
|
|
Quoted Prices In
Active Markets for
Identical Assets
(Level 1)
|
|
|
Significant Other
Observable Inputs
(Level 2)
|
|
|
Significant
Unobservable
Inputs
(Level 3)
|
|
Available-for-sale securities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. Government and federal agency
|
|
$
|
27,913
|
|
|
$
|
|
|
|
$
|
27,913
|
|
|
$
|
|
|
Agency mortgage-backed: residential
|
|
|
84,573
|
|
|
|
|
|
|
|
84,573
|
|
|
|
|
|
State and municipal
|
|
|
57,147
|
|
|
|
|
|
|
|
57,147
|
|
|
|
|
|
Corporate bonds
|
|
|
23,565
|
|
|
|
|
|
|
|
23,565
|
|
|
|
|
|
Other debt securities
|
|
|
606
|
|
|
|
|
|
|
|
|
|
|
|
606
|
|
Equity securities
|
|
|
177
|
|
|
|
177
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
193,981
|
|
|
$
|
177
|
|
|
$
|
193,198
|
|
|
$
|
606
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair Value Measurements at December 31, 2012 Using
|
|
|
|
|
|
|
(in thousands)
|
|
|
|
|
|
|
Description
|
|
Carrying
Value
|
|
|
Quoted Prices In
Active Markets for
Identical Assets
(Level 1)
|
|
|
Significant Other
Observable
Inputs
(Level 2)
|
|
|
Significant
Unobservable
Inputs
(Level 3)
|
|
Available-for-sale securities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. Government and federal agency
|
|
$
|
6,133
|
|
|
$
|
|
|
|
$
|
6,133
|
|
|
$
|
|
|
Agency mortgage-backed: residential
|
|
|
95,182
|
|
|
|
|
|
|
|
95,182
|
|
|
|
|
|
State and municipal
|
|
|
54,733
|
|
|
|
|
|
|
|
54,733
|
|
|
|
|
|
Corporate bonds
|
|
|
19,964
|
|
|
|
|
|
|
|
19,964
|
|
|
|
|
|
Other debt securities
|
|
|
618
|
|
|
|
|
|
|
|
|
|
|
|
618
|
|
Equity securities
|
|
|
1,846
|
|
|
|
1,846
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
178,476
|
|
|
$
|
1,846
|
|
|
$
|
176,012
|
|
|
$
|
618
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
There were no transfers between Level 1 and Level 2 during 2013 or 2012.
26
The table below presents a reconciliation of all assets measured at fair value on a recurring
basis using significant unobservable inputs (Level 3) for the periods ended September 30, 2013 and 2012:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
State and Municipal
Securities
|
|
|
Other Debt
Securities
|
|
|
|
2013
|
|
|
2012
|
|
|
2013
|
|
|
2012
|
|
|
|
(in thousands)
|
|
Balances of recurring Level 3 assets at January 1
|
|
$
|
|
|
|
$
|
1,173
|
|
|
$
|
618
|
|
|
$
|
606
|
|
Total gain (loss) for the period:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Included in other comprehensive income (loss)
|
|
|
|
|
|
|
|
|
|
|
(12
|
)
|
|
|
(11
|
)
|
Sales
|
|
|
|
|
|
|
(1,173
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance of recurring Level 3 assets at September 30
|
|
$
|
|
|
|
$
|
|
|
|
$
|
606
|
|
|
$
|
595
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Level 3 state and municipal securities valuations are supported by analysis prepared by an independent third
party. Their approach to determining fair value involves using recently executed transactions for similar securities and market quotations for similar securities. As securities of this type are not rated by the rating agencies and trading
volumes are thin, it was determined these were valued using Level 3 inputs. We sold our Level 3 municipal securities in the second quarter of 2012 and had no securities of this nature at September 30, 2013.
Our other debt security valuation is determined internally by calculating discounted cash flows using the securitys coupon rate of 6.5%
and an estimated current market rate of 11.0% based upon the current yield curve plus spreads that adjust for volatility, credit risk, and optionality. We also consider the issuers publicly filed financial information as well as
assumptions regarding the likelihood of deferrals and defaults.
Financial assets measured at fair value on a non-recurring basis are
summarized below:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair Value Measurements at September 30, 2013 Using
|
|
|
|
|
|
|
(in thousands)
|
|
Description
|
|
Carrying
Value
|
|
|
Quoted Prices In
Active Markets for
Identical Assets
(Level 1)
|
|
|
Significant Other
Observable Inputs
(Level 2)
|
|
|
Significant
Unobservable
Inputs
(Level 3)
|
|
Impaired loans:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial
|
|
$
|
3,289
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
3,289
|
|
Commercial real estate:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Construction
|
|
|
18,928
|
|
|
|
|
|
|
|
|
|
|
|
18,928
|
|
Farmland
|
|
|
5,412
|
|
|
|
|
|
|
|
|
|
|
|
5,412
|
|
Other
|
|
|
65,080
|
|
|
|
|
|
|
|
|
|
|
|
65,080
|
|
Residential real estate:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Multi-family
|
|
|
12,095
|
|
|
|
|
|
|
|
|
|
|
|
12,095
|
|
1-4 Family
|
|
|
26,127
|
|
|
|
|
|
|
|
|
|
|
|
26,127
|
|
Consumer
|
|
|
66
|
|
|
|
|
|
|
|
|
|
|
|
66
|
|
Other
|
|
|
515
|
|
|
|
|
|
|
|
|
|
|
|
515
|
|
Other real estate owned, net:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial real estate:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Construction
|
|
|
20,257
|
|
|
|
|
|
|
|
|
|
|
|
20,257
|
|
Farmland
|
|
|
537
|
|
|
|
|
|
|
|
|
|
|
|
537
|
|
Other
|
|
|
14,208
|
|
|
|
|
|
|
|
|
|
|
|
14,208
|
|
Residential real estate:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Multi-family
|
|
|
509
|
|
|
|
|
|
|
|
|
|
|
|
509
|
|
1-4 Family
|
|
|
6,346
|
|
|
|
|
|
|
|
|
|
|
|
6,346
|
|
27
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair Value Measurements at December 31, 2012 Using
|
|
|
|
|
|
|
(in thousands)
|
|
Description
|
|
Carrying
Value
|
|
|
Quoted Prices In
Active Markets for
Identical Assets
(Level 1)
|
|
|
Significant Other
Observable Inputs
(Level 2)
|
|
|
Significant
Unobservable
Inputs
(Level 3)
|
|
Impaired loans:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial
|
|
$
|
3,799
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
3,799
|
|
Commercial real estate:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Construction
|
|
|
23,912
|
|
|
|
|
|
|
|
|
|
|
|
23,912
|
|
Farmland
|
|
|
5,722
|
|
|
|
|
|
|
|
|
|
|
|
5,722
|
|
Other
|
|
|
72,793
|
|
|
|
|
|
|
|
|
|
|
|
72,793
|
|
Residential real estate:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Multi-family
|
|
|
13,263
|
|
|
|
|
|
|
|
|
|
|
|
13,263
|
|
1-4 Family
|
|
|
25,094
|
|
|
|
|
|
|
|
|
|
|
|
25,094
|
|
Consumer
|
|
|
74
|
|
|
|
|
|
|
|
|
|
|
|
74
|
|
Agriculture
|
|
|
5
|
|
|
|
|
|
|
|
|
|
|
|
5
|
|
Other
|
|
|
513
|
|
|
|
|
|
|
|
|
|
|
|
513
|
|
Other real estate owned, net:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial real estate:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Construction
|
|
|
22,323
|
|
|
|
|
|
|
|
|
|
|
|
22,323
|
|
Farmland
|
|
|
602
|
|
|
|
|
|
|
|
|
|
|
|
602
|
|
Other
|
|
|
15,175
|
|
|
|
|
|
|
|
|
|
|
|
15,175
|
|
Residential real estate:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Multi-family
|
|
|
195
|
|
|
|
|
|
|
|
|
|
|
|
195
|
|
1-4 Family
|
|
|
5,376
|
|
|
|
|
|
|
|
|
|
|
|
5,376
|
|
Impaired loans, which are measured for impairment using the fair value of the collateral for collateral
dependent loans, had a carrying amount of $136.3 million at September 30, 2013 with a valuation allowance of $4.8 million. This resulted in no additional provision for loan losses for the nine months ended September 30, 2013. At
December 31, 2012, impaired loans had a carrying amount of $166.2 million, with a valuation allowance of $21.0 million.
Other real
estate owned, which is measured at the lower of carrying or fair value less estimated costs to sell, had a net carrying amount of $41.9 million as of September 30, 2013, compared with $43.7 million at December 31, 2012. Fair value
write-downs of $1.6 million were recorded on other real estate owned for the nine months ended September 30, 2013.
28
The following table presents qualitative information about level 3 fair value measurements for
financial instruments measured at fair value on a non-recurring basis at September 30, 2013:
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair Value
|
|
|
Valuation
Technique(s)
|
|
Unobservable Input(s)
|
|
Range (Weighted
Average)
|
|
|
(in thousands)
|
|
|
|
|
|
|
|
Impaired loans Commercial
|
|
$
|
3,289
|
|
|
Market value approach
|
|
Adjustment for receivables and inventory discounts
|
|
16% -32%(24%)
|
Impaired loans Commercial real estate
|
|
$
|
89,420
|
|
|
Sales comparison approach
|
|
Adjustment for differences between the comparable sales
|
|
0% - 69%(20%)
|
Impaired loans Residential real estate
|
|
$
|
38,222
|
|
|
Sales comparison approach
|
|
Adjustment for differences between the comparable sales
|
|
0% - 50%(15%)
|
Other real estate owned Commercial real estate
|
|
$
|
35,002
|
|
|
Sales comparison approach
Income
approach
|
|
Adjustment for differences between the comparable sales
Discount or capitalization rate
|
|
3% - 51%(21%)
7% - 16%(11%)
|
Other real estate owned Residential real estate
|
|
$
|
6,855
|
|
|
Sales comparison approach
|
|
Adjustment for differences between the comparable sales
|
|
4% - 34%(12%)
|
The following table presents qualitative information about level 3 fair value measurements for financial
instruments measured at fair value on a non-recurring basis at December 31, 2012:
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair Value
|
|
|
Valuation
Technique(s)
|
|
Unobservable Input(s)
|
|
Range (Weighted
Average)
|
|
|
(in thousands)
|
|
|
|
|
|
|
|
Impaired loans Commercial
|
|
$
|
3,799
|
|
|
Market value approach
|
|
Adjustment for receivables and inventory discounts
|
|
16% -32%(24%)
|
Impaired loans Commercial real estate
|
|
$
|
89,461
|
|
|
Sales comparison approach
|
|
Adjustment for differences between the comparable sales
|
|
0% - 69%(19%)
|
Impaired loans Residential real estate
|
|
$
|
38,357
|
|
|
Sales comparison approach
|
|
Adjustment for differences between the comparable sales
|
|
0% - 38%(15%)
|
Other real estate owned Commercial real estate
|
|
$
|
38,100
|
|
|
Sales comparison approach
Income
approach
|
|
Adjustment for differences between the comparable sales
Discount or capitalization rate
|
|
3% - 50%(18%)
9% - 16%(12%)
|
Other real estate owned Residential real estate
|
|
$
|
5,571
|
|
|
Sales comparison approach
|
|
Adjustment for differences between the comparable sales
|
|
0% - 30%(9%)
|
29
Carrying amount and estimated fair values of financial instruments were as follows for the periods indicated:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair Value Measurements at September 30, 2013 Using
|
|
|
|
Carrying
Amount
|
|
|
Level 1
|
|
|
Level 2
|
|
|
Level 3
|
|
|
Total
|
|
|
|
(in thousands)
|
|
Financial assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
53,433
|
|
|
$
|
44,674
|
|
|
$
|
8,759
|
|
|
$
|
|
|
|
$
|
53,433
|
|
Securities available for sale
|
|
|
193,981
|
|
|
|
177
|
|
|
|
193,198
|
|
|
|
606
|
|
|
|
193,981
|
|
Federal Home Loan Bank stock
|
|
|
10,072
|
|
|
|
N/A
|
|
|
|
N/A
|
|
|
|
N/A
|
|
|
|
N/A
|
|
Mortgage loans held for sale
|
|
|
123
|
|
|
|
|
|
|
|
123
|
|
|
|
|
|
|
|
123
|
|
Loans, net
|
|
|
702,486
|
|
|
|
|
|
|
|
|
|
|
|
719,094
|
|
|
|
719,094
|
|
Accrued interest receivable
|
|
|
3,964
|
|
|
|
|
|
|
|
1,198
|
|
|
|
2,766
|
|
|
|
3,964
|
|
Financial liabilities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deposits
|
|
$
|
946,896
|
|
|
$
|
98,885
|
|
|
$
|
848,738
|
|
|
$
|
|
|
|
$
|
947,623
|
|
Securities sold under agreements to repurchase
|
|
|
3,722
|
|
|
|
|
|
|
|
3,722
|
|
|
|
|
|
|
|
3,722
|
|
Federal Home Loan Bank advances
|
|
|
4,741
|
|
|
|
|
|
|
|
4,743
|
|
|
|
|
|
|
|
4,743
|
|
Subordinated capital notes
|
|
|
6,075
|
|
|
|
|
|
|
|
|
|
|
|
5,789
|
|
|
|
5,789
|
|
Junior subordinated debentures
|
|
|
25,000
|
|
|
|
|
|
|
|
|
|
|
|
13,550
|
|
|
|
13,550
|
|
Accrued interest payable
|
|
|
2,375
|
|
|
|
|
|
|
|
1,037
|
|
|
|
1,338
|
|
|
|
2,375
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair Value Measurements at December 31, 2012 Using
|
|
|
|
Carrying
Amount
|
|
|
Level 1
|
|
|
Level 2
|
|
|
Level 3
|
|
|
Total
|
|
|
|
(in thousands)
|
|
Financial assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
49,572
|
|
|
$
|
41,938
|
|
|
$
|
7,634
|
|
|
$
|
|
|
|
$
|
49,572
|
|
Securities available for sale
|
|
|
178,476
|
|
|
|
1,846
|
|
|
|
176,012
|
|
|
|
618
|
|
|
|
178,476
|
|
Federal Home Loan Bank stock
|
|
|
10,072
|
|
|
|
N/A
|
|
|
|
N/A
|
|
|
|
N/A
|
|
|
|
N/A
|
|
Mortgage loans held for sale
|
|
|
507
|
|
|
|
|
|
|
|
507
|
|
|
|
|
|
|
|
507
|
|
Loans, net
|
|
|
842,412
|
|
|
|
|
|
|
|
|
|
|
|
853,996
|
|
|
|
853,996
|
|
Accrued interest receivable
|
|
|
5,138
|
|
|
|
|
|
|
|
1,150
|
|
|
|
3,988
|
|
|
|
5,138
|
|
Financial liabilities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deposits
|
|
$
|
1,065,059
|
|
|
$
|
114,310
|
|
|
$
|
955,216
|
|
|
$
|
|
|
|
$
|
1,069,526
|
|
Securities sold under agreements to repurchase
|
|
|
2,634
|
|
|
|
|
|
|
|
2,634
|
|
|
|
|
|
|
|
2,634
|
|
Federal Home Loan Bank advances
|
|
|
5,604
|
|
|
|
|
|
|
|
5,607
|
|
|
|
|
|
|
|
5,607
|
|
Subordinated capital notes
|
|
|
6,975
|
|
|
|
|
|
|
|
|
|
|
|
6,599
|
|
|
|
6,599
|
|
Junior subordinated debentures
|
|
|
25,000
|
|
|
|
|
|
|
|
|
|
|
|
13,821
|
|
|
|
13,821
|
|
Accrued interest payable
|
|
|
2,104
|
|
|
|
|
|
|
|
1,173
|
|
|
|
931
|
|
|
|
2,104
|
|
The methods and assumptions, not previously presented, used to estimate fair values are described as follows:
(a) Cash and Cash Equivalents
The carrying amounts of cash and short-term instruments approximate fair values and are classified as either Level 1 or Level
2. Non-interest bearing deposits are Level 1 whereas interest bearing due from bank accounts and fed funds sold are Level 2.
(b) FHLB
Stock
It is not practical to determine the fair value of FHLB stock due to restrictions placed on its transferability.
(c) Loans, Net
Fair values of loans, excluding loans held for sale, are estimated as follows: For variable rate loans that reprice
frequently and with no significant change in credit risk, fair values are based on carrying values resulting in a Level 3 classification. Fair values for other loans are estimated using discounted cash flow analyses, using interest rates currently
being offered for loans with similar terms to borrowers of similar credit quality resulting in a Level 3 classification. Impaired loans are valued at the lower of cost or fair value as described previously. The methods utilized to estimate the
fair value of loans do not necessarily represent an exit price.
(d) Mortgage Loans Held for Sale
The fair value of loans held for sale is estimated based upon binding contracts and quotes from third party investors resulting
in a Level 2 classification.
30
(e) Deposits
The fair values disclosed for non-interest bearing deposits are, by definition, equal to the amount payable on demand at the
reporting date resulting in a Level 1 classification. The carrying amounts of variable rate interest bearing deposits approximate their fair values at the reporting date resulting in a Level 2 classification. Fair values for fixed rate interest
bearing deposits are estimated using a discounted cash flows calculation that applies interest rates currently being offered on certificates to a schedule of aggregated expected monthly maturities on time deposits resulting in a Level 2
classification.
(f) Securities Sold Under Agreements to Repurchase
The carrying amounts of borrowings under repurchase agreements approximate their fair values resulting in a Level 2
classification.
(g) Other Borrowings
The fair values of the Companys FHLB advances are estimated using discounted cash flow analyses based on the current
borrowing rates resulting in a Level 2 classification.
The fair values of the Companys subordinated capital notes
and junior subordinated debentures are estimated using discounted cash flow analyses based on the current borrowing rates for similar types of borrowing arrangements resulting in a Level 3 classification.
(h) Accrued Interest Receivable/Payable
The carrying amounts of accrued interest approximate fair value resulting in a Level 2 or Level 3 classification based on the
level of the asset or liability with which the accrual is associated.
Note 9 Income Taxes
Deferred tax assets and liabilities were due to the following as of:
|
|
|
|
|
|
|
|
|
|
|
September 30,
2013
|
|
|
December 31,
2012
|
|
|
|
(in thousands)
|
|
Deferred tax assets:
|
|
|
|
|
|
|
|
|
Net operating loss carry-forward
|
|
$
|
25,993
|
|
|
$
|
15,051
|
|
Allowance for loan losses
|
|
|
11,114
|
|
|
|
19,838
|
|
Other real estate owned write-down
|
|
|
9,854
|
|
|
|
10,408
|
|
Alternative minimum tax credit carry-forward
|
|
|
692
|
|
|
|
692
|
|
Net assets from acquisitions
|
|
|
635
|
|
|
|
592
|
|
Other than temporary impairment on securities
|
|
|
374
|
|
|
|
374
|
|
Net unrealized loss on securities available for sale
|
|
|
968
|
|
|
|
|
|
New market tax credit carry-forward
|
|
|
208
|
|
|
|
208
|
|
Amortization of non-compete agreements
|
|
|
17
|
|
|
|
19
|
|
Other
|
|
|
981
|
|
|
|
936
|
|
|
|
|
|
|
|
|
|
|
|
|
|
50,836
|
|
|
|
48,118
|
|
|
|
|
|
|
|
|
|
|
Deferred tax liabilities:
|
|
|
|
|
|
|
|
|
FHLB stock dividends
|
|
|
1,276
|
|
|
|
1,276
|
|
Fixed assets
|
|
|
322
|
|
|
|
409
|
|
Originated mortgage servicing rights
|
|
|
81
|
|
|
|
98
|
|
Net unrealized gain on securities available for sale
|
|
|
|
|
|
|
1,858
|
|
Other
|
|
|
498
|
|
|
|
549
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,177
|
|
|
|
4,190
|
|
|
|
|
|
|
|
|
|
|
Net deferred tax assets before valuation allowance
|
|
|
48,659
|
|
|
|
43,928
|
|
|
|
|
|
|
|
|
|
|
Valuation allowance
|
|
|
(48,659
|
)
|
|
|
(43,928
|
)
|
|
|
|
|
|
|
|
|
|
Net deferred tax asset
|
|
$
|
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
31
Our estimate of the realizability of the deferred tax asset depends on our estimate of projected
future levels of taxable income as all carryback ability was fully absorbed by our tax loss of approximately $40 million for 2011. In analyzing future taxable income levels, we considered all evidence currently available, both positive and negative.
Based on our analysis, we continue to maintain a valuation allowance for all deferred tax assets as of September 30, 2013. Our deferred tax assets and the related valuation allowance are analyzed and adjusted on a quarterly basis.
The Company does not have any beginning and ending unrecognized tax benefits. The Company does not expect the total amount of
unrecognized tax benefits to significantly increase or decrease in the next twelve months. There were no interest and penalties recorded in the income statement or accrued for the nine months ended September 30, 2013 or the year ended
December 31, 2012 related to unrecognized tax benefits.
The Company and its subsidiaries are subject to U.S. federal income tax and
the Company is subject to income tax in the Commonwealth of Kentucky. The Company is no longer subject to examination by taxing authorities for years before 2009.
Note 10 Stock Plans and Stock Based Compensation
The Company has two stock incentive plans. On February 23, 2006, the Company adopted the Porter Bancorp, Inc. 2006
Stock Incentive Plan. In May 2013, the Board approved an amendment to the plan to increase the number of shares authorized for issuance by 800,000 shares. The 2006 Plan now permits the issuance of up to 1,263,050 shares of the Companys common
stock upon the exercise of stock options or upon the grant of stock awards. As of September 30, 2013, the Company had granted 793,095 unvested shares net of forfeitures and vesting under the stock incentive plan. Shares issued under the
plan vest annually on the anniversary date of the grant over three to ten years. The Company has 343,829 shares remaining available for issue under the plan.
On May 15, 2006, the Board of Directors approved the Porter Bancorp, Inc. 2006 Non-Employee Directors Stock Ownership Incentive Plan,
which was approved by holders of the Companys voting common stock on June 8, 2006. On May 22, 2008, shareholders voted to amend the plan to change the form of incentive award from stock options to unvested shares. Under the
terms of the plan, 100,000 shares are reserved for issuance to non-employee directors upon the exercise of stock options or upon the grant of unvested stock awards granted under the plan. Prior to the amendment, options were granted automatically
under the plan at fair market value on the date of grant. The options vest over a three-year period and have a five year term. Unvested shares are granted automatically under the plan at fair market value on the date of grant and vest
semi-annually on the anniversary date of the grant over three years.
On May 16, 2012, holders of the Companys voting common
stock voted to further amend the 2006 Non-Employee Directors Stock Ownership Incentive Plan to award restricted shares having a fair market value of $25,000 annually to each non-employee director, and to increase the number of shares issuable under
the Directors Plan from 100,000 shares to 400,000 shares. Shares issued under the amended plan vest on December 31 in the year they are granted.
To date, the Company has issued 245,909 unvested shares, net of forfeitures and vesting, to non-employee directors. At September 30,
2013, 113,357 shares remain available for issuance under this plan.
The fair value of the 2013 unvested shares issued to certain
employees was $820,000, or $1.18 per weighted-average share. The fair value of the 2013 unvested shares issued to the directors was $155,000 or $0.85 per weighted average share. The Company recorded $391,000 and $338,000 of stock-based compensation
during the first nine months of 2013 and 2012, respectively, to salaries and employee benefits. There was no significant impact on compensation expense resulting from forfeited or expiring shares. We expect substantially all of the unvested
shares outstanding at the end of the period will vest according to the vesting schedule. No deferred tax benefit was recognized related to this expense for either period.
The following table summarizes unvested share activity as of and for the periods indicated for the Stock Incentive Plan:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine Months Ended
|
|
|
Twelve Months Ended
|
|
|
|
September 30, 2013
|
|
|
December 31, 2012
|
|
|
|
Shares
|
|
|
Weighted
Average
Grant
Price
|
|
|
Shares
|
|
|
Weighted
Average
Grant
Price
|
|
Outstanding, beginning
|
|
|
153,316
|
|
|
$
|
5.92
|
|
|
|
96,688
|
|
|
$
|
13.40
|
|
Granted
|
|
|
693,214
|
|
|
|
1.18
|
|
|
|
97,197
|
|
|
|
1.74
|
|
Vested
|
|
|
(22,113
|
)
|
|
|
12.19
|
|
|
|
(27,362
|
)
|
|
|
13.04
|
|
Forfeited
|
|
|
(31,322
|
)
|
|
|
6.84
|
|
|
|
(13,207
|
)
|
|
|
15.22
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding, ending
|
|
|
793,095
|
|
|
$
|
1.57
|
|
|
|
153,316
|
|
|
$
|
5.92
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
32
The following table summarizes unvested share activity as of and for the periods indicated for
the Non-Employee Directors Stock Ownership Incentive Plan:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine Months Ended
September 30, 2013
|
|
|
Twelve Months Ended
December 31, 2012
|
|
|
|
Shares
|
|
|
Weighted
Average
Grant
Price
|
|
|
Shares
|
|
|
Weighted
Average
Grant
Price
|
|
Outstanding, beginning
|
|
|
80,078
|
|
|
$
|
1.77
|
|
|
|
3,538
|
|
|
$
|
7.91
|
|
Granted
|
|
|
182,355
|
|
|
|
0.85
|
|
|
|
93,943
|
|
|
|
1.65
|
|
Vested
|
|
|
(16,524
|
)
|
|
|
2.02
|
|
|
|
(17,403
|
)
|
|
|
2.37
|
|
Forfeited
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding, ending
|
|
|
245,909
|
|
|
$
|
1.07
|
|
|
|
80,078
|
|
|
$
|
1.77
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of September 30, 2013, all stock options issued to non-employee directors had expired and none were
exercised during their grant term. The Companys stock-based incentive awards have exclusively been restricted stock grants since 2008.
The
following table summarizes stock option activity:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine Months Ended
September 30, 2013
|
|
|
Twelve Months Ended
December 31, 2012
|
|
|
|
Shares
|
|
|
Weighted
Average
Exercise
Price
|
|
|
Shares
|
|
|
Weighted
Average
Exercise
Price
|
|
Outstanding, beginning
|
|
|
|
|
|
$
|
|
|
|
|
29,530
|
|
|
$
|
19.88
|
|
Forfeited
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Expired
|
|
|
|
|
|
|
|
|
|
|
(29,530
|
)
|
|
|
19.88
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding, ending
|
|
|
|
|
|
$
|
|
|
|
|
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
No options were issued, outstanding, or exercised during the first nine months of 2013. The Company
recorded no stock option compensation expense during the nine months ended September 30, 2013. No options were modified during the period. As of September 30, 2013, no stock options issued by the Company had been exercised, and
all granted options had expired.
Unrecognized stock based compensation expense related to unvested shares for the remainder of 2013 and
beyond is estimated as follows (in thousands):
|
|
|
|
|
October 2013 December 2013
|
|
$
|
216
|
|
2014
|
|
|
522
|
|
2015
|
|
|
397
|
|
2016
|
|
|
240
|
|
2017 & thereafter
|
|
|
41
|
|
33
Note 11 Earnings (Loss) per Share
The factors used in the basic and diluted earnings per share computations follow:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
September 30,
|
|
|
Nine Months Ended
September 30,
|
|
|
|
2013
|
|
|
2012
|
|
|
2013
|
|
|
2012
|
|
|
|
(in thousands, except share and per share data)
|
|
Net income (loss)
|
|
$
|
298
|
|
|
$
|
(27,732
|
)
|
|
$
|
(1,080
|
)
|
|
$
|
(26,079
|
)
|
Less:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Preferred stock dividends
|
|
|
437
|
|
|
|
437
|
|
|
|
1,311
|
|
|
|
1,312
|
|
Accretion of Series A preferred stock discount
|
|
|
45
|
|
|
|
44
|
|
|
|
135
|
|
|
|
134
|
|
Earnings (loss) allocated to unvested shares
|
|
|
(11
|
)
|
|
|
(501
|
)
|
|
|
(107
|
)
|
|
|
(345
|
)
|
Earnings (loss) allocated to Series C preferred
|
|
|
(5
|
)
|
|
|
(763
|
)
|
|
|
(67
|
)
|
|
|
(750
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) allocated to common shareholders, basic and diluted
|
|
$
|
(168
|
)
|
|
$
|
(26,949
|
)
|
|
$
|
(2,352
|
)
|
|
$
|
(26,430
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average common shares including unvested common shares outstanding
|
|
|
12,702,627
|
|
|
|
12,303,217
|
|
|
|
12,569,514
|
|
|
|
12,219,035
|
|
Less: Weighted average unvested common shares
|
|
|
776,774
|
|
|
|
218,505
|
|
|
|
535,224
|
|
|
|
153,306
|
|
Less: Weighted average Series C preferred
|
|
|
332,894
|
|
|
|
332,894
|
|
|
|
332,894
|
|
|
|
332,894
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average common shares outstanding
|
|
|
11,592,959
|
|
|
|
11,751,818
|
|
|
|
11,701,396
|
|
|
|
11,732,835
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic earnings (loss) per common share
|
|
$
|
(0.01
|
)
|
|
$
|
(2.29
|
)
|
|
$
|
(0.20
|
)
|
|
$
|
(2.25
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Add: Dilutive effects of assumed exercises of common and Preferred Series C stock warrants
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average common shares and potential common shares
|
|
|
11,592,959
|
|
|
|
11,751,818
|
|
|
|
11,701,396
|
|
|
|
11,732,835
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted earnings (loss) per common share
|
|
$
|
(0.01
|
)
|
|
$
|
(2.29
|
)
|
|
$
|
(0.20
|
)
|
|
$
|
(2.25
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The Company had no outstanding stock options at September 30, 2013. A warrant for the purchase of
330,561 shares of the Companys common stock at an exercise price of $15.88 was outstanding at September 30, 2013 and 2012 but was not included in the diluted EPS computation as inclusion would have been anti-dilutive. Additionally,
warrants for the purchase of 1,449,459 shares of non-voting common stock at an exercise price of $11.50 per share were outstanding at September 30, 2013 and 2012, but were not included in the diluted EPS computation as inclusion would have been
anti-dilutive.
Note 12 Capital Requirements and Restrictions on Retained Earnings
Banks and bank holding companies are subject to regulatory capital requirements administered by federal banking agencies.
Capital adequacy guidelines and, additionally for banks, prompt corrective action regulations involve quantitative measures of assets, liabilities, and certain off-balance-sheet items calculated under regulatory accounting practices. Capital amounts
and classifications are also subject to qualitative judgments by regulators. Failure to meet capital requirements can result in regulatory action.
On June 24, 2011, PBI Bank entered into a Consent Order with the FDIC and the Kentucky Department of Financial Institutions. The
consent order required the Bank to complete a management study, to maintain Tier 1 capital as a percentage of total assets of at least 9% and a total risk based capital ratio of at least 12%, to develop a plan to reduce our risk position in each
substandard asset in excess of $1 million, to complete board review of the adequacy of the allowance for loan losses prior to quarterly Call Report submissions, to adopt procedures which strengthen the loan review function and ensure timely and
accurate grading of credit relationships, to charge-off all assets classified as loss, to develop a plan to reduce concentrations of construction and development loans to not more than 75% of total risk based capital and non-owner occupied
commercial real estate loans to not more than 250% of total risk based capital, to limit asset growth to no more than 5% in any quarter or 10% annually, to not extend additional credit to any borrower classified substandard without specific advance
board authorization, and to not declare or pay any dividend without the prior consent of our regulators. We are also restricted from accepting, renewing, or rolling-over brokered deposits without the prior receipt of a waiver on a case-by-case
basis from our regulators.
34
On September 21, 2011, we entered into a Written Agreement with the Federal Reserve Bank of
St. Louis. Pursuant to the Agreement, we made formal commitments to use our financial and management resources to serve as a source of strength for the Bank and to assist the Bank in addressing weaknesses identified by the FDIC and the KDFI, to
pay no dividends without prior written approval, to pay no interest or principal on subordinated debentures or trust preferred securities without prior written approval, and to submit an acceptable plan to maintain sufficient capital.
In October 2012, PBI Bank entered into a new consent order with the FDIC and KDFI. The new consent order requires the Bank to maintain a
minimum Tier 1 leverage ratio of 9% and a minimum total risk based capital ratio of 12%. The Bank also agreed if it should be unable to reach the required capital levels, and if directed in writing by the FDIC, then the Bank would within 30 days
develop, adopt and implement a written plan to sell or merge itself into another federally insured financial institution or otherwise immediately obtain a sufficient capital investment into the Bank to fully meet the capital requirements. We expect
to continue to work with our regulators toward capital ratio compliance as outlined in the written capital plan previously submitted by the Bank. The new consent order also requires the Bank to continue to adhere to the plans implemented in response
to the June 2011 consent order, and includes the substantive provisions of the June 2011 consent order.
The following table shows the
ratios of Tier 1 capital and total capital to risk-adjusted assets and the leverage ratios for Porter Bancorp, Inc. and PBI Bank at the dates indicated:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
September 30, 2013
|
|
|
December 31, 2012
|
|
|
|
Regulatory
Minimums
|
|
|
Well-Capitalized
Minimums
|
|
|
Minimum Capital
Ratios Under
Consent Order
|
|
|
Porter
Bancorp
|
|
|
PBI
Bank
|
|
|
Porter
Bancorp
|
|
|
PBI
Bank
|
|
Tier 1 Capital
|
|
|
4.0
|
%
|
|
|
6.0
|
%
|
|
|
N/A
|
|
|
|
7.19
|
%
|
|
|
8.94
|
%
|
|
|
6.46
|
%
|
|
|
7.71
|
%
|
Total risk-based capital
|
|
|
8.0
|
|
|
|
10.0
|
|
|
|
12.0
|
%
|
|
|
10.78
|
|
|
|
11.04
|
|
|
|
9.81
|
|
|
|
9.82
|
|
Tier 1 leverage ratio
|
|
|
4.0
|
|
|
|
5.0
|
|
|
|
9.0
|
|
|
|
5.15
|
|
|
|
6.40
|
|
|
|
4.50
|
|
|
|
5.37
|
|
At September 30, 2013, PBI Banks Tier 1 leverage ratio was 6.40%, and its total risk-based capital
ratio was 11.04%, both of which are below the minimum capital ratios required by the Consent Order. Failure to meet minimum capital requirements could result in additional discretionary actions by regulators that, if undertaken, could have a
materially adverse effect on our financial condition.
Kentucky banking laws limit the amount of dividends that may be paid to a holding
company by its subsidiary banks without prior approval. These laws limit the amount of dividends that may be paid in any calendar year to current years net income, as defined in the laws, combined with the retained net income of the preceding
two years, less any dividends declared during those periods. PBI Bank has agreed with its primary regulators to obtain their written consent prior to declaring or paying any future dividends. As a practical matter, PBI Bank cannot pay dividends to
Porter Bancorp for the foreseeable future.
Note 13 Contingencies
In the normal course of operations, we are defendants in various legal proceedings. Litigation is subject to inherent
uncertainties and unfavorable rulings could occur. We record contingent liabilities resulting from claims against us when a loss is assessed to be probable and the amount of the loss is reasonably estimable. Assessing probability of loss and
estimating probable losses requires analysis of multiple factors, including in some cases judgments about the potential actions of third party claimants and courts. Recorded contingent liabilities are based on the best information available and
actual losses in any future period are inherently uncertain. Currently, we have accrued approximately $1.8 million related to ongoing litigation matters for which we believe liability is probable and reasonably estimable. Accruals are not made
in cases where liability is not probable or the amount cannot be reasonably estimated. We provide disclosure of matters where we believe liability is reasonably possible and which may be material to our consolidated financial statements.
Signature Point Litigation.
As disclosed previously, on June 18, 2010, three real estate development companies filed suit
in Kentucky state court against PBI Bank and Managed Assets of Kentucky (MAKY).
Signature Point Condominiums LLC, et al. v. PBI Bank, et al
., Jefferson Circuit Court, Case No 10-CI-04295. On July 16, 2013, a jury in
Louisville, Kentucky returned a verdict against PBI Bank, awarding the plaintiffs compensatory damages of $1,515,000 and punitive damages of $5,500,000. The case arose from a settlement in which PBI Bank agreed to release the plaintiffs and
guarantors from obligations of more than $26 million related to a real estate project in Louisville. The plaintiffs were granted a right of first refusal to repurchase a tract of land within the project. In exchange, the plaintiffs conveyed the real
estate securing the loans to PBI Bank. After plaintiffs declined to exercise their right of first refusal, PBI Bank sold the tract to the third party. Plaintiffs alleged the Bank had knowledge of the third party offer before the conveyance of the
land by the Plaintiffs to the Bank. Plaintiffs asserted claims of fraud, breach of fiduciary duty, breach of the duty of good faith and fair dealing, tortious interference with prospective business advantage and conspiracy to commit fraud,
negligence, and conspiracy against PBI Bank.
35
After conferring with its legal advisors, PBI Bank believes the findings and damages are
excessive and contrary to law, and that it has meritorious grounds on which it is moving forward to appeal. We will continue to defend this matter vigorously. Although we have made provisions in our condensed consolidated financial statements for
this self-insured matter, the amount of our legal reserve is less than the original amount of the damages awarded, plus accrued interest. The ultimate outcome of this matter could have a material adverse effect on our financial condition, results of
operations or cash flows.
SBAV LP Litigation.
In 2010, the Company sold common shares, convertible preferred shares and
warrants to purchase common shares to accredited investors for $32 million in a private placement. In the placement, SBAV LP, an affiliate of Clinton Group, Inc. (CGI) purchased common shares and warrants for $5,000,016.
On July 11, 2011, CGI sent a letter to the Company, which was also attached as an exhibit to a Schedule 13D CGI filed with the Securities
and Exchange Commission on the same date. In its letter CGI questioned the Companys executive leadership teams ability to properly manage the Banks operations, compliance with GAAP, financial disclosures and relationships with
regulators, referencing the consent order PBI Bank entered into with the Federal Deposit Insurance Corporation and the Commonwealth of Kentucky Department of Financial Institutions on June 24, 2011. CGI also stated its belief that it
is likely that a number of representations and warranties made when the CGI affiliate entered into an agreement to purchase shares were false, and demanded that the Company take immediate steps to redress such breaches and make CGI and
the other purchasers whole.
During the third quarter of 2011, the Companys Risk Policy and Oversight Committee, comprised of
independent directors, undertook an investigation of the allegations raised in the CGI 13D to evaluate their merit and to ascertain the reasonableness of the Banks allowance for loan losses and OREO valuations at the time of Clintons
investment. The Oversight Committee reported its conclusions to the Companys Board of Directors in October 2011. While recognizing that opportunities for procedural improvements existed in the Banks lending and non-performing asset
administration, the Oversight Committee concluded that this did not rise to a level that would result in the financial statements, or representations and warranties with respect to the financial statements, being misleading to investors in the
2010 private placement offering of the Companys stock. The Oversight Committee further concluded investors were afforded ample opportunity and access to information for their due diligence, including documentation involving asset
valuation estimates, on-site management discussions and additional inquiries during visits to the Company headquarters, and access to loan files of their choosing and the appraisals contained therein, and the Companys disclosures were adequate
in all material respects.
On January 30, 2012, CGI delivered a demand to inspect the Companys records pursuant to the Kentucky
Business Corporation Act. The Company provided records to CGI in accordance with Kentucky law.
On December 17, 2012, SBAV LP filed a
lawsuit against Porter Bancorp, PBI Bank, J. Chester Porter and Maria L. Bouvette in New York state court. The proceeding was removed to New York federal district court on January 16, 2013.
SBAV LP v. Porter Bancorp, et. al
., Civ. Action
1:13-CV-0372 (S.D.N.Y). The complaint alleges violation of the Kentucky Securities Act, negligent misrepresentation and, against defendants Porter Bancorp and Bouvette, breach of contract. The plaintiff seeks damages in an amount in excess of
$4,500,000, or the difference between the $5,000,016 purchase price and the value of the securities when sold by the plaintiff, plus interest at the applicable statutory rate, costs and reasonable attorneys fees. On July 10, 2013, the New
York federal district court granted the defendants motion to transfer the case to federal district court in Kentucky.
SBAV LP v. Porter Bancorp, et. al
., Civ. Action 3:13-CV-710 (W.D.Ky). We dispute the material factual allegations made
in the complaint and intend to defend the plaintiffs claims vigorously. We have not accrued liability related to this matter as we believe we have meritorious defenses.
Miller Health Systems Inc. Employee Stock Ownership Plan Regulatory Review.
From 2007 until the first quarter of 2013, PBI Bank
served as trustee for certain Employee Stock Ownership Plan (ESOP) purchase transactions. These transactions are subject to regular and routine reviews by the United States Department of Labor (DOL) for compliance with ERISA. Failure to
fulfill our fiduciary duties under ERISA with respect to any such plan would subject us to certain financial risks such as claims for damages as well as fines and penalties assessable under ERISA.
In 2007, we served as Trustee in the Miller Health Systems, Inc. ESOP transaction. This transaction is under review by the United States
Department of Labor (DOL) for compliance with ERISA. The DOL has alleged apparent violations of ERISA in this transaction. While there is no litigation at this time, the ultimate outcome of this matter could have a material adverse effect
on our financial condition, results of operations or cash flows. We have not recorded accruals for this matter as we believe we fulfilled our fiduciary duties under ERISA and that liability is not probable nor can the amount be reasonably
estimated.
36