The following consolidated financial statements of Porter Bancorp, Inc. and subsidiary, PBI Bank, Inc. are submitted:
Unaudited Consolidated Balance Sheets for June 30, 2014 and December 31, 2013
Unaudited Consolidated Statements of Operations for the three and six months ended June 30, 2014 and 2013
Unaudited Consolidated Statements of Comprehensive Income (Loss) for the three and six months ended June 30, 2014 and 2013
Unaudited Consolidated Statement of Changes in Stockholders Equity for the six months ended June 30, 2014
Unaudited Consolidated Statements of Cash Flows for the six months ended June 30, 2014 and 2013
Notes to Unaudited Consolidated Financial Statements
3
PORTER BANCORP, INC.
Unaudited Consolidated Balance Sheets
(dollars in thousands except share data)
|
|
|
|
|
|
|
|
|
|
|
June 30,
2014
|
|
|
December 31,
2013
|
|
Assets
|
|
|
|
|
|
|
|
|
Cash and due from financial institutions
|
|
$
|
101,078
|
|
|
$
|
109,407
|
|
Federal funds sold
|
|
|
1,188
|
|
|
|
1,727
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
|
102,266
|
|
|
|
111,134
|
|
Securities available for sale
|
|
|
180,723
|
|
|
|
163,344
|
|
Securities held to maturity (fair value of $44,853 and $42,947, respectively)
|
|
|
43,488
|
|
|
|
43,612
|
|
Mortgage loans held for sale
|
|
|
280
|
|
|
|
149
|
|
Loans, net of allowance of $24,026 and $28,124, respectively
|
|
|
619,004
|
|
|
|
681,202
|
|
Premises and equipment
|
|
|
19,788
|
|
|
|
19,983
|
|
Other real estate owned
|
|
|
62,935
|
|
|
|
30,892
|
|
Federal Home Loan Bank stock
|
|
|
7,323
|
|
|
|
10,072
|
|
Bank owned life insurance
|
|
|
9,039
|
|
|
|
8,911
|
|
Accrued interest receivable and other assets
|
|
|
7,181
|
|
|
|
6,822
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
$
|
1,052,027
|
|
|
$
|
1,076,121
|
|
|
|
|
|
|
|
|
|
|
Liabilities and Stockholders Equity
|
|
|
|
|
|
|
|
|
Deposits
|
|
|
|
|
|
|
|
|
Non-interest bearing
|
|
$
|
109,956
|
|
|
$
|
107,486
|
|
Interest bearing
|
|
|
840,859
|
|
|
|
880,219
|
|
|
|
|
|
|
|
|
|
|
Total deposits
|
|
|
950,815
|
|
|
|
987,705
|
|
Repurchase agreements
|
|
|
2,451
|
|
|
|
2,470
|
|
Federal Home Loan Bank advances
|
|
|
14,134
|
|
|
|
4,492
|
|
Accrued interest payable and other liabilities
|
|
|
16,453
|
|
|
|
14,673
|
|
Subordinated capital note
|
|
|
5,400
|
|
|
|
5,850
|
|
Junior subordinated debentures
|
|
|
25,000
|
|
|
|
25,000
|
|
|
|
|
|
|
|
|
|
|
Total liabilities
|
|
|
1,014,253
|
|
|
|
1,040,190
|
|
Stockholders equity
|
|
|
|
|
|
|
|
|
Preferred stock, no par, 1,000,000 shares authorized,
|
|
|
|
|
|
|
|
|
Series A 35,000 issued and outstanding;
|
|
|
|
|
|
|
|
|
Liquidation preference of $35.0 million at June 30, 2014 and December 31, 2013
|
|
|
35,000
|
|
|
|
35,000
|
|
Series C 317,042 issued and outstanding;
|
|
|
|
|
|
|
|
|
Liquidation preference of $3.6 million at June 30, 2014 and December 31, 2013
|
|
|
3,283
|
|
|
|
3,283
|
|
|
|
|
|
|
|
|
|
|
Total preferred stockholders equity
|
|
|
38,283
|
|
|
|
38,283
|
|
|
|
|
|
|
|
|
|
|
Common stock, no par, 86,000,000 shares authorized, 13,104,853 and 12,840,999 shares issued and outstanding, respectively
|
|
|
112,236
|
|
|
|
112,236
|
|
Additional paid-in capital
|
|
|
21,170
|
|
|
|
20,887
|
|
Retained deficit
|
|
|
(132,000
|
)
|
|
|
(130,182
|
)
|
Accumulated other comprehensive loss
|
|
|
(1,915
|
)
|
|
|
(5,293
|
)
|
|
|
|
|
|
|
|
|
|
Total common stockholders deficit
|
|
|
(509
|
)
|
|
|
(2,352
|
)
|
|
|
|
|
|
|
|
|
|
Total stockholders equity
|
|
|
37,774
|
|
|
|
35,931
|
|
|
|
|
|
|
|
|
|
|
Total liabilities and stockholders equity
|
|
$
|
1,052,027
|
|
|
$
|
1,076,121
|
|
|
|
|
|
|
|
|
|
|
See accompanying notes to unaudited consolidated financial statements.
4
PORTER BANCORP, INC.
Unaudited Consolidated Statements of Operations
(dollars in thousands, except per share data)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
June 30,
|
|
|
Six Months Ended
June 30,
|
|
|
|
2014
|
|
|
2013
|
|
|
2014
|
|
|
2013
|
|
Interest income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loans, including fees
|
|
$
|
8,572
|
|
|
$
|
9,954
|
|
|
$
|
16,893
|
|
|
$
|
19,987
|
|
Taxable securities
|
|
|
1,215
|
|
|
|
848
|
|
|
|
2,388
|
|
|
|
1,715
|
|
Tax exempt securities
|
|
|
235
|
|
|
|
231
|
|
|
|
476
|
|
|
|
452
|
|
Fed funds sold and other
|
|
|
144
|
|
|
|
135
|
|
|
|
306
|
|
|
|
272
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
10,166
|
|
|
|
11,168
|
|
|
|
20,063
|
|
|
|
22,426
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense
|
|
|
|
|
|
|
|
|
|
|
|
|
Deposits
|
|
|
2,319
|
|
|
|
2,560
|
|
|
|
4,680
|
|
|
|
5,264
|
|
Federal Home Loan Bank advances
|
|
|
32
|
|
|
|
41
|
|
|
|
65
|
|
|
|
84
|
|
Subordinated capital note
|
|
|
47
|
|
|
|
56
|
|
|
|
97
|
|
|
|
114
|
|
Junior subordinated debentures
|
|
|
153
|
|
|
|
157
|
|
|
|
305
|
|
|
|
311
|
|
Federal funds purchased and other
|
|
|
1
|
|
|
|
2
|
|
|
|
2
|
|
|
|
3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,552
|
|
|
|
2,816
|
|
|
|
5,149
|
|
|
|
5,776
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net interest income
|
|
|
7,614
|
|
|
|
8,352
|
|
|
|
14,914
|
|
|
|
16,650
|
|
Provision for loan losses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
450
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net interest income after provision for loan losses
|
|
|
7,614
|
|
|
|
8,352
|
|
|
|
14,914
|
|
|
|
16,200
|
|
Non-interest income
|
|
|
|
|
|
|
|
|
|
|
|
|
Service charges on deposit accounts
|
|
|
487
|
|
|
|
506
|
|
|
|
955
|
|
|
|
999
|
|
Income from fiduciary activities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
517
|
|
Bank card interchange fees
|
|
|
205
|
|
|
|
196
|
|
|
|
366
|
|
|
|
368
|
|
Other real estate owned rental income
|
|
|
18
|
|
|
|
230
|
|
|
|
25
|
|
|
|
342
|
|
Net gain on sales of securities
|
|
|
2
|
|
|
|
703
|
|
|
|
46
|
|
|
|
703
|
|
Income from bank owned life insurance
|
|
|
62
|
|
|
|
305
|
|
|
|
138
|
|
|
|
384
|
|
Other
|
|
|
175
|
|
|
|
208
|
|
|
|
334
|
|
|
|
482
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
949
|
|
|
|
2,148
|
|
|
|
1,864
|
|
|
|
3,795
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-interest expense
|
|
|
|
|
|
|
|
|
|
|
|
|
Salaries and employee benefits
|
|
|
3,949
|
|
|
|
3,999
|
|
|
|
7,690
|
|
|
|
8,138
|
|
Occupancy and equipment
|
|
|
896
|
|
|
|
913
|
|
|
|
1,788
|
|
|
|
1,844
|
|
Loan collection expense
|
|
|
389
|
|
|
|
2,407
|
|
|
|
928
|
|
|
|
3,442
|
|
Other real estate owned expense
|
|
|
774
|
|
|
|
1,657
|
|
|
|
1,436
|
|
|
|
2,448
|
|
FDIC Insurance
|
|
|
571
|
|
|
|
650
|
|
|
|
1,111
|
|
|
|
1,289
|
|
State franchise tax
|
|
|
405
|
|
|
|
537
|
|
|
|
830
|
|
|
|
1,074
|
|
Professional fees
|
|
|
764
|
|
|
|
499
|
|
|
|
1,322
|
|
|
|
905
|
|
Communications
|
|
|
165
|
|
|
|
179
|
|
|
|
400
|
|
|
|
354
|
|
Insurance expense
|
|
|
153
|
|
|
|
160
|
|
|
|
302
|
|
|
|
311
|
|
Postage and delivery
|
|
|
94
|
|
|
|
102
|
|
|
|
204
|
|
|
|
215
|
|
Other
|
|
|
784
|
|
|
|
706
|
|
|
|
1,435
|
|
|
|
1,353
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
8,944
|
|
|
|
11,809
|
|
|
|
17,446
|
|
|
|
21,373
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss before income taxes
|
|
|
(381
|
)
|
|
|
(1,309
|
)
|
|
|
(668
|
)
|
|
|
(1,378
|
)
|
Income tax benefit
|
|
|
(424
|
)
|
|
|
|
|
|
|
(424
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss)
|
|
|
43
|
|
|
|
(1,309
|
)
|
|
|
(244
|
)
|
|
|
(1,378
|
)
|
Less:
|
|
|
|
|
|
|
|
|
|
|
|
|
Dividends on preferred stock
|
|
|
789
|
|
|
|
437
|
|
|
|
1,574
|
|
|
|
875
|
|
Accretion on Series A preferred stock
|
|
|
|
|
|
|
45
|
|
|
|
|
|
|
|
90
|
|
Earnings allocated to participating securities
|
|
|
(74
|
)
|
|
|
(110
|
)
|
|
|
(173
|
)
|
|
|
(131
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss attributable to common shareholders
|
|
$
|
(672
|
)
|
|
$
|
(1,681
|
)
|
|
$
|
(1,645
|
)
|
|
$
|
(2,212
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic and diluted loss per common share
|
|
$
|
(0.06
|
)
|
|
$
|
(0.14
|
)
|
|
$
|
(0.14
|
)
|
|
$
|
(0.19
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See accompanying notes to unaudited consolidated financial statements.
5
PORTER BANCORP, INC.
Unaudited Consolidated Statements of Comprehensive Income (Loss)
(in thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months
Ended
June 30,
|
|
|
Six Months Ended
June 30,
|
|
|
|
2014
|
|
|
2013
|
|
|
2014
|
|
|
2013
|
|
Net income (loss)
|
|
$
|
43
|
|
|
$
|
(1,309
|
)
|
|
$
|
(244
|
)
|
|
$
|
(1,378
|
)
|
Other comprehensive income (loss):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unrealized gain (loss) on securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unrealized gain (loss) arising during the period
|
|
|
2,411
|
|
|
|
(7,066
|
)
|
|
|
4,000
|
|
|
|
(7,114
|
)
|
Reclassification of amount realized through sales
|
|
|
2
|
|
|
|
703
|
|
|
|
46
|
|
|
|
703
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net unrealized gain/(loss) recognized in comprehensive income
|
|
|
2,413
|
|
|
|
(6,363
|
)
|
|
|
4,046
|
|
|
|
(6,411
|
)
|
Tax effect
|
|
|
(424
|
)
|
|
|
|
|
|
|
(424
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other comprehensive income (loss)
|
|
|
1,989
|
|
|
|
(6,363
|
)
|
|
|
3,622
|
|
|
|
(6,411
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive income (loss)
|
|
$
|
2,032
|
|
|
$
|
(7,672
|
)
|
|
$
|
3,378
|
|
|
$
|
(7,789
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See accompanying notes to unaudited consolidated financial statements.
6
PORTER BANCORP, INC.
Unaudited Consolidated Statement of Changes in Stockholders Equity
For Six Months Ended June 30, 2014
(dollars in thousands, except share and per share data)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated
Other
Comprehensive
Loss
|
|
|
|
|
|
|
Shares
|
|
|
Amount
|
|
|
Additional
Paid-In
Capital
|
|
|
|
|
|
|
|
|
|
|
Common
|
|
|
Series A
Preferred
|
|
|
Series C
Preferred
|
|
|
Common
|
|
|
Series A
Preferred
|
|
|
Series C
Preferred
|
|
|
|
Retained
Deficit
|
|
|
|
Total
|
|
Balances, January 1, 2014
|
|
|
12,840,999
|
|
|
|
35,000
|
|
|
|
317,042
|
|
|
$
|
112,236
|
|
|
$
|
35,000
|
|
|
$
|
3,283
|
|
|
$
|
20,887
|
|
|
$
|
(130,182
|
)
|
|
$
|
(5,293
|
)
|
|
$
|
35,931
|
|
Issuance of unvested stock
|
|
|
288,888
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Forfeited unvested stock
|
|
|
(25,034
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock-based compensation expense
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
283
|
|
|
|
|
|
|
|
|
|
|
|
283
|
|
Net loss
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(244
|
)
|
|
|
|
|
|
|
(244
|
)
|
Net change in accumulated other comprehensive loss, net of taxes
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3,378
|
|
|
|
3,378
|
|
Dividends accrued on Series A preferred stock
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1,574
|
)
|
|
|
|
|
|
|
(1,574
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balances, June 30, 2014
|
|
|
13,104,853
|
|
|
|
35,000
|
|
|
|
317,042
|
|
|
$
|
112,236
|
|
|
$
|
35,000
|
|
|
$
|
3,283
|
|
|
$
|
21,170
|
|
|
$
|
(132,000
|
)
|
|
$
|
(1,915
|
)
|
|
$
|
37,774
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See accompanying notes to unaudited consolidated financial statements.
7
PORTER BANCORP, INC.
Unaudited Consolidated Statements of Cash Flows
For Six Months Ended June 30, 2014 and 2013
(dollars in thousands)
|
|
|
|
|
|
|
|
|
|
|
2014
|
|
|
2013
|
|
Cash flows from operating activities
|
|
|
|
|
|
|
|
|
Net loss
|
|
$
|
(244
|
)
|
|
$
|
(1,378
|
)
|
Adjustments to reconcile net loss to net cash from operating activities
|
|
|
|
|
|
|
|
|
Depreciation and amortization
|
|
|
852
|
|
|
|
1,042
|
|
Provision for loan losses
|
|
|
|
|
|
|
450
|
|
Net amortization on securities
|
|
|
773
|
|
|
|
1,185
|
|
Stock-based compensation expense
|
|
|
283
|
|
|
|
226
|
|
Tax benefit from OCI components
|
|
|
(424
|
)
|
|
|
|
|
Net gain on loans originated for sale
|
|
|
(34
|
)
|
|
|
(66
|
)
|
Loans originated for sale
|
|
|
(1,574
|
)
|
|
|
(2,095
|
)
|
Proceeds from sales of loans originated for sale
|
|
|
1,477
|
|
|
|
2,524
|
|
Net gain on sales of investment securities
|
|
|
(46
|
)
|
|
|
(703
|
)
|
Net (gain) loss on sales of other real estate owned
|
|
|
(54
|
)
|
|
|
359
|
|
Net write-down of other real estate owned
|
|
|
650
|
|
|
|
1,284
|
|
Earnings on bank owned life insurance, net of premium expense
|
|
|
(128
|
)
|
|
|
(374
|
)
|
Net change in accrued interest receivable and other assets
|
|
|
(588
|
)
|
|
|
1,095
|
|
Net change in accrued interest payable and other liabilities
|
|
|
205
|
|
|
|
1,666
|
|
|
|
|
|
|
|
|
|
|
Net cash from operating activities
|
|
|
1,148
|
|
|
|
5,215
|
|
|
|
|
|
|
|
|
|
|
Cash flows from investing activities
|
|
|
|
|
|
|
|
|
Purchases of available for sale securities
|
|
|
(21,990
|
)
|
|
|
(24,929
|
)
|
Sales and calls of available for sale securities
|
|
|
1,004
|
|
|
|
1,908
|
|
Maturities and prepayments of available for sale securities
|
|
|
6,804
|
|
|
|
17,661
|
|
Proceeds from sale of other real estate owned
|
|
|
4,281
|
|
|
|
10,538
|
|
Proceeds from mandatory redemption of Federal Home Loan Bank stock
|
|
|
2,749
|
|
|
|
|
|
Loan originations and payments, net
|
|
|
25,137
|
|
|
|
89,045
|
|
Purchases of premises and equipment, net
|
|
|
(284
|
)
|
|
|
(141
|
)
|
|
|
|
|
|
|
|
|
|
Net cash from investing activities
|
|
|
17,701
|
|
|
|
94,082
|
|
|
|
|
|
|
|
|
|
|
Cash flows from financing activities
|
|
|
|
|
|
|
|
|
Net change in deposits
|
|
|
(36,890
|
)
|
|
|
(84,223
|
)
|
Net change in repurchase agreements
|
|
|
(19
|
)
|
|
|
658
|
|
Advances from Federal Home Loan Bank
|
|
|
10,000
|
|
|
|
|
|
Repayment of Federal Home Loan Bank advances
|
|
|
(358
|
)
|
|
|
(588
|
)
|
Repayment of subordinated capital note
|
|
|
(450
|
)
|
|
|
(450
|
)
|
|
|
|
|
|
|
|
|
|
Net cash from financing activities
|
|
|
(27,717
|
)
|
|
|
(84,603
|
)
|
|
|
|
|
|
|
|
|
|
Net change in cash and cash equivalents
|
|
|
(8,868
|
)
|
|
|
14,694
|
|
Beginning cash and cash equivalents
|
|
|
111,134
|
|
|
|
49,572
|
|
|
|
|
|
|
|
|
|
|
Ending cash and cash equivalents
|
|
$
|
102,266
|
|
|
$
|
64,266
|
|
|
|
|
|
|
|
|
|
|
Supplemental cash flow information:
|
|
|
|
|
|
|
|
|
Interest paid
|
|
$
|
4,872
|
|
|
$
|
5,603
|
|
Income taxes paid (refunded)
|
|
|
|
|
|
|
|
|
Supplemental non-cash disclosure:
|
|
|
|
|
|
|
|
|
Transfer from loans to other real estate
|
|
$
|
36,920
|
|
|
$
|
15,555
|
|
Financed sales of other real estate owned
|
|
|
|
|
|
|
15
|
|
See accompanying notes to unaudited consolidated financial statements.
8
PORTER BANCORP, INC.
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 the six months ended June 30, 2014 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, 2013 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 (loss) or stockholders equity.
Adoption of New Accounting Standards
In May 2014, FASB issued Accounting Standards Update 2014-09,
Revenue from Contracts
with Customers (Topic 606)
. The ASU creates a new topic, Topic 606, to provide guidance on revenue recognition for entities that enter into contracts with customers to transfer goods or services or enter into contracts for the transfer of
nonfinancial assets. The core principle of the guidance is that an entity should recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be
entitled in exchange for those goods or services. Additional disclosures are required to provide quantitative and qualitative information regarding the nature, amount, timing, and uncertainty of revenue and cash flows arising from contracts with
customers. The new guidance is effective for annual reporting periods, and interim reporting periods within those annual periods, beginning after December 15, 2016. Early adoption is not permitted. Management is currently evaluating the impact of
the adoption of this guidance on the Companys financial statements.
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 create substantial doubt about the Companys ability to continue as a going
concern.
During the first six months of 2014, we reported net loss attributable to common shareholders of $1.6 million, compared with net
loss attributable to common shareholders of $2.2 million for the first six months of 2013. The improvement in 2014 compared to 2013 is primarily attributable to reductions in non-interest expense, specifically loan collection expenses and OREO
expenses.
At June 30, 2014, we continued to be involved in various legal proceedings in which we dispute the material factual
allegations. After conferring with our legal advisors, we believe we have meritorious grounds on which to prevail. If we do not prevail, the ultimate outcome of any one of these matters could have a material adverse effect on our financial
condition, results of operations, or cash flows. These matters are more fully described in Note 13 Contingencies.
For
the year ended December 31, 2013, we reported a net loss to common shareholders of $3.4 million, compared to a net loss to common shareholders of $33.4 million for the year ended December 31, 2012. This loss coupled with the comprehensive
loss for the year reduced shareholders equity to $35.9 million, from $47.2 million at the end of 2012. This reduction was attributable primarily to OREO expense of $4.5 million resulting from fair value write-downs driven by new appraisals and
reduced marketing prices, net loss on sales, and ongoing operating expense, along with $4.7 million in loan collection expenses. The reduction was also attributable to a reduction in the fair value of securities of $8.4 million, net, as well as the
accrual of dividends and accretion to preferred shareholders of $2.1 million. 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.
In the fourth quarter of 2011, we began deferring interest payments on our junior subordinated notes, which resulted in a deferral of
distributions on our trust preferred securities. If we cannot pay all unpaid deferred distributions on our trust preferred securities for more than twenty consecutive quarters, we will be in default, and the holders of our trust preferred securities
would become entitled to payment of the full amount of outstanding principal plus accrued and unpaid interest. At June 30, 2014, cumulative accrued and unpaid interest on our junior subordinated notes totaled $1.9 million. Future cash dividends
on our common stock are subject to the prior payment of all deferred distributions on our trust preferred securities.
9
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.
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 June 30, 2014, 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.
|
|
|
|
Continuing to operate the Company and Bank in a safe and sound manner. This strategy may require us to reduce our lending concentrations,
remediate non-performing loans, reduce the size of our balance sheet, and reduce other noninterest expense through the disposition of OREO.
|
|
|
|
Management succession and adding resources to the management team. John T. Taylor became CEO of PBI Bank in 2012 and CEO of the Company in
2013. In addition, we appointed new executives to lead key functions of our banking operations. John R. Davis became Chief Credit Officer of PBI Bank in 2012, with responsibility for establishing and executing credit quality policies and
overseeing credit administration for the organization. We have also augmented our staffing in the commercial lending area, 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.
|
|
|
|
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 $643.0 million at June 30,
2014.
|
|
|
|
Our Consent Order calls for us to reduce our construction and development loans to not more than 75% of total risk-based capital. We have now been
in compliance for nine quarters. Construction and development loans totaled $32.8 million, or 39% of total risk-based capital, at June 30, 2014, down from $43.3 million, or 52% of total risk-based capital, at December 31, 2013.
|
|
|
|
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. We were also in compliance with this concentration limit at June 30, 2014. These loans totaled $199.8 million, or 241% of total risk-based
capital, at June 30, 2014 and $237.0 million, or 284% of total risk-based capital, at December 31, 2013.
|
|
|
|
We have reduced the construction loan portfolio from $199.5 million at December 31, 2010 to $32.8 million at June 30, 2014. Our
non-owner occupied commercial real estate loans declined from $293.3 million at December 31, 2010 to $123.5 million at June 30, 2014.
|
|
|
|
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 since 2010. The Bank acquired $20.6
million, $33.5 million, $41.9 million, and $90.8 million during 2013, 2012, 2011, and 2010, respectively. For the six months ended June 30, 2014, we acquired $36.9 million of OREO.
|
10
|
|
|
We have incurred significant losses in disposing of this real estate. We incurred losses totaling $2.6 million, $9.3 million, $42.8 million,
and $13.9 million in 2013, 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 six months
ended June 30, 2014, we incurred OREO losses totaling $596,000 comprised of $650,000 in fair value write-downs from declining values as evidenced by new appraisals and reduced marketing prices in connection with our sales strategies, offset by
$54,000 in net gain on sales of OREO.
|
|
|
|
To ensure we maximize the value we receive upon the sale of OREO, we continually evaluate sales opportunities. Proceeds from the sale of OREO
totaled $4.3 million during the six months ended June 30, 2014 and $30.8 million, $22.5 million, $26.0 million and $25.0 million during the years ended December 31, 2013, 2012, 2011, and 2010, respectively.
|
|
|
|
At December 31, 2013, the OREO portfolio consisted of 62% construction, development, and land assets. At June 30, 2014, this
concentration decreased to 35%; however, the balance increased from $19.2 million to $21.8 million. Commercial real estate represents 35% of the OREO portfolio at June 30, 2014 compared with 19% at December 31, 2013. 1-4 family
residential properties represent 18% of the OREO portfolio at June 30, 2014 compared with 16% at December 31, 2013, and multi-family properties represent 10% of the OREO portfolio at June 30, 2014, compared to 1% at December 31,
2013.
|
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.
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)
|
|
June 30, 2014
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Available for sale
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. Government and federal agency
|
|
$
|
30,231
|
|
|
$
|
324
|
|
|
$
|
(948
|
)
|
|
$
|
29,607
|
|
Agency mortgage-backed: residential
|
|
|
118,104
|
|
|
|
1,434
|
|
|
|
(701
|
)
|
|
|
118,837
|
|
State and municipal
|
|
|
11,830
|
|
|
|
738
|
|
|
|
(9
|
)
|
|
|
12,559
|
|
Corporate bonds
|
|
|
18,043
|
|
|
|
1,142
|
|
|
|
(116
|
)
|
|
|
19,069
|
|
Other debt securities
|
|
|
572
|
|
|
|
79
|
|
|
|
|
|
|
|
651
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total available for sale
|
|
$
|
178,780
|
|
|
$
|
3,717
|
|
|
$
|
(1,774
|
)
|
|
$
|
180,723
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Held to maturity
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
State and municipal
|
|
$
|
43,488
|
|
|
$
|
1,373
|
|
|
$
|
(8
|
)
|
|
$
|
44,853
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total held to maturity
|
|
$
|
43,488
|
|
|
$
|
1,373
|
|
|
$
|
(8
|
)
|
|
$
|
44,853
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2013
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Available for sale
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. Government and federal agency
|
|
$
|
31,026
|
|
|
$
|
284
|
|
|
$
|
(1,444
|
)
|
|
$
|
29,866
|
|
Agency mortgage-backed: residential
|
|
|
102,435
|
|
|
|
458
|
|
|
|
(1,950
|
)
|
|
|
100,943
|
|
State and municipal
|
|
|
12,965
|
|
|
|
608
|
|
|
|
(28
|
)
|
|
|
13,545
|
|
Corporate bonds
|
|
|
18,002
|
|
|
|
769
|
|
|
|
(610
|
)
|
|
|
18,161
|
|
Other debt securities
|
|
|
572
|
|
|
|
60
|
|
|
|
|
|
|
|
632
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total debt securities
|
|
|
165,000
|
|
|
|
2,179
|
|
|
|
(4,032
|
)
|
|
|
163,147
|
|
Equity
|
|
|
135
|
|
|
|
62
|
|
|
|
|
|
|
|
197
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total available for sale
|
|
$
|
165,135
|
|
|
$
|
2,241
|
|
|
$
|
(4,032
|
)
|
|
$
|
163,344
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Held to maturity
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
State and municipal
|
|
$
|
43,612
|
|
|
$
|
3
|
|
|
$
|
(668
|
)
|
|
$
|
42,947
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total held to maturity
|
|
$
|
43,612
|
|
|
$
|
3
|
|
|
$
|
(668
|
)
|
|
$
|
42,947
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
11
Sales and calls of available for sale securities were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months
Ended
June 30,
|
|
|
Six Months Ended
June 30,
|
|
|
|
2014
|
|
|
2013
|
|
|
2014
|
|
|
2013
|
|
|
|
(in thousands)
|
|
|
(in thousands)
|
|
Proceeds
|
|
$
|
675
|
|
|
$
|
1,908
|
|
|
$
|
1,004
|
|
|
$
|
1,908
|
|
Gross gains
|
|
|
2
|
|
|
|
704
|
|
|
|
46
|
|
|
|
704
|
|
Gross losses
|
|
|
|
|
|
|
1
|
|
|
|
|
|
|
|
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.
|
|
|
|
|
|
|
|
|
|
|
June 30, 2014
|
|
|
|
Amortized
Cost
|
|
|
Fair
Value
|
|
|
|
(in thousands)
|
|
Maturity
|
|
|
|
|
|
|
|
|
Available for sale
|
|
|
|
|
|
|
|
|
Within one year
|
|
$
|
15,616
|
|
|
$
|
15,948
|
|
One to five years
|
|
|
12,930
|
|
|
|
13,953
|
|
Five to ten years
|
|
|
31,558
|
|
|
|
31,334
|
|
Beyond ten years
|
|
|
572
|
|
|
|
651
|
|
Agency mortgage-backed: residential
|
|
|
118,104
|
|
|
|
118,837
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
178,780
|
|
|
$
|
180,723
|
|
|
|
|
|
|
|
|
|
|
Held to maturity
|
|
|
|
|
|
|
|
|
One to five years
|
|
$
|
5,649
|
|
|
$
|
5,755
|
|
Five to ten years
|
|
|
33,716
|
|
|
|
34,822
|
|
Beyond ten years
|
|
|
4,123
|
|
|
|
4,276
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
43,488
|
|
|
$
|
44,853
|
|
|
|
|
|
|
|
|
|
|
Securities pledged at June 30, 2014 and December 31, 2013 had carrying values of approximately $66.4
million and $84.2 million, respectively, and were pledged to secure public deposits and repurchase agreements.
12
Securities with unrealized losses at June 30, 2014 and December 31, 2013, 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)
|
|
June 30, 2014
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Available for sale
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. Government and federal agency
|
|
$
|
|
|
|
$
|
|
|
|
$
|
18,929
|
|
|
$
|
(948
|
)
|
|
$
|
18,929
|
|
|
$
|
(948
|
)
|
Agency mortgage-backed: residential
|
|
|
9,861
|
|
|
|
(33
|
)
|
|
|
32,822
|
|
|
|
(668
|
)
|
|
|
42,683
|
|
|
|
(701
|
)
|
State and municipal
|
|
|
|
|
|
|
|
|
|
|
476
|
|
|
|
(9
|
)
|
|
|
476
|
|
|
|
(9
|
)
|
Corporate bonds
|
|
|
2,388
|
|
|
|
(41
|
)
|
|
|
1,710
|
|
|
|
(75
|
)
|
|
|
4,098
|
|
|
|
(116
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total temporarily impaired
|
|
$
|
12,249
|
|
|
$
|
(74
|
)
|
|
$
|
53,937
|
|
|
$
|
(1,700
|
)
|
|
$
|
66,186
|
|
|
$
|
(1,774
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Held to maturity
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
State and municipal
|
|
$
|
1,111
|
|
|
$
|
(8
|
)
|
|
$
|
|
|
|
$
|
|
|
|
$
|
1,111
|
|
|
$
|
(8
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total temporarily impaired
|
|
$
|
1,111
|
|
|
$
|
(8
|
)
|
|
$
|
|
|
|
$
|
|
|
|
$
|
1,111
|
|
|
$
|
(8
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2013
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Available for sale
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. Government and federal agency
|
|
$
|
24,129
|
|
|
$
|
(1,444
|
)
|
|
$
|
|
|
|
$
|
|
|
|
$
|
24,129
|
|
|
$
|
(1,444
|
)
|
Agency mortgage-backed: residential
|
|
|
58,257
|
|
|
|
(1,672
|
)
|
|
|
10,344
|
|
|
|
(278
|
)
|
|
|
68,601
|
|
|
|
(1,950
|
)
|
State and municipal
|
|
|
458
|
|
|
|
(28
|
)
|
|
|
|
|
|
|
|
|
|
|
458
|
|
|
|
(28
|
)
|
Corporate bonds
|
|
|
11,313
|
|
|
|
(610
|
)
|
|
|
|
|
|
|
|
|
|
|
11,313
|
|
|
|
(610
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total temporarily impaired
|
|
$
|
94,157
|
|
|
$
|
(3,754
|
)
|
|
$
|
10,344
|
|
|
$
|
(278
|
)
|
|
$
|
104,501
|
|
|
$
|
(4,032
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Held to maturity
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
State and municipal
|
|
$
|
39,743
|
|
|
$
|
(654
|
)
|
|
$
|
1,031
|
|
|
$
|
(14
|
)
|
|
$
|
40,774
|
|
|
$
|
(668
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total temporarily impaired
|
|
$
|
39,743
|
|
|
$
|
(654
|
)
|
|
$
|
1,031
|
|
|
$
|
(14
|
)
|
|
$
|
40,774
|
|
|
$
|
(668
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The Company evaluates securities for other than temporary impairment (OTTI) on a quarterly
basis. 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 June 30, 2014, management does not believe securities within our portfolio
with unrealized losses should be classified as other than temporarily impaired.
Note 4 Loans
Loans were as follows:
|
|
|
|
|
|
|
|
|
|
|
June 30,
2014
|
|
|
December 31,
2013
|
|
|
|
(in thousands)
|
|
Commercial
|
|
$
|
65,031
|
|
|
$
|
52,878
|
|
Commercial Real Estate:
|
|
|
|
|
|
|
|
|
Construction
|
|
|
32,778
|
|
|
|
43,326
|
|
Farmland
|
|
|
64,880
|
|
|
|
71,189
|
|
Nonfarm nonresidential
|
|
|
190,909
|
|
|
|
232,026
|
|
Residential Real Estate:
|
|
|
|
|
|
|
|
|
Multi-family
|
|
|
43,496
|
|
|
|
46,858
|
|
1-4 Family
|
|
|
205,116
|
|
|
|
228,505
|
|
Consumer
|
|
|
12,669
|
|
|
|
14,365
|
|
Agriculture
|
|
|
27,477
|
|
|
|
19,199
|
|
Other
|
|
|
674
|
|
|
|
980
|
|
|
|
|
|
|
|
|
|
|
Subtotal
|
|
|
643,030
|
|
|
|
709,326
|
|
Less: Allowance for loan losses
|
|
|
(24,026
|
)
|
|
|
(28,124
|
)
|
|
|
|
|
|
|
|
|
|
Loans, net
|
|
$
|
619,004
|
|
|
$
|
681,202
|
|
|
|
|
|
|
|
|
|
|
13
The following table presents the activity in the allowance for loan losses by portfolio segment
for the three months ended June 30, 2014 and 2013:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial
|
|
|
Commercial
Real Estate
|
|
|
Residential
Real
Estate
|
|
|
Consumer
|
|
|
Agriculture
|
|
|
Other
|
|
|
Total
|
|
|
|
(in thousands)
|
|
June 30, 2014:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Beginning balance
|
|
$
|
3,608
|
|
|
$
|
13,929
|
|
|
$
|
7,071
|
|
|
$
|
383
|
|
|
$
|
415
|
|
|
$
|
9
|
|
|
$
|
25,415
|
|
Provision for loan losses
|
|
|
(329
|
)
|
|
|
(226
|
)
|
|
|
560
|
|
|
|
(28
|
)
|
|
|
38
|
|
|
|
(15
|
)
|
|
|
|
|
Loans charged off
|
|
|
(308
|
)
|
|
|
(1,701
|
)
|
|
|
(1,048
|
)
|
|
|
(51
|
)
|
|
|
(21
|
)
|
|
|
(1
|
)
|
|
|
(3,130
|
)
|
Recoveries
|
|
|
144
|
|
|
|
1,250
|
|
|
|
290
|
|
|
|
35
|
|
|
|
3
|
|
|
|
19
|
|
|
|
1,741
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ending balance
|
|
$
|
3,115
|
|
|
$
|
13,252
|
|
|
$
|
6,873
|
|
|
$
|
339
|
|
|
$
|
435
|
|
|
$
|
12
|
|
|
$
|
24,026
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30, 2013:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Beginning balance
|
|
$
|
4,990
|
|
|
$
|
22,169
|
|
|
$
|
11,540
|
|
|
$
|
716
|
|
|
$
|
410
|
|
|
$
|
14
|
|
|
$
|
39,839
|
|
Provision for loan losses
|
|
|
(805
|
)
|
|
|
321
|
|
|
|
360
|
|
|
|
(7
|
)
|
|
|
127
|
|
|
|
4
|
|
|
|
|
|
Loans charged off
|
|
|
(132
|
)
|
|
|
(1,866
|
)
|
|
|
(1,137
|
)
|
|
|
(203
|
)
|
|
|
(66
|
)
|
|
|
|
|
|
|
(3,404
|
)
|
Recoveries
|
|
|
595
|
|
|
|
398
|
|
|
|
27
|
|
|
|
88
|
|
|
|
16
|
|
|
|
|
|
|
|
1,124
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ending balance
|
|
$
|
4,648
|
|
|
$
|
21,022
|
|
|
$
|
10,790
|
|
|
$
|
594
|
|
|
$
|
487
|
|
|
$
|
18
|
|
|
$
|
37,559
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The following table presents the activity in the allowance for loan losses by portfolio segment for the six
months ended June 30, 2014 and 2013:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial
|
|
|
Commercial
Real Estate
|
|
|
Residential
Real
Estate
|
|
|
Consumer
|
|
|
Agriculture
|
|
|
Other
|
|
|
Total
|
|
|
|
(in thousands)
|
|
June 30, 2014:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Beginning balance
|
|
$
|
3,221
|
|
|
$
|
16,414
|
|
|
$
|
7,762
|
|
|
$
|
416
|
|
|
$
|
305
|
|
|
$
|
6
|
|
|
$
|
28,124
|
|
Provision for loan losses
|
|
|
116
|
|
|
|
(1,353
|
)
|
|
|
1,094
|
|
|
|
(9
|
)
|
|
|
151
|
|
|
|
1
|
|
|
|
|
|
Loans charged off
|
|
|
(454
|
)
|
|
|
(3,175
|
)
|
|
|
(2,356
|
)
|
|
|
(179
|
)
|
|
|
(30
|
)
|
|
|
(18
|
)
|
|
|
(6,212
|
)
|
Recoveries
|
|
|
232
|
|
|
|
1,366
|
|
|
|
373
|
|
|
|
111
|
|
|
|
9
|
|
|
|
23
|
|
|
|
2,114
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ending balance
|
|
$
|
3,115
|
|
|
$
|
13,252
|
|
|
$
|
6,873
|
|
|
$
|
339
|
|
|
$
|
435
|
|
|
$
|
12
|
|
|
$
|
24,026
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30, 2013:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Beginning balance
|
|
$
|
4,402
|
|
|
$
|
34,768
|
|
|
$
|
16,235
|
|
|
$
|
857
|
|
|
$
|
403
|
|
|
$
|
15
|
|
|
$
|
56,680
|
|
Provision for loan losses
|
|
|
633
|
|
|
|
(124
|
)
|
|
|
(90
|
)
|
|
|
79
|
|
|
|
(51
|
)
|
|
|
3
|
|
|
|
450
|
|
Loans charged off
|
|
|
(1,108
|
)
|
|
|
(14,178
|
)
|
|
|
(5,476
|
)
|
|
|
(521
|
)
|
|
|
(83
|
)
|
|
|
|
|
|
|
(21,366
|
)
|
Recoveries
|
|
|
721
|
|
|
|
556
|
|
|
|
121
|
|
|
|
179
|
|
|
|
218
|
|
|
|
|
|
|
|
1,795
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ending balance
|
|
$
|
4,648
|
|
|
$
|
21,022
|
|
|
$
|
10,790
|
|
|
$
|
594
|
|
|
$
|
487
|
|
|
$
|
18
|
|
|
$
|
37,559
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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 June 30, 2014:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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
|
|
$
|
150
|
|
|
$
|
1,350
|
|
|
$
|
252
|
|
|
$
|
1
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
1,753
|
|
Collectively evaluated for impairment
|
|
|
2,965
|
|
|
|
11,902
|
|
|
|
6,621
|
|
|
|
338
|
|
|
|
435
|
|
|
|
12
|
|
|
|
22,273
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total ending allowance balance
|
|
$
|
3,115
|
|
|
$
|
13,252
|
|
|
$
|
6,873
|
|
|
$
|
339
|
|
|
$
|
435
|
|
|
$
|
12
|
|
|
$
|
24,026
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loans:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loans individually evaluated for impairment
|
|
$
|
2,150
|
|
|
$
|
50,678
|
|
|
$
|
26,449
|
|
|
$
|
62
|
|
|
$
|
229
|
|
|
$
|
174
|
|
|
$
|
79,742
|
|
Loans collectively evaluated for impairment
|
|
|
62,881
|
|
|
|
237,889
|
|
|
|
222,163
|
|
|
|
12,607
|
|
|
|
27,248
|
|
|
|
500
|
|
|
|
563,288
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total ending loans balance
|
|
$
|
65,031
|
|
|
$
|
288,567
|
|
|
$
|
248,612
|
|
|
$
|
12,669
|
|
|
$
|
27,477
|
|
|
$
|
674
|
|
|
$
|
643,030
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
14
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, 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
|
|
$
|
290
|
|
|
$
|
2,345
|
|
|
$
|
827
|
|
|
$
|
9
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
3,471
|
|
Collectively evaluated for impairment
|
|
|
2,931
|
|
|
|
14,069
|
|
|
|
6,935
|
|
|
|
407
|
|
|
|
305
|
|
|
|
6
|
|
|
|
24,653
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total ending allowance balance
|
|
$
|
3,221
|
|
|
$
|
16,414
|
|
|
$
|
7,762
|
|
|
$
|
416
|
|
|
$
|
305
|
|
|
$
|
6
|
|
|
$
|
28,124
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loans:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loans individually evaluated for impairment
|
|
$
|
4,995
|
|
|
$
|
94,330
|
|
|
$
|
49,512
|
|
|
$
|
93
|
|
|
$
|
322
|
|
|
$
|
631
|
|
|
$
|
149,883
|
|
Loans collectively evaluated for impairment
|
|
|
47,883
|
|
|
|
252,211
|
|
|
|
225,851
|
|
|
|
14,272
|
|
|
|
18,877
|
|
|
|
349
|
|
|
|
559,443
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total ending loans balance
|
|
$
|
52,878
|
|
|
$
|
346,541
|
|
|
$
|
275,363
|
|
|
$
|
14,365
|
|
|
$
|
19,199
|
|
|
$
|
980
|
|
|
$
|
709,326
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Impaired Loans
Impaired loans include restructured loans and loans on nonaccrual or classified as 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 six months ended June 30, 2014:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
June 30, 2014
|
|
|
Six Months Ended
June 30, 2014
|
|
|
|
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
|
|
$
|
1,288
|
|
|
$
|
812
|
|
|
$
|
|
|
|
$
|
1,142
|
|
|
$
|
54
|
|
|
$
|
1,272
|
|
|
$
|
55
|
|
|
$
|
55
|
|
Commercial real estate:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Construction
|
|
|
100
|
|
|
|
21
|
|
|
|
|
|
|
|
11
|
|
|
|
|
|
|
|
20
|
|
|
|
|
|
|
|
|
|
Farmland
|
|
|
2,856
|
|
|
|
2,323
|
|
|
|
|
|
|
|
2,673
|
|
|
|
31
|
|
|
|
3,082
|
|
|
|
48
|
|
|
|
48
|
|
Nonfarm nonresidential
|
|
|
4,367
|
|
|
|
1,117
|
|
|
|
|
|
|
|
1,144
|
|
|
|
127
|
|
|
|
1,231
|
|
|
|
127
|
|
|
|
127
|
|
Residential real estate:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Multi-family
|
|
|
86
|
|
|
|
86
|
|
|
|
|
|
|
|
89
|
|
|
|
|
|
|
|
190
|
|
|
|
|
|
|
|
|
|
1-4 Family
|
|
|
9,460
|
|
|
|
7,578
|
|
|
|
|
|
|
|
7,980
|
|
|
|
11
|
|
|
|
8,681
|
|
|
|
180
|
|
|
|
180
|
|
Consumer
|
|
|
19
|
|
|
|
19
|
|
|
|
|
|
|
|
10
|
|
|
|
|
|
|
|
9
|
|
|
|
|
|
|
|
|
|
Agriculture
|
|
|
242
|
|
|
|
229
|
|
|
|
|
|
|
|
264
|
|
|
|
|
|
|
|
283
|
|
|
|
3
|
|
|
|
3
|
|
Other
|
|
|
68
|
|
|
|
68
|
|
|
|
|
|
|
|
74
|
|
|
|
2
|
|
|
|
54
|
|
|
|
9
|
|
|
|
9
|
|
With An Allowance Recorded:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial
|
|
|
1,434
|
|
|
|
1,338
|
|
|
|
150
|
|
|
|
2,332
|
|
|
|
2
|
|
|
|
2,709
|
|
|
|
20
|
|
|
|
|
|
Commercial real estate:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Construction
|
|
|
4,944
|
|
|
|
4,486
|
|
|
|
85
|
|
|
|
6,142
|
|
|
|
8
|
|
|
|
7,183
|
|
|
|
17
|
|
|
|
|
|
Farmland
|
|
|
5,630
|
|
|
|
3,728
|
|
|
|
|
|
|
|
3,730
|
|
|
|
|
|
|
|
3,899
|
|
|
|
|
|
|
|
|
|
Nonfarm nonresidential
|
|
|
49,553
|
|
|
|
39,003
|
|
|
|
1,265
|
|
|
|
55,061
|
|
|
|
211
|
|
|
|
61,870
|
|
|
|
502
|
|
|
|
|
|
Residential real estate:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Multi-family
|
|
|
4,281
|
|
|
|
4,281
|
|
|
|
88
|
|
|
|
4,535
|
|
|
|
39
|
|
|
|
7,062
|
|
|
|
76
|
|
|
|
|
|
1-4 Family
|
|
|
16,471
|
|
|
|
14,504
|
|
|
|
164
|
|
|
|
15,613
|
|
|
|
139
|
|
|
|
19,382
|
|
|
|
275
|
|
|
|
|
|
Consumer
|
|
|
43
|
|
|
|
43
|
|
|
|
1
|
|
|
|
44
|
|
|
|
|
|
|
|
58
|
|
|
|
1
|
|
|
|
|
|
Agriculture
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other
|
|
|
351
|
|
|
|
106
|
|
|
|
|
|
|
|
106
|
|
|
|
|
|
|
|
276
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
101,193
|
|
|
$
|
79,742
|
|
|
$
|
1,753
|
|
|
$
|
100,950
|
|
|
$
|
624
|
|
|
$
|
117,261
|
|
|
$
|
1,313
|
|
|
$
|
422
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
15
The following table presents loans individually evaluated for impairment by class of loan as of
December 31, 2013:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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
|
|
$
|
2,131
|
|
|
$
|
1,533
|
|
|
$
|
|
|
|
$
|
1,622
|
|
|
$
|
30
|
|
|
$
|
30
|
|
Commercial real estate:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Construction
|
|
|
64
|
|
|
|
38
|
|
|
|
|
|
|
|
467
|
|
|
|
164
|
|
|
|
164
|
|
Farmland
|
|
|
4,074
|
|
|
|
3,898
|
|
|
|
|
|
|
|
4,259
|
|
|
|
268
|
|
|
|
268
|
|
Nonfarm nonresidential
|
|
|
1,568
|
|
|
|
1,404
|
|
|
|
|
|
|
|
1,724
|
|
|
|
367
|
|
|
|
366
|
|
Residential real estate:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Multi-family
|
|
|
444
|
|
|
|
392
|
|
|
|
|
|
|
|
541
|
|
|
|
3
|
|
|
|
3
|
|
1-4 Family
|
|
|
11,011
|
|
|
|
10,083
|
|
|
|
|
|
|
|
11,533
|
|
|
|
115
|
|
|
|
116
|
|
Consumer
|
|
|
9
|
|
|
|
9
|
|
|
|
|
|
|
|
21
|
|
|
|
|
|
|
|
|
|
Agriculture
|
|
|
401
|
|
|
|
322
|
|
|
|
|
|
|
|
213
|
|
|
|
|
|
|
|
|
|
Other
|
|
|
14
|
|
|
|
13
|
|
|
|
|
|
|
|
10
|
|
|
|
11
|
|
|
|
11
|
|
With An Allowance Recorded:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial
|
|
|
3,734
|
|
|
|
3,462
|
|
|
|
290
|
|
|
|
3,905
|
|
|
|
99
|
|
|
|
|
|
Commercial real estate:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Construction
|
|
|
10,409
|
|
|
|
9,264
|
|
|
|
218
|
|
|
|
20,173
|
|
|
|
88
|
|
|
|
|
|
Farmland
|
|
|
6,117
|
|
|
|
4,238
|
|
|
|
65
|
|
|
|
5,579
|
|
|
|
37
|
|
|
|
|
|
Nonfarm nonresidential
|
|
|
94,508
|
|
|
|
75,488
|
|
|
|
2,062
|
|
|
|
77,726
|
|
|
|
1,324
|
|
|
|
|
|
Residential real estate:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Multi-family
|
|
|
13,883
|
|
|
|
12,117
|
|
|
|
393
|
|
|
|
13,121
|
|
|
|
208
|
|
|
|
|
|
1-4 Family
|
|
|
31,327
|
|
|
|
26,920
|
|
|
|
434
|
|
|
|
27,755
|
|
|
|
557
|
|
|
|
|
|
Consumer
|
|
|
84
|
|
|
|
84
|
|
|
|
9
|
|
|
|
134
|
|
|
|
3
|
|
|
|
|
|
Agriculture
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2
|
|
|
|
|
|
|
|
|
|
Other
|
|
|
861
|
|
|
|
618
|
|
|
|
|
|
|
|
539
|
|
|
|
17
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
180,639
|
|
|
$
|
149,883
|
|
|
$
|
3,471
|
|
|
$
|
169,324
|
|
|
$
|
3,291
|
|
|
$
|
958
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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.
16
The following table presents the types of TDR loan modifications by portfolio segment outstanding
as of June 30, 2014 and December 31, 2013:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
TDRs
Performing to
Modified
Terms
|
|
|
TDRs Not
Performing to
Modified
Terms
|
|
|
Total
TDRs
|
|
|
|
(in thousands)
|
|
June 30, 2014
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial
|
|
|
|
|
|
|
|
|
|
|
|
|
Rate reduction
|
|
$
|
20
|
|
|
$
|
|
|
|
$
|
20
|
|
Principal deferral
|
|
|
|
|
|
|
869
|
|
|
|
869
|
|
Commercial Real Estate:
|
|
|
|
|
|
|
|
|
|
|
|
|
Construction
|
|
|
|
|
|
|
|
|
|
|
|
|
Rate reduction
|
|
|
272
|
|
|
|
3,409
|
|
|
|
3,681
|
|
Principal deferral
|
|
|
355
|
|
|
|
|
|
|
|
355
|
|
Farmland
|
|
|
|
|
|
|
|
|
|
|
|
|
Principal deferral
|
|
|
|
|
|
|
2,365
|
|
|
|
2,365
|
|
Nonfarm nonresidential
|
|
|
|
|
|
|
|
|
|
|
|
|
Rate reduction
|
|
|
16,569
|
|
|
|
11,208
|
|
|
|
27,777
|
|
Principal deferral
|
|
|
680
|
|
|
|
|
|
|
|
680
|
|
Interest only payments
|
|
|
|
|
|
|
649
|
|
|
|
649
|
|
Residential Real Estate:
|
|
|
|
|
|
|
|
|
|
|
|
|
Multi-family
|
|
|
|
|
|
|
|
|
|
|
|
|
Rate reduction
|
|
|
4,280
|
|
|
|
|
|
|
|
4,280
|
|
1-4 Family
|
|
|
|
|
|
|
|
|
|
|
|
|
Rate reduction
|
|
|
10,170
|
|
|
|
|
|
|
|
10,170
|
|
Consumer
|
|
|
|
|
|
|
|
|
|
|
|
|
Rate reduction
|
|
|
43
|
|
|
|
|
|
|
|
43
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total TDRs
|
|
$
|
32,389
|
|
|
$
|
18,500
|
|
|
$
|
50,889
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
TDRs
Performing to
Modified
Terms
|
|
|
TDRs Not
Performing to
Modified
Terms
|
|
|
Total
TDRs
|
|
|
|
(in thousands)
|
|
December 31, 2013
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial
|
|
|
|
|
|
|
|
|
|
|
|
|
Rate reduction
|
|
$
|
1,933
|
|
|
$
|
|
|
|
$
|
1,933
|
|
Principal deferral
|
|
|
|
|
|
|
869
|
|
|
|
869
|
|
Commercial Real Estate:
|
|
|
|
|
|
|
|
|
|
|
|
|
Construction
|
|
|
|
|
|
|
|
|
|
|
|
|
Rate reduction
|
|
|
275
|
|
|
|
6,345
|
|
|
|
6,620
|
|
Principal deferral
|
|
|
499
|
|
|
|
|
|
|
|
499
|
|
Farmland
|
|
|
|
|
|
|
|
|
|
|
|
|
Rate reduction
|
|
|
150
|
|
|
|
|
|
|
|
150
|
|
Principal deferral
|
|
|
|
|
|
|
2,365
|
|
|
|
2,365
|
|
Nonfarm nonresidential
|
|
|
|
|
|
|
|
|
|
|
|
|
Rate reduction
|
|
|
22,457
|
|
|
|
21,235
|
|
|
|
43,692
|
|
Principal deferral
|
|
|
691
|
|
|
|
|
|
|
|
691
|
|
Interest only payments
|
|
|
2,439
|
|
|
|
1,489
|
|
|
|
3,928
|
|
Residential Real Estate:
|
|
|
|
|
|
|
|
|
|
|
|
|
Multi-family
|
|
|
|
|
|
|
|
|
|
|
|
|
Rate reduction
|
|
|
4,354
|
|
|
|
6,655
|
|
|
|
11,009
|
|
Interest only payments
|
|
|
641
|
|
|
|
|
|
|
|
641
|
|
1-4 Family
|
|
|
|
|
|
|
|
|
|
|
|
|
Rate reduction
|
|
|
10,312
|
|
|
|
7,958
|
|
|
|
18,270
|
|
Consumer
|
|
|
|
|
|
|
|
|
|
|
|
|
Rate reduction
|
|
|
84
|
|
|
|
|
|
|
|
84
|
|
Other
|
|
|
|
|
|
|
|
|
|
|
|
|
Rate reduction
|
|
|
511
|
|
|
|
|
|
|
|
511
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total TDRs
|
|
$
|
44,346
|
|
|
$
|
46,916
|
|
|
$
|
91,262
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
17
At June 30, 2014 and December 31, 2013, 64% and 49%, respectively, of the
Companys TDRs were performing according to their modified terms. The Company allocated $1.6 million and $2.9 million in reserves to borrowers whose loan terms have been modified in TDRs as of June 30, 2014, and December 31,
2013, respectively. The Company has committed to lend additional amounts totaling $262,000 and $261,000 as of June 30, 2014 and December 31, 2013, respectively, to borrowers with outstanding loans classified as TDRs.
Management periodically reviews renewals/modifications of previously identified TDRs, for which there was no principal forgiveness, to
consider if it is appropriate to remove the TDR classification. If the borrower is no longer experiencing financial difficulty and the renewal/modification did not contain a concessionary interest rate or other concessionary terms, management
considers the potential removal of the TDR classification. If deemed appropriate, the TDR classification is removed as the borrower has complied with the terms of the loan at the date of renewal/modification and there was a reasonable expectation
that the borrower would continue to comply with the terms of the loan subsequent to the date of the renewal/modification. In this instance, the TDR was originally considered a restructuring in a prior year as a result of a modification with an
interest rate that was not commensurate with the risk of the underlying loan. Additionally, TDR classification can be removed in circumstances in which the Company performs a non-concessionary re-modification of the loan at terms that were
considered to be at market for loans with comparable risk. Management expects the borrower will continue to perform under the re-modified terms based on the borrowers past history of performance.
As of June 30, 2014, the TDR classification was removed from two loans that met the requirements as discussed above. These two loans
totaled $7.3 million at December 31, 2013. These loans are no longer evaluated individually for impairment.
No TDR loan
modifications occurred during the three or six months ended June 30, 2014. The following tables present a summary of the types of TDR loan modifications by portfolio type that occurred during the three months ended June 30, 2013:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
TDRs
Performing to
Modified
Terms
|
|
|
TDRs Not
Performing to
Modified
Terms
|
|
|
Total
TDRs
|
|
|
|
(in thousands)
|
|
June 30, 2013
|
|
|
|
|
|
|
|
|
Commercial Real Estate:
|
|
|
|
|
|
|
|
|
|
|
|
|
Construction
|
|
|
|
|
|
|
|
|
|
|
|
|
Principal deferral
|
|
$
|
499
|
|
|
$
|
|
|
|
$
|
499
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total TDRs
|
|
$
|
499
|
|
|
$
|
|
|
|
$
|
499
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of June 30, 2013, 100% of the Companys TDRs that occurred during the three months ended
June 30, 2013, were performing according to their modified terms. The Company allocated $49,000 in reserves to customers whose loan terms have been modified during the three months ended June 30, 2013. For modifications occurring
during the three month period ended June 30, 2013, 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 six months ended June 30, 2013:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
TDRs
Performing to
Modified
Terms
|
|
|
TDRs Not
Performing to
Modified
Terms
|
|
|
Total
TDRs
|
|
|
|
(in thousands)
|
|
June 30, 2013
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial:
|
|
|
|
|
|
|
|
|
|
|
|
|
Rate reduction
|
|
$
|
45
|
|
|
$
|
|
|
|
$
|
45
|
|
Commercial Real Estate:
|
|
|
|
|
|
|
|
|
|
|
|
|
Construction
|
|
|
|
|
|
|
|
|
|
|
|
|
Rate reduction
|
|
|
|
|
|
|
1,291
|
|
|
|
1,291
|
|
Principal deferral
|
|
|
499
|
|
|
|
|
|
|
|
499
|
|
Nonfarm nonresidential
|
|
|
|
|
|
|
|
|
|
|
|
|
Rate reduction
|
|
|
1,399
|
|
|
|
|
|
|
|
1,399
|
|
Residential Real Estate:
|
|
|
|
|
|
|
|
|
|
|
|
|
1-4 Family
|
|
|
|
|
|
|
|
|
|
|
|
|
Rate reduction
|
|
|
897
|
|
|
|
|
|
|
|
897
|
|
Consumer:
|
|
|
|
|
|
|
|
|
|
|
|
|
Rate reduction
|
|
|
40
|
|
|
|
|
|
|
|
40
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total TDRs
|
|
$
|
2,880
|
|
|
$
|
1,291
|
|
|
$
|
4,171
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
18
During the first six months of 2013, approximately $1.5 million TDRs defaulted on their
restructured loan and the default occurred 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.
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 June 30, 2014, and December 31, 2013:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nonaccrual
|
|
|
Loans Past Due 90 Days
And Over Still Accruing
|
|
|
|
June 30,
2014
|
|
|
December 31,
2013
|
|
|
June 30,
2014
|
|
|
December 31,
2013
|
|
|
|
(in thousands)
|
|
Commercial
|
|
$
|
1,984
|
|
|
$
|
2,886
|
|
|
$
|
|
|
|
$
|
|
|
Commercial Real Estate:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Construction
|
|
|
3,880
|
|
|
|
8,528
|
|
|
|
|
|
|
|
|
|
Farmland
|
|
|
6,051
|
|
|
|
7,844
|
|
|
|
|
|
|
|
|
|
Nonfarm nonresidential
|
|
|
20,039
|
|
|
|
48,447
|
|
|
|
|
|
|
|
|
|
Residential Real Estate:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Multi-family
|
|
|
86
|
|
|
|
7,513
|
|
|
|
|
|
|
|
|
|
1-4 Family
|
|
|
11,912
|
|
|
|
26,098
|
|
|
|
|
|
|
|
230
|
|
Consumer
|
|
|
20
|
|
|
|
9
|
|
|
|
|
|
|
|
2
|
|
Agriculture
|
|
|
229
|
|
|
|
322
|
|
|
|
|
|
|
|
|
|
Other
|
|
|
174
|
|
|
|
120
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
44,375
|
|
|
$
|
101,767
|
|
|
$
|
|
|
|
$
|
232
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The following table presents the aging of the recorded investment in past due loans as of June 30, 2014
and December 31, 2013:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
30 59
Days
Past Due
|
|
|
60 89
Days
Past Due
|
|
|
90 Days
And Over
Past Due
|
|
|
Nonaccrual
|
|
|
Total
Past Due
And
Nonaccrual
|
|
|
|
(in thousands)
|
|
June 30, 2014
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial
|
|
$
|
430
|
|
|
$
|
18
|
|
|
$
|
|
|
|
$
|
1,984
|
|
|
$
|
2,432
|
|
Commercial Real Estate:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Construction
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3,880
|
|
|
|
3,880
|
|
Farmland
|
|
|
200
|
|
|
|
|
|
|
|
|
|
|
|
6,051
|
|
|
|
6,251
|
|
Nonfarm nonresidential
|
|
|
550
|
|
|
|
336
|
|
|
|
|
|
|
|
20,039
|
|
|
|
20,925
|
|
Residential Real Estate:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Multi-family
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
86
|
|
|
|
86
|
|
1-4 Family
|
|
|
1,744
|
|
|
|
593
|
|
|
|
|
|
|
|
11,912
|
|
|
|
14,249
|
|
Consumer
|
|
|
101
|
|
|
|
44
|
|
|
|
|
|
|
|
20
|
|
|
|
165
|
|
Agriculture
|
|
|
32
|
|
|
|
|
|
|
|
|
|
|
|
229
|
|
|
|
261
|
|
Other
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
174
|
|
|
|
174
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
3,057
|
|
|
$
|
991
|
|
|
$
|
|
|
|
$
|
44,375
|
|
|
$
|
48,423
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
19
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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, 2013
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial
|
|
$
|
156
|
|
|
$
|
123
|
|
|
$
|
|
|
|
$
|
2,886
|
|
|
$
|
3,165
|
|
Commercial Real Estate:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Construction
|
|
|
261
|
|
|
|
|
|
|
|
|
|
|
|
8,528
|
|
|
|
8,789
|
|
Farmland
|
|
|
484
|
|
|
|
41
|
|
|
|
|
|
|
|
7,844
|
|
|
|
8,369
|
|
Nonfarm nonresidential
|
|
|
4,375
|
|
|
|
|
|
|
|
|
|
|
|
48,447
|
|
|
|
52,822
|
|
Residential Real Estate:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Multi-family
|
|
|
1,181
|
|
|
|
|
|
|
|
|
|
|
|
7,513
|
|
|
|
8,694
|
|
1-4 Family
|
|
|
4,059
|
|
|
|
577
|
|
|
|
230
|
|
|
|
26,098
|
|
|
|
30,964
|
|
Consumer
|
|
|
145
|
|
|
|
34
|
|
|
|
2
|
|
|
|
9
|
|
|
|
190
|
|
Agriculture
|
|
|
35
|
|
|
|
|
|
|
|
|
|
|
|
322
|
|
|
|
357
|
|
Other
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
120
|
|
|
|
120
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
10,696
|
|
|
$
|
775
|
|
|
$
|
232
|
|
|
$
|
101,767
|
|
|
$
|
113,470
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Credit Quality Indicators
We categorize all 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. Additionally, 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. 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.
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 June 30, 2014, and December 31, 2013, 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)
|
|
June 30, 2014
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial
|
|
$
|
54,255
|
|
|
$
|
2,859
|
|
|
$
|
|
|
|
$
|
7,917
|
|
|
$
|
|
|
|
$
|
65,031
|
|
Commercial Real Estate:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Construction
|
|
|
21,105
|
|
|
|
6,190
|
|
|
|
|
|
|
|
5,483
|
|
|
|
|
|
|
|
32,778
|
|
Farmland
|
|
|
46,688
|
|
|
|
8,687
|
|
|
|
230
|
|
|
|
9,275
|
|
|
|
|
|
|
|
64,880
|
|
Nonfarm nonresidential
|
|
|
108,184
|
|
|
|
33,632
|
|
|
|
1,211
|
|
|
|
47,882
|
|
|
|
|
|
|
|
190,909
|
|
Residential Real Estate:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Multi-family
|
|
|
30,124
|
|
|
|
7,850
|
|
|
|
|
|
|
|
5,522
|
|
|
|
|
|
|
|
43,496
|
|
1-4 Family
|
|
|
136,468
|
|
|
|
30,384
|
|
|
|
1,780
|
|
|
|
36,484
|
|
|
|
|
|
|
|
205,116
|
|
Consumer
|
|
|
11,523
|
|
|
|
612
|
|
|
|
2
|
|
|
|
532
|
|
|
|
|
|
|
|
12,669
|
|
Agriculture
|
|
|
26,007
|
|
|
|
994
|
|
|
|
|
|
|
|
476
|
|
|
|
|
|
|
|
27,477
|
|
Other
|
|
|
499
|
|
|
|
|
|
|
|
|
|
|
|
175
|
|
|
|
|
|
|
|
674
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
434,853
|
|
|
$
|
91,208
|
|
|
$
|
3,223
|
|
|
$
|
113,746
|
|
|
$
|
|
|
|
$
|
643,030
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
20
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pass
|
|
|
Watch
|
|
|
Special
Mention
|
|
|
Substandard
|
|
|
Doubtful
|
|
|
Total
|
|
|
|
(in thousands)
|
|
December 31, 2013
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial
|
|
$
|
35,438
|
|
|
$
|
8,517
|
|
|
$
|
329
|
|
|
$
|
8,594
|
|
|
$
|
|
|
|
$
|
52,878
|
|
Commercial Real Estate:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Construction
|
|
|
16,706
|
|
|
|
10,771
|
|
|
|
2,277
|
|
|
|
13,572
|
|
|
|
|
|
|
|
43,326
|
|
Farmland
|
|
|
46,909
|
|
|
|
9,121
|
|
|
|
1,735
|
|
|
|
13,424
|
|
|
|
|
|
|
|
71,189
|
|
Nonfarm nonresidential
|
|
|
93,327
|
|
|
|
51,522
|
|
|
|
734
|
|
|
|
86,443
|
|
|
|
|
|
|
|
232,026
|
|
Residential Real Estate:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Multi-family
|
|
|
16,506
|
|
|
|
17,320
|
|
|
|
|
|
|
|
13,032
|
|
|
|
|
|
|
|
46,858
|
|
1-4 Family
|
|
|
130,833
|
|
|
|
43,785
|
|
|
|
784
|
|
|
|
53,103
|
|
|
|
|
|
|
|
228,505
|
|
Consumer
|
|
|
12,718
|
|
|
|
968
|
|
|
|
6
|
|
|
|
673
|
|
|
|
|
|
|
|
14,365
|
|
Agriculture
|
|
|
16,742
|
|
|
|
1,802
|
|
|
|
|
|
|
|
655
|
|
|
|
|
|
|
|
19,199
|
|
Other
|
|
|
350
|
|
|
|
510
|
|
|
|
|
|
|
|
120
|
|
|
|
|
|
|
|
980
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
369,529
|
|
|
$
|
144,316
|
|
|
$
|
5,865
|
|
|
$
|
189,616
|
|
|
$
|
|
|
|
$
|
709,326
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
During the first quarter of 2014, management instituted a new risk category within its pass classification.
The purpose was to better identify certain loans where the borrowers sustained satisfactory repayment history was deemed a more relevant predictor of future loss than certain underwriting criteria at origination. The establishment of this new
pass risk category helps to ensure the watch risk category remains transitory and event driven in nature. A total of $24.2 million in commercial, $8.5 million in residential, and $2.2 million in agriculture loans were reclassified from watch to the
new pass risk category during the first quarter.
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. Costs incurred in order to perfect the lien prior to foreclosure may be capitalized if the fair value less the cost to sell exceeds the balance of the loan at the
time of transfer to OREO. Examples of eligible costs to be capitalized are payments of delinquent property taxes to clear tax liens or payments to contractors and subcontractors to clear mechanics liens. 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 or have staff in our centralized appraisal department evaluate the latest in-file appraisal in connection with the transfer to other real estate owned. We
typically obtain updated appraisals within five quarters of the anniversary date of ownership unless a sale is imminent.
The following
table presents the major categories of OREO at the period-ends indicated:
|
|
|
|
|
|
|
|
|
|
|
June 30,
2014
|
|
|
December 31,
2013
|
|
|
|
(in thousands)
|
|
Commercial Real Estate:
|
|
|
|
|
|
|
|
|
Construction, land development, and other land
|
|
$
|
21,827
|
|
|
$
|
19,199
|
|
Farmland
|
|
|
1,349
|
|
|
|
695
|
|
Nonfarm nonresidential
|
|
|
21,956
|
|
|
|
6,064
|
|
Residential Real Estate:
|
|
|
|
|
|
|
|
|
Multi-family
|
|
|
6,335
|
|
|
|
248
|
|
1-4 Family
|
|
|
11,667
|
|
|
|
4,916
|
|
|
|
|
|
|
|
|
|
|
|
|
|
63,134
|
|
|
|
31,122
|
|
Valuation allowance
|
|
|
(199
|
)
|
|
|
(230
|
)
|
|
|
|
|
|
|
|
|
|
|
|
$
|
62,935
|
|
|
$
|
30,892
|
|
|
|
|
|
|
|
|
|
|
21
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Three
Months Ended
June 30,
|
|
|
For the Six
Months Ended
June 30,
|
|
|
|
2014
|
|
|
2013
|
|
|
2014
|
|
|
2013
|
|
|
|
(in thousands)
|
|
|
(in thousands)
|
|
OREO Valuation Allowance Activity:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Beginning balance
|
|
$
|
208
|
|
|
$
|
928
|
|
|
$
|
230
|
|
|
$
|
1,154
|
|
Provision to allowance
|
|
|
400
|
|
|
|
977
|
|
|
|
650
|
|
|
|
1,284
|
|
Write-downs
|
|
|
(409
|
)
|
|
|
(1,158
|
)
|
|
|
(681
|
)
|
|
|
(1,691
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ending balance
|
|
$
|
199
|
|
|
$
|
747
|
|
|
$
|
199
|
|
|
$
|
747
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net activity relating to other real estate owned during the six months ended June 30, 2014 and 2013 is as
follows:
|
|
|
|
|
|
|
|
|
|
|
2014
|
|
|
2013
|
|
|
|
(in thousands)
|
|
OREO Activity
|
|
|
|
|
|
|
|
|
OREO as of January 1
|
|
$
|
30,892
|
|
|
$
|
43,671
|
|
Real estate acquired
|
|
|
36,920
|
|
|
|
15,555
|
|
Valuation adjustment writedowns
|
|
|
(650
|
)
|
|
|
(1,284
|
)
|
Gain/(Loss) on sale
|
|
|
54
|
|
|
|
(359
|
)
|
Proceeds from sale of properties
|
|
|
(4,281
|
)
|
|
|
(10,553
|
)
|
|
|
|
|
|
|
|
|
|
OREO as of June 30
|
|
$
|
62,935
|
|
|
$
|
47,030
|
|
|
|
|
|
|
|
|
|
|
Expenses related to other real estate owned include:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months
Ended
June 30,
|
|
|
Six Months Ended
June 30,
|
|
|
|
2014
|
|
|
2013
|
|
|
2014
|
|
|
2013
|
|
|
|
(in thousands)
|
|
|
(in thousands)
|
|
Net (gain) loss on sales
|
|
$
|
(54
|
)
|
|
$
|
162
|
|
|
$
|
(54
|
)
|
|
$
|
359
|
|
Provision to allowance
|
|
|
400
|
|
|
|
977
|
|
|
|
650
|
|
|
|
1,284
|
|
Operating expense
|
|
|
428
|
|
|
|
518
|
|
|
|
840
|
|
|
|
805
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
774
|
|
|
$
|
1,657
|
|
|
$
|
1,436
|
|
|
$
|
2,448
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Note 6 Deposits
The following table shows deposits by category:
|
|
|
|
|
|
|
|
|
|
|
June 30,
2014
|
|
|
December 31,
2013
|
|
|
|
(in thousands)
|
|
Non-interest bearing
|
|
$
|
109,956
|
|
|
$
|
107,486
|
|
Interest checking
|
|
|
76,625
|
|
|
|
84,626
|
|
Money market
|
|
|
95,946
|
|
|
|
79,349
|
|
Savings
|
|
|
37,178
|
|
|
|
36,292
|
|
Certificates of deposit
|
|
|
631,110
|
|
|
|
679,952
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
950,815
|
|
|
$
|
987,705
|
|
|
|
|
|
|
|
|
|
|
Time deposits of $100,000 or more were $278.3 million and $295.0 million at June 30, 2014 and
December 31, 2013, respectively.
Scheduled maturities of total time deposits at June 30, 2014 are as follows (in thousands):
|
|
|
|
|
Year 1
|
|
$
|
473,490
|
|
Year 2
|
|
|
121,978
|
|
Year 3
|
|
|
12,177
|
|
Year 4
|
|
|
7,910
|
|
Year 5
|
|
|
15,553
|
|
Thereafter
|
|
|
2
|
|
|
|
|
|
|
|
|
$
|
631,110
|
|
|
|
|
|
|
22
Note 7 Advances from the Federal Home Loan Bank
Advances from the Federal Home Loan Bank were as follows:
|
|
|
|
|
|
|
|
|
|
|
June 30,
2014
|
|
|
December 31,
2013
|
|
|
|
(in thousands)
|
|
Monthly amortizing advances with fixed rates from 0.00% to 5.25% and maturities ranging from 2014 through 2033, averaging 2.89% for
2014
|
|
$
|
14,134
|
|
|
$
|
4,492
|
|
|
|
|
|
|
|
|
|
|
Each advance is payable based upon the 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. At June 30, 2014, our additional borrowing capacity with the FHLB was $10.6 million. The availability of our
borrowing capacity could be affected by our financial condition 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.
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.
23
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 our appraisal date predates a likely change in market conditions. These deductions range from 10% for
routine real estate collateral to 25% for real estate that is determined (1) to have a thin trading market or (2) to be specialized collateral. This is in addition to estimated discounts for cost to sell of six to ten percent.
We also apply discounts to the expected fair value of collateral for impaired loans where the likely resolution involves
litigation or 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.
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 or have staff in our centralized appraisal department evaluate the latest in-file appraisal 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 the fair value of the underlying collateral based on our internal evaluation of the property, review of the most recent appraisal, and discussions with the currently engaged appraiser. We generally obtain updated
appraisals within five quarters of 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 collateral to 25% for real estate that is determined (1) to have a thin trading market or (2) to be specialized
collateral. This is in addition to estimated discounts for cost to sell of six to ten percent.
24
Financial assets measured at fair value on a recurring basis at June 30, 2014 and
December 31, 2013 are summarized below:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair Value Measurements at June 30, 2014 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
|
|
$
|
29,607
|
|
|
$
|
|
|
|
$
|
29,607
|
|
|
$
|
|
|
Agency mortgage-backed: residential
|
|
|
118,837
|
|
|
|
|
|
|
|
118,837
|
|
|
|
|
|
State and municipal
|
|
|
12,559
|
|
|
|
|
|
|
|
12,559
|
|
|
|
|
|
Corporate bonds
|
|
|
19,069
|
|
|
|
|
|
|
|
19,069
|
|
|
|
|
|
Other debt securities
|
|
|
651
|
|
|
|
|
|
|
|
|
|
|
|
651
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
180,723
|
|
|
$
|
|
|
|
$
|
180,072
|
|
|
$
|
651
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair Value Measurements at December 31, 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
|
|
$
|
29,866
|
|
|
$
|
|
|
|
$
|
29,866
|
|
|
$
|
|
|
Agency mortgage-backed: residential
|
|
|
100,943
|
|
|
|
|
|
|
|
100,943
|
|
|
|
|
|
State and municipal
|
|
|
13,545
|
|
|
|
|
|
|
|
13,545
|
|
|
|
|
|
Corporate bonds
|
|
|
18,161
|
|
|
|
|
|
|
|
18,161
|
|
|
|
|
|
Other debt securities
|
|
|
632
|
|
|
|
|
|
|
|
|
|
|
|
632
|
|
Equity securities
|
|
|
197
|
|
|
|
197
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
163,344
|
|
|
$
|
197
|
|
|
$
|
162,515
|
|
|
$
|
632
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
There were no transfers between Level 1 and Level 2 during 2014 or 2013.
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 June 30, 2014 and 2013:
|
|
|
|
|
|
|
|
|
|
|
Other Debt
Securities
|
|
|
|
2014
|
|
|
2013
|
|
|
|
(in thousands)
|
|
Balances of recurring Level 3 assets at January 1
|
|
$
|
632
|
|
|
$
|
618
|
|
Total gain (loss) for the period:
|
|
|
|
|
|
|
|
|
Included in other comprehensive income (loss)
|
|
|
19
|
|
|
|
13
|
|
|
|
|
|
|
|
|
|
|
Balance of recurring Level 3 assets at June 30
|
|
$
|
651
|
|
|
$
|
631
|
|
|
|
|
|
|
|
|
|
|
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 8.25% 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.
25
Financial assets measured at fair value on a non-recurring basis are summarized below:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair Value Measurements at June 30, 2014 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
|
|
$
|
1,188
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
1,188
|
|
Commercial real estate:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Construction
|
|
|
4,401
|
|
|
|
|
|
|
|
|
|
|
|
4,401
|
|
Farmland
|
|
|
3,728
|
|
|
|
|
|
|
|
|
|
|
|
3,728
|
|
Nonfarm nonresidential
|
|
|
37,738
|
|
|
|
|
|
|
|
|
|
|
|
37,738
|
|
Residential real estate:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Multi-family
|
|
|
4,193
|
|
|
|
|
|
|
|
|
|
|
|
4,193
|
|
1-4 Family
|
|
|
14,340
|
|
|
|
|
|
|
|
|
|
|
|
14,340
|
|
Consumer
|
|
|
42
|
|
|
|
|
|
|
|
|
|
|
|
42
|
|
Other
|
|
|
106
|
|
|
|
|
|
|
|
|
|
|
|
106
|
|
Other real estate owned, net:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial real estate:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Construction
|
|
|
21,758
|
|
|
|
|
|
|
|
|
|
|
|
21,758
|
|
Farmland
|
|
|
1,344
|
|
|
|
|
|
|
|
|
|
|
|
1,344
|
|
Nonfarm nonresidential
|
|
|
21,887
|
|
|
|
|
|
|
|
|
|
|
|
21,887
|
|
Residential real estate:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Multi-family
|
|
|
6,316
|
|
|
|
|
|
|
|
|
|
|
|
6,316
|
|
1-4 Family
|
|
|
11,630
|
|
|
|
|
|
|
|
|
|
|
|
11,630
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair Value Measurements at December 31, 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
|
|
$
|
3,172
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
3,172
|
|
Commercial real estate:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Construction
|
|
|
9,046
|
|
|
|
|
|
|
|
|
|
|
|
9,046
|
|
Farmland
|
|
|
4,173
|
|
|
|
|
|
|
|
|
|
|
|
4,173
|
|
Nonfarm nonresidential
|
|
|
73,426
|
|
|
|
|
|
|
|
|
|
|
|
73,426
|
|
Residential real estate:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Multi-family
|
|
|
11,724
|
|
|
|
|
|
|
|
|
|
|
|
11,724
|
|
1-4 Family
|
|
|
26,486
|
|
|
|
|
|
|
|
|
|
|
|
26,486
|
|
Consumer
|
|
|
75
|
|
|
|
|
|
|
|
|
|
|
|
75
|
|
Agriculture
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other
|
|
|
618
|
|
|
|
|
|
|
|
|
|
|
|
618
|
|
Other real estate owned, net:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial real estate:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Construction
|
|
|
19,057
|
|
|
|
|
|
|
|
|
|
|
|
19,057
|
|
Farmland
|
|
|
690
|
|
|
|
|
|
|
|
|
|
|
|
690
|
|
Nonfarm nonresidential
|
|
|
6,019
|
|
|
|
|
|
|
|
|
|
|
|
6,019
|
|
Residential real estate:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Multi-family
|
|
|
246
|
|
|
|
|
|
|
|
|
|
|
|
246
|
|
1-4 Family
|
|
|
4,880
|
|
|
|
|
|
|
|
|
|
|
|
4,880
|
|
Impaired loans, which are measured for impairment using the fair value of the collateral for collateral
dependent loans, had a carrying amount of $67.5 million at June 30, 2014 with a valuation allowance of $1.8 million. This resulted in no additional provision for loan losses for the six months ended June 30, 2014. At December 31,
2013, impaired loans had a carrying amount of $132.2 million, with a valuation allowance of $3.5 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 $62.9 million as of June 30, 2014, compared with $30.9 million at December 31, 2013. Fair value write-downs of $650,000 were
recorded on other real estate owned for the six months ended June 30, 2014.
26
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 June 30, 2014:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair Value
|
|
|
Valuation
Technique(s)
|
|
Unobservable Input(s)
|
|
Range (Weighted
Average)
|
|
|
|
(in thousands)
|
|
|
|
|
|
|
|
|
Impaired loans Commercial
|
|
$
|
1,188
|
|
|
Market value approach
|
|
Adjustment for receivables and inventory discounts
|
|
|
16% 32%(24%)
|
|
Impaired loans Commercial real estate
|
|
$
|
45,867
|
|
|
Sales comparison approach
|
|
Adjustment for differences between the comparable sales
|
|
|
0% 62%(18%)
|
|
Impaired loans Residential real estate
|
|
$
|
18,533
|
|
|
Sales comparison approach
|
|
Adjustment for differences between the comparable sales
|
|
|
0% 68%(17%)
|
|
Other real estate owned Commercial real estate
|
|
$
|
44,989
|
|
|
Sales comparison approach
Income
approach
|
|
Adjustment for differences between the comparable sales
Discount or capitalization rate
|
|
|
3% 45%(17%)
8% 16%(14%)
|
|
Other real estate owned Residential real estate
|
|
$
|
17,946
|
|
|
Sales comparison approach
|
|
Adjustment for differences between the comparable sales
|
|
|
2% 54%(11%)
|
|
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, 2013:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair Value
|
|
|
Valuation
Technique(s)
|
|
Unobservable Input(s)
|
|
Range (Weighted
Average)
|
|
|
|
(in thousands)
|
|
|
|
|
|
|
|
|
Impaired loans Commercial
|
|
$
|
3,172
|
|
|
Market value approach
|
|
Adjustment for receivables and inventory discounts
|
|
|
16% 32%(24%)
|
|
Impaired loans Commercial real estate
|
|
$
|
86,645
|
|
|
Sales comparison approach
|
|
Adjustment for differences between the comparable sales
|
|
|
0% 69%(20%)
|
|
Impaired loans Residential real estate
|
|
$
|
38,210
|
|
|
Sales comparison approach
|
|
Adjustment for differences between the comparable sales
|
|
|
0% 68%(15%)
|
|
Other real estate owned Commercial real estate
|
|
$
|
25,766
|
|
|
Sales comparison approach
Income
approach
|
|
Adjustment for differences between the comparable sales
Discount or capitalization rate
|
|
|
3% 51%(22%)
7% 16%(11%)
|
|
Other real estate owned Residential real estate
|
|
$
|
5,126
|
|
|
Sales comparison approach
|
|
Adjustment for differences between the comparable sales
|
|
|
2% 54%(11%)
|
|
27
Carrying amount and estimated fair values of financial instruments were as follows for the
periods indicated:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair Value Measurements at June 30, 2014 Using
|
|
|
|
Carrying
Amount
|
|
|
Level 1
|
|
|
Level 2
|
|
|
Level 3
|
|
|
Total
|
|
|
|
(in thousands)
|
|
Financial assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
102,266
|
|
|
$
|
78,906
|
|
|
$
|
23,360
|
|
|
$
|
|
|
|
$
|
102,266
|
|
Securities available for sale
|
|
|
180,723
|
|
|
|
|
|
|
|
180,072
|
|
|
|
651
|
|
|
|
180,723
|
|
Securities held to maturity
|
|
|
43,488
|
|
|
|
|
|
|
|
44,853
|
|
|
|
|
|
|
|
44,853
|
|
Federal Home Loan Bank stock
|
|
|
7,323
|
|
|
|
N/A
|
|
|
|
N/A
|
|
|
|
N/A
|
|
|
|
N/A
|
|
Mortgage loans held for sale
|
|
|
280
|
|
|
|
|
|
|
|
280
|
|
|
|
|
|
|
|
280
|
|
Loans, net
|
|
|
619,004
|
|
|
|
|
|
|
|
|
|
|
|
632,722
|
|
|
|
632,722
|
|
Accrued interest receivable
|
|
|
3,461
|
|
|
|
|
|
|
|
1,365
|
|
|
|
2,096
|
|
|
|
3,461
|
|
Financial liabilities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deposits
|
|
$
|
950,815
|
|
|
$
|
109,956
|
|
|
$
|
837,997
|
|
|
$
|
|
|
|
$
|
947,953
|
|
Securities sold under agreements to repurchase
|
|
|
2,451
|
|
|
|
|
|
|
|
2,451
|
|
|
|
|
|
|
|
2,451
|
|
Federal Home Loan Bank advances
|
|
|
14,134
|
|
|
|
|
|
|
|
14,138
|
|
|
|
|
|
|
|
14,138
|
|
Subordinated capital notes
|
|
|
5,400
|
|
|
|
|
|
|
|
|
|
|
|
5,177
|
|
|
|
5,177
|
|
Junior subordinated debentures
|
|
|
25,000
|
|
|
|
|
|
|
|
|
|
|
|
13,841
|
|
|
|
13,841
|
|
Accrued interest payable
|
|
|
2,813
|
|
|
|
|
|
|
|
1,014
|
|
|
|
1,799
|
|
|
|
2,813
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair Value Measurements at December 31, 2013
Using
|
|
|
|
Carrying
Amount
|
|
|
Level 1
|
|
|
Level 2
|
|
|
Level 3
|
|
|
Total
|
|
|
|
(in thousands)
|
|
Financial assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
111,134
|
|
|
$
|
106,885
|
|
|
$
|
4,249
|
|
|
$
|
|
|
|
$
|
111,134
|
|
Securities available for sale
|
|
|
163,344
|
|
|
|
197
|
|
|
|
162,515
|
|
|
|
632
|
|
|
|
163,344
|
|
Securities held to maturity
|
|
|
43,612
|
|
|
|
|
|
|
|
42,947
|
|
|
|
|
|
|
|
42,947
|
|
Federal Home Loan Bank stock
|
|
|
10,072
|
|
|
|
N/A
|
|
|
|
N/A
|
|
|
|
N/A
|
|
|
|
N/A
|
|
Mortgage loans held for sale
|
|
|
149
|
|
|
|
|
|
|
|
149
|
|
|
|
|
|
|
|
149
|
|
Loans, net
|
|
|
681,202
|
|
|
|
|
|
|
|
|
|
|
|
695,999
|
|
|
|
695,999
|
|
Accrued interest receivable
|
|
|
3,891
|
|
|
|
|
|
|
|
1,343
|
|
|
|
2,548
|
|
|
|
3,891
|
|
Financial liabilities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deposits
|
|
$
|
987,705
|
|
|
$
|
107,486
|
|
|
$
|
879,707
|
|
|
$
|
|
|
|
$
|
987,193
|
|
Securities sold under agreements to repurchase
|
|
|
2,470
|
|
|
|
|
|
|
|
2,470
|
|
|
|
|
|
|
|
2,470
|
|
Federal Home Loan Bank advances
|
|
|
4,492
|
|
|
|
|
|
|
|
4,495
|
|
|
|
|
|
|
|
4,495
|
|
Subordinated capital notes
|
|
|
5,850
|
|
|
|
|
|
|
|
|
|
|
|
5,586
|
|
|
|
5,586
|
|
Junior subordinated debentures
|
|
|
25,000
|
|
|
|
|
|
|
|
|
|
|
|
13,526
|
|
|
|
13,526
|
|
Accrued interest payable
|
|
|
2,535
|
|
|
|
|
|
|
|
1,042
|
|
|
|
1,493
|
|
|
|
2,535
|
|
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.
It is not practical to determine the fair value of FHLB stock due to restrictions placed on its transferability.
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.
28
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.
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:
|
|
|
|
|
|
|
|
|
|
|
June 30,
2014
|
|
|
December 31,
2013
|
|
|
|
(in thousands)
|
|
Deferred tax assets:
|
|
|
|
|
|
|
|
|
Net operating loss carry-forward
|
|
$
|
25,943
|
|
|
$
|
25,460
|
|
Allowance for loan losses
|
|
|
8,409
|
|
|
|
9,843
|
|
Other real estate owned write-down
|
|
|
9,537
|
|
|
|
9,478
|
|
Alternative minimum tax credit carry-forward
|
|
|
692
|
|
|
|
692
|
|
Net assets from acquisitions
|
|
|
656
|
|
|
|
644
|
|
Other than temporary impairment on securities
|
|
|
46
|
|
|
|
89
|
|
Net unrealized loss on securities
|
|
|
|
|
|
|
1,067
|
|
New market tax credit carry-forward
|
|
|
208
|
|
|
|
208
|
|
Nonaccrual loan interest
|
|
|
878
|
|
|
|
911
|
|
Amortization of non-compete agreements
|
|
|
15
|
|
|
|
16
|
|
Other
|
|
|
1,719
|
|
|
|
1,640
|
|
|
|
|
|
|
|
|
|
|
|
|
|
48,103
|
|
|
|
50,048
|
|
|
|
|
|
|
|
|
|
|
Deferred tax liabilities:
|
|
|
|
|
|
|
|
|
FHLB stock dividends
|
|
|
928
|
|
|
|
1,276
|
|
Fixed assets
|
|
|
291
|
|
|
|
333
|
|
Net unrealized gain on securities
|
|
|
263
|
|
|
|
|
|
Originated mortgage servicing rights
|
|
|
63
|
|
|
|
75
|
|
Other
|
|
|
548
|
|
|
|
570
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,093
|
|
|
|
2,254
|
|
|
|
|
|
|
|
|
|
|
Net deferred tax assets before valuation allowance
|
|
|
46,010
|
|
|
|
47,794
|
|
|
|
|
|
|
|
|
|
|
Valuation allowance
|
|
|
(46,010
|
)
|
|
|
(47,794
|
)
|
|
|
|
|
|
|
|
|
|
Net deferred tax asset
|
|
$
|
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
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 $40.1 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 June 30, 2014. Our deferred tax assets and the related valuation allowance are analyzed and adjusted on a quarterly basis.
29
The calculation for the income tax provision or benefit generally does not consider the tax
effects of changes in other comprehensive income, or OCI, which is a component of stockholders equity on the balance sheet. However, an exception is provided in certain circumstances, such as when there is a full valuation allowance against
net deferred tax assets, there is a loss from continuing operations and there is income in other components of the financial statements. In such a case, pre-tax income from other categories, such as changes in OCI, must be considered in determining
a tax benefit to be allocated to the loss from continuing operations. For the quarter ended June 30, 2014, this resulted in $424,000 of income tax benefit allocated to continuing operations. The June 30, 2014 tax benefit is entirely due to
gains in other comprehensive income that are presented in current operations in accordance with applicable accounting standards.
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 six months ended June 30, 2014 or the year ended December 31, 2013 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 2010.
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, shareholders approved an amendment to the plan to increase the number of shares authorized for issuance by 800,000 shares. In May 2014, shareholders approved an amendment to the Plan to increase the number of
shares authorized for issuance by 300,000 shares. The 2006 Plan now permits the issuance of up to 1,563,050 shares of the Companys common stock upon the exercise of stock options or upon the grant of stock awards. As of June 30,
2014, the Company had granted 898,011 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 527,799
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 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. In May 2014, the Plan was further amended to increase the number of shares issuable to 700,000 shares. Unvested shares are granted automatically under the plan at fair market value on the date of grant and
vest on December 31 in the year of grant. To date, the Company has issued 181,819 unvested shares, net of forfeitures and vesting, to non-employee directors. At June 30, 2014, 271,211 shares remain available for issuance under this plan.
The fair value of the 2014 unvested shares issued to employees was $113,000, or $0.93 per weighted-average share. The fair value of the
2014 unvested shares issued to directors was $150,000, or $0.90 per weighted-average share. The Company recorded $283,000 and $226,000 of stock-based compensation during the first six months of 2014 and 2013, 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:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended
June 30, 2014
|
|
|
Twelve Months Ended
December 31, 2013
|
|
|
|
Shares
|
|
|
Weighted
Average
Grant
Price
|
|
|
Shares
|
|
|
Weighted
Average
Grant
Price
|
|
Outstanding, beginning
|
|
|
787,426
|
|
|
$
|
1.56
|
|
|
|
153,316
|
|
|
$
|
5.92
|
|
Granted
|
|
|
122,220
|
|
|
|
0.93
|
|
|
|
693,214
|
|
|
|
1.18
|
|
Vested
|
|
|
(11,121
|
)
|
|
|
11.72
|
|
|
|
(22,113
|
)
|
|
|
12.19
|
|
Forfeited
|
|
|
(514
|
)
|
|
|
21.06
|
|
|
|
(36,991
|
)
|
|
|
6.22
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding, ending
|
|
|
898,011
|
|
|
$
|
1.34
|
|
|
|
787,426
|
|
|
$
|
1.56
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
30
The following table summarizes unvested share activity as of and for the periods indicated for
the Non-Employee Directors Stock Ownership Incentive Plan:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended
June 30, 2014
|
|
|
Twelve Months Ended
December 31, 2013
|
|
|
|
Shares
|
|
|
Weighted
Average
Grant
Price
|
|
|
Shares
|
|
|
Weighted
Average
Grant
Price
|
|
Outstanding, beginning
|
|
|
47,428
|
|
|
$
|
1.69
|
|
|
|
80,078
|
|
|
$
|
1.77
|
|
Granted
|
|
|
166,668
|
|
|
|
0.90
|
|
|
|
182,355
|
|
|
|
0.85
|
|
Vested
|
|
|
(7,757
|
)
|
|
|
1.74
|
|
|
|
(215,005
|
)
|
|
|
1.01
|
|
Forfeited
|
|
|
(24,520
|
)
|
|
|
1.69
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding, ending
|
|
|
181,819
|
|
|
$
|
0.96
|
|
|
|
47,428
|
|
|
$
|
1.69
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unrecognized stock based compensation expense related to unvested shares for the remainder of 2014 and beyond
is estimated as follows (in thousands):
|
|
|
|
|
July 2014 December 2014
|
|
$
|
397
|
|
2015
|
|
|
420
|
|
2016
|
|
|
275
|
|
2017
|
|
|
51
|
|
2018 & thereafter
|
|
|
|
|
Note 11 Earnings (Loss) per Share
The factors used in the basic and diluted earnings per share computations follow:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended June 30,
|
|
|
Six Months Ended June 30,
|
|
|
|
2014
|
|
|
2013
|
|
|
2014
|
|
|
2013
|
|
|
|
(in thousands, except share and per share data)
|
|
Net income (loss)
|
|
$
|
43
|
|
|
$
|
(1,309
|
)
|
|
$
|
(244
|
)
|
|
$
|
(1,378
|
)
|
Less:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Preferred stock dividends
|
|
|
789
|
|
|
|
437
|
|
|
|
1,574
|
|
|
|
875
|
|
Accretion of Series A preferred stock discount
|
|
|
|
|
|
|
45
|
|
|
|
|
|
|
|
90
|
|
Earnings allocated to unvested shares
|
|
|
(55
|
)
|
|
|
(62
|
)
|
|
|
(128
|
)
|
|
|
(69
|
)
|
Earnings allocated to Series C preferred
|
|
|
(19
|
)
|
|
|
(48
|
)
|
|
|
(45
|
)
|
|
|
(62
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss attributable to common shareholders, basic and diluted
|
|
$
|
(672
|
)
|
|
$
|
(1,681
|
)
|
|
$
|
(1,645
|
)
|
|
$
|
(2,212
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average common shares including
unvested common shares outstanding
|
|
|
13,293,226
|
|
|
|
12,528,932
|
|
|
|
13,256,911
|
|
|
|
12,501,854
|
|
Less: Weighted average unvested common shares
|
|
|
979,211
|
|
|
|
434,250
|
|
|
|
931,092
|
|
|
|
367,297
|
|
Less: Weighted average Series C preferred
|
|
|
332,894
|
|
|
|
332,894
|
|
|
|
332,894
|
|
|
|
332,894
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average common shares outstanding
|
|
|
11,981,121
|
|
|
|
11,761,788
|
|
|
|
11,992,925
|
|
|
|
11,801,663
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic loss per common share
|
|
$
|
(0.06
|
)
|
|
$
|
(0.14
|
)
|
|
$
|
(0.14
|
)
|
|
$
|
(0.19
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Add: Dilutive effects of assumed exercises of common and Preferred Series C stock warrants
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average common shares and potential common shares
|
|
|
11,981,121
|
|
|
|
11,761,788
|
|
|
|
11,992,925
|
|
|
|
11,801,663
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted loss per common share
|
|
$
|
(0.06
|
)
|
|
$
|
(0.14
|
)
|
|
$
|
(0.14
|
)
|
|
$
|
(0.19
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
31
The Company had no outstanding stock options at June 30, 2014 or 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 June 30, 2014 and 2013 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 $10.95 per share were outstanding at June 30, 2014 and 2013, 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 initiate 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 requires 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 unless the board of directors adopts prior to
the extension a detailed statement giving reasons why the extension is in the best interest of the bank, 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.
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, 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 cannot be considered well-capitalized while under the Consent Order. 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. We have not been directed by the FDIC to implement such a plan.
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. As of June 30, 2014, the capital ratios required by the Consent Order were not met.
32
The following table shows the ratios and amounts 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 (dollars in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Actual
|
|
|
For Capital
Adequacy
Purposes
|
|
|
|
Amount
|
|
|
Ratio
|
|
|
Amount
|
|
|
Ratio
|
|
As of June 30, 2014:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total risk-based capital (to risk- weighted assets)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consolidated
|
|
$
|
78,104
|
|
|
|
11.07
|
%
|
|
$
|
56,454
|
|
|
|
8.00
|
%
|
Bank
|
|
|
83,012
|
|
|
|
11.79
|
|
|
|
56,350
|
|
|
|
8.00
|
|
Tier I capital (to risk-weighted assets)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consolidated
|
|
|
51,593
|
|
|
|
7.31
|
|
|
|
28,227
|
|
|
|
4.00
|
|
Bank
|
|
|
68,619
|
|
|
|
9.74
|
|
|
|
28,175
|
|
|
|
4.00
|
|
Tier I capital (to average assets)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consolidated
|
|
|
51,593
|
|
|
|
4.89
|
|
|
|
42,233
|
|
|
|
4.00
|
|
Bank
|
|
|
68,619
|
|
|
|
6.51
|
|
|
|
42,154
|
|
|
|
4.00
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Actual
|
|
|
For Capital
Adequacy
Purposes
|
|
|
|
Amount
|
|
|
Ratio
|
|
|
Amount
|
|
|
Ratio
|
|
As of December 31, 2013:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total risk-based capital (to risk- weighted assets)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consolidated
|
|
$
|
80,203
|
|
|
|
11.03
|
%
|
|
$
|
58,178
|
|
|
|
8.00
|
%
|
Bank
|
|
|
83,055
|
|
|
|
11.44
|
|
|
|
58,064
|
|
|
|
8.00
|
|
Tier I capital (to risk-weighted assets)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consolidated
|
|
|
53,371
|
|
|
|
7.34
|
|
|
|
29,089
|
|
|
|
4.00
|
|
Bank
|
|
|
67,897
|
|
|
|
9.35
|
|
|
|
29,032
|
|
|
|
4.00
|
|
Tier I capital (to average assets)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consolidated
|
|
|
53,371
|
|
|
|
4.95
|
|
|
|
43,156
|
|
|
|
4.00
|
|
Bank
|
|
|
67,897
|
|
|
|
6.28
|
|
|
|
43,221
|
|
|
|
4.00
|
|
The Consent Order requires the Bank to achieve the minimum capital ratios presented below:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Actual as of
June 30, 2014
|
|
|
Ratio Required by
Consent Order
|
|
|
|
Amount
|
|
|
Ratio
|
|
|
Amount
|
|
|
Ratio
|
|
Total capital to risk-weighted assets
|
|
$
|
83,012
|
|
|
|
11.79
|
%
|
|
$
|
84,526
|
|
|
|
12.00
|
%
|
Tier I capital to average assets
|
|
|
68,619
|
|
|
|
6.51
|
|
|
|
94,847
|
|
|
|
9.00
|
|
At June 30, 2014, PBI Banks Tier 1 leverage ratio was 6.51%, and its total risk-based capital ratio
was 11.79%, both of which are below the minimum capital ratios required by the Consent Order. 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.
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.
33
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 $1.9 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.
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.
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
accrual 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.
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. 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). The complaint alleges violation of the Kentucky Securities Act and negligent misrepresentation against all named
defendants, and breach of contract against Porter Bancorp alone. 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 September 13, 2013, defendants filed a motion to dismiss all claims in the complaint for pleading failures and for failure to state a claim upon
which relief may be granted. On March 25, 2014, the judge ruled that SBAV had failed to state a claim against PBI Bank and dismissed PBI Bank from the case. The claims against Porter Bancorp, the Estate of J. Chester Porter and
Ms. Bouvette remain and have proceeded to discovery. On April 21, 2014, Porter Bancorp filed a third-party complaint for contribution against SBAVs investment adviser, the Clinton Group, Inc., alleging that, to the extent the
Court finds SBAV to have suffered a recoverable loss, the Clinton Groups failure to exercise due care and negligence in conducting due diligence contributed to that loss. We dispute the material factual allegations made in SBAVs
complaint and intend to defend against SBAVs claims vigorously.
Thomas E. Perez, Secretary of the United States Department of
Labor (DOL) v. PBI Bank, Inc.
On December 26, 2013, the United States Department of Labor (DOL) filed a lawsuit against PBI Bank in U.S. District Court for the Northern District of Indiana.
Thomas E. Perez, Secretary
of the United States Department of Labor v. PBI Bank, Inc.
(Civ. Action 3:13-CV-1400-PPS). The complaint alleges that in 2007 PBI Bank, in the capacity of trustee for the Millers Health Systems Inc. Employee Stock Ownership Plan,
authorized the alleged imprudent and disloyal purchase of the stock of Millers Health Systems, Inc. (Millers Health) in 2007 for $40 million, a price allegedly far in excess of the stocks fair market value. The suit
also alleges, among other things, that PBI Bank approved 100% seller financing for the transaction at an excessive rate of interest. On March 31, 2014, PBI Bank filed its answer, disputing the material factual allegations of the complaint. On
April 10, 2014, PBI Bank filed a third-party complaint against Millers Health seeking to enforce its indemnity rights, as well as third party claims for contribution against named directors and officers of Millers Health. On
May 19, 2014, PBI Bank filed a motion to dismiss the complaint on the basis of a statute of limitations defense. The parties have submitted briefs on both motions to dismiss and await a ruling. We dispute the material factual allegations made
in the complaint and intend to defend against DOLs claims vigorously.
34
AIT Laboratories Employee Stock Ownership Plan.
The Department of Labor has audited
certain transactions between certain former shareholders of AIT Holding Company and the AIT Laboratories Employee Stock Ownership Plan. PBI Bank served as trustee of the AIT ESOP in June 2009 when the AIT ESOP purchased all the stock of AIT Holding
Company for $90 million, an amount the DOL alleges was well in excess of the stocks then-fair market value. On July 24, 2014, the DOL notified the former AIT Holding Company shareholders and PBI Bank that unless an agreement is reached to
settle the matter, DOL intended to file a lawsuit against them no later than August 31, 2014. We dispute the material factual allegations that have been made by DOL and intend to vigorously defend against any claims.