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EX-31.1 - EXHIBIT 31.1 - Porter Bancorp, Inc.a6723514ex31_1.htm
EX-32.2 - EXHIBIT 32.2 - Porter Bancorp, Inc.a6723514ex32_2.htm
EX-31.2 - EXHIBIT 31.2 - Porter Bancorp, Inc.a6723514ex31_2.htm
EX-32.1 - EXHIBIT 32.1 - Porter Bancorp, Inc.a6723514ex32_1.htm
 

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
 

 
 FORM 10-Q  
 
(Mark One)
x
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 
For the Quarterly Period Ended March 31, 2011
 
Or
 
¨
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 
For the transition period from              to             
 
Commission file number: 001-33033
 
 
PORTER BANCORP, INC.
(Exact name of registrant as specified in its charter)
 
Kentucky
 
61-1142247
(State or other jurisdiction of
incorporation or organization)
 
(I.R.S. Employer
Identification No.)
     
2500 Eastpoint Parkway, Louisville, Kentucky
 
40223
(Address of principal executive offices)
 
(Zip Code)
 
(502) 499-4800
(Registrant’s telephone number, including area code)
 

 
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.  Yes x    No ¨
 
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).  Yes ¨  No ¨
 
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.
 
  Large accelerated filer  ¨ Accelerated filer  ¨
  Non-accelerated filer  ¨ Smaller reporting company  x
 
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).  Yes ¨    No x

 
 

 
 
Indicate the number of shares outstanding of each of the issuer’s class of common stock, as of the latest practicable date.

11,838,428 shares of Common Stock, no par value, were outstanding at April 30, 2011.
 
 
 
 
 

 
 
   
Page
PART I -
FINANCIAL INFORMATION
 
     
ITEM 1.
1
     
ITEM 2.
 
 
27
     
ITEM 3.
39
     
ITEM 4.
40
     
PART II -
OTHER INFORMATION
 
     
ITEM 1.
41
     
ITEM 1A.
41
     
ITEM 2.
41
     
ITEM 3.
41
     
ITEM 4.
41
     
ITEM 5.
41
     
ITEM 6.
42
 
 
 

 

PART I – FINANCIAL INFORMATION


The following consolidated financial statements of Porter Bancorp Inc. and Subsidiary, PBI Bank, Inc., are submitted:
 
Unaudited Consolidated Balance Sheets for March 31, 2011 and December 31, 2010
Unaudited Consolidated Statements of Income for the three months ended March 31, 2011 and 2010
Unaudited Consolidated Statement of Changes in Stockholders’ Equity for the three months ended March 31, 2011
Unaudited Consolidated Statements of Cash Flows for the three months ended March 31, 2011 and 2010
Notes to Unaudited Consolidated Financial Statements


 
1

 
 
PORTER BANCORP, INC.
Unaudited Consolidated Balance Sheets
(dollars in thousands except share data)
 
   
March 31,
   
December 31,
 
   
2011
   
2010
 
Assets
           
Cash and due from financial institutions
  $ 156,726     $ 178,693  
Federal funds sold
    5,377       6,742  
Cash and cash equivalents     162,103       185,435  
Securities available for sale
    163,032       106,309  
Mortgage loans held for sale
    330       345  
Loans, net of allowance of $33,599 and $34,285, respectively
    1,243,568       1,268,383  
Premises and equipment
    22,175       22,468  
Other real estate owned
    73,942       67,635  
Goodwill
    23,794       23,794  
Accrued interest receivable and other assets
    48,163       49,583  
Total assets
  $ 1,737,107     $ 1,723,952  
                 
Liabilities and Stockholders’ Equity
               
Deposits
               
Non-interest bearing
  $ 106,772     $ 98,398  
Interest bearing     1,375,551       1,369,270  
Total deposits     1,482,323       1,467,668  
Federal funds purchased and repurchase agreements
    11,429       11,616  
Federal Home Loan Bank advances
    14,564       15,022  
Accrued interest payable and other liabilities
    5,507       6,681  
Subordinated capital note
    8,550       8,550  
Junior subordinated debentures
    25,000       25,000  
Total liabilities     1,547,373       1,534,537  
                 
Stockholders’ equity
               
Preferred stock, no par, 1,000,000 shares authorized,                
Series A – 35,000 issued and outstanding;                
Liquidation preference of $35 million at March 31, 2011     34,528       34,484  
Series C – 317,042 issued and outstanding;                
Liquidation preference of $3.6 million at March 31, 2011     3,283       3,283  
Common stock, no par, 19,000,000 shares authorized, 11,840,176                
and 11,846,107 shares issued and outstanding, respectively     112,236       112,236  
Additional paid-in capital     19,526       19,438  
Retained earnings
    18,017       17,822  
Accumulated other comprehensive income     2,144       2,152  
Total stockholders' equity
    189,734       189,415  
Total liabilities and stockholders’ equity
  $ 1,737,107     $ 1,723,952  
 
See accompanying notes to unaudited consolidated financial statements.
 

 
 
2

 

PORTER BANCORP, INC.
Unaudited Consolidated Statements of Income
(dollars in thousands, except per share data)
 
   
Three Months Ended
 
   
March 31,
 
   
2011
    2010  
Interest income
           
Loans, including fees
  $ 18,110     $ 19,873  
Taxable securities
    1,042       2,335  
Tax exempt securities
    260       216  
Fed funds sold and other
    204       202  
      19,616       22,626  
Interest expense
               
Deposits
    5,360       7,383  
Federal Home Loan Bank advances
    142       720  
Subordinated capital note
    73       75  
Junior subordinated debentures
    155       152  
Federal funds purchased and other
    118       119  
 
    5,848       8,449  
Net interest income
    13,768       14,177  
Provision for loan losses
    5,100       3,000  
Net interest income after provision for loan losses
    8,668       11,177  
                 
Non-interest income
               
Service charges on deposit accounts
    630       720  
Income from fiduciary activities
    255       252  
Secondary market brokerage fees
    76       60  
Title insurance commissions
    31       37  
Net gain on sales of loans originated for sale
    221       91  
Net gain on sales of securities
    83       57  
Other
    491       475  
      1,787       1,692  
Non-interest expense
               
Salaries and employee benefits
    4,124       3,947  
Occupancy and equipment
    972       1,022  
Other real estate owned expense
    1,367       378  
FDIC Insurance
    855       705  
State franchise tax
    582       543  
Professional fees
    280       266  
Loan collection expense
    262       175  
Communications
    168       186  
Postage and delivery
    123       188  
Advertising
    102       96  
Other
    560       543  
      9,395       8,049  
Income before income taxes
    1,060       4,820  
Income tax expense
    261       1,564  
Net income
    799       3,256  
Less:
               
Dividends on preferred stock
    438       438  
Accretion on Series A preferred stock
    44       44  
Earnings allocated to participating securities
    12       42  
Net income available to common shareholders
  $ 305     $ 2,732  
Basic earnings per common share
  $ 0.03     $ 0.30  
Diluted earnings per common share
  $ 0.03     $ 0.30  
 
See accompanying notes to unaudited consolidated financial statements.
 
 
 
 
3

 
 
PORTER BANCORP, INC.
Unaudited Consolidated Statement of Changes in Stockholders’ Equity
For Three Months Ended March 31, 2011
(dollars in thousands, except share and per share data)
 
                                  Accumulated      
  Shares   Amount   Additional      
Other
     
     
Series A
 
Series C
     
Series A
 
Series C
 
Paid-In
 
Retained
  Comprehensive      
  Common  
Preferred
 
Preferred
 
Common
 
Preferred
 
Preferred
 
Capital
 
Earnings
 
Income
 
Total
 
Balances, January 1, 2011
11,846,107   35,000   317,042   $ 112,236   $ 34,484   $ 3,283   $ 19,438   $ 17,822   $ 2,152   $ 189,415  
Forfeited unvested stock
(5,931 )                                
Stock-based compensation expense
                    88             88  
Comprehensive income:
                                                     
Net income
                        799         799  
Changes in accumulated other                                                      
  comprehensive income,                                                      
  net of taxes
                            (8 )   (8 )
Total comprehensive income
                                791  
Dividends 5% on Series A preferred stock
                        (438 )       (438 )
Dividends on Series C preferred                                                      
  stock ($0.01 per share)
                        (3 )       (3 )
Amortization of Series A preferred                                                      
  stock discount
            44             (44 )        
Cash dividends declared on                                                      
  common stock ($0.01 per share)
                        (119 )       (119 )
                                                       
Balances, March 31, 2011
11,840,176   35,000   317,042   $ 112,236   $ 34,528   $ 3,283   $ 19,526   $ 18,017   $ 2,144   $ 189,734  
 
See accompanying notes to unaudited consolidated financial statements.
 
 
 
 
4

 
 
PORTER BANCORP, INC.
Unaudited Consolidated Statements of Cash Flows
For Three Months Ended March 31, 2011 and 2010
(dollars in thousands)
 
   
2011
   
2010
 
Cash flows from operating activities             
Net income
  $ 799     $ 3,256  
Adjustments to reconcile net income to                
  net cash from operating activities                
Depreciation and amortization
    610       844  
Provision for loan losses
    5,100       3,000  
Net amortization (accretion) on securities
    321       (226 )
Stock-based compensation expense
    118       99  
Deferred income taxes
    238       1,177  
Net gain on loans originated for sale
    (221 )     (91 )
Loans originated for sale
    (7,188 )     (6,182 )
Proceeds from sales of loans originated for sale
    7,234       5,588  
Net gain on sales of investment securities
    (83 )     (57 )
Net (gain) loss on sales of other real estate owned
    391       (1 )
Net write-down of other real estate owned
    486       240  
Earnings on bank owned life insurance
    (70 )     (70 )
Net change in accrued interest receivable and other assets
    1,130       1,338  
Net change in accrued interest payable and other liabilities
    (1,169 )     (1,707 )
Net cash from operating activities
    7,696       7,208  
Cash flows from investing activities                 
Purchases of available-for-sale securities
    (66,641 )     (23,105 )
Sales and calls of available-for-sale securities
    2,894       8,163  
Maturities and prepayments of available-for-sale securities
    6,773       6,832  
Proceeds from sale of other real estate owned
    624       878  
Improvements to other real estate owned
    (1,037 )     (338 )
Loan originations and payments, net
    12,951       3,582  
Purchases of premises and equipment, net
    (42 )     (35 )
Net cash from investing activities
    (44,478 )     (4,023 )
Cash flows from financing activities                 
Net change in deposits
    14,655       (45,056 )
Net change in federal funds purchased and repurchase agreements
    (187 )     78  
Repayment of Federal Home Loan Bank advances
    (458 )     (35,695 )
Cash dividends paid on preferred stock
    (441 )     (438 )
Cash dividends paid on common stock
    (119 )     (1,765 )
Net cash from financing activities
    13,450       (82,876 )
Net change in cash and cash equivalents
    (23,332 )     (79,691 )
Beginning cash and cash equivalents
    185,435       172,173  
Ending cash and cash equivalents
  $ 162,103     $ 92,482  
Supplemental cash flow information:                 
Interest paid
  $ 5,861     $ 8,744  
Income taxes paid            
Supplemental non-cash disclosure:                
Transfer from loans to other real estate
  $ 8,812     $ 52,214  
Financed sales of other real estate owned
    2,041       6,295  
 
See accompanying notes to unaudited consolidated financial statements.
 
 
 
 
5

 
 
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 wholly-owned subsidiary, PBI Bank (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 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 three months ended March 31, 2011 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, 2010 included in the Company’s 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, goodwill and 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.

New Accounting Standards
 
In January 2011, the FASB issued ASU No. 2011-01, “Deferral of the Effective Date of Disclosures about Troubled Debt Restructurings in Update No. 2010-20.”  The provisions of ASU No. 2010-20 required the disclosure of more granular information on the nature and extent of troubled debt restructurings and their effect on the allowance for loan and lease losses effective for the Company’s reporting period ended March 31, 2011.  The amendments in ASU No. 2011-01 defer the effective date related to these disclosures, enabling creditors to provide such disclosures after the FASB completes their project clarifying the guidance for determining what constitutes a troubled debt restructuring.  As the provisions of this ASU only defer the effective date of the disclosure requirements related to troubled debt restructurings, the adoption of this ASU will have no impact on the Company’s statements of income and condition.
 
In April 2011, the FASB issued ASU No. 2011-02, ‘A Creditor’s Determination of Whether a Restructuring is a Troubled Debt Restructuring.”  The provisions of ASU No. 2011-02 provide additional guidance related to determining whether a creditor has granted a concession, include factors and examples for creditors to consider in evaluating whether a restructuring results in a delay in payment that is insignificant, prohibit creditors from using the borrower’s effective rate test to evaluate whether a concession has been granted to the borrower, and add factors for creditors to use in determining whether a borrower is experiencing financial difficulties.  A provision in ASU no. 2011-02 also ends the FASB’s deferral of the additional disclosures about troubled debt restructurings as required by ASU No. 2010-20.  The provisions of ASU No. 2011-02 are effective for the Company’s reporting period ending September 30, 2011.  The adoption of ASU No. 2011-02 is not expected to have a material impact on the Company’s statements of income and condition.
 
 
6

 

Note 2 – Stock Plans and Stock Based Compensation
 
The Company has a stock option plan and a stock incentive plan. On February 23, 2006, the Company adopted the Porter Bancorp, Inc. 2006 Stock Incentive Plan. The 2006 Plan permits the issuance of up to 400,000 shares of the Company’s common stock upon the exercise of stock options or upon the grant of stock awards. As of March 31, 2011, the Company had granted outstanding options to purchase 13,324 shares.  The Company also had granted 121,251 unvested shares net of forfeitures and vesting. The Company has 194,798 shares remaining available for issue under the plan.  All shares issued under the above mentioned plans came from authorized and unissued shares.

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 Company’s voting common stock on June 8, 2006.  On May 22, 2008, shareholders voted to amend the plan to change the form of incentive award from stock options to unvested shares. Under the terms of the plan, 100,000 shares are reserved for issuance to non-employee directors upon the exercise of stock options or upon the grant of unvested stock awards granted under the plan. Prior to the amendment, options were granted automatically under the plan at fair market value on the date of grant.  The options vest over a three-year period and have a five year term.  Unvested shares are granted automatically under the plan at fair market value on the date of grant and vest semi-annually on the anniversary date of the grant over three years.  To date, the Company has granted options to purchase 45,155 shares and issued 3,651 unvested shares to non-employee directors. At March 31, 2011, 47,300 shares remain available for issue under this plan.

All stock options have an exercise price that is equal to or greater than the fair market value of the Company’s stock on the date the options were granted.  Options granted generally become fully exercisable at the end of three years of continued employment. Options have a life of five years.

The following table summarizes stock option activity:
 
    Three Months Ended     Twelve Months Ended  
   
March 31, 2011
   
December 31, 2010
 
          Weighted          
Weighted
 
          Average          
Average
 
          Exercise          
Exercise
 
   
Options
   
Price
   
Options
   
Price
 
Outstanding, beginning
    86,469     $ 20.72       312,227     $ 21.80  
Forfeited
    (291 )     22.03       (16,797 )     21.55  
Expired
    (27,699 )     22.03       (208,961 )     22.27  
Outstanding, ending
    58,479     $ 20.09       86,469     $ 20.72  
 
The following table details stock options outstanding:
 
 
March 31, 2011
 
Stock options vested and currently exercisable:
    58,479  
Weighted average exercise price
  $ 20.09  
Aggregate intrinsic value
  $ 0  
Weighted average remaining life (in years)
    0.9  
Total Options Outstanding:
    58,479  
Aggregate intrinsic value
  $ 0  
Weighted average remaining life (in years)
    0.9  
 
 
7

 
 
The intrinsic value of stock options is calculated based on the exercise price of the underlying awards and the market price of our common stock as of the reporting date.  The intrinsic value of the vested and expected to vest stock options is $0 at March 31, 2011.  There were no options exercised during the first three months of 2011.  The Company recorded no stock option compensation expense during the three months ended March 31, 2011.  No options were modified during the period.  As of March 31, 2011, no stock options issued by the Company have been exercised.

From time-to-time the Company issues unvested shares to employees and non-employee directors.  The shares vest either semi-annually or annually over three to ten years on the anniversary date of the issuance date provided the employee or director continues in such capacity at the vesting date. No unvested shares were issued the three months ended March 31, 2011. The Company recorded $118,000 of stock-based compensation during the first quarter of 2011 to salaries and employee benefits.  A deferred tax benefit of $41,000 was recognized related to this expense.

The following table summarizes unvested share activity as of and for the periods indicated:

    Three Months Ended    
Twelve Months Ended
 
    March 31, 2011    
December 31, 2010
 
         
Weighted
         
Weighted
 
         
Average
         
Average
 
         
Grant
         
Grant
 
    Shares    
Price
   
Shares
   
Price
 
Outstanding, beginning
    157,697     $ 13.43       119,598     $ 15.00  
Granted
                72,655       11.11  
Vested
    (26,909 )     12.25       (24,505 )     14.46  
Forfeited
    (5,886 )     14.08       (10,051 )     12.78  
Outstanding, ending
    124,902     $ 13.65       157,697     $ 13.43  

Unrecognized stock based compensation expense related to stock options and unvested shares for the remainder of 2011 and beyond is estimated as follows (in thousands):
 
April 2011 – December 2011
  $ 355  
2012
    463  
2013
    377  
2014
    264  
2015 & thereafter
    169  
 
 
8

 

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 were as follows:

   
Amortized
Cost
   
Gross
Unrealized
Gains
   
Gross
Unrealized
Losses
   
Fair
Value
 
    (in thousands)  
March 31, 2011
                       
U.S. Government and federal agency
  $ 10,595     $ 60     $     $ 10,655  
Agency mortgage-backed: residential
    109,491       1,438       (375 )     110,554  
State and municipal
    30,427       1,315       (2 )     31,740  
Corporate bonds
    7,249       579       (23 )     7,805  
Other
    572                   572  
Total debt securities
    158,334       3,392       (400 )     161,326  
Equity
    1,400       311       (5 )     1,706  
Total
  $ 159,734     $ 3,703     $ (405 )   $ 163,032  
 
 

December 31, 2010
                       
U.S. Government and federal agency
  $ 5,973     $ 37     $     $ 6,010  
Agency mortgage-backed: residential
    60,270       1,590       (5 )     61,855  
State and municipal
    26,039       995       (32 )     27,002  
Corporate bonds
    8,744       507       (32 )     9,219  
Other
    572                   572  
Total debt securities
    101,598       3,129       (69 )     104,658  
Equity
    1,400       254       (3 )     1,651  
Total
  $ 102,998     $ 3,383     $ (72 )   $ 106,309  
 
Sales and calls of available for sale securities were as follows:                                                                                                                          
 
    Three Months Ended  
   
March 31,
 
   
2011
   
2010
 
   
(in thousands)
 
Proceeds
  $ 2,894     $ 8,163  
Gross gains
    83        256  
Gross losses
          (199
 
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.
 
   
March 31, 2011
 
   
Amortized
Cost
   
Fair
Value
 
   
(in thousands)
 
Maturity             
Available-for-sale             
Within one year
  $ 1,725     $ 1,751  
One to five years
    14,640       15,404  
Five to ten years
    30,158       31,255  
Beyond ten years    
2,320
     
2,362
 
Mortgage-backed
   
109,491
     
110,554
 
Total  
158,334
     161,326  
 
 
9

 
 
Securities pledged at March 31, 2011 and December 31, 2010 had carrying values of approximately $73.8 million and $73.1 million, respectively, and were pledged to secure public deposits, repurchase agreements, and Federal Home Loan Bank advances.

The Company evaluates securities for OTTI at least on a quarterly basis, and more frequently when economic or market concerns warrant such evaluation.  Consideration is given to the length of time and the extent to which the fair value has been less than cost, the financial condition and near-term prospects of the issuer, underlying credit quality of the issuer, and the intent and ability of the Company to retain its investment in the issuer for a period of time sufficient to allow for any anticipated recovery in fair value.  In analyzing an issuer’s 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 issuer’s financial condition.  Management currently intends to hold all securities with unrealized losses until recovery, which for fixed income securities may be at maturity.

At March 31, 2011, the Company held 41 equity securities.  Of these securities, 2 had unrealized losses of $1,500 and had been in an unrealized loss position for less than twelve months and 3 had an unrealized loss of $3,400 and had been in an unrealized loss position for more than twelve months.  Management monitors the underlying financial condition of the issuers and current market pricing for these equity securities monthly. As of March 31, 2011, management does not believe any securities in our portfolio with unrealized losses should be classified as other than temporarily impaired.

Securities with unrealized losses at March 31, 2011 and December 31, 2010, aggregated by investment category and length of time that 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)
 
March 31, 2011
                                   
Agency mortgage-backed: residential
  $ 38,501     $ (375 )   $     $     $ 38,501     $ (375 )
State and municipal
    1,137       (2 )                 1,137       (2 )
Corporate bonds
    1,004       (23 )                 1,004       (23 )
Equity
    27       (2 )     19       (3 )     46       (5 )
                                                 
Total temporarily impaired
  $ 40,669     $ (402 )   $ 19     $ (3 )   $ 40,688     $ (405 )
                                                 
                                                 
December 31, 2010
                                               
State and municipal
  $ 3,119     $ (32 )   $     $     $ 3,119     $ (32 )
Agency mortgage-backed: residential
    1,060       (5 )                 1,060       (5 )
Corporate bonds
    995       (32 )                 995       (32 )
Equity
    27       (1 )     74       (2 )     101       (3 )
                                                 
Total temporarily impaired
  $ 5,201     $ (70 )   $ 74     $ (2 )   $ 5,275     $ (72 )
 
 
10

 

Note 4 – Loans

Loans were as follows:
 
   
March 31,
2011
   
December 31,
2010
 
   
(in thousands)
 
Commercial
  $ 76,521     $ 90,290  
Commercial Real Estate:                
Construction
    175,805       199,524  
Farmland
    86,161       85,523  
Other
    458,278       441,844  
Residential Real Estate:                
Multi-family
    75,283       74,919  
Other
    349,247       353,418  
Consumer
    30,758       31,913  
Agriculture
    24,158       24,177  
Other
    956       1,060  
Subtotal
    1,277,167       1,302,668  
Less: Allowance for loan losses
    (33,599 )     (34,285 )
Loans, net
  $ 1,243,568     $ 1,268,383  

Activity in the allowance for loan losses was as follows:
 
   
For the Three Months Ended
 
   
March 31,
2011
   
March 31,
2010
 
   
(in thousands)
 
Beginning balance
  $ 34,285     $ 26,392  
Provision for loan losses
    5,100       3,000  
Loans charged-off
    (5,867 )     (2,906 )
Loan recoveries
    81       57  
Ending balance
  $ 33,599     $ 26,543  

The following table presents the activity in the allowance for loan losses by portfolio segment for the three months ended March 31, 2011:
 
   
Commercial
   
Commercial
Real Estate
   
Residential
Real Estate
   
Consumer
   
Agriculture
   
Other
   
Total
 
                                           
                                           
Beginning balance
  $ 2,147     $ 24,075     $ 7,224     $ 701     $ 134     $ 4     $ 34,285  
Provision for loan losses
    (106 )     3,457       1,618       122       5       4       5,100  
Loans charged off
    (79 )     (4,141 )     (1,434 )     (213 )                   (5,867 )
Recoveries
    12       5       43       21                   81  
                                                         
Ending balance
  $ 1,974     $ 23,396     $ 7,451     $ 631     $ 139     $ 8     $ 33,599  
 
 
11

 

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 March 31, 2011:
 
   
Commercial
   
Commercial
Real Estate
   
Residential
Real Estate
   
Consumer
   
Agriculture
   
Other
   
Total
 
                                           
Allowance for loan losses:
                                         
Ending allowance balance attributable to loans:
                                         
Individually evaluated for impairment
  $ 57     $ 4,660     $     $     $     $     $ 4,717  
Collectively evaluated for impairment
    1,917       18,736       7,451       631       139       8       28,882  
                                                         
Total ending allowance balance
  $ 1,974     $ 23,396     $ 7,451     $ 631     $ 139     $ 8     $ 33,599  
                                                         
                                                         
Loans:
                                                       
Loans individually evaluated for impairment
  $ 3,475     $ 60,246     $ 10,629     $     $ 86     $     $ 74,436  
Loans collectively evaluated for impairment
    73,046       659,998       413,901       30,758       24,072       956       1,202,731  
                                                         
Total ending loans balance
  $ 76,521     $ 720,244     $ 424,530     $ 30,758     $ 24,158     $ 956     $ 1,277,167  

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, 2010:
 
   
Commercial
   
Commercial
Real Estate
   
Residential
Real Estate
   
Consumer
   
Agriculture
   
Other
   
Total
 
                                           
Allowance for loan losses:
                                         
Ending allowance balance attributable to loans:
                                         
Individually evaluated for impairment
  $ 23     $ 5,096     $     $     $     $     $ 5,119  
Collectively evaluated for impairment
    2,124       18,979       7,224       701       134       4       29,166  
                                                         
Total ending allowance balance
  $ 2,147     $ 24,075     $ 7,224     $ 701     $ 134     $ 4     $ 34,285  
                                                         
                                                         
Loans:
                                                       
Loans individually evaluated for impairment
  $ 3,673     $ 51,223     $ 16,718     $     $ 112     $     $ 71,726  
Loans collectively evaluated for impairment
    86,617       675,668       411,619       31,913       24,065       1,060       1,230,942  
                                                         
Total ending loans balance
  $ 90,290     $ 726,891     $ 428,337     $ 31,913     $ 24,177     $ 1,060     $ 1,302,668  

 
12

 
 
Impaired loans were as follows:
 
   
March 31,
2011
   
December 31,
2010
 
    (in thousands)  
Loans with no allocated allowance for loan losses
  $ 40,019     $ 41,885  
Loans with allocated allowance for loan losses
    34,417       29,841  
Total
  $ 74,436     $ 71,726  
Amount of the allowance for loan losses allocated
  $ 4,717     $ 5,119  
 
 
   
Three Months
Ended
March 31,
2011
   
Year Ended
December 31,
2010
 
Average of impaired loans during the period
  $ 73,081     $ 69,167  
Interest income recognized during impairment
    338       1,358  
Cash basis interest income recognized
    87       115  

Impaired loans include restructured loans and commercial, construction, agriculture, and commercial real estate loans on non-accrual 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 had been provided.
 
The following table presents information related to loans individually evaluated for impairment by class of loans as of and for the three months ended March 31, 2011:
 
   
Unpaid
Principal
Balance
   
Recorded
Investment
   
Allowance
For Loan
Losses
Allocated
   
Average
Recorded
Investment
   
Interest
Income
Recognized
   
Cash Basis
Interest
Recognized
 
                                     
   
(in thousands)
 
With No Related Allowance Recorded:      
Commercial
  $ 2,370     $ 2,334     $     $ 2,428     $ 22     $ 8  
Commercial real estate:
                                               
Construction
    3,901       3,901             6,917       11       3  
Farmland
    6,754       6,754             6,750       86       7  
Other
    19,435       16,315             14,692       44       14  
Residential real estate:
                                               
Multi-family
    3,912       3,912             3,920       46        
Other
    7,810       6,717             9,753       76       2  
Consumer
                                   
Agriculture
    86       86             99              
Other
                                   
With An Allowance Recorded:                                                
Commercial
    1,141       1,141       57       1,145       24       24  
Commercial real estate:
                                               
Construction
    6,105       5,633       796       4,807              
Farmland
    1,234       1,234       90       1,234              
Other
    28,361       26,409       3,774       21,336       29       29  
Residential real estate:
                                               
Multi-family
                                   
Other
                                   
Consumer
                                   
Agriculture
                                   
Other
                                   
                                                 
Total
  $ 81,109     $ 74,436     $ 4,717     $ 73,081     $ 338     $ 87  

 
13

 

The following table presents loans individually evaluated for impairment by class of loan as of December 31, 2010:

   
Unpaid
Principal
Balance
   
Recorded
Investment
   
Allowance
For Loan
Losses
Allocated
 
   
(in thousands)
 
With No Related Allowance Recorded:
                 
Commercial
  $ 2,559     $ 2,523     $  
Commercial real estate:
                       
Construction
    3,269       3,268        
Farmland
    6,745       6,746        
Other
    12,662       12,518        
Residential real estate:
                       
Multi-family
    3,929       3,929        
Other
    13,303       12,789        
Consumer
                 
Agriculture
    119       112        
Other
                 
With An Allowance Recorded:
                       
Commercial
    1,150       1,150       23  
Commercial real estate:
                       
Construction
    13,314       10,645       1,923  
Farmland
    1,234       1,234       89  
Other
    16,912       16,812       3,084  
Residential real estate:
                       
Multi-family
                 
Other
                 
Consumer
                 
Agriculture
                 
Other
                 
                         
Total
  $ 75,196