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EX-31.1 - SB FINANCIAL GROUP, INC.v222650_ex31-1.htm
EX-32.1 - SB FINANCIAL GROUP, INC.v222650_ex32-1.htm
EX-31.2 - SB FINANCIAL GROUP, INC.v222650_ex31-2.htm
EX-32.2 - SB FINANCIAL GROUP, INC.v222650_ex32-2.htm

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

FORM 10-Q

x QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 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 0-13507

RURBAN FINANCIAL CORP.

(Exact name of registrant as specified in its charter)

Ohio
 
34-1395608
(State or other jurisdiction of
 
(I.R.S. Employer Identification No.)
incorporation or organization)
   

401 Clinton Street, Defiance, Ohio 43512
(Address of principal executive offices)
(Zip Code)

(419) 783-8950

(Registrant’s telephone number, including area code)

None

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

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.  Yes 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 Accelerate 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 classes of common stock, as of the latest practicable date.

Common Shares, without par value
 
4,861,779 shares
(class)
 
(Outstanding at May 13, 2011)
 
 
 

 

RURBAN FINANCIAL CORP.

FORM 10-Q

TABLE OF CONTENTS

PART I – FINANCIAL INFORMATION
 3
     
Item 1.
Financial Statements
 3
Item 2.
Management’s Discussion and Analysis of Financial Condition and Results of Operations
 29
Item 3.
Quantitative and Qualitative Disclosures About Market Risk
 38
Item 4.
Controls and Procedures
 38
     
PART II – OTHER INFORMATION
39
     
Item 1.
Legal Proceedings
 39
Item 1A.
Risk Factors
 39
Item 2.
Unregistered Sales of Equity Securities and Use of Proceeds
 39
Item 3.
Defaults Upon Senior Securities
 40
Item 4.
[Reserved]
 40
Item 5.
Other Information
 40
Item 6.
Exhibits
 40
     
Signatures
 41
 
 
2

 

PART I – FINANCIAL INFORMATION

Item 1. Financial Statements

The interim condensed consolidated financial statements of Rurban Financial Corp. (“Rurban” or the “Company”) are unaudited; however, the information contained herein reflects all adjustments which are, in the opinion of management, necessary for a fair presentation of financial condition and results of operations for the interim periods presented.  All adjustments reflected in these financial statements are of a normal recurring nature in accordance with Rule 10-01 of Regulation S-X.  Results of operations for the three months ended March 31, 2011 are not necessarily indicative of results for the complete year.
 
 
3

 

Rurban Financial Corp.
Condensed Consolidated Balance Sheets
March 31, 2011 and December 31, 2010
 
   
March
   
December
 
   
2011
   
2010
 
   
(Unaudited)
       
ASSETS
           
Cash and due from banks
  $ 38,090,470     $ 30,417,813  
Available-for-sale securities
    131,052,629       132,762,058  
Loans held for sale
    5,423,901       9,055,268  
Loans, net of unearned income
    422,166,393       427,544,414  
Allowance for loan losses
    (6,593,279 )     (6,715,397 )
Premises and equipment, net
    14,361,382       14,622,541  
Purchased software
    947,061       1,021,036  
Federal Reserve and Federal Home Loan Bank Stock
    3,748,250       3,748,250  
Foreclosed assets held for sale, net
    921,660       1,538,307  
Accrued interest receivable
    2,363,645       2,068,965  
Goodwill
    16,733,830       16,733,830  
Core deposits and other intangibles
    2,387,920       2,585,132  
Cash value of life insurance
    11,951,006       13,211,247  
Mortgage Servicing Rights
    3,316,228       3,190,389  
Other assets
    8,096,914       8,503,832  
                 
Total assets
  $ 654,968,010     $ 660,287,685  

See notes to condensed consolidated financial statements (unaudited)

Note:
The balance sheet at December 31, 2010 has been derived from the audited consolidated financial statements at that date

 
4

 
 
Rurban Financial Corp.
Condensed Consolidated Balance Sheets
March 31, 2011 and December 31, 2010

   
March
   
December
 
   
2011
   
2010
 
   
(Unaudited)
       
LIABILITIES AND SHAREHOLDERS' EQUITY
           
Deposits
           
Non interest bearing demand
  $ 64,027,818     $ 62,745,906  
Interest bearing NOW
    107,940,091       105,708,472  
Savings
    48,983,184       47,662,315  
Money Market
    77,481,943       84,635,537  
Time Deposits
    214,528,353       214,925,512  
Total deposits
    512,961,389       515,677,742  
                 
Notes payable
    3,218,211       3,290,471  
Advances from Federal Home Loan Bank
    16,679,942       22,807,351  
Repurchase Agreements
    49,499,424       45,785,254  
Trust preferred securities
    20,620,000       20,620,000  
Accrued interest payable
    2,195,926       1,971,587  
Other liabilities
    3,528,328       4,111,182  
                 
Total liabilities
    608,703,220       614,263,587  
                 
Shareholders' Equity
               
Common stock
    12,568,583       12,568,583  
Additional paid-in capital
    15,258,113       15,235,206  
Retained earnings
    18,813,030       18,802,106  
Accumulated other comprehensive income
    1,394,375       1,187,514  
Treasury stock
    (1,769,311 )     (1,769,311 )
                 
Total shareholders' equity
    46,264,790       46,024,098  
                 
Total liabilities and shareholders' equity
  $ 654,968,010     $ 660,287,685  

See notes to condensed consolidated financial statements (unaudited)

Note:
The balance sheet at December 31, 2010 has been derived from the audited consolidated financial statements at that date.

 
5

 

Rurban Financial Corp.
Condensed Consolidated Statements of Operations (Unaudited)
Three Months Ended
 
   
Three Months Ended
 
   
March 31
 
   
2011
   
2010
 
Interest income
           
Loans
           
Taxable
  $ 5,852,367     $ 6,411,582  
Tax-exempt
    11,494       18,915  
Securities
               
Taxable
    610,524       702,255  
Tax-exempt
    335,969       319,063  
Other
    83       31,448  
Total interest income
    6,810,437       7,483,263  
                 
Interest expense
               
Deposits
    1,049,393       1,374,291  
Other borrowings
    24,629       38,083  
Retail Repurchase Agreements
    425,519       426,967  
Federal Home Loan Bank advances
    133,016       352,817  
Trust preferred securities
    344,578       386,624  
Total interest expense
    1,977,135       2,578,782  
                 
Net interest income
    4,833,302       4,904,481  
                 
Provision for loan losses
    498,840       1,391,433  
                 
Net interest income after provision for loan losses
    4,334,462       3,513,048  
                 
Non-interest income
               
Data service fees
    912,254       4,029,406  
Trust fees
    695,321       642,786  
Customer service fees
    580,942       587,401  
Net gain on sales of loans
    467,909       717,014  
Net realized gain on sales of securities
    -       451,474  
Investment securities recoveries
    -       73,774  
Loan servicing fees
    161,406       122,208  
Loss on sale or disposal of assets
    (100,209 )     (28,652 )
Other income
    145,203       155,981  
Total non-interest income
    2,862,826       6,751,392  
 
See notes to condensed consolidated financial statements (unaudited)

 
6

 
 
Rurban Financial Corp.
Condensed Consolidated Statements of Operations (Unaudited)
Three Months Ended

   
Three Months Ended
 
   
March 31
 
   
2011
   
2010
 
Non-interest expense
           
Salaries and employee benefits
    3,530,106       5,103,540  
Net occupancy expense
    584,057       586,223  
FDIC Insurance expense
    317,639       218,903  
Equipment expense
    711,051       2,165,101  
Software impairment expense
    -       568,535  
Data processing fees
    143,744       194,786  
Professional fees
    473,536       642,810  
Marketing expense
    55,976       77,601  
Printing and office supplies
    76,148       161,102  
Telephone and communication
    156,640       386,206  
Postage and delivery expense
    344,309       570,433  
State, local and other taxes
    143,568       121,039  
Employee expense
    95,884       279,925  
Other expenses
    427,033       683,860  
Total non-interest expense
    7,059,691       11,760,064  
                 
Income (loss) before income tax expense
    137,597       (1,495,624 )
Income tax expense (benefit)
    126,672       (647,686 )
                 
Net income (loss)
  $ 10,925     $ (847,938 )
                 
Earnings (loss) per common share:
               
Basic
  $ 0.00     $ (0.17 )
Diluted
  $ 0.00     $ (0.17 )

See notes to condensed consolidated financial statements (unaudited)

 
7

 

RURBAN FINANCIAL CORP.
CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’
EQUITY (UNAUDITED)

   
Three Months Ended
 
   
Mar. 31, 2011
   
Mar. 31, 2010
 
             
Balance at beginning of period
  $ 46,024,098     $ 61,707,655  
                 
Net Income (Loss)
    10,925       (847,938 )
                 
Unrealized gains on securities
               
Unrealized holding gains arising during the year, net of tax
    206,861       249,171  
Less: reclassification adjustment for gains realized in net income, net of tax
    -       297,972  
Total comprehensive income (loss)
    217,786       (896,739 )
                 
Share-based compensation
    22,906       43,627  
                 
Balance at end of period
  $ 46,264,790     $ 60,854,543  

See notes to condensed consolidated financial statements (unaudited)

 
8

 

Rurban Financial Corp.
Condensed Consolidated Statements of Cash Flows (Unaudited)
Three Months Ended
 
   
March 31, 2011
   
March 31, 2010
 
Operating Activities
           
Net Income/(loss)
  $ 10,925     $ (847,938 )
Items not requiring (providing) cash
               
Depreciation and amortization
    453,858       1,422,548  
Provision for loan losses
    498,840       1,391,433  
Expense of share-based compensation plan
    22,906       43,627  
Amortization of premiums and discounts on securities
    431,539       201,935  
Amortization of intangible assets
    197,212       200,134  
Deferred income taxes
    (106,563 )     (20,568 )
Proceeds from sale of loans held for sale
    29,634,009       69,929,801  
Originations of loans held for sale
    (25,534,733 )     (64,824,772 )
Gain from sale of loans
    (467,909 )     (717,014 )
Gain on available for sale securities
    -       (451,474 )
Software and fixed asset impairment
    -       568,535  
Loss on sale of foreclosed assets
    100,274       22,841  
(Gain) / Loss on sale of fixed assets
    (65 )     5,811  
Income from bank owned life insurance
    (93,521 )     (104,047 )
Changes in
               
Interest receivable
    (294,680 )     (638,251 )
Other assets
    274,191       409,687  
Interest payable and other liabilities
    (358,515 )     (1,745,332 )
                 
Net cash from operating activities
    4,767,768       4,846,956  
                 
Investing Activities
               
Purchase of available-for-sale securities
    (4,039,486 )     (23,365,873 )
Proceeds from maturities of available-for-sale securities
    5,630,800       11,773,761  
Proceeds from sales of available-for-sale-securities
    -       9,995,724  
Proceeds from bank owned life insurance
    1,353,762       -  
Net change in loans
    4,357,295       3,478,042  
Purchase of premises and equipment and software
    (118,724 )     (753,269 )
Proceeds from sales of premises and equipment
    65       477,941  
Proceeds from sale of foreclosed assets
    923,029       2,727,528  
                 
Net cash from investing activities
  $ 8,106,741     $ 4,333,854  

See notes to condensed consolidated financial statements (unaudited)

 
9

 

Rurban Financial Corp.
Condensed Consolidated Statements of Cash Flows (Unaudited) (continued)
Three Months Ended
 
   
March 31, 2011
   
March 31, 2010
 
Financing Activities
           
Net (decrease) increase in demand deposits, money market, interest checking and savings accounts
  $ (2,319,194 )   $ 12,614,595  
Net decrease in certificates of deposit
    (397,159 )     (4,911,086 )
Net increase in securities sold under agreements to repurchase
    3,714,170       2,068,279  
Net increase in federal funds purchased
    -       (5,000,000 )
Repayment of Federal Home Loan Bank advances
    (6,127,409 )     (2,607,300 )
Proceeds from notes payable
    -       2,000,000  
Repayment of notes payable
    (72,260 )     (765,841 )
                 
Net cash (used in) / from financing activities
    (5,201,852 )     3,398,647  
                 
Increase in Cash and Cash Equivalents
    7,672,657       12,579,457  
                 
Cash and Cash Equivalents, Beginning of Year
    30,417,813       24,824,785  
                 
Cash and Cash Equivalents, End of Period
  $ 38,090,470     $ 37,404,242  
                 
Supplemental Cash Flows Information
               
                 
Interest Paid
  $ 1,752,796     $ 2,885,467  
                 
Transfer of loans to foreclosed assets
  $ 399,768     $ 2,589,970  
                 
Sale and financing of foreclosed assets
  $ -     $ 2,249,532  

See notes to condensed consolidated financial statements (unaudited)

 
10

 

RURBAN FINANCIAL CORP.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

NOTE A—BASIS OF PRESENTATION

The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with generally accepted accounting principles for interim financial information and with the instructions for Form 10-Q.  Accordingly, they do not include all the information and footnotes required by generally accepted accounting principles for complete financial statements.  The financial statements reflect all adjustments that are, in the opinion of management, necessary to fairly present the financial position, results of operations and cash flows of the Company.  Those adjustments consist only of normal recurring adjustments.  Results of operations for the three months ended March 31, 2011 are not necessarily indicative of results for the complete year.

The condensed consolidated balance sheet of the Company as of December 31, 2010 has been derived from the audited consolidated balance sheet of the Company as of that date.

For further information, refer to the consolidated financial statements and footnotes included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2010.

NOTE B—EARNINGS PER SHARE

Earnings per share (EPS) have been computed based on the weighted average number of shares outstanding during the periods presented. For the periods ended March 31, 2011 and 2010, share based awards totaling 325,951 and 481,213 common shares, respectively, were not considered in computing EPS as they were anti-dilutive. The number of shares used in the computation of basic and diluted earnings per share were:

   
Three Months Ended
 
   
March 31
 
   
2011
   
2010
 
Basic earnings per share
    4,861,779       4,861,779  
Diluted earnings per share
    4,861,779       4,861,779  
 
 
11

 

NOTE C – LOANS AND ALLOWANCE FOR LOAN LOSSES

Categories of loans at March 31, 2011 and December 31, 2010 include:

   
March 31,
   
December 31,
 
   
2011
   
2010
 
Commercial
  $ 70,619,272     $ 72,488,678  
Commercial real estate
    181,750,397       177,889,619  
Agricultural
    37,206,059       40,762,147  
Residential real estate
    82,435,692       84,775,026  
Consumer
    50,252,550       51,710,239  
Leasing
    181,521       194,384  
Total loans
    422,445,491       427,820,093  
Less
               
Net deferred loan fees, premiums and discounts
    (279,098 )     (275,679 )
Loans, net of unearned income
    422,166,393       427,544,414  
Allowance for loan losses
  $ (6,593,279 )   $ (6,715,397 )

The following table presents the Company’s nonaccrual loans at March 31, 2011 and December 31, 2010.  This table excludes performing troubled debt restructurings.

($'s in thousands)
 
March 31,
   
December 31,
 
   
2011
   
2010
 
Commercial
  $ 2,950,220     $ 3,031,716  
Commercial real estate
    5,335,542       6,065,058  
Agricultural
    86,598       -  
Residential real estate
    3,466,181       2,564,913  
Consumer
    282,055       621,000  
Leasing
    -       -  
                 
Total
  $ 12,120,596     $ 12,282,687  
 
 
12

 

The following tables present the balance of the allowance for loan losses and the recorded investment in loans based on portfolio segment and impairment method as of March 31, 2011 and December 31, 2010.

March 31, 2011
 
Business
   
Commercial
         
Residential
                         
($'s in thousands)
 
Loans
   
Real Estate
   
Agricultural
   
First Mortgage
   
Consumer
   
Other
   
Unallocated
   
Total
 
                                                 
ALLOWANCE FOR LOAN AND LEASE LOSSES
                                     
                                                 
Beginning balance
  $ 1,723     $ 3,774     $ 16     $ 643     $ 401     $ 128     $ 30     $ 6,715  
Charge Offs
    (209 )     (100 )     -       (103 )     (200 )     (27 )     -       (639 )
Recoveries
    5       3       1       -       7       2       -       18  
Provision
    247       (354 )     1       386       243       5       (29 )     499  
Ending Balance
  $ 1,766     $ 3,322     $ 18     $ 926     $ 451     $ 108     $ 1     $ 6,593  
                                                                 
Ending balance:
                                                               
individually
                                                               
evaluated for
                                                               
impairment
  $ 701     $ 1,085     $ -     $ 300     $ -                     $ 2,087  
Ending balance:
                                                               
collectively
                                                               
evaluated for
                                                               
impairment
  $ 1,064     $ 2,237     $ 18     $ 626     $ 451     $ 108     $ 1     $ 4,506  
                                                                 
Loans:
                                                               
Ending balance:
                                                               
individually
                                                               
evaluated for
                                                               
impairment
  $ 2,864     $ 5,306     $ -     $ 2,337     $ 93                     $ 10,600  
Ending balance:
                                                               
collectively
                                                               
evaluated for
                                                               
impairment
  $ 67,755     $ 176,445     $ 37,206     $ 80,099     $ 50,159     $ 182     $ -     $ 411,845  

For the quarter ended March 31, 2010, the allowance for loan loss beginning balance was $7.03 million, the Company had provision of $1.39 million, recoveries of $0.13 million, and charge-offs of $2.48 million for an ending balance of $6.08 million.

December 31, 2010
 
Business
   
Commercial
         
Residential
                         
($'s in thousands)
 
Loans
   
Real Estate
   
Agricultural
   
First Mortgage
   
Consumer
   
Other
   
Unallocated
   
Total
 
                                                 
ALLOWANCE FOR LOAN AND LEASE LOSSES
                                     
                                                 
Beginning balance
  $ 2,604     $ 3,210     $ 92     $ 715     $ 255     $ 154     $ -     $ 7,030  
Charge Offs
    (4,739 )     (4,748 )     -       (1,210 )     (542 )     (95 )     -       (11,334 )
Recoveries
    182       171       11       53       -       14       -       431  
Provision
    3,676       5,141       (87 )     1,085       688       55       30       10,588  
Ending Balance
  $ 1,723     $ 3,774     $ 16     $ 643     $ 401     $ 128     $ 30     $ 6,715  
                                                                 
Ending balance:
                                                               
individually
                                                               
evaluated for
                                                               
impairment
  $ 684     $ 1,157     $ -     $ -     $ -                     $ 1,841  
Ending balance:
                                                               
collectively
                                                               
evaluated for
                                                               
impairment
  $ 1,039     $ 2,617     $ 16     $ 643     $ 401     $ 128     $ 30     $ 4,874  
Loans:
                                                               
Ending balance:
                                                               
individually
                                                               
evaluated for
                                                               
impairment
  $ 3,121     $ 3,774     $ -     $ -     $ -                     $ 6,895  
Ending balance:
                                                               
collectively
                                                               
evaluated for
                                                               
impairment
  $ 69,368     $ 174,116     $ 40,762     $ 84,775     $ 51,710     $ 194     $ -     $ 420,925  
 
 
13

 

Credit Risk Profile

The Company uses a nine tier risk rating system to grade its loans.  The grade of a loan may change at any time during the life of the loan.  The risk ratings are described as follows:
 
 
1.
One (1) Superior - Risk is negligible. Loans are to well-seasoned borrowers, displaying sound financial condition, consistent superior earnings performance, strong capitalization, and access to a range of financing alternatives.

 
2.
Two (2) Excellent - Risk is minimal. Borrower is well capitalized, operates in a stable industry, financial ratios exceed peers, and financial trends are positive.

 
3.
Three (3) Good - Risk is modest.  Borrower has good overall financial condition and adequate capitalization to withstand temporary setbacks. Financial trends are positive, and there is clear ability to service debt from the primary source.

 
4.
Four (4) Average - Risk is acceptable. Borrowers in this category may be characterized by acceptable asset quality, but may face a degree of uncertainty due to new business, untried market, high degree of leverage, expansion, management change, or industry conditions.

 
5.
Four Monitored (4m) = Monitored Pass Credits - Risk is increasing.  Borrowers in this category may be characterized by an increasing amount of risk due to one or more of the following characteristics listed below.  Additionally, these borrowers require a higher than normal amount of monitoring by the relationship manager and bank management.  Borrowers who are placed in this category may also demonstrate the potential for an upgrade in the next 12 months given improvement in one or more of the factors listed below.

 
§
Declining trends in the earnings and cash flow of the company is evident by moderate to severe losses although debt service coverage remains within policy limits.
 
 
§
Lines of credit that have been evergreen (75% of maximum availability) for more than two consecutive years.
 
 
§
Absence of relevant financial information or stale financial information provided.
 
 
§
Restructure or modification to the loan agreement for the purpose of additional funds to support ongoing operations of the company.
 
 
§
The borrower demonstrates a material weakness or declining trend in collateral support for the given loans.

 
6.
Five (5) Special Mention - Defined as having potential weaknesses that deserve management's close attention. If uncorrected these potential weaknesses may, at some future date, result in the deterioration of the repayment prospects for the credit or the institution's credit position. Special mention credits are not considered as part of the classified extensions of credit category and do not expose State Bank to sufficient risk to warrant classification. Extensions of credit that might be detailed in this category include those in which:
 
 
§
The lending officer may be unable to properly supervise the credit because of an inadequate loan or credit agreement.
 
 
§
Questions exist regarding the condition of and/or control over collateral.
 
 
14

 
 
 
§
Economic or market conditions may unfavorably affect the obligor in the future.
 
 
§
A declining trend in the obligor's operations or an imbalanced position in the balance sheet exists, but not to the point that repayment is jeopardized.
 
 
§
Other deviations from prudent lending practices are present.
 
 
§
The special mention category should not be used to identify an extension of credit that has as its sole weakness credit-data or documentation exceptions not material to the repayment of the credit. It should also not be used to list extensions of credit that contain risks usually associated with that particular type of lending.
 
 
§
Any extension of credit involves certain risks, regardless of the collateral or the borrower's capacity and willingness to repay the debt.
 
 
7.
Six (6) Substandard - A "substandard" extension of credit is inadequately protected by the sound worth and paying capacity of the obligor or of the collateral pledged, if any. Extensions of credit so classified must have a well-defined weakness, or weaknesses, that jeopardize the liquidation of the debt. They are characterized by the distinct possibility that State Bank will sustain some loss if the deficiencies are not corrected. Loss potential, while existing in the aggregate amount of substandard credits, does not have to exist in individual extensions of credit classified substandard.
 
 
8.
Seven (7) Doubtful - Has all the weaknesses in one classified as substandard, with the added characteristic that the weaknesses make collection or liquidation in full, on the basis of currently existing facts, conditions, and values, highly questionable and improbable. The possibility of loss is extremely high, but because of certain important and reasonably specific pending factors that may work to the advantage of and strengthen the credit, its classification as an estimated loss is deferred until its more exact status may be determined. Pending factors may include a proposed merger or acquisition, liquidation proceedings, capital injection, perfecting liens on additional collateral, or refinancing plans.
 
 
§
An entire credit is not classified as doubtful when collection of a specific portion appears highly probable. An example of proper use of the doubtful category is the case of a company being liquidated, with the trustee-in-bankruptcy indicating a minimum disbursement of forty percent (40%) and a maximum of sixty-five percent (65%) to unsecured creditors including State Bank. In this situation, estimates are based on liquidation-value appraisals with actual values yet to be realized. By definition, the only portion of the credit that is doubtful is the twenty-five percent (25%) difference between forty percent (40%) and sixty-five percent (65%). A proper classification of such a credit would show forty percent (40%) substandard, twenty-five percent (25%) doubtful, and thirty-five percent (35%) loss.
 
 
9.
Eight (8) Loss - Considered uncollectible and of such little value that continuance as a Bank asset is not warranted. This classification does not mean that the credit has absolutely no recovery or salvage value, but rather that it is not practical or desirable to defer writing off this basically worthless asset, even though partial recovery may be affected in the future.  Loans failing to meet the minimum conditions of the Doubtful classifications are charged off.
 
 
15

 

The following tables present the credit risk profile of the Company’s loan portfolio based on rating category and payment activity as of March 31, 2011 and December 31, 2010 (dollars in thousands).

March 31, 2011
       
Commercial
                         
   
Commercial
   
Real Estate
   
Agricultural
   
Residential
   
Consumer
   
Leases
 
 1-2
  $ 889     $ 446     $ 177     $ 1,692     $ 148     $ -  
    3
    24,286       62,969       13,513       69,057       46,847       39  
    4
    40,183       102,026       23,228       5,753       2,602       143  
Total Pass
    65,358       165,441       36,918       76,502       49,597       182  
                                                 
   5
    747       6,573       5       2,055       215       -  
   6
    2,035       5,041       283       2,405       218       -  
   7
    2,479       4,695       -       1,474       223       -  
   8
    -       -       -       -       -       -  
Total
  $ 70,619     $ 181,750     $ 37,206     $ 82,436     $ 50,253     $ 182  

December 31, 2010
       
Commercial
                         
   
Commercial
   
Real Estate
   
Agricultural
   
Residential
   
Consumer
   
Leases
 
 1-2
  $ 903     $ 735     $ 180     $ 3,861     $ 444     $ 127  
    3
    25,101       63,789       15,883       68,979       47,650       -  
    4
    40,159       97,307       24,204       5,535       2,589       67  
Total Pass
    66,163       161,831       40,268       78,375       50,683       194  
                                                 
   5
    1,021       7,141       6       2,465       217       -  
   6
    2,739       3,176       489       2,605       450       -  
   7
    2,566       5,742       -       1,330       360       -  
   8
    -       -       -       -       -       -  
Total
  $ 72,489     $ 177,890     $ 40,762     $ 84,775     $ 51,710     $ 194  

The following tables present the Company’s loan portfolio aging analysis as of March 31, 2011 and December 31, 2010 (dollars in thousands).

                                       
Total Loans >
 
   
30-59 Days
   
60-89 Days
   
Greater Than
   
Total Past
         
Total Loans
   
90 Days and
 
March 31, 2011
 
Past Due
   
Past Due
   
90 Days
   
Due
   
Current
   
Receivable
   
Accruing
 
                                           
Commercial
  $ 15     $ -     $ 2,935     $ 2,950     $ 67,669     $ 70,619     $ -  
Commercial Real Estate
    105       -       6,138       6,244       175,507       181,750       -  
Agricultural
    -       -       87       87       37,119       37,206       -  
Residential
    537       -       1,196       1,733       80,703       82,436       -  
Consumer
    203       44       216       463       49,790       50,253       -  
Leases
    -       -       -       -       182       182       -  
Loans
    861       44       10,572       11,476       410,969       422,445       -  
                                                         
Loans held for Sale
    -       -       -       -       5,424       5,424       -  
                                                         
Total
  $ 861     $ 44     $ 10,572     $ 11,476     $ 416,392     $ 427,868     $ -  

                                       
Total Loans >
 
   
30-59 Days
   
60-89 Days
   
Greater Than
   
Total Past
         
Total Loans
   
90 Days and
 
December 31, 2010
 
Past Due
   
Past Due
   
90 Days
   
Due
   
Current
   
Receivable
   
Accruing
 
                                           
Commercial
  $ 242     $ 73     $ 2,744     $ 3,059     $ 69,430     $ 72,489     $ -  
Commercial Real Estate
    148       10       5,617       5,775       172,115       177,890       -  
Agricultural
    -       88       -       88       40,674       40,762       -  
Residential
    427       372       1,584       2,383       82,392       84,775       -  
Consumer
    255       25       547       827       50,883       51,710       -  
Leases
    -       -       -       -       194       194       -  
Loans
    1,072       568       10,492       12,132       415,688       427,820       -  
Loans held for Sale
    -       -       -       -       9,055       9,055       -  
                                                         
Total
  $ 1,072     $ 568     $ 10,492     $ 12,132     $ 424,743     $ 436,875     $ -  
 
 
16

 

The following tables present impaired loans for March 31, 2011 and December 31, 2010:

March 31, 2011
       
Unpaid
         
Average
   
Interest
 
($'s in thousands)
 
Recorded
   
Principal
   
Related
   
Recorded
   
Income
 
   
Investment
   
Balance
   
Allowance
   
Investment
   
Recognized
 
With no related allowance recorded:
                             
Commercial
  $ 349     $ 698     $ -     $ 360     $ (2 )
Commercial Real Estate
    2,058       2,920       -       2,917       (3 )
Agricultural
    -       -       -       -       -  
Residential
    410       460       -       462       3  
Consumer
    91       91       -       93       1  
With a specific allowance recorded:
                                       
Commercial
    2,493       4,142       901       2,877       (5 )
Commercial Real Estate
    4,116       4,215       935       5,144       (1 )
Agricultural
    -       -       -       -       -  
Residential
    999       1,237       219       1,231       8  
Consumer
    84       84       32       32       1  
Totals:
                                       
Commercial
  $ 2,842     $ 4,841     $ 901     $ 3,238     $ (7 )
Commercial Real Estate
  $ 6,174     $ 7,136     $ 935     $ 8,061     $ (4 )
Agricultural
  $ -     $ -     $ -     $ -     $ -  
Residential
  $ 1,409     $ 1,698     $ 219     $ 1,693     $ 11  
Consumer
  $ 175     $ 175     $ 32     $ 126     $ 2  

December 31, 2010
       
Unpaid
         
Average
   
Interest
 
($'s in thousands)
 
Recorded
   
Principal
   
Related
   
Recorded
   
Income
 
   
Investment
   
Balance
   
Allowance
   
Investment
   
Recognized
 
With no related allowance recorded:
                             
Commercial
  $ 436     $ 786     $ -     $ 2,075     $ 4  
Commercial Real Estate
    2,744       4,040       -       4,195       52  
Agricultural
    -       -       -       -       10  
Residential
    616       741       -       1,045       2  
Consumer
    43       43       -       72       -  
With a specific allowance recorded:
                                       
Commercial
    2,438       3,938       684       2,147       (48 )
Commercial Real Estate