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EX-31.1 - EXHIBIT 31.1 - Porter Bancorp, Inc.a50360323ex31-1.htm
EX-31.2 - EXHIBIT 31.2 - Porter Bancorp, Inc.a50360323ex31-2.htm
EX-32.1 - EXHIBIT 32.1 - Porter Bancorp, Inc.a50360323ex32-1.htm
EX-32.2 - EXHIBIT 32.2 - Porter Bancorp, Inc.a50360323ex32-2.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 June 30, 2012
 
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 x 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  o Accelerated filer  o
Non-accelerated filer  o 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.

11,934,872 shares of Common Stock, no par value, were outstanding at July 27, 2012.
 


 
 
 
 
 
 
 
 
 

 
 


The following consolidated financial statements of Porter Bancorp Inc. and subsidiary, PBI Bank, Inc. are submitted:

Unaudited Consolidated Balance Sheets for June 30, 2012 and December 31, 2011
Unaudited Consolidated Statements of Operations for the three and six months ended June 30, 2012 and 2011
Unaudited Consolidated Statements of Comprehensive Income (Loss) for the three and six months ended June 30, 2012 and 2011
Unaudited Consolidated Statement of Changes in Stockholders’ Equity for the six months ended June 30, 2012
Unaudited Consolidated Statements of Cash Flows for the six months ended June 30, 2012 and 2011
Notes to Unaudited Consolidated Financial Statements
 
 
 
1

 
PORTER BANCORP, INC.
Unaudited Consolidated Balance Sheets
(dollars in thousands except share data)
 
   
June 30,
2012
   
December 31,
2011
 
Assets
Cash and due from financial institutions
  $ 33,653     $ 104,680  
Federal funds sold
    2,708       1,282  
Cash and cash equivalents
    36,361       105,962  
Securities available for sale
    194,091       158,833  
M ortgage loans held for sale
    383       694  
Loans, net of allowance of $51,594 and $52,579, respectively
    989,315       1,083,444  
Premises and equipment
    21,223       21,541  
Other real estate owned
    54,365       41,449  
Federal Home Loan Bank stock
    10,072       10,072  
Bank owned life insurance
    8,254       8,106  
Accrued interest receivable and other assets
    20,788       25,323  
Total assets
  $ 1,334,852     $ 1,455,424  
Liabilities and Stockholders’ Equity
Deposits
Non-interest bearing
  $ 112,797     $ 111,118  
Interest bearing
    1,091,925       1,212,645  
Total deposits
    1,204,722       1,323,763  
Repurchase agreements
    2,501       1,738  
Federal Home Loan Bank advances
    6,398       7,116  
Accrued interest payable and other liabilities
    7,526       7,628  
Subordinated capital note
    7,200       7,650  
Junior subordinated debentures
    25,000       25,000  
Total liabilities
    1,253,347       1,372,895  
Stockholders’ equity
Preferred stock, no par, 1,000,000 shares authorized,
Series A – 35,000 issued and outstanding;
Liquidation preference of $35 million at June 30, 2012
    34,751       34,661  
Series C – 317,042 issued and outstanding;
Liquidation preference of $3.6 million at June 30, 2012
    3,283       3,283  
Common stock, no par, 86,000,000 shares authorized, 11,934,872
and 11,824,472 shares issued and outstanding, respectively
    112,236       112,236  
Additional paid-in capital
    20,056       19,841  
Retained deficit
    (90,968 )     (91 ,656 )
Accumulated other comprehensive income
    2,147       4,164  
Total stockholders' equity
    81 ,505       82,529  
Total liabilities and stockholders’ equity
  $ 1,334,852     $ 1,455,424  
 
See accompanying notes to unaudited consolidated financial statements.
 
 
2

 
 
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,
 
   
2012
   
2011
   
2012
   
2011
 
Interest income
Loans, including fees
  $ 13,689     $ 17,589     $ 28,201     $ 35,699  
Taxable securities
    797       1,139       1,638       2,181  
Tax exempt securities
    196       268       446       528  
Fed funds sold and other
    130       202       282       406  
      14,812       19,198       30,567       38,814  
Interest expense
Deposits
    3,726       5,272       7,726       10,632  
Federal Home Loan Bank advances
    54       139       111       281  
Subordinated capital note
    67       71       138       144  
Junior subordinated debentures
    168       157       339       312  
Federal funds purchased and other
    2       118       4       236  
      4,017       5,757       8,318       11,605  
Net interest income
    10,795       13,441       22,249       27,209  
Provision for loan losses
    4,000       13,700       7,750       18,800  
Net interest income after provision for loan losses
    6,795       (259 )     14,499       8,409  
Non-interest income
Service charges on deposit accounts
    556       659       1,110       1,289  
Income from fiduciary activities
    291       246       542       501  
Secondary market brokerage fees
    31       76       48       152  
Title insurance commissions
    11       22       33       53  
Net gain on sales of loans originated for sale
    77       320       122       541  
Net gain on sales of securities
    1,511       1,025       3,530       1,108  
Other
    541       517       1,078       1,008  
      3,018       2,865       6,463       4,652  
Non-interest expense
Salaries and employee benefits
    3,982       4,180       8,294       8,304  
Occupancy and equipment
    969       981       1,855       1,953  
Goodwill impairment
          23,794             23,794  
Other real estate owned expense
    1,205       22,109       2,462       23,476  
FDIC Insurance
    832       855       1,705       1,710  
State franchise tax
    592       582       1,184       1,164  
Loan collection expense
    586       925       946       1,187  
Professional fees
    567       354       923       634  
Comm unications
    168       165       348       333  
Postage and delivery
    109       128       231       251  
Advertising
    28       87       61       189  
Other
    624       599       1,300       1,159  
      9,662       54,759       19,309       64,154  
Income (loss) before income taxes
    151       (52,153 )     1,653       (51,093 )
Income tax expense (benef it)
          (12,164 )           (11,903 )
Net income (loss)
    151       (39,989 )     1,653       (39,190 )
Less:
Dividends on preferred stock
    438       437       875       875  
Accretion on Series A preferred stock
    45       44       90       88  
Earnings (losses) allocated to participating securities
    (13 )     (1,510 )     27       (1,552 )
Net income (loss) available to common shareholders
  $ (319 )   $ (38,960 )   $ 661     $ (38,601 )
Basic earnings (loss) per common share
  $ (0.03 )   $ (3.33 )   $ 0.06     $ (3.30 )
Diluted earnings (loss) per common share
  $ (0.03 )   $ (3.33 )   $ 0.06     $ (3.30 )
 
See accompanying notes to unaudited consolidated financial statements.

 
3

 
 
PORTER BANCORP, INC.
Unaudited Consolidated Statements of Comprehensive Income (Loss)
(in thousands)
 
   
Three Months Ended
June 30,
   
Six Month Ended
June 30,
 
   
2012
   
2011
   
2012
   
2011
 
Net income (loss)
  $ 151     $ (39,989 )   $ 1,653     $ (39,190 )
                                 
Other comprehensive income (loss), net of tax:
Unrealized gain (loss) on securities:
Unrealized gain (loss) arising in period
(net of tax of $68, $980,
$149, and $1,005, respectively)
    (127 )     1,819       278       1,865  
Reclassification of amount realized through sales
(net of tax of $529, $359,
$1,236 and $388, respectively)
    (982 )     (666 )     (2,295 )     (720 )
Net unrealized gain (loss) on securities
     (1,109     1,153        (2,017      1,145  
                               
Comprehensive income (loss)
  $ (958 )   $ (38,836 )   $ (364 )   $ (38,045 )
 
See accompanying notes to unaudited consolidated financial statements.
 
 
4

 
 
PORTER BANCORP, INC.
Unaudited Consolidated Statement of Changes in Stockholders’ Equity
For Six Months Ended June 30, 2012
(dollars in thousands, except share and per share data)
 
    Shares     Amount     Additional          
Accumulated
Other
       
   
Common
   
Series A
Preferred
   
Series C
Preferred
   
Common
   
Series A
Preferred
   
Series C
Preferred
   
Paid-In
Capital
   
Retained
Deficit
   
Comprehensive
Income
   
Total
 
Balances, January 1, 2012
    11,824,472       35,000       317,042     $ 112,236     $ 34,661     $ 3,283     $ 19,841     $ (91,656 )   $ 4,164     $ 82,529  
Issuance of unvested stock
    115,095                                                        
Forfeited unvested stock
    (4,695 )                                                      
Stock-based compensation expense
                                        215                   215  
Net income
                                              1,653             1,653  
Net change in accumulated other
comprehensive income, net of taxes
                                                    (2,017 )     (2,017 )
Dividends 5% on Series A preferred stock
                                              (875 )           (875 )
Accretion of Series A preferred
stock discount
                            90                   (90 )            
                                                                                 
Balances, June 30, 2012
    11,934,872       35,000       317,042     $ 112,236     $ 34,751     $ 3,283     $ 20,056     $ (90,968 )   $ 2,147     $ 81,505  

See accompanying notes to unaudited consolidated financial statements.

 
5

 
 
PORTER BANCORP, INC.
Unaudited Consolidated Statements of Cash Flows
For Six Months Ended June 30, 2012 and 2011
(dollars in thousands)
 
   
2012
   
2011
 
Cash flows from operating activities
Net income (loss)
  $ 1,653     $ (39,190 )
Adjustments to reconcile net income to net cash from operating activities
Depreciation and amortization
    1,127       1,214  
Provision for loan losses
    7,750       18,800  
Net amortization on securities
    1,566       597  
Goodwill impairment charge
          23,794  
Stock-based compensation expense
    215       234  
Deferred income taxes (benefit)
          (7,915 )
Net gain on loans originated for sale
    (122 )     (541 )
Loans originated for sale
    (5,721 )     (17,609 )
Proceeds from sales of loans originated for sale
    6,133       17,798  
Net gain on sales of investment securities
    (3,530 )     (1,108 )
Net loss on sales of other real estate owned
    948       6,876  
Net write-down of other real estate owned
    830       15,437  
Earnings on bank owned life insurance
    (148 )     (140 )
Net change in accrued interest receivable and other assets
    4,282       (3,339 )
Net change in accrued interest payable and other liabilities
    (977 )     (46 )
Net cash from operating activities
    14,006       14,862  
Cash flows from investing activities
Purchases of available-for-sale securities
    (121,854 )     (108,647 )
Sales and calls of available-for-sale securities
    65,695       49,653  
Maturities and prepayments of available-for-sale securities
    20,848       10,050  
Proceeds from sale of other real estate owned
    13,072       5,047  
Improvements to other real estate owned
    (1 )     (1,420 )
Loan originations and payments, net
    58,397       30,418  
Purchases of premises and equipment, net
    (318 )     (89 )
Net cash from investing activities
    35,839       (14,988 )
Cash flows from financing activities
Net change in deposits
    (119,041 )     (32,171 )
Net change in repurchase agreements
    763       (616 )
Repayment of Federal Home Loan Bank advances
    (718 )     (1,085 )
Advances from Federal Home Loan Bank
          25,000  
Repayment of subordinated capital note
    (450 )     (225 )
Cash dividends paid on preferred stock
          (882 )
Cash dividends paid on common stock
          (237 )
Net cash from financing activities
    (119,446 )     (10,216 )
Net change in cash and cash equivalents
    (69,601 )     (10,342 )
Beginning cash and cash equivalents
    105,962       185,435  
Ending cash and cash equivalents
  $ 36,361     $ 175,093  
Supplemental cash flow information:
Interest paid
  $ 8,159     $ 11,602  
Income taxes paid
          2,000  
Supplemental non-cash disclosure:
Transfer from loans to other real estate
  $ 28,126     $ 15,261  
Financed sales of other real estate owned
    361       7,043  
 
See accompanying notes to unaudited consolidated financial statements.
 
 
6

 
 
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 six months ended June 30, 2012 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, 2011 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, stock compensation, deferred tax assets, other intangibles, and fair values of other real estate owned are particularly subject to change.

Reclassifications – Some items in the prior year financial statements were reclassified to conform to the current presentation. The reclassifications did not impact net income or stockholders’ equity.
 
Note 2 – Recent Developments and Future Plans
 
During the first six months of 2012, we reported net income available to common shareholders of $661,000.  This was an improvement from our 2011 results.  During the year ended December 31, 2011, we recorded a net loss to common shareholders of $105.2 million.  This loss was primarily attributable to a $23.8 million goodwill impairment charge, the establishment of a $31.7 million valuation allowance on our deferred tax assets, OREO expense of $47.5 million related to valuation adjustments for our change in strategy related to certain properties, fair value write-downs related to new appraisals received for properties in the portfolio during 2011, net loss on the sale of OREO properties, and increase in carrying costs associated with carrying these higher levels of assets, as well as provision for loan losses expense of $62.6 million due to the continued decline in credit trends within our portfolio.
 
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.  As of June 30, 2012, these capital ratios were not met.
 
In order to meet these capital requirements, the Board of Directors and management are continuing to evaluate strategies including the following:
 
Continuing to operate the Company and Bank in a safe and sound manner.  This strategy will require us to continue to reduce the size of our balance sheet, reduce our lending concentrations, consider selling loans, and reduce other noninterest expense through the disposition of OREO.
 
Continuing with succession planning and add resources to management team.  On March 29, 2012, the Board of Directors announced that it had formed a search committee comprised of its five independent directors to identify and hire a President and CEO for PBI Bank. On July 19, 2012, we reported that the Company had successfully filled this key position.
 
Addressing other real estate owned.
 
 
7

 
 
o      
In 2011, management determined, with the concurrence of the Board of Directors, that certain properties held in OREO were not likely to be successfully disposed of in an acceptable time-frame using routine marketing efforts. It became apparent due to weakness in the economy and softness in demand for housing that certain land development and residential condominium projects would require extended holding periods to sell the properties at recent appraised values. Accordingly, management determined to market these properties more aggressively to retail and bulk buyers. In June 2011, the Company sold, in a single transaction, 54 finished condominium property units from condominium developments held in our OREO portfolio with a carrying value of approximately $11.0 million, for $5.2 million, resulting in a pre-tax loss of $5.8 million.
 
o      
Although we were carrying our OREO at fair market value less estimated cost to sell, we subsequently adjusted our valuations for land development and residential development properties held in OREO similar to the properties we sold earlier in 2011. Our 2011 fair value adjustments totaled approximately $25.6 million to reflect our intent to market these properties more aggressively to retail and bulk buyers.  Additionally, we recorded approximately $9.3 million of fair value adjustments related to new appraisals received for properties in the portfolio during 2011.
 
o      
In summary, for the years ended December 31, 2011 and 2010 respectively, we recorded net construction and development OREO fair value adjustments and loss on sale of OREO totaling $38.7 million and $10.4 million. This represents approximately 89% and 71% of our total OREO fair value adjustments and loss on sale in 2011 and 2010, respectively.
 
o      
For the first six months of 2012, we recorded net construction and development OREO fair value adjustments and loss on sale of construction and development OREO of $280,000.  This represents approximately 16% of our total OREO fair value adjustments and loss on sale of OREO in the first six months of 2012.
 
We are committed to reducing loan concentrations and balance sheet risk.
 
o      
We recorded net construction and development loan charge-offs totaling $1.3 million during the first six months of 2012.  This represented approximately 15% of our total net loan charge-offs for the first six months of 2012.  We recorded net construction and development loan charge-offs totaling $11.0 million and $11.4 million for the years ended December 31, 2011 and 2010, respectively.  This represented approximately 27% and 51% of our total net loan charge-offs in 2011 and 2010, respectively.
 
o      
Our Consent Order calls for us to reduce our construction and development loans to not more than 75% of total risk-based capital. We were in compliance at June 30, 2012 with construction and development loans representing 68% of total risk-based capital.  These loans totaled $81.8 million, or 68% of total risk-based capital, at June 30, 2012 and $101.5 million, or 85% of total risk-based capital, at December 31, 2011.
 
o      
Our Consent Order also requires us to reduce non-owner occupied commercial real estate loans, construction and development loans, and multifamily residential real estate loans as a group, to not more than 250% of total risk-based capital. We were not in compliance at June 30, 2012 with non-owner occupied commercial real estate loans, construction and development loans, and multifamily residential real estate loans as a group representing 313% of total risk-based capital.  These loans totaled $376.6 million, or 313% of total risk-based capital, at June 30, 2012 and $414.6 million, or 349% of total risk-based capital, at December 31, 2011.
 
o      
We are working to reduce these loans by curtailing new construction and development lending and new non-owner occupied commercial real estate lending.  We are also receiving principal reductions from amortizing credits and pay-downs from our customers who sell properties built for resale.  We have reduced the construction loan portfolio from $199.5 million at December 31, 2010 to $81.8 million at June 30, 2012.  Our non-owner occupied commercial real estate loans declined from $293.3 million at December 31, 2010 to $234.9 million at June 30, 2012.
 
 
8

 
 
Raising capital by selling common stock through a public offering or private placement to existing and new investors.
 
Evaluating other strategic alternatives, such as the sale of assets or branches.
 
Bank regulatory agencies can exercise discretion when an institution does not meet the terms of a consent order.  Based on individual circumstances, the agencies may issue mandatory directives, impose monetary penalties, initiate changes in management, or take more serious adverse actions.

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)  
June 30, 2012
                       
U.S. Government and federal agency
  $ 5,695     $ 550     $     $ 6,245  
Agency mortgage-backed: residential
    125,017       1,342       (255 )     126,104  
State and municipal
    49,791       1,898       (233 )     51,456  
Corporate bonds
    7,267       545       (34 )     7,778  
Other
    572       34             606  
Total debt securities
    188,342       4,369       (522 )     192,189  
Equity
    1,359       543             1,902  
Total
  $ 189,701     $ 4,912     $ (522 )   $ 194,091  
December 31, 2011
                               
U.S. Government and federal agency   $ 10,494     $ 1,149     $     $ 11,643  
Agency mortgage-backed: residential
    97,286       2,211       (22 )     99,475  
State and municipal
    35,456       2,610       (4 )     38,062  
Corporate bonds
    7,259       315       (242 )     7,332  
Other
    572       34             606  
Total debt securities
    151,067       6,319       (268 )     157,118  
Equity
    1,359       356             1,715  
Total
  $ 152,426     $ 6,675     $ (268 )   $ 158,833  
 
Sales and calls of available for sale securities were as follows:
 
     
Three Months Ended
June 30,
     
Six Months Ended
June 30,
 
     
2012
      2011       2012      
2011
 
     
(in thousands)
 
Proceeds
  $ 44,310     $ 46,759     $ 65,695     $ 49,653  
Gross gains
    1,511       1,025       3,530       1,108  
Gross losses
                       
 
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.
 
 
9

 
 
    June 30, 2012  
   
Amortized
Cost
   
Fair
Value
 
   
(in thousands)
 
Maturity
Available-for-sale
Within one year
  $ 215     $ 217  
One to five years
    11,120       11,890  
Five to ten years
    42,183       43,863  
Beyond ten years
    9,807       10,115  
Agency mortgage-backed: residential
    125,017       126,104  
Total
  $ 188,342     $ 192,189  

Securities pledged at June 30, 2012 and December 31, 2011 had carrying values of approximately $57.3 million and $57.7 million, respectively, and were pledged to secure public deposits and repurchase agreements.

The Company evaluates securities for other than temporary impairment (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 June 30, 2012, the Company held 40 equity securities.  Of these securities, one security had an unrealized loss less than $1,000 and had been in an unrealized loss position for less than twelve months. All other equity securities were in an unrealized gain position at June 30, 2012.  Management monitors the underlying financial condition of the issuers and current market pricing for these equity securities monthly. As of June 30, 2012, management does not believe any securities in our portfolio with unrealized losses should be classified as other than temporarily impaired. Management currently intends to hold all securities with unrealized losses until recovery, which for fixed income securities may be at maturity.

Securities with unrealized losses at June 30, 2012 and December 31, 2011, 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)
 
June 30, 2012
                                   
State and municipal
  $ 16,286     $ (233 )   $     $     $ 16,286     $ (233 )
Agency mortgage-backed: residential
    40,037       (255 )                 40,037       (255 )
Corporate bonds
                989       (34 )     989       (34 )
Equity
    2                         2        
Total temporarily impaired
  $ 56,325     $ (488 )   $ 989     $ (34 )   $ 57,314     $ (522 )
                                                 
                                                 
December 31, 2011
                                               
State and municipal
  $ 508     $ (4 )   $     $     $ 508     $ (4 )
Agency mortgage-backed: residential
    2,159       (22 )                 2,159       (22 )
Corporate bonds
    2,805       (242 )                 2,805       (242 )
Total temporarily impaired
  $ 5,472     $ (268 )   $     $     $ 5,472     $ (268 )
 
 
10

 
 
Note 4 – Loans

Loans were as follows:
 
   
June 30,
   
December 31,
 
    2012     2011  
   
(in thousands)
 
Commercial
  $ 68,084     $ 71,216  
Commercial Real Estate:
Construction
    81,815       101,471  
Farmland
    85,634       90,958  
Other
    384,718       423,844  
Residential Real Estate:
Multi-family
    59,867       60,410  
1-4 Family
    310,626       337,350  
Consumer
    22,898       26,011  
Agriculture
    26,251       23,770  
Other
    1,016       993  
Subtotal
    1,040,909       1,136,023  
Less: Allowance for loan losses
    (51,594 )     (52,579 )
Loans, net
  $ 989,315     $ 1,083,444  
 
The following table presents the activity in the allowance for loan losses by portfolio segment for the three months ended June 30, 2012 and 2011:
 
   
Commercial
   
Commercial
Real Estate
   
Residential
Real Estate
   
Consumer
   
Agriculture
   
Other
   
Total
 
   
(in thousands)
 
June 30, 2012:
                                         
Beginning balance
  $ 4,082     $ 32,982     $ 15,720     $ 812     $ 345     $ 12     $ 53,953  
Provision for loan losses
    (78 )     1,003       2,696       97       282             4,000  
Loans charged off
    (210 )     (2,944 )     (2,862 )     (135 )       (287           (6,438 )
Recoveries
    17       8       33       18       3             79  
Ending balance
  $ 3,811     $ 31,049     $ 15,587     $ 792     $ 343     $ 12     $ 51,594  
                                                         
                                                         
June 30, 2011:
                                                       
Beginning balance
  $ 1,974     $ 23,396     $ 7,451     $ 631     $ 139     $ 8     $ 33,599  
Provision for loan losses
    2,538       7,964       3,089       96       12       1       13,700  
Loans charged off
    (1,856 )     (5,353 )     (1,259 )     (120 )     (8           (8,596 )
Recoveries
    12       14       (21 )     9                   14  
Ending balance
  $ 2,668     $ 26,021     $ 9,260     $ 616     $ 143     $ 9     $ 38,717  
 
 
11

 
 
The following table presents the activity in the allowance for loan losses by portfolio segment for the six months ended June 30, 2012 and 2011:
 
   
Commercial
   
Commercial
Real Estate
   
Residential
Real Estate
   
Consumer
   
Agriculture
   
Other
   
Total
 
   
(in thousands)
 
June 30, 2012:
                                         
Beginning balance
  $ 4,207     $ 33,024     $ 14,217     $ 792     $ 325     $ 14     $ 52,579  
Provision for loan losses
    11       1,775       5,202       321       443       (2 )       7,750  
Loans charged off
    (466 )     (3,863 )     (3,891 )     (372 )       (428           (9,020 )
Recoveries
    59       113       59       51       3             285  
Ending balance
  $ 3,811     $ 31,049     $ 15,587     $ 792     $ 343     $ 12     $ 51,594  
                                                         
                                                         
June 30, 2011:
                                                       
Beginning balance
  $ 2,147     $ 24,075     $ 7,224     $ 701     $ 134     $ 4     $ 34,285  
Provision for loan losses
    2,432       11,421       4,707       218       17       5       18,800  
Loans charged off
    (1,935 )     (9,494 )     (2,693 )     (333 )     (8 )           (14,463 )
Recoveries
    24       19       22       30                   95  
Ending balance
  $ 2,668     $ 26,021     $ 9,260     $ 616     $ 143     $ 9     $ 38,717  
 
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, 2012:
 
   
Commercial
   
Commercial
Real Estate
   
Residential
Real Estate
   
Consumer
   
Agriculture
   
Other
   
Total
 
   
(in thousands)
 
Allowance for loan losses:
                                         
Ending allowance balance attributable to loans:
                                         
Individually evaluated for impairment
  $     $ 4,626     $ 994     $     $     $     $ 5,620  
Collectively evaluated for impairment
    3,811       26,423       14,593       792       343       12       45,974  
Total ending allowance balance
  $ 3,811     $ 31,049     $ 15,587     $ 792     $ 343     $ 12     $ 51,594  
                                                         
                                                         
Loans:
                                                       
Loans individually evaluated for impairment
  $ 6,779     $ 115,045     $ 52,376     $ 331     $ 586     $ 533     $ 175,650  
Loans collectively evaluated for impairment
    61,305       437,122       318,117       22,567       25,665       483       865,259  
Total ending loans balance
  $ 68,084     $ 552,167     $ 370,493     $ 22,898     $ 26,251     $ 1,016     $ 1,040,909  
 
 
12

 
 
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, 2011:
 
   
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
  $ 237     $ 5,281     $ 1,055     $     $     $     $ 6,573  
Collectively evaluated for impairment
    3,970       27,743       13,162       792       325       14        46,006  
Total ending allowance balance
  $ 4,207     $ 33,024     $ 14,217     $ 792     $ 325     $ 14     $ 52,579  
                                                         
Loans:
                                                       
Loans individually evaluated for impairment
  $ 5,032     $ 116,676     $ 27,848     $     $ 631     $ 540     $ 150,727  
Loans collectively evaluated for impairment
    66,184       499,598       369,911       26,011       23,139       453       985,296  
Total ending loans balance
  $ 71,216     $ 616,274     $ 397,759     $ 26,011     $ 23,770     $ 993     $ 1,136,023  
 
Impaired Loans
 
Impaired loans include restructured loans and commercial, commercial real estate, construction, residential real estate, and agriculture 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 and six months ended June 30, 2012:
 
                     
Three Months Ended
June 30, 2012
   
Six Months Ended
June 30, 2012
 
   
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
  $ 6,899     $ 6,779     $     $ 7,004     $ 52     $ 6,346     $ 87     $ 19  
Commercial real estate:
                                                               
Construction
    8,882       8,580             8,633       59       8,998       122       2  
Farmland
    6,477       6,477             6,039       10       5,408       24       7  
Other
    35,192       34,460             30,299       124       28,408       370       3  
Residential real estate:
                                                               
Multi-family
    10,756       10,756             11,759       55       8,807       141        
1-4 Family
    32,029       31,412             31,487       206       24,586       379       27  
Consumer
    338       331             365       2       243       3       1  
Agriculture
    701       586             548             576              
Other
    533       533             535       5       536       9        
With An Allowance Recorded:
                                                 
Commercial real estate:
                                                               
Construction
    14,561       11,812       1,212       13,397       28       13,291       75        
Farmland
    4,394       4,193       831       4,188             4,770              
Other
    52,387       49,523       2,583       57,347       95       57,952       491       76  
Residential real estate:
                                                               
Multi-family
                      706             942              
1-4 Family
    11,946       10,208       994       11,698       25       12,048       50        
Consumer
                                               
Agriculture
                                               
Other
                                               
Total
  $ 185,095     $ 175,650     $ 5,620     $ 184,005     $ 661     $ 172,911     $ 1,751     $ 135  
 
 
13

 
 
The following table presents loans individually evaluated for impairment by class of loan as of December 31, 2011:

   
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
  $ 3,997     $ 3,954     $     $ 3,489     $ 146     $ 48  
Commercial real estate:
                                               
Construction