IMCB-2012.6.30 Q2 10Q
Table of Contents

UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-Q
(Mark One)
þ
 
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
o
 
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 000-50667
INTERMOUNTAIN COMMUNITY BANCORP
(Exact name of registrant as specified in its charter)
 
 
 
Idaho
 
82-0499463
(State or other jurisdiction of
 
(IRS Employer
incorporation or organization)
 
Identification No.)

414 Church Street, Sandpoint, ID 83864
(Address of principal executive offices) (Zip code)
Registrant’s telephone number, including area code:
(208) 263-0505

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 þ No o
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 þ No o
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. (Check one):
Large accelerated filer o
Accelerated filer o
Non-accelerated filer o
Smaller reporting company þ
 
 
(Do not check if a smaller reporting company)
 
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes o No þ
The number of shares outstanding of the registrant’s Voting Common Stock, no par value per share, as of August 3, 2012 was 26,028,223 and the number of shares of Non-Voting Common Stock, no par value per share, was 38,396,837.

Table of Contents

Intermountain Community Bancorp
FORM 10-Q
For the Quarter Ended June 30, 2012
TABLE OF CONTENTS
 
 
 
 
 
 
 
Item 4 —Mine Safety Disclosure
 EX-3.1 Amended and Restated Articles of Incorporation
 
 EX-31.1
 EX-31.2
 EX-32
 EX-101

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Table of Contents

PART I — Financial Information
Item - 1 Financial Statements
Intermountain Community Bancorp
Consolidated Balance Sheets
(Unaudited)
 
June 30,
2012
 
December 31,
2011
 
(Dollars in thousands)
ASSETS
 
 
 
Cash and cash equivalents:
 
 
 
Interest-bearing
$
39,871

 
$
82,242

Non-interest bearing and vault
18,934

 
24,958

Restricted cash
12,464

 
2,668

Available-for-sale securities, at fair value
285,095

 
219,039

Held-to-maturity securities, at amortized cost
14,990

 
16,143

Federal Home Loan Bank (“FHLB”) of Seattle stock, at cost
2,310

 
2,310

Loans held for sale
4,083

 
5,561

Loans receivable, net
510,684

 
502,252

Accrued interest receivable
4,522

 
4,100

Office properties and equipment, net
36,530

 
37,687

Bank-owned life insurance ("BOLI")
9,301

 
9,127

Other intangibles
130

 
189

Other real estate owned (“OREO”)
5,267

 
6,650

Prepaid expenses and other assets
18,903

 
21,292

Total assets
$
963,084

 
$
934,218

LIABILITIES
 
 
 
Deposits
$
726,009

 
$
729,373

Securities sold subject to repurchase agreements
65,458

 
85,104

Advances from Federal Home Loan Bank
29,000

 
29,000

Unexercised stock warrant liability
850

 
—

Cashier checks issued and payable
282

 
481

Accrued interest payable
1,979

 
1,676

Other borrowings
16,527

 
16,527

Accrued expenses and other liabilities
11,326

 
10,441

Total liabilities
851,431

 
872,602

STOCKHOLDERS’ EQUITY
 
 
 
Common stock 300,000,000 shares authorized; 26,028,243 and 8,427,212 shares issued and 26,023,025 and 8,409,840 shares outstanding as of June 30, 2012 and December 31, 2011, respectively  
96,290

 
78,916

Common stock - non-voting 100,000,000 shares authorized; 38,396,837 and 0 shares issued and outstanding as of June 30, 2012 and December 31, 2011, respectively
31,941

 
—

Preferred stock, Series A, 27,000 shares issued and outstanding as of June 30, 2012 and December 31, 2011, respectively; liquidation preference of $1,000 per share
26,335

 
26,149

Accumulated other comprehensive income, net of tax
2,272

 
2,370

Accumulated deficit
(45,185
)
 
(45,819
)
Total stockholders’ equity
111,653

 
61,616

Total liabilities and stockholders’ equity
$
963,084

 
$
934,218

The accompanying notes are an integral part of the consolidated financial statements.

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Intermountain Community Bancorp
Consolidated Statements of Operations
(Unaudited)
 
Three Months Ended
 
Six Months Ended
 
June 30,
 
June 30,
 
2012
 
2011
 
2012
 
2011
 
(Dollars in thousands, except per share data)
Interest income:
 
 
 
 
 
 
 
Loans
$
7,054

 
$
8,432

 
$
14,126

 
$
16,766

Investments
2,072

 
2,358

 
4,120

 
4,512

Total interest income
9,126

 
10,790

 
18,246

 
21,278

Interest expense:
 
 
 
 
 
 
 
Deposits
744

 
1,134

 
1,566

 
2,382

Other borrowings
571

 
671

 
1,247

 
1,200

Total interest expense
1,315

 
1,805

 
2,813

 
3,582

Net interest income
7,811

 
8,985

 
15,433

 
17,696

Provision for losses on loans
(1,575
)
 
(2,712
)
 
(2,534
)
 
(4,345
)
Net interest income after provision for losses on loans
6,236

 
6,273

 
12,899

 
13,351

Other income:
 
 
 
 
 
 
 
Fees and service charges
1,619

 
1,863

 
3,244

 
3,534

Loan related fee income
659

 
545

 
1,240

 
1,120

Net gain on sale of securities
—

 
—

 
585

 
—

Net gain (loss) on sale of other assets
18

 
(50
)
 
22

 
(47
)
Other-than-temporary impairment (“OTTI”) losses on investments (1)
(52
)
 
—

 
(323
)
 
—

Bank-owned life insurance
87

 
91

 
174

 
180

Fair value adjustment on cash flow hedge
90

 
—

 
(294
)
 
—

Unexercised warrant liability fair value adjustment
158

 
—

 
158

 
—

Other
189

 
284

 
398

 
609

Total other income
2,768

 
2,733

 
5,204

 
5,396

Operating expenses:
 
 
 
 
 
 
 
  Salaries and employee benefits
3,871

 
4,887

 
8,006

 
9,833

  Occupancy expense
1,623

 
1,708

 
3,307

 
3,496

  Advertising
168

 
214

 
280

 
344

  Fees and service charges
629

 
632

 
1,250

 
1,283

  Printing, postage and supplies
300

 
302

 
601

 
638

  Legal and accounting
396

 
447

 
746

 
682

  FDIC assessment
308

 
331

 
621

 
776

  OREO operations
120

 
150

 
224

 
626

  Other expenses
807

 
940

 
1,485

 
1,673

    Total operating expenses
8,222

 
9,611

 
16,520

 
19,351

Net income (loss) before income taxes
782

 
(605
)
 
1,583

 
(604
)
Income tax (provision) benefit
—

 
—

 
—

 
—

Net income (loss)
782

 
(605
)
 
1,583

 
(604
)
Preferred stock dividend
481

 
448

 
947

 
891

Net income (loss) applicable to common stockholders
$
301

 
$
(1,053
)
 
$
636

 
$
(1,495
)
Earnings (loss) per share — basic
$
0.01

 
$
(0.13
)
 
$
0.01

 
$
(0.18
)
Earnings (loss) per share — diluted
$
0.01

 
$
(0.13
)
 
$
0.01

 
$
(0.18
)
Weighted average common shares outstanding — basic
59,013,211

 
8,409,786

 
51,645,760

 
8,403,177

Weighted average common shares outstanding — diluted (2)
59,191,877

 
8,409,786

 
51,811,093

 
8,403,177

(1)
Consisting of $0, $0, $7 and $0 of total other-than-temporary impairment net losses, net of $(52), $0, $(316) and $0, recognized in other comprehensive income, for the three and six months ended June 30, 2012, and June 30, 2011, respectively.

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(2) Includes the weighted average number of non-voting common shares that would be outstanding if the warrants issued in the January 2012 private offering are exercised directly for 1,700,000 non-voting common shares, utilizing the Treasury stock method.
The accompanying notes are an integral part of the consolidated financial statements.


5
Table of Contents

Intermountain Community Bancorp
Consolidated Statements of Comprehensive Income (Loss)
(Unaudited)

 
Three Months Ended
 
Six Months Ended
 
June 30,
 
June 30,
 
2012
 
2011
 
2012
 
2011
 
(Dollars in thousands)
Net income (loss)
$
782

 
$
(605
)
 
$
1,583

 
$
(604
)
Other comprehensive income (loss):
 
 
 
 

 

Change in unrealized gains on investments, and mortgage backed securities (“MBS”) available for sale, excluding non-credit loss on impairment of securities
292

 
3,719

 
(439
)
 
3,945

Realized net gains reclassified from other comprehensive income
—

 
—

 
(585
)
 
—

Non-credit loss on impairment on available-for-sale debt securities
52

 
—

 
316

 
—

Less deferred income tax benefit (provision) on securities
(136
)
 
(1,472
)
 
280

 
(1,561
)
Change in fair value of qualifying cash flow hedge, net of tax
—

 
(6
)
 
330

 
7

Net other comprehensive income (loss)
208

 
2,241

 
(98
)
 
2,391

Comprehensive income
$
990

 
$
1,636

 
$
1,485

 
$
1,787

The accompanying notes are an integral part of the consolidated financial statements.


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Intermountain Community Bancorp
Consolidated Statements of Cash Flows
(Unaudited)
 
Six Months Ended
 
June 30,
 
2012
 
2011
 
(Dollars in thousands)
Cash flows from operating activities:
 
 
 
Net income (loss)
$
1,583

 
$
(604
)
Adjustments to reconcile net income (loss) to net cash provided by operating activities:
 
 
 
Depreciation
1,341

 
1,524

Stock-based compensation expense
43

 
122

Net amortization of premiums on securities
2,485

 
1,171

Provisions for losses on loans
2,534

 
4,345

Amortization of core deposit intangibles
58

 
61

(Gain) on sale of loans, investments, property and equipment
(1,413
)
 
(287
)
Impact of hedge dedesignation and current fair value adjustment
374

 
—

OTTI credit loss on available-for-sale investments
323

 
—

OREO valuation adjustments
30

 
326

Accretion of deferred gain on sale of branch property
(8
)
 
(8
)
Net accretion of loan and deposit discounts and premiums
(7
)
 
(7
)
Increase in cash surrender value of bank-owned life insurance
(174
)
 
(181
)
Change in:
 
 
 
Accrued interest receivable
(422
)
 
177

Prepaid expenses and other assets
2,385

 
1,079

Accrued interest payable and other liabilities
605

 
78

Accrued expenses and other cashiers checks
(199
)
 
1,941

Proceeds from sale of loans originated for sale
38,824

 
23,728

Loans originated for sale
(36,533
)
 
(21,630
)
Net cash provided by operating activities
11,829

 
11,835

Cash flows from investing activities:
 
 
 
Purchases of available-for-sale securities
(100,754
)
 
(47,352
)
Proceeds from sales, calls or maturities of available-for-sale securities
2,967

 
157

Principal payments on mortgage-backed securities
28,692

 
23,000

Proceeds from sales, calls or maturities of held-to-maturity securities
1,261

 
47

Origination of loans, net principal payments
(11,653
)
 
2,580

Purchase of office properties and equipment
(184
)
 
(259
)
Proceeds from sale of office properties and equipment
16

 
—

Proceeds from sale of other real estate owned
2,047

 
4,400

Net change in restricted cash
(9,796
)
 
459

Net cash used in investing activities
(87,404
)
 
(16,968
)
Cash flows from financing activities:
 
 
 
Proceeds from issuance of series B preferred stock, gross
32,460

 
—

Proceeds from issuance of common stock, gross
22,532

 
—

Proceeds from issuance of warrant, gross
1,007

 
—

Capital issuance costs
(5,651
)
 
—

Net change in demand, money market and savings deposits
14,903

 
(14,526
)
Net change in certificates of deposit
(18,266
)
 
(28,279
)
Net change in repurchase agreements
(19,646
)
 
(5,429
)
Change in value of stock warrants
(158
)
 
—

Retirement of treasury stock
—

 
(4
)
Net cash provided by (used in) financing activities
27,181

 
(48,238
)
Net change in cash and cash equivalents
(48,394
)
 
(53,371
)
Cash and cash equivalents, beginning of period
107,199

 
144,666

Cash and cash equivalents, end of period
$
58,805

 
$
91,295

Supplemental disclosures of cash flow information:
 
 
 
Cash paid during the period for:
 
 
 
Interest
$
2,812

 
$
3,503

Income taxes, net of tax refunds received
$
—

 
$
8

Noncash investing and financing activities:
 
 
 
Loans converted to other real estate owned
$
694

 
$
8,115

Accrual of preferred stock dividend
$
763

 
$
716

The accompanying notes are an integral part of the consolidated financial statements.

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Table of Contents

Intermountain Community Bancorp
Notes to Consolidated Financial Statements (Unaudited)

1. Basis of Presentation:
The foregoing unaudited interim consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X as promulgated by the Securities and Exchange Commission. Accordingly, these financial statements do not include all of the disclosures required by accounting principles generally accepted in the United States of America for complete financial statements. These unaudited interim consolidated financial statements should be read in conjunction with the audited consolidated financial statements for the year ended December 31, 2011. In the opinion of management, the unaudited interim consolidated financial statements furnished herein include adjustments, all of which are of a normal recurring nature, necessary for a fair statement of the results for the interim periods presented.
The preparation of financial statements in accordance with accounting principles generally accepted in the United States of America requires the use of estimates and assumptions that affect the reported amounts of assets and liabilities, disclosure of contingent assets and liabilities known to exist as of the date the financial statements are published, and the reported amounts of revenues and expenses during the reporting period. Uncertainties with respect to such estimates and assumptions are inherent in the preparation of Intermountain Community Bancorp’s (“Intermountain’s” or “the Company’s”) consolidated financial statements; accordingly, it is possible that the actual results could differ from these estimates and assumptions, which could have a material effect on the reported amounts of Intermountain’s consolidated financial position and results of operations.

2. Investments:
The amortized cost and fair values of investments are as follows (in thousands):

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Available-for-Sale
 
Amortized
Cost
 
Cumulative Non-Credit
OTTI (Losses)
Recognized
in OCI
 
Gross
Unrealized
Gains
 
Gross
Unrealized
Losses
 
Fair Value/
Carrying Value
June 30, 2012
 
 
 
 
 
 
 
 
 
State and municipal securities
$
51,281

 
$
—

 
$
1,947

 
$
(33
)
 
$
53,195

Mortgage-backed securities - Agency Pass Throughs
85,144

 
—

 
2,134

 
(423
)
 
86,855

Mortgage-backed securities - Agency CMO's
108,529

 
—

 
1,960

 
(251
)
 
110,238

SBA Pools
21,539

 
—

 
—

 
(233
)
 
21,306

Mortgage-backed securities - Non Agency CMO's (investment grade)
5,305

 
—

 
383

 
—

 
5,688

Mortgage-backed securities - Non Agency CMO's (below investment grade)
9,547

 
(1,695
)
 
461

 
(500
)
 
7,813

 
$
281,345

 
$
(1,695
)
 
$
6,885

 
$
(1,440
)
 
$
285,095

December 31, 2011
 
 
 
 
 
 
 
 
 
U.S. treasury securities and obligations of U.S. government agencies
$
21

 
$
—

 
$
—

 
$
—

 
$
21

State and municipal securities
35,352

 
—

 
1,791

 
(8
)
 
37,135

Mortgage-backed securities - Agency Pass Throughs
59,436

 
—

 
2,252

 
(126
)
 
61,562

Mortgage-backed securities - Agency CMO's
103,349

 
—

 
2,526

 
(328
)
 
105,547

Mortgage-backed securities - Non Agency CMO's (investment grade)
5,934

 
—

 
389

 
—

 
6,323

Mortgage-backed securities - Non Agency CMO's (below investment grade)
10,489

 
(2,011
)
 
435

 
(462
)
 
8,451

 
$
214,581

 
$
(2,011
)
 
$
7,393

 
$
(924
)
 
$
219,039

 
Held-to-Maturity
 
Carrying Value / Amortized Cost
 
Cumulative Non-Credit
OTTI (Losses)
Recognized
in OCI
 
Gross Unrealized Gains
 
Gross Unrealized Losses
 
Fair Value
June 30, 2012
 
 
 
 
 
 
 
 
 
State and municipal securities
$
14,990

 
$
—

 
$
1,502

 
$
—

 
$
16,492

December 31, 2011
 
 
 
 
 
 
 
 
 
State and municipal securities
$
16,143

 
$
—

 
$
1,328

 
$
—

 
$
17,471


The following table summarizes the duration of Intermountain’s unrealized losses on available-for-sale and held-to-maturity securities as of the dates indicated (in thousands).

 
Less Than 12 Months
 
12 Months or Longer
 
Total
June 30, 2012
Fair Value
 
Unrealized
Losses
 
Fair Value
 
Unrealized
Losses
 
Fair Value
 
Unrealized
Losses
Residential mortgage-backed securities
$
78,263

 
$
(634
)
 
$
5,231

 
$
(540
)
 
$
83,494

 
$
(1,174
)
SBA Pools
21,306

 
(233
)
 
—

 
—

 
21,306

 
(233
)
State and municipal securities
6,049

 
(33
)
 
—

 
—

 
6,049

 
(33
)
Total
$
105,618

 
$
(900
)
 
$
5,231

 
$
(540
)
 
$
110,849

 
$
(1,440
)


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Less Than 12 Months
 
12 Months or Longer
 
Total
December 31, 2011
Fair Value
 
Unrealized
Losses
 
Fair Value
 
Unrealized
Losses
 
Fair Value
 
Unrealized
Losses
State and municipal securities
$
1,659

 
$
(8
)
 
$
—

 
$
—

 
$
1,659

 
$
(8
)
Mortgage-backed securities & CMO’s
39,905

 
(433
)
 
3,993

 
(483
)
 
43,898

 
(916
)
Total
$
41,564

 
$
(441
)
 
$
3,993

 
$
(483
)
 
$
45,557

 
$
(924
)

At June 30, 2012, the amortized cost and fair value of available-for-sale and held-to-maturity debt securities, by contractual maturity, are as follows (in thousands):

 
Available-for-Sale
 
Held-to-Maturity
 
Amortized
Cost
 
Fair
Value
 
Amortized
Cost
 
Fair
Value
One year or less
$
—

 
$
—

 
$
130

 
$
130

After one year through five years
2,865

 
2,990

 
2,364

 
2,507

After five years through ten years
—

 
—

 
7,750

 
8,504

After ten years
48,416

 
50,205

 
4,746

 
5,351

Subtotal
51,281

 
53,195

 
14,990

 
16,492

Mortgage-backed securities
208,525

 
210,594

 
—

 
—

SBA Pools
21,539

 
21,306

 
—

 
—

Total Securities
$
281,345

 
$
285,095

 
$
14,990

 
$
16,492


Expected maturities may differ from contractual maturities because issuers may have the right to call or prepay obligations with or without call or prepayment penalties.
Intermountain’s investment portfolios are managed to provide and maintain liquidity; to maintain a balance of high quality, diversified investments to minimize risk; to offset other asset portfolio elements in managing interest rate risk; to provide collateral for pledging; and to maximize returns. At June 30, 2012, the Company does not intend to sell any of its available-for-sale securities that have a loss position and it is not likely that it will be required to sell the available-for-sale securities before the anticipated recovery of their remaining amortized cost or maturity date. The unrealized losses on residential mortgage-backed securities without other-than-temporary impairment (“OTTI”) were considered by management to be temporary in nature.
The following table presents the OTTI losses for the six months ended June 30, 2012 and June 30, 2011:

 
2012
 
2011
 
Held To
Maturity
 
Available
For Sale
 
Held To
Maturity
 
Available
For Sale
Total other-than-temporary impairment losses
$
—

 
$
7

 
$
—

 
$
—

Portion of other-than-temporary impairment losses transferred from (recognized in) other comprehensive income (1)
—

 
316

 
—

 
—

Net impairment losses recognized in earnings (2)
$
—

 
$
323

 
$
—

 
$
—

_____________________________
(1)
Represents other-than-temporary impairment losses related to all other factors.
(2)
Represents other-than-temporary impairment losses related to credit losses.
The OTTI recognized on investment securities available for sale relates to two non-agency collateralized mortgage obligations. Each of these securities holds various levels of credit subordination. These securities were valued by third-party pricing services using matrix or model pricing methodologies and were corroborated by broker indicative bids. We estimated the cash flows of the underlying collateral for each security considering credit, interest and prepayment risk models that incorporate management’s estimate of projected key assumptions including prepayment rates, collateral default rates and loss severity. Assumptions utilized vary from security to security, and are influenced by factors such as underlying loan interest rates, geographic location, borrower characteristics, vintage, and historical experience. We then used a third party to obtain information about the structure of each security, including subordination and other credit enhancements, in order to determine how the underlying collateral cash flows will be distributed to each security issued in the structure. These cash flows were then discounted at the interest rate equal to the yield anticipated at the time the security was purchased. We review the actual collateral performance of these securities on a

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quarterly basis and update the inputs as appropriate to determine the projected cash flows.
See Note 11 “Fair Value of Financial Instruments” for more information on the calculation of fair or carrying value for the investment securities.

3. Loans and Allowance for Loan Losses:
The components of loans receivable are as follows (in thousands):

 
June 30, 2012
 
Loans
Receivable
 
%
 
Individually
Evaluated for
Impairment
 
Collectively
Evaluated for
Impairment
Commercial
$
115,481

 
22.2
%
 
$
7,810

 
$
107,671

Commercial real estate
182,045

 
35.0

 
5,892

 
176,153

Commercial construction
3,496

 
0.7

 
—

 
3,496

Land and land development loans
32,271

 
6.2

 
3,227

 
29,044

Agriculture
91,983

 
17.7

 
2,187

 
89,796

Multifamily
18,325

 
3.5

 
—

 
18,325

Residential real estate
58,580

 
11.3

 
2,823

 
55,757

Residential construction
160

 
—

 
—

 
160

Consumer
10,120

 
1.9

 
225

 
9,895

Municipal
8,138

 
1.5

 
—

 
8,138

Total loans receivable
520,599

 
100.0
%
 
$
22,164

 
$
498,435

Allowance for loan losses
(10,233
)
 
 
 
 
 
 
Deferred loan fees, net of direct origination costs
318

 
 
 
 
 
 
Loans receivable, net
$
510,684

 
 
 
 
 
 
Weighted average interest rate
5.50
%
 
 
 
 
 
 

 
December 31, 2011
 
Loans
Receivable
 
%
 
Individually
Evaluated for
Impairment
 
Collectively
Evaluated for
Impairment
Commercial
$
110,395

 
21.4
%
 
$
8,585

 
$
101,810

Commercial real estate
167,586

 
32.6

 
10,918

 
156,668

Commercial construction
6,335

 
1.2

 
747

 
5,588

Land and land development loans
38,499

 
7.5

 
5,173

 
33,326

Agriculture
81,316

 
15.8

 
2,423

 
78,893

Multifamily
26,038

 
5.1

 
—

 
26,038

Residential real estate
58,861

 
11.4

 
4,013

 
54,848

Residential construction
2,742

 
0.5

 
—

 
2,742

Consumer
11,847

 
2.3

 
276

 
11,571

Municipal
11,063

 
2.2

 
—

 
11,063

Total loans receivable
514,682

 
100.0
%
 
$
32,135

 
$
482,547

Allowance for loan losses
(12,690
)
 
 
 
 
 
 
Deferred loan fees, net of direct origination costs
260

 
 
 
 
 
 
Loans receivable, net
$
502,252

 
 
 
 
 
 
Weighted average interest rate
5.69
%
 
 
 
 
 
 

The components of allowance for loan loss by types are as follows (in thousands):


11
Table of Contents

 
June 30, 2012
 
Total
Allowance
 
Individually
Evaluated
Allowance
 
Collectively
Evaluated
Allowance
Commercial
$
2,429

 
$
813

 
$
1,616

Commercial real estate
4,032

 
1,876

 
2,156

Commercial construction
94

 
—

 
94

Land and land development loans
1,565

 
324

 
1,241

Agriculture
207

 
10

 
197

Multifamily
57

 
—

 
57

Residential real estate
1,601

 
961

 
640

Residential construction
4

 
—

 
4

Consumer
201

 
117

 
84

Municipal
43

 
—

 
43

Total
$
10,233

 
$
4,101

 
$
6,132


 
December 31, 2011
 
Total
Allowance
 
Individually
Evaluated
Allowance
 
Collectively
Evaluated
Allowance
Commercial
$
2,817

 
$
1,300

 
$
1,517

Commercial real estate
4,880

 
2,804

 
2,076

Commercial construction
500

 
252

 
248

Land and land development loans
2,273

 
728

 
1,545

Agriculture
172

 
32

 
140

Multifamily
91

 
—

 
91

Residential real estate
1,566

 
939

 
627

Residential construction
59

 
—

 
59

Consumer
295

 
195

 
100

Municipal
37

 
—

 
37

Total
$
12,690

 
$
6,250

 
$
6,440


A summary of current, past due and nonaccrual loans as of June 30, 2012 is as follows, (in thousands):

 
Current
 
30-89 Days
Past Due
 
90 Days or More
Past Due
and Accruing
 
Nonaccrual
 
Total
Commercial
$
110,869

 
$
329

 
$
—

 
$
4,283

 
$
115,481

Commercial real estate
181,058

 
305

 
—

 
682

 
182,045

Commercial construction
3,496

 
—

 
—

 
—

 
3,496

Land and land development loans
30,978

 
38

 
—

 
1,255

 
32,271

Agriculture
91,716

 
233

 
—

 
34

 
91,983

Multifamily
18,325

 
—

 
—

 
—

 
18,325

Residential real estate
57,881

 
378

 
—

 
321

 
58,580

Residential construction
160

 
—

 
—

 
—

 
160

Consumer
10,075

 
25

 
—

 
20

 
10,120

Municipal
8,138

 
—

 
—

 
—

 
8,138

Total
$
512,696

 
$
1,308

 
$
—

 
$
6,595

 
$
520,599


A summary of current, past due and nonaccrual loans as of December 31, 2011 is as follows, (in thousands):


12
Table of Contents

 
Current
 
30-89 Days
Past Due
 
90 Days or More
Past Due
and Accruing
 
Nonaccrual
 
Total
Commercial
$
106,509

 
$
200

 
$
—

 
$
3,686

 
$
110,395

Commercial real estate
164,578

 
705

 
—

 
2,303

 
167,586

Commercial construction
6,289

 
—

 
—

 
46

 
6,335

Land and land development loans
35,835

 
12

 
—

 
2,652

 
38,499

Agriculture
81,129

 
—

 
—

 
187

 
81,316

Multifamily
26,038

 
—

 
—

 
—

 
26,038

Residential real estate
58,037

 
423

 
—

 
401

 
58,861

Residential construction
2,742

 
—

 
—

 
—

 
2,742

Consumer
11,739

 
91

 
—

 
17

 
11,847

Municipal
11,063

 
—

 
—

 
—

 
11,063

Total
$
503,959

 
$
1,431

 
$
—

 
$
9,292

 
$
514,682



The following table provides a summary of Troubled Debt Restructuring ("TDR") by performing status, (in thousands).

 
 
 
 
 
 
 
 
 
 
 
 
 
June 30, 2012
 
December 31, 2011
Troubled Debt Restructurings
Nonaccrual
 
Accrual
 
Total
 
Nonaccrual
 
Accrual
 
Total
Commercial
$
42

 
$
663

 
$
705

 
$
571

 
$
371

 
$
942

Commercial real estate
44

 
2,332

 
2,376

 
382

 
1,889

 
2,271

Commercial construction
—

 
—

 
—

 
295

 
46

 
341

Land and land development loans
—

 
1,280

 
1,280

 
794

 
782

 
1,576

Agriculture
—

 
110

 
110

 
—

 
22

.
22

Residential real estate
—

 
725

 
725

 
1,377

 
—

 
1,377

Consumer
—

 
40

 
40

 
64

 
27

 
91

Total
$
86

 
$
5,150

 
$
5,236

 
$
3,483

 
$
3,137

 
$
6,620


A modified loan is considered a TDR when two conditions are met: 1) the borrower is experiencing financial difficulty and 2) concessions are made by the Company that would not otherwise be considered for a borrower with similar credit characteristics. Modified terms are dependent upon the financial position and needs of the individual borrower, as the Company does not employ modification programs for temporary or trial periods. The most common types of modifications include interest rate adjustments, covenant modifications, forbearance and/or other concessions. If the modification agreement is violated, the loan is handled by the Company's Special Assets group for resolution, which may result in foreclosure or other asset disposition.
Generally, TDRs are classified as impaired loans and are TDRs for the remaining life of the loan. Impaired and TDR classification may be removed if the borrower demonstrates compliance with the modified terms and the restructuring agreement specifies an interest rate equal to that which would be provided to a borrower with similar credit at the time of restructuring.
The Company's loans that were modified in the three and six month period ended June 30, 2012 and 2011 and considered a TDR are as follows (dollars in thousands):

13
Table of Contents

 
Three Months Ended June 30, 2012
 
Six Months Ended June 30, 2012
 
Number
 
Pre-Modification Recorded Investment
 
Post-Modification Recorded Investment
 
Number
 
Pre-Modification Recorded Investment
 
Post-Modification Recorded Investment
Commercial
—

 
$
—

 
$
—

 
1

 
75

 
75

Commercial real estate
—

 
—

 
—

 
1

 
100

 
100

Agriculture
—

 
—

 
—

 
1

 
110

 
110

 
—

 
$
—

 
$
—

 
3

 
285

 
285


 
Three Months Ended June 30, 2011
 
Six Months Ended June 30, 2011
 
Number
 
Pre-Modification Recorded Investment
 
Post-Modification Recorded Investment
 
Number
 
Pre-Modification Recorded Investment
 
Post-Modification Recorded Investment
Commercial
—

 
$
—

 
$
—

 
2

 
1,742

 
1,742

Land and land development loans
2

 
$
250

 
$
250

 
5

 
2,262

 
2,261

Agriculture
1

 
$
58

 
$
58

 
1

 
58

 
58

Residential real estate
6

 
$
937

 
$
937

 
6

 
937

 
937

Residential construction
1

 
123

 
123

 
1

 
123

 
123

Consumer
5

 
128

 
128

 
5

 
128

 
128

 
15

 
$
1,496

 
$
1,496

 
20

 
5,250

 
5,249


The balances below provide information as to how the loans were modified as TDRs during the three and six months ended June 30, 2012 and 2011, (in thousands).
 
Three Months Ended June 30, 2012
 
Six Months Ended June 30, 2012
 
Adjusted Interest Rate Only
 
Other*
 
Adjusted Interest Rate Only
 
Other*
Commercial
$
—

 
$
—

 
$
75

 
$
—

Commercial real estate
—

 
—

 
—

 
100

Agriculture
—

 
—

 
110

 
—

 
$
—

 
$
—

 
$
185

 
$
100

(*) Other includes term or principal concessions or a combination of concessions, including interest rates.


14
Table of Contents

 
Three Months Ended June 30, 2011
 
Six Months Ended June 30, 2011
 
Adjusted Interest Rate Only
 
Other*
 
Adjusted Interest Rate Only
 
Other*
Commercial
$
—

 
$
—

 
$
—

 
$
1,742

Land and land development loans
$
250

 
$
—

 
$
250

 
$
2,011

Agriculture
$
—

 
$
58

 
$
—

 
$
58

Residential real estate
$
904

 
$
33

 
$
904

 
$
33

Residential construction
—

 
122

 
—

 
122

Consumer
128

 
—

 
128

 
—

 
$
1,282

 
$
213

 
$
1,282

 
$
3,966

(*) Other includes term or principal concessions or a combination of concessions, including interest rates.
As of June 30, 2012, the Company had specific reserves of $1.7 million on TDRs, and there were no TDRs in default.
The allowance for loan losses and reserve for unfunded commitments are maintained at levels considered adequate by management to provide for probable loan losses as of the reporting dates. The allowance for loan losses and reserve for unfunded commitments are based on management’s assessment of various factors affecting the loan portfolio, including problem loans, business conditions and loss experience, and an overall evaluation of the quality of the underlying collateral. Changes in the allowance for loan losses and the reserve for unfunded commitments during the three and six month periods ended June 30, 2012 and 2011 are as follows:

 
Allowance for Loan Losses
for the three months ended June 30, 2012
 
Balance,
Beginning of
Quarter
 
Charge-Offs
Apr 1 through Jun 30, 2012
 
Recoveries
Apr 1 through Jun 30 2012
 
Provision
 
Balance,
End of
Period
 
(Dollars in thousands)
Commercial
$
2,577

 
$
(1,078
)
 
$
289

 
$
641

 
$
2,429

Commercial real estate
3,953

 
(841
)
 
134

 
786

 
4,032

Commercial construction
474

 
(243
)
 
3

 
(140
)
 
94

Land and land development loans
2,210

 
(711
)
 
229

 
(163
)
 
1,565

Agriculture
138

 
(1
)
 
18

 
52

 
207

Multifamily
77

 
—

 
—

 
(20
)
 
57

Residential real estate
1,575

 
(502
)
 
60

 
468

 
1,601

Residential construction
62

 
—

 
—

 
(58
)
 
4

Consumer
258

 
(127
)
 
56

 
14

 
201

Municipal
48

 
—

 
—

 
(5
)
 
43

Allowance for loan losses
$
11,372

 
$
(3,503
)
 
$
789

 
$
1,575

 
$
10,233




15
Table of Contents

 
Allowance for Loan Losses
for the six months ended June 30, 2012
 
Balance,
Beginning of
Year
 
Charge-Offs
Jan 1 through Jun 30, 2012
 
Recoveries
Jan 1 through Jun 30 2012
 
Provision
 
Balance,
End of
Period
 
(Dollars in thousands)
Commercial
$
2,817

 
$
(1,757
)
 
$
326

 
$
1,043

 
$
2,429

Commercial real estate
4,880

 
(1,978
)
 
219

 
911

 
4,032

Commercial construction
500

 
(243
)
 
5

 
(168
)
 
94

Land and land development loans
2,273

 
(1,184
)
 
267

 
209

 
1,565

Agriculture
172

 
(32
)
 
69

 
(2
)
 
207

Multifamily
91

 
—

 
—

 
(34
)
 
57

Residential real estate
1,566

 
(665
)
 
114

 
586

 
1,601

Residential construction
59

 
—

 
7

 
(62
)
 
4

Consumer
295

 
(254
)
 
115

 
45

 
201

Municipal
37

 
—

 
—

 
6

 
43

Allowance for loan losses
$
12,690

 
$
(6,113
)
 
$
1,122

 
$
2,534

 
$
10,233



 
Allowance for Loan Losses
for the three months ended June 30, 2011
 
Balance,
Beginning of
Quarter
 
Charge-Offs
Apr 1 through Jun 30, 2011
 
Recoveries
Apr through Jun 30, 2011
 
Provision
 
Balance,
End of
Period
 
(Dollars in thousands)
Commercial
$
2,411

 
$
(803
)
 
$
265

 
$
909

 
$
2,782

Commercial real estate
4,092

 
(201
)
 
149

 
1,046

 
5,086

Commercial construction
568

 
382

 
(58
)
 
(164
)
 
728

Land and land development loans
2,478

 
(1,117
)
 
148

 
537

 
2,046

Agriculture
845

 
(37
)
 
2

 
99

 
909

Multifamily
73

 
—

 
—

 
17

 
90

Residential real estate
1,259

 
(186
)
 
20

 
231

 
1,324

Residential construction
118

 
(18
)
 
—

 
19

 
119

Consumer
577

 
(93
)
 
40

 
53

 
577

Municipal
61

 
—

 
—

 
(35
)
 
26

Allowances for loan losses
$
12,482

 
$
(2,073
)
 
$
566

 
$
2,712

 
$
13,687





16
Table of Contents

 
Allowance for Loan Losses
for the six months ended June 30, 2011
 
Balance,
Beginning of
Year
 
Charge-Offs
Jan 1 through Jun 30, 2011
 
Recoveries
Jan 1 through Jun 30, 2011
 
Provision
 
Balance,
End of
Period
 
(Dollars in thousands)
Commercial
$
2,925

 
$
(803
)
 
$
265

 
$
395

 
$
2,782

Commercial real estate
3,655

 
(679
)
 
150

 
1,960

 
5,086

Commercial construction
540

 
—

 
—

 
188

 
728

Land and land development loans
2,408

 
(1,593
)
 
302

 
929

 
2,046

Agriculture
779

 
(331
)
 
42

 
419

 
909

Multifamily
83

 
—

 
—

 
7

 
90

Residential real estate
1,252

 
(399
)
 
60

 
411

 
1,324

Residential construction
65

 
(18
)
 
—

 
72

 
119

Consumer
613

 
(191
)
 
82

 
73

 
577

Municipal
135

 
—

 
—

 
(109
)
 
26

Allowances for loan losses
$
12,455

 
$
(4,014
)
 
$
901