Edgar Filing: INTERMOUNTAIN COMMUNITY BANCORP

IMCB-2012.9.30 Q3 10Q

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 September 30, 2012



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 November 6, 2012 was 2,603,676 and the number of shares of Non-Voting Common Stock, no par value per share, was 3,839,688.

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Intermountain Community Bancorp

FORM 10-Q

For the Quarter Ended September 30, 2012

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PART I — Financial Information
Item 1 — Financial Statements (Unaudited)
Consolidated Balance Sheets for September 30, 2012 and December 31, 2011	3
Consolidated Statements of Operations for the three and nine months ended September 30, 2012 and 2011	4
Consolidated Statements of Cash Flows for the three and nine months ended September 30, 2012 and 2011	6
Consolidated Statements of Comprehensive Income (Loss) for the three and nine months ended September 30, 2012 and 2011	5
Notes to Consolidated Financial Statements	7
Item 2 — Management’s Discussion and Analysis of Financial Condition and Results of Operations	34
Item 3 — Quantitative and Qualitative Disclosures About Market Risk	57
Item 4 — Controls and Procedures	57
PART II — Other Information
Item 1 — Legal Proceedings	57
Item 1A — Risk Factors	57
Item 2 — Unregistered Sales of Equity Securities and Use of Proceeds	57
Item 3 — Defaults Upon Senior Securities	57
Item 4 —Mine Safety Disclosure	57
Item 5 — Other Information	58
Item 6 — Exhibits	58
Signatures	58
EX-3.1 Amended and Restated Articles of Incorporation
EX-31.1
EX-31.2
EX-32
EX-101

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PART I — Financial Information

Item - 1 Financial Statements

Intermountain Community Bancorp

Consolidated Balance Sheets

(Unaudited)



	September 30, 2012			December 31, 2011
	(Dollars in thousands)
ASSETS
Cash and cash equivalents:
Interest-bearing	$	45,015		$	82,242
Non-interest bearing and vault	15,516			24,958
Restricted cash	12,710			2,668
Available-for-sale securities, at fair value	290,311			219,039
Held-to-maturity securities, at amortized cost	14,843			16,143
Federal Home Loan Bank (“FHLB”) of Seattle stock, at cost	2,290			2,310
Loans held for sale	5,070			5,561
Loans receivable, net	502,852			502,252
Accrued interest receivable	4,542			4,100
Office properties and equipment, net	36,031			37,687
Bank-owned life insurance ("BOLI")	9,387			9,127
Other intangibles	101			189
Other real estate owned (“OREO”)	5,636			6,650
Prepaid expenses and other assets	18,488			21,292
Total assets	$	962,792		$	934,218
LIABILITIES
Deposits	$	731,584		$	729,373
Securities sold subject to repurchase agreements	56,989			85,104
Advances from Federal Home Loan Bank	29,000			29,000
Unexercised stock warrant liability	899			—
Cashier checks issued and payable	266			481
Accrued interest payable	2,124			1,676
Other borrowings	16,527			16,527
Accrued expenses and other liabilities	11,819			10,441
Total liabilities	849,208			872,602
STOCKHOLDERS’ EQUITY
Common stock 30,000,000 shares authorized; 2,602,820 and 842,721 shares issued and 2,602,303 and 840,984 shares outstanding as of September 30, 2012 and December 31, 2011, respectively (1)	96,330			78,916
Common stock - non-voting 10,000,000 shares authorized; 3,839,684 and 0 shares issued and outstanding as of September 30, 2012 and December 31, 2011, respectively (1)	31,941			—
Preferred stock, Series A, 27,000 shares issued and outstanding as of September 30, 2012 and December 31, 2011, respectively; liquidation preference of $1,000 per share	26,430			26,149
Accumulated other comprehensive income, net of tax	3,724			2,370
Accumulated deficit	(44,841		)	(45,819		)
Total stockholders’ equity	113,584			61,616
Total liabilities and stockholders’ equity	$	962,792		$	934,218


(1)	All share numbers have been adjusted to reflect the impact of a 1-for-10 reverse stock split, effective, October 5, 2012. See footnote 12, "Subsequent Events" for additional information.

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						Nine Months Ended
	September 30,						September 30,
	2012			2011			2012			2011
	(Dollars in thousands, except per share data)
Interest income:
Loans	$	7,031		$	8,224		$	21,157		$	24,990
Investments	1,896			2,385			6,016			6,897
Total interest income	8,927			10,609			27,173			31,887
Interest expense:
Deposits	736			1,158			2,302			3,540
Other borrowings	522			643			1,769			1,843
Total interest expense	1,258			1,801			4,071			5,383
Net interest income	7,669			8,808			23,102			26,504
Provision for losses on loans	(1,154		)	(2,239		)	(3,688		)	(6,584		)
Net interest income after provision for losses on loans	6,515			6,569			19,414			19,920
Other income:
Fees and service charges	1,702			1,692			4,946			5,226
Loan related fee income	686			524			1,927			1,644
Net gain on sale of securities	—			12			585			12
Net gain (loss) on sale of other assets	(7		)	3			15			(44		)
Other-than-temporary impairment (“OTTI”) losses on investments (1)	(34		)	(81		)	(357		)	(81		)
Bank-owned life insurance	86			88			260			269
Fair value adjustment on cash flow hedge	(6		)	—			(300		)	—
Unexercised warrant liability fair value adjustment	(49		)	—			108			—
Other	174			245			572			854
Total other income	2,552			2,483			7,756			7,880
Operating expenses:
Salaries and employee benefits	4,103			4,779			12,110			14,612
Occupancy expense	1,648			1,685			4,955			5,181
Advertising	178			188			459			532
Fees and service charges	589			687			1,840			1,971
Printing, postage and supplies	178			236			779			874
Legal and accounting	504			450			1,250			1,132
FDIC assessment	306			317			927			1,093
OREO operations	39			735			263			1,361
Other expenses	697			735			2,179			2,408
Total operating expenses	8,242			9,812			24,762			29,164
Net income (loss) before income taxes	825			(760		)	2,408			(1,364		)
Income tax (provision) benefit	—			—			—			—
Net income (loss)	825			(760		)	2,408			(1,364		)
Preferred stock dividend	482			457			1,430			1,348
Net income (loss) applicable to common stockholders	$	343		$	(1,217	)	$	978		$	(2,712	)
Earnings (loss) per share — basic (3)	$	0.05		$	(1.45	)	$	0.17		$	(3.23	)
Earnings (loss) per share — diluted (3)	$	0.05		$	(1.45	)	$	0.17		$	(3.23	)
Weighted average common shares outstanding — basic (3)	6,441,986			840,984			5,593,487			840,542
Weighted average common shares outstanding — diluted (2) (3)	6,458,227			840,984			5,610,026			840,542


(1)	Consisting of $0, $0, $7 and $0 of total other-than-temporary impairment net losses, net of $(34), $(81), $(350) and $(81), recognized in other comprehensive income, for the three and nine months ended September 30, 2012, and September 30, 2011, respectively.

(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 170,000 non-voting common shares, utilizing the Treasury stock method.


(3)	All share numbers have been adjusted to reflect the impact of a 1-for-10 reverse stock split, effective, October 5, 2012. See footnote 12, "Subsequent Events" for additional information.

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

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Intermountain Community Bancorp

Consolidated Statements of Comprehensive Income (Loss)

(Unaudited)



	Three Months Ended						Nine Months Ended
	September 30,						September 30,
	2012			2011			2012			2011
	(Dollars in thousands)
Net income (loss)	$	825		$	(760	)	$	2,408		$	(1,364	)
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	2,369			1,903			1,929			5,848
Realized net gains reclassified from other comprehensive income	—			—			(585		)	—
Non-credit loss on impairment on available-for-sale debt securities	34			81			350			81
Less deferred income tax benefit (provision) on securities	(951		)	(785		)	(671		)	(2,346		)
Change in fair value of qualifying cash flow hedge, net of tax	—			22			330			29
Net other comprehensive income (loss)	1,452			1,221			1,353			3,612
Comprehensive income	$	2,277		$	461		$	3,761		$	2,248

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)



	Nine Months Ended
	September 30,
	2012			2011
	(Dollars in thousands)
Cash flows from operating activities:
Net income (loss)	$	2,408		$	(1,364	)
Adjustments to reconcile net income (loss) to net cash provided by operating activities:
Depreciation	1,993			2,262
Stock-based compensation expense	83			168
Net amortization of premiums on securities	4,143			1,636
Provisions for losses on loans	3,688			6,584
Amortization of core deposit intangibles	88			92
(Gain) on sale of loans, investments, property and equipment	(1,842		)	(666		)
Impact of hedge dedesignation and current fair value adjustment	296			(101		)
OTTI credit loss on available-for-sale investments	357			81
OREO valuation adjustments	(19		)	928
Accretion of deferred gain on sale of branch property	(11		)	(11		)
Net accretion of loan and deposit discounts and premiums	(10		)	13
Increase in cash surrender value of bank-owned life insurance	(260		)	(269		)
Change in:
Accrued interest receivable	(441		)	308
Prepaid expenses and other assets	1,848			860
Accrued interest payable and other liabilities	940			169
Accrued expenses and other cashiers checks	(215		)	835
Proceeds from sale of loans originated for sale	59,517			32,378
Loans originated for sale	(57,774		)	(30,650		)
Net cash provided by operating activities	14,789			13,253
Cash flows from investing activities:
Proceeds from redemption of FHLB Stock	21			—
Purchases of available-for-sale securities	(125,156		)	(47,352		)
Proceeds from sales, calls or maturities of available-for-sale securities	2,967			7,734
Principal payments on mortgage-backed securities	48,595			33,738
Proceeds from sales, calls or maturities of held-to-maturity securities	1,401			524
Origination of loans, net principal payments	(5,873		)	22,240
Purchase of office properties and equipment	(349		)	(326		)
Proceeds from sale of office properties and equipment	16			—
Proceeds from sale of other real estate owned	2,628			5,136
Net change in restricted cash	(10,043		)	315
Net cash provided by (used in) investing activities	(85,793		)	22,009
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	32,767			6,283
Net change in certificates of deposit	(30,556		)	(35,131		)
Net change in repurchase agreements	(28,115		)	(47,994		)
Change in value of stock warrants	(108		)	—
Retirement of treasury stock	—			(4		)
Payoff of FHLB Advances	—			(5,000		)
Net cash provided by (used in) financing activities	24,336			(81,846		)
Net change in cash and cash equivalents	(46,668		)	(46,584		)
Cash and cash equivalents, beginning of period	107,199			144,666
Cash and cash equivalents, end of period	$	60,531		$	98,082
Supplemental disclosures of cash flow information:
Cash paid during the period for:
Interest	$	3,926		$	5,212
Income taxes, net of tax refunds received	$	—		$	8
Noncash investing and financing activities:
Loans converted to other real estate owned	$	1,595		$	8,912
Accrual of preferred stock dividend	$	1,148		$	1,083

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

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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
September 30, 2012
State and municipal securities	$	51,298	$	—		$	2,619	$	—		$	53,917
Mortgage-backed securities - Agency Pass Throughs	80,537		—			2,254		(381		)	82,410
Mortgage-backed securities - Agency CMO's	117,262		—			2,427		(172		)	119,517
SBA Pools	20,804		—			319		—			21,123
Mortgage-backed securities - Non Agency CMO's (investment grade)	5,042		—			476		—			5,518
Mortgage-backed securities - Non Agency CMO's (below investment grade)	9,215		(1,660		)	685		(414		)	7,826
	$	284,158	$	(1,660	)	$	8,780	$	(967	)	$	290,311
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
September 30, 2012
State and municipal securities	$	14,843	$	—		$	1,604	$	—		$	16,447
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
September 30, 2012	Fair Value		Unrealized Losses			Fair Value		Unrealized Losses			Fair Value		Unrealized Losses
Residential mortgage-backed securities	$	55,391	$	(531	)	$	4,536	$	(436	)	$	59,927	$	(967	)
SBA Pools	—		—			—		—			—		—
State and municipal securities	—		—			—		—			—		—
Total	$	55,391	$	(531	)	$	4,536	$	(436	)	$	59,927	$	(967	)

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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 September 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	$	—	$	—	$	504	$	520
After one year through five years	3,600		3,767		1,856		2,002
After five years through ten years	—		—		8,040		8,868
After ten years	47,699		50,150		4,443		5,057
Subtotal	51,299		53,917		14,843		16,447
Mortgage-backed securities	212,055		215,271		—		—
SBA Pools	20,804		21,123		—		—
Total Securities	$	284,158	$	290,311	$	14,843	$	16,447

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 September 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 nine months ended September 30, 2012 and September 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)	—		350		—		81
Net impairment losses recognized in earnings (2)	$	—	$	357	$	—	$	81

_____________________________


(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

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yield anticipated at the time the security was purchased. We review the actual collateral performance of these securities on a 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):



	September 30, 2012
	Loans Receivable			%		Individually Evaluated for Impairment		Collectively Evaluated for Impairment
Commercial	$	115,203		22.5	%	$	7,448	$	107,755
Commercial real estate	174,965			34.2		4,958		170,007
Commercial construction	2,573			0.5		—		2,573
Land and land development loans	33,814			6.6		3,538		30,276
Agriculture	87,851			17.2		2,224		85,627
Multifamily	17,849			3.5		—		17,849
Residential real estate	59,367			11.6		2,441		56,926
Residential construction	532			0.1		—		532
Consumer	9,724			1.9		198		9,526
Municipal	9,827			1.9		—		9,827
Total loans receivable	511,705			100.0	%	$	20,807	$	490,898
Allowance for loan losses	(9,088		)
Deferred loan fees, net of direct origination costs	235
Loans receivable, net	$	502,852
Weighted average interest rate	5.43		%



	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 the allowance for loan loss by types are as follows (in thousands):

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	September 30, 2012
	Total Allowance		Individually Evaluated Allowance		Collectively Evaluated Allowance
Commercial	$	3,073	$	1,732	$	1,341
Commercial real estate	2,728		604		2,124
Commercial construction	67		—		67
Land and land development loans	1,654		345		1,309
Agriculture	187		10		177
Multifamily	56		—		56
Residential real estate	1,042		405		637
Residential construction	13		—		13
Consumer	198		117		81
Municipal	70		—		70
Total	$	9,088	$	3,213	$	5,875



	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 September 30, 2012 is as follows, (in thousands):



	Current		30-89 Days Past Due		90 Days or More Past Due and Accruing		Nonaccrual		Total
Commercial	$	112,204	$	34	$	—	$	2,965	$	115,203
Commercial real estate	173,821		123		—		1,021		174,965
Commercial construction	2,573		—		—		—		2,573
Land and land development loans	32,369		320		—		1,125		33,814
Agriculture	87,618		207		—		26		87,851
Multifamily	17,849		—		—		—		17,849
Residential real estate	58,539		341		—		487		59,367
Residential construction	532		—		—		—		532
Consumer	9,653		59		—		12		9,724
Municipal	9,827		—		—		—		9,827
Total	$	504,985	$	1,084	$	—	$	5,636	$	511,705

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

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	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 Restructurings ("TDR") outstanding at period end by performing status, (in thousands).



	September 30, 2012						December 31, 2011
Troubled Debt Restructurings	Nonaccrual		Accrual		Total		Nonaccrual		Accrual			Total
Commercial	$	40	$	330	$	370	$	571	$	371		$	942
Commercial real estate	339		458		797		382		1,889			2,271
Commercial construction	—		—		—		295		46			341
Land and land development loans	—		1,309		1,309		794		782			1,576
Agriculture	—		110		110		—		22		.	22
Residential real estate	—		249		249		1,377		—			1,377
Consumer	—		38		38		64		27			91
Total	$	379	$	2,494	$	2,873	$	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 nine month period ended September 30, 2012 and 2011 and considered a TDR are as follows (dollars in thousands):

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	Three Months Ended September 30, 2012					Nine Months Ended September 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
Land and land development loans	1	38		38		1	38	38
Agriculture	—	—		—		1	110	110
	1	$	38	$	38	4	323	323



	Three Months Ended September 30, 2011					Nine Months Ended September 30, 2011
	Number	Pre-Modification Recorded Investment		Post-Modification Recorded Investment		Number	Pre-Modification Recorded Investment	Post-Modification Recorded Investment
Commercial	1	$	79	$	79	3	1,821	1,821
Land and land development loans	3	$	205	$	205	8	2,467	2,466
Agriculture	—	$	—	$	—	1	58	58
Residential real estate	1	$	8	$	8	7	945	945
Residential construction	—	—		—		1	123	123
Consumer	—	—		—		5	128	128
	5	$	292	$	292	25	5,542	5,541

The balances below provide information as to how the loans were modified as TDRs during the three and nine months ended September 30, 2012 and 2011, (in thousands).



	Three Months Ended September 30, 2012				Nine Months Ended September 30, 2012
	Adjusted Interest Rate Only		Other*		Adjusted Interest Rate Only		Other*
Commercial	$	—	$	—	$	75	$	—
Commercial real estate	—		—		—		100
Land and land development loans	38		—		38		—
Agriculture	—		—		110		—
	$	38	$	—	$	223	$	100
(*) Other includes term or principal concessions or a combination of concessions, including interest rates.

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	Three Months Ended September 30, 2011				Nine Months Ended September 30, 2011
	Adjusted Interest Rate Only		Other*		Adjusted Interest Rate Only		Other*
Commercial	$	79	$	—	$	79	$	1,742
Land and land development loans	$	205	$	—	$	455	$	2,011
Agriculture	$	—	$	—	$	—	$	58
Residential real estate	$	8	$	—	$	912	$	33
Residential construction	—		—		—		123
Consumer	—		—		128		—
	$	292	$	—	$	1,574	$	3,967
(*) Other includes term or principal concessions or a combination of concessions, including interest rates.

As of September 30, 2012, the Company had specific reserves of $113,000 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 nine month periods ended September 30, 2012 and 2011 are as follows:



	Allowance for Loan Losses for the three months ended September 30, 2012
	Balance, Beginning of Quarter		Charge-Offs Jul 1 through Sep 30, 2012			Recoveries Jul 1 through Sep 30, 2012		Provision			Balance, End of Quarter
	(Dollars in thousands)
Commercial	$	2,429	$	(403	)	$	39	$	1,008		$	3,073
Commercial real estate	4,032		(1,577		)	239		34			2,728
Commercial construction	94		—			3		(30		)	67
Land and land development loans	1,565		(64		)	7		146			1,654
Agriculture	207		—			23		(43		)	187
Multifamily	57		—			—		(1		)	56
Residential real estate	1,601		(506		)	12		(65		)	1,042
Residential construction	4		—			—		9			13
Consumer	201		(100		)	27		70			198
Municipal	43		—			—		27			70
Allowance for loan losses	$	10,233	$	(2,650	)	$	350	$	1,155		$	9,088

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	Allowance for Loan Losses for the nine months ended September 30, 2012
	Balance, Beginning of Year		Charge-Offs Jan 1 through Sep 30, 2012			Recoveries Jan 1 through Sep 30 2012		Provision			Balance, End of Period
	(Dollars in thousands)
Commercial	$	2,817	$	(2,160	)	$	369	$	2,047		$	3,073
Commercial real estate	4,880		(3,555		)	453		950			2,728
Commercial construction	500		(243		)	8		(198		)	67
Land and land development loans	2,273		(1,247		)	275		353			1,654
Agriculture	172		(32		)	92		(45		)	187
Multifamily	91		—			—		(35		)	56
Residential real estate	1,566		(1,171		)	126		521			1,042
Residential construction	59		—			7		(53		)	13
Consumer	295		(355		)	142		116			198
Municipal	37		—			—		33			70
Allowance for loan losses	$	12,690	$	(8,763	)	$	1,472	$	3,689		$	9,088



	Allowance for Loan Losses for the three months ended September 30, 2011
	Balance, Beginning of Quarter		Charge-Offs Jul 1 through Sep 30, 2011			Recoveries Jul 1 through Sep 30, 2011		Provision			Balance, End of Quarter
	(Dollars in thousands)
Commercial	$	2,782	$	(399	)	$	320	$	48		$	2,751
Commercial real estate	5,086		(156		)	36		597			5,563
Commercial construction	728		—			—		(6		)	722
Land and land development loans	2,046		(1,068		)	42		1,079			2,099
Agriculture	909		—			2		(109		)	802
Multifamily	90		—			—		5			95
Residential real estate	1,324		(289		)	53		555			1,643
Residential construction	119		—			—		(39		)	80
Consumer	577		(130		)	31		106			584
Municipal	26		—			—		2			28
Allowances for loan losses	$	13,687	$	(2,042	)	$	484	$	2,238		$	14,367

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	Allowance for Loan Losses for the nine months ended September 30, 2011
	Balance, Beginning of Year		Charge-Offs Jul 1 through Sep 30, 2011			Recoveries Jul 1 through Sep 30, 2011		Provision		Balance, End of Period
	(Dollars in thousands)
Commercial	$	2,925	$	(1,202	)	$	580	$	448	$	2,751
Commercial real estate	3,655		(835		)	185		2,558		5,563
Commercial construction	540		—			—		182		722
Land and land development loans	2,408		(2,661		)	344		2,008		2,099
Agriculture	779		(332		)	49		306		802
Multifamily	83		—			—		12		95
Residential real estate	1,252		(687		)	113		965		1,643
Residential construction	65		(18		)	—		33		80
Consumer	613		(321		)	113		179		584