IMCB-2013.6.30 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, 2013
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 7, 2013 was 2,603,606 and the number of outstanding shares of Non-Voting Common Stock, no par value per share, was 3,839,688.

Table of Contents

Intermountain Community Bancorp
FORM 10-Q
For the Quarter Ended June 30, 2013
TABLE OF CONTENTS
 
 
 
 
 
 
 
Item 4 —Mine Safety Disclosure
 EX-31.1
 EX-31.2
 EX-32
 EX-101

2
Table of Contents

PART I — Financial Information
Item - 1 Financial Statements
Intermountain Community Bancorp
Consolidated Balance Sheets
(Unaudited)
 
June 30,
2013
 
December 31,
2012
 
(Dollars in thousands)
ASSETS
 
 
 
Cash and cash equivalents:
 
 
 
Interest-bearing
$
33,474

 
$
53,403

Non-interest bearing and vault
7,003

 
13,536

Restricted cash
12,464

 
13,146

Available-for-sale securities, at fair value
256,616

 
280,169

Held-to-maturity securities, at amortized cost
22,991

 
14,826

Federal Home Loan Bank (“FHLB”) of Seattle stock, at cost
2,228

 
2,269

Loans held for sale
1,081

 
1,684

Loans receivable, net
522,740

 
520,768

Accrued interest receivable
4,463

 
4,320

Office properties and equipment, net
35,408

 
35,453

Bank-owned life insurance ("BOLI")
9,642

 
9,472

Other real estate owned (“OREO”)
4,512

 
4,951

Prepaid expenses and other assets
17,936

 
18,142

Total assets
$
930,558

 
$
972,139

LIABILITIES
 
 
 
Deposits
$
699,521

 
$
748,934

Securities sold subject to repurchase agreements
85,605

 
76,738

Advances from Federal Home Loan Bank
4,000

 
4,000

Unexercised stock warrant liability
826

 
828

Cashier checks issued and payable
2,278

 
2,024

Accrued interest payable
316

 
1,185

Other borrowings
16,527

 
16,527

Accrued expenses and other liabilities
8,440

 
7,469

Total liabilities
817,513

 
857,705

STOCKHOLDERS’ EQUITY
 
 
 
Common stock 30,000,000 shares authorized; 2,603,606 and 2,603,674 shares issued and 2,603,606,and 2,603,131 shares outstanding as of June 30, 2013 and December 31, 2012, respectively
96,358

 
96,368

Common stock - non-voting 10,000,000 shares authorized; 3,839,688 and 3,839,688 shares issued and outstanding as of June 30, 2013 and December 31, 2012, respectively
31,941

 
31,941

Preferred stock, Series A, 27,000 shares issued and outstanding as of June 30, 2013 and December 31, 2012, respectively; liquidation preference of $1,000 per share
26,770

 
26,527

Accumulated other comprehensive income, net of tax
(641
)
 
3,529

Accumulated deficit
(41,383
)
 
(43,931
)
Total stockholders’ equity
113,045

 
114,434

Total liabilities and stockholders’ equity
$
930,558

 
$
972,139


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

3
Table of Contents

Intermountain Community Bancorp
Consolidated Statements of Operations
(Unaudited)
 
Three Months Ended
 
Six Months Ended
 
June 30,
 
June 30,
 
2013
 
2012
 
2013
 
2012
 
(Dollars in thousands, except per share data)
Interest income:
 
 
 
 
 
 
 
Loans
$
6,893

 
$
7,054

 
$
13,604

 
$
14,126

Investments
1,580

 
2,072

 
3,172

 
4,120

Total interest income
8,473

 
9,126

 
16,776

 
18,246

Interest expense:
 
 
 
 
 
 
 
Deposits
510

 
744

 
1,070

 
1,566

Other borrowings
441

 
571

 
866

 
1,247

Total interest expense
951

 
1,315

 
1,936

 
2,813

Net interest income
7,522

 
7,811

 
14,840

 
15,433

Provision for losses on loans
(247
)
 
(1,575
)
 
(426
)
 
(2,534
)
Net interest income after provision for losses on loans
7,275

 
6,236

 
14,414

 
12,899

Other income:
 
 
 
 
 
 
 
Fees and service charges
1,895

 
1,592

 
3,570

 
3,185

Loan related fee income
696

 
686

 
1,263

 
1,299

Net gain on sale of securities
163

 
—

 
203

 
585

Net gain (loss) on sale of other assets
2

 
18

 
6

 
22

Other-than-temporary impairment (“OTTI”) losses on investments (1)
(21
)
 
(52
)
 
(63
)
 
(323
)
Bank-owned life insurance
85

 
87

 
170

 
174

Fair value adjustment on cash flow hedge
80

 
90

 
146

 
(294
)
Unexercised warrant liability fair value adjustment
(54
)
 
158

 
2

 
158

Other
40

 
189

 
153

 
398

Total other income
2,886

 
2,768

 
5,450

 
5,204

Operating expenses:
 
 
 
 
 
 
 
Salaries and employee benefits
4,283

 
3,871

 
8,458

 
8,006

Occupancy expense
1,521

 
1,623

 
3,045

 
3,307

Advertising
180

 
168

 
294

 
280

Fees and service charges
656

 
629

 
1,273

 
1,250

Printing, postage and supplies
173

 
300

 
390

 
601

Legal and accounting
471

 
396

 
812

 
746

FDIC assessment
165

 
308

 
351

 
621

OREO operations
32

 
120

 
143

 
224

Other expenses
739

 
807

 
1,632

 
1,485

Total operating expenses
8,220

 
8,222

 
16,398

 
16,520

Net income before income taxes
1,941

 
782

 
3,466

 
1,583

Income tax benefit
—

 
—

 
—

 
—

Net income
1,941

 
782

 
3,466

 
1,583

Preferred stock dividend
460

 
481

 
918

 
947

Net income applicable to common stockholders
$
1,481

 
$
301

 
$
2,548

 
$
636

Earnings per share — basic
$
0.23

 
$
0.05

 
$
0.40

 
$
0.12

Earnings per share — diluted
$
0.23

 
$
0.05

 
$
0.39

 
$
0.12

Weighted average common shares outstanding — basic
6,443,294

 
5,901,321

 
6,443,142

 
5,164,576

Weighted average common shares outstanding — diluted
6,484,762

 
5,919,188

 
6,482,376

 
5,181,109

(1)    Consisting of $0, 0, 0 and $0 of total other-than-temporary impairment net losses, net of $(21), $(52), $(63) and $(316) recognized in other comprehensive income, for the three and six months ended June 30, 2013 and June 30, 2012, respectively.
The accompanying notes are an integral part of the consolidated financial statements.

4
Table of Contents

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

 
Three Months Ended
 
Six Months Ended
 
June 30,
 
June 30,
 
2013
 
2012
 
2013
 
2012
 
(Dollars in thousands)
Net income
$
1,941

 
$
782

 
$
3,466

 
$
1,583

Other comprehensive income:
 
 
 
 
 
 
 
Change in unrealized gains/losses on investments, and mortgage backed securities (“MBS”) available for sale, excluding non-credit loss on impairment of securities
(7,259
)
 
292

 
(6,763
)
 
(439
)
Realized net losses reclassified from other comprehensive income
(163
)
 
—

 
(203
)
 
(585
)
Non-credit loss on impairment on available-for-sale debt securities
21

 
52

 
63

 
316

Less deferred income tax benefit (provision) on securities
2,931

 
(136
)
 
2,734

 
280

Change in fair value of qualifying cash flow hedge, net of tax
—

 
—

 
—

 
330

Net other comprehensive income (loss)
(4,470
)
 
208

 
(4,169
)
 
(98
)
Comprehensive income (loss)
$
(2,529
)
 
$
990

 
$
(703
)
 
$
1,485

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


5
Table of Contents

Intermountain Community Bancorp
Consolidated Statements of Cash Flows
(Unaudited)
 
Six Months Ended
 
June 30,
 
2013
 
2012
 
(Dollars in thousands)
Cash flows from operating activities:
 
 
 
Net income
$
3,466

 
$
1,583

Adjustments to reconcile net income to net cash provided by operating activities:
 
 
 
Depreciation
1,194

 
1,341

Stock-based compensation expense
13

 
43

Net amortization of premiums on securities
3,291

 
2,485

Provisions for losses on loans
426

 
2,534

Amortization of core deposit intangibles
29

 
58

(Gain) on sale of loans, investments, property and equipment
(978
)
 
(1,413
)
Impact of hedge dedesignation and current fair value adjustment
(147
)
 
374

OTTI credit loss on available-for-sale investments
63

 
323

OREO valuation adjustments
17

 
30

Accretion of deferred gain on sale of branch property
(8
)
 
(8
)
Net accretion of loan and deposit discounts and premiums
(5
)
 
(7
)
Increase in cash surrender value of bank-owned life insurance
(170
)
 
(174
)
Change in value of stock warrants
(2
)
 
(158
)
Change in:
 
 
 
Accrued interest receivable
(143
)
 
(422
)
Prepaid expenses and other assets
2,886

 
2,385

Accrued interest payable and other liabilities
257

 
605

Accrued expenses and other cashiers checks
254

 
(199
)
Proceeds from sale of loans originated for sale
31,274

 
38,824

Loans originated for sale
(29,895
)
 
(36,533
)
Net cash provided by operating activities
11,822

 
11,671

Cash flows from investing activities:
 
 
 
Proceeds from redemption of FHLB Stock
41

 
—

Purchases of available-for-sale securities
(62,574
)
 
(100,754
)
Proceeds from sales, calls or maturities of available-for-sale securities
34,798

 
2,967

Principal payments on mortgage-backed securities
33,058

 
28,692

Proceeds from sales, calls or maturities of held-to-maturity securities
53

 
1,261

Origination of loans, net of principal payments
(2,787
)
 
(11,653
)
Purchase of office properties and equipment
(1,164
)
 
(184
)
Proceeds from sale of other real estate owned
817

 
2,047

Proceeds from sale of office properties and equipment
13

 
16

Net change in restricted cash
683

 
(296
)
Net cash provided by (used in) investing activities
2,938

 
(77,904
)
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
(32,033
)
 
5,403

Net change in certificates of deposit
(17,380
)
 
(18,266
)
Net change in repurchase agreements
8,867

 
(19,646
)
Retirement of treasury stock
(1
)
 
—

Payment of preferred stock dividend
(675
)
 
—

Net cash provided by (used in) financing activities
(41,222
)
 
17,839

Net change in cash and cash equivalents
(26,462
)
 
(48,394
)
Cash and cash equivalents, beginning of period
66,939

 
107,199

Cash and cash equivalents, end of period
$
40,477

 
$
58,805

Supplemental disclosures of cash flow information:
 
 
 
Cash paid during the period for:
 
 
 
Interest
$
2,804

 
$
2,812

Noncash investing and financing activities:
 
 
 
Loans converted to other real estate owned
$
394

 
$
694

Accrual of preferred stock dividend
$
—

 
$
763

Transfer from securities available-for-sale to securities held-to-maturity
$
8,234

 
$
—

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

6
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, 2012. 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.
During the fourth quarter of 2012, the Company identified a misstatement related to the elimination of cash deposited by the parent company with the subsidiary bank. The misstatement increased the unrestricted cash and deposit balances in the Consolidated Balance Sheet and the amount of cash received from financing activities reported in the Consolidated Statement of Cash Flows for the quarters ended March 31, June 30 and September 30, 2012. In accordance with the SEC Staff Accounting Bulletin (SAB) No. 99, "Materiality," and SAB No. 108, "Considering the Effects of Prior Year Misstatements when Quantifying Misstatements in Current Year Financial Statements," management evaluated the materiality of the error from qualitative and quantitative perspectives and concluded that the error was immaterial to these prior interim periods. Consequently, the Consolidated Balance Sheet and Consolidated Statement of Cash Flows contained in this Report have been revised for the six months ended June 30, 2012. This change resulted in a corresponding decrease of $9.5 million from non-interest bearing and vault cash and deposit liabilities on the balance sheet and from cash flows from financing activities on the statement of cash flows. This change did not affect net income or shareholders' equity for any period.


2. Cash & Cash Equivalents:

The balances of the Company's cash and cash equivalents are as follows (in thousands):
 
6/30/2013
 
12/31/2012
Unrestricted interest-bearing cash and cash equivalents
$
33,474

 
$
53,403

Unrestricted non interest-bearing and vault cash
$
7,003

 
$
13,536

Restricted non-interest bearing cash
$
12,464

 
$
13,146

In June 2013 and December 2012, unrestricted interest bearing cash was deposited at the Federal Reserve ("FRB") and Federal Home Loan Bank of Seattle ("FHLB"). Unrestricted non-interest bearing cash includes overnight cash deposited at several of the Company's correspondent banks and balances kept in the vaults of its various offices. At June 30 restricted non-interest bearing cash consisted of the following:
•
$1.3 million in reserve balances to meet FRB reserve requirements;
•
$572,000 pledged to various correspondent banks to secure interest rate swap transactions and foreign currency exchange lines;
•
$1.1 million held at the Company's subsidiary Bank to be used for future tenant improvements of the Sandpoint Center, as required by the agreement executed to sell the Sandpoint Center in 2009;
•
$9.5 million held at the Company's subsidiary Bank as required by an intercompany agreement signed by the Company and the Bank as part of the Company's January 2012 capital raise, which represents a pledge of funds to the Bank to partially secure the loan made by the Bank to the third party who bought and subsequently leased the Sandpoint Center back to the Bank.

7
Table of Contents

At December 31, 2012, restricted cash consisted of $1.1 million to meet FRB reserve requirements, $572,000 to secure interest swap transactions, $877,000 deposited in escrow for the payment of deferred interest on the Company's Trust II debenture and foreign currency exchange lines, $1.1 million to fund future tenant improvements at the Sandpoint Center, and $9.5 million as required by the intercompany agreement discussed above.

3. Investments:

The amortized cost and fair values of investments are as follows (in thousands):
 
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, 2013
 
 
 
 
 
 
 
 
 
Corporate Bonds
$
6,013

 
$
—

 
$
—

 
$
(69
)
 
$
5,944

State and municipal securities
50,567

 
—

 
136

 
(1,237
)
 
49,466

Mortgage-backed securities - Agency Pass Throughs
53,454

 
—

 
794

 
(705
)
 
53,543

Mortgage-backed securities - Agency CMO's
114,546

 
—

 
1,478

 
(1,185
)
 
114,839

SBA Pools
24,593

 
—

 
519

 
(42
)
 
25,070

Mortgage-backed securities - Non Agency CMO's (below investment grade)
8,240

 
(902
)
 
624

 
(208
)
 
7,754

 
$
257,413

 
$
(902
)
 
$
3,551

 
$
(3,446
)
 
$
256,616

December 31, 2012
 
 
 
 
 
 
 
 
 
State and municipal securities
$
60,984

 
$
—

 
$
2,823

 
$
(158
)
 
$
63,649

Mortgage-backed securities - Agency Pass Throughs
71,821

 
—

 
2,224

 
(652
)
 
73,393

Mortgage-backed securities - Agency CMO's
110,683

 
—

 
2,209

 
(328
)
 
112,564

SBA Pools
19,962

 
—

 
359

 
—

 
20,321

Mortgage-backed securities - Non Agency CMO's (below investment grade)
10,889

 
(1,661
)
 
1,401

 
(387
)
 
10,242

 
$
274,339

 
$
(1,661
)
 
$
9,016

 
$
(1,525
)
 
$
280,169

 
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, 2013
 
 
 
 
 
 
 
 
 
State and municipal securities
$
22,991

 
$
—

 
$
1,064

 
$
(2
)
 
$
24,053

December 31, 2012
 
 
 
 
 
 
 
 
 
State and municipal securities
$
14,826

 
$
—

 
$
1,518

 
$
—

 
$
16,344



8
Table of Contents

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, 2013
Fair Value
 
Unrealized
Losses
 
Fair Value
 
Unrealized
Losses
 
Fair Value
 
Unrealized
Losses
Corporate Bonds
$
5,944

 
$
(69
)
 
$
—

 
$
—

 
$
5,944

 
$
(69
)
Residential mortgage-back securities
70,796

 
(1,452
)
 
16,765

 
(646
)
 
87,561

 
(2,098
)
SBA Pools
4,443

 
(42
)
 
—

 
—

 
4,443

 
(42
)
State and municipal securities
37,249

 
(1,239
)
 
—

 
—

 
37,249

 
(1,239
)
Total
$
118,432

 
$
(2,802
)
 
$
16,765

 
$
(646
)
 
$
135,197

 
$
(3,448
)

 
Less Than 12 Months
 
12 Months or Longer
 
Total
December 31, 2012
Fair Value
 
Unrealized
Losses
 
Fair Value
 
Unrealized
Losses
 
Fair Value
 
Unrealized
Losses
Residential mortgage-back securities
$
57,180

 
$
(785
)
 
$
11,408

 
$
(582
)
 
$
68,588

 
$
(1,367
)
State and municipal securities
12,019

 
(158
)
 
—

 
—

 
12,019

 
(158
)
Total
$
69,199

 
$
(943
)
 
$
11,408

 
$
(582
)
 
$
80,607

 
$
(1,525
)

At June 30, 2013, 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
$
—

 
$
—

 
$
507

 
$
510

After one year through five years
3,577

 
3,576

 
4,001

 
4,095

After five years through ten years
6,717

 
6,507

 
16,976

 
17,753

After ten years
46,286

 
45,327

 
1,507

 
1,695

  Subtotal
56,580

 
55,410

 
22,991

 
24,053

Mortgage-backed securities
176,240

 
176,136

 
—

 
—

SBA Pools
24,593

 
25,070

 
—

 
—

  Total Securities
$
257,413

 
$
256,616

 
$
22,991

 
$
24,053


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, 2013, 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.


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Table of Contents

The following table presents the OTTI losses for the six months ended June 30, 2013 and June 30, 2012:
 
2013
 
2012
 
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)
—

 
63

 
—

 
316

Net impairment losses recognized in earnings (2)
$
—

 
$
63

 
$
—

 
$
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 in 2013 relates to one non-agency collateralized mortgage obligation. Another security for which OTTI had been recognized in 2012 was sold in the first quarter of 2013. Each of these securities held 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 quarterly basis and update the inputs as appropriate to determine the projected cash flows.

On June 30, 2013,six securities with a amortized cost of $8,512,039were transferred from the available-for-sale category to the held-to-maturity category of the portfolio. The fair market value of the securities at the time of transfer was $8,234,244. The unrealized loss of $277,795 will continue to be reported as a component of accumulated other comprehensive income, net of tax, and amortized over the remaining life of the securities as an adjustment to yield. Upon transfer to the held-to-maturity category, premium and discount accounts were adjusted to reflect the fair market value of the security. The resulting premiums and discounts will also be amortized as an adjustment to yield.

See Note 9 “Fair Value of Financial Instruments” for more information on the calculation of fair or carrying value for the investment securities.


10
Table of Contents

4. Loans and Allowance for Loan Losses:
The components of loans receivable are as follows (in thousands):
 
June 30, 2013
 
Loans
Receivable
 
%
 
Individually
Evaluated for
Impairment
 
Collectively
Evaluated for
Impairment
Commercial
$
113,699

 
21.4
%
 
$
4,480

 
$
109,219

Commercial real estate
190,816

 
36.0

 
4,463

 
186,353

Commercial construction
10,085

 
1.9

 
—

 
10,085

Land and land development loans
30,895

 
5.8

 
2,860

 
28,035

Agriculture
94,831

 
17.8

 
4,537

 
90,294

Multifamily
15,271

 
2.9

 
—

 
15,271

Residential real estate
58,309

 
11.0

 
2,707

 
55,602

Residential construction
2,004

 
0.4

 
—

 
2,004

Consumer
8,843

 
1.7

 
161

 
8,682

Municipal
6,029

 
1.1

 
—

 
6,029

Total loans receivable
530,782

 
100.0
%
 
$
19,208

 
$
511,574

Allowance for loan losses
(8,042
)
 
 
 
 
 
 
Deferred loan fees, net of direct origination costs
—

 
 
 
 
 
 
Loans receivable, net
$
522,740

 
 
 
 
 
 
Weighted average interest rate
5.28
%
 
 
 
 
 
 

 
December 31, 2012
 
Loans
Receivable
 
%
 
Individually
Evaluated for
Impairment
 
Collectively
Evaluated for
Impairment
Commercial
$
121,307

 
23.0
%
 
$
6,133

 
$
115,174

Commercial real estate
186,844

 
35.4

 
3,373

 
183,471

Commercial construction
3,832

 
0.7

 
—

 
3,832

Land and land development loans
31,278

 
5.9

 
2,023

 
29,255

Agriculture
85,967

 
16.3

 
2,134

 
83,833

Multifamily
16,544

 
3.1

 
—

 
16,544

Residential real estate
60,020

 
11.3

 
2,362

 
57,658

Residential construction
940

 
0.2

 
—

 
940

Consumer
9,626

 
1.8

 
168

 
9,458

Municipal
12,267

 
2.3

 
—

 
12,267

Total loans receivable
528,625

 
100.0
%
 
$
16,193

 
$
512,432

Allowance for loan losses
(7,943
)
 
 
 
 
 
 
Deferred loan fees, net of direct origination costs
86

 
 
 
 
 
 
Loans receivable, net
$
520,768

 
 
 
 
 
 
Weighted average interest rate
5.28
%
 
 
 
 
 
 


11
Table of Contents

The components of the allowance for loan loss by types are as follows (in thousands):
 
June 30, 2013
 
Total
Allowance
 
Individually
Evaluated
Allowance
 
Collectively
Evaluated
Allowance
Commercial
$
1,900

 
$
253

 
$
1,647

Commercial real estate
2,736

 
366

 
2,370

Commercial construction
231

 
—

 
231

Land and land development loans
956

 
112

 
844

Agriculture
692

 
—

 
692

Multifamily
54

 
—

 
54

Residential real estate
1,195

 
458

 
737

Residential construction
44

 
—

 
44

Consumer
203

 
109

 
94

Municipal
31

 
—

 
31

Total
$
8,042

 
$
1,298

 
$
6,744


 
December 31, 2012
 
Total
Allowance
 
Individually
Evaluated
Allowance
 
Collectively
Evaluated
Allowance
Commercial
$
2,156

 
$
628

 
$
1,528

Commercial real estate
2,762

 
267

 
2,495

Commercial construction
101

 
—

 
101

Land and land development loans
1,197

 
114

 
1,083

Agriculture
228

 
10

 
218

Multifamily
51

 
—

 
51

Residential real estate
1,144

 
458

 
686

Residential construction
24

 
—

 
24

Consumer
202

 
87

 
115

Municipal
78

 
—

 
78

Total
$
7,943

 
$
1,564

 
$
6,379


A summary of current, past due and nonaccrual loans as of June 30, 2013 is as follows, (in thousands):

 
Current
 
30-89 Days
Past Due
 
90 Days or More
Past Due
and Accruing
 
Nonaccrual
 
Total
Commercial
$
112,038

 
$
244

 
$
—

 
$
1,417

 
$
113,699

Commercial real estate
188,088

 
—

 
—

 
2,728

 
190,816

Commercial construction
10,085

 
—

 
—

 
—

 
10,085

Land and land development loans
30,622

 
159

 
—

 
114

 
30,895

Agriculture
94,151

 
404

 
—

 
276

 
94,831

Multifamily
15,271

 
—

 
—

 
—

 
15,271

Residential real estate
57,681

 
455

 
—

 
173

 
58,309

Residential construction
2,004

 
—

 
—

 
—

 
2,004

Consumer
8,741

 
11

 
—

 
91

 
8,843

Municipal
6,029

 
—

 
—

 
—

 
6,029

Total
$
524,710

 
$
1,273

 
$
—

 
$
4,799

 
$
530,782



12
Table of Contents

A summary of current, past due and nonaccrual loans as of December 31, 2012 is as follows, (in thousands):

 
Current
 
30-89 Days
Past Due
 
90 Days or More
Past Due
and Accruing
 
Nonaccrual
 
Total
Commercial
$
117,096

 
$
169

 
$
—

 
$
4,042

 
$
121,307

Commercial real estate
185,128

 
—

 
—

 
1,716

 
186,844

Commercial construction
3,832

 
—

 
—

 
—

 
3,832

Land and land development loans
31,032

 
—

 
—

 
246

 
31,278

Agriculture
85,835

 
34

 
—

 
98

 
85,967

Multifamily
16,544

 
—

 
—

 
—

 
16,544

Residential real estate
59,158

 
439

 
—

 
423

 
60,020

Residential construction
940

 
—

 
—

 
—

 
940

Consumer
9,577

 
45

 
—

 
4

 
9,626

Municipal
12,267

 
—

 
—

 
—

 
12,267

Total
$
521,409

 
$
687

 
$
—

 
$
6,529

 
$
528,625


The following table provides a summary of Troubled Debt Restructurings ("TDR") outstanding at period end by performing status, (in thousands).

 
June 30, 2013
 
December 31, 2012
 
Nonaccrual
 
Accrual
 
Total
 
Nonaccrual
 
Accrual
 
Total
Commercial
$
29

 
$
2,743

 
$
2,772

 
$
1,900

 
$
277

 
$
2,177

Commercial real estate
1,540

 
2,286

 
3,826

 
1,463

 
956

 
2,419

Land and land development loans
—

 
914

 
914

 
—

 
1,327

 
1,327

Agriculture
—

 
3,015

 
3,015

 
—

 
291


291

Residential real estate
—

 
1,164

 
1,164

 
—

 
417

 
417

Consumer
—

 
100

 
100

 
—

 
88

 
88

Total
$
1,569

 
$
10,222

 
$
11,791

 
$
3,363

 
$
3,356

 
$
6,719


The Company's loans that were modified in the three and six month period ended June 30, 2013 and 2012 and considered a TDR are as follows (dollars in thousands):
 
Three Months Ended June 30, 2013
 
Six Months Ended June 30, 2013
 
Number
 
Pre-Modification Recorded Investment
 
Post-Modification Recorded Investment
 
Number
 
Pre-Modification Recorded Investment
 
Post-Modification Recorded Investment
Commercial
3

 
$
2,243

 
$
2,243

 
7

 
$
2,506

 
$
2,506

Commercial real estate
4

 
392

 
392

 
4

 
392

 
392

Land and land development loans
1

 
182

 
182

 
3

 
335

 
335

Agriculture
—

 
—

 
—

 
4

 
1,216

 
1,216

Residential real estate
3

 
225

 
167

 
3

 
225

 
167

Consumer
—

 
—

 
—

 
1

 
89

 
89

 
11

 
$
3,042

 
$
2,984

 
22

 
$
4,763

 
$
4,705


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

Land and land development loans
—

 
—

 
—

 
—

 
—

 
—

Agriculture
—

 
—

 
—

 
1

 
110

 
110

Residential real estate
—

 
—

 
—

 
—

 
—

 
—

Residential construction
—

 
—

 
—

 
—

 
—

 
—

Consumer
—

 
—

 
—

 
—

 
—

 
—

 
—

 
$
—

 
$
—

 
3

 
$
285

 
$
285


The balances below provide information as to how the loans were modified as TDRs during the three and six months ended June 30, 2013 and 2012, (in thousands).
 
Three Months Ended June 30, 2013
 
Six Months Ended June 30, 2013
 
Adjusted Interest Rate Only
 
Other*
 
Adjusted Interest Rate Only
 
Other*
Commercial
$
1,350

 
$
893

 
$
1,350

 
$
1,156

Commercial real estate
—

 
392

 
—

 
392

Land and land development loans
—

 
182

 
36

 
299

Agriculture
—

 
—

 
852

 
364

Residential real estate
147

 
20

 
147

 
20

Consumer
—

 
—

 
—

 
90

 
$
1,497

 
$
1,487

 
$
2,385

 
$
2,321

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

 
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.

As of June 30, 2013, the Company had specific reserves of $460,000 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 six month periods ended June 30, 2013 and 2012 are as follows:


14
Table of Contents

 
Allowance for Loan Losses
for the three months ended June 30, 2013
 
Balance,
Beginning of
Quarter
 
Charge-Offs
Apr 1 through June 30, 2013
 
Recoveries
Apr 1 through June 30, 2013
 
Provision
 
Balance,
End of
Quarter
 
(Dollars in thousands)
Commercial
$
1,763

 
$
(132
)
 
$
310

 
$
(41
)
 
$
1,900

Commercial real estate
2,814

 
(48
)
 
20

 
(50
)
 
2,736

Commercial construction
217

 
—

 
14

 
—

 
231

Land and land development loans
1,210

 
(130
)
 
49

 
(173
)
 
956

Agriculture
241

 
—

 
23

 
428

 
692

Multifamily
55

 
—

 
—

 
(1
)
 
54

Residential real estate
1,103

 
(40
)
 
45

 
87

 
1,195

Residential construction
35

 
—

 
—

 
9

 
44

Consumer
206

 
(46
)
 
52

 
(9
)
 
203

Municipal
34

 
—

 
—

 
(3
)
 
31

Allowance for loan losses
$
7,678

 
$
(396
)
 
$
513

 
$
247

 
$
8,042


 
Allowance for Loan Losses
for the six months ended June 30, 2013
 
Balance,
Beginning of
Year
 
Charge-Offs
Jan 1 through June 30, 2013
 
Recoveries
Jan 1 through June 30, 2013
 
Provision
 
Balance,
End of
Period
 
(Dollars in thousands)
Commercial
$
2,156

 
$
(221
)
 
$
489

 
$
(524
)
 
$
1,900

Commercial real estate
2,762

 
(614
)
 
27

 
561

 
2,736

Commercial construction
101

 
—

 
15

 
115

 
231

Land and land development loans
1,197

 
(137
)
 
64

 
(168
)
 
956

Agriculture
228

 
—

 
41

 
423

 
692

Multifamily
51

 
—

 
—

 
3

 
54

Residential real estate
1,144

 
(40
)
 
70

 
21

 
1,195

Residential construction
24

 
—

 
—

 
20

 
44

Consumer
202

 
(110
)
 
89

 
22

 
203

Municipal
78

 
—

 
—

 
(47
)
 
31

Allowance for loan losses
$
7,943

 
$
(1,122
)
 
$
795

 
$
426

 
$
8,042





15
Table of Contents

 
Allowance for Loan Losses
for the three months ended June 30, 2012
 
Balance,
Beginning of
Quarter
 
Charge-Offs
Apr 1 through June 30, 2012
 
Recoveries
Apr 1 through June 30, 2012
 
Provision
 
Balance,
End of
Quarter
 
(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

Allowances for loan losses
$
11,372

 
$
(3,503
)
 
$
789

 
$
1,575

 
$
10,233


 
Allowance for Loan Losses
for the six months ended June 30, 2012
 
Balance,
Beginning of
Year
 
Charge-Offs
an 1 through June 30, 2012
 
Recoveries
Jan 1 through June 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
)