UNITED
STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
x Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934.
For the quarterly period ended March 31, 2010
OR
¨ Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
For the transition period from to .
Commission file number 1-13661
S.Y. BANCORP, INC.
(Exact name of registrant as specified in its charter)
Kentucky |
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61-1137529 |
(State or other jurisdiction of |
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(I.R.S. Employer |
incorporation or organization) |
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Identification No.) |
1040 East Main Street, Louisville, Kentucky 40206
(Address of principal executive offices including zip code)
(502) 582-2571
(Registrants telephone number, including area code)
Not Applicable
(Former name, former address and former fiscal year, if changed since last report)
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
Yes x 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 o 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:
Large accelerated filer o |
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Accelerated filer x |
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Non-accelerated filer o |
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Smaller reporting company o |
(Do not check if a smaller reporting company) |
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Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act.). Yes o No x
The number of shares of the registrants Common Stock, no par value, outstanding as of April 30, 2010, was 13,689,682.
S.Y. BANCORP, INC. AND SUBSIDIARY
PART I FINANCIAL INFORMATION |
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Item 1. Financial Statements |
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The following consolidated financial statements of S.Y. Bancorp, Inc. and Subsidiary, Stock Yards Bank & Trust Company, are submitted herewith: |
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Unaudited Condensed
Consolidated Balance Sheets |
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Notes to Unaudited Condensed Consolidated Financial Statements |
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Managements Discussion and Analysis of Financial Condition and Results of Operations |
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S.Y. BANCORP, INC. AND SUBSIDIARY
Unaudited Condensed Consolidated Balance Sheets
March 31, 2010 and December 31, 2009
(In thousands, except share data)
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(Unaudited) |
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March 31, |
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December 31, |
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2010 |
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2009 |
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Assets |
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Cash and due from banks |
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$ |
22,875 |
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$ |
25,773 |
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Federal funds sold |
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49,182 |
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6,651 |
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Mortgage loans held for sale |
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3,543 |
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13,249 |
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Securities available for sale (amortized cost of $197,856 in 2010 and $224,488 in 2009) |
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202,482 |
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228,225 |
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Securities held to maturity (fair value of $33 in 2010 and $37 in 2009) |
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31 |
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35 |
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Federal Home Loan Bank stock and other securities |
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5,772 |
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5,547 |
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Loans |
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1,441,196 |
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1,435,462 |
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Less allowance for loan losses |
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21,811 |
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20,000 |
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Net loans |
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1,419,385 |
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1,415,462 |
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Premises and equipment, net |
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27,784 |
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28,016 |
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Bank owned life insurance |
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25,372 |
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25,130 |
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Accrued interest receivable |
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6,193 |
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5,745 |
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Other assets |
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39,358 |
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37,646 |
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Total assets |
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$ |
1,801,977 |
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$ |
1,791,479 |
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Liabilities and Stockholders Equity |
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Deposits: |
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Non-interest bearing |
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$ |
232,201 |
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$ |
211,352 |
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Interest bearing |
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1,202,813 |
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1,206,832 |
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Total deposits |
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1,435,014 |
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1,418,184 |
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Securities sold under agreements to repurchase |
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53,662 |
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51,321 |
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Federal funds purchased |
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18,930 |
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19,518 |
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Other short-term borrowings |
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1,628 |
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1,809 |
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Accrued interest payable |
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497 |
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427 |
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Other liabilities |
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33,560 |
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45,223 |
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Federal Home Loan Bank advances |
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60,450 |
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60,453 |
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Subordinated debentures |
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40,900 |
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40,930 |
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Total liabilities |
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1,644,641 |
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1,637,865 |
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Stockholders equity: |
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Preferred stock, no par value. Authorized 1,000,000 shares; no shares issued or outstanding |
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Common stock, no par value. Authorized 20,000,000 shares; issued and outstanding 13,683,456 and 13,606,532 shares in 2010 and 2009, respectively |
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6,500 |
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6,244 |
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Additional paid-in capital |
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11,101 |
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9,729 |
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Retained earnings |
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136,959 |
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135,442 |
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Accumulated other comprehensive income |
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2,776 |
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2,199 |
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Total stockholders equity |
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157,336 |
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153,614 |
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Total liabilities and stockholders equity |
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$ |
1,801,977 |
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$ |
1,791,479 |
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See accompanying notes to unaudited condensed consolidated financial statements.
S.Y. BANCORP, INC. AND SUBSIDIARY
Unaudited Condensed Consolidated Statements of Income
For the three months ended March 31, 2010 and 2009
(In thousands, except per share data)
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2010 |
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2009 |
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Interest income: |
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Loans |
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$ |
19,214 |
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$ |
18,743 |
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Federal funds sold |
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25 |
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3 |
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Mortgage loans held for sale |
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66 |
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76 |
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Securities taxable |
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1,404 |
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1,421 |
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Securities tax-exempt |
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248 |
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274 |
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Total interest income |
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20,957 |
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20,517 |
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Interest expense: |
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Deposits |
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3,682 |
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4,673 |
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Fed funds purchased |
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9 |
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22 |
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Securities sold under agreements to repurchase |
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87 |
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59 |
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Federal Home Loan Bank advances |
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525 |
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780 |
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Subordinated debentures |
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860 |
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875 |
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Total interest expense |
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5,163 |
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6,409 |
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Net interest income |
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15,794 |
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14,108 |
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Provision for loan losses |
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2,695 |
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1,625 |
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Net interest income after provision for loan losses |
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13,099 |
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12,483 |
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Non-interest income: |
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Investment management and trust services |
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3,261 |
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2,671 |
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Service charges on deposit accounts |
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1,884 |
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1,811 |
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Bankcard transaction revenue |
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751 |
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659 |
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Gains on sales of mortgage loans held for sale |
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385 |
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499 |
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Brokerage commissions and fees |
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456 |
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385 |
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Bank owned life insurance income |
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243 |
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243 |
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Other |
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1,053 |
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293 |
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Total non-interest income |
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8,033 |
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6,561 |
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Non-interest expenses: |
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Salaries and employee benefits |
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8,089 |
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7,400 |
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Net occupancy expense |
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1,276 |
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1,008 |
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Data processing expense |
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1,137 |
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1,031 |
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Furniture and equipment expense |
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314 |
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292 |
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State bank taxes |
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343 |
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388 |
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FDIC insurance expense |
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471 |
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422 |
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Other |
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2,185 |
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1,728 |
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Total non-interest expenses |
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13,815 |
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12,269 |
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Income before income taxes |
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7,317 |
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6,775 |
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Income tax expense |
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2,336 |
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2,038 |
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Net income |
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$ |
4,981 |
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$ |
4,737 |
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Net income per share: |
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Basic |
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$ |
0.37 |
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$ |
0.35 |
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Diluted |
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0.36 |
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0.35 |
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Average common shares: |
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Basic |
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13,645 |
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13,500 |
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Diluted |
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13,718 |
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13,637 |
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See accompanying notes to unaudited condensed consolidated financial statements.
S.Y. BANCORP, INC. AND SUBSIDIARY
Unaudited Condensed Consolidated Statements of Cash Flows
For the three months ended March 31, 2010 and 2009
(In thousands)
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2010 |
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2009 |
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Operating activities: |
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Net income |
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$ |
4,981 |
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$ |
4,737 |
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Adjustments to reconcile net income to net cash provided by operating activities: |
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Provision for loan losses |
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2,695 |
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1,625 |
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Depreciation, amortization and accretion, net |
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800 |
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383 |
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Deferred income tax benefit |
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(716 |
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(376 |
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Gain on sales of mortgage loans held for sale |
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(385 |
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(499 |
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Origination of mortgage loans held for sale |
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(27,431 |
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(54,871 |
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Proceeds from sale of mortgage loans held for sale |
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37,522 |
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53,044 |
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Bank owned life insurance income |
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(243 |
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(243 |
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Decrease (increase) in value of private investment fund |
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(420 |
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318 |
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Loss on the sale of premises and equipment |
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2 |
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Gain on the sale of other real estate |
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(1 |
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Stock compensation expense |
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208 |
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148 |
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Excess tax benefits from share-based compensation arrangements |
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(24 |
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(32 |
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Reversal of valuation of mortgage servicing rights |
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(156 |
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Decrease (increase) in accrued interest receivable and other assets |
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(354 |
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717 |
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Increase in accrued interest payable and other liabilities |
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12,428 |
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1,542 |
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Net cash provided by operating activities |
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29,062 |
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6,337 |
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Investing activities: |
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Purchases of securities available for sale |
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(50,879 |
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(31,445 |
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Proceeds from maturities of securities available for sale |
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77,108 |
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58,441 |
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Proceeds from maturities of securities held to maturity |
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4 |
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3 |
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Net increase in loans |
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(31,670 |
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(27,740 |
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Purchases of premises and equipment |
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(382 |
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(185 |
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Proceeds from disposal of premises and equipment |
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3 |
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Proceeds from sale of other real estate |
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47 |
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Net cash used in investing activities |
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(5,769 |
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(926 |
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Financing activities: |
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Net increase in deposits |
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16,830 |
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15,109 |
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Net increase (decrease) in securities sold under agreements to repurchase and federal funds purchased |
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1,753 |
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(17,383 |
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Net increase (decrease) in other short-term borrowings |
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(181 |
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185 |
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Proceeds from Federal Home Loan Bank advances |
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460 |
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Repayments of Federal Home Loan Bank advances |
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(3 |
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Repayments of subordinated debentures |
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(30 |
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(30 |
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Issuance of common stock for options and dividend reinvestment plan |
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344 |
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582 |
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Excess tax benefits from share-based compensation arrangements |
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24 |
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32 |
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Common stock repurchases |
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(80 |
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(39 |
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Cash dividends paid |
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(2,317 |
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(2,290 |
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Net cash provided by (used in) financing activities |
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16,340 |
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(3,374 |
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Net increase in cash and cash equivalents |
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39,633 |
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2,037 |
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Cash and cash equivalents at beginning of period |
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32,424 |
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27,113 |
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Cash and cash equivalents at end of period |
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$ |
72,057 |
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$ |
29,150 |
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Supplemental cash flow information: |
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Income tax payments |
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$ |
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$ |
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Cash paid for interest |
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5,093 |
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6,566 |
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Supplemental non-cash activity: |
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Transfers from loans to other real estate owned |
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$ |
1,053 |
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$ |
60 |
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See accompanying notes to unaudited condensed consolidated financial statements.
S.Y. BANCORP, INC. AND SUBSIDIARY
Unaudited Condensed Consolidated Statement of Changes in Stockholders Equity
For the three months ended March 31, 2010
(In thousands, except per share data)
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Accumulated |
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Common stock |
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other |
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Number of |
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Additional |
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Retained |
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comprehensive |
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shares |
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Amount |
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paid-in capital |
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earnings |
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income |
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Total |
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Balance December 31, 2009 |
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13,607 |
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$ |
6,244 |
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$ |
9,729 |
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$ |
135,442 |
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$ |
2,199 |
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$ |
153,614 |
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Net income |
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4,981 |
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4,981 |
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Change in accumulated other comprehensive income, net of tax |
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577 |
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577 |
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Stock compensation expense |
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208 |
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208 |
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Stock issued for stock options exercised and dividend reinvestment plan |
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28 |
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89 |
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279 |
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368 |
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Stock issued for non-vested restricted stock |
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54 |
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181 |
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961 |
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(1,142 |
) |
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Cash dividends, $0.17 per share |
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(2,332 |
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(2,332 |
) |
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Shares repurchased or cancelled |
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(6 |
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(14 |
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(76 |
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10 |
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(80 |
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Balance March 31, 2010 |
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13,683 |
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$ |
6,500 |
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$ |
11,101 |
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$ |
136,959 |
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$ |
2,776 |
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$ |
157,336 |
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See accompanying notes to unaudited condensed consolidated financial statements.
S.Y. BANCORP, INC. AND SUBSIDIARY
Unaudited Condensed Consolidated Statements of Comprehensive Income
For the three months ended March 31, 2010 and 2009
(In thousands)
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Three months ended |
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March 31, |
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2010 |
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2009 |
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Net income |
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$ |
4,981 |
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$ |
4,737 |
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Other comprehensive income (loss), net of tax: |
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Unrealized gains (losses) on securities available for sale: |
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Unrealized gains (losses) arising during the period (net of tax of $311 and $(393), respectively) |
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577 |
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(730 |
) |
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Other comprehensive income (loss) |
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577 |
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(730 |
) |
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Comprehensive income |
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$ |
5,558 |
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$ |
4,007 |
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See accompanying notes to unaudited condensed consolidated financial statements.
S.Y. BANCORP, INC. AND SUBSIDIARY
(1) Summary of Significant Accounting Policies
The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with the instructions to Form 10-Q and do not include all information and footnotes required by U.S. generally accepted accounting principles (US GAAP) for complete financial statements. The consolidated financial statements of S.Y. Bancorp, Inc. (Bancorp) and its subsidiary reflect all adjustments (consisting only of adjustments of a normal recurring nature) which are, in the opinion of management, necessary for a fair presentation of financial condition and results of operations for the interim periods.
The consolidated financial statements include the accounts of S.Y. Bancorp, Inc. and its wholly-owned subsidiary, Stock Yards Bank & Trust Company (Bank). S.Y. Bancorp Capital Trust II is a Delaware statutory trust that is a wholly-owned unconsolidated finance subsidiary of S.Y. Bancorp, Inc. Significant intercompany transactions and accounts have been eliminated in consolidation.
A description of other significant accounting policies is presented in the notes to the Consolidated Financial Statements for the year ended December 31, 2009 included in S.Y. Bancorp, Inc.s Annual Report on Form 10-K. Certain reclassifications have been made in the prior year financial statements to conform to current year classifications. The Company has evaluated subsequent events for recognition or disclosure up to the date on which financial statements were issued.
Interim results for the three month period ended March 31, 2010 are not necessarily indicative of the results for the entire year.
Critical Accounting Policies
Management has identified the accounting policy related to the allowance for loan losses as critical to the understanding of Bancorps results of operations and discussed this conclusion with the Audit Committee of the Board of Directors. Since the application of this policy requires significant management assumptions and estimates, it could result in materially different amounts to be reported if conditions or underlying circumstances were to change. Assumptions include many factors such as changes in borrowers financial condition which can change quickly or historical loss ratios related to certain loan portfolios which may or may not be indicative of future losses. To the extent that managements assumptions prove incorrect, the results from operations could be materially affected by a higher or lower provision for loan losses. The accounting policy related to the allowance for loan losses is applicable to the commercial banking segment of Bancorp.
Additionally, management has identified the accounting policy related to accounting for income taxes as critical to the understanding of Bancorps results of operations and discussed this conclusion with the Audit Committee of the Board of Directors. The objectives of accounting for income taxes are to recognize the amount of taxes payable or refundable for the current year and deferred tax liabilities and assets for the future tax consequences of events that have been recognized in an entitys financial statements or tax returns. Judgment is required in assessing the future tax consequences of events that have been recognized in Bancorps financial statements or tax returns. Fluctuations in the actual outcome of these future tax consequences, including the effects of periodic IRS and state agency examinations, could materially impact Bancorps financial position and its results from operations.
(2) Securities
The amortized cost, unrealized gains and losses, and fair value of securities available for sale follow:
March 31, 2010 |
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Amortized |
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Unrealized |
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Securities available for sale |
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Cost |
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Gains |
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Losses |
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Fair Value |
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(in thousands) |
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Government sponsored enterprise obligations |
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$ |
95,306 |
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$ |
2,265 |
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$ |
58 |
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$ |
97,513 |
|
Mortgage-backed securities |
|
59,838 |
|
1,835 |
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61,673 |
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Obligations of states and political subdivisions |
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41,462 |
|
830 |
|
210 |
|
42,082 |
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Trust preferred securities of financial institutions |
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1,250 |
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36 |
|
1,214 |
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|
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Total securities available for sale |
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$ |
197,856 |
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$ |
4,930 |
|
$ |
304 |
|
$ |
202,482 |
|
December 31, 2009 |
|
Amortized |
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Unrealized |
|
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|
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Securities available for sale |
|
Cost |
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Gains |
|
Losses |
|
Fair Value |
|
||||
(in thousands) |
|
|
|
|
|
|
|
|
|
||||
|
|
|
|
|
|
|
|
|
|
||||
U.S. Treasury and other U.S. government obligations |
|
$ |
3,000 |
|
$ |
19 |
|
$ |
|
|
$ |
3,019 |
|
Government sponsored enterprise obligations |
|
122,761 |
|
2,006 |
|
79 |
|
124,688 |
|
||||
Mortgage-backed securities |
|
65,179 |
|
1,519 |
|
17 |
|
66,681 |
|
||||
Obligations of states and political subdivisions |
|
32,298 |
|
689 |
|
175 |
|
32,812 |
|
||||
Trust preferred securities of financial institutions |
|
1,250 |
|
|
|
225 |
|
1,025 |
|
||||
|
|
|
|
|
|
|
|
|
|
||||
Total securities available for sale |
|
$ |
224,488 |
|
$ |
4,233 |
|
$ |
496 |
|
$ |
228,225 |
|
The amortized cost, unrealized gains and losses, and fair value of securities held to maturity follow:
March 31, 2010 |
|
Amortized |
|
Unrealized |
|
Fair |
|
||||||
Securities held to maturity |
|
Cost |
|
Gains |
|
Losses |
|
Value |
|
||||
(in thousands) |
|
|
|
|
|
|
|
|
|
||||
|
|
|
|
|
|
|
|
|
|
||||
Mortgage-backed securities |
|
$ |
31 |
|
$ |
2 |
|
$ |
|
|
$ |
33 |
|
December 31, 2009 |
|
Amortized |
|
Unrealized |
|
Fair |
|
||||||
Securities held to maturity |
|
Cost |
|
Gains |
|
Losses |
|
Value |
|
||||
(in thousands) |
|
|
|
|
|
|
|
|
|
||||
|
|
|
|
|
|
|
|
|
|
||||
Mortgage-backed securities |
|
$ |
35 |
|
$ |
2 |
|
$ |
|
|
$ |
37 |
|
In addition to the available for sale and held to maturity portfolios, investment securities held by Bancorp include certain securities which are not readily marketable, and are classified as non-marketable on Bancorps consolidated balance sheets. This category includes holdings of Federal Home Loan Bank of Cincinnati (FHLB) stock which is required for borrowing availability, and is redeemable at par. Other securities consist of a Community Reinvestment Act (CRA) investment which matures in 2014, and is fully collateralized with a government agency security of similar duration. These securities are carried at cost as follows:
|
|
March 31, |
|
December 31, |
|
||
Federal Home Loan Bank stock and other securities |
|
2010 |
|
2009 |
|
||
(in thousands) |
|
|
|
|
|
||
|
|
|
|
|
|
||
Federal Home Loan Bank stock |
|
$ |
4,771 |
|
$ |
4,546 |
|
Other securities |
|
1,001 |
|
1,001 |
|
||
Total Federal Home Loan Bank stock and other securities |
|
$ |
5,772 |
|
$ |
5,547 |
|
A summary of securities as of March 31, 2010 based on contractual maturity is presented below. Actual maturities may differ from contractual maturities because some issuers have the right to call or prepay obligations.
|
|
Securities |
|
Securities |
|
||||||||
|
|
Available for Sale |
|
Held to Maturity |
|
||||||||
(In thousands) |
|
Amortized Cost |
|
Approximate |
|
Amortized Cost |
|
Approximate |
|
||||
|
|
|
|
|
|
|
|
|
|
||||
Due within one year |
|
$ |
17,197 |
|
$ |
17,259 |
|
$ |
|
|
$ |
|
|
Due within one year through five years |
|
82,426 |
|
83,877 |
|
|
|
|
|
||||
Due within five years through ten years |
|
34,315 |
|
35,752 |
|
26 |
|
27 |
|
||||
Due after ten years |
|
63,918 |
|
65,594 |
|
5 |
|
6 |
|
||||
|
|
|
|
|
|
|
|
|
|
||||
|
|
$ |
197,856 |
|
$ |
202,482 |
|
$ |
31 |
|
$ |
33 |
|
Securities with unrealized losses at March 31, 2010 and December 31, 2009, not recognized in income are as follows:
|
|
Less than 12 months |
|
12 months or more |
|
Total |
|
||||||||||||
|
|
Fair |
|
Unrealized |
|
Fair |
|
Unrealized |
|
Fair |
|
Unrealized |
|
||||||
(In thousands) |
|
Value |
|
Losses |
|
Value |
|
Losses |
|
Value |
|
Losses |
|
||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
March 31, 2010 |
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
Government sponsored enterprise obligations |
|
$ |
33,603 |
|
$ |
58 |
|
$ |
|
|
$ |
|
|
$ |
33,603 |
|
58 |
|
|
Obligations of states and political subdivisions |
|
14,157 |
|
210 |
|
|
|
|
|
14,157 |
|
210 |
|
||||||
Trust preferred securities of financial institutions |
|
|
|
|
|
1,214 |
|
36 |
|
1,214 |
|
36 |
|
||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
Total temporarily impaired securities |
|
$ |
47,760 |
|
$ |
268 |
|
$ |
1,214 |
|
$ |
36 |
|
$ |
48,974 |
|
$ |
304 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
December 31, 2009 |
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
Government sponsored enterprise obligations |
|
$ |
13,402 |
|
$ |
79 |
|
$ |
|
|
$ |
|
|
$ |
13,402 |
|
$ |
79 |
|
Mortgage-backed securities |
|
9,692 |
|
17 |
|
|
|
|
|
9,692 |
|
17 |
|
||||||
Obligations of states and political subdivisions |
|
8,084 |
|
175 |
|
|
|
|
|
8,084 |
|
175 |
|
||||||
Trust preferred securities of financial institutions |
|
|
|
|
|
1,025 |
|
225 |
|
1,025 |
|
225 |
|
||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
Total temporarily impaired securities |
|
$ |
31,178 |
|
$ |
271 |
|
$ |
1,025 |
|
$ |
225 |
|
$ |
32,203 |
|
$ |
496 |
|
The investment portfolio includes a significant level of obligations of states and political subdivisions. The issuers of the bonds are generally school districts or essential-service public works projects. The bonds are primarily concentrated in Kentucky, Indiana and Ohio. Each of these securities has a rating of A or better by a recognized bond rating agency.
Unrealized losses on Bancorps investment securities portfolio have not been recognized in income because the securities are of high credit quality, the decline in fair values is largely due to changes in the prevailing interest rate and credit environment since the purchase date, management does not intend to sell the investments, and it is not likely that the Bancorp will be required to sell the investments before recovery of their amortized cost bases, which may be maturity. The fair value is expected to recover as the securities reach their maturity date and/or the interest rate and credit environment returns to conditions similar to when the securities were purchased. These investments consist of 34 and 14 separate investment positions as of March 31, 2010 and December 31, 2009 that are not considered other-than-temporarily impaired. Based on these detailed reviews, Bancorp has not recorded other-than-temporary losses on any securities held at March 31, 2010. Volatility in capital markets subsequent to March 31, 2010 could give rise to other-than-temporary impairment in the future.
As of March 31, 2010, Bancorp had two securities with a total carrying value of $1,214,000 which had been impaired for 12 months or longer. These are trust preferred securities with a total amortized cost of $1,250,000 and an unrealized loss totaling $36,000 caused by interest rate changes and other market conditions. As of March 31, 2010, one of the securities with a credit rating below investment grade, an amortized cost of $1,000,000, a carrying value of $977,200, and an unrealized loss of $22,800 is rated Caa1 by Moodys Investor Service. Management evaluates the impairment of securities on a quarterly basis, considering various factors including issuer financial condition, agency rating, payment prospects, impairment duration and general industry condition. Based on the evaluation as of March 31, 2010, management is of the opinion that neither of the securities is other-than-temporarily impaired. Management does not intend to sell the investments, and it is not likely that Bancorp will be required to sell the investments before recovery of their amortized cost bases, which may be maturity.
(3) Stock-Based Compensation
The fair value of all new and modified awards granted, net of estimated forfeitures, is recognized as compensation expense. These forfeiture estimates are based on historical experience.
Bancorp currently has one stock-based compensation plan. The 2005 Stock Incentive Plan reserved 735,000 shares of common stock for issuance of stock based awards. As of March 31, 2010, there were 52,962 shares available for future awards. At Bancorps Annual Meeting of Shareholders held on April 21, 2010, shareholders approved a proposal to amend the 2005 Stock Incentive Plan to reserve an additional 700,000 shares of common stock for issuance under the plan.
Bancorps 1995 Stock Incentive Plan expired in 2005; however, options granted under this plan expire as late as 2015. Options and stock appreciation rights (SARs) granted generally have been subject to a vesting schedule of 20% per year. Prior to 2009, those granted to certain executive officers vested six months after grant date. Restricted shares generally vest over three to five years, with limited exceptions of shorter vesting schedules due to anticipated retirement. All awards under both plans were granted at an exercise price equal to the market value of common stock at the time of grant and expire ten years after the grant date.
Bancorp recognized, within salaries and employee benefits in the consolidated statements of income, stock-based compensation expense of $208,000 and $148,300 before income taxes and a deferred tax benefit of $72,800 and $51,900 resulting in a reduction of net income of $135,200 and $96,400 for the
three months ended March 31, 2010 and 2009, respectively. Bancorp expects to record an additional $757,000 of stock-based compensation expense in 2010. As of March 31, 2010, Bancorp has $3,146,000 of unrecognized stock-based compensation expense that will be recorded as compensation expense over the next five years as awards vest. Bancorp received cash of $344,000 and $582,000 from the exercise of options during the first three months of 2010 and 2009, respectively.
The fair value of Bancorps stock options and SARs is estimated at the date of grant using the Black-Scholes option pricing model, a leading formula for calculating the value of stock options. This model requires the input of subjective assumptions, changes to which can materially affect the fair value estimate. The fair value of restricted shares is determined by Bancorps closing stock price on the date of grant. The following assumptions were used in SAR/option valuations at the grant date in each year:
|
|
2010 |
|
2009 |
|
|
|
|
|
|
|
Dividend yield |
|
2.18 |
% |
2.11 |
% |
Expected volatility |
|
23.87 |
|
23.59 |
|
Risk free interest rate |
|
3.57 |
|
3.11 |
|
Forfeitures |
|
5.96 |
|
5.96 |
|
Expected life of options and SARs (in years) |
|
7.6 |
|
7.7 |
|
The expected life of options is based on actual experience of past like-term awards. All outstanding options have a 10-year contractual term. Bancorp evaluated historical exercise and post-vesting termination behavior when determining the expected life of options and SARs.
The dividend yield and expected volatility are based on historical information corresponding to the expected life of awards granted. The expected volatility is the volatility of the underlying shares for the expected term on a monthly basis. The risk free interest rate is the implied yield currently available on U.S. Treasury issues with a remaining term equal to the expected life of the awards.
A summary of stock option and SARs activity and related information for the three months ended March 31, 2010 follows. The number of options and SARs and aggregate intrinsic value are stated in thousands.
|
|
|
|
|
|
|
|
|
|
|
|
Weighted |
|
||||
|
|
|
|
|
|
Weighted |
|
|
|
Weighted |
|
Average |
|
||||
|
|
|
|
|
|
Average |
|
Aggregate |
|
Average |
|
Remaining |
|
||||
|
|
Options |
|
|
|
Exercise |
|
Intrinsic |
|
Fair |
|
Contractual |
|
||||
|
|
and SARs |
|
Exercise Price |
|
Price |
|
Value |
|
Value |
|
Life |
|
||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
At December 31, 2009 |
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
Vested and exercisable |
|
730 |
|
$ |
9.82-26.83 |
|
$ |
20.50 |
|
$ |
1,664 |
|
$ |
4.52 |
|
4.42 |
|
Unvested |
|
276 |
|
20.90-26.83 |
|
23.81 |
|
|
|
5.41 |
|
7.93 |
|
||||
Total outstanding |
|
1,006 |
|
9.82-26.83 |
|
21.41 |
|
1,664 |
|
4.76 |
|
5.38 |
|
||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
Granted |
|
85 |
|
21.03 |
|
21.03 |
|
146 |
|
5.31 |
|
|
|
||||
Exercised |
|
(28 |
) |
9.82-20.17 |
|
13.23 |
|
230 |
|
2.71 |
|
|
|
||||
Forfeited |
|
(4 |
) |
22.14-26.83 |
|
23.49 |
|
1 |
|
3.53 |
|
|
|
||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
At March 31, 2010 |
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
Vested and exercisable |
|
782 |
|
9.82-26.83 |
|
21.16 |
|
1,908 |
|
4.69 |
|
4.56 |
|
||||
Unvested |
|
277 |
|
20.90-26.83 |
|
22.87 |
|
194 |
|
5.36 |
|
8.46 |
|
||||
Total outstanding |
|
1,059 |
|
9.82-26.83 |
|
21.61 |
|
$ |
2,102 |
|
4.87 |
|
5.58 |
|
|||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
Vested during quarter |
|
80 |
|
22.14-26.83 |
|
23.93 |
|
$ |
12 |
|
5.52 |
|
|
|
|||
The aggregate intrinsic value of stock options exercised was calculated as the difference in the closing price of Bancorps common shares on the date of exercise and the exercise price, multiplied by the number of shares exercised.
The weighted average fair values of options and SARs granted in 2010 and 2009 were $5.31 and $5.36, respectively.
In the first quarter of 2010, Bancorp granted 84,558 SARs at the current market price of $21.03 and a fair value of $5.31. Also, in the first quarter of 2010, Bancorp granted 54,292 shares of common stock at the current market price of $21.03.
(4) Allowance for Loan Losses and Impaired Loans
An analysis of the changes in the allowance for loan losses for the three months ended March 31, 2010 and 2009 follows (in thousands):
|
|
2010 |
|
2009 |
|
||
Beginning balance January 1, |
|
$ |
20,000 |
|
$ |
15,381 |
|
Provision for loan losses |
|
2,695 |
|
1,625 |
|
||
Loans charged off |
|
(1,077 |
) |
(989 |
) |
||
Recoveries |
|
193 |
|
191 |
|
||
Ending balance March 31, |
|
$ |
21,811 |
|
$ |
16,208 |
|
Information about impaired loans follows (in thousands):
|
|
March 31, 2010 |
|
December 31, 2009 |
|
||
Principal balance of impaired loans |
|
$ |
13,121 |
|
$ |
11,208 |
|
Impaired loans with a valuation allowance |
|
8,793 |
|
8,688 |
|
||
Amount of valuation allowance |
|
1,593 |
|
1,676 |
|
||
Impaired loans with no valuation allowance |
|
4,328 |
|
2,520 |
|
||
Average balance of impaired loans for the period |
|
12,165 |
|
7,005 |
|
||
(5) Federal Home Loan Bank Advances
The Bank had outstanding borrowings of $60.5 million, at March 31, 2010, comprised of five separate advances as detailed in the table below (in thousands).
Amount |
|
Type |
|
Amortization |
|
Maturity |
|
Call Feature |
|
Next Call Date |
|
|
$ |
20,000 |
|
Fixed rate |
|
None |
|
December 2010 |
|
Quarterly |
|
June 2010 |
|
20,000 |
|
Fixed rate |
|
None |
|
May 2012 |
|
Quarterly |
|
May 2010 |
|
|
10,000 |
|
Fixed rate |
|
None |
|
April 2012 |
|
Non callable |
|
|
|
|
10,000 |
|
Fixed rate |
|
None |
|
April 2014 |
|
Non callable |
|
|
|
|
450 |
|
Fixed rate |
|
15 Year |
|
April 2024 |
|
Non callable |
|
|
|
|
$ |
60,450 |
|
|
|
|
|
|
|
|
|
|
|
For the first four advances, interest payments are due monthly, with principal due at maturity. For the fifth advance, principal and interest payments are due monthly based on a 15 year amortization schedule. The weighted average rate of these six advances was 3.52% at March 31, 2010. Advances from the FHLB are collateralized by certain commercial and residential real estate mortgage loans under a blanket mortgage collateral agreement and FHLB stock.
The Banks agreement with the Federal Home Loan Bank of Cincinnati (FHLB) enables the Bank to borrow up to an additional $155.0 million as of March 31, 2010 under terms to be established at the time of the advance. The Bank also has a standby letter of credit from the FHLB for $15 million outstanding at March 31, 2010. Under Kentucky law, customer cash balances in Investment Management and Trust accounts, may be retained as deposits in the Bank. Kentucky law requires these deposit accounts to be backed by some form of collateral above the per account protection provided by the FDIC (currently
$250,000 per account). The standby letter of credit from the FHLB collateralizes these accounts beyond the FDIC protection as required by Kentucky law.
(6) Goodwill and Intangible Assets
US GAAP requires that goodwill and intangible assets with indefinite useful lives no longer be amortized, but instead be tested for impairment at least annually. Annual evaluations have resulted in no charges for impairment. Bancorp currently has goodwill from the acquisition of a bank in southern Indiana in the amount of $682,000. This goodwill is assigned to the commercial banking segment of Bancorp.
Mortgage servicing rights (MSRs) are amortized in proportion to and over the period of estimated net servicing income, considering appropriate prepayment assumptions. MSRs are evaluated quarterly for impairment by comparing the carrying value to the fair value. The estimated fair values of MSRs at March 31, 2010 and December 31 2009 were $2,372,000 and $2,475,000, respectively. The total outstanding principal balances of loans serviced for others were $208,829,000 and $194,414,000 at March 31, 2010, and December 31, 2009 respectively. Changes in the net carrying amount of MSRs for the three months ended March 31, 2010 and 2009 are shown in the following table.
(in thousands) |
|
2010 |
|
2009 |
|
||
Balance at beginning of period |
|
$ |
1,616 |
|
$ |
426 |
|
Originations |
|
168 |
|
255 |
|
||
Amortization |
|
(115 |
) |
(36 |
) |
||
Impairment Reversal |
|
|
|
159 |
|
||
Balance at March 31 |
|
$ |
1,669 |
|
$ |
804 |
|
(7) Defined Benefit Retirement Plan
The Bank sponsors an unfunded, non-qualified, defined benefit retirement plan for certain key officers. Benefits vest based on years of service. The actuarially determined pension costs are expensed and accrued over the service period, and benefits are paid from the Banks assets. The Bank maintains life insurance policies on certain current and former executives, the proceeds from which will help to offset the cost of benefits. The net periodic benefits costs, which include interest cost and amortization of net losses, totaled $31,000 and $32,000 for the three months ended March 31, 2010 and 2009, respectively.
(8) Commitments and Contingent Liabilities
As of March 31, 2010, Bancorp had various commitments outstanding that arose in the normal course of business, including standby letters of credit and commitments to extend credit, which are properly not reflected in the financial statements. In managements opinion, commitments to extend credit of $385,775,000 including standby letters of credit of $26,479,000 represent normal banking transactions, and no significant losses are anticipated to result from these commitments as of March 31, 2010. Commitments to extend credit were $379,075,000, including letters of credit of $26,655,000, as of December 31, 2009. Bancorps exposure to credit loss in the event of nonperformance by the other party to these commitments is represented by the contractual amount of these instruments. Bancorp uses the same credit and collateral policies in making commitments and conditional guarantees as for on-balance sheet instruments.
Commitments to extend credit are agreements to lend to a customer as long as there is no violation of any condition established in the contract. Commitments generally have fixed expiration dates or other
termination clauses. Commitments to extend credit are mainly made up of commercial lines of credit, construction and development loans and home equity credit lines. Since some of the commitments are expected to expire without being drawn upon, the total commitment amounts do not necessarily represent future cash requirements. Bancorp evaluates each customers creditworthiness on a case by case basis. The amount of collateral obtained, if deemed necessary by Bancorp upon extension of credit, is based on managements credit evaluation of the customer. Collateral held varies but may include accounts receivable, inventory, property, plant and equipment, income producing commercial properties, residential properties and real estate under development.
Standby letters of credit and financial guarantees written are conditional commitments issued by Bancorp to guarantee the performance of a customer to a third party. Those guarantees are primarily issued to support private borrowing arrangements. Standby letters of credit generally have maturities of up to five years.
Bancorp has commercial customers who entered into interest rate swap agreements with another financial institution to manage their own interest rate risk. Bancorp assisted two customers by guaranteeing performance of the swaps with the other financial institutions. Accordingly, Bancorp entered into risk participation agreements as a guarantor. The agreement stipulates that, in the event of default by the Banks customer on the interest rate swap, Bancorp will reimburse a portion of the loss, if any, borne by the other financial institution. These interest rate swaps are normally collateralized generally with real property, inventories and equipment by the customer, which limits Bancorps credit risk associated with the agreements. The terms of the agreements range from 13 to 35 months. The maximum potential future payment guaranteed by Bancorp cannot be readily estimated, because it is dependent upon the fair value of the interest rate swaps at the time of default. If an event of default on all contracts had occurred at March 31, 2010, Bancorp would have been required to make payments of approximately $372,000. Management believes the unamortized fee income of $16,000 recorded in other liabilities materially approximates the fair value of these guarantees.
Bancorp has commercial customers who require international letters of credit for their business needs. Bancorp assisted several customers by guaranteeing performance of the letters of credit with a correspondent financial institution. Accordingly, Bancorp has entered into an agreement whereby Bancorp is ultimately liable for the repayment in the event of non-performance by our customer. The terms of the agreements range from 1 to 13 months. If an event of default on all contracts had occurred at March 31, 2010, Bancorp would have been required to make payments of approximately $2,675,000. These letters of credit are normally collateralized generally with inventories and receivables by the customer, which limits Bancorps credit risk associated with the agreements.
(9) Preferred Stock
At Bancorps 2003 annual meeting of shareholders, the shareholders approved an amendment to the Articles of Incorporation to create a class of preferred stock and authorize 1,000,000 shares of this preferred stock with no par value. The relative rights, preferences and other terms of this stock or any series within the class will be determined by the Board of Directors prior to any issuance. Some of this preferred stock will be used in connection with a shareholders rights plan upon the occurrence of certain triggering events. None of this stock had been issued as of March 31, 2010.
(10) Net Income Per Share
The following table reflects, for the three ended March 31, 2010 and 2009, net income (the numerator) and average shares outstanding (the denominator) for the basic and diluted net income per share computations:
|
|
Three months ended |
|
||||
|
|
March 31 |
|
||||
|
|
2010 |
|
2009 |
|
||
Net income, basic and diluted |
|
$ |
4,981 |
|
$ |
4,737 |
|
Average shares outstanding |
|
13,645 |
|
13,500 |
|
||
Effect of dilutive securities |
|
73 |
|
137 |
|
||
|
|
|
|
|
|
||
Average shares outstanding including dilutive securities |
|
13,718 |
|
13,637 |
|
||
|
|
|
|
|
|
||
Net income per share, basic |
|
$ |
0.37 |
|
$ |
0.35 |
|
Net income per share, diluted |
|
$ |
0.36 |
|
$ |
0.35 |
|
(11) Segments
The Banks, and thus Bancorps, principal activities include commercial banking and investment management and trust. Commercial banking provides a full range of loan and deposit products to individuals, consumers and businesses. Commercial banking also includes the Banks mortgage banking and securities brokerage activity. Investment management and trust provides wealth management services including investment management, trust and estate administration, retirement plan services and financial planning.
The financial information for each business segment reflects that which is specifically identifiable or allocated based on an internal allocation method. Principally, all of the net assets of Bancorp are involved in the commercial banking segment. Income taxes are allocated to the investment management and trust segment based on the marginal federal tax rate since all activity giving rise to the difference between marginal and effective tax rates occurs in the commercial banking segment. The measurement of the performance of the business segments is based on the management structure of the Bank and is not necessarily comparable with similar information for any other financial institution. The information presented is also not indicative of the segments operations, if they were independent entities.
Selected financial information by business segment for the three month periods ended March 31, 2010 and 2009 follows:
|
|
Three months |
|
||||
|
|
ended March 31 |
|
||||
(In thousands) |
|
2010 |
|
2009 |
|
||
Net interest income |
|
|
|
|
|
||
Commercial banking |
|
$ |
15,747 |
|
$ |
14,029 |
|
Investment management and trust |
|
47 |
|
79 |
|
||
Total |
|
$ |
15,794 |
|
$ |
14,108 |
|
Provision for loan losses: |
|
|
|
|
|
||
Commercial banking |
|
$ |
2,695 |
|
$ |
1,625 |
|
Investment management and trust |
|
|
|
|
|
||
Total |
|
$ |
2,695 |
|
$ |
1,625 |
|
Non-interest income: |
|
|
|
|
|
||
Commercial banking |
|
$ |
4,772 |
|
$ |
3,890 |
|
Investment management and trust |
|
3,261 |
|
2,671 |
|
||
Total |
|
$ |
8,033 |
|
$ |
6,561 |
|
Non-interest expense: |
|
|
|
|
|
||
Commercial banking |
|
$ |
11,997 |
|
$ |
10,747 |
|
Investment management and trust |
|
1,818 |
|
1,522 |
|
||
Total |
|
$ |
13,815 |
|
$ |
12,269 |
|
Tax expense |
|
|
|
|
|
||
Commercial banking |
|
$ |
1,814 |
|
$ |
1,608 |
|
Investment management and trust |
|
522 |
|
430 |
|
||
Total |
|
$ |
2,336 |
|
$ |
2,038 |
|
Net income: |
|
|
|
|
|
||
Commercial banking |
|
$ |
4,013 |
|
$ |
3,939 |
|
Investment management and trust |
|
968 |
|
798 |
|
||
Total |
|
$ |
4,981 |
|
$ |
4,737 |
|
(12) Income Taxes
US GAAP provides guidance on financial statement recognition and measurement of tax positions taken, or expected to be taken, in tax returns. As of March 31, 2010 and December 31, 2009 the gross amount of unrecognized tax benefits was $230,000. If recognized, all of the tax benefits would increase net income, resulting in a decrease of the effective tax rate. The amount of unrecognized tax benefits may increase or decrease in the future for various reasons including adding amounts for current tax year positions, expiration of open income tax returns due to statutes of limitation, changes in managements judgment about the level of uncertainty, status of examination, litigation and legislative activity and the addition or elimination of uncertain tax positions.
Bancorps policy is to report interest and penalties, if any, related to unrecognized tax benefits in income tax expense. As of March 31, 2010 and December 31, 2009, the amount accrued for the potential payment of interest and penalties was $20,000.
(13) Derivative Financial Instruments
Bancorp manages its interest rate risk without the use of hedging instruments, and therefore does not have derivative financial instruments employed for any reason except for the accommodation of customers as described below.
Bancorp offers interest rate swaps to customers desiring long-term fixed rate lending whereby Bancorp receives interest at a fixed rate and pays interest at a variable rate. Simultaneously Bancorp enters into an interest rate swap agreement with a correspondent bank whereby Bancorp pays interest at a fixed rate and receives interest at a variable rate. Because of matching terms of offsetting contracts and the collateral provisions mitigating any non-performance risk, changes in fair value subsequent to initial recognition have an insignificant effect on earnings.
At March 31, 2010, Bancorps interest rate swaps are recognized as other assets and liabilities in the consolidated statements of financial condition at fair value. Bancorps derivative instruments have not been designated as hedging instruments. These undesignated derivative instruments are recognized on the consolidated balance sheet at fair value, with changes in fair value, due to changes in prevailing interest rates, recorded in other noninterest income.
The above interest rate swap agreements derive their value from underlying interest rates. These transactions involve both credit and market risk. The notional amounts are amounts on which calculations, payments, and the value of the derivative are based. Notional amounts do not represent direct credit exposures. Direct credit exposure is limited to the net difference between the calculated amounts to be received and paid, if any. Bancorp is exposed to credit-related losses in the event of nonperformance by the counterparties to these agreements. Bancorp controls the credit risk of its financial contracts through credit approvals, limits and monitoring procedures, and does not expect any counterparties to fail their obligations.
At March 31, 2010, two of the outstanding swap agreements have a forward-effective date in the fourth quarter of 2010. The remaining swap agreements had a first cash flow payment due in the first quarter of 2010. Exchanges of cash flows related to the interest rate swap agreements for the first quarter of 2010 were offsetting and therefore had no effect on Bancorps earnings or cash flows.
At March 31, 2010 and December 31, 2009, Bancorp had contracts to make payments at a variable rate determined by a specified index (1 month LIBOR) in exchange for receiving payments at a fixed rate. Correspondingly, at March 31, 2010 and December 31, 2009, Bancorp had contracts to make payments at a fixed rate in exchange for receiving payments at a variable rate determined by a specified index (1 month LIBOR). A summary of the contracts is as follows:
|
|
Receiving |
|
Paying |
|
||||||||
|
|
March 31, |
|
December 31, |
|
March 31, |
|
December 31, |
|
||||
|
|
2010 |
|
2009 |
|
2010 |
|
2009 |
|
||||
Notional amount |
|
$ |
5,446,429 |
|
$ |
5,500,000 |
|
$ |
5,446,429 |
|
$ |
5,500,000 |
|
Weighted average maturity |
|
8.8 |
|
9.1 |
|
8.8 |
|
9.1 |
|
||||
Fair value |
|
$ |
(159,529 |
) |
$ |
(93,651 |
) |
$ |
159,529 |
|
$ |
93,651 |
|
To reduce credit risk related to the use of derivative instruments, Bancorp obtains collateral. The amount and nature of the collateral obtained is based on Bancorps credit evaluation of the customer. In addition, per the terms of the agreement with the correspondent bank, Bancorp may be required to post collateral for swaps with negative fair values and vice versa.
(14) Fair Value Measurements
Bancorp adopted the provisions of the authoritative guidance for fair value measurements. This guidance is definitional and disclosure oriented and addresses how companies should approach measuring fair value when required by US GAAP; it does not create or modify any current US GAAP requirements to apply fair value accounting. The guidance prescribes various disclosures about financial statement categories and amounts which are measured at fair value, if such disclosures are not already specified elsewhere in US GAAP.
The authoritative guidance defines fair value as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between participants at the measurement date. The guidance also establishes a hierarchy to group assets and liabilities carried at fair value in three levels based upon the markets in which the assets and liabilities trade and the reliability of assumptions used to determine fair value. These levels are:
· Level 1 Valuation is based upon quoted prices for identical instruments traded in active markets.
· Level 2 Valuation is based upon quoted prices for similar instruments in active markets, quoted prices for identical or similar instruments in markets that are not active, and model-based valuation techniques for which all significant assumptions are observable in the market.
· Level 3 Valuation is generated from model-based techniques that use significant assumptions not observable in the market. These unobservable assumptions would reflect internal estimates of assumptions that market participants would use in pricing the asset or liability. Valuation techniques could include pricing models, discounted cash flows and other similar techniques.
Bancorps policy is to maximize the use of observable inputs and minimize the use of unobservable inputs in fair value measurements. Where there exists limited or no observable market data, Bancorp uses its own estimates generally considering characteristics of the asset/liability, the current economic and competitive environment and other factors. For this reason, results cannot be determined with precision and may not be realized on an actual sale or immediate settlement of the asset or liability.
Bancorps investment securities available for sale are recorded at fair value on a recurring basis. Other accounts including mortgage loans held for sale, mortgage servicing rights, impaired loans and other real estate owned may be recorded at fair value on a non-recurring basis, generally in the application of lower of cost or market adjustments or write-downs of specific assets.
The portfolio of investment securities available for sale is comprised of debt securities of the U.S. Treasury and other U.S. government-sponsored corporations, mortgage-backed securities, obligations of state and political subdivisions, and trust preferred securities of other banks. Certain trust preferred securities are priced using quoted prices of identical securities in an active market. These measurements are classified as Level 1 in the hierarchy above. All other securities are priced using standard industry models or matrices with various assumptions such as yield curves, volatility, prepayment speeds, default rates, time value, credit rating and market prices for the instruments. These assumptions are generally observable in the market place and can be derived from or supported by observable data. These measurements are classified as Level 2 in the hierarchy above.
Interest rate swaps are valued using primarily Level 2 inputs. Fair value measurements are obtained from an outside pricing service. Prices obtained are generally based on dealer quotes, benchmark forward yield curves, and other relevant observable market data. For purposes of potential valuation adjustments to derivative positions, Bancorp evaluates the credit risk of its counterparties as well as its own credit risk. To date, Bancorp has not realized any losses due to a counterpartys inability to perform and the change in value of derivative assets and liabilities attributable to credit risk was not significant during 2010.
Below are the carrying values of assets measured at fair value on a recurring basis (in thousands).
|
|
Fair Value at March 31, 2010 |
|
||||||||||
(In thousands) |
|
Total |
|
Level 1 |
|
Level 2 |
|
Level 3 |
|
||||
Assets |
|
|
|
|
|
|
|
|
|
||||
|
|
|
|
|
|
|
|
|
|
||||
Investment securities available for sale |
|
|
|
|
|
|
|
|
|
||||
|
|
|
|
|
|
|
|
|
|
||||
Government sponsored enterprise obligations |
|
$ |
97,513 |
|
$ |
|
|
$ |
97,513 |
|
$ |
|
|
Mortgage-backed securities |
|
61,673 |
|
|
|
61,673 |
|
|
|
||||
Obligations of states and political subdivisions |
|
42,082 |
|
|
|
42,082 |
|
|
|
||||
Trust preferred securities of financial institutions |
|
1,214 |
|
1,214 |
|
|
|
|
|
||||
|
|
|
|
|
|
|
|
|
|
||||
Total investment securities available for sale |
|
202,482 |
|
1,214 |
|
201,268 |
|
|
|
||||
|
|
|
|
|
|
|
|
|
|
||||
Interest rate swap |
|
160 |
|
|
|
160 |
|
|
|
||||
|
|
|
|
|
|
|
|
|
|
||||
Total Assets |
|
$ |
202,642 |
|
$ |
1,214 |
|
$ |
201,428 |
|
$ |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Liabilities |
|
|
|
|
|
|
|
|
|
||||
|
|
|
|
|
|
|
|
|
|
||||
Interest rate swap |
|
$ |
160 |
|
$ |
|
|
$ |
160 |
|
$ |
|
|
|
|
Fair value at December 31, 2009 |
|
||||||||||
(In thousands) |
|
Total |
|
Level 1 |
|
Level 2 |
|
Level 3 |
|
||||
Assets |
|
|
|
|
|
|
|
|
|
||||
|
|
|
|
|
|
|
|
|
|
||||
Investment securities available for sale |
|
|
|
|
|
|
|
|
|
||||
|
|
|
|
|
|
|
|
|
|
||||
U.S. Treasury and other U.S. government obligations |
|
$ |
3,019 |
|
$ |
|
|
$ |
3,019 |
|
$ |
|
|
Government sponsored enterprise obligations |
|
124,688 |
|
|
|
124,688 |
|
|
|
||||
Mortgage-backed securities |
|
66,681 |
|
|
|
66,681 |
|
|
|
||||
Obligations of states and political subdivisions |
|
32,812 |
|
|
|
32,812 |
|
|
|
||||
Trust preferred securities of financial institutions |
|
1,025 |
|
1,025 |
|
|
|
|
|
||||
|
|
|
|
|
|
|
|
|
|
||||
Total investment securities available for sale |
|
228,225 |
|
1,025 |
|
227,200 |
|
|
|
||||
|
|
|
|
|
|
|
|
|
|
||||
Interest rate swap |
|
94 |
|
|
|
94 |
|
|
|
||||
|
|
|
|
|
|
|
|
|
|
||||
Total Assets |
|
$ |
228,319 |
|
$ |
1,025 |
|
$ |
227,294 |
|
$ |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Liabilities |
|
|
|
|
|
|
|
|
|
||||
|
|
|
|
|
|
|
|
|
|
||||
Interest rate swap |
|
$ |
94 |
|
$ |
|
|
$ |
94 |
|
$ |
|
|
Mortgage loans held for sale are carried at the lower of cost or market value. The portfolio is comprised of residential real estate loans and fair value is based on specific prices of underlying contracts for sales to investors. These measurements are classified as Level 2. Because the fair value of the loans held for sale exceeded their carrying value, they are not included in the table for March 31, 2010 or December 31, 2009.
Mortgage servicing rights (MSRs) are recorded at