UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, DC 20549

 

FORM 10-Q

 

(Mark One)

 

x      QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the quarterly period ended June 30, 2011

 

Commission file number 0-11783

 

ACNB CORPORATION

(Exact name of Registrant as specified in its charter)

 

Pennsylvania

 

23-2233457

(State or other jurisdiction of

 

(I.R.S. Employer

incorporation or organization)

 

Identification No.)

 

16 Lincoln Square, Gettysburg, Pennsylvania

 

17325

(Address of principal executive offices)

 

(Zip Code)

 

Registrant’s telephone number, including area code:  (717) 334-3161

 

Title of each class

 

Name of each exchange on which registered

Common Stock, $2.50 par value per share

 

The NASDAQ Stock Market, LLC

 

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  S   No  £

 

Indicate by check mark whether the Registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the Registrant was required to submit and post such files).     Yes  S   No  £

 

Indicate by check mark whether the Registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company.  See definition of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

 

Large accelerated filer o

 

Accelerated filer x

 

 

 

Non-accelerated filer o

 

Smaller reporting company o

 

Indicate by check mark whether the Registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).  Yes £ No S

 

The number of shares of the Registrant’s Common Stock outstanding on July 29, 2011, was 5,937,240.

 

 

 



 

PART I - FINANCIAL INFORMATION

 

ACNB CORPORATION

ITEM 1 - FINANCIAL STATEMENTS

CONSOLIDATED STATEMENTS OF CONDITION (UNAUDITED)

 

Dollars in thousands, except per share data

 

June 30,
2011

 

June 30,
 2010

 

December 31,
2010

 

 

 

 

 

 

 

 

 

ASSETS

 

 

 

 

 

 

 

Cash and due from banks

 

$

13,382

 

$

14,193

 

$

14,091

 

Interest bearing deposits with banks

 

28,510

 

14,807

 

10,082

 

 

 

 

 

 

 

 

 

Total Cash and Cash Equivalents

 

41,892

 

29,000

 

24,173

 

 

 

 

 

 

 

 

 

Securities available for sale

 

207,719

 

204,580

 

190,730

 

Securities held to maturity, fair value $10,702; $10,681; $10,671

 

10,038

 

10,051

 

10,044

 

Loans held for sale

 

825

 

3,662

 

3,068

 

Loans, net of allowance for loan losses $14,700; $14,344; $15,252

 

653,652

 

646,355

 

650,039

 

Premises and equipment

 

14,418

 

14,511

 

14,119

 

Restricted investment in bank stocks

 

7,886

 

9,170

 

8,420

 

Investment in bank-owned life insurance

 

27,931

 

26,699

 

27,443

 

Investments in low-income housing partnerships

 

3,946

 

4,245

 

4,124

 

Goodwill

 

5,972

 

5,972

 

5,972

 

Intangible assets

 

3,369

 

4,023

 

3,688

 

Foreclosed assets held for resale

 

3,631

 

7,395

 

7,859

 

Other assets

 

17,058

 

12,623

 

18,988

 

 

 

 

 

 

 

 

 

Total Assets

 

$

998,337

 

$

978,286

 

$

968,667

 

 

 

 

 

 

 

 

 

LIABILITIES AND STOCKHOLDERS’ EQUITY

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

LIABILITIES

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Deposits:

 

 

 

 

 

 

 

Non-interest bearing

 

$

112,411

 

$

105,078

 

$

103,464

 

Interest bearing

 

656,989

 

647,710

 

643,062

 

 

 

 

 

 

 

 

 

Total Deposits

 

769,400

 

752,788

 

746,526

 

 

 

 

 

 

 

 

 

Short-term borrowings

 

47,924

 

39,882

 

39,086

 

Long-term borrowings

 

76,305

 

83,725

 

81,499

 

Other liabilities

 

7,375

 

9,231

 

7,802

 

 

 

 

 

 

 

 

 

Total Liabilities

 

901,004

 

885,626

 

874,913

 

 

 

 

 

 

 

 

 

STOCKHOLDERS’ EQUITY

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Common stock, $2.50 par value; 20,000,000 shares authorized; 5,999,840, 5,990,943 and 5,990,943 shares issued; 5,937,240, 5,928,343 and 5,928,343 shares outstanding

 

14,999

 

14,977

 

14,977

 

Treasury stock, at cost (62,600 shares)

 

(728

)

(728

)

(728

)

Additional paid-in capital

 

8,901

 

8,787

 

8,787

 

Retained earnings

 

71,848

 

67,857

 

69,536

 

Accumulated other comprehensive income

 

2,313

 

1,767

 

1,182

 

 

 

 

 

 

 

 

 

Total Stockholders’ Equity

 

97,333

 

92,660

 

93,754

 

 

 

 

 

 

 

 

 

Total Liabilities and Stockholders’ Equity

 

$

998,337

 

$

978,286

 

$

968,667

 

 

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

 

2



 

ACNB CORPORATION

CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)

 

 

 

Three Months Ended June 30,

 

Six Months Ended June 30,

 

Dollars in thousands, except per share data

 

2011

 

2010

 

2011

 

2010

 

 

 

 

 

 

 

 

 

 

 

INTEREST INCOME

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Loans, including fees

 

$

8,605

 

$

9,476

 

$

17,228

 

$

18,271

 

Securities:

 

 

 

 

 

 

 

 

 

Taxable

 

1,550

 

1,857

 

3,081

 

3,797

 

Tax-exempt

 

304

 

333

 

608

 

690

 

Dividends

 

3

 

8

 

6

 

15

 

Other

 

26

 

16

 

45

 

42

 

 

 

 

 

 

 

 

 

 

 

Total Interest Income

 

10,488

 

11,690

 

20,968

 

22,815

 

 

 

 

 

 

 

 

 

 

 

INTEREST EXPENSE

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Deposits

 

1,111

 

1,602

 

2,247

 

3,275

 

Short-term borrowings

 

28

 

31

 

48

 

73

 

Long-term borrowings

 

755

 

849

 

1,515

 

1,689

 

 

 

 

 

 

 

 

 

 

 

Total Interest Expense

 

1,894

 

2,482

 

3,810

 

5,037

 

 

 

 

 

 

 

 

 

 

 

Net Interest Income

 

8,594

 

9,208

 

17,158

 

17,778

 

 

 

 

 

 

 

 

 

 

 

PROVISION FOR LOAN LOSSES

 

1,310

 

2,351

 

2,410

 

3,210

 

 

 

 

 

 

 

 

 

 

 

Net Interest Income after Provision for Loan Losses

 

7,284

 

6,857

 

14,748

 

14,568

 

 

 

 

 

 

 

 

 

 

 

OTHER INCOME

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Service charges on deposit accounts

 

603

 

589

 

1,166

 

1,150

 

Income from fiduciary activities

 

329

 

326

 

702

 

603

 

Earnings on investment in bank-owned life insurance

 

251

 

260

 

488

 

507

 

Gain on life insurance proceeds

 

 

78

 

 

78

 

Net (losses) gains on sales of securities

 

 

(1

)

 

25

 

Service charges on ATM and debit card transactions

 

320

 

290

 

598

 

544

 

Commissions from insurance sales

 

1,308

 

1,406

 

2,513

 

2,603

 

Other

 

196

 

212

 

497

 

518

 

 

 

 

 

 

 

 

 

 

 

Total Other Income

 

3,007

 

3,160

 

5,964

 

6,028

 

 

 

 

 

 

 

 

 

 

 

OTHER EXPENSES

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Salaries and employee benefits

 

4,335

 

4,327

 

8,465

 

8,495

 

Net occupancy

 

500

 

530

 

1,056

 

1,138

 

Equipment

 

682

 

605

 

1,344

 

1,231

 

Other tax

 

175

 

204

 

383

 

406

 

Professional services

 

261

 

236

 

470

 

481

 

Supplies and postage

 

166

 

177

 

320

 

345

 

Marketing

 

128

 

138

 

252

 

209

 

FDIC and regulatory

 

335

 

349

 

740

 

706

 

Intangible assets amortization

 

160

 

160

 

321

 

321

 

Other operating

 

911

 

764

 

1,521

 

1,630

 

 

 

 

 

 

 

 

 

 

 

Total Other Expenses

 

7,653

 

7,490

 

14,872

 

14,962

 

 

 

 

 

 

 

 

 

 

 

Income before Income Taxes

 

2,638

 

2,527

 

5,840

 

5,634

 

 

 

 

 

 

 

 

 

 

 

PROVISION FOR INCOME TAXES

 

532

 

462

 

1,274

 

1,147

 

 

 

 

 

 

 

 

 

 

 

Net Income

 

$

2,106

 

$

2,065

 

$

4,566

 

$

4,487

 

 

 

 

 

 

 

 

 

 

 

PER SHARE DATA

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic earnings

 

$

0.36

 

$

0.35

 

$

0.77

 

$

0.76

 

Cash dividends declared

 

$

0.19

 

$

0.19

 

$

0.38

 

$

0.38

 

 

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

 

3



 

ACNB CORPORATION

CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY (UNAUDITED)

Six Months Ended June 30, 2011 and 2010

 

 

 

 

 

 

 

Additional

 

Retained

 

Accumulated
Other
Comprehensive

 

Total
Stockholders’

 

Dollars in thousands

 

Common Stock

 

Treasury Stock

 

Paid-in Capital

 

Earnings

 

Income (Loss)

 

Equity

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

BALANCE — JANUARY 1, 2010

 

$

14,977

 

$

(728

)

$

8,787

 

$

65,623

 

$

(356

)

$

88,303

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Comprehensive income:

 

 

 

 

 

 

 

 

 

 

 

 

 

Net income

 

 

 

 

4,487

 

 

4,487

 

Other comprehensive income, net of taxes

 

 

 

 

 

2,123

 

2,123

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total Comprehensive Income

 

 

 

 

 

 

 

 

 

 

 

6,610

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Cash dividends declared

 

 

 

 

(2,253

)

 

(2,253

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

BALANCE — JUNE 30, 2010

 

$

14,977

 

$

(728

)

$

8,787

 

$

67,857

 

$

1,767

 

$

92,660

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

BALANCE — JANUARY 1, 2011

 

$

14,977

 

$

(728

)

$

8,787

 

$

69,536

 

$

1,182

 

$

93,754

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Comprehensive income:

 

 

 

 

 

 

 

 

 

 

 

 

 

Net income

 

 

 

 

4,566

 

 

4,566

 

Other comprehensive income, net of taxes

 

 

 

 

 

1,131

 

1,131

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total Comprehensive Income

 

 

 

 

 

 

 

 

 

 

 

5,697

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Common stock shares issued (8,897 shares)

 

22

 

 

114

 

 

 

136

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Cash dividends declared

 

 

 

 

(2,254

)

 

(2,254

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

BALANCE — JUNE 30, 2011

 

$

14,999

 

$

(728

)

$

8,901

 

$

71,848

 

$

2,313

 

$

97,333

 

 

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

 

4



 

ACNB CORPORATION

CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)

 

 

 

Six Months Ended June 30,

 

Dollars in thousands

 

2011

 

2010

 

 

 

 

 

 

 

CASH FLOWS FROM OPERATING ACTIVITIES

 

 

 

 

 

Net income

 

$

4,566

 

$

4,487

 

Adjustments to reconcile net income to net cash provided by operating activities:

 

 

 

 

 

(Gain) loss on sales of loans and foreclosed real estate

 

(284

)

6

 

Earnings on investment in bank-owned life insurance

 

(488

)

(507

)

Gain on life insurance proceeds

 

 

(78

)

Gain on sales of securities

 

 

(25

)

Depreciation and amortization

 

1,135

 

1,204

 

Provision for loan losses

 

2,410

 

3,210

 

Net amortization of investment securities premiums

 

248

 

15

 

Increase in interest receivable

 

(125

)

(89

)

Increase in interest payable

 

53

 

106

 

Mortgage loans originated for sale

 

(10,770

)

(10,663

)

Proceeds from loans sold to others

 

13,212

 

7,229

 

Decrease in other assets

 

1,646

 

400

 

Decrease in other liabilities

 

(384

)

(113

)

 

 

 

 

 

 

Net Cash Provided by Operating Activities

 

11,219

 

5,182

 

 

 

 

 

 

 

CASH FLOWS FROM INVESTING ACTIVITIES

 

 

 

 

 

Proceeds from maturities of investment securities available for sale

 

24,291

 

26,783

 

Proceeds from sales of investment securities available for sale

 

 

3,697

 

Purchase of investment securities available for sale

 

(39,902

)

(22,198

)

Net increase in loans

 

(7,490

)

(18,559

)

Redemption of restricted investments in bank stocks

 

534

 

 

Capital expenditures

 

(1,113

)

(663

)

Proceeds from life insurance death benefits

 

 

294

 

Proceeds from sale of foreclosed real estate

 

5,780

 

292

 

 

 

 

 

 

 

Net Cash Used in Investing Activities

 

(17,900

)

(10,354

)

 

 

 

 

 

 

CASH FLOWS FROM FINANCING ACTIVITIES

 

 

 

 

 

Net increase in demand deposits

 

8,947

 

11,249

 

Net increase in time certificates of deposits and interest bearing deposits

 

13,927

 

13,016

 

Net increase (decrease) in short-term borrowings

 

8,838

 

(15,409

)

Dividends paid

 

(2,254

)

(2,253

)

Common stock issued

 

136

 

 

Proceeds from long-term borrowings

 

 

19,000

 

Repayments on long-term borrowings

 

(5,194

)

(15,569

)

 

 

 

 

 

 

Net Cash Provided by Financing Activities

 

24,400

 

10,034

 

 

 

 

 

 

 

Net Increase in Cash and Cash Equivalents

 

17,719

 

4,862

 

 

 

 

 

 

 

CASH AND CASH EQUIVALENTS — BEGINNING

 

24,173

 

24,138

 

 

 

 

 

 

 

CASH AND CASH EQUIVALENTS — ENDING

 

$

41,892

 

$

29,000

 

 

 

 

 

 

 

Interest paid

 

$

3,757

 

$

4,931

 

Incomes taxes paid

 

$

900

 

$

1,500

 

Loans transferred to foreclosed real estate

 

$

1,467

 

$

1,700

 

 

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

 

5



 

ACNB CORPORATION

ITEM 1 - NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

 

1.                                       Basis of Presentation

 

ACNB Corporation, headquartered in Gettysburg, Pennsylvania, provides banking, insurance, and financial services to businesses and consumers through its wholly-owned subsidiaries, ACNB Bank and Russell Insurance Group, Inc. (RIG).  The Bank engages in full-service commercial and consumer banking and trust services through its nineteen retail banking locations in Adams, Cumberland and York Counties, Pennsylvania.  There are also two loan production offices situated in York and Franklin Counties, Pennsylvania.

 

RIG is a full-service insurance agency, based in Westminster, Maryland.  The agency offers a broad range of property and casualty, life, and health insurance to both commercial and individual clients. In 2008, due to an agency acquisition, a second location of RIG was established in Germantown, Maryland.

 

The Corporation, along with seven other banks, entered into a joint venture to form BankersRe Insurance Group, SPC (formerly Pennbanks Insurance Co., SPC), an offshore reinsurance company.  Each participating entity owns an insurance cell through which its premiums and losses from credit life, health and accident insurance are funded.  Each entity is responsible for the activity in its respective cell.  The financial activity for the insurance cell has been reported in the consolidated financial statements and is not material to the consolidated financial statements.

 

The Corporation’s primary source of revenue is interest income on loans and investment securities and fee income on its products and services.  Expenses consist of interest expense on deposits and borrowed funds, provisions for loan losses, and other operating expenses.

 

The accompanying unaudited consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (GAAP) for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X.  In the opinion of management, the accompanying unaudited consolidated financial statements contain all adjustments necessary to present fairly ACNB Corporation’s financial position as of June 30, 2011 and 2010, and the results of operations, changes in stockholders’ equity, and cash flows for the three and six months ended June 30, 2011 and 2010.  All such adjustments are of a normal recurring nature.

 

The accounting policies followed by the Corporation are set forth in Note A to the Corporation’s consolidated financial statements in the 2010 ACNB Corporation Annual Report on Form 10-K, filed with the SEC on March 11, 2011.  It is suggested that the consolidated financial statements contained herein be read in conjunction with the financial statements and notes included in the Corporation’s Annual Report on Form 10-K.  The results of operations for the three and six month period ended June 30, 2011, are not necessarily indicative of the results to be expected for the full year.

 

The Corporation has evaluated events and transactions occurring subsequent to the balance sheet date of June 30, 2011, for items that should potentially be recognized or disclosed in the consolidated financial statements.  The evaluation was conducted through the date these consolidated financial statements were issued.

 

2.                                       Earnings Per Share

 

The Corporation has a simple capital structure.  Basic earnings per share of common stock is computed based on 5,931,962 and 5,928,343 weighted average shares of common stock outstanding for the six months ended June 30, 2011 and 2010, respectively, and 5,934,543 and 5,928,343 for the three months ended June 30, 2011 and 2010, respectively.  The Corporation does not have dilutive securities outstanding.

 

6



 

3.                                       Retirement Benefits

 

The components of net periodic benefit costs (income) related to the non-contributory, defined benefit pension plan for the three month and six month periods ended June 30 were as follows:

 

 

 

Three Months Ended June 30,

 

Six Months Ended June 30,

 

In thousands

 

2011

 

2010

 

2011

 

2010

 

 

 

 

 

 

 

 

 

 

 

Service cost

 

$

143

 

$

115

 

$

286

 

$

230

 

Interest cost

 

240

 

268

 

480

 

536

 

Expected return on plan assets

 

(457

)

(304

)

(914

)

(608

)

Recognized net actuarial loss

 

35

 

109

 

70

 

218

 

Other, net

 

13

 

13

 

26

 

26

 

 

 

 

 

 

 

 

 

 

 

Net Periodic Benefit Cost (Income)

 

$

(26

)

$

201

 

$

(52

)

$

402

 

 

The Corporation previously disclosed in its consolidated financial statements for the year ended December 31, 2010, that it has not yet been determined the amount the Bank plans on contributing to the Plan in 2011. As of June 30, 2011, this contribution has still not been determined.  The Corporation reduced the benefit formula for the defined benefit pension plan effective January 1, 2010, in order to manage total benefit costs.  The new formula is the earned benefit as of December 31, 2009, plus 0.75% of a participant’s average monthly pay multiplied by years of benefit service earned on and after January 1, 2010, but not more than 25 years.  The benefit percentage factor and maximum years of service eligible were both reduced.

 

4.                                       Guarantees

 

The Corporation does not issue any guarantees that would require liability recognition or disclosure, other than its standby letters of credit.  Standby letters of credit are written conditional commitments issued by the Corporation to guarantee the performance of a customer to a third party.  Generally, all letters of credit, when issued, have expiration dates within one year.  The credit risk involved in issuing letters of credit is essentially the same as those that are involved in extending loan facilities to customers.  The Corporation generally holds collateral and/or personal guarantees supporting these commitments.  The Corporation had $6,089,000 in standby letters of credit as of June 30, 2011.  Management believes that the proceeds obtained through a liquidation of collateral and the enforcement of guarantees would be sufficient to cover the potential amount of future payments required under the corresponding guarantees.  The current amount of the liability, as of June 30, 2011, for guarantees under standby letters of credit issued is not material.

 

7



 

5.                                       Other Comprehensive Income

 

The Corporation’s other comprehensive income items are unrealized gains on securities available for sale and unfunded pension liability.  The components of other comprehensive income for the three month and six month periods ended June 30 were as follows:

 

 

 

Three Months Ended June 30,

 

Six Months Ended June 30,

 

In thousands

 

2011

 

2010

 

2011

 

2010

 

 

 

 

 

 

 

 

 

 

 

Unrealized holding gains on available for sale securities arising during the period

 

$

1,874

 

$

1,905

 

$

1,620

 

$

2,999

 

Reclassification of (gains) losses realized in net income

 

 

1

 

 

(25

)

 

 

 

 

 

 

 

 

 

 

Net Unrealized Gains

 

1,874

 

1906

 

1,620

 

2,974

 

 

 

 

 

 

 

 

 

 

 

Tax effect

 

637

 

648

 

551

 

1,011

 

 

 

 

 

 

 

 

 

 

 

 

 

1,237

 

1,258

 

1,069

 

1,963

 

 

 

 

 

 

 

 

 

 

 

Change in pension liability

 

48

 

122

 

96

 

244

 

 

 

 

 

 

 

 

 

 

 

Tax effect

 

17

 

42

 

34

 

84

 

 

 

 

 

 

 

 

 

 

 

 

 

31

 

80

 

62

 

160

 

 

 

 

 

 

 

 

 

 

 

Other Comprehensive Income

 

$

1,268

 

$

1,338

 

$

1,131

 

$

2,123

 

 

The components of the accumulated other comprehensive income, net of taxes, are as follows:

 

In thousands

 

Unrealized
Gains on
Securities

 

Pension
Liability

 

Accumulated
Other
Comprehensive
Income

 

BALANCE, JUNE 30, 2011

 

$

4,992

 

$

(2,679

)

$

2,313

 

 

 

 

 

 

 

 

 

BALANCE, DECEMBER 31, 2010

 

$

3,923

 

$

(2,741

)

$

1,182

 

 

 

 

 

 

 

 

 

BALANCE, JUNE 30, 2010

 

$

6,169

 

$

(4,402

)

$

1,767

 

 

6.                                       Segment Reporting

 

Russell Insurance Group, Inc. (RIG) is managed separately from the banking segment, which includes the Bank and related financial services that the Corporation offers.  RIG offers a broad range of property and casualty, life and health insurance to both commercial and individual clients.

 

8



 

Segment information for the six month periods ended June 30, 2011 and 2010, is as follows:

 

In thousands

 

Banking

 

Insurance

 

Intercompany
Eliminations

 

Total

 

2011

 

 

 

 

 

 

 

 

 

Net interest income and other income from external customers

 

$

20,619

 

$

2,503

 

$

 

$

23,122

 

Income before income taxes

 

5,309

 

531

 

 

5,840

 

Total assets

 

988,022

 

11,850

 

(1,535

)

998,337

 

Capital expenditures

 

1,111

 

2

 

 

1,113

 

 

 

 

 

 

 

 

 

 

 

2010

 

 

 

 

 

 

 

 

 

Net interest income and other income from external customers

 

$

21,216

 

$

2,590

 

$

 

$

23,806

 

Income before income taxes

 

5,251

 

383

 

 

5,634

 

Total assets

 

968,704

 

12,630

 

(3,048

)

978,286

 

Capital expenditures

 

647

 

16

 

 

663

 

 

 

 

 

 

 

 

 

 

 

 

Segment information for the three month periods ended June 30, 2011 and 2010, is as follows:

 

In thousands

 

Banking

 

Insurance

 

Intercompany
Eliminations

 

Total

 

2011

 

 

 

 

 

 

 

 

 

Net interest income and other income from external customers

 

$

10,299

 

$

1,302

 

$

 

$

11,601

 

Income before income taxes

 

2,376

 

262

 

 

2,638

 

Total assets

 

988,022

 

11,850

 

(1,535

)

998,337

 

Capital expenditures

 

875

 

 

 

875

 

 

 

 

 

 

 

 

 

 

 

2010

 

 

 

 

 

 

 

 

 

Net interest income and other income from external customers

 

$

10,961

 

$

1,407

 

$

 

$

12,368

 

Income before income taxes

 

2,288

 

239

 

 

2,527

 

Total assets

 

968,704

 

12,630

 

(3,048

)

978,286

 

Capital expenditures

 

209

 

6

 

 

215

 

 

Intangible assets, representing customer lists, are amortized over 10 years on a straight line basis.  Goodwill is not amortized, but rather is analyzed annually for impairment.  If certain events occur which might indicate goodwill has been impaired, the goodwill is tested for impairment when such events occur.  Amortization of goodwill and the intangible assets is deductible for tax purposes.

 

7.                       Securities

 

Debt securities that management has the positive intent and ability to hold to maturity are classified as “held to maturity” and recorded at amortized cost.  Securities not classified as held to maturity or trading, including equity securities with readily determinable fair values, are classified as “available for sale” and recorded at fair value, with unrealized gains and losses excluded from earnings and reported, net of tax, in other comprehensive income.

 

Purchase premiums and discounts are recognized in interest income using the interest method over the terms of the securities.  Declines in the fair value of held to maturity and available for sale securities below their cost that are deemed to be other than temporary are reflected in earnings as realized losses.  In estimating other-than-temporary impairment losses on debt securities, management considers (1) whether management intends to sell the security, or (2) if it is more likely than not that management will be required to sell the security before recovery, or (3) management does not expect to recover the entire amortized cost basis.  In assessing potential other-than-temporary impairment for equity securities, consideration is given to management’s intention and ability to hold the securities until recovery of unrealized losses. Gains and losses on the sale of securities are recorded on the trade date and are determined using the specific identification method.

 

9



 

Amortized cost and fair value at June 30, 2011, and December 31, 2010, were as follows:

 

In thousands

 

Amortized
Cost

 

Gross
Unrealized
Gains

 

Gross
Unrealized
Losses

 

Fair
Value

 

 

 

 

 

 

 

 

 

 

 

SECURITIES AVAILABLE FOR SALE

 

 

 

 

 

 

 

 

 

JUNE 30, 2011

 

 

 

 

 

 

 

 

 

U.S. Government and agencies

 

$

43,131

 

$

490

 

$

50

 

$

43,571

 

Mortgage-backed securities

 

109,946

 

5,382

 

69

 

115,259

 

State and municipal

 

34,204

 

1,351

 

3

 

35,552

 

Corporate bonds

 

11,205

 

357

 

4

 

11,558

 

CRA mutual fund

 

1,044

 

11

 

 

1,055

 

Stock in other banks

 

626

 

98

 

 

724

 

 

 

 

 

 

 

 

 

 

 

 

 

$

200,156

 

$

7,689

 

$

126

 

$

207,719

 

 

 

 

 

 

 

 

 

 

 

DECEMBER 31, 2010

 

 

 

 

 

 

 

 

 

U.S. Government and agencies

 

$

28,225

 

$

297

 

$

262

 

$

28,260

 

Mortgage-backed securities

 

109,386

 

5,292

 

319

 

114,359

 

State and municipal

 

34,214

 

643

 

181

 

34,676

 

Corporate bonds

 

11,303

 

367

 

11

 

11,659

 

CRA mutual fund

 

1,032

 

 

2

 

1,030

 

Stock in other banks

 

627

 

119

 

 

746

 

 

 

 

 

 

 

 

 

 

 

 

 

$

184,787

 

$

6,718

 

$

775

 

$

190,730

 

 

 

 

 

 

 

 

 

 

 

SECURITIES HELD TO MATURITY

 

 

 

 

 

 

 

 

 

JUNE 30, 2011

 

 

 

 

 

 

 

 

 

U.S. Government and agencies

 

$

10,038

 

$

664

 

$

 

$

10,702

 

 

 

 

 

 

 

 

 

 

 

DECEMBER 31, 2010

 

 

 

 

 

 

 

 

 

U.S. Government and agencies

 

$

10,044

 

$

627

 

$

 

$

10,671

 

 

All mortgage-backed security investments are government sponsored enterprise (GSE) pass through instruments issued by the Federal National Mortgage Association (FNMA), Government National Mortgage Association (GNMA) or Federal Home Loan Mortgage Corporation (FHLMC), which guarantee the timely payment of principal on these investments.

 

At June 30, 2011, six U.S. Government and agency securities had unrealized losses that individually did not exceed 2% of amortized cost. These securities have not been in a continuous loss position for 12 months or more.  These unrealized losses relate principally to changes in interest rates subsequent to the acquisition of specific securities.

 

At June 30, 2011, five mortgage-backed securities had unrealized losses that individually did not exceed 1% of amortized cost. These securities have not been in a continuous loss position for 12 months or more.  These unrealized losses relate principally to changes in interest rates subsequent to the acquisition of the specific securities.

 

At June 30, 2011, one state and municipal bond had an unrealized loss that individually did not exceed 1% of amortized cost.  This security has not been in a continuous loss position for 12 months or more. This unrealized loss relates principally to changes in interest rates subsequent to the acquisition of specific securities.

 

10



 

At June 30, 2011, one corporate bond had an unrealized loss, which has not been in a continuous loss position for 12 months or more. The security in this category had an unrealized loss that did not exceed 1% of amortized cost.  The unrealized loss relates principally to changes in interest rates subsequent to the acquisition of the security.

 

In analyzing the issuer’s financial condition, management considers industry analysts’ reports, financial performance, and projected target prices of investment analysts within a one-year time frame.  Based on the above information, management has determined that none of these investments are other-than-temporarily impaired.

 

The fair values of securities available for sale (carried at fair value) are determined by obtaining quoted market prices on nationally recognized securities exchanges (Level 1), or by matrix pricing (Level 2) which is a mathematical technique used widely in the industry to value debt securities without relying exclusively on quoted market prices for the specific security but rather by relying on the security’s relationship to other benchmark quoted prices.  The Corporation uses an independent service provider to provide matrix pricing and uses the valuation of another provider to compare for reasonableness.

 

Management routinely sells securities from its available for sale portfolio in an effort to manage and allocate the portfolio.  At June 30, 2011, management had not identified any securities with an unrealized loss that it intends or will be required to sell.

 

The following table shows the Corporation’s investments’ gross unrealized losses and fair value, aggregated by investment category and length of time that individual securities have been in a continuous unrealized loss position, at June 30, 2011, and December 31, 2010:

 

 

 

Less than 12 Months

 

12 Months or More

 

Total

 

In thousands

 

Fair
Value

 

Unrealized
Losses

 

Fair
Value

 

Unrealized
Losses

 

Fair
Value

 

Unrealized
Losses

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

SECURITIES AVAILABLE FOR SALE

 

 

 

 

 

 

 

 

 

 

 

 

 

JUNE 30, 2011

 

 

 

 

 

 

 

 

 

 

 

 

 

U.S. Government and agencies

 

$

7,000

 

$

50

 

$

 

$

 

$

7,000

 

$

50

 

Mortgage-backed securities

 

9,694

 

69

 

 

 

9,694

 

69

 

State and municipal

 

514

 

3

 

 

 

514

 

3

 

Corporate bonds

 

996

 

4

 

 

 

996

 

4

 

 

 

$

18,204

 

$

126

 

$

 

$

 

$

18,204

 

$

126

 

 

 

 

Less than 12 Months

 

12 Months or More

 

Total

 

In thousands

 

Fair
Value

 

Unrealized
Losses

 

Fair
Value

 

Unrealized
Losses

 

Fair
Value

 

Unrealized
Losses

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

DECEMBER 31, 2010

 

 

 

 

 

 

 

 

 

 

 

 

 

U.S. Government and agencies

 

$

10,585

 

$

262

 

$

 

$

 

$

10,585

 

$

262

 

Mortgage-backed securities

 

21,071

 

319

 

 

 

21,071

 

319

 

State and municipal

 

11,680

 

181

 

 

 

11,680

 

181

 

Corporate bonds

 

989

 

11

 

 

 

989

 

11

 

CRA mutual fund

 

1,030

 

2

 

 

 

1,030

 

2

 

 

 

$

45,355

 

$

775

 

$

 

$

 

$

45,355

 

$

775

 

 

11



 

Amortized cost and fair value at June 30, 2011, by contractual maturity are shown below.  Expected maturities will differ from contractual maturities because issuers may have the right to call or prepay with or without penalties.

 

 

 

Available for Sale

 

Held to Maturity

 

In thousands

 

Amortized
Cost

 

Fair
Value

 

Amortized
Cost

 

Fair
Value

 

 

 

 

 

 

 

 

 

 

 

1 year or less

 

$

6,172

 

$

6,334

 

$

 

$

 

Over 1 year through 5 years

 

32,431

 

33,183

 

10,038

 

10,702

 

Over 5 years through 10 years

 

40,087

 

41,094

 

 

 

Over 10 years

 

9,850

 

10,070

 

 

 

Mortgage-backed securities

 

109,946

 

115,259

 

 

 

CRA mutual fund

 

1,044

 

1,055

 

 

 

 

 

Stock in other banks

 

626

 

724

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

$

200,156

 

$

207,719

 

$

10,038

 

$

10,702

 

 

The Corporation did not realize any gross gains or losses during 2011 on sales of securities available for sale. The Corporation realized $75,000 of gross gains and $50,000 of gross losses during 2010 on sales of securities available for sale.  State and municipal securities were sold at a loss in the second quarter of 2010 in order to adjust the Corporation’s interest rate sensitivity, reduce exposure to geographical locations, and balance the mix with other investment types, and reduce risks related to insurance coverage.

 

At June 30, 2011, and December 31, 2010, securities with a carrying value of $102,061,000 and $99,197,000, respectively, were pledged as collateral as required by law on public and trust deposits, repurchase agreements, and for other purposes.

 

8.                                       Loans

 

The Corporation grants mortgage, commercial and consumer loans to customers.  A substantial portion of the loan portfolio is represented by mortgage loans throughout southcentral Pennsylvania and northern Maryland.  The ability of the Corporation’s debtors to honor their contracts is dependent upon the real estate and general economic conditions in this area.

 

Loans that management has the intent and ability to hold for the foreseeable future or until maturity or payoff generally are reported at their outstanding unpaid principal balances adjusted for charge-offs, the allowance for loan losses, and any deferred fees or costs on originated loans.  Interest income is accrued on the unpaid principal balance.  Loan origination fees, net of certain direct origination costs, are deferred and recognized as an adjustment of the related loan yield using the interest method.

 

The loans receivable portfolio is segmented into commercial, residential mortgage, home equity lines of credit, and consumer loans. Commercial loans consist of the following classes: commercial and industrial, commercial real estate, and commercial real estate construction.

 

The accrual of interest on residential mortgage and commercial loans is discontinued at the time the loan is 90 days past due unless the credit is well-secured and in process of collection.  Consumer loans (consisting of home equity lines of credit and consumer loan classes) are typically charged off no later than 120 days past due.  Past due status is based on the contractual terms of the loan.  In all cases, loans are placed on nonaccrual or charged off at an earlier date if collection of principal or interest is considered doubtful.

 

All interest accrued, but not collected, for loans that are placed on nonaccrual or charged off is reversed against interest income.  The interest on these loans is accounted for on the cash-basis or cost-recovery method, until qualifying for return to accrual.  Loans are returned to accrual status when all the principal and interest amounts contractually due are brought current and future payments are reasonably assured.

 

12



 

Allowance for Credit Losses

 

The allowance for credit losses consists of the allowance for loan losses and the reserve for unfunded lending commitments. The allowance for loan losses is established as losses are estimated to occur through a provision for loan losses charged to earnings.  Loan losses are charged against the allowance when management believes the uncollectibility of a loan balance is confirmed.  Subsequent recoveries, if any, are credited to the allowance. The reserve for unfunded lending commitments represents management’s estimate of losses inherent in its unfunded loan commitments and is recorded in other liabilities on the consolidated statement of condition.

 

The allowance for loan losses is evaluated on a regular basis by management and is based upon management’s periodic review of the collectability of the loans in light of historical experience, the nature and volume of the loan portfolio, adverse situations that may affect the borrower’s ability to repay, the estimated value of any underlying collateral, and prevailing economic conditions.  This evaluation is inherently subjective as it requires estimates that are susceptible to significant revision as more information becomes available.

 

The allowance consists of specific, general and unallocated components.  The specific component relates to loans that are classified as either doubtful, substandard, or special mention.  For such loans that are also classified as impaired, an allowance is established when the discounted cash flows (or collateral value or observable market price) of the impaired loan is lower than the carrying value of that loan. The general component covers pools of loans by loan class including commercial loans not considered impaired, as well as smaller balance homogeneous loan, such as residential real estate, home equity, and other consumer loans. These pools of loans are evaluated for loss exposure based upon historical loss rates for each of these categories of loans, adjusted for qualitative factors. These qualitative risk factors include:

 

·                  lending policies and procedures, including underwriting standards and collection, charge-off and recovery practices;

 

·                  national, regional and local economic and business conditions, as well as the condition of various market segments, including the impact on the value of underlying collateral for collateral dependent loans;

 

·                  the nature and volume of the portfolio and terms of loans;

 

·                  the experience, ability and depth of lending management and staff;

 

·                  the volume and severity of past due, classified and nonaccrual loans, as well as other loan modifications; and,

 

·                  the existence and effect of any concentrations of credit and changes in the level of such concentrations.

 

Each factor is assigned a value to reflect improving, stable or declining conditions based on management’s best judgment using relevant information available at the time of the evaluation.  Adjustments to the factors are supported through documentation of changes in conditions in a narrative accompanying the allowance for loan loss calculation.

 

The unallocated component of the allowance is maintained to cover uncertainties that could affect management’s estimate of probable losses.  The unallocated component of the allowance reflects the margin of imprecision inherent in the underlying assumptions used in the methodologies for estimating specific and general losses in the portfolio.

 

13



 

A loan is considered impaired when, based on current information and events, it is probable that the Corporation will be unable to collect the scheduled payments of principal or interest when due according to the contractual terms of the loan agreement.  Factors considered by management in determining impairment include payment status, collateral value, and the probability of collecting scheduled principal and interest payments when due.  Loans that experience insignificant payment delays and payment shortfalls generally are not classified as impaired.  Management determines the significance of payment delays and payment shortfalls on a case-by-case basis, taking into consideration all of the circumstances surrounding the loan and the borrower, including the length of the delay, the reasons for the delay, the borrower’s prior payment record, and the amount of the shortfall in relation to the principal and interest owed.  Impairment is measured on a loan by loan basis for commercial and commercial construction loans by either the present value of expected future cash flows discounted at the loan’s effective interest rate, the loan’s obtainable market price, or the fair value of the collateral if the loan is collateral dependent.

 

A specific allocation within the allowance for loan losses is established for an impaired loan if its carrying value exceeds its estimated fair value. The estimated fair values of substantially all of the Corporation’s impaired loans are measured based on the estimated fair value of the loan’s collateral.

 

For commercial loans secured by real estate, estimated fair values of collateral are determined primarily through third-party appraisals.  When a real estate secured loan becomes impaired, a decision is made regarding whether an updated certified appraisal of the real estate is necessary.  This decision is based on various considerations, including the age of the most recent appraisal, the loan-to-value ratio based on the original appraisal, and the condition of the property.  Appraised values are discounted based on age of appraisal, special use nature of property, or condition of property to arrive at the estimated selling price of the collateral, which is considered to be the estimated fair value.

 

For commercial and industrial loans secured by non-real estate collateral, such as accounts receivable, inventory and equipment, estimated fair values are determined based on the borrower’s financial statements, inventory reports, accounts receivable aging reports, equipment appraisals, or invoices. Indications of value from these sources are generally discounted based on the age of the financial information or the quality of the assets.

 

Large groups of smaller balance homogeneous loans are collectively evaluated for impairment.  Accordingly, the Corporation does not separately identify individual consumer and residential loans for impairment disclosures, unless such loans are the subject of a restructuring agreement.

 

Loans whose terms are modified are classified as troubled debt restructurings if the Corporation grants such borrowers concessions that it would not otherwise consider and it is deemed that those borrowers are experiencing financial difficulty. Concessions granted under a troubled debt restructuring generally involve a temporary reduction in interest rate, continuance of a below market interest rate, or an extension of a loan’s stated maturity date. Nonaccrual troubled debt restructurings may be restored to accrual status if principal and interest payments, under the modified terms, are current for a sustained period of time and based on well documented credit evaluation of the borrower’s financial condition there is reasonable assurance of repayment. Loans classified as troubled debt restructurings are generally designated as impaired.

 

The allowance calculation methodology includes further segregation of loan classes into credit quality rating categories. The borrower’s overall financial condition, repayment sources, guarantors, and value of collateral, if appropriate, are generally evaluated annually for commercial loans or when credit deficiencies arise, such as delinquent loan payments.

 

Credit quality risk ratings include regulatory classifications of special mention, substandard, doubtful and loss. Loans classified special mention have potential weaknesses that deserve management’s close attention. If uncorrected, the potential weaknesses may result in deterioration of the repayment prospects. Loans classified substandard have a well-defined weakness or weaknesses that jeopardize the liquidation of the debt. They include loans that are inadequately protected by the current sound net worth and paying capacity of the obligor or of the collateral pledged, if any. Loans classified doubtful have all the weaknesses inherent in loans classified substandard with the added characteristic that collection or liquidation in full, on the basis of current conditions and facts, is highly improbable. Loans classified as a loss are considered uncollectible and are charged to the allowance for loan losses. Loans not classified are rated pass.

 

14



 

In addition, federal and state regulatory agencies, as an integral part of their examination process, periodically review the Corporation’s allowance for loan losses and may require the Corporation to recognize additions to the allowance based on their judgments about information available to them at the time of their examination, which may not be currently available to management. Based on management’s comprehensive analysis of the loan portfolio, management believes the current level of the allowance for loan losses is adequate.

 

Commercial and Industrial Lending - The Corporation originates commercial and industrial loans primarily to businesses located in its primary market area and surrounding areas.  These loans are used for various business purposes which include short-term loans and lines of credit to finance machinery and equipment purchases, inventory, and accounts receivable. Generally, the maximum term for loans extended on machinery and equipment is based on the projected useful life of such machinery and equipment. Most business lines of credit are written on demand and may be renewed annually.

 

Commercial and industrial loans are generally secured with short-term assets; however, in many cases, additional collateral such as real estate is provided as additional security for the loan.  Loan-to-value maximum values have been established by the Corporation and are specific to the type of collateral. Collateral values may be determined using invoices, inventory reports, accounts receivable aging reports, collateral appraisals, etc.

 

In underwriting commercial and industrial loans, an analysis is performed to evaluate the borrower’s character and capacity to repay the loan, the adequacy of the borrower’s capital and collateral, as well as the conditions affecting the borrower. Evaluation of the borrower’s past, present and future cash flows is also an important aspect of the Corporation’s analysis.

 

Commercial loans generally present a higher level of risk than other types of loans due primarily to the effect of general economic conditions.

 

Commercial Real Estate Lending - The Corporation engages in commercial real estate lending in its primary market area and surrounding areas. The Corporation’s commercial real estate portfolio is secured primarily by commercial retail space, office buildings, and hotels. Generally, commercial real estate loans have terms that do not exceed 20 years, have loan-to-value ratios of up to 80% of the appraised value of the property, and are typically secured by personal guarantees of the borrowers.

 

In underwriting these loans, the Corporation performs a thorough analysis of the financial condition of the borrower, the borrower’s credit history, and the reliability and predictability of the cash flow generated by the property securing the loan. Appraisals on properties securing commercial real estate loans originated by the Corporation are performed by independent appraisers.

 

Commercial real estate loans generally present a higher level of risk than other types of loans due primarily to the effect of general economic conditions and the complexities involved in valuing the underlying collateral.

 

Commercial Real Estate Construction Lending - The Corporation engages in commercial real estate construction lending in its primary market area and surrounding areas.  The Corporation’s commercial real estate construction lending consists of commercial and residential site development loans, as well as commercial building construction and residential housing construction loans.

 

The Corporation’s commercial real estate construction loans are generally secured with the subject property.  Terms of construction loans depend on the specifics of the project, such as estimated absorption rates, estimated time to complete, etc.

 

15



 

In underwriting commercial real estate construction loans, the Corporation performs a thorough analysis of the financial condition of the borrower, the borrower’s credit history, and the reliability and predictability of the cash flow generated by the project using feasibility studies, market data, etc. Appraisals on properties securing commercial real estate construction loans originated by the Corporation are performed by independent appraisers.

 

Commercial real estate construction loans generally present a higher level of risk than other types of loans due primarily to the effect of general economic conditions and the uncertainties surrounding total construction costs.

 

Residential Mortgage Lending - One-to-four family residential mortgage loan originations are generated by the Corporation’s marketing efforts, its present customers, walk-in customers, and referrals. These loans originate primarily within the Corporation’s market area or with customers primarily from the market area.

 

The Corporation offers fixed-rate and adjustable-rate mortgage loans with terms up to a maximum of 30 years for both permanent structures and those under construction. The Corporation’s one-to-four family residential mortgage originations are secured primarily by properties located in its primary market area and surrounding areas. The majority of the Corporation’s residential mortgage loans originate with a loan-to-value of 80% or less.  Loans in excess of 80% are required to have private mortgage insurance.

 

In underwriting one-to-four family residential real estate loans, the Corporation evaluates both the borrower’s ability to make monthly payments and the value of the property securing the loan. Properties securing real estate loans made by the Corporation are appraised by independent appraisers. The Corporation generally requires borrowers to obtain an attorney’s title opinion or title insurance, as well as fire and property insurance (including flood insurance, if necessary) in an amount not less than the amount of the loan. The Corporation has not engaged in subprime residential mortgage originations.

 

Residential mortgage loans present a moderate level of risk due primarily to general economic conditions, as well as a weakened housing market.

 

Home Equity Lines of Credit Lending - The Corporation originates home equity lines of credit primarily within the Corporation’s market area or with customers primarily from the market area.  Home equity lines of credit are generated by the Corporation’s marketing efforts, its present customers, walk-in customers, and referrals.

 

Home equity lines of credit are secured by the borrower’s primary residence with a maximum loan-to-value of 90% and a maximum term of 20 years. In underwriting home equity lines of credit, a thorough analysis of the borrower’s financial ability to repay the loan as agreed is performed. The ability to repay is determined by the borrower’s employment history, current financial conditions, and credit background.

 

Home equity lines of credit generally present moderate level of risk due primarily to general economic conditions, as well as a weakened housing market.

 

Consumer Lending - The Corporation offers a variety of secured and unsecured consumer loans, including those for vehicles and mobile homes and loans secured by savings deposits.  These loans originate primarily within the Corporation’s market area or with customers primarily from the market area.

 

Consumer loan terms vary according to the type and value of collateral and the creditworthiness of the borrower. In underwriting consumer loans, a thorough analysis of the borrower’s financial ability to repay the loan as agreed is performed. The ability to repay shall be determined by the borrower’s employment history, current financial conditions, and credit background.

 

Consumer loans may entail greater credit risk than residential mortgage loans or home equity lines of credit, particularly in the case of consumer loans which are unsecured or are secured by rapidly depreciable assets such as automobiles or recreational equipment. In such cases, any repossessed collateral for a defaulted consumer loan may not provide an adequate source of repayment of the outstanding loan balance as a result of the greater likelihood of damage, loss or depreciation.

 

16



 

In addition, consumer loan collections are dependent on the borrower’s continuing financial stability, and thus are more likely to be affected by adverse personal circumstances. Furthermore, the application of various federal and state laws, including bankruptcy and insolvency laws, may limit the amount which can be recovered on such loans.

 

The following table presents the classes of the loan portfolio summarized by the aggregate pass rating and the classified ratings of special mention, substandard and doubtful within the Corporation’s internal risk rating system as of June 30, 2011, and December 31, 2010:

 

IN THOUSANDS

 

Pass

 

Special
Mention

 

Substandard

 

Doubtful

 

Total

 

June 30, 2011

 

 

 

 

 

 

 

 

 

 

 

Commercial and industrial

 

$

50,246

 

$

4,449

 

$

4,203

 

$

 

$

58,898

 

Commercial real estate

 

195,617

 

16,545

 

15,462

 

 

227,624

 

Commercial real estate construction

 

8,989

 

10,478

 

3,525

 

 

22,992

 

Residential mortgage

 

284,904

 

4,709

 

3,167

 

 

292,780

 

Home equity lines of credit

 

48,555

 

1,954

 

527

 

 

51,036

 

Consumer

 

15,022

 

 

 

 

15,022

 

Total

 

$

603,333

 

$

38,135

 

$

26,884

 

$

 

$

668,352

 

 

IN THOUSANDS

 

Pass

 

Special
Mention

 

Substandard

 

Doubtful

 

Total

 

December 30, 2011

 

 

 

 

 

 

 

 

 

 

 

Commercial and industrial

 

$

43,448

 

$

5,041

 

$

4,187

 

$

 

$

52,676

 

Commercial real estate

 

193,731

 

14,530

 

17,689

 

 

225,950

 

Commercial real estate construction

 

11,009

 

10,963

 

4,663

 

 

26,635

 

Residential mortgage

 

289,833

 

2,882

 

4,282

 

 

296,997

 

Home equity lines of credit

 

46,383

 

2,081

 

393

 

 

48,857

 

Consumer

 

14,176

 

 

 

 

14,176

 

Total

 

$

598,580

 

$

35,497

 

$

31,214

 

$

 

$

665,291

 

 

The following table summarizes information in regards to impaired loans by loan portfolio class as of June 30, 2011, and December 31, 2010:

 

 

 

Impaired loans – with allowance

 

Impaired loans – with no
allowance

 

In thousands

 

Recorded
Investment

 

Unpaid
Principal
Balance

 

Related
Allowance

 

Recorded
Investment

 

Unpaid
Principal
Balance

 

JUNE 30, 2011

 

 

 

 

 

 

 

 

 

 

 

Commercial and industrial

 

$

 

$

 

$

 

$

338

 

$

1,452

 

Commercial real estate

 

3,556

 

4,154

 

15

 

2,849

 

3,078

 

Commercial real estate construction

 

 

 

 

3,525

 

8,163

 

Residential mortgage

 

931

 

931

 

193

 

823

 

1,181

 

 

 

 

 

 

 

 

 

 

 

 

 

TOTAL

 

$

4,487

 

$

5,085

 

$

208

 

$

7,535

 

$

13,874

 

 

17



 

 

 

Impaired loans – with allowance

 

Impaired loans – with no
allowance

 

IN THOUSANDS

 

Recorded
Investment

 

Unpaid
Principal
Balance

 

Related
Allowance

 

Recorded
Investment

 

Unpaid
Principal
Balance

 

DECEMBER 31, 2010

 

 

 

 

 

 

 

 

 

 

 

Commercial and industrial

 

$

869

 

$

1,869

 

$

547

 

$

68

 

$

68

 

Commercial real estate

 

4,326

 

4,326

 

726

 

3,955

 

4,184

 

Commercial real estate construction

 

4,216

 

7,716

 

729

 

172

 

232

 

Residential mortgage

 

97

 

97

 

57

 

954

 

1,312

 

 

 

 

 

 

 

 

 

 

 

 

 

TOTAL

 

$

9,508

 

$

14,008

 

$

2,059

 

$

5,149

 

$

5,796