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UNITED STATES |
SECURITIES AND EXCHANGE COMMISSION |
Washington, D.C. 20549 |
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FORM 10-Q |
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(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, 2012
OR
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o TRANSITION REPORT
PURSUANT TO SECTION 13 OR 15(d) OF THE |
For the transition period from _________________to ________________
Commission file number 001-16339
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BAYLAKE CORP. |
(Exact name of registrant as specified in its charter) |
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Wisconsin |
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39-1268055 |
(State
or other jurisdiction of |
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(I.R.S. Employer Identification No.) |
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217 North Fourth Avenue, Sturgeon Bay, WI |
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54235 |
(Address of principal executive offices) |
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(Zip Code) |
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(920) 743-5551 |
(Registrant’s telephone number, including area code) |
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None |
Former name, former address and former fiscal year, if changed since last report |
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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 x No o
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):
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Large accelerated filer o |
Accelerated filer o |
Non-accelerated filer o |
Smaller reporting company x |
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(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
Number of outstanding shares of common stock, $5.00 par value per share, as of August 9, 2012 was 7,927,347 shares.
BAYLAKE CORP. AND SUBSIDIARIES
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PAGE NO. |
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4 |
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MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS |
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32 |
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51 |
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52 |
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52 |
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52 |
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52 |
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53 |
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ITEM 4 - | MINE SAFETY DISCLOSURES | 53 | |
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53 |
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54 |
2
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BAYLAKE CORP.
CONSOLIDATED
BALANCE SHEETS
June 30, 2012 (Unaudited) and December 31, 2011
(Dollar amounts in thousands)
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June 30, |
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December 31, |
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ASSETS |
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Cash and due from financial institutions |
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$ |
69,753 |
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$ |
86,980 |
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Federal funds sold |
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1,369 |
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513 |
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Securities available for sale |
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255,512 |
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284,331 |
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Loans held for sale |
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1,703 |
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1,869 |
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Loans, net of allowance of $12,733 and $10,638 at June 30, 2012 and December 31, 2011, respectively |
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620,903 |
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620,377 |
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Cash surrender value of life insurance |
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22,895 |
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23,064 |
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Premises and equipment, net |
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21,184 |
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22,953 |
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Premises and equipment held for sale |
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3,122 |
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1,224 |
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Federal Home Loan Bank stock |
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4,133 |
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6,792 |
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Foreclosed properties, net |
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10,357 |
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12,119 |
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Goodwill |
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6,641 |
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6,641 |
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Deferred income taxes |
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6,806 |
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7,145 |
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Accrued interest receivable |
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3,272 |
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3,381 |
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Other assets |
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11,139 |
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9,540 |
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Total Assets |
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$ |
1,038,789 |
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$ |
1,086,929 |
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LIABILITIES AND STOCKHOLDERS’ EQUITY |
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Deposits |
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Noninterest-bearing |
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$ |
114,209 |
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$ |
104,446 |
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Interest-bearing |
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731,067 |
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760,741 |
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Total Deposits |
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845,276 |
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865,187 |
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Federal Home Loan Bank advances |
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55,000 |
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55,000 |
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Repurchase agreements |
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17,697 |
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47,566 |
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Subordinated debentures |
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16,100 |
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16,100 |
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Convertible promissory notes |
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9,450 |
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9,450 |
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Accrued expenses and other liabilities |
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7,079 |
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9,225 |
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Total Liabilities |
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950,602 |
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1,002,528 |
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Commitments and Contingencies Note 16 |
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Common stock, $5 par value, authorized 50,000,000 shares; |
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Issued-8,148,360 shares at June 30, 2012 and 8,132,552 at December 31, 2011; |
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Outstanding-7,927,347 shares at June 30, 2012 and 7,911,539 at December 31, 2011 |
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40,741 |
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40,662 |
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Additional paid-in capital |
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12,080 |
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12,066 |
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Retained earnings |
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33,909 |
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31,441 |
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Treasury stock (221,013 shares at June 30, 2012 and December 31, 2011) |
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(3,549 |
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(3,549 |
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Accumulated other comprehensive income |
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5,006 |
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3,781 |
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Total Stockholders’ Equity |
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88,187 |
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84,401 |
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Total Liabilities and Stockholders’ Equity |
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$ |
1,038,789 |
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$ |
1,086,929 |
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See accompanying Notes to Unaudited Consolidated Financial Statements.
3
BAYLAKE CORP.
CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited)
Three and six months ended June 30, 2012 and 2011
(Dollar amounts in thousands, except per share data)
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Three months ended |
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Six months ended |
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2012 |
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2011 |
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2012 |
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2011 |
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INTEREST AND DIVIDEND INCOME |
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Loans, including fees |
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$ |
7,875 |
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8,238 |
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$ |
15,885 |
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16,720 |
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Taxable securities |
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1,712 |
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1,878 |
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3,618 |
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3,629 |
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Tax exempt securities |
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372 |
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374 |
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744 |
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754 |
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Federal funds sold |
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23 |
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18 |
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53 |
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39 |
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Total Interest and Dividend Income |
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9,982 |
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10,508 |
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20,300 |
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21,142 |
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INTEREST EXPENSE |
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Deposits |
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1,194 |
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1,872 |
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2,588 |
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3,828 |
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Repurchase agreements |
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13 |
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20 |
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36 |
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42 |
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Federal Home Loan Bank advances and other debt |
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258 |
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258 |
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516 |
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572 |
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Subordinated debentures |
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74 |
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67 |
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152 |
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134 |
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Convertible promissory notes |
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245 |
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245 |
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490 |
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490 |
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Total Interest Expense |
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1,784 |
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2,462 |
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3,782 |
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5,066 |
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Net interest income |
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8,198 |
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8,046 |
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16,518 |
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16,076 |
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Provision for loan losses |
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2,275 |
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1,950 |
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4,025 |
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3,250 |
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Net interest income after provision for loan losses |
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5,923 |
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6,096 |
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12,493 |
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12,826 |
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NONINTEREST INCOME |
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Fees from fiduciary activities |
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283 |
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220 |
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523 |
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503 |
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Fees from loan servicing |
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141 |
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223 |
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300 |
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413 |
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Fees for other services to customers |
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1,220 |
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1,215 |
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2,388 |
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2,466 |
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Net gain on sale of loans |
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512 |
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211 |
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873 |
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597 |
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Net loss in mortgage servicing rights |
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(87 |
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(84 |
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(69 |
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(114 |
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Net gain on sale of securities |
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907 |
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1,585 |
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125 |
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Net gain/(loss) on sale of premises and equipment |
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174 |
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(11 |
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176 |
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(3 |
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Net gain on sale of premises and equipment held for sale |
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445 |
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445 |
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Increase in cash surrender value of life insurance |
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107 |
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122 |
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200 |
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252 |
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Income in equity of UFS subsidiary |
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159 |
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202 |
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336 |
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433 |
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Other income |
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481 |
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323 |
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630 |
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363 |
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Total Noninterest Income |
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4,342 |
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2,421 |
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7,387 |
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5,035 |
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NONINTEREST EXPENSE |
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Salaries and employee benefits |
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4,228 |
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4,058 |
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8,655 |
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8,614 |
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Occupancy expense |
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553 |
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575 |
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1,177 |
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1,180 |
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Equipment expense |
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287 |
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308 |
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557 |
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588 |
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Data processing and courier |
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221 |
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203 |
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450 |
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411 |
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FDIC insurance expense |
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369 |
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559 |
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731 |
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1,290 |
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Operation of other real estate |
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1,817 |
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729 |
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2,413 |
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1,767 |
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Loan and collection expense |
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147 |
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163 |
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357 |
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331 |
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Other outside services |
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198 |
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158 |
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381 |
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323 |
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Other operating expenses |
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1,057 |
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1,102 |
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1,989 |
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2,065 |
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Total Noninterest Expense |
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8,877 |
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7,855 |
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16,710 |
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16,569 |
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Income before provision for/(benefit from) income taxes |
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1,388 |
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662 |
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3,170 |
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1,292 |
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Provision for (benefit from) income taxes |
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94 |
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(113 |
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544 |
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(134 |
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Net Income |
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$ |
1,294 |
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775 |
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$ |
2,626 |
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$ |
1,426 |
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Basic earnings per share |
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$ |
0.16 |
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0.10 |
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$ |
0.33 |
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$ |
0.18 |
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Diluted earnings per share |
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$ |
0.15 |
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0.10 |
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$ |
0.30 |
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$ |
0.18 |
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See accompanying Notes to Unaudited Consolidated Financial Statements.
4
BAYLAKE CORP.
CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME (Unaudited)
Three and six months ended June 30, 2012
(Dollar amounts in thousands)
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Three months ended |
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Six months ended |
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Net Income |
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$ |
1,294 |
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$ |
2,626 |
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Other comprehensive income, net of tax |
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Unrealized gains on securities: |
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Net unrealized holding gains arising during period |
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$ |
1,830 |
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$ |
3,610 |
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Less: reclassification adjustment for gains included in net income |
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(907 |
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(1,585 |
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Tax effect |
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(365 |
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(800 |
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Other comprehensive income |
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558 |
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1,225 |
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Comprehensive income |
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$ |
1,852 |
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$ |
3,851 |
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See accompanying Notes to Unaudited Consolidated Financial Statements.
5
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BAYLAKE CORP. |
CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS EQUITY AND COMPREHENSIVE INCOME (Unaudited) |
Six months ended June 30, 2012 |
(Dollar amounts in thousands, except share data) |
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Accumulated |
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Additional |
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Common Stock |
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Retained |
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Treasury |
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Stockholders |
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Shares |
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Amount |
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Balance, January 1, 2012 |
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7,911,539 |
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$ |
40,662 |
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$ |
12,066 |
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$ |
31,441 |
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$ |
(3,549 |
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$ |
3,781 |
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$ |
84,401 |
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Net income for the period |
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2,626 |
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2,626 |
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Net changes in unrealized gain on securities available for sale |
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3,610 |
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3,610 |
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Reclassification adjustment for net gains realized in income |
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(1,585 |
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(1,585 |
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Tax effect |
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(800 |
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(800 |
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Total comprehensive income |
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3,851 |
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Stock-based compensation expense |
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85 |
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85 |
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Vesting of Restricted Stock Units (RSUs) |
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14,919 |
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75 |
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(75 |
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Tax benefit from vesting of RSUs |
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12 |
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12 |
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Exercise of stock options |
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889 |
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4 |
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(1 |
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3 |
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Expiration/forfeiture of unexercised stock options/RSUs |
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(7 |
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(7 |
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Cash dividends ($0.02 per share) |
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(158 |
) |
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(158 |
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Balance, June 30, 2012 |
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7,927,347 |
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$ |
40,741 |
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$ |
12,080 |
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$ |
33,909 |
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$ |
(3,549 |
) |
$ |
5,006 |
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$ |
88,187 |
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See accompanying Notes to Unaudited Consolidated Financial Statements.
6
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BAYLAKE CORP. |
CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited) |
Six months ended June 30, 2012 and 2011 |
(Dollar amounts in thousands) |
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2012 |
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2011 |
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CASH FLOWS FROM OPERATING ACTIVITIES |
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Reconciliation of net income to net cash provided by operating activities: |
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Net Income |
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$ |
2,626 |
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$ |
1,426 |
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Adjustments to reconcile net income to net cash provided by operating activities: |
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Depreciation and amortization |
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640 |
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652 |
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Amortization of debt issuance costs |
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18 |
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17 |
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Provision for losses on loans |
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4,025 |
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3,250 |
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Provision for impairment of letters of credit |
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14 |
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Net amortization of premium/discount on securities |
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1,435 |
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1,269 |
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Increase in cash surrender value of life insurance |
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(200 |
) |
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(252 |
) |
Net gain on life insurance death benefit |
|
|
(501 |
) |
|
(161 |
) |
Net realized gain on sale of securities |
|
|
(1,585 |
) |
|
(125 |
) |
Net gain on sale of loans |
|
|
(873 |
) |
|
(597 |
) |
Proceeds from sale of loans held for sale |
|
|
46,447 |
|
|
42,937 |
|
Origination of loans held for sale |
|
|
(45,535 |
) |
|
(36,354 |
) |
Net change in valuation of mortgage servicing rights |
|
|
69 |
|
|
114 |
|
Provision for valuation allowance on foreclosed properties |
|
|
2,202 |
|
|
1,087 |
|
Net gain on sale of premises and equipment |
|
|
(176 |
) |
|
3 |
|
Net (gain) loss on sale of land held for sale |
|
|
(445 |
) |
|
10 |
|
Net gain on disposals of foreclosed properties |
|
|
(110 |
) |
|
(103 |
) |
Benefit for deferred income tax expense |
|
|
(461 |
) |
|
(580 |
) |
Stock-based compensation expense |
|
|
85 |
|
|
32 |
|
Tax benefit from exercise/forfeiture of options |
|
|
(4 |
) |
|
|
|
Income in equity of UFS subsidiary |
|
|
(336 |
) |
|
(433 |
) |
Changes in assets and liabilities: |
|
|
|
|
|
|
|
Accrued interest receivable and other assets |
|
|
(1,794 |
) |
|
3,576 |
|
Accrued expenses and other liabilities |
|
|
(2,147 |
) |
|
1,047 |
|
Net cash flows provided by operating activities |
|
|
3,380 |
|
|
16,829 |
|
|
|
|
|
|
|
|
|
CASH FLOWS FROM INVESTING ACTIVITIES |
|
|
|
|
|
|
|
Proceeds from sale of securities available for sale |
|
|
45,823 |
|
|
21,534 |
|
Principal payments on securities available for sale |
|
|
27,856 |
|
|
21,916 |
|
Purchase of securities available for sale |
|
|
(42,685 |
) |
|
(27,218 |
) |
FHLB stock redemption |
|
|
2,659 |
|
|
|
|
Proceeds from sale of foreclosed properties |
|
|
5,489 |
|
|
4,383 |
|
7
|
BAYLAKE CORP. |
CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited) |
Six months ended June 30, 2012 and 2011 |
(Dollar amounts in thousands) |
|
|
|
|
|
|
|
|
|
|
2012 |
|
2011 |
|
||
CASH FLOWS FROM INVESTING ACTIVITIES (continued) |
|
|
|
|
|
|
|
Proceeds from sale of premises and equipment |
|
$ |
247 |
|
$ |
11 |
|
Proceeds from sale of land held for sale |
|
|
601 |
|
|
308 |
|
Loan originations and payments, net |
|
|
(10,370 |
) |
|
5,615 |
|
Additions to premises and equipment |
|
|
(996 |
) |
|
(254 |
) |
Proceeds from life insurance surrender |
|
|
|
|
|
1,698 |
|
Proceeds from life insurance death benefit |
|
|
870 |
|
|
457 |
|
Rabbi Trust initial funding |
|
|
|
|
|
(1,626 |
) |
Net change in federal funds sold |
|
|
(856 |
) |
|
1 |
|
Dividend from UFS Subsidiary |
|
|
680 |
|
|
219 |
|
Net cash provided by investing activities |
|
|
29,318 |
|
|
27,044 |
|
|
|
|
|
|
|
|
|
CASH FLOWS FROM FINANCING ACTIVITIES |
|
|
|
|
|
|
|
Net change in deposits |
|
|
(19,910 |
) |
|
(27,606 |
) |
Net change in federal funds purchased and repurchase agreements |
|
|
(29,869 |
) |
|
1,324 |
|
Repayments on Federal Home Loan Bank advances |
|
|
|
|
|
(15,000 |
) |
Tax benefit from vesting of restricted stock units |
|
|
12 |
|
|
|
|
Cash dividends paid |
|
|
(158 |
) |
|
|
|
Net cash used in financing activities |
|
|
(49,925 |
) |
|
(41,282 |
) |
Net change in cash |
|
|
(17,227 |
) |
|
2,591 |
|
|
|
|
|
|
|
|
|
Beginning cash |
|
|
86,980 |
|
|
54,555 |
|
Ending cash |
|
$ |
69,753 |
|
$ |
57,146 |
|
Supplemental cash flow information: |
|
|
|
|
|
|
|
Interest paid |
|
$ |
3,696 |
|
$ |
4,861 |
|
Income taxes paid (refunded), net |
|
|
1,200 |
|
|
(2,526 |
) |
Supplemental noncash disclosure: |
|
|
|
|
|
|
|
Transfers from loans to foreclosed properties |
|
$ |
5,819 |
|
$ |
1,361 |
|
Mortgage servicing rights resulting from sale of loans |
|
|
127 |
|
|
89 |
|
8
BAYLAKE CORP.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
June 30, 2012
|
|
1. |
The consolidated financial statements of Baylake Corp. (the Company) include the accounts of the Company, its wholly owned subsidiary Baylake Bank (the Bank), and the Banks wholly owned subsidiaries: Baylake Investments, Inc., and Baylake Insurance Agency, Inc. The accompanying interim consolidated financial statements should be read in conjunction with the 2011 Annual Report on Form 10-K of the Company. The accompanying consolidated financial statements are unaudited. These interim consolidated financial statements are prepared in accordance with the requirements of Form 10-Q, and accordingly do not include all of the information and footnotes required by accounting principles generally accepted in the United States of America (GAAP) for complete financial statements. In the opinion of management, the unaudited consolidated financial information included in this report reflects all adjustments, consisting of normal recurring accruals of operations for the three and six month periods ending June 30, 2012 and 2011. The consolidated results of operations for the three and six months ended June 30, 2012 are not necessarily indicative of results to be expected for the entire year. Management of the Company has evaluated all subsequent events through August 9, 2012, the date the interim consolidated financial statements were issued. |
|
|
2. |
Use of Estimates |
|
|
|
To prepare consolidated financial statements in conformity with GAAP, management makes estimates and assumptions based on available information. These estimates and assumptions affect the amounts reported in the consolidated financial statements and the disclosures provided, and actual results could differ. The allowance for loan losses, provision for letter of credit impairment loss, value of foreclosed properties, other than temporary impairment of securities, mortgage servicing rights, income tax expense, and fair values of financial instruments are particularly subject to change. |
|
|
3. |
Earnings Per Share |
|
|
|
Basic earnings per share is computed by dividing net income by the weighted average number of common shares outstanding. Diluted earnings per share, which reflects the potential dilution that could occur if outstanding stock options were exercised, stock awards were fully vested, and promissory notes were converted, resulting in the issuance of common stock that then shared in our earnings, is computed by dividing net income as adjusted for the income impact of assumed conversions by the weighted average number of common shares outstanding and common stock equivalents. The following table shows the computation of the basic and diluted earnings per share: |
EARNINGS PER SHARE
(Dollar amounts in thousands, except per share data)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended |
|
Six months ended |
|
||||||||
|
|
|
|
|
|
||||||||
|
|
2012 |
|
2011 |
|
2012 |
|
2011 |
|
||||
(Numerator): |
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income available to common stockholders |
|
$ |
1,294 |
|
$ |
775 |
|
$ |
2,626 |
|
$ |
1,426 |
|
Plus: Income impact of assumed conversions |
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest on 10% convertible debentures, net of income tax |
|
|
149 |
|
|
|
|
|
297 |
|
|
|
|
Income available to common stockholders plus assumed conversions |
|
$ |
1,443 |
|
$ |
775 |
|
$ |
2,923 |
|
$ |
1,426 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Denominator): |
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average number of common shares outstanding-basic |
|
7,926,546 |
|
7,911,539 |
|
7,920,436 |
|
7,911,539 |
|
||||
Plus: Incremental shares of assumed conversions: |
|
|
|
|
|
|
|
|
|
|
|
|
|
Dilutive effect of stock options |
|
|
1,844 |
(1) |
|
|
(1) |
|
|
(2) |
|
|
(2) |
Dilutive effect of restricted stock units |
|
|
16,470 |
|
|
4,870 |
|
|
16,605 |
(3) |
|
2,287 |
|
Dilutive effect of convertible promissory notes (4) |
|
|
1,890,000 |
|
|
|
|
|
1,890,000 |
|
|
|
|
Dilutive potential common shares |
|
|
1,908,314 |
|
|
4,870 |
|
|
1,906,605 |
|
|
2,287 |
|
Adjusted weighted-average shares |
|
|
9,834,860 |
|
|
7,916,409 |
|
|
9,827,041 |
|
|
7,913,826 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic Earnings Per Share |
|
$ |
0.16 |
|
$ |
0.10 |
|
$ |
0.33 |
|
$ |
0.18 |
|
Diluted Earnings Per Share |
|
$ |
0.15 |
|
$ |
0.10 |
|
$ |
0.30 |
|
$ |
0.18 |
|
9
BAYLAKE CORP.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
June 30, 2012
|
|
|
|
(1) |
At June 30, 2012 and 2011, there were 68,572 and 112,400 outstanding stock options, respectively, which are not included in the computation of diluted earnings per share because they are considered anti-dilutive. |
|
|
|
|
(2) |
At June 30, 2012 and 2011, there were 138,701 and 112,400 outstanding stock options, respectively, which are not included in the computation of diluted earnings per share because they are considered anti-dilutive. |
|
|
|
|
(3) |
At June 30, 2012, there were 68,572 outstanding restricted stock units which are not included in the computation of diluted earnings per share because they are considered anti-dilutive. |
|
|
|
|
(4) |
At June 30, 2012, the Company had $9.45 million of outstanding Convertible Promissory Notes (the Convertible Notes). The Convertible Notes are convertible into shares of common stock of the Company at a conversion ratio of one share of common stock for each $5.00 in aggregate principal amount held on the record date of the conversion subject to certain adjustments as described in the Convertible Notes. On October 1, 2014, one-half of the original principal amounts of the Convertible Notes are mandatorily convertible at the conversion ratio if voluntary conversion has not occurred. At June 30, 2012, the entire 1,890,000 common shares are included since the average market price per share for the three months and six months ended June 30, 2012 exceeded the conversion price of $5.00 per share. For the three months and six months ended June 30, 2011, the common shares are not included due to their anti-dilutive effect. |
|
|
|
4. |
Recent Accounting Pronouncements |
|
|
|
|
|
In May 2011, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) No. 2011-03, Transfers and Servicing (Topic 860): Reconsideration of Effective Control for Repurchase Agreements. The ASU is intended to improve financial reporting of repurchase agreements (repos) and other agreements that both entitle and obligate a transferor to repurchase or redeem financial assets before their maturity. The amendments to the codification in this ASU are intended to improve the accounting for these transactions by removing from the assessment of effective control the criterion requiring the transferor to have the ability to repurchase or redeem the financial assets. The guidance in the ASU was effective for the first interim or annual period beginning on or after December 15, 2011. The provisions of this guidance had no impact on the consolidated financial condition, results of operation or liquidity of the Company. |
|
|
|
|
|
In September 2011, the FASB issued ASU No. 2011-08, Intangibles-Goodwill and Other (Topic 350): Testing Goodwill for Impairment. ASU 2011-08 is intended to simplify how entities, both public and nonpublic, test goodwill for impairment. ASU 2011-08 permits an entity to first assess qualitative factors to determine whether it is more likely than not that the fair value of a reporting unit is less than its carrying amount as a basis for determining whether it is necessary to perform the two-step goodwill impairment test described in Topic 350, Intangibles-Goodwill and Other. The more-likely-than-not threshold is defined as having a likelihood of more than 50%. ASU 2011-08 is effective for annual and interim goodwill impairment tests performed for fiscal years beginning after December 15, 2011. The provisions of this guidance did not have a significant impact on the consolidated financial condition, results of operations or liquidity of the Company. |
|
|
|
|
5. |
Fair Value |
|
|
|
|
|
Accounting guidance establishes a fair value hierarchy which requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. The guidance describes three levels of inputs that may be used to measure fair value: |
|
|
|
|
Level 1: |
Quoted prices (unadjusted) for identical assets or liabilities in active markets that the entity has the ability to access as of the measurement date. |
|
Level 2: |
Significant other observable inputs other than Level 1 prices such as quoted prices for similar assets or liabilities; quoted prices in markets that are not active; or other inputs that are observable or can be corroborated by observable market data. |
|
Level 3: |
Significant unobservable inputs that reflect a reporting entitys own assumptions about the assumptions that market participants would use in pricing an asset or liability. |
10
BAYLAKE CORP.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
June 30, 2012
|
|
|
A financial instruments categorization within the valuation hierarchy is based upon the lowest level of input within the valuation hierarchy that is significant to the fair value measurement. |
|
|
|
The methods and assumptions used to estimate fair value are described below. |
|
|
|
Securities available for sale - the fair value of securities available for sale is determined by obtaining quoted prices on nationally recognized securities exchanges (Level 1 inputs) or matrix pricing, which is a mathematical technique widely used in the industry to value debt securities without relying exclusively on quoted prices for the specific securities but rather by relying on the securities relationship to other benchmark quoted securities (Level 2 inputs). For other securities not able to be priced on matrix pricing, outside third parties are relied upon (Level 3 inputs). None of the Companys securities available for sale at June 30, 2012 or December 31, 2011 were measured using Level 1 inputs. |
|
|
|
Mortgage servicing rights - the fair value of mortgage servicing rights is based on a valuation model that calculates the present value of estimated net servicing income. The valuation model incorporates assumptions that market participants would use in estimating future net servicing income. These assumptions include servicing costs, expected loan lives, discount rates, and the determination of whether the loan is likely to be refinanced. The Company compares the valuation model inputs and results to published industry data for reasonableness (Level 2 inputs). |
|
|
|
Foreclosed properties - the fair value of foreclosed properties is determined using a variety of market information including but not limited to appraisals, professional market assessments and real estate tax assessment information. Foreclosed properties are adjusted to fair value less costs to sell upon transfer to foreclosed properties, establishing a new cost basis when fair value is lower than the carrying cost on date of transfer. Subsequently, foreclosed properties are carried at the lower of cost or fair value less estimated costs to sell (Level 3 inputs). |
|
|
|
Impaired loans - the fair value of impaired loans is based on review of comparable collateral in similar marketplaces (Level 3 inputs) or an analysis of expected cash flows of the loan in relationship to the contractual terms of the loan (Level 3 inputs). Impaired loans are carried at the lower of amortized cost or fair value less estimated costs to sell. Not all impaired loans are carried at fair value if there is sufficient collateral or expected repayments exceed the recorded investments of such loans. |
ASSETS MEASURED AT FAIR VALUE ON A RECURRING
BASIS
(Dollar amounts in thousands)
Assets measured at fair value on a recurring basis are summarized below:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30, |
|
Quoted Prices in |
|
Significant |
|
Significant |
|
||||
Assets: |
|
|
|
|
|
|
|
|
|
|
|
|
|
Securities available for sale: |
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. government-sponsored agency securities |
|
$ |
12,033 |
|
$ |
|
|
$ |
12,033 |
|
$ |
|
|
Mortgage-backed securities |
|
|
166,073 |
|
|
|
|
|
161,530 |
|
|
4,543 |
|
Asset-backed securities |
|
|
4,768 |
|
|
|
|
|
4,768 |
|
|
|
|
Obligations of states and political subdivisions |
|
|
58,580 |
|
|
|
|
|
58,580 |
|
|
|
|
Private placement and corporate bonds |
|
|
12,404 |
|
|
|
|
|
12,404 |
|
|
|
|
Other securities |
|
|
1,654 |
|
|
|
|
|
1,654 |
|
|
|
|
Total securities available for sale |
|
|
255,512 |
|
|
|
|
|
250,969 |
|
|
4,543 |
|
Mortgage servicing rights |
|
|
693 |
|
|
|
|
|
693 |
|
|
|
|
Total |
|
$ |
256,205 |
|
$ |
|
|
$ |
251,662 |
|
$ |
4,543 |
|
11
BAYLAKE CORP.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
June 30, 2012
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, |
|
Quoted Prices in |
|
Significant |
|
Significant |
|
||||
Assets: |
|
|
|
|
|
|
|
|
|
|
|
|
|
Securities available for sale: |
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. government-sponsored agency securities |
|
$ |
14,138 |
|
$ |
|
|
$ |
14,138 |
|
$ |
|
|
Mortgage-backed securities |
|
|
193,592 |
|
|
|
|
|
177,330 |
|
|
16,262 |
|
Asset-backed securities |
|
|
4,969 |
|
|
|
|
|
4,969 |
|
|
|
|
Obligations of states and political subdivisions |
|
|
57,766 |
|
|
|
|
|
57,766 |
|
|
|
|
Private placement and corporate bonds |
|
|
12,212 |
|
|
|
|
|
12,212 |
|
|
|
|
Other securities |
|
|
1,654 |
|
|
|
|
|
1,654 |
|
|
|
|
Total securities available for sale |
|
|
284,331 |
|
|
|
|
|
268,069 |
|
|
16,262 |
|
Mortgage servicing rights |
|
|
634 |
|
|
|
|
|
634 |
|
|
|
|
Total |
|
$ |
284,965 |
|
$ |
|
|
$ |
268,703 |
|
$ |
16,262 |
|
The following table presents additional information about assets measured at fair value on a recurring basis using significant unobservable inputs (Level 3):
|
|
|
|
|
|
|
|
|
|
For the three |
|
For the six |
|
||
Balance, beginning of period |
|
$ |
4,923 |
|
$ |
16,262 |
|
Transfer into Level 3 |
|
|
|
|
|
|
|
Net unrealized gains |
|
|
47 |
|
|
546 |
|
Transfer out of Level 3 |
|
|
|
|
|
(10,593 |
) |
Principal payments |
|
|
(427 |
) |
|
(1,672 |
) |
Balance, end of period |
|
$ |
4,543 |
|
$ |
4,543 |
|
The transfers out of Level 3 during the first quarter were the result of the availability of quoted prices on a portion of the securities that were Level 3 at December 31, 2011.
ASSETS MEASURED AT FAIR VALUE ON A
NON-RECURRING BASIS
(Dollar amounts in thousands)
Assets measured at fair value on a non-recurring basis are summarized below:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30, |
|
Quoted Prices in |
|
Significant |
|
Significant |
|
||||
Assets: |
|
|
|
|
|
|
|
|
|
|
|
|
|
Impaired loans |
|
$ |
8,669 |
|
$ |
|
|
$ |
|
|
$ |
8,669 |
|
Foreclosed properties, net |
|
|
10,357 |
|
|
|
|
|
|
|
|
10,357 |
|
Total |
|
$ |
19,026 |
|
$ |
|
|
$ |
|
|
$ |
19,026 |
|
12
BAYLAKE CORP.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
June 30, 2012
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, |
|
Quoted Prices in |
|
Significant |
|
Significant |
|
||||
Assets: |
|
|
|
|
|
|
|
|
|
|
|
|
|
Impaired loans |
|
$ |
4,685 |
|
$ |
|
|
$ |
|
|
$ |
4,685 |
|
Foreclosed properties, net |
|
|
12,119 |
|
|
|
|
|
|
|
|
12,119 |
|
Total |
|
$ |
16,804 |
|
$ |
|
|
$ |
|
|
$ |
16,804 |
|
Required Financial Disclosures about Fair Value of Financial Instruments
The accounting guidance for financial instruments requires disclosures of estimated fair value of certain financial instruments and the methods and significant assumptions used to estimate their fair values. Certain financial instruments and all nonfinancial instruments are excluded from the scope of this guidance. Accordingly, the fair value disclosures required by this guidance are only indicative of the value of individual financial instruments as of the dates indicated and should not be considered an indication of the Company’s fair value.
The following table presents the carrying amount and estimated fair value of certain financial instruments:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Dollar amounts in thousands) |
|
||||||||||
|
|
June 30, 2012 |
|
December 31, 2011 |
|
||||||||
|
|
Carrying |
|
Fair |
|
Carrying |
|
Fair |
|
||||
FINANCIAL ASSETS |
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash |
|
$ |
69,753 |
|
$ |
69,753 |
|
$ |
86,980 |
|
$ |
86,980 |
|
Federal funds sold |
|
|
1,369 |
|
|
1,369 |
|
|
513 |
|
|
513 |
|
Securities available for sale |
|
|
255,512 |
|
|
255,512 |
|
|
284,331 |
|
|
284,331 |
|
Loans held for sale |
|
|
1,703 |
|
|
1,731 |
|
|
1,869 |
|
|
1,898 |
|
Loans, net |
|
|
620,903 |
|
|
623,061 |
|
|
620,377 |
|
|
622,967 |
|
Federal Home Loan Bank stock |
|
|
4,133 |
|
|
4,133 |
|
|
6,792 |
|
|
6,792 |
|
Mortgage servicing rights |
|
|
693 |
|
|
693 |
|
|
634 |
|
|
634 |
|
Foreclosed properties, net |
|
|
10,357 |
|
|
10,357 |
|
|
12,119 |
|
|
12,119 |
|
Accrued interest receivable |
|
|
3,272 |
|
|
3,272 |
|
|
3,381 |
|
|
3,381 |
|
FINANCIAL LIABILITIES |
|
|
|
|
|
|
|
|
|
|
|
|
|
Deposits |
|
$ |
845,276 |
|
$ |
846,179 |
|
$ |
865,187 |
|
$ |
851,054 |
|
Repurchase agreements |
|
|
17,697 |
|
|
17,697 |
|
|
47,566 |
|
|
47,566 |
|
Federal Home Loan Bank advances |
|
|
55,000 |
|
|
56,679 |
|
|
55,000 |
|
|
56,968 |
|
Subordinated debentures |
|
|
16,100 |
|
|
16,100 |
|
|
16,100 |
|
|
16,100 |
|
Convertible promissory notes |
|
|
9,450 |
|
|
9,393 |
|
|
9,450 |
|
|
9,387 |
|
Accrued interest payable |
|
|
985 |
|
|
985 |
|
|
898 |
|
|
898 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Off-balance sheet credit related items: |
|
|
|
|
|
|
|
|
|
|
|
|
|
Letters of credit |
|
$ |
|
|
$ |
|
|
$ |
1,995 |
|
$ |
1,995 |
|
13
BAYLAKE CORP.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
June 30, 2012
The methods and assumptions that were used to estimate the fair value of financial assets and financial liabilities that are measured at fair value on a recurring and non-recurring basis have been previously disclosed. The following methods and assumptions were used to estimate the fair value of other financial instruments for which it is practicable to estimate that value:
(a) Cash
The carrying amount of cash approximates fair value.
(b) Federal Funds Sold
The carrying amount of federal funds sold approximates fair value.
(c) Loans Held for Sale
The fair value of loans held for sale is based on actual market quotes from third party investors.
(d) Cash Value of Life Insurance
The fair value of life insurance approximates the carrying amount because upon liquidation of these investments, the Company would receive the cash surrender value, which equals the carrying amount.
(e) Federal Home Loan Bank Stock
It is not practical to determine the fair value of Federal Home Loan Bank (FHLB) stock due to restrictions placed on its transferability. No secondary market exists for FHLB stock. The stock is bought and sold at par by the FHLB. Management believes that the recorded value is fair value.
(f) Accrued Interest Receivable
The carrying amount of accrued interest receivable approximates fair value.
(g) Deposits
The carrying amount of demand deposits (interest-bearing and noninterest-bearing), savings deposits, and money market deposits approximates fair value. The carrying amount of variable rate time deposits, including certificates of deposit, approximates fair value. For fixed rate time deposits, fair value is based on discounted cash flows using current market interest rates.
(h) Repurchase Agreements
The carrying amount of repurchase agreements approximates fair value.
(i) Federal Home Loan Bank Advances
The carrying amount of variable rate FHLB advances approximates fair value. For fixed rate advances, fair value is based on discounted cash flows using current market interest rates.
14
BAYLAKE CORP.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
June 30, 2012
(j) Subordinated Debentures
The carrying amount of variable rate subordinated debentures approximates fair value.
(k) Convertible Promissory Notes
The fair value of fixed rate convertible promissory notes is based on discounted cash flows using current market interest rates.
(l) Accrued Interest Payable
The carrying amount of accrued interest payable approximates fair value.
(m) Off Balance Sheet Credit Related Items-Letters of Credit
The carrying amount of the off balance sheet letters of credit approximates fair value based on managements evaluation of the factors affecting the letters of credit.
|
|
6. |
Investments |
INVESTMENT SECURITY ANALYSIS
(Dollar amounts in thousands)
The fair value of securities available for sale and the related unrealized gains and losses as of June 30, 2012 and December 31, 2011 are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30, 2012 |
|
|||||||
|
|
Fair Value |
|
Gross
Unrealized |
|
Gross
Unrealized |
|
|||
|
|
|
|
|
|
|
|
|
|
|
U.S. government-sponsored agency securities |
|
$ |
12,033 |
|
$ |
9 |
|
$ |
(12 |
) |
Obligations of states and political subdivisions |
|
|
58,580 |
|
|
4,433 |
|
|
(7 |
) |
Mortgage-backed securities |
|
|
166,073 |
|
|
4,279 |
|
|
(661 |
) |
Asset-backed securities |
|
|
4,768 |
|
|
127 |
|
|
(221 |
) |
Private placement and corporate bonds |
|
|
12,404 |
|
|
335 |
|
|
(8 |
) |
Other securities |
|
|
1,654 |
|
|
|
|
|
|
|
Totals |
|
$ |
255,512 |
|
$ |
9,183 |
|
$ |
(909 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2011 |
|
|||||||
|
|
Fair Value |
|
Gross
Unrealized |
|
Gross
Unrealized |
|
|||
|
|
|
|
|
|
|
|
|
|
|
U.S. government-sponsored agency securities |
|
$ |
14,138 |
|
$ |
49 |
|
$ |
|
|
Obligations of states and political subdivisions |
|
|
57,766 |
|
|
4,128 |
|
|
|
|
Mortgage-backed securities |
|
|
193,592 |
|
|
4,233 |
|
|
(1,984 |
) |
Asset-backed securities |
|
|
4,969 |
|
|
132 |
|
|
(451 |
) |
Private placement and corporate bonds |
|
|
12,212 |
|
|
159 |
|
|
(17 |
) |
Other securities |
|
|
1,654 |
|
|
|
|
|
|
|
Totals |
|
$ |
284,331 |
|
$ |
8,701 |
|
$ |
(2,452 |
) |
15
BAYLAKE CORP.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
June 30, 2012
At June 30, 2012 and December 31, 2011, the mortgage-backed securities portfolio was $166.1 million, (65.0%) and $193.6 million, (68.1%), respectively, of the investment portfolios. Approximately 9.4%, or $15.6 million, of the mortgage-backed securities outstanding at June 30, 2012 were issued and guaranteed by the Government National Mortgage Association (GNMA), the Small Business Administration (SBA) or the United States Department of Veterans Affairs (VA); agencies of the United States government. An additional 65.2%, or $108.3 million, of the mortgage-backed securities outstanding at June 30, 2012 were issued by either the Federal National Mortgage Association (FNMA) or the Federal Home Loan Mortgage Corporation (FHLMC); United States government-sponsored agencies. Non-agency mortgage-backed securities present a level of credit risk that does not exist currently with United States government agency-backed securities, but only comprised approximately 25.4%, or $42.3 million, of the outstanding mortgage-backed securities at June 30, 2012. Management evaluates these non-agency mortgage-backed securities at least on a quarterly basis, and more frequently when economic or market concerns warrant such evaluation.
Securities with unrealized losses at June 30, 2012 and December 31, 2011, aggregated by investment category and length of time that individual securities have been in a continuous unrealized loss position, are as follows (dollar amounts in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30, 2012 |
|
||||||||||||||||
|
|
Less than 12 Months |
|
12 Months or More |
|
Total |
|
||||||||||||
Description of Securities |
|
Fair Value |
|
Unrealized |
|
Fair Value |
|
Unrealized |
|
Fair Value |
|
Unrealized |
|
||||||
U.S. government-sponsored agency securities |
|
$ |
2,013 |
|
$ |
(12 |
) |
$ |
|
|
$ |
|
|
$ |
2,013 |
|
$ |
(12 |
) |
Obligations of states and political subdivisions |
|
|
474 |
|
|
(7 |
) |
|
|
|
|
|
|
|
474 |
|
|
(7 |
) |
Mortgage-backed securities |
|
|
31,525 |
|
|
(141 |
) |
|
7,163 |
|
|
(520 |
) |
|
38,688 |
|
|
(661 |
) |
Asset-backed securities |
|
|
|
|
|
|
|
|
3,592 |
|
|
(221 |
) |
|
3,592 |
|
|
(221 |
) |
Private placement and corporate bonds |
|
|
3,513 |
|
|
(8 |
) |
|
|
|
|
|
|
|
3,513 |
|
|
(8 |
) |
Total securities temporarily impaired |
|
$ |
37,525 |
|
$ |
(168 |
) |
$ |
10,755 |
|
$ |
(741 |
) |
$ |
48,280 |
|
$ |
(909 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2011 |
|
||||||||||||||||
|
|
Less than 12 Months |
|
12 Months or More |
|
Total |
|
||||||||||||
Description of Securities |
|
Fair Value |
|
Unrealized |
|
Fair Value |
|
Unrealized |
|
Fair Value |
|
Unrealized |
|
||||||
Mortgage-backed securities |
|
$ |
46,955 |
|
$ |
(964 |
) |
$ |
9,363 |
|
$ |
(1,020 |
) |
$ |
56,318 |
|
$ |
(1,984 |
) |
Asset-backed securities |
|
|
|
|
|
|
|
|
3,645 |
|
|
(451 |
) |
|
3,645 |
|
|
(451 |
) |
Private placement and corporate bonds |
|
|
3,504 |
|
|
(17 |
) |
|
|
|
|
|
|
|
3,504 |
|
|
(17 |
) |
Total securities temporarily impaired |
|
$ |
50,459 |
|
$ |
(981 |
) |
$ |
13,008 |
|
$ |
(1,471 |
) |
$ |
63,467 |
|
$ |
(2,452 |
) |
At June 30, 2012, the mortgage-backed securities category with continuous unrealized losses for twelve months or more comprises two securities. The asset-backed securities category with continuous unrealized losses for twelve months or more comprises two securities.
At December 31, 2011, the mortgage-backed securities category with continuous unrealized losses for twelve months or more comprises three securities. The asset-backed securities category with continuous unrealized losses for twelve months or more comprises two securities.
16
BAYLAKE CORP.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
June 30, 2012
Management evaluates securities for other-than-temporary impairment at least on a quarterly basis, and more frequently when economic or market concerns warrant such evaluation. As part of such monitoring, the credit quality of individual securities and their issuers is assessed. Adjustments to market value that are considered temporary are recorded as a separate component of other comprehensive income, net of tax. If an impairment of a security is identified as other-than-temporary based on information available, such as the decline in the creditworthiness of the issuer, external market ratings or the anticipated or realized elimination of associated dividends, such impairments are further analyzed to determine if a credit loss exists. If there is a credit loss, it will be recorded in the consolidated statement of operations. Unrealized losses other than credit losses will continue to be recognized in other comprehensive income, net of tax. Unrealized losses reflected in the preceding tables have not been included in the results of operations because the unrealized losses were not deemed other-than-temporary. Management does not have the intent to sell the securities and has determined that it is not more likely than not that the Company will be required to sell the debt securities before their anticipated recovery and therefore, there is no other-than-temporary impairment. The losses on these securities are expected to dissipate as they approach their maturity dates and/or if interest rates decline.
|
|
7. |
Loans |
|
|
|
Loans held for investment are summarized as follows (dollar amounts in thousands): |
|
|
|
|
|
|
|
|
|
|
June 30, |
|
December 31, |
|
||
|
|||||||
Construction |
|
$ |
55,699 |
|
$ |
53,606 |
|
Real estate-mortgage |
|
|
149,401 |
|
|
143,456 |
|
Real estate-commercial |
|
|
307,360 |
|
|
317,198 |
|
Commercial |
|
|
94,077 |
|
|
91,750 |
|
Consumer |
|
|
9,182 |
|
|
8,809 |
|
Municipal |
|
|
18,326 |
|
|
16,577 |
|
Gross loans |
|
|
634,045 |
|
|
631,396 |
|
Less: Deferred origination fees, net of costs |
|
|
(409 |
) |
|
(381 |
) |
Less: Allowance for loan losses |
|
|
(12,733 |
) |
|
(10,638 |
) |
Loans, net |
|
$ |
620,903 |
|
$ |
620,377 |
|
Loans having a carrying value of $112.6 million and $105.1 million are pledged as collateral for borrowings from the FHLB at June 30, 2012 and December 31, 2011, respectively.
17
BAYLAKE CORP.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
June 30, 2012
A breakdown of the allowance for loan losses and recorded investment in loans as of and for the six months ended June 30, 2012 is as follows (dollar amounts in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Construction |
|
Real
Estate- |
|
Real
Estate- |
|
Commercial |
|
Consumer |
|
Municipal |
|
Not
Specifically |
|
Total |
|
||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Allowance for Loan Losses: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Beginning balance |
|
$ |
1,231 |
|
$ |
1,995 |
|
$ |
5,467 |
|
$ |
770 |
|
$ |
161 |
|
$ |
|
|
$ |
1,014 |
|
$ |
10,638 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Charge-offs |
|
|
(380 |
) |
|
(254 |
) |
|
(1,575 |
) |
|
(165 |
) |
|
(62 |
) |
|
|
|
|
|
|
|
(2,436 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Recoveries |
|
|
18 |
|
|
8 |
|
|
401 |
|
|
61 |
|
|
18 |
|
|
|
|
|
|
|
|
506 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Provision |
|
|
695 |
|
|
556 |
|
|
3,824 |
|
|
(86 |
) |
|
33 |
|
|
|
|
|
(997 |
) |
|
4,025 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ending balance |
|
$ |
1,564 |
|
$ |
2,305 |
|
$ |
8,117 |
|
$ |
580 |
|
$ |
150 |
|
$ |
|
|
$ |
17 |
|
$ |
12,733 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loans: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ending balance |
|
$ |
55,699 |
|
$ |
149,401 |
|
$ |
306,951 |
|
$ |
94,077 |
|
$ |
9,182 |
|
$ |
18,326 |
|
$ |
|
|
$ |
633,636 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
ALL |
|
|
(1,564 |
) |
|
(2,305 |
) |
|
(8,117 |
) |
|
(580 |
) |
|
(150 |
) |
|
|
|
|
(17 |
) |
|
(12,733 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Recorded investment |
|
$ |
54,135 |
|
$ |
147,096 |
|
$ |
298,834 |
|
$ |
93,497 |
|
$ |
9,032 |
|
$ |
18,326 |
|
$ |
(17 |
) |
$ |
620,903 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ending balance: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Individually evaluated |
|
$ |
1,721 |
|
$ |
4,144 |
|
$ |
18,400 |
|
$ |
100 |
|
$ |
22 |
|
$ |
|
|
$ |
|
|
$ |
24,387 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Collectively evaluated |
|
|
53,978 |
|
|
145,257 |
|
|
288,551 |
|
|
93,977 |
|
|
9,160 |
|
|
18,326 |
|
|
|
|
|
609,249 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
55,699 |
|
$ |
149,401 |
|
$ |
306,951 |
|
$ |
94,077 |
|
$ |
9,182 |
|
$ |
18,326 |
|
$ |
|
|
$ |
633,636 |
|
18
BAYLAKE CORP.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
June 30, 2012
A breakdown of the allowance for loan losses and recorded investment in loans as of and for the six months ended June 30, 2011 is as follows (dollar amounts in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Construction |
|
Real
Estate- |
|
Real
Estate- |
|
Commercial |
|
Consumer |
|
Municipal |
|
Not
Specifically |
|
Total |
|
||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Allowance for Loan Losses: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Beginning balance |
|
$ |
1,424 |
|
$ |
2,103 |
|
$ |
6,355 |
|
$ |
1,189 |
|
$ |
391 |
|
$ |
|
|
$ |
40 |
|
$ |
11,502 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Charge-offs |
|
|
(64 |
) |
|
(1,090 |
) |
|
(706 |
) |
|
(233 |
) |
|
(192 |
) |
|
|
|
|
|
|
|
(2,285 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Recoveries |
|
|
54 |
|
|
5 |
|
|
74 |
|
|
26 |
|
|
34 |
|
|
|
|
|
|
|
|
193 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Provision |
|
|
161 |
|
|
1,525 |
|
|
1,422 |
|
|
18 |
|
|
156 |
|
|
|
|
|
(32 |
) |
|
3,250 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ending balance |
|
$ |
1,575 |
|
$ |
2,543 |
|
$ |
7,145 |
|
$ |
1,000 |
|
$ |
389 |
|
$ |
|
|
$ |
8 |
|
$ |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loans: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ending balance |
|
$ |
52,159 |
|
$ |
133,716 |
|
$ |
331,646 |
|
$ |
77,544 |
|
$ |
9,378 |
|
$ |
16,380 |
|
$ |
|
|
$ |
620,823 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
ALL |
|
|
(1,575 |
) |
|
(2,543 |
) |
|
(7,145 |
) |
|
(1,000 |
) |
|
(389 |
) |
|
|
|
|
(8 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Recorded investment |
|
$ |
50,584 |
|
$ |
131,173 |
|
$ |
324,501 |
|
$ |
76,544 |
|
$ |
8,989 |
|
$ |
16,380 |
|
$ |
(8 |
) |
$ |
608,163 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ending balance: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Individually evaluated |
|
$ |
5,511 |
|
$ |
5,032 |
|
$ |
28,778 |
|
$ |
1,114 |
|
$ |
171 |
|
$ |
|
|
$ |
|
|
$ |
40,606 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Collectively evaluated |
|
|
46,648 |
|
|
128,684 |
|
|
302,868 |
|
|
76,430 |
|
|
9,207 |
|
|
16,380 |
|
|
|
|
580,217 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
52,159 |
|
$ |
133,716 |
|
$ |
331,646 |
|
$ |
77,544 |
|
$ |
9,378 |
|
$ |
16,380 |
|
$ |
|
$ |
620,823 |
|
A summary of past due loans at June 30, 2012 and December 31, 2011 is as follows (dollar amounts in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30, 2012 |
|
|||||||
|
|
30-89 Days
Past |
|
90 Days
& Over or |
|
Total |
|
|||
Construction |
|
$ |
44 |
|
$ |
1,720 |
|
$ |
1,764 |
|
Real estate mortgage |
|
|
2,123 |
|
|
2,674 |
|
|
4,797 |
|
Real estate commercial |
|
|
664 |
|
|
15,156 |
|
|
15,820 |
|
Commercial |
|
|
182 |
|
|
100 |
|
|
282 |
|
Consumer |
|
|
51 |
|
|
22 |
|
|
73 |
|
Municipal |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
3,064 |
|
$ |
19,672 |
|
$ |
22,736 |
|
19
BAYLAKE CORP.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
June 30, 2012
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2011 |
|
|||||||
|
|
30-89 Days
Past |
|
90 Days
& Over or |
|
Total |
|
|||
|
|
|
|
|
|
|
|
|
|
|
Construction |
|
$ |
435 |
|
$ |
4,945 |
|
$ |
5,380 |
|
Real estate mortgage |
|
|
845 |
|
|
2,676 |
|
|
3,521 |
|
Real estate commercial |
|
|
2,072 |
|
|
11,660 |
|
|
13,732 |
|
Commercial |
|
|
41 |
|
|
259 |
|
|
300 |
|
Consumer |
|
|
59 |
|
|
43 |
|
|
102 |
|
Municipal |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
3,452 |
|
$ |
19,583 |
|
$ |
23,035 |
|
Credit Quality: Management utilizes a risk grading matrix on each of the Companys commercial loans. Loans are graded on a scale of 1 to 7. A description of the loan grades is as follows:
0001 - Excellent risk. Borrowers of highest quality and character. Almost no risk possibility. Balance sheets are very strong with superior liquidity, excellent debt capacity and low leverage. Cash flow trends are positive and stable. Excellent ratios.
0002 - Very good risk. Good ratios in all areas. High quality borrower. Normally quite liquid. Differs slightly from a 0001 customer.
0003 - Strong in most categories. Possible higher levels of debt or shorter track record. Minimal attention required. Good management.
0004 - Better than average risk. Adequate ratios, fair liquidity, desirable customer. Proactive management. Performance trends are positive. Any deviations are limited and temporary as a historical trend.
0005 - Satisfactory risk. Some ratios slightly weak. Overall ability to repay is adequate. Capable and generally proactive management in all critical positions. Margins and cash flow may lack stability but trends are stable to positive. Company normally profitable year to year but may experience an occasional loss.
0006 A - Weakness detected in either management, capacity to repay or balance sheet. Erratic profitability and financial performance. Loan demands more attention. Includes loans deemed to have weaknesses and less than 90 days past due.
0006 B - Have weaknesses that deserve managements close attention. If left uncorrected, these potential weaknesses may result in deterioration of the repayment prospects for the loan or in the Banks collateral position at some future date. Loans rated 0006B are not adversely classified and do not expose the Bank to sufficient risk to warrant adverse classification. Includes loans deemed to have weaknesses and less than 90 days past due.
0007 - Well defined weaknesses and trends that jeopardize the repayment of loans. Ranging from workout to legal. Includes loans that are nonaccrual and/or 90 days and over past due.
20
BAYLAKE CORP.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
June 30, 2012
Below is a breakdown of loans by risk grading as of June 30, 2012 (dollar amounts in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
0001-0005 |
|
0006A |
|
0006B |
|
0007 |
|
Total |
|
|||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial |
|
$ |
88,658 |
|
$ |
3,609 |
|
$ |
999 |
|
$ |
811 |
|
$ |
94,077 |
|
Real estate - commercial |
|
|
227,483 |
|
|
39,171 |
|
|
13,623 |
|
|
27,083 |
|
|
307,360 |
|
Construction |
|
|
43,892 |
|
|
5,628 |
|
|
2,802 |
|
|
3,377 |
|
|
55,699 |
|
|
|
|
360,033 |
|
|
48,408 |
|
|
17,424 |
|
|
31,271 |
|
|
457,136 |
|
Real estate - mortgage |
|
|
142,481 |
|
|
1,137 |
|
|
746 |
|
|
5,037 |
|
|
149,401 |
|
Consumer |
|
|
9,179 |
|
|
|
|
|
|
|
|
3 |
|
|
9,182 |
|
Municipal |
|
|
18,326 |
|
|
|
|
|
|
|
|
|
|
|
18,326 |
|
Total |
|
|
530,019 |
|
|
49,545 |
|
|
18,170 |
|
|
36,311 |
|
|
634,045 |
|
Deferred origination fees, net of costs |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(409 |
) |
Total loans |
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
633,636 |
|
Included in the 0007 rated loans are $11.9 million of loans that are not impaired.
Below is a breakdown of loss by risk grading as of December 31, 2011 (dollar amounts in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
0001-0005 |
|
0006A |
|
0006B |
|
0007 |
|
Total |
|
|||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial |
|
$ |
84,652 |
|
$ |
4,618 |
|
$ |
1,051 |
|
$ |
1,429 |
|
$ |
91,750 |
|
Real estate commercial |
|
|
227,815 |
|
|
43,690 |
|
|
11,592 |
|
|
34,101 |
|
|
317,198 |
|
Construction |
|
|
37,636 |
|
|
6,218 |
|
|
3,323 |
|
|
6,429 |
|
|
53,606 |
|
|
|
|
350,103 |
|
|
54,526 |
|
|
15,966 |
|
|
41,959 |
|
|
462,554 |
|
Real estate - mortgage |
|
|
137,379 |
|
|
391 |
|
|
885 |
|
|
4,801 |
|
|
143,456 |
|
Consumer |
|
|
8,791 |
|
|
|
|
|
|
|
|
18 |
|
|
8,809 |
|
Municipal |
|
|
16,577 |
|
|
|
|
|
|
|
|
|
|
|
16,577 |
|
Total |
|
|
512,850 |
|
|
54,917 |
|
|
16,851 |
|
|
46,778 |
|
|
631,396 |
|
Deferred origination fees, net of costs |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(381 |
) |
Total loans |
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
631,015 |
|
Included in the 0007 rated loans are $5.2 million of loans that are not impaired.
21
BAYLAKE CORP.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
June 30, 2012
|
|
8. |
Allowance For Loan Losses (ALL) |
|
|
|
The ALL represents managements estimate of probable and inherent credit losses in the loan portfolio. Estimating the amount of the ALL requires the exercise of significant judgment and the use of estimates related to the amount and timing of expected future cash flows on impaired loans, estimated losses on pools of homogeneous loans based on historical loss experience, and consideration of other qualitative factors such as current economic trends and conditions, all of which may be susceptible to significant change. The loan portfolio also represents the largest asset on the consolidated balance sheet. Loan losses are charged off against the ALL, while recoveries of amounts previously charged off are credited to the ALL. A provision for loan losses (PFLL) is charged to operations based on managements periodic evaluation of the factors previously mentioned, as well as other pertinent factors. |
|
|
|
The ALL consists of specific reserves on certain impaired loans and general reserves for non-impaired loans. Specific reserves reflect estimated losses based on regular analyses of all impaired non-homogenous loans. These analyses involve a high degree of judgment in estimating the amount of loss associated with specific loans, including estimating the amount and timing of future cash flows and collateral values. The general reserve is based on the Banks historical loss experience which is updated quarterly. The general reserve portion of the ALL also includes consideration of certain qualitative factors such as 1) changes in the nature, volume and terms of loans, 2) changes in lending personnel, 3) changes in the quality of the loan review function, 4) changes in nature and volume of past-due, nonaccrual and/or classified loans, 5) changes in concentration of credit risk, 6) changes in economic and industry conditions, 7) changes in legal and regulatory requirements, 8) unemployment and inflation statistics, and 9) changes in underlying collateral values. |
|
|
|
There are many factors affecting the ALL; some are quantitative while others require qualitative judgment. The process for determining the ALL (which management believes adequately considers potential factors which might possibly result in credit losses) includes subjective elements and, therefore, may be susceptible to significant change. To the extent actual outcomes differ from management estimates, additional PFLL could be required that could adversely affect the earnings or financial position in future periods. Allocations of the ALL may be made for specific loans but the entire ALL is available for any loan that, in managements judgment, should be charged-off or for which an actual loss is realized. As an integral part of their examination process, various regulatory agencies review the ALL as well. Such agencies may require that changes in the ALL be recognized when such regulators credit evaluations differ from those of management based on information available to the regulators at the time of their examinations. |
22
BAYLAKE CORP.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
June 30, 2012
Information regarding impaired loans is as follows (dollar amounts in thousands):
IMPAIRED LOANS AND ALLOCATED ALLOWANCE
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30, 2012 |
|
Construction |
|
Real |
|
Real
Estate- |
|
Commercial |
|
Consumer |
|
Municipal |
|
Not |
|
Totals |
|
||||||||
With an allowance recorded: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Recorded investment |
|
$ |
136 |
|
$ |
2,009 |
|
$ |
6,524 |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
8,669 |
|
Unpaid principal balance |
|
|
480 |
|
|
2,441 |
|
|
9,648 |
|
|
14 |
|
|
|
|
|
|
|
|
|
|
|
12,583 |
|
Related allowance |
|
|
344 |
|
|
432 |
|
|
3,124 |
|
|
14 |
|
|
|
|
|
|
|
|
|
|
|
3,914 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
With no related allowance recorded: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Recorded investment |
|
$ |
1,241 |
|
$ |
1,703 |
|
$ |
8,752 |
|
$ |
86 |
|
$ |
22 |
|
$ |
|
|
$ |
|
|
$ |
11,804 |
|
Unpaid principal balance |
|
|
1,241 |
|
|
1,703 |
|
|
8,752 |
|
|
86 |
|
|
22 |
|
|
|
|
|
|
|
|
11,804 |
|
Related allowance |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Recorded investment |
|
$ |
1,377 |
|
$ |
3,712 |
|
$ |
15,276 |
|
$ |
86 |
|
$ |
22 |
|
$ |
|
|
$ |
|
|
$ |
20,473 |
|
Unpaid principal balance |
|
|
1,721 |
|
|
4,144 |
|
|
18,400 |
|
|
100 |
|
|
22 |
|
|
|
|
|
|
|
|
24,387 |
|
Related allowance |
|
|
344 |
|
|
432 |
|
|
3,124 |
|
|
14 |
|
|
|
|
|
|
|
|
|
|
|
3,914 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Average recorded investment during quarter |
|
$ |
2,544 |
|
$ |
3,813 |
|
$ |
16,808 |
|
$ |
305 |
|
$ |
27 |
|
$ |
|
|
$ |
|
|
$ |
23,497 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest income recognized while impaired |
|
$ |
2 |
|
$ |
41 |
|
$ |
145 |
|
$ |
6 |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
194 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2011 |
|
Construction |
|
Real |
|
Real Estate- |
|
Commercial |
|
Consumer |
|
Municipal |
|
Not |
|
Totals |
|
||||||||
With an allowance recorded: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Recorded investment |
|
$ |
2,667 |
|
$ |
904 |
|
$ |
1,103 |
|
$ |
|
|
$ |
11 |
|
$ |
|
|
$ |
|
|
$ |
4,685 |
|
Unpaid principal balance |
|
|
2,852 |
|
|
1,096 |
|
|
1,702 |
|
|
54 |
|
|
16 |
|
|
|
|
|
|
|
|
5,720 |
|
Related allowance |
|
|
185 |
|
|
192 |
|
|
599 |
|
|
54 |
|
|
5 |
|
|
|
|
|
|
|
|
1,035 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
With no related allowance recorded: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Recorded investment |
|
$ |
2,093 |
|
$ |
3,011 |
|
$ |
30,156 |
|
$ |
612 |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
35,872 |
|
Unpaid principal balance |
|
|
2,093 |
|
|
3,011 |
|
|
30,156 |
|
|
612 |
|
|
|
|
|
|
|
|
|
|
|
35,872 |
|
Related allowance |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Recorded investment |
|
$ |
4,760 |
|
$ |
3,915 |
|
$ |
31,259 |
|
$ |
612 |
|
$ |
11 |
|
$ |
|
|
$ |
|
|
$ |
40,557 |
|
Unpaid principal balance |
|
|
4,945 |
|
|
4,107 |
|
|
31,858 |
|
|
666 |
|
|
16 |
|
|
|
|
|
|
|
|
41,592 |
|
Related allowance |
|
|
185 |
|
|
192 |
|
|
599 |
|
|
54 |
|
|
5 |
|
|
|
|
|
|
|
|
1,035 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Average recorded investment during quarter |
|
$ |
4,942 |
|
$ |
4,327 |
|
$ |
30,080 |
|
$ |
529 |
|
$ |
15 |
|
$ |
|
|
$ |
|
|
$ |
39,893 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest income recognized while impaired |
|
$ |
277 |
|
$ |
311 |
|
$ |
1,512 |
|
$ |
66 |
|
$ |
21 |
|
$ |
|
|
$ |
|
|
$ |
2,187 |
|
23
BAYLAKE CORP.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
June 30, 2012
Nonperforming loans are as follows (dollar amounts in thousands):
NONPERFORMING LOANS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30, |
|
March 31, |
|
December
31, |
|
September
30, |
|
June 30, |
|
|||||
Nonaccrual loans |
|
$ |
11,513 |
|
$ |
14,301 |
|
$ |
15,242 |
|
$ |
19,026 |
|
$ |
16,759 |
|
Loans restructured in a troubled debt restructuring, nonaccrual |
|
|
8,159 |
|
|
8,158 |
|
|
4,341 |
|
|
5,287 |
|
|
5,288 |
|
Total nonperforming loans (NPLs) |
|
$ |
19,672 |
|
$ |
22,459 |
|
$ |
19,583 |
|
$ |
24,313 |
|
$ |
22,047 |
|
|
||||||||||||||||
Restructured loans, accruing |
|
$ |
4,715 |
|
$ |
6,469 |
|
$ |
22,009 |
|
$ |
20,461 |
|
$ |
18,559 |
|
During the quarter ended June 30, 2012, $1.3 million of accruing restructured loans were transferred to nonaccrual. The collateral securing the loans were sold within the quarter and principal payments of $0.9 million were received. The remaining balance of $0.4 million was charged off.
|
|
9. |
Foreclosed Properties, Net |
|
|
|
Foreclosed properties are summarized as follows (dollar amounts in thousands): |
|
|
|
|
|
|
|
|
|
|
For the six months ended |
|
||||
|
|
2012 |
|
2011 |
|
||
|
|||||||
Beginning balance |
|
$ |
14,913 |
|
$ |
19,934 |
|
Transfer of net realizable value to foreclosed properties |
|
|
5,819 |
|
|
1,361 |
|
Sale proceeds |
|
|
(5,489 |
) |
|
(4,383 |
) |
Net gain from disposal of foreclosed properties |
|
|
110 |
|
|
103 |
|
Valuation allowance related to properties disposed |
|
|
(1,579 |
) |
|
(1,062 |
) |
Total foreclosed properties |
|
|
13,774 |
|
|
15,953 |
|
Valuation allowance for losses |
|
|
(3,417 |
) |
|
(4,007 |
) |
Total foreclosed properties, net |
|
$ |
10,357 |
|
$ |
11,946 |
|
|
|
|
Changes in the valuation allowance for losses on foreclosed properties were as follows (dollar amounts in thousands): |
|
|
|
|
|
|
|
|
|
|
For the six months ended |
|
||||
|
|||||||
|
|
2012 |
|
2011 |
|
||
|
|||||||
Beginning balance |
|
$ |
2,794 |
|
$ |
3,982 |
|
Provision charged to operations |
|
|
2,202 |
|
|
1,087 |
|
Amounts related to properties disposed |
|
|
(1,579 |
) |
|
(1,062 |
) |
Balance at end of period |
|
$ |
3,417 |
|
$ |
4,007 |
|
24
BAYLAKE CORP.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
June 30, 2012
|
|
10. |
Income Taxes |
|
|
|
In accordance with the accounting guidance for income taxes, deferred income taxes are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases. Deferred income tax assets and liabilities are measured using enacted tax rates that will apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred income tax assets and liabilities of a change in tax rates is recognized as income or expense in the period that includes the enactment date. |
|
|
|
A tax position is recognized as a benefit only if it is more likely than not that the tax position would be sustained in a tax examination. The amount recognized is the largest amount of tax benefit that has a greater than 50% chance of being realized on examination. For tax positions not meeting the more likely than not test, no tax benefit is recorded. |
|
|
|
The Company regularly reviews the carrying amount of our deferred income tax assets to determine if the establishment of a valuation allowance is necessary. If, based on the available evidence, it is more likely than not that all or a portion of our deferred income tax assets will not be realized in future periods, a deferred income tax valuation allowance would be established. Consideration is given to various positive and negative factors that could affect the realization of the deferred income tax assets. In evaluating available evidence, management considers, among other things, historical financial performance, expectation of future earnings, the ability to carry back losses to recoup taxes previously paid, length of statutory carry forward periods, experience with operating loss and tax credit carry forwards not expiring unused, tax planning strategies and timing of reversals of temporary differences. Significant judgment is required in assessing future earning trends and the timing of reversals of temporary differences. Our evaluation is based on current tax laws as well as managements expectations of future performance. At June 30, 2012 and December 31, 2011, the Company determined that no valuation allowance was required to be taken against our deferred income tax asset other than a valuation allowance to reduce our state net operating loss carry forwards to an amount which the Company believes the benefit will more likely than not be realized. The Company continues to assess the amount of tax benefits it may realize. |
|
|
|
The Company is subject to the income tax laws of the U.S., its states and municipalities. These tax laws are complex and subject to different interpretations by the taxpayer and the relevant Governmental taxing authorities. Accounting guidance related to uncertainty in income taxes prescribes a comprehensive model for how companies should recognize, measure, present, and disclose in their financial statements uncertain tax positions taken or expected to be taken on a tax return. Under the guidance, tax positions shall initially be recognized in the financial statements when it is more likely than not the position will be sustained upon the examination by the tax authorities. Such tax positions shall initially and subsequently be measured as the largest amount of tax benefit that has a greater than 50% chance of being realized upon ultimate settlement with the tax authority assuming full knowledge of the position and all relevant facts. The guidance also revises disclosure requirements to include an annual tabular roll forward of unrecognized tax benefits. In establishing a provision for income tax expense, the Company must make judgments and interpretations about the application of these inherently complex tax laws within the framework existing under GAAP. The Company recognizes interest and/or penalties related to income tax matters in income tax expense. |
|
|
|
As of June 30, 2012, the gross unrecognized tax benefits represent estimated tax and interest costs related to a pending IRS audit for the 2009 tax year. In January 2012, the Company and the IRS reached a tentative settlement agreement to finalize the audit. The Company paid interest related to the timing of deductions taken for income tax purposes. The liability amount recorded by the Company is considered adequate to cover the proposed settlement amount. |
25
BAYLAKE CORP.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
June 30, 2012
|
|
|
A reconciliation of the beginning and ending amounts of unrecognized tax benefits is as follows (dollar amounts in thousands): |
|
|
|
|
|
|
|
|
|
|
For the
three |
|
For the
six |
|
||
Balance at beginning of period |
|
$ |
140 |
|
$ |
174 |
|
Additions for tax positions of prior years |
|
|
|
|
|
|
|
Settlements |
|
|
|
|
|
(34 |
) |
Balance, June 30, 2012 |
|
$ |
140 |
|
$ |
140 |
|
|
|
|
Changes in the deferred income tax balances were as follows (dollar amounts in thousands): |
|
|
|
Deferred income taxes Available for sale securities |
|
|
|
|
|
|
|
|
|
|
For the
six months ended |
|
||||
|
|
2012 |
|
2011 |
|
||
|
|||||||
Balances at beginning of period |
|
$ |
(2,468 |
) |
$ |
(659 |
) |
Net change during period |
|
|
(800 |
) |
|
(1,866 |
) |
Balances at end of period |
|
$ |
(3,268 |
) |
$ |
(2,525 |
) |
|
|
|
Deferred income taxes Other than available for sale securities |
|
|
|
|
|
|
|
|
|
|
For the
six months ended |
|
||||
|
|
2012 |
|
2011 |
|
||
|
|||||||
Balances at beginning of period |
|
$ |
9,613 |
|
$ |
9,861 |
|
Net change during period |
|
|
461 |
|
|
580 |
|
Balances at end of period |
|
$ |
10,074 |
|
$ |
10,441 |
|
|
|
11. |
Equity Investment |
|
|
|
Baylake Bank owns a 49.8% interest (500 shares) in United Financial Services, Inc. (UFS), a data processing service. In addition to the ownership interest, the Bank and UFS have a common member on each of their respective Boards of Directors. The investment in this entity is carried under the equity method of accounting and the pro rata share of its net income is included in other income. The carrying value of the investment in UFS was $4.0 million at June 30, 2012 and December 31, 2011. The current book value of UFS is approximately $7,969 per share. |
|
|
12. |
Mortgage Servicing Rights |
|
|
|
The Company has obligations to service residential first mortgage loans and commercial loans that have been sold in the secondary market with servicing retained. Mortgage servicing rights (MSRs) are recorded at fair value when loans are sold in the secondary market with servicing retained. On a quarterly basis, MSRs are valued based on available market information. |
26
BAYLAKE CORP.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
June 30, 2012
|
|
|
Changes in the carrying value of MSRs are as follows (dollar amounts in thousands): |
MORTGAGE SERVICING RIGHTS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the
three months |
|
For the
six months |
|
||||||||
|
|
2012 |
|
|
2011 |
|
|
2012 |
|
|
2011 |
|
|
|
|||||||||||||
Balance at beginning of period |
|
$ |
697 |
|
$ |
770 |
|
$ |
634 |
|
$ |
746 |
|
Additions from loans sold with servicing retained |
|
|
83 |
|
|
32 |
|
|
128 |
|
|
89 |
|
Changes in valuation |
|
|
(28 |
) |
|
(17 |
) |
|
26 |
|
|
|
|
Loan payments and payoffs |
|
|
(59 |
) |
|
(63 |
) |
|
(95 |
) |
|
(113 |
) |
Fair value of MSRs at the end of period |
|
$ |
693 |
|
$ |
722 |
|
$ |
693 |
|
$ |
722 |
|
|
|
|
Unpaid principal balance of loans serviced for others was $91.5 million and $83.1 million at June 30, 2012 and June 30, 2011, respectively. |
|
|
13. |
Promissory Notes |
|
|
|
During 2009 and 2010, the Company issued 10% Convertible Notes due June 30, 2017 (the Convertible Notes) totaling $9.45 million. The Convertible Notes were offered and sold in reliance on the exemption from registration under Section 4(2) of the Securities Act of 1933 and Rule 506 promulgated there under. |
|
|
|
The Convertible Notes accrue interest at a fixed rate of 10% per annum upon issuance and until maturity or earlier conversion or redemption. Interest is payable quarterly, in arrears, on January 1, April 1, July 1, and October 1 of each year. The Convertible Notes are convertible into shares of common stock at a conversion ratio of one share of common stock for each $5.00 in aggregate principal amount held on the record date of the conversion, subject to certain adjustments as described in the Convertible Notes. Prior to October 1, 2014, each holder of the Convertible Notes may convert up to 100% (at the discretion of the holder) of the original principal amount into shares of common stock at the conversion ratio. On October 1, 2014, one-half of the original principal amounts are mandatorily convertible into common stock at the conversion ratio if voluntary conversion has not occurred. The principal amount, along with accrued but unpaid interest, of any Convertible Note that has not been converted will be payable at maturity on June 30, 2017. |
|
|
|
During 2009 and 2010 the Company incurred debt issuance costs of $0.2 million. These costs were capitalized and are being amortized to interest expense using the effective interest method over the initial conversion term, which ends October 1, 2014. |
27
BAYLAKE CORP.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
June 30, 2012
|
|
14. |
Troubled Debt Restructuring |
|
|
|
A troubled debt restructuring (TDR) includes a loan modification where a borrower is experiencing financial difficulty and the Bank grants a concession to that borrower that would not otherwise be considered except for the borrowers financial difficulties. A TDR may be either accrual or nonaccrual status based upon the performance of the borrower and managements assessment of collectability. If a TDR is placed on nonaccrual status, it remains there until a sufficient period of performance under the restructured terms has occurred at which time it is returned to accrual status, generally six months. |
|
|
|
(Dollar amounts in thousands) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Construction |
|
Real Estate-Mortgage |
|
Real Estate-Commercial |
|
Commercial |
|
Consumer |
|
Municipal |
|
Total |
|
|||||||
Accruing |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||||||||||||||||
December 31, 2011 |
|
$ |
|
|
$ |
1,432 |
|
$ |
20,203 |
|
$ |
374 |
|
$ |
|
|
$ |
|
|
$ |
22,009 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Principal payments |
|
|
|
|
|
(2 |
) |
|
(323 |
) |
|
(374 |
) |
|
|
|
|
|
|
|
(699 |
) |
Charge-offs |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Advances |
|
|
|
|
|
|
|
|
43 |
|
|
|
|
|
|
|
|
|
|
|
43 |
|
New restructured |
|
|
|
|
|
79 |
|
|
217 |
|
|
|
|
|
|
|
|
|
|
|
296 |
|
Transferred out of TDRs |
|
|
|
|
|
(39 |
) |
|
(7,592 |
) |
|
|
|
|
|
|
|
|
|
|
(7,631 |
) |
Transfers to nonaccrual |
|
|
|
|
|
|
|
|
(9,303 |
) |
|
|
|
|
|
|
|
|
|
|
(9,303 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30, 2012 |
|
$ |
|
|
$ |
1,470 |
|
$ |
3,245 |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
4,715 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nonaccrual |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2011 |
|
$ |
|
|
$ |
|
|
$ |
4,325 |
|
$ |
16 |
|
$ |
|
|
$ |
|
|
$ |
4,341 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Principal payments |
|
|
|
|
|
|
|
|
(936 |
) |
|
(1 |
) |
|
|
|
|
|
|
|
(937 |
) |
Charge-offs |
|
|
|
|
|
|
|
|
(977 |
) |
|
|
|
|
|
|
|
|
|
|
(977 |
) |
Advances |
|
|
|
|
|
|
|
|
189 |
|
|
|
|
|
|
|
|
|
|
|
189 |
|
New restructured |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Transfers to foreclosed properties |
|
|
|
|
|
|
|
|
(3,760 |
) |
|
|
|
|
|
|
|
|
|
|
(3,760 |
) |
Transfers from accruing |
|
|
|
|
|
|
|
|
9,303 |
|
|
|
|
|
|
|
|
|
|
|
9,303 |
|
June 30, 2012 |
|
$ |
|
|
$ |
|
|
$ |
8,144 |
|
$ |
15 |
|
$ |
|
|
$ |
|
|
$ |
8,159 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Totals |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||||||||||||||||
December 31, 2011 |
|
$ |
|
|
$ |
1,432 |
|
$ |
24,528 |
|
$ |
390 |
|
$ |
|
|
$ |
|
|
$ |
26,350 |
|
|
||||||||||||||||||||||
Principal payments |
|
|
|
|
|
(2 |
) |
|
(1,259 |
) |
|
(375 |
) |
|
|
|
|
|
|
|
(1,636 |
) |
Charge-offs |
|
|
|
|
|
|
|
|
(977 |
) |
|
|
|
|
|
|
|
|
|
|
(977 |
) |
Advances |
|
|
|
|
|
|
|
|
232 |
|
|
|
|
|
|
|
|
|
|
|
232 |
|
New restructured |
|
|
|
|
|
79 |
|
|
217 |
|
|
|
|
|
|
|
|
|
|
|
296 |
|
Transfers out of TDRs |
|
|
|
|
|
(39 |
) |
|
(7,592 |
) |
|
|
|
|
|
|
|
|
|
|
(7,631 |
) |
Transfers to foreclosed properties |
|
|
|
|
|
|
|
|
(3,760 |
) |
|
|
|
|
|
|
|
|
|
|
(3,760 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30, 2012 |
|
$ |
|
|
$ |
1,470 |
|
$ |
11,389 |
|
$ |
15 |
|
$ |
|
|
$ |
|
|
$ |
12,874 |
|
28
BAYLAKE CORP.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
June 30, 2012
During the quarter ended June 30, 2012, a $1.3 million restructured loan was transferred to nonaccrual status. The collateral securing the loan was sold within the quarter and principal payments of $0.9 million were received. The remaining balance of $0.4 million was charged off. During the quarter ended March 31, 2012 the entire $8.0 million of restructured loans transferred to nonaccrual status were loans that had been restructured with principal charge-offs (A/B Note Structure). Of the $7.6 million of loans transferred out of the restructured category, $5.0 million were loans that had been modified with payment schedule changes and not due to interest rate concessions. A majority of the remaining amount ($2.5 million) were loans that had been restructured with principal charge-offs (A/B Note Structure).
A summary of troubled debt restructurings as of June 30, 2012 and December 31, 2011 is as follows (dollar amounts in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30, 2012 |
|
December 31, 2011 |
|
||||||||
|
|
Number of Modifications |
|
Recorded Investment |
|
Number of Modifications |
|
Recorded Investment |
|
||||
Construction |
|
|
|
|
$ |
|
|
|
|
|
$ |
|
|
Real estate mortgage |
|
|
3 |
|
|
1,470 |
|
|
3 |
|
|
1,432 |
|
Real estate commercial |
|
|
13 |
|
|
11,389 |
|
|
24 |
|
|
24,528 |
|
Commercial |
|
|
1 |
|
|
15 |
|
|
2 |
|
|
390 |
|
Consumer |
|
|
|
|
|
|
|
|
|
|
|
|
|
Municipal |
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
|
17 |
|
$ |
12,874 |
|
|
29 |
|
$ |
26,350 |
|
A summary of troubled debt restructurings as of June 30, 2012 by restructure type is as follows (dollar amounts in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
Accruing |
|
Nonaccruing |
|
Total |
|
|||
A/B split |
|
|
1,470 |
|
|
8,145 |
|
|
9,615 |
|
Payment schedule changes |
|
|
1,105 |
|
|
14 |
|
|
1,119 |
|
Interest rate reduction |
|
|
2,140 |
|
|
|
|
|
2,140 |
|
|
|
|
4,715 |
|
|
8,159 |
|
|
12,874 |
|
29
|
BAYLAKE CORP. |
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS |
June 30, 2012 |
|
|
15. |
Supervisory Agreement |
|
|
|
Effective December 29, 2010, the Company and the Bank entered into a Written Agreement (the Written Agreement) with the Federal Reserve Bank and the Wisconsin Department of Financial Institutions (WDFI). On June 12, 2012, the Company and Bank announced the termination of the Written Agreement. In place of the Written Agreement, on June 19, 2012, the Company and the Bank entered into an informal Memorandum of Understanding with the Federal Reserve and WDFI, which requires the Company and the Bank to (i) refrain from declaring or paying dividends absent prior regulatory approval, (ii) submit capital plans as evidence of sufficient capital, and (iii) submit annual business plan and budget at least 30 days prior to the beginning of the year. |
|
|
16. |
Commitments and Contingencies |
The following is a summary of our off-balance sheet commitments, all of which were lending-related commitments:
LENDING RELATED COMMITMENTS
(Dollar amounts in thousands)
|
|
|
|
|
|
|
|
|
|
June 30, 2012 |
|
December 31, 2011 |
|
||
|
|
|
|
|
|
|
|
Commitments to fund unused home equity line loans |
|
$ |
58,425 |
|
$ |
56,952 |
|
Commitments to fund 1-4 family loans |
|
|
7,057 |
|
|
3,034 |
|
Commitments to fund residential real estate construction loans |
|
|
1,260 |
|
|
1,114 |
|
Commitments unused on various other lines of credit loans |
|
|
154,197 |
|
|
163,698 |
|
Total commitments to extend credit |
|
$ |
220,939 |
|
$ |
224,798 |
|
Financial standby letters of credit |
|
$ |
10,368 |
|
$ |
12,468 |
|
30
Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations
General
Baylake Corp. (“we,” “us” or “our”) is a Wisconsin corporation that is registered with the Board of Governors of the Federal Reserve (the Federal Reserve) as a bank holding company under the Bank Holding Company Act of 1956, as amended. Our wholly-owned banking subsidiary, Baylake Bank (the “Bank”), is a Wisconsin state-chartered bank that provides a wide variety of loan, deposit and other banking products and services to its business, retail, and municipal customers, as well as a full range of trust, investment and cash management services. The Bank is a member of the Federal Reserve and the Federal Home Loan Bank of Chicago.
The following sets forth managements discussion and analysis of our consolidated financial condition at June 30, 2012 and December 31, 2011 and our consolidated results of operations for the three and six months ended June 30, 2012 and 2011. This discussion and analysis should be read together with the consolidated financial statements and accompanying notes contained in Part I of this Form 10-Q, as well as our Annual Report on Form 10-K for the year ended December 31, 2011.
Forward-Looking Information
This discussion and analysis of consolidated financial condition and results of operations, and other sections of this report, may contain forward-looking statements that are based on the current expectations of management. Such expressions of expectations are forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Words such as anticipates, believes, estimates, expects, forecasts, intends, is likely, plans, projects, and other such words are intended to identify such forward-looking statements. The statements contained herein and in such forward-looking statements involve or may involve certain assumptions, risks and uncertainties, many of which are beyond our control that may cause actual future results to differ materially from what may be expressed or forecasted in such forward-looking statements. Readers should not place undue expectations on any forward-looking statements. In addition to the assumptions and other factors referenced specifically in connection with such statements, the following factors could cause actual results to differ materially from the forward-looking statements: the factors described under Risk Factors in Item 1A of this Quarterly Report on Form 10-Q and of our Annual Report on Form 10-K for the year ended December 31, 2011, which are incorporated herein by reference, and other risks that may be identified or discussed in this Form 10-Q.
The Dodd-Frank Wall Street Reform and Consumer Protection Act
On July 21, 2010, President Obama signed into law the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 (the Dodd-Frank Act). The Dodd-Frank Act resulted in sweeping changes in the regulation of financial institutions aimed at strengthening safety and soundness for the financial services sector. We expect that many of the requirements called for in the Dodd-Frank Act will be implemented over time, and most will be subject to implementing regulations over the course of several years. Given the uncertainty associated with the manner in which the provisions of the Dodd-Frank Act will be implemented by the various regulatory agencies and through regulations, the full extent of the impact such requirements will have on financial institutions operations is unclear. The changes resulting from the Dodd-Frank Act may impact the profitability of our business activities, require changes to certain of our business practices, impose upon us more stringent capital, liquidity and leverage ratio requirements or otherwise adversely affect our business. These changes may also require us to invest significant management attention and resources to evaluate and make necessary changes in order to comply with new statutory and regulatory requirements.
Branch Sale
On June 13, 2012, the Bank entered into a branch purchase and sale agreement with Premier Community Bank (“Premier”) whereby Premier will purchase the Bank’s branch operations in Waupaca, King, Manawa and Fremont, Wisconsin. On a combined basis, the transaction is expected to involve total deposits of approximately $69.2 million and total loans of approximately $35.5 million. The transaction, which is subject to regulatory approval and other customary conditions to closing, is expected to close in early fall 2012.
Critical Accounting Policies
In the course of our normal business activity, management must select and apply many accounting policies and methodologies that lead to the financial results presented in our consolidated financial statements. The following is a summary of what management believes are our critical accounting policies.
Allowance for Loan Losses: The ALL represents managements estimate of probable and inherent credit losses in the loan portfolio. Estimating the amount of the ALL requires the exercise of significant judgment and the use of estimates related to the amount and timing of expected future cash flows on impaired loans, estimated losses on pools of homogeneous loans based on historical loss experience, and consideration of other qualitative factors such as current economic trends and conditions, all of which may be susceptible to significant change. The loan portfolio also represents the largest asset on our consolidated balance sheet. Loan losses are charged off against the ALL while recoveries of amounts previously charged off are credited to the ALL. A PFLL is charged to operations based on managements periodic evaluation of the factors previously mentioned, as well as other pertinent factors.
31
The ALL consists of specific reserves on certain impaired loans and general reserves for non-impaired loans. Specific reserves reflect estimated losses on impaired loans from analyses developed through specific credit allocations for individual loans. The specific credit allocations are based on regular analyses of all impaired non-homogenous loans. These analyses involve a high degree of judgment in estimating the amount of loss associated with specific loans, including estimating the amount and timing of future cash flows and collateral values. The general reserve is based on our historical loss experience which is updated quarterly. The general reserve portion of the ALL also includes consideration of certain qualitative factors such as (i) changes in the nature, volume and terms of loans, (ii) changes in lending personnel, (iii) changes in the quality of the loan review function, (iv) changes in nature and volume of past-due, nonaccrual and/or classified loans, (v) changes in concentration of credit risk, (vi) changes in economic and industry conditions, (vii) changes in legal and regulatory requirements, (viii) unemployment and inflation statistics, and (ix) changes in underlying collateral values.
There are many factors affecting the ALL, some are quantitative while others require qualitative judgment. The process for determining the ALL (which management believes adequately considers potential factors which might possibly result in credit losses) includes subjective elements and, therefore, may be susceptible to significant change. To the extent actual outcomes differ from management estimates, additional PFLL could be required that could adversely affect our earnings or financial position in future periods. Allocations of the ALL may be made for specific loans but the entire ALL is available for any loan that, in managements judgment, should be charged-off or for which an actual loss is realized.
As an integral part of their examination process, various regulatory agencies review the ALL as well. Such agencies may require that changes in the ALL be recognized when such regulatory credit evaluations differ from those of management based on information available to the regulators at the time of their examinations.
Provision for Impairment of Standby Letters of Credit: The provision for losses on standby letters of credit represents managements estimate of probable incurred losses with respect to off-balance sheet standby letters of credit which are used to support our customers business arrangements with an unrelated third party. In the event of further impairment, a provision for impairment of standby letters of credit is charged to operations based on managements periodic evaluation of the factors affecting the standby letters of credit.
Foreclosed Properties: Foreclosed properties acquired through or in lieu of loan foreclosure are initially recorded at the lower of carrying cost or fair value less estimated costs to sell, establishing a new cost basis. Fair value is determined using a variety of market information including but not limited to appraisals, professional market assessments and real estate tax assessment information. If fair value declines subsequent to foreclosure, a valuation allowance is recorded through expense. Costs incurred after acquisition are expensed.
Income Tax Accounting: The assessment of income tax assets and liabilities involves the use of estimates, assumptions, interpretations, and judgments concerning certain accounting pronouncements and federal and state tax codes. There can be no assurance that future events, such as court decisions or positions of federal and state taxing authorities, will not differ from managements current assessment, the impact of which could be significant to the consolidated results of our operations and reported earnings.
Goodwill: Goodwill represents the excess of the cost of businesses acquired over fair value of net identifiable assets at the date of acquisition. Goodwill is not amortized but is subject to impairment tests on an annual basis or more frequently if deemed appropriate. Goodwill is subject to a periodic assessment by applying a fair value test based upon a two-step method. The first step of the process compares the fair value of the reporting unit with its carrying value, including any goodwill. During 2011, we, with the assistance of a third party valuation firm determined an estimated cash fair value of our common stock. Consideration was given to our nature and history, the competitive and economic outlook for our trade area and for the banking industry in general, our book value and financial condition, our future earnings and dividend paying capacity, the size of the block valued, and the prevailing market prices of bank stocks. The following valuation methodologies were considered: (i) net asset value defined as our net worth, (ii) market value defined as the price at which knowledgeable buyers and sellers would agree to buy and sell our common stock, and (iii) investment value defined as an estimate of the present value of the future benefits, usually earnings, cash flow, or dividends, that will accrue to our common stock. When consideration was given to the three valuation methodologies, as well as all other relevant valuation variables and factors, the fully-diluted cash fair value range of our common shares was considered to be in excess of the book value. Since the valuation range obtained from that firm exceeded our carrying value including goodwill, we did not fail step one of the impairment test established under generally accepted accounting principles and, therefore, no goodwill impairment was recognized. If the carrying amount would have exceeded fair value, we would have performed the second step to measure the amount of impairment loss. Based on the valuation obtained as of September 30, 2011, our valuation exceeded our carrying value by a range of 23% to 33%. As of June 30, 2012, there are no conditions that would require goodwill impairment to be reevaluated.
32
Results of Operations
The following table sets forth our results of operations and related summary information for the three and six month periods ended June 30, 2012 and 2011.
SUMMARY RESULTS OF OPERATIONS
(Dollar amounts in thousands, except per share data)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three
months ended |
|
Six months
ended |
|
||||||||
|
|
2012 |
|
2011 |
|
2012 |
|
2011 |
|
||||
Net income, as reported |
|
$ |
1,294 |
|
$ |
775 |
|
$ |
2,626 |
|
$ |
1,426 |
|
Earnings per share-basic, as reported |
|
$ |
0.16 |
|
$ |
0.10 |
|
$ |
0.33 |
|
$ |
0.18 |
|
Earnings per share-diluted, as reported |
|
$ |
0.15 |
|
$ |
0.10 |
|
$ |
0.30 |
|
$ |
0.18 |
|
Cash dividends declared per share |
|
$ |
0.01 |
|
$ |
|
|
$ |
0.02 |
|
$ |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Return on average assets |
|
|
0.50 |
% |
|
0.31 |
% |
|
0.50 |
% |
|
0.28 |
% |
Return on average equity |
|
|
5.93 |
% |
|
3.89 |
% |
|
6.07 |
% |
|
3.65 |
% |
Efficiency ratio (1) |
|
|
78.71 |
% |
|
73.13 |
% |
|
75.19 |
% |
|
77.00 |
% |
|
|
(1) |
Noninterest expense divided by the sum of taxable equivalent net interest income plus noninterest income, excluding net investment securities gains and net gains on the sale of fixed assets. A lower ratio indicates greater efficiency. |
Net income of $1.3 million for the three months ended June 30, 2012 increased from net income of $0.8 million for the comparable period in 2011. Net interest income increased $0.2 million for the quarter ended June 30, 2012 versus the comparable quarter last year, resulting from a $0.7 million reduction in interest expense partially offset by a $0.5 million reduction in interest income. A PFLL of $2.3 million was charged to operations for the second quarter of 2012, which is $0.3 million higher than the $2.0 million PFLL taken during the comparable quarter of 2011. Noninterest income increased by $1.9 million in the second quarter of 2012 versus the comparable quarter of 2011, primarily due to an increase of $0.9 million in net gains on the sale of securities, a $0.6 million gain on sale of fixed assets, including land held for sale, and a $0.5 million death benefit from a life insurance policy and is included in Other Income in which the Bank was the beneficiary. Second quarter 2011 Other Income included a $0.3 million death benefit from a life insurance policy. Noninterest expense increased $1.0 million between the periods primarily due to valuation adjustments and expenses related to the operation of foreclosed properties.
Net income of $2.6 million for the six months ended June 30, 2012 increased from net income of $1.4 million for the comparable period in 2011. Net interest income increased $0.4 million for the six months ended June 30, 2012 versus the comparable period last year, resulting from a $1.3 million reduction in interest expense partially offset by a $0.9 million reduction in interest income. A PFLL of $4.0 million was charged to operations for the first six months of 2012, which is $0.7 million higher than the $3.3 million PFLL taken during the comparable period of 2011. Noninterest income increased by $2.4 million in the first six months of 2012 versus the comparable period of 2011, primarily due to an increase of $1.5 million in net gains on the sale of securities, a $0.6 million increase in gain on sale of fixed assets including land held for sale, and a $0.5 million gain on a death benefit from a life insurance policy. Noninterest expense increased $0.1 million between the periods primarily due to an increase of $0.5 million in expenses related to the operation of other real estate, partially offset by a $0.5 million decrease in FDIC insurance expense.
Net Interest Income:
Net interest income is the largest component of the Company’s operating income and represents the difference between interest earned on loans, investments and other interest-earning assets offset by the interest expense attributable to the deposits and borrowings that fund such assets. Interest rate fluctuations, together with changes in the volume and types of interest-earning assets and interest-bearing liabilities, combine to affect total net interest income. This analysis discusses net interest income on a tax-equivalent basis in order to provide comparability among the various types of earned interest income. Tax-exempt interest income is adjusted to a level that reflects such income as if it were fully taxable.
33
Net interest income on a tax-equivalent basis was $8.5 million for the three months ended June 30, 2012 compared to $8.3 million for the same period in 2011. The increase for the second quarter of 2012 resulted primarily from a decrease in interest expense in funding costs on interest-bearing liabilities, partially offset by a decrease in interest income on interest-earning assets. Average noninterest-bearing demand deposits increased from $87.3 million during the second quarter of 2011 to $105.7 million for the comparable period in 2012.
Net interest income on a tax-equivalent basis was $17.0 million for the six months ended June 30, 2012 compared to $16.6 million for the same period in 2011. The increase for the second quarter of 2012 resulted primarily from a decrease in interest expense in funding costs on interest-bearing liabilities, partially offset by a decrease in interest income on interest-earning assets. Average noninterest-bearing demand deposits increased from $87.6 million during the first six months of 2011 to $102.1 million for the comparable period in 2012.
Interest rate spread is the difference between the interest rate earned on average interest-earning assets and the rate paid on average interest-bearing liabilities. Interest rate spread decreased 6 bps to 3.45% for the second quarter of 2012 compared to the same period in 2011, resulting primarily from a 40 bps decrease in the yield on earning assets from 4.69% to 4.29%, partially offset by a 34 bps decrease in the cost of interest-bearing liabilities from 1.18% to 0.84%. We continue to be positively impacted by the interest rate floors on a large number of loans on our balance sheet, which has resulted in the recognition of a greater amount of interest income than would have been recognized had the floors not existed.
Interest rate spread decreased 5 bps to 3.44% for the first six months of 2012 compared to the same period in 2011, resulting primarily from a 37 bps decrease in the yield on earning assets from 4.69% to 4.32%, partially offset by a 32 bps decrease in the cost of interest-bearing liabilities from 1.20% to 0.88%.
Net interest margin represents net interest income expressed as an annualized percentage of average interest-earning assets. Net interest margin exceeds the interest rate spread because of the use of noninterest-bearing sources of funds (demand deposits and equity capital) to fund a portion of earning assets. Net interest margin for the second quarter of 2012 was 3.55%, down 7 bps from 3.62% for the comparable period in 2011. For the six months ended June 30, 2012, the net interest margin was 3.53%, down 6 bps from 3.59% for the comparable period in 2011.
For the three months ended June 30, 2012, average interest-earning assets increased $37.1 million from the same period in 2011. Increases in average loans of $16.5 million (2.7%), federal funds sold and interest-bearing due from financial institutions balances of $11.3 million (35.4%) and in taxable securities of $5.8 million (2.6%) accounted for a majority of the increase.
For the six months ended June 30, 2012, average interest-earning assets increased $38.4 million from the same period in 2011. Increases in average loans of $11.9 million (1.6%), federal funds sold and interest-bearing due from financial institutions balances of $10.7 million (30.6%) and in taxable securities of $14.8 million (6.5%) accounted for a majority of the increase.
34
NET INTEREST INCOME ANALYSIS ON A TAX-EQUIVALENT BASIS (Dollar amounts in thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three
months ended |
|
Three
months ended |
|
||||||||||||||
|
|
Average |
|
Interest |
|
Average |
|
Average |
|
Interest |
|
Average |
|
||||||
ASSETS |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Average Earning Assets: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loans, net 1,2 |
|
$ |
638,684 |
|
$ |
7,950 |
|
|
5.01 |
% |
$ |
622,179 |
|
$ |
8,308 |
|
|
5.36 |
% |
Taxable securities |
|
|
231,116 |
|
|
1,712 |
|
|
2.96 |
% |
|
225,293 |
|
|
1,878 |
|
|
3.33 |
% |
Tax exempt securities 1 |
|
|
44,534 |
|
|
563 |
|
|
5.06 |
% |
|
41,125 |
|
|
568 |
|
|
5.52 |
% |
Federal funds sold and interest-bearing due from financial institutions |
|
|
43,406 |
|
|
23 |
|
|
0.21 |
% |
|
32,064 |
|
|
18 |
|
|
0.24 |
% |
Total earning assets |
|
|
957,740 |
|
|
10,248 |
|
|
4.29 |
% |
|
920,661 |
|
|
10,772 |
|
|
4.69 |
% |
Noninterest earning assets |
|
|
93,051 |
|
|
|
|
|
|
|
|
95,105 |
|
|
|
|
|
|
|
Total assets |
|
$ |
1,050,791 |
|
|
|
|
|
|
|
$ |
1,015,766 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES AND STOCKHOLDERS EQUITY |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Average Interest-bearing liabilities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total interest-bearing deposits |
|
$ |
742,178 |
|
|
1,195 |
|
|
0.65 |
% |
$ |
734,314 |
|
|
1,872 |
|
|
1.02 |
% |
Short-term borrowings |
|
|
96 |
|
|
|
|
|
0.67 |
% |
|
|
|
|
|
|
|
|
% |
Customer repurchase agreements |
|
|
26,829 |
|
|
13 |
|
|
0.20 |
% |
|
24,654 |
|
|
20 |
|
|
0.32 |
% |
Federal Home Loan Bank advances |
|
|
55,000 |
|
|
258 |
|
|
1.88 |
% |
|
55,000 |
|
|
258 |
|
|
1.88 |
% |
Convertible promissory notes |
|
|
9,450 |
|
|
245 |
|
|
10.37 |
% |
|
9,450 |
|
|
245 |
|
|
10.26 |
% |
Subordinated debentures |
|
|
16,100 |
|
|
74 |
|
|
1.82 |
% |
|
16,100 |
|
|
67 |
|
|
1.66 |
% |
Total interest-bearing liabilities |
|
|
849,653 |
|
|
1,785 |
|
|
0.84 |
% |
|
839,518 |
|
|
2,462 |
|
|
1.18 |
% |
Demand deposits |
|
|
105,695 |
|
|
|
|
|
|
|
|
87,342 |
|
|
|
|
|
|
|
Accrued expenses and other liabilities |
|
|
7,665 |
|
|
|
|
|
|
|
|
8,952 |
|
|
|
|
|
|
|
Stockholders equity |
|
|
87,778 |
|
|
|
|
|
|
|
|
79,954 |
|
|
|
|
|
|
|
Total liabilities and stockholders equity |
|
$ |
1,050,791 |
|
|
|
|
|
|
|
$ |
1,015,766 |
|
|
|
|
|
|
|
Net interest income |
|
|
|
|
$ |
8,463 |
|
|
|
|
|
|
|
$ |
8,310 |
|
|
|
|
Interest rate spread (3) |
|
|
|
|
|
|
|
|
3.45 |
% |
|
|
|
|
|
|
|
3.51 |
% |
Net interest margin (4) |
|
|
|
|
|
|
|
|
3.55 |
% |
|
|
|
|
|
|
|
3.62 |
% |
|
|
(1) |
The interest income on tax exempt securities and loans is computed on a tax-equivalent basis using a tax rate of 34% for all periods presented. |
(2) |
The average loan balances and rates include nonaccrual loans. |
(3) |
Interest rate spread is the difference between the annualized average yield earned on average interest-earning assets for the period and the annualized average rate of interest accrued on average interest-bearing liabilities for the period. |
(4) |
Net interest margin is the annualized effect of net interest income for a period divided by average interest-earning assets for the period. |
35
NET INTEREST INCOME ANALYSIS ON A TAX-EQUIVALENT BASIS (Dollar amounts in thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six months
ended |
|
Six months
ended |
|
||||||||||||||
|
|
Average |
|
Interest |
|
Average |
|
Average |
|
Interest |
|
Average |
|
||||||
ASSETS |
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
Average Earning Assets: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loans, net 1,2 |
|
$ |
636,408 |
|
$ |
16,029 |
|
|
5.06 |
% |
$ |
627,269 |
|
$ |
16,862 |
|
|
5.42 |
% |
Taxable securities |
|
|
242,960 |
|
|
3,618 |
|
|
2.98 |
% |
|
228,185 |
|
|
3,629 |
|
|
3.18 |
% |
Tax exempt securities 1 |
|
|
44,371 |
|
|
1,127 |
|
|
5.08 |
% |
|
40,553 |
|
|
1,143 |
|
|
5.64 |
% |
Federal funds sold and interest-bearing due from financial institutions |
|
|
45,525 |
|
|
53 |
|
|
0.23 |
% |
|
34,861 |
|
|
39 |
|
|
0.23 |
% |
Total earning assets |
|
|
969,264 |
|
|
20,827 |
|
|
4.32 |
% |
|
930,868 |
|
|
21,673 |
|
|
4.69 |
% |
Noninterest earning assets |
|
|
92,139 |
|
|
|
|
|
|
|
|
98,336 |
|
|
|
|
|
|
|
Total assets |
|
$ |
1,061,403 |
|
|
|
|
|
|
|
$ |
1,029,204 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES AND STOCKHOLDERS EQUITY |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Average Interest-bearing liabilities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total interest-bearing deposits |
|
$ |
752,237 |
|
|
2,589 |
|
|
0.69 |
% |
$ |
740,321 |
|
|
3,828 |
|
|
1.04 |
% |
Short-term borrowings |
|
|
48 |
|
|
|
|
|
0.67 |
% |
|
|
|
|
|
|
|
|
% |
Customer repurchase agreements |
|
|
30,953 |
|
|
36 |
|
|
0.24 |
% |
|
26,536 |
|
|
42 |
|
|
0.32 |
% |
Federal Home Loan Bank advances |
|
|
55,000 |
|
|
516 |
|
|
1.88 |
% |
|
61,768 |
|
|
572 |
|
|
1.87 |
% |
Convertible promissory notes |
|
|
9,450 |
|
|
490 |
|
|
10.37 |
% |
|
9,450 |
|
|
490 |
|
|
10.37 |
% |
Subordinated debentures |
|
|
16,100 |
|
|
152 |
|
|
1.87 |
% |
|
16,100 |
|
|
134 |
|
|
1.66 |
% |
Total interest-bearing liabilities |
|
|
863,788 |
|
|
3,783 |
|
|
0.88 |
% |
|
854,175 |
|
|
5,066 |
|
|
1.20 |
% |
Demand deposits |
|
|
102,081 |
|
|
|
|
|
|
|
|
87,584 |
|
|
|
|
|
|
|
Accrued expenses and other liabilities |
|
|
8,500 |
|
|
|
|
|
|
|
|
8,710 |
|
|
|
|
|
|
|
Stockholders equity |
|
|
87,034 |
|
|
|
|
|
|
|
|
78,735 |
|
|
|
|
|
|
|
Total liabilities and stockholders equity |
|
$ |
1,061,403 |
|
|
|
|
|
|
|
$ |
1,029,204 |
|
|
|
|
|
|
|
Net interest income |
|
|
|
|
$ |
17,044 |
|
|
|
|
|
|
|
$ |
16,607 |
|
|
|
|
Interest rate spread (3) |
|
|
|
|
|
|
|
|
3.44 |
% |
|
|
|
|
|
|
|
3.49 |
% |
Net interest margin (4) |
|
|
|
|
|
|
|
|
3.53 |
% |
|
|
|
|
|
|
|
3.59 |
% |
|
|
(1) |
The interest income on tax exempt securities and loans is computed on a tax-equivalent basis using a tax rate of 34% for all periods presented. |
(2) |
The average loan balances and rates include nonaccrual loans. |
(3) |
Interest rate spread is the difference between the annualized average yield earned on average interest-earning assets for the period and the annualized average rate of interest accrued on average interest-bearing liabilities for the period. |
(4) |
Net interest margin is the annualized effect of net interest income for a period divided by average interest-earning assets for the period. |
36
RATE/VOLUME ANALYSIS (1)
(Dollar amounts in thousands)
Three months ended June 30, 2012 compared to the three months ended June 30, 2011:
|
|
|
|
|
|
|
|
|
|
|
|
|
Increase (Decrease) due to (1) |
|
|||||||
|
|
Volume |
|
Rate |
|
Net |
|
|||
Interest income: |
|
|
|
|
|
|
|
|
|
|
Loans |
|
$ |
703 |
|
$ |
(1,061 |
) |
$ |
(358 |
) |
Taxable securities |
|
|
115 |
|
|
(281 |
) |
|
(166 |
) |
Tax exempt securities |
|
|
180 |
|
|
(185 |
) |
|
(5 |
) |
Federal funds sold and interest-bearing due from financial institutions |
|
|
24 |
|
|
(19 |
) |
|
5 |
|
Total interest-earning assets |
|
$ |
1,022 |
|
$ |
(1,546 |
) |
$ |
(524 |
) |
|
|
|
|
|
|
|
|
|
|
|
Interest expense: |
|
|
|
|
|
|
|
|
|
|
Total interest-bearing deposits |
|
$ |
(434 |
) |
$ |
(243 |
) |
$ |
(677 |
) |
Repurchase agreements/short-term borrowings |
|
|
7 |
|
|
(14 |
) |
|
(7 |
) |
FHLB advances |
|
|
|
|
|
|
|
|
|
|
Subordinated debentures |
|
|
7 |
|
|
|
|
|
7 |
|
Convertible promissory notes |
|
|
|
|
|
|
|
|
|
|
Total interest-bearing liabilities |
|
$ |
(420 |
) |
$ |
(257 |
) |
$ |
(677 |
) |
|
|
|
|
|
|
|
|
|
|
|
Net interest income |
|
$ |
1,442 |
|
$ |
(1,289 |
) |
$ |
153 |
|
|
|
(1) |
The change in interest due to both rate and volume has been allocated in proportion to the relationship to the dollar amounts of the change in each. |
Managements ability to employ overall assets for the production of interest income can be measured by the ratio of average interest-earning assets to average total assets. This ratio was 91.1% and 90.6% for the three months ended June 30, 2012 and 2011, respectively.
RATE/VOLUME ANALYSIS (1)
(Dollar amounts in thousands)
Six months ended June 30, 2012 compared to the six months ended June 30, 2011:
|
|
|
|
|
|
|
|
|
|
|
|
|
Increase (Decrease) due to (1) |
|
|||||||
|
|
Volume |
|
Rate |
|
Net |
|
|||
Interest income: |
|
|
|
|
|
|
|
|
|
|
Loans |
|
$ |
204 |
|
$ |
(1,037 |
) |
$ |
(833 |
) |
Taxable securities |
|
|
162 |
|
|
(173 |
) |
|
(11 |
) |
Tax exempt securities |
|
|
102 |
|
|
(118 |
) |
|
(16 |
) |
Federal funds sold and interest-bearing due from financial institutions |
|
|
12 |
|
|
2 |
|
|
14 |
|
Total interest-earning assets |
|
$ |
480 |
|
$ |
(1,326 |
) |
$ |
(846 |
) |
|
|
|
|
|
|
|
|
|
|
|
Interest expense: |
|
|
|
|
|
|
|
|
|
|
Total interest-bearing deposits |
|
$ |
(200 |
) |
$ |
(1,039 |
) |
$ |
(1,239 |
) |
Repurchase agreements/short-term borrowings |
|
|
6 |
|
|
(12 |
) |
|
(6 |
) |
FHLB advances |
|
|
(63 |
) |
|
7 |
|
|
(56 |
) |
Subordinated debentures |
|
|
|
|
|
18 |
|
|
18 |
|
Convertible promissory notes |
|
|
|
|
|
|
|
|
|
|
Total interest-bearing liabilities |
|
$ |
(257 |
) |
$ |
(1,026 |
) |
$ |
(1,283 |
) |
|
|
|
|
|
|
|
|
|
|
|
Net interest income |
|
$ |
737 |
|
$ |
(300 |
) |
$ |
437 |
|
|
|
(1) |
The change in interest due to both rate and volume has been allocated in proportion to the relationship to the dollar amounts of the change in each. |
37
Our managements ability to employ overall assets for the production of interest income can be measured by the ratio of average interest-earning assets to average total assets. This ratio was 91.3% and 90.5% for the six months ended June 30, 2012 and 2011, respectively.
Provision for Loan Losses:
The PFLL is the periodic cost of providing an allowance for probable and inherent losses in our loan portfolio. The ALL consists of specific and general components. Our internal risk system is used to identify loans that meet the criteria for being impaired as defined in the accounting guidance. The specific component relates to loans that are individually classified as impaired and where expected cash flows are less than carrying value. The general component covers non-impaired loans and is based on historical loss experience adjusted for qualitative factors. These qualitative factors include: 1) changes in the nature, volume and terms of loans, 2) changes in lending personnel, 3) changes in the quality of the loan review function, 4) changes in nature and volume of past-due, nonaccrual and/or classified loans, 5) changes in concentration of credit risk, 6) changes in economic and industry conditions, 7) changes in legal and regulatory requirements, 8) unemployment and inflation statistics, and 9) changes in underlying collateral values.
The PFLL for the quarter ended June 30, 2012 was $2.3 million compared to $2.0 million for the second quarter of 2011. New impairments of $0.9 million on loans not previously identified with associated loan balances of $4.1 million, were recorded during the second quarter of 2012. Included in those amounts is an impairment of $0.3 million on loan balances of $2.7 million on a credit relationship in the recreation industry. Collateral for the related loans consists of a golf course and land development property. Additionally, an impairment of $0.5 million on loan balances of $1.0 million was also recorded during the second quarter of 2012. Collateral consists of commercial real estate in the Green Bay region.
Net loan charge-offs for the six months ended June 30, 2012 and 2011 were $1.9 million and $2.1 million, respectively. Net annualized charge-offs to average loans were 0.61% for the six months ended June 30, 2012 compared to 0.67% for the same period in 2011. For the six months ended June 30, 2012, nonperforming loans increased by $0.1 million (5.1%) to $19.7 million from $19.6 million at December 31, 2011. Refer to the Financial Condition - Risk Management and the Allowance for Loan Losses and Financial Condition - Nonperforming Loans, Potential Problem Loans and Foreclosed Properties sections below for more information related to nonperforming loans. Our management believes that the ALL at June 30, 2012 and the related PFLL charged to earnings for the quarter and six months ended June 30, 2012 are appropriate in light of the present condition of the loan portfolio and the amount and quality of the collateral supporting nonperforming loans. We continue to monitor nonperforming loan relationships and will make additional PFLLs, as necessary, if the facts and circumstances change. In addition, a decline in the quality of our loan portfolio as a result of general economic conditions, factors affecting particular borrowers or our market area, or otherwise, could affect the adequacy of the ALL. If there are significant charge-offs against the ALL, or we otherwise determine that the ALL is inadequate or our estimates are different than our regulators estimates, we will need to make additional PFLLs in the future.
38
Noninterest Income:
The following table reflects the various components of noninterest income for the three and six month periods ended June 30, 2012 and 2011, respectively.
NONINTEREST INCOME
(Dollar amounts in thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended |
|
Six months ended |
|
||||||||||||||
|
|
June 30, |
|
June 30, |
|
% |
|
June 30, |
|
June 30, |
|
% |
|
||||||
|
|||||||||||||||||||
Fees from fiduciary services |
|
$ |
283 |
|
$ |
220 |
|
|
28.8 |
% |
$ |
523 |
|
$ |
503 |
|
|
3.9 |
% |
Fees from loan servicing |
|
|
141 |
|
|
223 |
|
|
(36.9 |
)% |
|
300 |
|
|
413 |
|
|
(27.4 |
) % |
Service charges on deposit accounts |
|
|
810 |
|
|
849 |
|
|
(4.6 |
)% |
|
1,582 |
|
|
1,644 |
|
|
(3.7 |
) % |
Other fee income |
|
|
178 |
|
|
169 |
|
|
5.3 |
% |
|
366 |
|
|
333 |
|
|
9.9 |
% |
Financial services income |
|
|
232 |
|
|
197 |
|
|
17.7 |
% |
|
440 |
|
|
489 |
|
|
(10.0 |
) % |
Net gains from sales of loans |
|
|
512 |
|
|
211 |
|
|
143.1 |
% |
|
873 |
|
|
597 |
|
|
46.1 |
% |
Net gain (loss) in valuation of mortgage servicing rights |
|
|
(87 |
) |
|
(84 |
) |
|
3.7 |
% |
|
(69 |
) |
|
(114 |
) |
|
(39.7 |
) % |
Net gains from sale of securities |
|
|
907 |
|
|
|
|
|
NM |
% |
|
1,585 |
|
|
125 |
|
|
1,169.2 |
% |
Gains (losses) from sale of fixed assets |
|
|
619 |
|
|
(11 |
) |
|
NM |
% |
|
621 |
|
|
(3 |
) |
|
NM |
% |
Increase in cash surrender value of life insurance |
|
|
107 |
|
|
122 |
|
|
(12.1 |
) % |
|
200 |
|
|
252 |
|
|
(20.5 |
) % |
Equity in income of UFS subsidiary |
|
|
159 |
|
|
202 |
|
|
(21.2 |
) % |
|
336 |
|
|
433 |
|
|
(22.4 |
) % |
Other income |
|
|
481 |
|
|
323 |
|
|
48.8 |
% |
|
630 |
|
|
363 |
|
|
73.8 |
% |
Total Noninterest Income |
|
$ |
4,342 |
|
$ |
2,421 |
|
|
79.3 |
% |
$ |
7,387 |
|
$ |
5,035 |
|
|
46.7 |
% |
Noninterest income increased $1.9 million (79.3%) for the three months ended June 30, 2012 versus the comparable period in 2011. A gain from sales of securities of $0.9 million was recognized during the quarter. The gain resulted when securities with high prepayment risks were sold to take advantage of gain opportunities while they were available. In addition to the security gains, a $0.6 million gain was recognized on the sale of vacant land located adjacent to one of our branches in the Green Bay region. Other items of income during the quarter included a $0.5 million death benefit from a life insurance policy included in Other Income and a $0.3 million increase in gain on sale of mortgage loans due to increased mortgage activity.
Noninterest income increased $2.4 million (46.7%) for the six months ended June 30, 2012 versus the comparable period in 2011. Gains from securities sold in the amount of $1.6 million were recorded compared to $0.1 million in the similar period in 2011. These gains were taken to provide additional cash for potential business opportunities, restructure the security portfolio, and to liquidate securities with high prepayment risks. Also impacting 2012 results were the $0.6 million gain on the sale of land and a $0.5 million life insurance death benefit included in Other Income.
39
Noninterest Expense:
The following table reflects the various components of noninterest expense for the three and six months ended June 30, 2012 and 2011, respectively.
NONINTEREST EXPENSE
(Dollar amounts in thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended |
|
Six months ended |
|
||||||||||||||
|
|
June 30, |
|
June 30, |
|
% |
|
June 30, |
|
June 30, |
|
% |
|
||||||
|
|||||||||||||||||||
Salaries and employee benefits |
|
$ |
4,228 |
|
$ |
4,058 |
|
|
4.2 |
% |
$ |
8,655 |
|
$ |
8,614 |
|
|
0.5 |
% |
Occupancy |
|
|
553 |
|
|
575 |
|
|
(3.9 |
) % |
|
1,177 |
|
|
1,180 |
|
|
(0.3 |
)% |
Equipment |
|
|
287 |
|
|
308 |
|
|
(6.8 |
) % |
|
557 |
|
|
588 |
|
|
(5.3 |
)% |
Data processing and courier |
|
|
221 |
|
|
203 |
|
|
8.5 |
% |
|
450 |
|
|
411 |
|
|
9.5 |
% |
Operation of foreclosed properties |
|
|
1,817 |
|
|
729 |
|
|
149.2 |
% |
|
2,413 |
|
|
1,767 |
|
|
36.6 |
% |
Business development & advertising |
|
|
179 |
|
|
180 |
|
|
(0.5 |
) % |
|
350 |
|
|
307 |
|
|
14.0 |
% |
Charitable contributions |
|
|
19 |
|
|
19 |
|
|
0.0 |
% |
|
35 |
|
|
36 |
|
|
(2.8 |
)% |
Stationery and supplies |
|
|
145 |
|
|
150 |
|
|
(3.4 |
) % |
|
277 |
|
|
262 |
|
|
5.7 |
% |
Director fees |
|
|
105 |
|
|
106 |
|
|
(1.1 |
) % |
|
206 |
|
|
199 |
|
|
3.5 |
% |
FDIC insurance expense |
|
|
369 |
|
|
559 |
|
|
(34.0 |
) % |
|
731 |
|
|
1,290 |
|
|
(43.3 |
)% |
Legal and professional |
|
|
161 |
|
|
189 |
|
|
(14.8 |
) % |
|
262 |
|
|
383 |
|
|
(31.6 |
)% |
Loan and collection |
|
|
147 |
|
|
163 |
|
|
(10.0 |
) % |
|
357 |
|
|
331 |
|
|
7.9 |
% |
Other outside services |
|
|
198 |
|
|
158 |
|
|
25.3 |
% |
|
381 |
|
|
323 |
|
|
18.0 |
% |
Provision for impairment of letter of credit |
|
|
|
|
|
7 |
|
|
NM |
% |
|
|
|
|
14 |
|
|
NM |
% |
Other operating |
|
|
448 |
|
|
451 |
|
|
(0.6 |
) % |
|
859 |
|
|
864 |
|
|
(0.6 |
)% |
Total Noninterest Expense |
|
$ |
8,877 |
|
$ |
7,855 |
|
|
13.0 |
% |
$ |
16,710 |
|
$ |
16,569 |
|
|
0.9 |
% |
Total noninterest expense increased $1.0 million (13.0%) for the three months ended June 30, 2012 compared to the same period in 2011. The noninterest expense to average assets ratio was 3.4% for the three months ended June 30, 2012 compared to 3.1% for the same period in 2011. The increase in expense was primarily attributable to a $1.1 million increase in expenses related to foreclosed properties. Valuation write-downs on foreclosed properties were up $1.3 million, partially offset by a $0.2 million net decrease in operating expenses.
Total noninterest expense increased $0.1 million (0.9%) for the six months ended June 30, 2012 compared to the same period in 2011. The noninterest expense to average assets ratio was 3.2% for the six months ended June 30, 2012 compared to 3.3% for the same period in 2011. The increase in expense was primarily attributable to a $0.6 million increase in expenses related to foreclosed properties, partially offset by a $0.5 million decrease in FDIC Insurance expense.
Net overhead expense is total noninterest expense less total noninterest income. The net overhead expense to average assets ratio was at 1.7% for the three months ended June 30, 2012 compared to 2.2% for the three months ended June 30, 2011. The efficiency ratio represents total noninterest expense as a percentage of the sum of net interest income on a fully taxable equivalent basis and total noninterest income (excluding net gains on the sale of securities, premises and equipment, and land held for sale). A lower efficiency ratio indicates a more efficient operation. The efficiency ratio increased to 78.7% for the three months ended June 30, 2012 from 73.1% for the comparable period last year. This is primarily due to the $1.0 million increase in noninterest expense discussed above.
Expenses related to the operation of foreclosed properties held for sale by the Bank increased $0.6 million to $2.4 million for the six-month period ended June 30, 2012 compared to $1.8 million for the same period in 2011. The increase consists of a $1.1 million increase in write-downs due to the revaluation of properties held, partially offset by a $0.5 million decrease in net operating expenses. We continue to evaluate all foreclosed property values and attempt to reduce the holding periods of these properties and, as a result, the related holding costs, to the extent possible. Such expenses include but are not limited to insurance, maintenance, real estate taxes, management fees, utilities and legal fees. A majority of the properties have updated valuations within the last twelve months.
40
Salaries and employee benefits were $8.6 million for the six months ended June 30, 2012, consistent with the six months ended June 30, 2011. The number of full-time equivalent employees (FTEs) decreased from 301 at June 30, 2011 to 291 at June 30, 2012. Commission expense for commissioned salespersons, including financial advisors and mortgage originators, may impact future salary expense based on the levels of production attained. Included in 2012 salary expense is $0.1 million of expense related to our long term equity incentive plan.
Included in noninterest expense are FDIC insurance premiums of $0.7 million for the six months ended June 30, 2012 compared to $1.3 million for the same period a year ago, a decrease of $0.6 million (43.3%). On February 7, 2011, the FDIC finalized a rule to change the assessment base upon which it calculates its premiums from total domestic deposits to average total assets minus average tangible equity, as required in the Dodd-Frank Act. The new base began in the second quarter of 2011, with the premium payable in September 2011. The result of the change has been a reduction in FDIC assessments.
Income Taxes:
We recorded an income tax expense of $0.1 million for the three months ended June 30, 2012 versus a $0.1 million tax benefit for the same period in 2011. The increase in tax expense is primarily attributable to a $0.7 million year-over-year increase in pre-tax income.
We maintain net deferred income tax assets for deductible temporary tax differences, such as allowance for loan losses, nonaccrual loan interest, and foreclosed property valuations as well as net operating loss carry forwards. Our determination of the amount of our deferred income tax assets to be realized is highly subjective and is based on several factors, including projected future income, income tax planning strategies, and federal and state income tax rules and regulations. At June 30, 2012, we determined that no valuation allowance was required to be taken against our deferred income tax assets other than a valuation allowance to reduce our state net operating loss carry forwards to an amount which we believe the benefit will more likely than not be realized. We continue to assess the amount of tax benefits we may realize.
During the second quarter of 2011, the IRS began an audit of our 2009 federal income tax return primarily in response to our net operating loss carry back claim. In January 2012, we reached a tentative settlement agreement with the IRS to finalize the audit. We expect the audit to be finalized sometime during 2012.
Financial Condition
Loans:
The following table reflects the composition (mix) of the loan portfolio:
LOAN PORTFOLIO ANALYSIS
(Dollar amounts in thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30, |
|
December
31, |
|
Percent |
|
|||
Amount of Loans by Type: |
|
|
|
|
|
|
|
|
|
|
Real estate-mortgage: |
|
|
|
|
|
|
|
|
|
|
Commercial |
|
$ |
307,360 |
|
$ |
317,198 |
|
|
(3.1 |
) % |
1-4 Family residential |
|
|
|
|
|
|
|
|
|
|
First liens |
|
|
96,495 |
|
|
90,369 |
|
|
6.3 |
% |
Junior liens |
|
|
8,000 |
|
|
8,878 |
|
|
(10.7 |
) % |
Home equity |
|
|
44,906 |
|
|
44,209 |
|
|
1.6 |
% |
Commercial, financial and agricultural |
|
|
94,077 |
|
|
91,750 |
|
|
2.5 |
% |
Real estate-construction |
|
|
55,699 |
|
|
53,606 |
|
|
3.9 |
% |
Installment |
|
|
|
|
|
|
|
|
|
|
Credit cards and related plans |
|
|
1,589 |
|
|
1,675 |
|
|
(5.2 |
) % |
Other |
|
|
7,593 |
|
|
7,134 |
|
|
6.8 |
% |
Obligations of states and political subdivisions |
|
|
18,326 |
|
|
16,577 |
|
|
10.7 |
% |
Less: Deferred origination fees, net of costs |
|
|
(409 |
) |
|
(381 |
) |
|
6.9 |
% |
Less: Allowance for loan losses |
|
|
(12,733 |
) |
|
(10,638 |
) |
|
18.6 |
% |
Total |
|
$ |
620,903 |
|
$ |
620,377 |
|
|
0.1 |
% |
Net loans at June 30, 2012 increased $0.5 million (0.1%) from $620.4 million at December 31, 2011 to $620.9 million at June 30, 2012. The increase is primarily due to increases in first lien 1-4 family residential loans, commercial financial and agricultural loans, real estate construction loans and obligations of state and political subdivisions, partially offset by a decrease in commercial real estate loans.
41
Risk Management and the Allowance for Loan Losses:
The loan portfolio is our primary asset subject to credit risk. To address this credit risk, we maintain an ALL for probable and inherent credit losses through periodic charges to our earnings. These charges are shown in our consolidated statements of operations as PFLL. See the Provision for Loan Losses section discussed earlier. We attempt to control, monitor and minimize credit risk through the use of prudent lending standards, a thorough review of potential borrowers prior to lending and ongoing and timely review of payment performance. Asset quality administration, including early identification of loans performing in a substandard manner, as well as timely and active resolution of problems, further enhances management of credit risk and minimization of loan losses. Any losses that occur and that are charged off against the ALL are periodically reviewed with specific efforts focused on achieving maximum recovery of both principal and interest.
The ALL at June 30, 2012 was $12.7 million, compared to $10.6 million at December 31, 2011. On a quarterly basis, management reviews the adequacy of the ALL. The analysis of the ALL consists of three components: (i) specific reserves established for expected losses relating to impaired loans for which the recorded investment in the loans exceeds its fair value; (ii) general reserves based on historical loan loss experience for significant loan classes; and (iii) general reserves based on qualitative factors such as concentrations and changes in portfolio mix and volume. Allocations of the ALL may be made for specific loans but the entire ALL is available for any loan that, in managements judgment, should be charged off or for which an actual loss is realized.
On a regular basis, loan officers review all commercial credit relationships. The loan officers grade commercial credits and the loan review function validates the grades assigned. In the event that the loan review function downgrades a loan, it is included in the ALL analysis process at the lower grade. This grading system is in compliance with regulatory classifications. At least quarterly, all commercial loans that have been deemed impaired are evaluated. In compliance with accounting guidance for impaired loans, the fair value of the loan is determined based on either the present value of expected future cash flows discounted at the loans effective interest rate, the market price of the loan or, if the loan is collateral dependent, the fair value of the underlying collateral less the estimated costs to sell. This evaluation may include obtaining supplemental market data and/or routine site visits to offer support to the evaluation process. A specific reserve is then allocated to the loans based on this assessment. Specific reserves are reviewed by the Chief Credit Officer (CCO) and management familiar with the credits.
We have two other major components of the ALL that do not pertain to specific loans: General Reserves Historical and General Reserves Other. We determine General Reserves Historical based on our historical recorded charge-offs of loans in particular classes, analyzed as a group. We determine General Reserves Other by taking into account such factors as the concentration of loans in a particular industry or geographic area and adjustments for economic indicators. By nature, our general reserve changes with our fluid lending environment and the overall economic environment in which we lend. As such, we are continually attempting to enhance this portion of the allocation process to reflect anticipated losses in our portfolio driven by these changing factors. Economic statistics, specifically unemployment and inflation rates for national, state and local markets are monitored and factored into the allocation to address repayment risk. Further identification and management of portfolio concentration risks, both by loan class and by specific markets is reflected in the general allocation component.
Nonperforming Loans, Potential Problem Loans and Foreclosed Properties:
Management encourages early identification of nonaccrual and problem loans in order to minimize the risk of loss. Nonperforming loans are defined as nonaccrual loans, loans 90 days or more past due but still accruing, and nonaccrual loans restructured in a troubled debt restructuring that havent shown a sufficient period of performance with the restructured terms. Additionally, whenever management becomes aware of facts or circumstances that may adversely impact the collection of principal or interest on loans, it is the practice of management to place such loans on nonaccrual status immediately rather than waiting until the loans become 90 days past due. The accrual of interest income is discontinued when a loan becomes 90 days past due as to principal or interest or earlier as deemed appropriate. When interest accruals are discontinued, interest credited to income is reversed. If collection is in doubt, cash receipts on nonaccrual loans are used to reduce principal rather than recorded as interest income. Restructuring a loan typically involves the granting of some concession to the borrower involving a loan modification, such as payment schedule or interest rate changes. Restructured loans may involve loans that have had a charge-off taken against the loan to reduce the carrying amount of the loan to fair market value as determined pursuant to accounting guidance for troubled debt restructurings.
42
NONPERFORMING ASSETS
(Dollar amounts in thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30, |
|
March 31, |
|
December
31, |
|
September
30, |
|
||||
Nonperforming Assets: |
|
|
|
|
|
|
|
|
|
|
|
|
|
Nonaccrual loans |
|
$ |
11,513 |
|
$ |
14,301 |
|
$ |
15,242 |
|
$ |
19,027 |
|
Nonaccrual loans, restructured |
|
|
8,159 |
|
|
8,158 |
|
|
4,341 |
|
|
5,287 |
|
Accruing loans past due 90 days or more |
|
|
|
|
|
|
|
|
|
|
|
|
|
Total nonperforming loans (NPLs) |
|
$ |
19,672 |
|
$ |
22,459 |
|
$ |
19,583 |
|
$ |
24,314 |
|
Foreclosed properties, net |
|
|
10,357 |
|
|
14,766 |
|
|
12,119 |
|
|
10,662 |
|
Total nonperforming assets (NPAs) |
|
$ |
30,029 |
|
$ |
37,225 |
|
$ |
31,702 |
|
$ |
34,976 |
|
Restructured loans, accruing(1) |
|
$ |
4,715 |
|
$ |
6,469 |
|
$ |
22,009 |
|
$ |
20,461 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ratios: |
|
|
|
|
|
|
|
|
|
|
|
|
|
ALL to Net Charge-offs (NCOs) (annualized) |
|
|
3.28 |
x |
|
2.46 |
x |
|
1.80 |
x |
|
3.11 |
x |
NCOs to average loans (annualized) |
|
|
0.61 |
% |
|
0.72 |
% |
|
0.94 |
% |
|
0.66 |
% |
ALL to total loans |
|
|
2.00 |
% |
|
1.76 |
% |
|
1.68 |
% |
|
2.01 |
% |
NPLs to total loans |
|
|
3.10 |
% |
|
3.52 |
% |
|
3.10 |
% |
|
3.81 |
% |
NPAs to total assets |
|
|
2.89 |
% |
|
3.49 |
% |
|
2.92 |
% |
|
3.33 |
% |
ALL to NPLs |
|
|
64.73 |
% |
|
50.09 |
% |
|
54.32 |
% |
|
52.88 |
% |
(1) Restructured loans on nonaccrual status are returned to accruing when a sufficient period of performance in accordance with the restructured terms, generally six months, has passed.
During the second quarter of 2012, a $1.3 million of restructured loan was transferred from the accruing category to the nonaccruing category. Satisfactory repayment plans could not be reached with the borrowers for future payments. At December 31, 2011, these loans were current and in compliance with the restructured loan terms. The collateral securing the loan was sold during the quarter and principal payments of $0.9 million were received. The remaining balance of $0.4 million was charged-off.
Subsequent to June 30, 2012, nonperforming loans and nonperforming assets were reduced by $4.8 million when a large commercial customer whose loans were classified as nonperforming sold their business. A $2.0 million charge off will be required to be taken in the third quarter of 2012 in conjunction with the sale. However, impairment charges totaling $1.8 million were allocated to the allowance for loan losses in the first and second quarter of 2012 and, as a result, the sale transaction will negatively impact earnings by $0.2 million in the third quarter.
Restructured loans accruing at December 31, 2011 were $22.0 million. As previously mentioned, $1.3 million of accruing restructured loans were transferred to nonaccrual during the second quarter of 2012. During the first quarter of 2012, $8.0 million of accruing restructured loans were transferred to nonaccrual. In addition, $7.6 million of restructured loans were in compliance with their modified terms for a period deemed sufficient and were therefore transferred out of the restructured loan category.
Nonperforming loans increased $0.1 million from December 31, 2011 to June 30, 2012.
Loan balances with a risk grading of 0006B or 0007 have decreased by $9.1 million since December 31, 2011. The decrease consisted of $5.5 million of loan balances transferred to foreclosed properties, $1.4 million of charge-offs, and $2.2 million due to net payments and loan rating changes. Loans in these categories are existing or potential problem loans that require managements close attention. The decline in these troubled assets continues to be an indication of improvement in the quality of the loan portfolio. As additional evidence of the continued improvement in the overall quality of the loan portfolio, loan balances with a risk grading of 0005 or better have risen to $530.0 million as of June 30, 2012, representing 83.7% of the total loan portfolio from $512.9 million as of December 31, 2011, representing 81.3% of the total loan portfolio.
43
The following table presents an analysis of our past due loans excluding nonaccrual loans:
|
PAST DUE LOANS (EXCLUDING NONACCRUALS) |
30-89 DAYS PAST DUE |
(Dollar amounts in thousands) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30, |
|
March 31, |
|
December
31, |
|
September
30, |
|
June 30, |
|
|||||
|
||||||||||||||||
Secured by real estate |
|
$ |
2,831 |
|
$ |
4,530 |
|
$ |
3,352 |
|
$ |
2,555 |
|
$ |
3,355 |
|
Commercial and industrial loans |
|
|
182 |
|
|
1,173 |
|
|
39 |
|
|
91 |
|
|
249 |
|
Loans to individuals |
|
|
51 |
|
|
51 |
|
|
59 |
|
|
141 |
|
|
44 |
|
All other loans |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
3,064 |
|
$ |
5,754 |
|
$ |
3,450 |
|
$ |
2,787 |
|
$ |
3,648 |
|
Percentage of total loans |
|
|
0.48 |
% |
|
0.90 |
% |
|
0.55 |
% |
|
0.44 |
% |
|
0.59 |
% |
As indicated above, loan balances 30 to 89 days past due have decreased by $0.4 million since December 31, 2011. Compared to June 30, 2011, loan balances 30 to 89 days past due have decreased $0.6 million.
Information regarding foreclosed properties is as follows:
FORECLOSED PROPERTIES
(Dollar amounts in thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
Six months |
|
Twelve months |
|
Six months |
|
|||
|
|
|
|
|
|
|
|
|
|
|
Beginning balance |
|
$ |
12,119 |
|
$ |
15,952 |
|
$ |
15,952 |
|
Transfer of loans to foreclosed properties |
|
|
5,819 |
|
|
5,127 |
|
|
1,361 |
|
Sales proceeds, net |
|
|
(5,489 |
) |
|
(7,419 |
) |
|
(4,383 |
) |
Net gain from sale of foreclosed properties |
|
|
110 |
|
|
205 |
|
|
103 |
|
Provision for foreclosed properties |
|
|
(2,202 |
) |
|
(1,746 |
) |
|
(1,087 |
) |
|
||||||||||
Total foreclosed properties, net |
|
$ |
10,357 |
|
$ |
12,119 |
|
$ |
11,946 |
|
Changes in the valuation allowance for losses on foreclosed properties were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
Six months |
|
Twelve months |
|
Six months |
|
|||
|
|
|
|
|
|
|
|
|
|
|
Beginning balance |
|
$ |
2,794 |
|
$ |
3,982 |
|
$ |
3,982 |
|
Provision charged to operations |
|
|
2,202 |
|
|
1,746 |
|
|
1,087 |
|
Allowance recovered on properties disposed |
|
|
(1,579 |
) |
|
(2,934 |
) |
|
(1,062 |
) |
|
||||||||||
Ending balance |
|
$ |
3,417 |
|
$ |
2,794 |
|
$ |
4,007 |
|
44
Investment Portfolio:
The investment portfolio is intended to provide us with adequate liquidity, flexibility in asset/liability management and an increase in our earning potential.
At June 30, 2012, the investment portfolio (comprising investment securities available for sale) decreased $28.8 million (10.1%) to $255.5 million compared to $284.3 million at December 31, 2011. At June 30, 2012, the investment portfolio represented 24.6% of total assets compared to 26.2% at December 31, 2011. For the three months ended June 30, 2012, principal payments of $27.9 million and $45.8 million were received on maturing investments and the sale of investments, respectively, and a gain of $1.6 million was recognized. The gain resulted when securities were sold primarily to provide additional cash for potential business opportunities being considered and secondarily, to take advantage of opportunities to restructure a portion of the investment portfolio. We purchased $42.7 million of securities for a net cash increase of $31.0 million.
We closely monitor securities we hold in our investment portfolio that remain in an unrealized loss position for greater than twelve months. Total gross unrealized losses on these securities are $0.7 million at June 30, 2012, representing 81.5% of total gross unrealized securities losses and 0.3% of the total investment portfolio. Based on an in-depth analysis of the specific instruments, which may include ratings from external rating agencies and/or brokers, as well as the creditworthiness of the related issuers, including their ability to continue payments under the terms of the security agreements, no unrealized losses were deemed to be other-than-temporary. Additionally, we do not have the intent to sell the securities and it is not more likely than not that we will be required to sell these securities before their anticipated recovery. If at any point in time any losses are considered other-than-temporary, we would be required to recognize other-than-temporary impairment. This would require us to assess the cash flows expected to be collected from the security. The difference between cash flows expected to be collected and the amortized cost basis would result in a credit loss for the amount of the impairment. This amount would reduce our earnings. The remaining portion of the impairment related to factors other than credit loss would be recognized through other comprehensive income (loss). At June 30, 2012 and December 31, 2011, we did not hold securities of any one issuer, other than one of the following agencies or corporations of the United States government: the Federal National Mortgage Association (FNMA), Government National Mortgage Association (GNMA), Federal Home Loan Mortgage Corporation (FHLMC), or United States Department of Veterans Affairs (VA), in an amount greater than 10% of stockholders equity. As of June 30, 2012, the highest concentration of loans underlying mortgage-backed securities issued in any state was issued in California, representing approximately 24.1% of the total amount invested in mortgage-backed securities.
Deposits:
Total deposits at June 30, 2012 decreased $19.9 million (2.3%) to $845.3 million from $865.2 million at December 31, 2011. This decrease was a result of a $24.2 million (7.9%) decrease in time deposits from $303.5 million at December 31, 2011 to $279.3 million at June 30, 2012, partially offset by a $1.0 million (0.4) increase in our non-interest bearing and interest bearing demand deposits from $251.2 million at December 31, 2011 to $252.2 million at June 30, 2012, an increase of $3.4 million (1.1%) in our savings deposits from $310.5 million at December 31, 2011 to $313.9 million at June 30, 2012. Total interest-bearing deposits decreased $29.7 million (3.4%) while non-interest-bearing deposits increased $9.8 million 9.4%) from December 31, 2011 to June 30, 2012.
The decrease in total deposits from December 31, 2011 to June 30, 2012 is consistent with past seasonal decreases in deposits as a result of our significant presence in the Door County market. We continue to focus on expanding customer deposit relationships and attracting core deposit accounts by emphasizing customer service while maintaining competitive pricing. If liquidity concerns arise, we have alternative sources of funds such as lines of credit with correspondent banks and borrowing arrangements with the Federal Home Loan Bank and through the discount window at the Federal Reserve.
Other Funding Sources:
Securities sold under agreements to repurchase decreased $29.9 million (62.8%) from $47.6 million at December 31, 2011 to $17.7 million at June 30, 2012. We did not have any federal funds purchased at either June 30, 2012 or December 31, 2011.
FHLB advances were $55.0 million at June 30, 2012, consistent with the balance at December 31, 2011. The availability of deposits also determines the amount of funds we need to borrow in order to fund loan demand.
45
Long Term Debt:
In March 2006, we issued $16.1 million of variable rate, trust preferred securities (TruPS) and $0.5 million of trust common securities through Baylake Capital Trust II (the Trust) that adjust quarterly at a rate equal to 1.35% over the three month LIBOR and matures on June 30, 2036. At June 30, 2012, the interest rate on these securities was 1.81%. These securities were issued to replace trust preferred securities issued in 2001 through Baylake Capital Trust I. For bank regulatory purposes, these securities are considered Tier 1 capital.
The Trusts ability to pay amounts due on the TruPS is solely dependent upon us making payment on the related subordinated debentures (Debentures) to the Trust. Under the terms of the Debentures, we would be precluded from paying dividends on our common stock if we were in default under the Debentures, if we exercised our right to defer payment of interest on the Debentures or if certain related defaults occurred. After discussion with our regulators during the first quarter of 2011, we exercised our right to defer payment of interest on the Debentures beginning with the March 30, 2011 interest payment, even though we had sufficient cash to make the interest payment. Our payments due June 29, 2011 and September 29, 2011 were also deferred. The expense related to the interest payment was recorded with a corresponding liability for the interest payment amount. In December of 2011, we made all payments due under the agreement, including the deferred payments. At June 30, 2012, we are current on all interest payments.
During 2009 and 2010, we completed several separate closings of a private placement of Convertible Notes. The Convertible Notes were offered and sold in reliance on the exemption from registration under Section 4(2) of the Securities Act of 1933 and Rule 506 promulgated there under. The total amount of the Convertible Notes outstanding as of June 30, 2012 and December 31, 2011 was $9.45 million.
The Convertible Notes accrue interest at a fixed rate of 10% per annum upon issuance and until maturity or earlier conversion or redemption. Interest is payable quarterly, in arrears, on January 1, April 1, July 1, and October 1, of each year. The Convertible Notes are convertible into shares of our common stock at a conversion ratio of one share of common stock for each $5.00 in aggregate principal amount held on the record date of the conversion subject to certain adjustments as described in the Convertible Notes. Prior to October 1, 2014, each holder of the Convertible Notes may convert up to 100% (at the discretion of the holder) of the original principal amount into shares of our common stock at the conversion ratio. On October 1, 2014, one-half of the original principal amounts are mandatorily convertible into common stock at the conversion ratio if voluntary conversion has not occurred. The principal amount of any Convertible Note that has not been converted will be payable at maturity on June 30, 2017. To date, none of the notes have been converted.
Contractual Obligations:
We use a variety of financial instruments in the normal course of business to meet the financial needs of our customers. These financial instruments include commitments to extend credit, commitments to originate residential mortgage loans held for sale, commercial letters of credit, standby letters of credit, and forward commitments to sell residential mortgage loans. Please refer to our Annual Report on Form 10-K for the year ended December 31, 2011 for quantitative and qualitative disclosures about our fixed and determinable contractual obligations. Contractual obligations disclosed in the 2011 Annual Report on Form 10-K have not materially changed since that report was filed.
The following table summarizes our significant contractual obligations and commitments at June 30, 2012:
CONTRACTUAL OBLIGATIONS
(Dollar amounts in thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Within 1 Year |
|
1-3 Years |
|
3-5 Years |
|
After 5 Years |
|
Total |
|
|||||
Certificates of deposit and other time deposit obligations |
|
$ |
151,299 |
|
$ |
118,770 |
|
$ |
9,187 |
|
$ |
|
|
$ |
279,256 |
|
Repurchase agreements |
|
|
17,697 |
|
|
|
|
|
|
|
|
|
|
|
17,697 |
|
Federal Home Loan Bank advances |
|
|
15,000 |
|
|
28,000 |
|
|
12,000 |
|
|
|
|
|
55,000 |
|
Subordinated debentures |
|
|
|
|
|
|
|
|
|
|
|
16,100 |
|
|
16,100 |
|
Convertible promissory notes (1) |
|
|
|
|
|
9,450 |
|
|
|
|
|
|
|
|
9,450 |
|
Total |
|
$ |
183,996 |
|
$ |
156,220 |
|
$ |
21,187 |
|
$ |
16,100 |
|
$ |
377,503 |
|
(1) One-half of the Convertible Notes are mandatorily converted to shares of our common stock by October 1, 2014. The principal amount of any Convertible Note that has not been converted or redeemed will be payable at maturity on June 30, 2017.
46
Off- Balance Sheet Arrangements:
The following is a summary of our off-balance sheet commitments, all of which were lending-related commitments:
LENDING RELATED COMMITMENTS
(Dollar amounts in thousands)
|
|
|
|
|
|
|
|
|
|
June 30, 2012 |
|
December 31, 2011 |
|
||
|
|
|
|
|
|
|
|
Commitments to fund unused home equity line loans |
|
$ |
58,425 |
|
$ |
56,952 |
|
Commitments to fund 1-4 family loans |
|
|
7,057 |
|
|
3,034 |
|
Commitments to fund residential real estate construction loans |
|
|
1,260 |
|
|
1,114 |
|
Commitments unused on various other lines of credit loans |
|
|
154,197 |
|
|
163,698 |
|
Total commitments to extend credit |
|
$ |
220,939 |
|
$ |
224,798 |
|
Financial standby letters of credit |
|
$ |
10,368 |
|
$ |
12,468 |
|
During the quarter ending June 30, 2012, one of the properties securing a standby letter of credit for which a valuation reserve had been established was sold. The purchaser of the property assumed the existing obligations and the valuation reserve was eliminated. No additional provision for impairment was necessary at the time of sale.
Liquidity:
Liquidity management refers to our ability to ensure that cash is available on a timely basis to meet loan demand and depositors needs and to service other liabilities as they become due without undue cost or risk and without causing a disruption to normal operating activities. We and the Bank have different liquidity considerations.
Our primary sources of funds are dividends from the Bank and net proceeds from borrowings and the offerings of subordinated debentures and convertible promissory notes. We may also undertake offerings of debt and issue our common stock if and when we deem it prudent to do so, subject to regulatory approval. We generally manage our liquidity position in order to provide funds necessary to meet interest obligations of our trust preferred securities and convertible notes, pay dividends to our shareholders, subject to regulatory restrictions, and repurchase shares. Such restrictions, which govern all state chartered banks, preclude the payment of dividends without the prior written consent of the WDFI if dividends declared and paid by such bank in either of the two immediately preceding years exceeded that banks net income for those years. In consultation with our federal and state regulators, our Board of Directors elected to forego the dividend to our shareholders beginning in the first quarter of 2008. In January 2012 and April 2012, we requested advance approval to declare a $0.01 per share dividend. We received the approval and the dividends were paid in February 2012 and June 2012. In addition, subsequent to June 30, 2012 we requested advance approval to declare a $0.02 per share dividend for the third quarter 2012. We received the approval and will pay the dividend in September 2012.
The Bank meets its cash flow needs by having funding sources available to satisfy the credit needs of customers as well as having available funds to satisfy deposit withdrawal requests. Liquidity is derived from deposit growth, payments on and maturities of loans, payments on and maturities of the investment portfolio, access to other funding sources, marketability of certain assets, the ability to use loan and investment portfolios as collateral for secured borrowings and a strong capital position.
Maturing investments have historically been a primary source of liquidity. For the six months ended June 30, 2012, principal payments totaling $27.9 million were received on maturing investments. In addition, we received proceeds of $45.8 million from the sale of investments and we purchased $42.7 million in investments in the same period. Approximately 9.4%, or $15.6 million, of the mortgage-backed securities outstanding at June 30, 2012 were issued and guaranteed by GNMA, the SBA or the VA, agencies of the United States government. An additional 65.2%, or $108.3 million, of the mortgage-backed securities outstanding at June 30, 2012 were issued by either FNMA or FHLMC, United States government-sponsored agencies. Non-agency mortgage-backed securities present a level of credit risk that does not exist currently with United States government agency-backed securities, but only comprised approximately 25.4%, or $42.3 million, of the outstanding mortgage-backed securities at June 30, 2012. Management evaluates these non-agency mortgage-backed securities at least on a quarterly basis, and more frequently when economic or market concerns warrant such evaluation. These securities tend to be highly marketable.
47
During February 2012, proceeds of $2.1 million were received from the FHLB under their excess FHLB stock repurchase program that was implemented in 2011. Additional proceeds of $0.6 million were received in May 2012 from the stock repurchase program.
Deposit decreases, reflected as a financing activity in the June 30, 2012 unaudited consolidated statements of cash flows, resulted in $19.9 million of cash outflow during the first six months of 2012. Deposit growth is normally the most stable source of liquidity, although brokered deposits, which are inherently less stable than locally-generated core deposits, are sometimes used. Our reliance on brokered deposits decreased $0.5 million from $46.7 million at December 31, 2011 to $46.2 million at June 30, 2012. If at any point in the future we fall below the well capitalized regulatory capital threshold, it will become more difficult for us to obtain brokered deposits. Also affecting liquidity are core deposit growth levels, certificate of deposit maturity structure and retention, and characteristics and diversification of wholesale funding sources affecting the channels by which brokered deposits are acquired. Conversely, deposit outflow will cause a need to develop alternative sources of funds, which may not be as liquid and potentially a more costly alternative.
The scheduled payments and maturities of loans can provide a source of additional liquidity. There are $213.2 million, or 33.6% of total loans, maturing within one year of June 30, 2012. Factors affecting liquidity relative to loans are loan origination volumes, loan prepayment rates and the maturity structure of existing loans. The liquidity position is influenced by changes in interest rates, economic conditions and competition. Conversely, loan demand creates a need for liquidity that may cause us to acquire other sources of funding, some of which could be more difficult to find and more costly to secure.
Within the classification of short-term borrowings at June 30, 2012, securities sold under agreements to repurchase totaled $17.7 million compared to $47.6 million at the end of 2011. Securities sold under agreements to repurchase are obtained from a base of business customers. Short-term and long-term borrowings from the FHLB are another source of funds, totaling $55.0 million at June 30, 2012 and December 31, 2011.
We continue to focus on expanding customer deposit relationships and attracting core deposit accounts by emphasizing customer service while maintaining competitive pricing. In the event that core deposit growth goals are not accomplished, we will continue to look at other wholesale sources of funds. In addition, we may acquire additional brokered deposits as funding for short-term liquidity needs. Short-term liquidity needs will also be addressed by growth in short-term borrowings, maturing federal funds sold and portfolio investments, and loan maturities and prepayments.
In assessing liquidity, historical information such as seasonality, local economic cycles and the economy in general are considered along with our current financial position and projections. We believe that in the current economic environment our liquidity position is adequate. To our knowledge, there are no known trends nor any known demands, commitments, events or uncertainties that will result or are reasonably likely to result in material increases or decreases in our liquidity.
Capital Resources:
Stockholders equity at June 30, 2012 and December 31, 2011 was $88.2 million and $84.4 million, respectively, reflecting an increase of $3.8 million (4.5%) during the first six months of 2012. The increase in stockholders equity was primarily related to our net income of $2.6 million and an increase in comprehensive income of $1.2 million (as a result of an increase in unrealized gains on available for sale securities). The ratio of stockholders equity to assets was 8.5% and 7.8% at June 30, 2012 and December 31, 2011, respectively.
No cash dividends were declared during 2011. In January 2012 and April 2012, we declared a $0.01 per share dividend. Subsequent to June 30, 2012, we declared a $0.02 per share dividend payable September 4, 2012. Our ability to pay dividends is subject to various factors including, among other things, sufficient earnings, available capital, board discretion and regulatory compliance. In order to pay dividends, advance approval from the WDFI as well as the Federal Reserve Board is required. There is no assurance that we will continue to receive such approval if sought.
We regularly review the adequacy of our capital to ensure that sufficient capital is available for our current and future needs and it is in compliance with regulatory guidelines. The assessment of overall capital adequacy depends upon a variety of factors, including asset quality, liquidity, stability of earnings, changing competitive forces, economic conditions in markets served and strength of management.
48
The Federal Reserve has established capital adequacy rules which take into account risk attributable to balance sheet assets and off-balance sheet activities. All banks and bank holding companies must meet a minimum total risk-based capital ratio of 8% of which at least half must comprise core capital elements defined as Tier 1 capital. The federal banking agencies also have adopted leverage capital guidelines that banks and bank holding companies must meet. Under these guidelines, the most highly rated banking organizations must meet a leverage ratio of at least 3% Tier 1 capital to assets, while lower rated banking organizations must maintain a minimum ratio of 4% or 5%, depending on their rating. Failure to meet minimum capital requirements can initiate certain mandatory, as well as possible additional discretionary actions by regulators that, if undertaken, could have a direct material effect on our consolidated financial statements. At June 30, 2012, we maintained capital in excess of the minimum ratios required to be categorized as well capitalized under the regulatory framework for the prompt corrective action categorization. There are no conditions or events since that date that we believe have changed our category. To be well capitalized under the regulatory framework, the Tier 1 capital ratio must meet or exceed 6%, the total capital ratio must meet or exceed 10% and the leverage ratio must meet or exceed 5%.
Total capital to Risk-weighted Asset ratios for the previous four quarters are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30, |
|
March 31, |
|
December 31, |
|
September 30, |
|
||||
Company |
|
|
14.24 |
% |
|
13.76 |
% |
|
13.54 |
% |
|
13.35 |
% |
Bank |
|
|
14.15 |
% |
|
13.63 |
% |
|
13.38 |
% |
|
13.16 |
% |
A strong capital position is necessary to take advantage of opportunities for profitable expansion of product and market share and to provide depositor and investor confidence. We believe our capital level is strong, but also must be maintained at an appropriate level to provide the opportunity for an adequate return on the capital employed. We actively review our capital strategies to ensure that capital levels are appropriate based on the perceived business risks, further growth opportunities, industry standards, and regulatory requirements.
49
The following tables present our and the Banks capital ratios as of June 30, 2012 and December 31, 2011:
CAPITAL RATIOS
(Dollar amounts in thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Actual |
|
Required
For Capital |
|
Required To Be Well |
|
||||||||||||
|
|
Amount |
|
Ratio |
|
Amount |
|
Ratio |
|
Amount |
|
Ratio |
|
||||||
As of June 30, 2012 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Capital (to Risk-Weighted Assets) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Company |
|
$ |
104,190 |
|
|
14.24 |
% |
$ |
58,542 |
|
|
8.00 |
% |
$ |
N/A |
|
|
N/A |
|
Bank |
|
|
103,588 |
|
|
14.15 |
% |
|
58,586 |
|
|
8.00 |
% |
|
73,232 |
|
|
10.00 |
% |
Tier 1 Capital (to Risk-Weighted Assets) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Company |
|
$ |
85,549 |
|
|
11.69 |
% |
$ |
29,271 |
|
|
4.00 |
% |
$ |
N/A |
|
|
N/A |
|
Bank |
|
|
94,390 |
|
|
12.89 |
% |
|
29,293 |
|
|
4.00 |
% |
|
43,939 |
|
|
6.00 |
% |
Tier 1 Capital (to Average Assets) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Company |
|
$ |
85,549 |
|
|
8.25 |
% |
$ |
41,482 |
|
|
4.00 |
% |
$ |
N/A |
|
|
N/A |
|
Bank |
|
|
94,390 |
|
|
9.09 |
% |
|
41,539 |
|
|
4.00 |
% |
|
51,924 |
|
|
5.00 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Actual |
|
Required
For Capital |
|
Required To Be Well |
|
||||||||||||
|
|
Amount |
|
Ratio |
|
Amount |
|
Ratio |
|
Amount |
|
Ratio |
|
||||||
As of December 31, 2011 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Capital (to Risk-Weighted Assets) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Company` |
|
$ |
101,446 |
|
|
13.54 |
% |
$ |
59,928 |
|
|
8.00 |
% |
$ |
N/A |
|
|
N/A |
|
Bank |
|
|
100,268 |
|
|
13.38 |
% |
|
59,961 |
|
|
8.00 |
% |
|
74,952 |
|
|
10.00 |
% |
Tier 1 Capital (to Risk-Weighted Assets) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Company |
|
$ |
82,617 |
|
|
11.03 |
% |
$ |
29,964 |
|
|
4.00 |
% |
$ |
N/A |
|
|
N/A |
|
Bank |
|
|
90,883 |
|
|
12.13 |
% |
|
29,981 |
|
|
4.00 |
% |
|
44,971 |
|
|
6.00 |
% |
Tier 1 Capital (to Average Assets) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Company |
|
$ |
82,617 |
|
|
7.93 |
% |
$ |
41,648 |
|
|
4.00 |
% |
$ |
N/A |
|
|
N/A |
|
Bank |
|
|
90,883 |
|
|
8.72 |
% |
|
41,711 |
|
|
4.00 |
% |
|
52,139 |
|
|
5.00 |
% |
Item 3. Quantitative and Qualitative Disclosures about Market Risk
Our primary market risk exposure is interest rate risk. Interest rate risk is the risk that our earnings and capital will be adversely affected by changes in interest rates. Historically, we have not used derivatives to mitigate our interest rate risk.
Our earnings are derived from the operations of our direct and indirect subsidiaries with particular reliance on net interest income, calculated as the difference between interest earned on loans and investments and the interest expense paid on deposits and other interest-bearing liabilities, including advances from FHLB and other subordinated debentures. Like other financial institutions, our interest income and interest expense are affected by general economic conditions and by the policies of regulatory authorities, including the monetary policies of the Federal Reserve. Changes in the economic environment may influence, among other matters, the growth rate of loans and deposits, the quality of the loan portfolio and loan and deposit pricing. Fluctuations in interest rates are not predictable or controllable.
As of June 30, 2012, we were in compliance with our management policies with respect to interest rate risk. We have not experienced any material changes to our market risk position since December 31, 2011, as described in our 2011 Annual Report on Form 10-K.
Our overall interest rate sensitivity is demonstrated by net interest income shock analysis which measures the change in net interest income in the event of hypothetical changes in interest rates. This analysis assesses the risk of change in net interest income in the event of sudden and sustained 100 bp to 200 bp increases and decreases in market interest rates. The table below presents our projected changes in net interest income for the various rate shock levels at June 30, 2012.
50
INTEREST SENSITIVITY
(Dollar amounts in thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Change in Net Interest Income Over One Year Horizon |
|
||||||||||
|
|||||||||||||
|
|
At June 30, 2012 |
|
At December 31, 2011 |
|
||||||||
|
|
Dollar |
|
Percentage |
|
Dollar |
|
Percentage |
|
||||
Change in levels of interest rates |
|
|
|
|
|
|
|
|
|
|
|
|
|
+200 bp |
|
$ |
(599 |
) |
|
(1.9 |
)% |
$ |
105 |
|
|
0.3 |
% |
+100 bp |
|
|
(900 |
) |
|
(2.8 |
)% |
|
(122 |
) |
|
(0.4 |
)% |
Base |
|
|
|
|
|
|
|
|
|
|
|
|
|
-100 bp |
|
|
(1,191 |
) |
|
(3.7 |
)% |
|
(1,436 |
) |
|
(4.5 |
)% |
-200 bp |
|
|
(1,963 |
) |
|
(6.2 |
)% |
|
(2,125 |
) |
|
(6.6 |
)% |
As shown above, at June 30, 2012, the effect of an immediate 200 bp increase in interest rates would have decreased our net interest income by $0.6 million or 1.9%. The effect of an immediate 200 bp reduction in rates would have decreased our net interest income by $2.0 million or 6.2%. However, a 200 bp reduction in rates is not realistic given the low interest rate environment that currently exists. An interest rate floor of zero is used rather than assuming a negative interest rate.
Computations of the prospective effects of hypothetical interest rate changes are based on numerous assumptions, including the relative levels of market interest rates and loan prepayments, and should not be relied upon as indicative of actual results. Actual values may differ from those projections set forth above, should market conditions vary from the assumptions used in preparing the analyses. Further, the computations do not contemplate any actions we may undertake in response to changes in interest rates.
Item 4. Controls and Procedures
Disclosures Controls and Procedures: Our management, with the participation of our Chief Executive Officer and Chief Financial Officer, has evaluated the effectiveness of our disclosure controls and procedures, as such term is defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended (the Exchange Act) as of June 30, 2012. Based on such evaluation, our Chief Executive Officer and Chief Financial Officer have concluded that, as of the end of such period, our disclosure controls and procedures are effective.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
Internal Control Over Financial Reporting
There have not been any changes in our internal control over financial reporting (as such term is defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) during the fiscal quarter to which this report relates that have materially affected, or are reasonably likely to materially affect, our internal controls over financial reporting.
We and our subsidiaries may be involved from time to time in various routine legal proceedings incidental to our respective businesses. Neither we nor any of our subsidiaries are currently engaged in any legal proceedings that are expected to have a material adverse effect on our results of operations or financial position.
See Risk Factors in Item 1A of our annual report on Form 10-K for the year ended December 31, 2011. There have been no material changes to the risk factors since then.
51
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
During the quarter ended June 30, 2012, we did not sell any equity securities which were not registered under the Securities Act of 1933, as amended, or repurchase any of our equity securities.
We have several limitations on our ability to pay dividends. The Federal Reserve has adopted regulations that deal with the measure of capitalization for bank holding companies. The Federal Reserve has also issued a policy statement on the payment of cash dividends by bank holding companies, wherein the Federal Reserve has stated that a bank holding company experiencing earnings weaknesses should not pay cash dividends exceeding its net income or which could only be funded in ways that weaken the bank holding companys financial health, such as by borrowing.
Our ability to pay dividends on our common stock is largely dependent upon the Banks ability to pay dividends on its stock held by us. The Banks ability to pay dividends is restricted by both state and federal laws and regulations. The Bank is subject to policies and regulations issued by the Federal Reserve, as the Banks primary federal regulator, and the Division of Banking of the WDFI, which, in part, establish minimum acceptable capital requirements for banks, thereby limiting the ability of such banks to pay dividends. In addition, Wisconsin law provides that state chartered banks may declare and pay dividends out of undivided profits but only after provision has been made for all expenses, losses, required reserves, taxes and interest accrued or due from the bank.
Our and the Banks payment of dividends in some circumstances may require the written consent of the Federal Reserve or the WDFI. We are currently restricted from declaring or paying any dividends without the prior written approval of the Federal Reserve Bank and, as to the Bank, the WDFI. For the immediate future, we anticipate that this prior approval requirement will remain in place.
Item 3. Defaults Upon Senior Securities
Not applicable.
Item 4. Mine Safety Disclosures
Not applicable.
Not applicable.
The following exhibits are furnished herewith:
Exhibit |
|
Description |
|
|
|
31.1 |
|
Certification under Section 302 of Sarbanes-Oxley by Robert J. Cera, Chief Executive Officer, is attached hereto. |
|
|
|
31.2 |
|
Certification under Section 302 of Sarbanes-Oxley by Kevin L. LaLuzerne, Chief Financial Officer, is attached hereto. |
|
|
|
32.1 |
|
Certification of Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of Sarbanes-Oxley is attached hereto. |
|
|
|
32.2 |
|
Certification of Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of Sarbanes-Oxley is attached hereto. |
|
|
|
101 |
|
Interactive data files pursuant to Rule 405 of Regulation S-T: (i) Consolidated Balance Sheets, (ii) Consolidated Statements of Operations, (iii) Consolidated Statement of Comprehensive Income, (iv) Consolidated Statement of Changes in Stockholders Equity and Comprehensive Income, (v) Consolidated Statements of Cash Flows, and (vi) Notes to Consolidated Financial Statements tagged as blocks of text. |
52
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
|
|
|
|
|
|
|
|
BAYLAKE CORP. |
|
|
|
|
|
|
Date: |
August 9, 2012 |
|
/s/ Robert J. Cera |
|
|
|
|
Robert J. Cera |
|
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|
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President and Chief Executive Officer |
|
|
|
|
|
|
Date: |
August 9, 2012 |
|
/s/ Kevin L. LaLuzerne |
|
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|
|
Kevin L. LaLuzerne |
|
|
|
|
Treasurer and Chief Financial Officer |
|
53
|
|
|
|
I, Robert J. Cera, President and Chief Executive Officer of Baylake Corp., certify that: |
|
|
|
|
1. |
I have reviewed this quarterly report on Form 10-Q of Baylake Corp; |
|
|
|
|
2. |
Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; |
|
|
|
|
3. |
Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; |
|
|
|
|
4. |
The registrants other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have: |
|
|
|
|
|
a) |
Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; |
|
|
|
|
b) |
Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; |
|
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c) |
Evaluated the effectiveness of the registrants disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and |
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d) |
Disclosed in this report any change in the registrants internal control over financial reporting that occurred during the registrants most recent fiscal quarter (the registrants fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrants internal control over financial reporting; and |
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5. |
The registrants other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrants auditors and the audit committee of the registrants board of directors (or persons performing the equivalent functions): |
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a) |
All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrants ability to record, process, summarize and report financial information; and |
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|
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b) |
Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrants internal control over financial reporting. |
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|
Date: |
August 9, 2012 |
|
|
|
|
||
/s/ Robert J. Cera |
|
||
Robert J. Cera |
|
||
President and Chief Executive Officer |
|
EXHIBIT 31.2
CERTIFICATION PURSUANT TO 18 U.S.C.
SECTION 1350, AS ADOPTED PURSUANT TO
SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002
|
|
|
I, Kevin L. LaLuzerne, Chief Financial Officer, certify that: |
||
|
|
|
1. |
I have reviewed this quarterly report on Form 10-Q of Baylake Corp; |
|
|
|
|
2. |
Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; |
|
|
|
|
3. |
Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; |
|
|
|
|
4. |
The registrants other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) an 15d-15(e) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have: |
|
|
|
|
|
a) |
Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; |
|
|
|
|
b) |
Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; |
|
|
|
|
c) |
Evaluated the effectiveness of the registrants disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and |
|
|
|
|
d) |
Disclosed in this report any change in the registrants internal control over financial reporting that occurred during the registrants most recent fiscal quarter (the registrants fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrants internal control over financial reporting; and |
|
|
|
5. |
The registrants other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrants auditors and the audit committee of the registrants board of directors (or persons performing the equivalent functions): |
|
|
|
|
|
a) |
All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrants ability to record, process, summarize and report financial information; and |
|
|
|
|
b) |
Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrants internal control over financial reporting. |
|
|
|
|
Date: |
August 9, 2012 |
|
|
|
|
||
/s/ Kevin L. LaLuzerne |
|
||
Kevin L. LaLuzerne |
|
||
Treasurer and Chief Financial Officer |
|
EXHIBIT 32.1
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with this Quarterly Report of Baylake Corp. (the Company) on Form 10-Q as filed with the Securities and Exchange Commission on or about the date hereof (the Report), I, Robert J. Cera, Chief Executive Officer of the Company, certify, pursuant to 18 U.S.C. §1350, as adopted pursuant to §906 of the Sarbanes-Oxley Act of 2002, that to the best of my knowledge:
|
|
(1) |
The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and |
|
|
(2) |
The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company. |
|
|
|
|
Date: |
August 9, 2012 |
|
|
|
|
||
/s/ Robert J. Cera |
|
||
Robert J. Cera |
|
||
President and Chief Executive Officer |
|
A signed original of this written statement required by Section 906, or other document authenticating, acknowledging, or otherwise adopting the signature that appears in typed form within the electronic version of this written statement required by Section 906, has been provided to Baylake Corp. and will be retained by Baylake Corp. and furnished to the Securities and Exchange Commission or its staff upon request.
EXHIBIT 32.2
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with this Quarterly Report of Baylake Corp. (the Company) on Form 10-Q as filed with the Securities and Exchange Commission on or about the date hereof (the Report), I, Kevin L. LaLuzerne, Chief Financial Officer of the Company, certify, pursuant to 18 U.S.C. §1350, as adopted pursuant to §906 of the Sarbanes-Oxley Act of 2002, that to the best of my knowledge:
|
|
(1) |
The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and |
|
|
(2) |
The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company. |
|
|
|
|
Date: |
August 9, 2012 |
|
|
|
|
||
/s/ Kevin L. LaLuzerne |
|
||
Kevin L. LaLuzerne |
|
||
Treasurer and Chief Financial Officer |
|
A signed original of this written statement required by Section 906, or other document authenticating, acknowledging, or otherwise adopting the signature that appears in typed form within the electronic version of this written statement required by Section 906, has been provided to Baylake Corp. and will be retained by Baylake Corp. and furnished to the Securities and Exchange Commission or its staff upon request.
Equity Investment (Details) (United Financial Services [Member], USD $)
In Millions, except Share data, unless otherwise specified |
Jun. 30, 2012
|
---|---|
United Financial Services [Member]
|
|
Schedule of Equity Method Investments [Line Items] | |
Percentage of ownership interest in UFS | 49.80% |
Number of ownership shares held in UFS | 500 |
Carrying value of investment in UFS | $ 4.0 |
Current book value per share of common stock in UFS | $ 7,969 |
Mortgage Servicing Rights (Summary Of Changes In The Carrying Value Of MSRs) (Details) (USD $)
|
3 Months Ended | 6 Months Ended | ||
---|---|---|---|---|
Jun. 30, 2012
|
Jun. 30, 2011
|
Jun. 30, 2012
|
Jun. 30, 2011
|
|
Mortgage Servicing Rights [Abstract] | ||||
Balance at beginning of period | $ 697,000 | $ 770,000 | $ 634,000 | $ 746,000 |
Additions from loans sold with servicing retained | 83,000 | 32,000 | 128,000 | 89,000 |
Changes in valuation | (28,000) | (17,000) | 26,000 | |
Loan payments and payoffs | (59,000) | (63,000) | (95,000) | (113,000) |
Fair value of MSRs at the end of period | 693,000 | 722,000 | 693,000 | 722,000 |
Unpaid principal balance of loans serviced for others | $ 91,500,000 | $ 83,100,000 | $ 91,500,000 | $ 83,100,000 |
Troubled Debt Restructuring (Tables)
|
6 Months Ended | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Jun. 30, 2012
|
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Troubled Debt Restructuring [Abstract] | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Schedule Of Accrual And Nonaccrual Status Of Troubled Debt Restructuring |
|
|||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Summary Of Troubled Debt Restructurings |
|
|||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Summary Of Troubled Debt Restructurings By Restructure Type) | A summary of troubled debt restructurings as of June 30, 2012 by restructure type is as follows (dollar amounts in thousands):
|
Troubled Debt Restructuring (Schedule Of Accrual And Nonaccrual Status Of Troubled Debt Restructuring) (Details) (USD $)
|
3 Months Ended | 6 Months Ended | 6 Months Ended | 3 Months Ended | 6 Months Ended | 6 Months Ended | 3 Months Ended | |||||||||||||||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Jun. 30, 2012
|
Jun. 30, 2012
|
Jun. 30, 2011
|
Jun. 30, 2012
Construction [Member]
|
Jun. 30, 2011
Construction [Member]
|
Jun. 30, 2012
Real Estate - Mortgage [Member]
|
Jun. 30, 2011
Real Estate - Mortgage [Member]
|
Jun. 30, 2012
Real Estate - Commercial [Member]
|
Jun. 30, 2011
Real Estate - Commercial [Member]
|
Jun. 30, 2012
Commercial [Member]
|
Jun. 30, 2011
Commercial [Member]
|
Jun. 30, 2012
Consumer [Member]
|
Jun. 30, 2011
Consumer [Member]
|
Jun. 30, 2012
Municipal Loans [Member]
|
Jun. 30, 2012
Accruing [Member]
|
Mar. 31, 2012
Accruing [Member]
|
Sep. 30, 2011
Accruing [Member]
|
Jun. 30, 2011
Accruing [Member]
|
Jun. 30, 2012
Accruing [Member]
Construction [Member]
|
Jun. 30, 2012
Accruing [Member]
Real Estate - Mortgage [Member]
|
Jun. 30, 2012
Accruing [Member]
Real Estate - Commercial [Member]
|
Jun. 30, 2012
Accruing [Member]
Commercial [Member]
|
Jun. 30, 2012
Accruing [Member]
Consumer [Member]
|
Jun. 30, 2012
Accruing [Member]
Municipal Loans [Member]
|
Jun. 30, 2012
Nonaccrual [Member]
|
Jun. 30, 2012
Nonaccrual [Member]
|
Sep. 30, 2011
Nonaccrual [Member]
|
Jun. 30, 2011
Nonaccrual [Member]
|
Jun. 30, 2012
Nonaccrual [Member]
Construction [Member]
|
Jun. 30, 2012
Nonaccrual [Member]
Real Estate - Mortgage [Member]
|
Jun. 30, 2012
Nonaccrual [Member]
Real Estate - Commercial [Member]
|
Jun. 30, 2012
Nonaccrual [Member]
Commercial [Member]
|
Jun. 30, 2012
Nonaccrual [Member]
Consumer [Member]
|
Jun. 30, 2012
Nonaccrual [Member]
Municipal Loans [Member]
|
Jun. 30, 2012
A/B Note Structure [Member]
|
Jun. 30, 2012
Payment Schedule Changes [Member]
|
|
Financing Receivable, Modifications [Line Items] | ||||||||||||||||||||||||||||||||||||
December 31, 2011 | $ 26,350,000 | $ 1,432,000 | $ 24,528,000 | $ 390,000 | $ 22,009,000 | $ 6,469,000 | $ 20,461,000 | $ 18,559,000 | $ 1,432,000 | $ 20,203,000 | $ 374,000 | $ 8,158,000 | $ 4,341,000 | $ 5,287,000 | $ 5,288,000 | $ 4,325,000 | $ 16,000 | |||||||||||||||||||
Principal payments | (1,636,000) | (2,000) | (1,259,000) | (375,000) | (699,000) | (2,000) | (323,000) | (374,000) | (937,000) | (936,000) | (1,000) | |||||||||||||||||||||||||
Charge-offs | (977,000) | (977,000) | (977,000) | (977,000) | ||||||||||||||||||||||||||||||||
Advances | 232,000 | 232,000 | 43,000 | 43,000 | 189,000 | 189,000 | ||||||||||||||||||||||||||||||
New restructured | 296,000 | 79,000 | 217,000 | 296,000 | 79,000 | 217,000 | ||||||||||||||||||||||||||||||
Transfers out of TDRs | (7,600,000) | (7,631,000) | (39,000) | (7,592,000) | (7,631,000) | (39,000) | (7,592,000) | (2,500,000) | (5,000,000) | |||||||||||||||||||||||||||
Transfers to nonaccrual | (1,300,000) | (9,303,000) | (9,303,000) | (8,000,000) | ||||||||||||||||||||||||||||||||
Transfers to foreclosed properties | (3,760,000) | (3,760,000) | (3,760,000) | (3,760,000) | ||||||||||||||||||||||||||||||||
Transfers from accruing | 9,303,000 | 9,303,000 | ||||||||||||||||||||||||||||||||||
June 30, 2012 | 12,874,000 | 12,874,000 | 1,470,000 | 11,389,000 | 15,000 | 4,715,000 | 6,469,000 | 20,461,000 | 18,559,000 | 1,470,000 | 3,245,000 | 8,159,000 | 8,159,000 | 5,287,000 | 5,288,000 | 8,144,000 | 15,000 | |||||||||||||||||||
Principal payments received | 900,000 | |||||||||||||||||||||||||||||||||||
Remaining balance charged off | $ 2,436,000 | $ 2,285,000 | $ 380,000 | $ 64,000 | $ 254,000 | $ 1,090,000 | $ 1,575,000 | $ 706,000 | $ 165,000 | $ 233,000 | $ 62,000 | $ 192,000 | $ 400,000 |
Earnings Per Share (Tables)
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Jun. 30, 2012
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Schedule Of Earnings Per Share | EARNINGS PER SHARE
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Foreclosed Properties, Net (Summary Of Foreclosed Properties) (Details) (USD $)
In Thousands, unless otherwise specified |
6 Months Ended | |||
---|---|---|---|---|
Jun. 30, 2012
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Jun. 30, 2011
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Dec. 31, 2011
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Dec. 31, 2010
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Foreclosed Properties, Net [Abstract] | ||||
Beginning Balance | $ 14,913 | $ 19,934 | ||
Transfer of net realizable value to foreclosed properties | 5,819 | 1,361 | ||
Sale proceeds, net | (5,489) | (4,383) | ||
Net gain from sale of foreclosed properties | 110 | 103 | ||
Valuation allowance related to properties disposed | (1,579) | (1,062) | ||
Total foreclosed properties | 13,774 | 15,953 | ||
Valuation allowance for losses | (3,417) | (4,007) | (2,794) | (3,982) |
Total foreclosed properties, net | $ 10,357 | $ 11,946 | $ 12,119 |
Income Taxes (Reconciliation Of Beginning And Ending Amounts Of Unrecognized Tax Benefits) (Details) (USD $)
In Thousands, unless otherwise specified |
3 Months Ended | 6 Months Ended |
---|---|---|
Jun. 30, 2012
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Jun. 30, 2012
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Income Taxes [Abstract] | ||
Tax benefit recognition threshold, likelihood of being realized | 50.00% | |
Balance, April 1, 2012 | $ 140 | $ 174 |
Additions for tax positions of prior years | ||
Settlements | 34 | |
Balance, June 30, 2012 | $ 140 | $ 140 |
Basis Of Presentation
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6 Months Ended | ||||
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Jun. 30, 2012
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Basis Of Presentation [Abstract] | |||||
Basis Of Presentation |
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