NOTE 2 – REGULATORY AGREEMENT, ECONOMIC CONDITIONS AND MANAGEMENT’S PLAN
Based on the results of an examination completed during the third quarter of 2009, effective April 6, 2010, the Bank stipulated to
the issuance of a formal regulatory Consent Order (the “Agreement”) with the Federal Deposit and Insurance Corporation (“FDIC”) and the Oregon Division of Finance and Corporate Securities (the “DFCS”), the Bank’s
principal regulators, primarily as a result of recent significant operating losses and increasing levels of adversely-classified loans. The Agreement imposes certain operating restrictions on the Bank, all of which we believe have been implemented
by the Bank.
In addition, among the corrective actions required under the Consent Order, the Bank must retain qualified management, restrict
dividends, reduce adversely-classified loans, maintain an adequate allowance for loan losses, revise the strategic plan and various policies, as well as, maintain elevated capital levels. The Agreement also provides timelines and thresholds from the
date of issuance to achieve the aforementioned corrective actions. We believe the Bank has achieved compliance with all the requirements with the exception of the one relating to capital levels.
In order to proactively respond to the current regulatory environment and the Bank’s credit issues, Management initiated measures intended to
increase regulatory capital ratios prior to entering into the Agreement. Among the measures taken were the following:
|
|
•
|
|
Completion of equity issuances sufficient to raise the Company’s regulatory capital ratios to levels in excess of those required by the Agreement
except for the 10.0% leverage ratio set by the Agreement.
|
|
|
•
|
|
Deleveraging the balance sheet with emphasis on reducing (1) non-performing loans through unfavorable renewal pricings, charge-offs, and
foreclosures as appropriate, (2) other real estate owned through sales, (3) higher-cost time deposits and public funds by lowering interest rates offered at renewal.
|
|
|
•
|
|
Evaluation of all business lines within the organization for possible gains upon disposition or significant cost-savings opportunities, as evidenced by
the Company’s recently announced consolidation of eleven of its branches (see
Note 1)
.
|
We continue to focus on
improving capital ratios and credit quality.
On June 4, 2010, the Company entered into a Written Agreement (the “Written
Agreement”) with the Federal Reserve Bank of San Francisco and the DFCS, which routinely accompanies or follows an FDIC Consent Order, and is comparable to the Agreement described above. The Written Agreement provides that the Company will:
|
|
•
|
|
Provide quarterly progress reports as well as other reports and plans,
|
|
|
•
|
|
Take steps to ensure the Bank complies with the Agreement,
|
|
|
•
|
|
Obtain regulatory approval to pay dividends or to incur indebtedness, and
|
|
|
•
|
|
Obtain approvals for a variety of other routine items.
|
The Bank’s regulatory capital ratios were adversely affected by losses that occurred as a result of credit losses associated with the adverse state of the economy, and depressed real estate
valuations on our commercial real estate concentrations. Also, as a result of the Bank’s operating results and financial condition, the Bank recognized an impairment to goodwill and established a valuation allowance against deferred tax assets.
The Bank continues to have high loan concentrations in commercial real estate and in construction and development loans. If economic conditions were to worsen for these industry segments, our financial condition could suffer significant
deterioration. These circumstances led to Management’s implementation of the measures summarized above.
8
There are no assurances Management’s plan, as developed and implemented to date, will successfully
improve the Bank’s results of operation or financial condition or result in the termination of the Agreement and the Written Agreement. The economic environment in the market areas and the duration of the downturn in the real estate market will
have a significant impact on the implementation of the Bank’s business plans.
In anticipation of the requirements of the Agreement, on
January 29, 2010, the Company filed an amendment to the Form S-1 Registration Statement with the United States Securities and Exchange Commission announcing a proposed offering of up to 81,747,362 shares of the Company’s common stock. A
prospectus was filed on February 1, 2010, providing that prior to a public offering of the shares, existing shareholders of the Company each received a subscription right to purchase 3.3 shares of the Company’s common stock at a
subscription price of $0.44 per share.
On April 7, 2010, the Company concluded its rights offering and the related public offering and
issued approximately 75.6 million shares with net proceeds of approximately $32.5 million, net of estimated offering costs of approximately $700,000.
NOTE 3 - INVESTMENT SECURITIES
Investment securities at September 30, 2012 and December 31, 2011 consisted of the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Dollars in Thousands)
|
|
September 30, 2012
|
|
|
|
|
|
|
|
Gross
|
|
|
Gross
|
|
|
Estimated
|
|
|
|
|
Amortized
|
|
|
unrealized
|
|
|
unrealized
|
|
|
fair
|
|
|
|
|
cost
|
|
|
gains
|
|
|
losses
|
|
|
value
|
|
|
Available-for-sale:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Collateralized mortgage obligations
|
|
$
|
151,199
|
|
|
$
|
1,405
|
|
|
$
|
(643
|
)
|
|
$
|
151,961
|
|
|
Mortgage-backed securities
|
|
|
87,477
|
|
|
|
3,939
|
|
|
|
(19
|
)
|
|
|
91,397
|
|
|
Obligations of states and political subdivisions
|
|
|
73,665
|
|
|
|
3,746
|
|
|
|
(186
|
)
|
|
|
77,225
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total available-for-sale
|
|
$
|
312,341
|
|
|
$
|
9,090
|
|
|
$
|
(848
|
)
|
|
$
|
320,583
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investment securities -
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other Community Reinvestment Act
|
|
$
|
4,962
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
4,962
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Restricted equity securities
|
|
$
|
3,082
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
3,082
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2011
|
|
|
|
|
|
|
|
Gross
|
|
|
Gross
|
|
|
Estimated
|
|
|
|
|
Amortized
|
|
|
unrealized
|
|
|
unrealized
|
|
|
fair
|
|
|
|
|
cost
|
|
|
gains
|
|
|
losses
|
|
|
value
|
|
|
Available-for-sale:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Collateralized mortgage obligations
|
|
$
|
134,074
|
|
|
$
|
1,036
|
|
|
$
|
(694
|
)
|
|
$
|
134,416
|
|
|
Mortgage-backed securities
|
|
|
70,449
|
|
|
|
1,344
|
|
|
|
(20
|
)
|
|
|
71,773
|
|
|
U.S. Government and agency securities
|
|
|
39,899
|
|
|
|
1,194
|
|
|
|
—
|
|
|
|
41,093
|
|
|
Obligations of states and political subdivisions
|
|
|
64,423
|
|
|
|
2,652
|
|
|
|
(197
|
)
|
|
|
66,878
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total available-for-sale
|
|
$
|
308,845
|
|
|
$
|
6,226
|
|
|
$
|
(911
|
)
|
|
$
|
314,160
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investment securities -
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other Community Reinvestment Act
|
|
$
|
2,000
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
2,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Restricted equity securities
|
|
$
|
3,255
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
3,255
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
9
The table below presents the gross unrealized losses and fair value of the Bank’s investment
securities, aggregated by investment category and length of time that individual securities have been in a continuous unrealized loss position at September 30, 2012 and December 31, 2011. Of these amounts at September 30, 2012, 27
investment securities comprised the less than 12 months category and two investment securities comprised the 12 months or more category. At December 31, 2011, 35 investment securities comprised the less than 12 months category and one
investment security comprised the 12 months or more category.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Dollars in Thousands)
|
|
Less than 12 months
|
|
|
12 months or more
|
|
|
Total
|
|
|
|
|
|
|
|
Unrealized
|
|
|
|
|
|
Unrealized
|
|
|
|
|
|
Unrealized
|
|
|
At September 30, 2012
|
|
Fair Value
|
|
|
Losses
|
|
|
Fair Value
|
|
|
Losses
|
|
|
Fair Value
|
|
|
Losses
|
|
|
Available-for-sale:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Collateralized mortgage obligations
|
|
$
|
57,485
|
|
|
$
|
(539
|
)
|
|
$
|
7,328
|
|
|
$
|
(104
|
)
|
|
$
|
64,813
|
|
|
$
|
(643
|
)
|
|
Mortgage-backed securities
|
|
|
1,617
|
|
|
|
(19
|
)
|
|
|
—
|
|
|
|
—
|
|
|
|
1,617
|
|
|
|
(19
|
)
|
|
Obligations of states and political subdivisions
|
|
|
20,807
|
|
|
|
(186
|
)
|
|
|
—
|
|
|
|
—
|
|
|
|
20,807
|
|
|
|
(186
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
79,909
|
|
|
$
|
(744
|
)
|
|
$
|
7,328
|
|
|
$
|
(104
|
)
|
|
$
|
87,237
|
|
|
$
|
(848
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Less than 12 months
|
|
|
12 months or more
|
|
|
Total
|
|
|
|
|
|
|
|
Unrealized
|
|
|
|
|
|
Unrealized
|
|
|
|
|
|
Unrealized
|
|
|
At December 31, 2011
|
|
Fair Value
|
|
|
Losses
|
|
|
Fair Value
|
|
|
Losses
|
|
|
Fair Value
|
|
|
Losses
|
|
|
Available-for-sale:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Collateralized mortgage obligations
|
|
$
|
76,461
|
|
|
$
|
(688
|
)
|
|
$
|
1,728
|
|
|
$
|
(6
|
)
|
|
$
|
78,189
|
|
|
$
|
(694
|
)
|
|
Mortgage-backed securities
|
|
|
7,318
|
|
|
|
(20
|
)
|
|
|
—
|
|
|
|
—
|
|
|
|
7,318
|
|
|
|
(20
|
)
|
|
U.S. Government and agency securities
|
|
|
15,747
|
|
|
|
(197
|
)
|
|
|
—
|
|
|
|
—
|
|
|
|
15,747
|
|
|
|
(197
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
99,526
|
|
|
$
|
(905
|
)
|
|
$
|
1,728
|
|
|
$
|
(6
|
)
|
|
$
|
101,254
|
|
|
$
|
(911
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Substantially all unrealized losses reflected above were the result of changes in interest rates subsequent to the
purchase of the securities. The investments with unrealized losses are not considered other-than-temporarily impaired because the decline in fair value is primarily attributable to the changes in interest rates rather than credit quality. The Bank
does not intend to sell the securities in this class and it is not likely that the Bank will be required to sell these securities before recovery of their amortized cost bases, which may include holding each security until maturity.
The amortized cost and estimated fair value of investment securities at September 30, 2012, by maturity are shown below. The amortized cost and
fair value of collateralized mortgage obligations and mortgage-backed securities are presented by expected average life, rather than contractual maturity. Expected maturities may differ from contractual maturities because borrowers may have the
right to prepay underlying loans without prepayment penalties.
|
|
|
|
|
|
|
|
|
|
|
(Dollars in Thousands)
|
|
Available-for-sale
|
|
|
|
|
Amortized
|
|
|
Estimated
|
|
|
At September 30, 2012
|
|
Cost
|
|
|
Fair Value
|
|
|
Due in one year or less
|
|
$
|
26,376
|
|
|
$
|
26,292
|
|
|
Due after one year through five years
|
|
|
182,116
|
|
|
|
185,761
|
|
|
Due after five years through ten years
|
|
|
86,808
|
|
|
|
90,541
|
|
|
Due after ten years
|
|
|
17,041
|
|
|
|
17,989
|
|
|
|
|
|
|
|
|
|
|
|
|
Total investment securities
|
|
$
|
312,341
|
|
|
$
|
320,583
|
|
|
|
|
|
|
|
|
|
|
|
At September 30, 2012, investment securities with an estimated fair value of $161.7 million were pledged to secure
public deposits, certain nonpublic deposits and borrowings.
10
The following table presents the cash proceeds from the sales of securities and their associated gross
realized gains and gross realized losses that are in earnings for the three months and nine months ended September 30, 2012 and 2011:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Dollars in Thousands)
|
|
For the Three Months Ended
|
|
|
For the Nine Months Ended
|
|
|
|
|
September 30,
2012
|
|
|
September 30,
2011
|
|
|
September 30,
2012
|
|
|
September 30,
2011
|
|
|
Gross realized gain on sale of securities
|
|
$
|
853
|
|
|
$
|
227
|
|
|
$
|
3,295
|
|
|
$
|
1,229
|
|
|
Gross realized loss on sale of securities
|
|
|
(140
|
)
|
|
|
—
|
|
|
|
(187
|
)
|
|
|
(229
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net realized gain on sale of securities
|
|
$
|
713
|
|
|
$
|
227
|
|
|
$
|
3,108
|
|
|
$
|
1,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Proceeds from sale of securities
|
|
$
|
50,022
|
|
|
$
|
15,471
|
|
|
$
|
121,872
|
|
|
$
|
129,766
|
|
As required of all members of the Federal Home Loan Bank (“FHLB”) system, the Company maintains an investment
in the capital stock of the FHLB in an amount equal to the greater of $500 or 0.5% of home mortgage loans and pass-through securities plus 5.0% of the outstanding balance of mortgage home loans sold to FHLB under the Mortgage Purchase Program. The
FHLB system, the largest government sponsored entity in the United States, is made up of 12 regional banks, including the FHLB of Seattle and the FHLB of San Francisco. Participating banks record the value of FHLB stock equal to its par value at
$100 per share. At September 30, 2012, the Company held approximately $2.5 million in FHLB stock. The Company is required to hold FHLB’s stock in order to receive advances and views this investment as long-term. Thus, when evaluating it
for impairment, the value is determined based on the recovery of the par value through redemption by the FHLB or from the sale to another member, rather than by recognizing temporary declines in value. The FHLB of Seattle disclosed that it reported
net income for the nine month period ended September 30, 2012. On October 25, 2010, the FHLB of Seattle entered into a Stipulation and Consent to the Issuance of a Consent Order with the Federal Housing Finance Agency (“Finance
Agency”). On September 7, 2012, the Finance Agency notified the FHLB of Seattle it considers the Seattle Bank to be “adequately capitalized.” The Company has concluded that its investment in FHLB is not impaired as of
September 30, 2012, and believes that it will ultimately recover the par value of its investment in this stock.
NOTE 4
–
LOANS
Loans as of September 30, 2012 and December 31, 2011, consisted of the following:
|
|
|
|
|
|
|
|
|
|
|
(Dollars in Thousands)
|
|
September 30, 2012
|
|
|
December 31, 2011
|
|
|
Construction, Land Dev & Other Land
|
|
$
|
36,434
|
|
|
$
|
81,241
|
|
|
Commercial & Industrial
|
|
|
115,395
|
|
|
|
124,422
|
|
|
Commercial Real Estate Loans
|
|
|
402,237
|
|
|
|
449,347
|
|
|
Secured Multifamily Residential
|
|
|
20,221
|
|
|
|
21,792
|
|
|
Other Loans Secured by 1-4 Family RE
|
|
|
43,400
|
|
|
|
47,912
|
|
|
Loans to Individuals, Family & Personal Expense
|
|
|
21,859
|
|
|
|
24,034
|
|
|
Indirect Consumer
|
|
|
23,264
|
|
|
|
21,272
|
|
|
Other Loans
|
|
|
13,316
|
|
|
|
27,594
|
|
|
Overdrafts
|
|
|
228
|
|
|
|
264
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross loans
|
|
|
676,354
|
|
|
|
797,878
|
|
|
Less: allowance for loan losses
|
|
|
(19,174
|
)
|
|
|
(22,683
|
)
|
|
Less: deferred fees and restructured loan concessions
|
|
|
(253
|
)
|
|
|
(462
|
)
|
|
|
|
|
|
|
|
|
|
|
|
Loans, net
|
|
$
|
656,927
|
|
|
$
|
774,733
|
|
|
|
|
|
|
|
|
|
|
|
11
NOTE 5
–
ALLOWANCE FOR LOAN LOSSES AND CREDIT QUALITY
The allowance for loan losses represents the Company’s estimate of potential credit losses in its loan portfolio. The allowance
for loan losses is increased through periodic charges to earnings through provision for loan losses and represents the aggregate amount, net of loans charged-off and recoveries on previously charged-off loans, that is needed to establish an
appropriate reserve for credit losses. The allowance is estimated based on a variety of factors and using a methodology as described below:
|
|
•
|
|
The Company classifies loans into relatively homogeneous pools by loan type in accordance with regulatory guidelines for regulatory reporting purposes.
The Company regularly reviews all loans within each loan category to establish risk ratings for them that include Pass, Watch, Special Mention, Substandard, Doubtful and Loss. Pursuant to “Accounting by Creditors for Impairment of a Loan”,
the impaired portion of collateral dependent loans is charged-off. Other risk-related loans not considered impaired have loss factors applied to the various loan pool balances to establish loss potential for provisioning purposes.
|
|
|
•
|
|
Analyses are performed to establish the loss factors based on historical experience, as well as expected losses based on qualitative evaluations of
such factors as the economic trends and conditions, industry conditions, levels and trends in delinquencies and impaired loans, levels and trends in charge-offs and recoveries, among others. Minimum loss factors are then established based on a
weighted average of historical loss experience by risk classification within each loan category pool. The minimum or historical loss factor, whichever is larger, is applied to loan category pools segregated by risk classification to estimate the
loss inherent in the Company’s loan portfolio pursuant to “Accounting for Contingencies.”
|
|
|
•
|
|
Additionally, impaired loans are evaluated for loss potential on an individual basis in accordance with “Accounting by Creditors for Impairment of
a Loan,” and specific reserves are established based on thorough analysis of collateral values where loss potential exists. When an impaired loan is collateral dependent and a deficiency exists in the fair value of real estate collateralizing
the loan in comparison to the associated loan balance, the deficiency is charged-off at that time. Impaired loans are reviewed no less frequently than quarterly.
|
|
|
•
|
|
In the event that a current appraisal to support the fair value of the real estate collateral underlying an impaired loan has not yet been received,
but the Company believes that the collateral value is insufficient to support the loan amount, an impairment reserve is recorded. In these instances, the receipt of a current appraisal triggers an updated review of the collateral support for the
loan and any deficiency is charged-off or reserved at that time. In those instances where a current appraisal is not available in a timely manner in relation to a financial reporting cut-off date, the Company discounts the most recent third-party
appraisal depending on a number of factors including, but not limited to, property location, local price volatility, local economic conditions, and recent comparable sales. In all cases, the costs to sell the subject property are deducted in
arriving at the fair value of the collateral. Any unpaid property taxes or similar expenses are expensed at the time the property is acquired by the Company.
|
In prior quarters, loss factors used to estimate loss potential within the loan portfolio were solely based on actual historical experience. Beginning in second quarter 2012, minimum loss factors are also
developed based on a weighted average of historical loss experience by risk classification within each loan category pool. The minimum or historical loss factor, whichever is larger, is now applied to loan category pools segregated by risk
classification to estimate the loss inherent in the Company’s loan portfolio pursuant to “Accounting for Contingencies.” Similarly, the minimum or actual loss factor is used as a basis for establishing a nominal reserve on unfunded
balances (net available credit), depending on the loan category. This change in methodology had no material impact on the Company’s total allowance for loan losses.
12
Transactions in the allowance for loan losses for the three months and nine months ended September 30,
2012 and 2011, were as follows:
Allowance for Credit Losses and Recorded Investment in Financing Receivables
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Construction,
|
|
|
Comm &
|
|
|
Comm
Real
|
|
|
Comm Real
|
|
|
Other Loans
Secured by
|
|
|
Loans to
|
|
|
Indirect
|
|
|
Other Loans,
Concessions,
|
|
|
|
|
|
|
|
Land Dev
|
|
|
Industrial
|
|
|
Estate
|
|
|
Estate Multi
|
|
|
1-4 Family RE
|
|
|
Individuals
|
|
|
Consumer
|
|
|
and Overdrafts
|
|
|
Total
|
|
|
For the three months ended September 30, 2012
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Allowance for credit losses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Beginning balance
|
|
$
|
4,413
|
|
|
$
|
4,050
|
|
|
$
|
6,782
|
|
|
$
|
162
|
|
|
$
|
1,235
|
|
|
$
|
670
|
|
|
$
|
1,079
|
|
|
$
|
1,127
|
|
|
$
|
19,518
|
|
|
Charge-offs and concessions
|
|
|
(743
|
)
|
|
|
(96
|
)
|
|
|
(422
|
)
|
|
|
—
|
|
|
|
(36
|
)
|
|
|
(503
|
)
|
|
|
(241
|
)
|
|
|
(130
|
)
|
|
|
(2,171
|
)
|
|
Recoveries
|
|
|
1,388
|
|
|
|
61
|
|
|
|
172
|
|
|
|
—
|
|
|
|
46
|
|
|
|
38
|
|
|
|
89
|
|
|
|
33
|
|
|
|
1,827
|
|
|
Provision
|
|
|
(3,651
|
)
|
|
|
270
|
|
|
|
2,636
|
|
|
|
75
|
|
|
|
(478
|
)
|
|
|
435
|
|
|
|
(72
|
)
|
|
|
785
|
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ending balance
|
|
$
|
1,407
|
|
|
$
|
4,285
|
|
|
$
|
9,168
|
|
|
$
|
237
|
|
|
$
|
767
|
|
|
$
|
640
|
|
|
$
|
855
|
|
|
$
|
1,815
|
|
|
$
|
19,174
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the nine months ended September 30, 2012
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Allowance for credit losses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Beginning balance
|
|
$
|
4,473
|
|
|
$
|
4,678
|
|
|
$
|
8,582
|
|
|
$
|
242
|
|
|
$
|
1,425
|
|
|
$
|
1,253
|
|
|
$
|
1,736
|
|
|
$
|
294
|
|
|
$
|
22,683
|
|
|
Charge-offs and concessions
|
|
|
(6,601
|
)
|
|
|
(452
|
)
|
|
|
(1,660
|
)
|
|
|
—
|
|
|
|
(687
|
)
|
|
|
(427
|
)
|
|
|
(724
|
)
|
|
|
(2,068
|
)
|
|
|
(12,619
|
)
|
|
Recoveries
|
|
|
2,127
|
|
|
|
1,177
|
|
|
|
384
|
|
|
|
—
|
|
|
|
64
|
|
|
|
41
|
|
|
|
316
|
|
|
|
226
|
|
|
|
4,335
|
|
|
Provision
|
|
|
1,408
|
|
|
|
(1,118
|
)
|
|
|
1,862
|
|
|
|
(5
|
)
|
|
|
(35
|
)
|
|
|
(227
|
)
|
|
|
(473
|
)
|
|
|
3,363
|
|
|
|
4,775
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ending balance
|
|
$
|
1,407
|
|
|
$
|
4,285
|
|
|
$
|
9,168
|
|
|
$
|
237
|
|
|
$
|
767
|
|
|
$
|
640
|
|
|
$
|
855
|
|
|
$
|
1,815
|
|
|
$
|
19,174
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ending balance: individually evaluated for impairment
|
|
$
|
60
|
|
|
$
|
51
|
|
|
$
|
29
|
|
|
$
|
177
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
317
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ending balance: collectively evaluated for impairment
|
|
$
|
1,347
|
|
|
$
|
4,234
|
|
|
$
|
9,139
|
|
|
$
|
60
|
|
|
$
|
767
|
|
|
$
|
640
|
|
|
$
|
855
|
|
|
$
|
1,815
|
|
|
$
|
18,857
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loans:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ending balance
|
|
$
|
36,434
|
|
|
$
|
115,395
|
|
|
$
|
402,237
|
|
|
$
|
20,221
|
|
|
$
|
43,400
|
|
|
$
|
21,859
|
|
|
$
|
23,264
|
|
|
$
|
13,544
|
|
|
$
|
676,354
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ending balance: individually evaluated for impairment
|
|
$
|
5,477
|
|
|
$
|
1,745
|
|
|
$
|
19,193
|
|
|
$
|
555
|
|
|
$
|
2,130
|
|
|
$
|
78
|
|
|
$
|
149
|
|
|
$
|
1,146
|
|
|
$
|
30,473
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ending balance: collectively evaluated for impairment
|
|
$
|
30,957
|
|
|
$
|
113,650
|
|
|
$
|
383,044
|
|
|
$
|
19,666
|
|
|
$
|
41,270
|
|
|
$
|
21,781
|
|
|
$
|
23,115
|
|
|
$
|
12,398
|
|
|
$
|
645,881
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
13
Allowance for Credit Losses and Recorded Investment in Financing Receivables
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Construction,
|
|
|
Comm &
|
|
|
Comm Real
|
|
|
Comm Real
|
|
|
Other Loans
Secured by
|
|
|
Loans to
|
|
|
Indirect
|
|
|
Other Loans,
Concessions,
|
|
|
|
|
|
|
|
Land Dev
|
|
|
Industrial
|
|
|
Estate
|
|
|
Estate Multi
|
|
|
1-4 Family RE
|
|
|
Individuals
|
|
|
Consumer
|
|
|
and Overdrafts
|
|
|
Total
|
|
|
For the three months ended September 30, 2011
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Allowance for credit losses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Beginning balance
|
|
$
|
5,524
|
|
|
$
|
8,479
|
|
|
$
|
7,869
|
|
|
$
|
194
|
|
|
$
|
2,393
|
|
|
$
|
1,060
|
|
|
$
|
2,064
|
|
|
$
|
850
|
|
|
$
|
28,433
|
|
|
Charge-offs
|
|
|
(4,052
|
)
|
|
|
(75
|
)
|
|
|
(984
|
)
|
|
|
—
|
|
|
|
(404
|
)
|
|
|
(714
|
)
|
|
|
(310
|
)
|
|
|
(368
|
)
|
|
|
(6,907
|
)
|
|
Recoveries
|
|
|
17
|
|
|
|
204
|
|
|
|
65
|
|
|
|
—
|
|
|
|
7
|
|
|
|
38
|
|
|
|
56
|
|
|
|
12
|
|
|
|
399
|
|
|
Provision
|
|
|
3,673
|
|
|
|
(3,522
|
)
|
|
|
4,358
|
|
|
|
(22
|
)
|
|
|
211
|
|
|
|
893
|
|
|
|
(459
|
)
|
|
|
(82
|
)
|
|
|
5,050
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ending balance
|
|
$
|
5,162
|
|
|
$
|
5,086
|
|
|
$
|
11,308
|
|
|
$
|
172
|
|
|
$
|
2,207
|
|
|
$
|
1,277
|
|
|
$
|
1,351
|
|
|
$
|
412
|
|
|
$
|
26,975
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the nine months ended September 30, 2011
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Allowance for credit losses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Beginning balance
|
|
$
|
7,335
|
|
|
$
|
9,831
|
|
|
$
|
10,146
|
|
|
$
|
122
|
|
|
$
|
4,498
|
|
|
$
|
1,962
|
|
|
$
|
1,385
|
|
|
$
|
303
|
|
|
$
|
35,582
|
|
|
Charge-offs
|
|
|
(13,112
|
)
|
|
|
(2,693
|
)
|
|
|
(5,517
|
)
|
|
|
(56
|
)
|
|
|
(2,652
|
)
|
|
|
(1,046
|
)
|
|
|
(589
|
)
|
|
|
(409
|
)
|
|
|
(26,074
|
)
|
|
Recoveries
|
|
|
78
|
|
|
|
4,914
|
|
|
|
617
|
|
|
|
—
|
|
|
|
90
|
|
|
|
121
|
|
|
|
261
|
|
|
|
36
|
|
|
|
6,117
|
|
|
Provision
|
|
|
10,861
|
|
|
|
(6,966
|
)
|
|
|
6,062
|
|
|
|
106
|
|
|
|
271
|
|
|
|
240
|
|
|
|
294
|
|
|
|
482
|
|
|
|
11,350
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ending balance
|
|
$
|
5,162
|
|
|
$
|
5,086
|
|
|
$
|
11,308
|
|
|
$
|
172
|
|
|
$
|
2,207
|
|
|
$
|
1,277
|
|
|
$
|
1,351
|
|
|
$
|
412
|
|
|
$
|
26,975
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ending balance: individually evaluated for impairment
|
|
$
|
3,550
|
|
|
$
|
169
|
|
|
$
|
1,277
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
347
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
5,343
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ending balance: collectively evaluated for impairment
|
|
$
|
1,612
|
|
|
$
|
4,917
|
|
|
$
|
10,031
|
|
|
$
|
172
|
|
|
$
|
2,207
|
|
|
$
|
930
|
|
|
$
|
1,351
|
|
|
$
|
412
|
|
|
$
|
21,632
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loans:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ending balance
|
|
$
|
94,692
|
|
|
$
|
131,559
|
|
|
$
|
477,747
|
|
|
$
|
21,886
|
|
|
$
|
49,522
|
|
|
$
|
25,683
|
|
|
$
|
20,810
|
|
|
$
|
31,658
|
|
|
$
|
853,557
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ending balance: individually evaluated for impairment
|
|
$
|
40,703
|
|
|
$
|
2,199
|
|
|
$
|
27,977
|
|
|
$
|
144
|
|
|
$
|
3,634
|
|
|
$
|
966
|
|
|
$
|
86
|
|
|
$
|
2,501
|
|
|
$
|
78,210
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ending balance: collectively evaluated for impairment
|
|
$
|
53,989
|
|
|
$
|
129,360
|
|
|
$
|
449,770
|
|
|
$
|
21,742
|
|
|
$
|
45,888
|
|
|
$
|
24,717
|
|
|
$
|
20,724
|
|
|
$
|
29,157
|
|
|
$
|
775,347
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
14
The following tables summarize the Company’s loans past due, both accruing and non-accruing, by type as
of September 30, 2012 and December 31, 2011:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Dollars in Thousands)
|
|
30-59 Days
Past Due
|
|
|
60-89 Days
Past Due
|
|
|
Greater
Than
90
Days
|
|
|
Total Past
Due
|
|
|
Current
|
|
|
Total
Loans
|
|
|
Recorded
Investment
>
90 Days Past Due
and Accruing
Interest
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
September 30, 2012:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Construction, Land Dev & Other Land
|
|
$
|
699
|
|
|
$
|
73
|
|
|
$
|
3,348
|
|
|
$
|
4,120
|
|
|
$
|
32,314
|
|
|
$
|
36,434
|
|
|
$
|
—
|
|
|
Commercial & Industrial
|
|
|
119
|
|
|
|
—
|
|
|
|
1,312
|
|
|
|
1,431
|
|
|
|
113,964
|
|
|
|
115,395
|
|
|
|
—
|
|
|
Commercial Real Estate Loans
|
|
|
4,531
|
|
|
|
3,420
|
|
|
|
5,064
|
|
|
|
13,015
|
|
|
|
389,222
|
|
|
|
402,237
|
|
|
|
—
|
|
|
Secured Multifamily Residential
|
|
|
—
|
|
|
|
—
|
|
|
|
335
|
|
|
|
335
|
|
|
|
19,886
|
|
|
|
20,221
|
|
|
|
—
|
|
|
Other Loans Secured by 1-4 Family RE
|
|
|
669
|
|
|
|
385
|
|
|
|
1,274
|
|
|
|
2,328
|
|
|
|
41,072
|
|
|
|
43,400
|
|
|
|
164
|
|
|
Loans to Individuals, Family & Personal Expense
|
|
|
807
|
|
|
|
429
|
|
|
|
77
|
|
|
|
1,313
|
|
|
|
20,546
|
|
|
|
21,859
|
|
|
|
78
|
|
|
Indirect Consumer
|
|
|
940
|
|
|
|
360
|
|
|
|
149
|
|
|
|
1,449
|
|
|
|
21,815
|
|
|
|
23,264
|
|
|
|
149
|
|
|
Other Loans and Overdrafts
|
|
|
—
|
|
|
|
8
|
|
|
|
1,146
|
|
|
|
1,154
|
|
|
|
12,390
|
|
|
|
13,544
|
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
7,765
|
|
|
$
|
4,675
|
|
|
$
|
12,705
|
|
|
$
|
25,145
|
|
|
$
|
651,209
|
|
|
$
|
676,354
|
|
|
$
|
391
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2011:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Construction, Land Dev & Other Land
|
|
$
|
2,296
|
|
|
$
|
81
|
|
|
$
|
19,532
|
|
|
$
|
21,909
|
|
|
$
|
59,332
|
|
|
$
|
81,241
|
|
|
$
|
62
|
|
|
Commercial & Industrial
|
|
|
128
|
|
|
|
—
|
|
|
|
2,778
|
|
|
|
2,906
|
|
|
|
121,516
|
|
|
|
124,422
|
|
|
|
—
|
|
|
Commercial Real Estate Loans
|
|
|
967
|
|
|
|
—
|
|
|
|
14,845
|
|
|
|
15,812
|
|
|
|
433,535
|
|
|
|
449,347
|
|
|
|
—
|
|
|
Secured Multifamily Residential
|
|
|
242
|
|
|
|
—
|
|
|
|
—
|
|
|
|
242
|
|
|
|
21,550
|
|
|
|
21,792
|
|
|
|
—
|
|
|
Other Loans Secured by 1-4 Family RE
|
|
|
302
|
|
|
|
230
|
|
|
|
1,019
|
|
|
|
1,551
|
|
|
|
46,361
|
|
|
|
47,912
|
|
|
|
—
|
|
|
Loans to Individuals, Family & Personal Expense
|
|
|
108
|
|
|
|
—
|
|
|
|
618
|
|
|
|
726
|
|
|
|
23,306
|
|
|
|
24,032
|
|
|
|
3
|
|
|
Indirect Consumer
|
|
|
1,005
|
|
|
|
275
|
|
|
|
81
|
|
|
|
1,361
|
|
|
|
19,913
|
|
|
|
21,274
|
|
|
|
79
|
|
|
Other Loans and Overdrafts
|
|
|
250
|
|
|
|
1,228
|
|
|
|
1,697
|
|
|
|
3,175
|
|
|
|
24,683
|
|
|
|
27,858
|
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
5,298
|
|
|
$
|
1,814
|
|
|
$
|
40,570
|
|
|
$
|
47,682
|
|
|
$
|
750,196
|
|
|
$
|
797,878
|
|
|
$
|
144
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
15
Impaired loans by type as of September 30, 2012, and interest income recognized for the nine months
ended September 30, 2012, were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Dollars in Thousands)
|
|
Unpaid
Principal
|
|
|
Recorded
|
|
|
Related
|
|
|
Average
Recorded
|
|
|
Interest
Income
|
|
|
|
|
Balance
|
|
|
Investment
|
|
|
Allowance
|
|
|
Investment
|
|
|
Recognized
|
|
|
September 30, 2012
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
With no Related Allowance:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Construction, Land Dev & Other Land
|
|
$
|
7,786
|
|
|
$
|
4,561
|
|
|
$
|
—
|
|
|
$
|
11,724
|
|
|
$
|
—
|
|
|
Commercial & Industrial
|
|
|
1,351
|
|
|
|
1,351
|
|
|
|
—
|
|
|
|
2,289
|
|
|
|
—
|
|
|
Commercial Real Estate Loans
|
|
|
23,965
|
|
|
|
18,763
|
|
|
|
—
|
|
|
|
19,524
|
|
|
|
—
|
|
|
Other Loans Secured by 1-4 Family RE
|
|
|
2,837
|
|
|
|
2,130
|
|
|
|
—
|
|
|
|
3,620
|
|
|
|
8
|
|
|
Loans to Individuals, Family & Personal Expense
|
|
|
1,341
|
|
|
|
78
|
|
|
|
—
|
|
|
|
335
|
|
|
|
5
|
|
|
Indirect Consumer
|
|
|
—
|
|
|
|
149
|
|
|
|
—
|
|
|
|
216
|
|
|
|
14
|
|
|
Other Loans
|
|
|
—
|
|
|
|
1,146
|
|
|
|
—
|
|
|
|
2,108
|
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
37,280
|
|
|
$
|
28,178
|
|
|
$
|
—
|
|
|
$
|
39,816
|
|
|
$
|
27
|
|
|
With a Related Allowance:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Construction, Land Dev & Other Land
|
|
$
|
916
|
|
|
$
|
916
|
|
|
$
|
60
|
|
|
$
|
818
|
|
|
$
|
—
|
|
|
Commercial & Industrial
|
|
|
394
|
|
|
|
394
|
|
|
|
51
|
|
|
|
822
|
|
|
|
—
|
|
|
Commercial Real Estate Loans
|
|
|
430
|
|
|
|
430
|
|
|
|
29
|
|
|
|
3,752
|
|
|
|
—
|
|
|
Secured Multifamily Residential
|
|
|
555
|
|
|
|
555
|
|
|
|
177
|
|
|
|
267
|
|
|
|
—
|
|
|
Other Loans
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
81
|
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
2,295
|
|
|
$
|
2,295
|
|
|
$
|
317
|
|
|
$
|
5,740
|
|
|
$
|
—
|
|
|
Total Impaired Loans:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Construction, Land Dev & Other Land
|
|
$
|
8,702
|
|
|
$
|
5,477
|
|
|
$
|
60
|
|
|
$
|
12,542
|
|
|
$
|
—
|
|
|
Commercial & Industrial
|
|
|
1,745
|
|
|
|
1,745
|
|
|
|
51
|
|
|
|
3,111
|
|
|
|
—
|
|
|
Commercial Real Estate Loans
|
|
|
24,395
|
|
|
|
19,193
|
|
|
|
29
|
|
|
|
23,276
|
|
|
|
—
|
|
|
Secured Multifamily Residential
|
|
|
555
|
|
|
|
555
|
|
|
|
177
|
|
|
|
267
|
|
|
|
—
|
|
|
Other Loans Secured by 1-4 Family RE
|
|
|
2,837
|
|
|
|
2,130
|
|
|
|
—
|
|
|
|
3,620
|
|
|
|
8
|
|
|
Loans to Individuals, Family & Personal Expense
|
|
|
1,341
|
|
|
|
78
|
|
|
|
—
|
|
|
|
335
|
|
|
|
5
|
|
|
Indirect Consumer
|
|
|
—
|
|
|
|
149
|
|
|
|
—
|
|
|
|
216
|
|
|
|
14
|
|
|
Other Loans
|
|
|
—
|
|
|
|
1,146
|
|
|
|
—
|
|
|
|
2,189
|
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Impaired Loans
|
|
$
|
39,575
|
|
|
$
|
30,473
|
|
|
$
|
317
|
|
|
$
|
45,556
|
|
|
$
|
27
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Included in the table above are loans on non-accrual status at September 30, 2012, as well as $391,000 in loans that
are 90 days past due and still accruing interest. The loans that are 90 days past due and still accruing interest are in the categories of Indirect Consumer, Other Loans Secured by 1-4 Family Real Estate, and Loans to Individuals, Family &
Personal Expense and are charged-off according to policy after 120 days.
16
Impaired loans by type as of December 31, 2011 and interest income recognized for the twelve months
ended December 31, 2011, were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Dollars in Thousands)
|
|
Unpaid
|
|
|
|
|
|
|
|
|
Average
|
|
|
Interest
|
|
|
|
|
Principal
|
|
|
Recorded
|
|
|
Related
|
|
|
Recorded
|
|
|
Income
|
|
|
|
|
Balance
|
|
|
Investment
|
|
|
Allowance
|
|
|
Investment
|
|
|
Recognized
|
|
|
December 31, 2011
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
With no Related Allowance:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Construction, Land Dev & Other Land
|
|
$
|
55,821
|
|
|
$
|
35,952
|
|
|
$
|
—
|
|
|
$
|
40,510
|
|
|
$
|
5
|
|
|
Commercial & Industrial
|
|
|
4,668
|
|
|
|
3,545
|
|
|
|
—
|
|
|
|
1,766
|
|
|
|
—
|
|
|
Commercial Real Estate Loans
|
|
|
27,377
|
|
|
|
18,031
|
|
|
|
—
|
|
|
|
30,981
|
|
|
|
—
|
|
|
Secured Multifamily Residential
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
98
|
|
|
|
—
|
|
|
Other Loans Secured by 1-4 Family RE
|
|
|
4,661
|
|
|
|
3,536
|
|
|
|
—
|
|
|
|
3,566
|
|
|
|
—
|
|
|
Loans to Individuals, Family & Personal Expense
|
|
|
1,483
|
|
|
|
635
|
|
|
|
—
|
|
|
|
191
|
|
|
|
—
|
|
|
Indirect Consumer
|
|
|
81
|
|
|
|
79
|
|
|
|
—
|
|
|
|
138
|
|
|
|
15
|
|
|
Other Loans
|
|
|
3,367
|
|
|
|
3,175
|
|
|
|
—
|
|
|
|
2,535
|
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
97,458
|
|
|
$
|
64,953
|
|
|
$
|
—
|
|
|
$
|
79,785
|
|
|
$
|
20
|
|
|
With a Related Allowance:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Construction, Land Dev & Other Land
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
3,760
|
|
|
$
|
—
|
|
|
Commercial & Industrial
|
|
|
1,662
|
|
|
|
1,662
|
|
|
|
202
|
|
|
|
994
|
|
|
|
—
|
|
|
Commercial Real Estate Loans
|
|
|
15,131
|
|
|
|
9,626
|
|
|
|
1,885
|
|
|
|
9,012
|
|
|
|
—
|
|
|
Other Loans Secured by 1-4 Family RE
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
1,990
|
|
|
|
—
|
|
|
Loans to Individuals, Family & Personal Expense
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
64
|
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
16,793
|
|
|
$
|
11,288
|
|
|
$
|
2,087
|
|
|
$
|
15,820
|
|
|
$
|
—
|
|
|
Total Impaired Loans:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Construction, Land Dev & Other Land
|
|
$
|
55,821
|
|
|
$
|
35,952
|
|
|
$
|
—
|
|
|
$
|
44,270
|
|
|
$
|
5
|
|
|
Commercial & Industrial
|
|
|
6,330
|
|
|
|
5,207
|
|
|
|
202
|
|
|
|
2,760
|
|
|
|
—
|
|
|
Commercial Real Estate Loans
|
|
|
42,508
|
|
|
|
27,657
|
|
|
|
1,885
|
|
|
|
39,993
|
|
|
|
—
|
|
|
Secured Multifamily Residential
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
98
|
|
|
|
—
|
|
|
Other Loans Secured by 1-4 Family RE
|
|
|
4,661
|
|
|
|
3,536
|
|
|
|
—
|
|
|
|
5,556
|
|
|
|
—
|
|
|
Loans to Individuals, Family & Personal Expense
|
|
|
1,483
|
|
|
|
635
|
|
|
|
—
|
|
|
|
255
|
|
|
|
—
|
|
|
Indirect Consumer
|
|
|
81
|
|
|
|
79
|
|
|
|
—
|
|
|
|
138
|
|
|
|
15
|
|
|
Other Loans
|
|
|
3,367
|
|
|
|
3,175
|
|
|
|
—
|
|
|
|
2,535
|
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Impaired Loans
|
|
$
|
114,251
|
|
|
$
|
76,241
|
|
|
$
|
2,087
|
|
|
$
|
95,605
|
|
|
$
|
20
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Included in the table above are loans on non-accrual status at December 31, 2011, as well $81,000 in loans that are
90 days past due and still accruing interest. The loans that are 90 days past due and still accruing interest are in the categories of construction, land development loans and a $1,000 loan in the individuals, family and personal expense category
and are charged-off according to policy after 120 days.
17
Loans by type, including a breakdown of classified loans, as of September 30, 2012, and
December 31, 2011, were as follows:
(Dollars in Thousands)
Credit quality indicators as of September 30, 2012 and December 31, 2011 were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
September 30, 2012
|
|
Construction,
Land Dev
|
|
|
Comm &
Industrial
|
|
|
Comm
Real Estate
|
|
|
Comm Real
Estate Multi
|
|
|
Other Loans
Secured
by
1-4 Family RE
|
|
|
Loans to
Individuals
|
|
|
Other Loans
and Overdraft
|
|
|
Total
|
|
|
Pass
|
|
$
|
17,053
|
|
|
$
|
77,114
|
|
|
$
|
259,250
|
|
|
$
|
10,110
|
|
|
$
|
37,737
|
|
|
$
|
9,160
|
|
|
$
|
11,224
|
|
|
$
|
421,648
|
|
|
Watch
|
|
|
181
|
|
|
|
10,660
|
|
|
|
35,793
|
|
|
|
5,092
|
|
|
|
459
|
|
|
|
—
|
|
|
|
683
|
|
|
|
52,868
|
|
|
Special Mention
|
|
|
9,764
|
|
|
|
4,269
|
|
|
|
42,569
|
|
|
|
4,400
|
|
|
|
1,489
|
|
|
|
—
|
|
|
|
—
|
|
|
|
62,491
|
|
|
Substandard
|
|
|
9,436
|
|
|
|
23,352
|
|
|
|
64,625
|
|
|
|
619
|
|
|
|
3,715
|
|
|
|
12,699
|
|
|
|
1,637
|
|
|
|
116,083
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
36,434
|
|
|
$
|
115,395
|
|
|
$
|
402,237
|
|
|
$
|
20,221
|
|
|
$
|
43,400
|
|
|
$
|
21,859
|
|
|
$
|
13,544
|
|
|
|
653,090
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Indirect Consumer Credit
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
23,264
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total loans
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
676,354
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Indirect Consumer Credit Exposure
Credit Risk Profile Based on Payment Activity
|
|
|
|
|
|
|
|
|
Consumer
|
|
|
Performing
|
|
$
|
23,115
|
|
|
Nonperforming
|
|
|
149
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
23,264
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2011
|
|
Construction,
Land Dev
|
|
|
Comm &
Industrial
|
|
|
Comm
Real Estate
|
|
|
Comm Real
Estate Multi
|
|
|
Other Loans
Secured
by
1-4 Family RE
|
|
|
Loans to
Individuals
|
|
|
Other Loans
and Overdraft
|
|
|
Total
|
|
|
Pass
|
|
$
|
23,558
|
|
|
$
|
73,312
|
|
|
$
|
273,068
|
|
|
$
|
9,246
|
|
|
$
|
37,145
|
|
|
$
|
9,063
|
|
|
$
|
22,822
|
|
|
$
|
448,214
|
|
|
Watch
|
|
|
303
|
|
|
|
7,832
|
|
|
|
55,246
|
|
|
|
5,740
|
|
|
|
490
|
|
|
|
—
|
|
|
|
725
|
|
|
|
70,336
|
|
|
Special Mention
|
|
|
17,232
|
|
|
|
6,098
|
|
|
|
51,243
|
|
|
|
6,564
|
|
|
|
2,926
|
|
|
|
—
|
|
|
|
—
|
|
|
|
84,063
|
|
|
Substandard
|
|
|
40,148
|
|
|
|
37,180
|
|
|
|
69,790
|
|
|
|
242
|
|
|
|
7,351
|
|
|
|
14,971
|
|
|
|
4,311
|
|
|
|
173,993
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
81,241
|
|
|
$
|
124,422
|
|
|
$
|
449,347
|
|
|
$
|
21,792
|
|
|
$
|
47,912
|
|
|
$
|
24,034
|
|
|
$
|
27,858
|
|
|
|
776,606
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Indirect Consumer Credit
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
21,272
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total loans
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
797,878
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Indirect Consumer Credit Exposure
Credit Risk Profile Based on Payment Activity
|
|
|
|
|
|
|
|
|
Consumer
|
|
|
Performing
|
|
$
|
21,193
|
|
|
Nonperforming
|
|
|
79
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
21,272
|
|
|
|
|
|
|
|
The Company assigns risk ratings to loans based on internal review. These risk ratings are grouped and defined as
follows:
Pass
– The borrower is considered creditworthy and has the ability to repay the debt in the normal course of business.
Watch
– This rating indicates that according to current information, the borrower has the capacity to perform according to terms;
however, elements of uncertainty (an uncharacteristic negative financial or other risk factor event) exist. Margins of debt service coverage are or have narrowed, and historical patterns of financial performance may be erratic although the overall
trends are positive. If secured, collateral value and adequate sources of repayment currently protect the loan. Material adverse trends have not developed at this time. Loans in this category can be to new and/or thinly capitalized companies with
limited proved performance history.
Special Mention
—A Special Mention asset has potential weaknesses that deserve
Management’s close attention. If left uncorrected, these potential weaknesses may result in deterioration of the repayment prospects for the asset or in the institution’s credit position at some future date. Special Mention assets are not
adversely classified and do not expose an institution to sufficient risk to warrant adverse classification. This rating is not a transitional grade by definition; however, an appropriate action plan is required to ensure timely risk rating change as
circumstances warrant.
18
Substandard
– The loan is inadequately protected by the current worth and/or paying capacity of
the obligor or of the collateral pledged, if any. There are well-defined weaknesses that jeopardize the repayment of the debt. Although loss may not be imminent, if the weaknesses are not corrected, there is a good possibility that the Company will
sustain a loss. Loss potential, while existing in the aggregate amount of Substandard assets, does not have to exist in individual assets classified Substandard.
Loss—
Loans classified as loss, are considered uncollectible and of such little value that the continuance as an active Company asset is not warranted. This rating does not mean that the loan
has no recovery or salvage value, but rather that the loan should be charged off now, even though partial or full recovery may be possible in the future.
Direct and indirect consumer loans are not risk rated, but designated as either “Prime” or “High Risk Consumer (HRC)” based on credit score at origination. However, consumer loans
greater than 90 days past due are reported as non-performing loans. These loans are charged-off when they are 120 days past due; however, if these loans are secured by real estate, the Company may choose to write these loans down to the fair value
of the collateral.
Troubled Debt Restructurings (“TDR”) –
At September 30, 2012 and December 31, 2011, loans
of $25.4 million and $51.7 million, respectively, were classified as restructured loans. The restructurings were granted in response to borrower financial difficulty, and provide for a modification of loan repayment terms. As of September 30,
2012 and December 31, 2011, no available commitments were outstanding on troubled debt restructurings.
Modification Categories
The Company offers a variety of modifications to borrowers. The modification categories offered can generally be described in the
following categories:
Rate Modification
—A modification in which the interest rate is changed.
Term Modification
—A modification in which the maturity date, timing of payments, or frequency of payments is changed.
Interest Only Modification
– A modification in which the loan is converted to interest only payments for a period of time.
Payment Modification
– A modification in which the dollar amount of the payment is changed, other than an interest only modification
described above.
Combination Modification
– Any other type of modification, including the use of multiple categories above.
All TDR’s on accrual and nonaccrual status are evaluated for loss potential on an individual basis in accordance with Company policy for
impaired loans. The loans determined to be collateral dependent are carried at fair value based on current appraisals. Given our ALLL methodology, TDR modifications and defaults have no additional effect on the reserve.
19
The following tables summarize the Company’s troubled debt restructured loans by type, geographic
region, and maturities as of September 30, 2012:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Dollars in Thousands)
|
|
September 30, 2012
|
|
|
|
|
Restructured loans
|
|
|
|
|
Southern Oregon
|
|
|
Mid Oregon
|
|
|
Northern
California
|
|
|
Sacramento
Valley
|
|
|
Totals
|
|
|
Number
of
Loans
|
|
|
Construction, Land Dev & Other Land
|
|
$
|
331
|
|
|
$
|
1,838
|
|
|
$
|
127
|
|
|
$
|
2,665
|
|
|
$
|
4,961
|
|
|
|
11
|
|
|
Commercial & Industrial
|
|
|
3,437
|
|
|
|
—
|
|
|
|
584
|
|
|
|
214
|
|
|
|
4,235
|
|
|
|
9
|
|
|
Commercial Real Estate Loans
|
|
|
5,563
|
|
|
|
8,641
|
|
|
|
161
|
|
|
|
—
|
|
|
|
14,365
|
|
|
|
8
|
|
|
Other Loans Secured by 1-4 Family RE
|
|
|
1,032
|
|
|
|
—
|
|
|
|
307
|
|
|
|
514
|
|
|
|
1,853
|
|
|
|
10
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total restructured loans
|
|
$
|
10,363
|
|
|
$
|
10,479
|
|
|
$
|
1,179
|
|
|
$
|
3,393
|
|
|
$
|
25,414
|
|
|
|
38
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Dollars in Thousands)
|
|
|
|
|
Year of Maturity
|
|
Amount
|
|
|
2012
|
|
$
|
7,588
|
|
|
2013
|
|
|
4,856
|
|
|
2014
|
|
|
4,243
|
|
|
2015
|
|
|
3,832
|
|
|
2016
|
|
|
863
|
|
|
Thereafter
|
|
|
4,032
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
25,414
|
|
|
|
|
|
|
|
The following table presents troubled debt restructurings by accrual or non-accrual status as of September 30, 2012
and December 31, 2011:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
September 30, 2012
|
|
|
|
|
Restructured loans
|
|
|
(Dollars in Thousands)
|
|
Accrual Status
|
|
|
Non-accrual Status
|
|
|
Total Modifications
|
|
|
Construction, Land Dev & Other Land
|
|
$
|
984
|
|
|
$
|
3,977
|
|
|
$
|
4,961
|
|
|
Commercial & Industrial
|
|
|
3,841
|
|
|
|
394
|
|
|
|
4,235
|
|
|
Commercial Real Estate Loans
|
|
|
5,970
|
|
|
|
8,395
|
|
|
|
14,365
|
|
|
Other Loans Secured by 1-4 Family RE
|
|
|
482
|
|
|
|
1,371
|
|
|
|
1,853
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total restructured loans
|
|
$
|
11,277
|
|
|
$
|
14,137
|
|
|
$
|
25,414
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2011
|
|
|
|
|
Restructured loans
|
|
|
|
|
Accrual Status
|
|
|
Non-accrual Status
|
|
|
Total Modifications
|
|
|
Construction, Land Dev & Other Land
|
|
$
|
1,452
|
|
|
$
|
28,361
|
|
|
$
|
29,813
|
|
|
Commercial & Industrial
|
|
|
1,289
|
|
|
|
3,740
|
|
|
|
5,029
|
|
|
Commercial Real Estate Loans
|
|
|
1,118
|
|
|
|
13,258
|
|
|
|
14,376
|
|
|
Other Loans Secured by 1-4 Family RE
|
|
|
211
|
|
|
|
2,239
|
|
|
|
2,450
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total restructured loans
|
|
$
|
4,070
|
|
|
$
|
47,598
|
|
|
$
|
51,668
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
20
As of September 30, 2012, there were 38 borrowers with loans designated as TDR’s that met the
criteria for placement back on accrual status. This criteria is a minimum of six months of continuous satisfactory (less than 30 days past-due) payment performance under existing or modified terms, and this payment performance would be expected to
continue as documented by analysis based on current financial statements and/or tax returns.
The following tables present newly restructured
loans at the net active principal balance on the date of the restructuring by type of modification that occurred during the three months and nine months ended September 30, 2012 and 2011, respectively. No modification terms included principal
forgiveness in the newly restructured loans that occurred during these periods:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Dollars in Thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended September 30, 2012
|
|
|
|
|
Interest Only
|
|
|
Term
|
|
|
Combination
|
|
|
Total Modifications
|
|
|
Construction, Land Dev & Other Land
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
4,226
|
|
|
$
|
4,226
|
|
|
Commercial & Industrial
|
|
|
48
|
|
|
|
78
|
|
|
|
2,431
|
|
|
|
2,557
|
|
|
Commercial Real Estate Loans
|
|
|
—
|
|
|
|
219
|
|
|
|
4,681
|
|
|
|
4,900
|
|
|
Other Loans Secured by 1-4 Family RE
|
|
|
—
|
|
|
|
183
|
|
|
|
276
|
|
|
|
459
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total restructured loans
|
|
$
|
48
|
|
|
$
|
480
|
|
|
$
|
11,614
|
|
|
$
|
12,142
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended September 30, 2011
|
|
|
|
|
Interest Only
|
|
|
Term
|
|
|
Combination
|
|
|
Total Modifications
|
|
|
Construction, Land Dev & Other Land
|
|
$
|
—
|
|
|
$
|
2,325
|
|
|
$
|
331
|
|
|
$
|
2,656
|
|
|
Commercial & Industrial
|
|
|
—
|
|
|
|
—
|
|
|
|
1,335
|
|
|
|
1,335
|
|
|
Commercial Real Estate Loans
|
|
|
—
|
|
|
|
4,589
|
|
|
|
—
|
|
|
|
4,589
|
|
|
Other Loans Secured by 1-4 Family RE
|
|
|
—
|
|
|
|
—
|
|
|
|
213
|
|
|
|
213
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total restructured loans
|
|
$
|
—
|
|
|
$
|
6,914
|
|
|
$
|
1,879
|
|
|
$
|
8,793
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine Months Ended September 30, 2012
|
|
|
|
|
Interest Only
|
|
|
Term
|
|
|
Combination
|
|
|
Total Modifications
|
|
|
Construction, Land Dev & Other Land
|
|
$
|
—
|
|
|
$
|
107
|
|
|
$
|
29
|
|
|
$
|
136
|
|
|
Commercial & Industrial
|
|
|
—
|
|
|
|
48
|
|
|
|
3,722
|
|
|
|
3,770
|
|
|
Commercial Real Estate Loans
|
|
|
—
|
|
|
|
2,679
|
|
|
|
259
|
|
|
|
2,938
|
|
|
Other Loans Secured by 1-4 Family RE
|
|
|
—
|
|
|
|
671
|
|
|
|
276
|
|
|
|
947
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total restructured loans
|
|
$
|
—
|
|
|
$
|
3,505
|
|
|
$
|
4,286
|
|
|
$
|
7,791
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine Months Ended September 30, 2011
|
|
|
|
|
Interest Only
|
|
|
Term
|
|
|
Combination
|
|
|
Total Modifications
|
|
|
Construction, Land Dev & Other Land
|
|
$
|
—
|
|
|
$
|
2,325
|
|
|
$
|
4,858
|
|
|
$
|
7,183
|
|
|
Commercial & Industrial
|
|
|
48
|
|
|
|
78
|
|
|
|
3,765
|
|
|
|
3,891
|
|
|
Commercial Real Estate Loans
|
|
|
—
|
|
|
|
10,247
|
|
|
|
960
|
|
|
|
11,207
|
|
|
Other Loans Secured by 1-4 Family RE
|
|
|
133
|
|
|
|
—
|
|
|
|
351
|
|
|
|
484
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total restructured loans
|
|
$
|
181
|
|
|
$
|
12,650
|
|
|
$
|
9,934
|
|
|
$
|
22,765
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
21
The following table represents financing receivables at the net active principal balance on the date of the
restructuring modified within the last 12 months as TDR’s and had a payment default during the three months and nine months ended September 30, 2012 and 2011, respectively:
|
|
|
|
|
|
|
|
|
|
|
(Dollars in Thousands)
|
|
Three Months Ended
|
|
|
|
|
September
30, 2012
|
|
|
September
30, 2011
|
|
|
Construction, Land Dev & Other Land
|
|
$
|
—
|
|
|
$
|
2,325
|
|
|
Commercial & Industrial
|
|
|
—
|
|
|
|
—
|
|
|
Commercial Real Estate Loans
|
|
|
—
|
|
|
|
—
|
|
|
Other Loans Secured by 1-4 Family RE
|
|
|
—
|
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
Total restructured loans
|
|
$
|
—
|
|
|
$
|
2,325
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine Months Ended
|
|
|
|
|
September
30, 2012
|
|
|
September
30, 2011
|
|
|
Construction, Land Dev & Other Land
|
|
$
|
—
|
|
|
$
|
12,275
|
|
|
Commercial & Industrial
|
|
|
—
|
|
|
|
—
|
|
|
Commercial Real Estate Loans
|
|
|
2,522
|
|
|
|
—
|
|
|
Other Loans Secured by 1-4 Family RE
|
|
|
—
|
|
|
|
2,233
|
|
|
|
|
|
|
|
|
|
|
|
|
Total restructured loans
|
|
$
|
2,522
|
|
|
$
|
14,508
|
|
|
|
|
|
|
|
|
|
|
|
NOTE 6 – FEDERAL HOME LOAN BANK BORROWINGS AND OTHER BORROWINGS
The Bank had no long-term borrowings outstanding with the FHLB at September 30, 2012 and December 31, 2011. The Bank also
participates in the Cash Management Advance (“CMA”) program with the FHLB. CMA borrowings are short-term borrowings that mature within one day and accrue interest at the variable rate as published by the FHLB. As of September 30, 2012
and December 31, 2011, the Bank had no outstanding CMA borrowings. When borrowings with the FHLB occur, they are collateralized as provided for under the Advances, Security and Deposit Agreement between the Bank and the FHLB and include the
Bank’s FHLB stock and any funds or investment securities held by the FHLB that are not otherwise pledged for the benefit of others. At September 30, 2012, the Bank maintained a line of credit with the FHLB of Seattle for $58.2 million and
was in compliance with its related collateral requirements.
The Bank also had $15.0 million available for additional borrowing from a
correspondent bank; and $8.9 million available for borrowing from the Federal Reserve discount window.
During the second quarter of 2011, the
Company began a program to sell securities under agreements to repurchase. At September 30, 2012, the Bank had $7.0 million securities sold under agreements to repurchase with a maximum balance at any other month-end during the quarter of $7.0
million and a weighted average quarterly balance of $5.1 million, and an interest rate of 0.30% during the quarter. At December 31, 2011, the Bank had $4.2 million securities sold under agreements to repurchase with a maximum balance at any
month end during the year of $6.9 million, a weighted average yearly balance of $3.8 million, and an interest range of 0.30% to 0.50% during the year.
NOTE 7 – JUNIOR SUBORDINATED DEBENTURES
On December 30, 2004, the Company established two wholly-owned statutory business trusts (“PremierWest Statutory Trust I and
II”) that were formed to issue junior subordinated debentures and related common securities. On August 25, 2005, Stockmans Financial Group established a wholly-owned statutory business trust (“Stockmans Financial Trust I”) to
issue junior subordinated debentures and related common securities. Following the acquisition of Stockmans Financial Group, the Company became the successor-in-interest to Stockmans Financial Trust I. Common stock issued by each of the Trusts and
held as an investment by the Company is recorded in other assets in the consolidated balance sheets.
22
Following are the terms of the junior subordinated debentures as of September 30, 2012.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Dollars in Thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
Trust Name
|
|
Issue Date
|
|
Issued Amount
|
|
|
Rate
|
|
Maturity
Date
|
|
Redemption
Date
|
|
PremierWest Statutory Trust I
|
|
December
2004
|
|
|
$7,732,000
|
|
|
LIBOR + 1.75%
(1)
|
|
December
2034
|
|
December
2009
|
|
PremierWest Statutory Trust II
|
|
December
2004
|
|
|
7,732,000
|
|
|
LIBOR + 1.79%
(2)
|
|
March
2035
|
|
March
2010
|
|
Stockmans Financial Trust I
|
|
August
2005
|
|
|
15,464,000
|
|
|
LIBOR + 1.42%
(3)
|
|
September
2035
|
|
September
2010
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
30,928,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1)
|
PremierWest Statutory Trust I was bearing interest at the fixed rate of 5.65% until mid-December 2009, at which time it changed to a variable rate of
3-month LIBOR (0.390% at September 15, 2012) plus 1.75% or 2.140%, adjusted quarterly, through the final maturity date in December 2034.
|
|
(2)
|
PremierWest Statutory Trust II was bearing interest at the fixed rate of 5.65% until March 2010, at which time it changed to the variable rate of
3-month LIBOR (0.390% at September 15, 2012) plus 1.79% or 2.180%, adjusted quarterly, through the final maturity date in March 2035.
|
|
(3)
|
Stockmans Financial Trust I was bearing interest at the fixed rate of 5.93% until September 2010, at which time it changed to the variable rate of
3-month LIBOR (0.390% at September 15, 2012) plus 1.42% or 1.810%, adjusted quarterly, through the final maturity date in September 2035.
|
The Oregon Department of Consumer and Business Services, which supervises banks and bank holding companies through its Division of Finance and Corporate Securities, and the Federal Reserve have policies
that encourage banks and bank holding companies to pay dividends from current earnings, and have the general authority to limit the dividends paid by banks and bank holding companies, respectively. The Company does not expect to be in a position to
pay interest payments on trust preferred securities without regulatory approval or until the Bank is considered “well-capitalized” and has satisfied conditions in its regulatory agreement (see Note 2). The Company is permitted to defer
such interest payments for up to 20 consecutive quarters, but during a deferral period it is prohibited from making dividend payments on its capital stock. The amount of accrued and unpaid interest was approximately $2.8 million as of
September 30, 2012. At September 30, 2012, the Company had deferred payment of interest for twelve consecutive quarters.
NOTE 8 – PREFERRED STOCK
On February 13, 2009, in exchange for an aggregate purchase price of $41.4 million, the Company issued and sold to the United
States Department of the Treasury pursuant to the Troubled Asset Relief Program Capital Purchase Program (“TARP”) the following: (i) 41,400 shares of the Company’s Fixed Rate Cumulative Perpetual Preferred Stock, Series B, no par
value per share, and liquidation preference of $1,000 per share and (ii) a Warrant to purchase up to 109,039 shares of the Company’s common stock, no par value per share, at an exercise price of $57.00 per share, subject to certain
anti-dilution and other adjustments. The Warrant may be exercised for up to ten years after it is issued.
In connection with the issuance and
sale of the Company’s securities, the Company entered into a Letter Agreement including the Securities Purchase Agreement-Standard Terms, dated February 13, 2009, with the United States Department of the Treasury (the “TARP
Agreement”). The TARP Agreement contains limitations on the payment of quarterly cash dividends on the Company’s common stock in excess of $0.057 per share and on the Company’s ability to repurchase its common stock. The TARP
Agreement also grants the holders of the Series B Preferred Stock, the Warrant and the common stock to be issued under the Warrant registration rights, and subjects the Company to executive compensation limitations included in the Emergency Economic
Stabilization Act of 2008 as amended by the American Recovery and Reinvestment Act of 2009. Participants in the TARP Capital Purchase Program are required to have in place limitations on the compensation of Senior Executive Officers and other
employees.
The Series B Preferred Stock (“Preferred Stock”) will bear cumulative dividends at a rate of 5.0% per annum for the
first five years and 9.0% per annum thereafter, in each case, applied to the $1,000 per share liquidation preference, but will only be paid when, as and if declared by the Company’s Board of Directors out of funds legally available. The
Preferred Stock has no maturity date and ranks senior to the Company’s common stock with respect to the payment of dividends and distributions and amounts payable in the event of liquidation, dissolution and winding up of the Company.
23
In February 2009, following passage of the American Recovery and Reinvestment Act of 2009, the program terms
were changed and the Company is no longer required to conduct a qualified equity offering prior to retirement of the Series B Preferred Stock; however, prior approval of the Company’s primary federal regulator is required.
The Preferred Stock is not subject to any contractual restrictions on transfer. The holders of the Preferred Stock have no general voting rights, and
have only limited class voting rights including authorization or issuance of shares ranking senior to the Preferred Stock, any amendment to the rights of the Preferred Stock, or any merger, exchange or similar transaction which would adversely
affect the rights of the Preferred Stock. If dividends on the Preferred Stock are not paid in full for six dividend periods, whether or not consecutive, the Preferred Stock holders will have the right to elect two directors. The right to elect
directors will end when full dividends have been paid for four consecutive dividend periods. The Preferred Stock is not subject to sinking fund requirements and has no participation rights.
While payments have not been made since the third quarter of 2009, or the last twelve quarters, the Company has continued to accrue dividends through the third quarter of 2012. As of September 30,
2012, accrued and unpaid dividends totaled approximately $6.6 million.
NOTE 9 – COMMITMENTS AND CONTINGENCIES
The Company is a party to financial instruments with off-balance sheet risk in the normal course of business to meet the financing
needs of its customers. These financial instruments include commitments to extend credit and standby letters of credit. These instruments involve various levels and elements of credit and interest rate risk in excess of the amount recognized in the
accompanying consolidated financial statements. The contract or notional amounts of those instruments reflect the extent of involvement the Company has in particular classes of financial instruments. As of September 30, 2012, the Company had a
total of $70.4 million of unfunded loan commitments consisting of $64.1 million of commitments to extend credit to customers and $6.0 million of standby letters related to extensions of credit. The Company also had approximately $254,000 of other
unsecured lines of credit related to overdraft protection for demand deposit accounts.
Standby letters of credit are conditional commitments
issued by the Bank to guarantee the performance of a customer to a third party. These guarantees are primarily issued to support public and private borrowing arrangements. The credit risk involved in issuing letters of credit is essentially the same
as that involved in extending loan facilities to customers. Collateral held, if required, varies as specified above.
The Bank also maintains
a reserve against these off-balance sheet financial instruments. The amount of the reserve was $311,000 at September 30, 2012 which was an increase of $213,000 from December 31, 2011. This increase was incurred to enhance our provision for
off-balance sheet credit risk as part of a revision of the Company’s allowance for loan and lease losses methodology.
In the ordinary
course of business, the Bank may become involved in litigation arising from normal banking activities. In the opinion of Management, the ultimate disposition of current actions will not have a material adverse effect on the Company’s
consolidated financial position or results of operations.
NOTE 10 – BASIC AND DILUTED INCOME (LOSS) PER COMMON SHARE
The Company’s basic income (loss) per common share is computed by dividing net income (loss) available to common shareholders (net
income (loss) less dividends declared and accretion of discount on preferred stock) by the weighted average number of common shares outstanding during the period, after giving retroactive effect to stock dividends and splits. The Company’s
diluted income (loss) per common share is computed similar to basic income (loss) per common share except that the numerator is equal to net income (loss) and the denominator is increased to include the number of additional common shares that would
have been outstanding if dilutive potential common shares had been issued. Included in the denominator is the dilutive effect of stock options computed under the treasury stock method and the dilutive effect of the U.S. Treasury Warrant as if
converted to common stock.
24
The following summarizes the weighted average shares outstanding for computation of basic and diluted shares
for the three months and nine months ended September 30, 2012 and 2011.
|
|
|
|
|
|
|
|
|
|
|
Three months ended September 30:
|
|
2012
|
|
|
2011
|
|
|
Weighted average number of common shares:
|
|
|
|
|
|
|
|
|
|
Average shares outstanding-basic
|
|
|
10,034,741
|
|
|
|
10,035,241
|
|
|
Average shares outstanding-diluted
|
|
|
10,034,741
|
|
|
|
10,035,241
|
|
|
|
|
|
|
Nine months ended September 30:
|
|
2012
|
|
|
2011
|
|
|
Weighted average number of common shares:
|
|
|
|
|
|
|
|
|
|
Average shares outstanding-basic
|
|
|
10,034,741
|
|
|
|
10,035,240
|
|
|
Average shares outstanding-diluted
|
|
|
10,034,741
|
|
|
|
10,035,240
|
|
As of September 30, 2012, and 2011, stock options of 63,507 and 76,760, respectively, were not included in the
computation of diluted earnings per share, as well as the U.S. Treasury Warrant to purchase 109,039 shares of common stock, as their inclusion would have been anti-dilutive.
NOTE 11 – STOCK-BASED COMPENSATION
At September 30, 2012, PremierWest Bancorp had one active equity incentive plan – the 2011 Stock Incentive Plan (“2011
Plan”). Upon the recommendation of the Compensation Committee, the Board of Directors adopted the PremierWest Bancorp 2011 Plan effective February 24, 2011, subject to shareholder approval, which was received at the Annual Shareholder
Meeting on May 26, 2011. The 2011 Plan authorizes the issuance of up to 500,000 shares of stock, all of which were available for issuance at December 31, 2011. With the adoption of the 2011 Plan, no further grants will be made under the
2002 Plan. At September 30, 2012 there were unexercised grants totaling 63,507 shares, all of which had been made under the 1992 Plan or the 2002 Plan.
The 2011 Plan allows for stock options to be granted at an exercise price of not less than the fair value of PremierWest Bancorp stock on the date of issuance, for a term not to exceed ten years. The
Compensation Committee establishes the vesting schedule for each grant; historically the Committee has utilized graded vesting schedules over two, five and seven year periods. Upon exercise of stock options or issuance of restricted stock grants, it
is the Company’s policy to issue new shares of common stock.
During the nine month period ended September 30, 2012, stock option
activity was as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Number
of
Shares
|
|
|
Weighted Average
Exercise
Price
|
|
|
Weighted Average
Remaining
Contractual Term
(Years)
|
|
|
Aggregate
Intrinsic Value
(in thousands)
|
|
|
Stock options outstanding, 12/31/2011
|
|
|
74,743
|
|
|
$
|
91.75
|
|
|
|
|
|
|
|
|
|
|
Issued
|
|
|
—
|
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
Forfeited
|
|
|
(3,780
|
)
|
|
|
92.55
|
|
|
|
|
|
|
|
|
|
|
Expired
|
|
|
(7,456
|
)
|
|
|
51.57
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock options outstanding, 9/30/2012
|
|
|
63,507
|
|
|
|
96.42
|
|
|
|
3.45
|
|
|
$
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock options exercisable, 9/30/2012
|
|
|
49,150
|
|
|
$
|
96.80
|
|
|
|
2.89
|
|
|
$
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
PremierWest Bancorp measures and recognizes as compensation expense the grant date fair market value for all share-based
awards. That portion of the grant date fair market value that is ultimately expected to vest is recognized as expense over the requisite service period, typically the vesting period, utilizing the straight-line attribution method. This standard
requires companies to estimate the fair market value of stock-based payment awards on the date of grant using an option-pricing model. The Company uses the Black-Scholes option-pricing model to value its stock options. The Black-Scholes model
requires the use of assumptions regarding the historical volatility of the Company’s stock price, its expected dividend yield, the risk-free interest rate and the weighted average expected life of the options.
There were no stock options granted or restricted stock grants during the nine months ended September 30, 2012. During the nine months ended
September 30, 2011, there were 750 restricted stock grants issued. There were 500 restricted stock grants forfeited during the nine months ended September 30, 2012.
25
As of September 30, 2012, there were 750 restricted stock grants outstanding, all expected to fully
vest between 2016 and 2018.
Accounting for “Share-Based Payment” requires that the cash flows from the tax benefits resulting from
tax deductions in excess of the compensation expense recognized for stock options (excess tax benefits) be reported as financing cash flows. There were no excess tax benefits classified as financing cash inflows for the nine months ended
September 30, 2012, and September 30, 2011, respectively.
Stock-based compensation expense recognized under the standard was
$87,000 with a related tax benefit of $34,800 for the nine months ended September 30, 2012, compared to stock-based compensation expense of $108,000, with a related tax benefit of $43,200, for the nine months ended September 30, 2011.
At September 30, 2012, unrecognized stock-based compensation expense was $213,000 and $2,000 for stock options and restricted stock
grants; respectively, and will be expensed over a weighted-average period of approximately 1.1 years and 2.8 years respectively.
NOTE 12 – INCOME TAXES
At September 30, 2012, December 31, 2011, and September 30, 2011, the Company’s deferred tax assets were fully
offset by a valuation allowance. Under generally accepted accounting principles, a valuation analysis is required to be established if it is “more likely than not” that the deferred tax asset will not be realized. The determination of
realizing deferred tax assets is highly subjective and dependent upon judgment concerning Management’s evaluation of both positive and negative evidence, including forecasts of future income, applicable tax planning strategies and assessments
of current and future economic and business conditions. Positive evidence includes the ability to implement tax planning strategies to accelerate taxable income recognition and the probability that taxable income will be generated in future periods.
Negative evidence includes the Company’s cumulative loss in the prior three year period and the current general business and economic environment.
NOTE 13 – FAIR VALUE MEASUREMENTS
The Company bases fair value on the assumptions market participants would use when pricing the asset or liability. In support of this
principle, the Company establishes a fair value hierarchy that prioritizes the information used to develop those assumptions.
The fair value
hierarchy is as follows:
Level 1 inputs
– Unadjusted quoted prices in active markets for identical assets or liabilities that the
entity has the ability to access at the measurement date.
Level 2 inputs
– Inputs other than quoted prices included in Level 1
that are observable for the asset or liability, either directly or indirectly. These might include quoted prices for similar assets and liabilities in active markets and inputs other than quoted prices that are observable for the asset or liability,
such as interest rates and yield curves that are observable at commonly quoted intervals.
Level 3 inputs
– Unobservable inputs
for determining the fair values of assets or liabilities that reflect an entity’s own assumptions about the assumptions that market participants would use in pricing the assets or liabilities.
The Company used the following methods and significant assumptions to estimate fair value for its assets measured and carried at fair value on a
recurring basis in the financial statements:
Investment securities available-for-sale
– Securities classified as
available-for-sale are reported at fair value utilizing Level 1 and 2 inputs. However, as practically expedient, all securities are reported as utilizing Level 2 inputs. Fair values for investment securities are based on quoted market prices or the
market values for comparable securities. The Company obtains fair value measurements from an independent pricing service. The fair value measurements consider observable data that may include dealer quotes, market spreads, cash flows, the U.S.
Treasury yield curve, live trading levels, trade execution data, market consensus prepayment speeds, credit information and the bond’s terms and conditions, among other things. Available-for-sale securities are the only balance sheet category
the Company accounts for at fair value on a recurring basis.
26
The following table presents information about these securities and indicates the fair value hierarchy of
the valuation techniques utilized by the Company to determine such fair value:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Dollars in Thousands)
|
|
Fair Value Measurements
At September
30, 2012, Using
|
|
|
Description
|
|
Fair Value
9/30/2012
|
|
|
Quoted Prices in
Active Markets for
Identical Assets
(Level 1)
|
|
|
Other Observable
Inputs (Level 2)
|
|
|
Significant
Unobservable Inputs
(Level 3)
|
|
|
Available-for-sale securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Collateralized mortgage obligations
|
|
$
|
151,961
|
|
|
$
|
—
|
|
|
$
|
151,961
|
|
|
$
|
—
|
|
|
Mortgage-backed securities
|
|
|
91,397
|
|
|
|
—
|
|
|
|
91,397
|
|
|
|
—
|
|
|
Obligations of states and political subdivisions
|
|
|
77,225
|
|
|
|
—
|
|
|
|
77,225
|
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets measured at fair value
|
|
$
|
320,583
|
|
|
$
|
—
|
|
|
$
|
320,583
|
|
|
$
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair Value Measurements
At December 31,
2011, Using
|
|
|
Description
|
|
Fair Value
12/31/2011
|
|
|
Quoted Prices in
Active Markets for
Identical Assets
(Level 1)
|
|
|
Other Observable
Inputs (Level 2)
|
|
|
Significant
Unobservable Inputs
(Level 3)
|
|
|
Available-for-sale securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Collateralized mortgage obligations
|
|
$
|
134,416
|
|
|
$
|
—
|
|
|
$
|
134,416
|
|
|
$
|
—
|
|
|
Mortgage-backed securities
|
|
|
71,773
|
|
|
|
—
|
|
|
|
71,773
|
|
|
|
—
|
|
|
U.S. Government and agency securities
|
|
|
41,093
|
|
|
|
—
|
|
|
|
41,093
|
|
|
|
—
|
|
|
Obligations of states and political subdivisions
|
|
|
66,878
|
|
|
|
—
|
|
|
|
66,878
|
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets measured at fair value
|
|
$
|
314,160
|
|
|
$
|
—
|
|
|
$
|
314,160
|
|
|
$
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The Company used the following methods and significant assumptions to estimate fair value for its assets measured and
carried at fair value on a non-recurring basis in the financial statements.
Impaired Loans
– A loan is considered to be impaired
when, based on current information and events, it is probable that the Company will be unable to collect all amounts due (both interest and principal) according to the contractual terms of the loan agreement. Non-performing loans are evaluated and
valued at the time the loan is identified as impaired, at the lower of cost or fair value less selling costs (“net realizable value”). As a practical expedient, fair value may be measured based on a loan’s observable market price or
the underlying collateral securing the loan. Collateral may be real estate or business assets including equipment. The value of collateral is generally determined based on independent appraisals.
Other Real Estate and Foreclosed Assets
– Other real estate and foreclosed assets (“OREO”) acquired through foreclosure or deeds in
lieu of foreclosure are carried at fair value, less costs to sell, or estimated net realizable value utilizing current property appraisal valuations. When property is acquired, any excess of the loan balance over the estimated net realizable value
is charged to the allowance for loan losses. Holding costs, subsequent write-downs to net realizable value, if any, or any disposition gains or losses are included in non-interest expense. The Bank had $29.3 million and $22.8 million in OREO at
September 30, 2012, and December 31, 2011, respectively.
27
The following table presents the fair value measurement for non-earning assets as of September 30,
2012, and December 31, 2011, and indicates the fair value hierarchy of the valuation techniques utilized by the Company to determine such fair value on a non-recurring basis:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Dollars in Thousands)
|
|
Fair Value Measurements
As of
September 30, 2012, Using
|
|
|
Description
|
|
Fair Value
9/30/2012
|
|
|
Quoted Prices in
Active Markets
for Identical
Assets (Level 1)
|
|
|
Other
Observable
Inputs (Level 2)
|
|
|
Significant
Unobservable
Inputs (Level 3)
|
|
|
Total period
losses included
in earnings
|
|
|
Other real estate owned and foreclosed assets
|
|
$
|
29,288
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
29,288
|
|
|
$
|
(1,262
|
)
|
|
Loans measured for impairment, net of specific reserves
|
|
|
18,972
|
|
|
|
—
|
|
|
|
—
|
|
|
|
18,972
|
|
|
|
(3,259
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total impaired assets measured at fair value
|
|
$
|
48,260
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
48,260
|
|
|
$
|
(4,521
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair Value Measurements
As of December
31, 2011, Using
|
|
|
Description
|
|
Fair Value
12/31/2011
|
|
|
Quoted Prices in
Active Markets
for Identical
Assets (Level 1)
|
|
|
Other
Observable
Inputs (Level 2)
|
|
|
Significant
Unobservable
Inputs (Level 3)
|
|
|
Total period
losses included
in
earnings
|
|
|
Other real estate owned and foreclosed assets
|
|
$
|
22,829
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
22,829
|
|
|
$
|
(8,950
|
)
|
|
Loans measured for impairment, net of specific reserves
|
|
|
36,525
|
|
|
|
—
|
|
|
|
—
|
|
|
|
36,525
|
|
|
|
(19,677
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total impaired assets measured at fair value
|
|
$
|
59,354
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
59,354
|
|
|
$
|
(28,627
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of September 30, 2012, and December 31, 2011, all non-performing loans were considered impaired and were
measured for impairment. The table below shows the detail of the various categories of impaired loans:
|
|
|
|
|
|
|
|
|
|
|
(Dollars in Thousands)
|
|
As of September 30,
2012
|
|
|
As of December 31,
2011
|
|
|
Impaired loans with charge-offs to date (1)
|
|
$
|
16,994
|
|
|
$
|
27,324
|
|
|
Impaired loans with specific reserves
|
|
|
2,295
|
|
|
|
7,600
|
|
|
Impaired loans with both specific reserves and charge-offs loan-to-date (1)
|
|
|
—
|
|
|
|
3,688
|
|
|
|
|
|
|
|
|
|
|
|
|
Subtotal impaired loans with specific reserves and/or charge-offs loan-to-date
|
|
|
19,289
|
|
|
|
38,612
|
|
|
Specific reserves associated with impaired loans
|
|
|
(317
|
)
|
|
|
(2,087
|
)
|
|
|
|
|
|
|
|
|
|
|
|
Total loans measured for impairment, net of specific reserves
|
|
$
|
18,972
|
|
|
$
|
36,525
|
|
|
|
|
|
|
|
|
|
|
|
|
Impaired loans without charge-offs or specific reserves
|
|
$
|
11,184
|
|
|
$
|
37,629
|
|
|
Loans with specific reserves and/or charge-offs loan-to-date
|
|
|
19,289
|
|
|
|
38,612
|
|
|
|
|
|
|
|
|
|
|
|
|
Total impaired loans
|
|
$
|
30,473
|
|
|
$
|
76,241
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1)
|
Represents loans reduced for charge-offs incurred from inception of the loans
|
The following methods and assumptions were used by the Bank in estimating fair values of assets and liabilities:
Cash and cash equivalents
– The carrying amounts of cash and short-term instruments approximate their fair value. Therefore, the company believes the measurement of fair value of cash and cash
equivalents is derived from Level 1 inputs.
Interest-bearing deposits with the Federal Home Loan Bank of Seattle (“FHLB”) and
restricted equity securities
– The carrying amount approximates the estimated fair value and expected redemption values, and the Company uses these inputs to determine fair value. The Company has determined this is a Level 2 input.
28
Mortgage loans held-for-sale
– Mortgage loans held-for-sale are reported at the lower of cost or
market value. Cost generally approximates market value, given the short duration of these assets. Gains or losses on the sale of loans held-for-sale are recognized at the time of the sale and determined by the difference between net sale proceeds
and the net book value of the loans less the estimated fair value of any retained mortgage servicing rights. The Company uses these inputs to determine fair value. Therefore, the Company has determined this is a Level 2 input.
Loans
– Fair values for variable-rate commercial loans, certain mortgage loans (for example, commercial and one-to-four family residential),
and other consumer loans are based on carrying values. For fixed rate loans, projected cash flows are discounted back to their present value based on spreads derived from the current relationship between industry observed benchmark rates and
corresponding market indexes. Each pool of loans is then discounted to the Swap/LIBOR curve plus/minus this spread. Fair values for impaired loans are estimated using discounted cash flow analyses or underlying collateral values based on current
market appraisals, less costs to sell, where applicable. The ALLL is considered to be a reasonable estimate of loan discount for credit quality concerns. Using these inputs, the Company has determined this is a Level 3 input.
Deposit liabilities
– The fair values disclosed for demand deposits are, by definition, equal to the amount payable on demand at the
reporting date (that is, their carrying amounts). The carrying amounts of variable-rate money market accounts, savings accounts and interest checking accounts approximate their fair values at the reporting date. Fair values for fixed-rate CDs are
estimated using a discounted cash flow calculation that applies interest rates currently being offered on certificates to a schedule of aggregated expected monthly maturities on time deposits. The Company utilized a third-party provider to calculate
fair value using these inputs, and has therefore determined this is a Level 2 input.
Short-term borrowings and securities sold under
agreements to repurchase
– The carrying amounts of federal funds purchased, securities sold under agreements to repurchase, and other short-term borrowings maturing within 90 days approximate their fair values. Fair values of other
short-term borrowings are estimated using discounted cash flow analyses based on the Bank’s current incremental borrowing rate for similar types of borrowing arrangements. Using these inputs, the Company has determined this is a Level 2 input.
Long-term debt
– The fair values of the Bank’s long-term debt is estimated using discounted cash flow analyses based on the
Bank’s current incremental borrowing rate for similar types of borrowing arrangements. The Company has determined this is a Level 2 input.
Off-balance sheet financial instruments
– The Bank’s off-balance sheet financial instruments include unfunded commitments to extend
credit and standby letters of credit. The fair value of these instruments is not considered practicable to estimate because of the lack of quoted market prices and the inability to estimate fair value without incurring excessive costs. Given the
uncertainty of a commitment being drawn upon, it is not reasonable to estimate the fair value of these commitments; therefore, the Company has not made any disclosure on the fair value of off-balance sheet financial instruments.
The following disclosures are made in accordance with the provisions of “Disclosures About Fair Value of Financial Instruments,” which requires
the disclosure of fair value information about financial instruments where it is practicable to estimate that value. In cases where quoted market values are not available, the Bank primarily uses present value techniques to estimate the fair values
of its financial instruments. Valuation methods require considerable judgment and the resulting estimates of fair value can be significantly affected by the assumptions made and methods used. Accordingly, the estimates provided herein do not
necessarily indicate amounts that could be realized in a current market exchange.
In addition, as the Bank normally intends to hold the
majority of its financial instruments until maturity, it does not expect to realize many of the estimated amounts disclosed. The disclosures also do not include estimated fair value amounts for items that are not defined as financial instruments but
have significant value. These include such off-balance sheet items as core deposit intangibles on acquired deposits. The Bank does not believe that it would be practicable to estimate a representational fair value for these types of items as of the
periods presented.
As this standard excludes certain financial instruments and all non-financial instruments from its disclosure
requirements, any aggregation of the fair value amounts presented in the following table would not represent the underlying value of the Bank.
29
The following tables present information about the level in the fair value hierarchy for the Company’s
assets and liabilities that are not measured on a recurring basis as of September 30, 2012 and December 31, 2011.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Dollars in Thousands)
|
|
September 30,
2012
|
|
|
Fair Value at September 30, 2012
|
|
|
|
|
Carrying Value
|
|
|
Total Fair Value
|
|
|
Level 1
|
|
|
Level 2
|
|
|
Level 3
|
|
|
Financial assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
65,543
|
|
|
$
|
65,543
|
|
|
$
|
65,543
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
Interest-bearing certificates of deposit (original maturities greater than 90 days)
|
|
|
1,500
|
|
|
|
1,500
|
|
|
|
1,500
|
|
|
|
—
|
|
|
|
—
|
|
|
Investment securities—CRA
|
|
|
4,962
|
|
|
|
4,962
|
|
|
|
—
|
|
|
|
4,962
|
|
|
|
—
|
|
|
Restricted equity investments
|
|
|
3,082
|
|
|
|
3,082
|
|
|
|
—
|
|
|
|
3,082
|
|
|
|
—
|
|
|
Loans held-for-sale
|
|
|
3,214
|
|
|
|
3,214
|
|
|
|
—
|
|
|
|
3,214
|
|
|
|
—
|
|
|
Loans
|
|
|
676,354
|
|
|
|
679,056
|
|
|
|
—
|
|
|
|
—
|
|
|
|
679,056
|
|
|
Accrued interest receivable
|
|
|
4,267
|
|
|
|
4,267
|
|
|
|
4,267
|
|
|
|
—
|
|
|
|
—
|
|
|
Financial liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deposits
|
|
$
|
1,014,982
|
|
|
$
|
1,019,229
|
|
|
$
|
—
|
|
|
$
|
1,019,229
|
|
|
$
|
—
|
|
|
Securities sold under agreements to repurchase
|
|
|
7,037
|
|
|
|
7,037
|
|
|
|
—
|
|
|
|
7,037
|
|
|
|
—
|
|
|
Junior subordinated debentures
|
|
|
30,928
|
|
|
|
10,696
|
|
|
|
—
|
|
|
|
—
|
|
|
|
10,696
|
|
|
Accrued interest payable
|
|
|
3,020
|
|
|
|
3,020
|
|
|
|
3,020
|
|
|
|
—
|
|
|
|
—
|
|
|
|
|
|
|
(Dollars in Thousands)
|
|
December 31,
2011
|
|
|
Fair Value at December 31, 2011
|
|
|
|
|
Carrying Value
|
|
|
Total Fair Value
|
|
|
Level 1
|
|
|
Level 2
|
|
|
Level 3
|
|
|
Financial assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
71,349
|
|
|
$
|
71,349
|
|
|
$
|
71,349
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
Interest-bearing certificates of deposit (original maturities greater than 90 days)
|
|
|
1,500
|
|
|
|
1,500
|
|
|
|
1,500
|
|
|
|
—
|
|
|
|
—
|
|
|
Investment securities—CRA
|
|
|
2,000
|
|
|
|
2,000
|
|
|
|
—
|
|
|
|
2,000
|
|
|
|
—
|
|
|
Restricted equity investments
|
|
|
3,255
|
|
|
|
3,255
|
|
|
|
—
|
|
|
|
3,255
|
|
|
|
—
|
|
|
Loans held-for-sale
|
|
|
810
|
|
|
|
810
|
|
|
|
—
|
|
|
|
810
|
|
|
|
—
|
|
|
Loans
|
|
|
797,878
|
|
|
|
799,218
|
|
|
|
—
|
|
|
|
—
|
|
|
|
799,218
|
|
|
Accrued interest receivable
|
|
|
4,567
|
|
|
|
4,567
|
|
|
|
4,567
|
|
|
|
—
|
|
|
|
—
|
|
|
Financial liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deposits
|
|
$
|
1,127,749
|
|
|
$
|
1,133,695
|
|
|
$
|
—
|
|
|
$
|
1,133,695
|
|
|
$
|
—
|
|
|
Securities sold under agreements to repurchase
|
|
|
4,241
|
|
|
|
4,241
|
|
|
|
—
|
|
|
|
4,241
|
|
|
|
—
|
|
|
Junior subordinated debentures
|
|
|
30,928
|
|
|
|
12,999
|
|
|
|
—
|
|
|
|
—
|
|
|
|
12,999
|
|
|
Accrued interest payable
|
|
|
2,536
|
|
|
|
2,536
|
|
|
|
2,536
|
|
|
|
—
|
|
|
|
—
|
|
NOTE 14 – RECENTLY ISSUED ACCOUNTING STANDARDS
In October 2012, the FASB issued Accounting Standards Update ASU No. 2012-06 “Business Combinations (Topic 805) –
Subsequent Accounting for an Indemnification Asset Recognized at the Acquisition Date as a Result of a Government-Assisted Acquisition of a Financial Institution.” This Standard requires that when a reporting entity recognizes an
indemnification asset (in accordance with Subtopic 805-20) as a result of a government-assisted acquisition of a financial institution and subsequently a change in the cash flows expected to be collected on the indemnification asset occurs, the
reporting entity should subsequently account for the change in the measurement of the indemnification asset on the same basis as the change in the assets subject to indemnification. This Standard is effective for fiscal years, and interim periods
within those years, beginning on or after December 15, 2012. Early adoption is permitted. The amendments should be applied prospectively to any new indemnification assets acquired after the date of adoption and to indemnification assets
existing as of the date of adoption arising from a government-assisted acquisition of a financial institution. Certain transition disclosures are required. The adoption of ASU No. 2012-06 is not expected to have a material impact on the
consolidated financial statements.
In July 2012, the FASB issued Accounting Standards Update ASU No. 2012-02 “Intangibles –
Goodwill and Other (Topic 350): Testing Indefinite-Lived Intangible Assets for Impairment.” This Standard is effective for annual and interim impairment tests performed for fiscal years beginning after September 15, 2012. Early adoption is
permitted, including for annual and interim impairment tests performed as of a date before July 27, 2012, if a public entity’s financial statements for the most recent annual or interim period have not yet been issued or, or nonpublic
entitles, have not yet been made available for issuance. The adoption of ASU No. 2012-02 is not expected to have a material impact on the consolidated financial statements.
30
In December 2011, the FASB issued Accounting Standards Update ASU No. 2011-12 “Comprehensive
Income (Topic 220) – Deferral of the Effective Date for Amendments to the Presentation of Reclassifications of Items Out of Accumulated Other Comprehensive Income in Accounting Standards Update No. 2011-05.” This Standard defers only
those changes in Update 2011-05 that relate to the presentation of reclassification adjustments. This standard is effective for public companies for fiscal years, and interim period within those years, beginning after December 15, 2011. The
adoption of ASU No. 2011-12 is not expected to have a material impact on the consolidated financial statements.
In September 2011, the
FASB issued Accounting Standards Update ASU No. 2011-08 “Intangibles – Goodwill and Other (Topic 350): Testing for Goodwill Impairment.” This Standard is intended to simplify how entities test goodwill for impairment. The
amendments in the Update permit 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. This standard is effective for annual and interim goodwill impairment tests performed for fiscal years beginning after December 15, 2011. The adoption of ASU
No. 2011-08 is not expected to have a material impact on the consolidated financial statements.
In June 2011, the FASB issued Accounting
Standards Update ASU No. 2011-05 “Comprehensive Income (Topic 220) – Presentation of Comprehensive Income.” This Standard is intended to improve the overall quality of financial reporting by increasing the prominence of items
reported in other comprehensive income (“OCI”), and additionally align the presentation of OCI in financial statements prepared in accordance with U.S. GAAP with those prepared in accordance with IFRSs. This standard is effective for
public companies for fiscal years, and interim period within those years, beginning after December 15, 2011, and should be applied retrospectively. The adoption of ASU No. 2011-05 did not have a material impact on the consolidated
financial statements.
In May 2011, the FASB issued Accounting Standards Update ASU No. 2011-04 “Fair Value Measurement (Topic 820)
– Amendments to Achieve Common Fair Value Measurement and Disclosure Requirements in U.S. GAAP and IFRSs.” This Standard is intended to permit the use of a premium or discount to an instrument’s market value when such a step is a
standard practice. In some instances, the amendments permit instruments to be valued based on a business’s net risk to the market or a trading partner. The amendments are to be applied prospectively, and will be effective for public companies
for fiscal years and quarters that start after December 15, 2011. The adoption of ASU No. 2011-04 did not have a material impact on the consolidated financial statements.
In April 2011, the FASB issued Accounting Standards Update ASU No. 2011-03 “Transfers and servicing (Topic 860) – Reconsideration of Effective Control for Repurchase Agreements.” This
Standard is intended to improve the manner in which repo and other agreements that both entitle and obligate a transferor to repurchase or redeem financial assets before their maturity are reported in the financial statements by modifying Topic 860.
This standard is effective for the first interim or annual period beginning on or after December 15, 2011, and should be applied prospectively to transactions or modifications of existing transactions that occur on or after the effective date,
with early adoption disallowed. The adoption of ASU No. 2011-03 did not have a material impact on the consolidated financial statements.
In April 2011, the FASB issued Accounting Standards Update ASU No. 2011-02 “Receivables (Topic 310) – A Creditor’s Determination of
Whether a Restructuring Is A Troubled Debt Restructuring.” This Standard clarifies the accounting principles applied to loan modifications. ASU No. 2011-02 was issued to address the recording of an impairment loss in FASB ASC 310,
Receivables. The changes apply to a lender that modifies a receivable covered by Subtopic 310-40 Receivables – Troubled Debt Restructurings by Creditors. This standard is effective for the first interim or annual period beginning on or after
June 15, 2011, and should be applied retrospectively. The adoption of ASU No. 2011-02 did not have a material impact on the consolidated financial statements.
NOTE 15 – SUBSEQUENT EVENT
On October 29, 2012, PremierWest Bancorp entered into an Agreement and Plan of Merger (the “Merger Agreement”) with
Starbuck Bancshares, Inc., a Minnesota corporation (“Starbuck”), and Pearl Merger Sub Corp., an Oregon corporation and a newly formed subsidiary of Starbuck (“Merger Sub”). The Merger Agreement provides that, upon the terms and
subject to the conditions set forth therein, including regulatory and shareholder approval, PremierWest will merge (the “Merger”) with and into Merger Sub, with Merger Sub as the surviving corporation. The parties contemplate in the Merger
Agreement that immediately following the Merger, PremierWest Bank will merge with and into AmericanWest Bank, a wholly owned subsidiary of Starbuck, with AmericanWest Bank as the surviving bank. The Board of Directors of each of PremierWest,
Starbuck and Merger Sub adopted and approved the Merger Agreement and the transactions contemplated thereby. A copy of the Merger Agreement is included as Exhibit 2.1 to PremierWest Bancorp’s Form 8-K filed October 30, 2012.
31
ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
The following discussion should be read in conjunction with the audited consolidated financial statements and
related notes to those statements of PremierWest Bancorp (“Bancorp” or the “Company”) that appear under the heading “Financial Statements and Supplementary Data” in Bancorp’s Annual Report on Form 10-K for the year
ended December 31, 2011 (“2011 10-K”), as well as the unaudited consolidated financial statements for the current quarter found under Item 1 above.
DISCLOSURE REGARDING FORWARD LOOKING STATEMENTS
Statements in this Quarterly Report of
PremierWest Bancorp (“Bancorp” or the “Company”) regarding future events or performance are “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995 (the “PSLRA”)
and are made pursuant to the safe harbors of the PSLRA. The Company’s actual results could be quite different from those expressed or implied by the forward-looking statements. Words such as “could,” “may,”
“should,” “plan,” “believes,” “anticipates,” “estimates,” “predicts,” “expects,” “projects,” “potential,” “likely,” or “continue,” or words
of similar import, often help identify “forward-looking statements,” which include any statements that expressly or implicitly predict future events, results, or performance. Factors that could cause events, results or performance to
differ from those expressed or implied by our forward-looking statements include, among others, risks discussed in Item 1A, “Risk Factors” of the 2011 10-K, risks discussed elsewhere in the text of this report and in our filings with
the SEC, as well as the following specific factors:
|
|
•
|
|
General economic conditions, whether national or regional, and conditions in real estate markets, that may affect the demand for our loan and other
products, lead to declines in credit quality and increase in loan losses, negatively affect the value and salability of the real estate that we own or that is the collateral for many of our loans, and hinder our ability to increase lending
activities;
|
|
|
•
|
|
Changing bank regulatory conditions, policies, or programs, whether arising as new legislation or regulatory initiatives or changes in our regulatory
classifications, that could lead to restrictions on activities of banks generally or PremierWest Bank (the “Bank”) in particular, increased costs, including higher deposit insurance premiums, price controls on debit card interchange,
regulation or prohibition of certain income producing activities, or changes in the secondary market for bank loan and other products;
|
|
|
•
|
|
Competitive factors, including competition with community, regional and national financial institutions, that may lead to pricing pressures that reduce
yields the Bank earns on loans or increase rates the Bank pays on deposits, the loss of our most valued customers, defection of key employees or groups of employees, or other losses;
|
|
|
•
|
|
Increasing or decreasing interest rate environments, including the slope and level of the yield curve, that could lead to decreases in net interest
margin, lower net interest and fee income, including lower gains on sales of loans, and changes in the value of the Company’s investment securities; and
|
|
|
•
|
|
Changes or failures in technology or third party vendor relationships in important revenue production or service areas or increases in required
investments in technology that could reduce our revenues, increase our costs, or lead to disruptions in our business.
|
Furthermore, forward-looking statements are subject to risks and uncertainties related to the Company’s ability to, among other things: dispose of
properties or other assets obtained through foreclosures at expected prices and within a reasonable period of time; attract and retain key personnel; generate loan and deposit balances at projected spreads; sustain fee generation including gains on
sales of loans; maintain asset quality and control risk; limit the amount of net loan charge-offs; manage its interest rate sensitivity position in periods of changing market interest rates; adapt to changing customer deposit, investment and
borrowing behaviors; control expense growth; and monitor and manage the Company’s financial reporting, operating and disclosure control environments.
Readers are cautioned not to place undue reliance on our forward-looking statements, which reflect Management’s analysis only as of the date of the statements. The Company does not intend to publicly
revise or update forward-looking statements to reflect events or circumstances that arise after the date of this report.
Readers should
carefully review all disclosures we file from time to time with the Securities and Exchange Commission (“SEC”).
32
Third quarter 2012 Financial Overview
During third quarter 2012, we recorded:
|
|
•
|
|
Net income applicable to common shareholders of $114,000, compared to a $2.0 million net loss in second quarter 2012 and a $3.5 million net loss in
third quarter 2011;
|
|
|
•
|
|
No loan loss provision expense versus $1.3 million in second quarter 2012 and $5.1 in third quarter 2011;
|
|
|
•
|
|
Net loan charge-offs of $344,000 compared to net loan charge-offs of $2.1 million in second quarter 2012 and $6.5 million in third quarter 2011;
|
|
|
•
|
|
Net OREO and foreclosed asset expenses of $883,000, a decrease from $1.2 million in second quarter 2012, and an increase from $644,000 in third quarter
2011;
|
|
|
•
|
|
Additional expenses of $900,000 and $500,000, associated with capital strategy initiatives and adjustments to deferred benefit obligations,
respectively, were partially offset by $700,000 in net gain on sale of securities;
|
|
|
•
|
|
Net interest margin of 4.01%, a decrease from 4.34% in second quarter 2012 and 4.21% in third quarter 2011;
|
|
|
•
|
|
Average rate paid on total deposits and borrowings of 0.55%, a decline from 0.56% in the second quarter in 2012 and 0.72% in third quarter 2011.
|
Management continued to execute strategies that have resulted in further strengthening of the Company, including:
|
|
•
|
|
Reducing adversely classified loans to $103.7 million, down from $118.1 million at June 30, 2012 and $192.4 million at September 30, 2011;
|
|
|
•
|
|
Reducing non-performing assets to $59.8 million, a decline from $72.3 million at June 30, 2012 and $106.3 million at September 30, 2011;
|
|
|
•
|
|
Improving the allowance for loan and lease losses coverage of non-performing loans to 62.9%, up from 50.8% at June 30, 2012 and 34.5% at
September 30, 2011;
|
|
|
•
|
|
Completing additional expense control initiatives that began in the second quarter 2012, including a restructuring of staff and processes that are
projected to result in annualized savings of approximately $2.5 million. As a result of these changes, some staff positions were eliminated and other vacant positions were not filled in order to create a more efficient organization;
|
|
|
•
|
|
Strengthening the Bank’s total risk-based and leverage capital ratios to 14.28% and 9.34%, respectively, as compared to 13.64% and 9.01% at
June 30, 2012 and 12.71% and 8.80% at September 30, 2011;
|
|
|
•
|
|
Increasing non-interest bearing demand deposits to 27% of total deposits, as compared to 26% in second quarter 2012 and 24% in third quarter 2011.
|
OPERATING RESULTS
Net Interest Income
Net interest income for the quarter and nine months ended
September 30, 2012 declined from the three and nine months ended September 30, 2011. This is primarily due to a decline in average interest earning assets during these periods as a result of the Company’s deleveraging strategy.
Correspondingly, average interest bearing liabilities decreased during these same periods. Changes in the balance sheet mix also contributed to declines in net interest income during these periods. Loan balances have declined through payoffs and
charge-offs. Investment securities have grown as a proportion of the balance sheet with loan demand continuing to be soft due to the continued economic weakness. As such, investment securities, which typically generate a lower yield than loans,
comprise a higher percentage of the Bank’s earning assets.
Net interest income for the current quarter decreased from the quarter ended
June 30, 2012 primarily due to the decline in earning assets between the periods. Interest income also decreased due to the collection of approximately $500,000 in recaptured loan interest in second quarter 2012 from the sale of a note.
Interest expense continued to decline due to the reduction in the balances of, and rates paid on, certificates of deposit. Also, an adjustment of $82,000 in interest expense on junior subordinated debentures was taken in the current quarter. This
adjustment increased the cost of average borrowings by 91 basis points and average total deposits and borrowings and net interest margin by 3 basis points each during this period.
33
Certain reclassifications have been made to the following financial table presentations to conform to
current period presentations. These reclassifications have no effect on previously reported net income (loss) per share.
STATEMENT OF
OPERATIONS OVERVIEW
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Dollars in Thousands, Except for Loss per Share Data)
|
|
|
|
|
For the Three
Months Ended
September 30, 2012
|
|
|
For the Three
Months Ended
June 30, 2012
|
|
|
$ Change
|
|
|
%
Change
|
|
|
For the Three
Months Ended
September 30, 2011
|
|
|
$ Change
|
|
|
%
Change
|
|
|
Interest and dividend income
|
|
$
|
12,110
|
|
|
$
|
13,177
|
|
|
$
|
(1,067
|
)
|
|
|
-8
|
%
|
|
$
|
15,036
|
|
|
$
|
(2,926
|
)
|
|
|
-19
|
%
|
|
Interest expense
|
|
|
1,486
|
|
|
|
1,543
|
|
|
|
(57
|
)
|
|
|
-4
|
%
|
|
|
2,187
|
|
|
|
(701
|
)
|
|
|
-32
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net interest income
|
|
|
10,624
|
|
|
|
11,634
|
|
|
|
(1,010
|
)
|
|
|
-9
|
%
|
|
|
12,849
|
|
|
|
(2,225
|
)
|
|
|
-17
|
%
|
|
Loan loss provision
|
|
|
—
|
|
|
|
1,275
|
|
|
|
(1,275
|
)
|
|
|
-100
|
%
|
|
|
5,050
|
|
|
|
(5,050
|
)
|
|
|
-100
|
%
|
|
Non-interest income
|
|
|
3,350
|
|
|
|
2,594
|
|
|
|
756
|
|
|
|
29
|
%
|
|
|
2,667
|
|
|
|
683
|
|
|
|
26
|
%
|
|
Non-interest expense
|
|
|
13,215
|
|
|
|
14,247
|
|
|
|
(1,032
|
)
|
|
|
-7
|
%
|
|
|
13,298
|
|
|
|
(83
|
)
|
|
|
-1
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
INCOME (LOSS) BEFORE PROVISION FOR INCOME TAXES
|
|
|
759
|
|
|
|
(1,294
|
)
|
|
|
2,053
|
|
|
|
159
|
%
|
|
|
(2,832
|
)
|
|
|
3,591
|
|
|
|
127
|
%
|
|
PROVISION FOR INCOME TAXES
|
|
|
11
|
|
|
|
37
|
|
|
|
(26
|
)
|
|
|
-70
|
%
|
|
|
23
|
|
|
|
(12
|
)
|
|
|
-52
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NET INCOME (LOSS)
|
|
|
748
|
|
|
|
(1,331
|
)
|
|
|
2,079
|
|
|
|
156
|
%
|
|
|
(2,855
|
)
|
|
|
3,603
|
|
|
|
126
|
%
|
|
PREFERRED STOCK DIVIDENDS AND DISCOUNT ACCRETION
|
|
|
634
|
|
|
|
634
|
|
|
|
—
|
|
|
|
0
|
%
|
|
|
614
|
|
|
|
20
|
|
|
|
3
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NET INCOME (LOSS) APPLICABLE TO COMMON SHAREHOLDERS
|
|
$
|
114
|
|
|
$
|
(1,965
|
)
|
|
$
|
2,079
|
|
|
|
106
|
%
|
|
$
|
(3,469
|
)
|
|
$
|
3,583
|
|
|
|
103
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
INCOME (LOSS) PER COMMON SHARE:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
BASIC
(1)
|
|
$
|
0.01
|
|
|
$
|
(0.20
|
)
|
|
$
|
0.21
|
|
|
|
105
|
%
|
|
$
|
(0.35
|
)
|
|
$
|
0.36
|
|
|
|
103
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
DILUTED
(1)
|
|
$
|
0.01
|
|
|
$
|
(0.20
|
)
|
|
$
|
0.21
|
|
|
|
105
|
%
|
|
$
|
(0.35
|
)
|
|
$
|
0.36
|
|
|
|
103
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Average common shares outstanding—basic
(1)
|
|
|
10,034,741
|
|
|
|
10,034,741
|
|
|
|
—
|
|
|
|
0
|
%
|
|
|
10,035,241
|
|
|
|
(500
|
)
|
|
|
0
|
%
|
|
Average common shares outstanding—diluted
(1)
|
|
|
10,034,741
|
|
|
|
10,034,741
|
|
|
|
—
|
|
|
|
0
|
%
|
|
|
10,035,241
|
|
|
|
(500
|
)
|
|
|
0
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Nine
Months Ended
September 30, 2012
|
|
|
For the Nine
Months Ended
September 30, 2011
|
|
|
$ Change
|
|
|
%
Change
|
|
|
|
|
|
|
|
|
|
|
|
Interest and dividend income
|
|
$
|
38,405
|
|
|
$
|
45,765
|
|
|
$
|
(7,360
|
)
|
|
|
-16
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense
|
|
|
4,773
|
|
|
|
7,589
|
|
|
|
(2,816
|
)
|
|
|
-37
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net interest income
|
|
|
33,632
|
|
|
|
38,176
|
|
|
|
(4,544
|
)
|
|
|
-12
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loan loss provision
|
|
|
4,775
|
|
|
|
11,350
|
|
|
|
(6,575
|
)
|
|
|
-58
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-interest income
|
|
|
10,427
|
|
|
|
8,462
|
|
|
|
1,965
|
|
|
|
23
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-interest expense
|
|
|
43,998
|
|
|
|
46,911
|
|
|
|
(2,913
|
)
|
|
|
-6
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
LOSS BEFORE PROVISION FOR INCOME TAXES
|
|
|
(4,714
|
)
|
|
|
(11,623
|
)
|
|
|
6,909
|
|
|
|
59
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
PROVISION FOR INCOME TAXES
|
|
|
58
|
|
|
|
44
|
|
|
|
14
|
|
|
|
32
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NET LOSS
|
|
|
(4,772
|
)
|
|
|
(11,667
|
)
|
|
|
6,895
|
|
|
|
59
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
PREFERRED STOCK DIVIDENDS AND DISCOUNT ACCRETION
|
|
|
1,896
|
|
|
|
1,883
|
|
|
|
13
|
|
|
|
1
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NET LOSS APPLICABLE TO COMMON SHAREHOLDERS
|
|
$
|
(6,668
|
)
|
|
$
|
(13,550
|
)
|
|
$
|
6,882
|
|
|
|
51
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
LOSS PER COMMON SHARE:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
BASIC
(1)
|
|
$
|
(0.66
|
)
|
|
$
|
(1.35
|
)
|
|
$
|
0.69
|
|
|
|
51
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
DILUTED
(1)
|
|
$
|
(0.66
|
)
|
|
$
|
(1.35
|
)
|
|
$
|
0.69
|
|
|
|
51
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Average common shares outstanding—basic
(1)
|
|
|
10,034,741
|
|
|
|
10,035,240
|
|
|
|
(499
|
)
|
|
|
0
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Average common shares outstanding—diluted
(1)
|
|
|
10,034,741
|
|
|
|
10,035,240
|
|
|
|
(499
|
)
|
|
|
0
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1)
|
As of September 30, 2012, June 30, 2012, and September 30, 2011, 109,039 common shares related to the potential exercise of the warrant issued to
the U.S. Treasury pursuant to the Troubled Asset Relief Program (TARP) Capital Purchase Program were not included in the computation of diluted earnings per share as their inclusion would have been anti-dilutive.
|
34
The following table provides the reconciliation of net income (loss) applicable to common shareholders to
pre-tax, pre-credit operating income (non-GAAP) for the periods presented:
Reconciliation of Non-GAAP Measure:
Non-GAAP Operating Income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Dollars in Thousands)
For
The Three Months Ended
|
|
September 30,
2012
|
|
|
June 30,
2012
|
|
|
$ Change
|
|
|
%
Change
|
|
|
September
30, 2011
|
|
|
$ Change
|
|
|
%
Change
|
|
|
Net income (loss) applicable to common shareholders
|
|
$
|
114
|
|
|
$
|
(1,965
|
)
|
|
$
|
2,079
|
|
|
|
106
|
%
|
|
$
|
(3,469
|
)
|
|
$
|
3,583
|
|
|
|
103
|
%
|
|
Provision for loan losses
|
|
|
—
|
|
|
|
1,275
|
|
|
|
(1,275
|
)
|
|
|
-100
|
%
|
|
|
5,050
|
|
|
|
(5,050
|
)
|
|
|
100
|
%
|
|
Net cost of operations of other real estate owned and foreclosed assets
|
|
|
883
|
|
|
|
1,223
|
|
|
|
(340
|
)
|
|
|
-28
|
%
|
|
|
644
|
|
|
|
239
|
|
|
|
37
|
%
|
|
Provision for income taxes
|
|
|
11
|
|
|
|
37
|
|
|
|
(26
|
)
|
|
|
-70
|
%
|
|
|
23
|
|
|
|
(12
|
)
|
|
|
-52
|
%
|
|
Preferred stock dividends and discount accretion
|
|
|
634
|
|
|
|
634
|
|
|
|
—
|
|
|
|
0
|
%
|
|
|
614
|
|
|
|
20
|
|
|
|
3
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pre-tax, pre-credit cost operating income
|
|
$
|
1,642
|
|
|
$
|
1,204
|
|
|
$
|
438
|
|
|
|
36
|
%
|
|
$
|
2,862
|
|
|
$
|
(1,220
|
)
|
|
|
-43
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For The Nine Months Ended
|
|
September 30,
2012
|
|
|
September 30,
2011
|
|
|
$ Change
|
|
|
%
Change
|
|
|
Net loss applicable to common shareholders
|
|
$
|
(6,668
|
)
|
|
$
|
(13,550
|
)
|
|
$
|
6,882
|
|
|
|
51
|
%
|
|
Provision for loan losses
|
|
|
4,775
|
|
|
|
11,350
|
|
|
|
(6,575
|
)
|
|
|
-58
|
%
|
|
Net cost of operations of other real estate owned and foreclosed assets
|
|
|
4,530
|
|
|
|
7,174
|
|
|
|
(2,644
|
)
|
|
|
-37
|
%
|
|
Provision for income taxes
|
|
|
58
|
|
|
|
44
|
|
|
|
14
|
|
|
|
32
|
%
|
|
Preferred stock dividends and discount accretion
|
|
|
1,896
|
|
|
|
1,883
|
|
|
|
13
|
|
|
|
1
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pre-tax, pre-credit cost operating income
|
|
$
|
4,591
|
|
|
$
|
6,901
|
|
|
$
|
(2,310
|
)
|
|
|
-33
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Reconciliation of Non-GAAP Measure:
Tax Equivalent Net Income (Loss) Applicable to Common Shareholders
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Dollars in Thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Three Months ended
|
|
September 30,
2012
|
|
|
June 30,
2012
|
|
|
$ Change
|
|
|
%
Change
|
|
|
September 30,
2011
|
|
|
$ Change
|
|
|
%
Change
|
|
|
Net interest income
|
|
$
|
10,624
|
|
|
$
|
11,634
|
|
|
$
|
(1,010
|
)
|
|
|
-9
|
%
|
|
$
|
12,849
|
|
|
$
|
(2,225
|
)
|
|
|
-17
|
%
|
|
Tax equivalent adjustment for municipal loan interest
|
|
|
41
|
|
|
|
42
|
|
|
|
(1
|
)
|
|
|
-2
|
%
|
|
|
45
|
|
|
|
(4
|
)
|
|
|
-9
|
%
|
|
Tax equivalent adjustment for municipal bond interest
|
|
|
3
|
|
|
|
8
|
|
|
|
(5
|
)
|
|
|
-63
|
%
|
|
|
4
|
|
|
|
(1
|
)
|
|
|
-25
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Tax equivalent net interest income
|
|
|
10,668
|
|
|
|
11,684
|
|
|
|
(1,016
|
)
|
|
|
-9
|
%
|
|
|
12,898
|
|
|
|
(2,230
|
)
|
|
|
-17
|
%
|
|
Provision for loan losses
|
|
|
—
|
|
|
|
1,275
|
|
|
|
(1,275
|
)
|
|
|
-100
|
%
|
|
|
5,050
|
|
|
|
(5,050
|
)
|
|
|
-100
|
%
|
|
Non-interest income
|
|
|
3,350
|
|
|
|
2,594
|
|
|
|
756
|
|
|
|
29
|
%
|
|
|
2,667
|
|
|
|
683
|
|
|
|
26
|
%
|
|
Non-interest expense
|
|
|
13,215
|
|
|
|
14,247
|
|
|
|
(1,032
|
)
|
|
|
-7
|
%
|
|
|
13,298
|
|
|
|
(83
|
)
|
|
|
-1
|
%
|
|
Provision for income taxes
|
|
|
11
|
|
|
|
37
|
|
|
|
(26
|
)
|
|
|
-70
|
%
|
|
|
23
|
|
|
|
(12
|
)
|
|
|
-52
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Tax equivalent net income (loss)
|
|
|
792
|
|
|
|
(1,281
|
)
|
|
|
2,073
|
|
|
|
162
|
%
|
|
|
(2,806
|
)
|
|
|
3,598
|
|
|
|
128
|
%
|
|
Preferred stock dividends and discount accretion
|
|
|
634
|
|
|
|
634
|
|
|
|
—
|
|
|
|
0
|
%
|
|
|
614
|
|
|
|
20
|
|
|
|
3
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Tax equivalent net income (loss) applicable to common shareholders
|
|
$
|
158
|
|
|
$
|
(1,915
|
)
|
|
$
|
2,073
|
|
|
|
108
|
%
|
|
$
|
(3,420
|
)
|
|
$
|
3,578
|
|
|
|
105
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Nine Months ended
|
|
September
30, 2012
|
|
|
September
30, 2011
|
|
|
$ Change
|
|
|
%
Change
|
|
|
Net interest income
|
|
$
|
33,632
|
|
|
$
|
38,176
|
|
|
$
|
(4,544
|
)
|
|
|
-12
|
%
|
|
Tax equivalent adjustment for municipal loan interest
|
|
|
125
|
|
|
|
134
|
|
|
|
(9
|
)
|
|
|
-7
|
%
|
|
Tax equivalent adjustment for municipal bond interest
|
|
|
20
|
|
|
|
51
|
|
|
|
(31
|
)
|
|
|
-61
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Tax equivalent net interest income
|
|
|
33,777
|
|
|
|
38,361
|
|
|
|
(4,584
|
)
|
|
|
-12
|
%
|
|
Provision for loan losses
|
|
|
4,775
|
|
|
|
11,350
|
|
|
|
(6,575
|
)
|
|
|
-58
|
%
|
|
Non-interest income
|
|
|
10,427
|
|
|
|
8,462
|
|
|
|
1,965
|
|
|
|
23
|
%
|
|
Non-interest expense
|
|
|
43,998
|
|
|
|
46,911
|
|
|
|
(2,913
|
)
|
|
|
-6
|
%
|
|
Provision for income taxes
|
|
|
58
|
|
|
|
44
|
|
|
|
14
|
|
|
|
32
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Tax equivalent net loss
|
|
|
(4,627
|
)
|
|
|
(11,482
|
)
|
|
|
6,855
|
|
|
|
60
|
%
|
|
Preferred stock dividends and discount accretion
|
|
|
1,896
|
|
|
|
1,883
|
|
|
|
13
|
|
|
|
1
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Tax equivalent net loss applicable to common shareholders
|
|
$
|
(6,523
|
)
|
|
$
|
(13,365
|
)
|
|
$
|
6,842
|
|
|
|
51
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-GAAP financial measures have inherent limitations, are not required to be uniformly applied, and are not audited.
Management believes that presentation of these non-GAAP financial measures provide useful information frequently used by shareholders in the evaluation of a company. Non-GAAP financial measures have limitations as analytical tools and should not be
considered in isolation or as a substitute for analyses of results as reported under GAAP.
35
Net Interest Margin
Net interest margin for the three months ended September 30, 2012 decreased as compared to the same period in 2011 due to a decline in higher yielding loan balances and the impact of falling interest
rates on investment securities purchased during 2012. The decline in investment yields was due primarily to an increase in premium amortization on collateralized mortgage obligations as a result of an acceleration of prepayment speeds due to a drop
in interest rates to historically low levels during the period. The decline in margin was partially mitigated by the falling costs of interest-bearing liabilities caused by the Company’s on-going efforts to reduce higher-cost certificates of
deposits as a source of funding. For the nine months ended September 30, 2012, net interest margin increased over the same period in 2011. This was primarily due to the collection of approximately $500,000 in loan interest from the sale of a
note in second quarter 2012. This additional interest income resulted in a 6 basis points increase in net interest margin for the nine months ended September 30, 2012, as compared to same period in 2011. The margin was also positively impacted
by the continued decline in costs of interest-bearing liabilities, as previously referenced.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Three Months Ended
|
|
|
|
|
September 30, 2012
|
|
|
June 30, 2012
|
|
|
September 30, 2011
|
|
|
|
|
Average
Balance
|
|
|
Interest
Income or
Expense
|
|
|
Average
Yields or Rates
|
|
|
Average
Balance
|
|
|
Interest
Income or
Expense
|
|
|
Average
Yields or Rates
|
|
|
Average
Balance
|
|
|
Interest
Income or
Expense
|
|
|
Average
Yields or
Rates
|
|
|
(Dollars in Thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
ASSETS:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest earning balances due from banks
|
|
$
|
45,341
|
|
|
$
|
29
|
|
|
|
0.25
|
%
|
|
$
|
43,897
|
|
|
$
|
28
|
|
|
|
0.26
|
%
|
|
$
|
48,987
|
|
|
$
|
30
|
|
|
|
0.24
|
%
|
|
Federal funds sold
|
|
|
3,169
|
|
|
|
2
|
|
|
|
0.25
|
%
|
|
|
3,310
|
|
|
|
2
|
|
|
|
0.24
|
%
|
|
|
3,149
|
|
|
|
2
|
|
|
|
0.25
|
%
|
|
Investments—taxable
|
|
|
313,791
|
|
|
|
1,531
|
|
|
|
1.94
|
%
|
|
|
301,681
|
|
|
|
1,692
|
|
|
|
2.26
|
%
|
|
|
281,902
|
|
|
|
1,656
|
|
|
|
2.33
|
%
|
|
Investments—nontaxable
|
|
|
619
|
|
|
|
7
|
|
|
|
4.50
|
%
|
|
|
1,351
|
|
|
|
19
|
|
|
|
5.66
|
%
|
|
|
758
|
|
|
|
7
|
|
|
|
3.66
|
%
|
|
Investments—equity securities
|
|
|
3,119
|
|
|
|
1
|
|
|
|
0.13
|
%
|
|
|
3,174
|
|
|
|
17
|
|
|
|
2.15
|
%
|
|
|
3,337
|
|
|
|
1
|
|
|
|
0.12
|
%
|
|
Gross loans
(1)
|
|
|
691,869
|
|
|
|
10,565
|
|
|
|
6.07
|
%
|
|
|
729,203
|
|
|
|
11,454
|
|
|
|
6.32
|
%
|
|
|
875,930
|
|
|
|
13,380
|
|
|
|
6.06
|
%
|
|
Mortgages held for sale
|
|
|
1,764
|
|
|
|
19
|
|
|
|
4.28
|
%
|
|
|
1,100
|
|
|
|
15
|
|
|
|
5.48
|
%
|
|
|
440
|
|
|
|
8
|
|
|
|
7.21
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total interest earning assets
|
|
|
1,059,672
|
|
|
|
12,154
|
|
|
|
4.56
|
%
|
|
|
1,083,716
|
|
|
|
13,227
|
|
|
|
4.91
|
%
|
|
|
1,214,503
|
|
|
|
15,084
|
|
|
|
4.93
|
%
|
|
Allowance for loan losses
|
|
|
(19,992
|
)
|
|
|
|
|
|
|
|
|
|
|
(20,635
|
)
|
|
|
|
|
|
|
|
|
|
|
(27,488
|
)
|
|
|
|
|
|
|
|
|
|
Other assets
|
|
|
131,994
|
|
|
|
|
|
|
|
|
|
|
|
138,948
|
|
|
|
|
|
|
|
|
|
|
|
130,336
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
$
|
1,171,674
|
|
|
|
|
|
|
|
|
|
|
$
|
1,202,029
|
|
|
|
|
|
|
|
|
|
|
$
|
1,317,351
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES AND STOCKHOLDERS’ EQUITY:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest-bearing deposits
|
|
|
400,085
|
|
|
|
99
|
|
|
|
0.10
|
%
|
|
|
402,738
|
|
|
|
98
|
|
|
|
0.10
|
%
|
|
|
430,991
|
|
|
|
149
|
|
|
|
0.14
|
%
|
|
Time deposits
|
|
|
355,049
|
|
|
|
1,122
|
|
|
|
1.26
|
%
|
|
|
384,744
|
|
|
|
1,277
|
|
|
|
1.33
|
%
|
|
|
468,499
|
|
|
|
1,885
|
|
|
|
1.60
|
%
|
|
Short-term borrowings
|
|
|
5,044
|
|
|
|
3
|
|
|
|
0.24
|
%
|
|
|
4,107
|
|
|
|
3
|
|
|
|
0.29
|
%
|
|
|
4,341
|
|
|
|
4
|
|
|
|
0.37
|
%
|
|
Long-term borrowings
|
|
|
30,928
|
|
|
|
262
|
|
|
|
3.37
|
%
|
|
|
30,928
|
|
|
|
165
|
|
|
|
2.15
|
%
|
|
|
30,928
|
|
|
|
149
|
|
|
|
1.91
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total interest bearing liabilities
|
|
|
791,106
|
|
|
|
1,486
|
|
|
|
0.75
|
%
|
|
|
822,517
|
|
|
|
1,543
|
|
|
|
0.75
|
%
|
|
|
934,759
|
|
|
|
2,187
|
|
|
|
0.93
|
%
|
|
Non-interest-bearing deposits
|
|
|
278,714
|
|
|
|
|
|
|
|
|
|
|
|
277,983
|
|
|
|
|
|
|
|
|
|
|
|
272,896
|
|
|
|
|
|
|
|
|
|
|
Other liabilities
|
|
|
20,558
|
|
|
|
|
|
|
|
|
|
|
|
19,922
|
|
|
|
|
|
|
|
|
|
|
|
18,419
|
|
|
|
|
|
|
|
|
|
|
Equity
|
|
|
81,296
|
|
|
|
|
|
|
|
|
|
|
|
81,607
|
|
|
|
|
|
|
|
|
|
|
|
91,277
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities and shareholders’ equity
|
|
$
|
1,171,674
|
|
|
|
|
|
|
|
|
|
|
$
|
1,202,029
|
|
|
|
|
|
|
|
|
|
|
$
|
1,317,351
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net interest income (3)
|
|
|
|
|
|
$
|
10,668
|
|
|
|
|
|
|
|
|
|
|
$
|
11,684
|
|
|
|
|
|
|
|
|
|
|
$
|
12,897
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net interest spread
|
|
|
|
|
|
|
|
|
|
|
3.81
|
%
|
|
|
|
|
|
|
|
|
|
|
4.16
|
%
|
|
|
|
|
|
|
|
|
|
|
4.00
|
%
|
|
Average yield on earning assets (2) (3)
|
|
|
|
|
|
|
|
|
|
|
4.56
|
%
|
|
|
|
|
|
|
|
|
|
|
4.91
|
%
|
|
|
|
|
|
|
|
|
|
|
4.93
|
%
|
|
Interest expense to earning assets
|
|
|
|
|
|
|
|
|
|
|
0.56
|
%
|
|
|
|
|
|
|
|
|
|
|
0.57
|
%
|
|
|
|
|
|
|
|
|
|
|
0.71
|
%
|
|
Net interest margin (2) (3)
|
|
|
|
|
|
|
|
|
|
|
4.01
|
%
|
|
|
|
|
|
|
|
|
|
|
4.34
|
%
|
|
|
|
|
|
|
|
|
|
|
4.21
|
%
|
|
|
|
Reconciliation of Non-GAAP measure:
Tax Equivalent Net Interest Income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net interest income
|
|
|
|
|
|
$
|
10,624
|
|
|
|
|
|
|
|
|
|
|
$
|
11,634
|
|
|
|
|
|
|
|
|
|
|
$
|
12,849
|
|
|
|
|
|
|
Tax equivalent adjustment for municipal loan interest
|
|
|
|
41
|
|
|
|
|
|
|
|
|
|
|
|
42
|
|
|
|
|
|
|
|
|
|
|
|
45
|
|
|
|
|
|
|
Tax equivalent adjustment for municipal bond interest
|
|
|
|
3
|
|
|
|
|
|
|
|
|
|
|
|
8
|
|
|
|
|
|
|
|
|
|
|
|
3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Tax equivalent net interest income
|
|
|
|
|
|
$
|
10,668
|
|
|
|
|
|
|
|
|
|
|
$
|
11,684
|
|
|
|
|
|
|
|
|
|
|
$
|
12,897
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-GAAP financial mesures have inherent limitations, are not required to be uniformly applied, and are not audited.
Management believes that presentation of this non-GAAP measure provides useful information frequently used by shareholders in the evaluation
of a company.
Non-GAAP financial measures have limitations as analytical tools and should not be considered in isolation or as a substitue for
analyses of results as reported under GAAP.
|
(1)
|
Non-performing loans of approximately $30.1 million at 9/30/2012, $38.3 million at 6/30/2012, $78.1 million for 9/30/2011 are included in the average loan balances.
|
|
(2)
|
Loan interest income includes loan fee income of $158,000, $22,000, and $63,000 for the three months ended 09/30/2012, 6/30/2012, and 9/30/2011, respectively.
|
|
(3)
|
Tax-exempt income has been adjusted to a tax equivalent basis at a 40% effective rate. The amount of such adjustment was an increase to recorded pre-tax income of
$44,000, $50,000, and $49,000 for the three months ended September 30, 2012, June 30, 2012, and September 30, 2011, respectively.
|
36
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Nine Months Ended
|
|
|
|
|
September 30, 2012
|
|
|
September 30, 2011
|
|
|
(Dollars in Thousands)
|
|
Average
Balance
|
|
|
Interest
Income or
Expense
|
|
|
Average
Yields or Rates
|
|
|
Average
Balance
|
|
|
Interest
Income or
Expense
|
|
|
Average
Yields or Rates
|
|
|
ASSETS:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest earning balances due from banks
|
|
$
|
42,663
|
|
|
$
|
76
|
|
|
|
0.24
|
%
|
|
$
|
75,985
|
|
|
$
|
144
|
|
|
|
0.25
|
%
|
|
Federal funds sold
|
|
|
3,171
|
|
|
|
6
|
|
|
|
0.25
|
%
|
|
|
3,170
|
|
|
|
6
|
|
|
|
0.25
|
%
|
|
Investments—taxable
|
|
|
307,124
|
|
|
|
5,107
|
|
|
|
2.22
|
%
|
|
|
257,957
|
|
|
|
4,627
|
|
|
|
2.40
|
%
|
|
Investments—nontaxable
|
|
|
1,012
|
|
|
|
49
|
|
|
|
6.47
|
%
|
|
|
3,163
|
|
|
|
127
|
|
|
|
5.37
|
%
|
|
Investments—equity securities
|
|
|
3,181
|
|
|
|
21
|
|
|
|
0.88
|
%
|
|
|
3,399
|
|
|
|
3
|
|
|
|
0.12
|
%
|
|
Gross loans (1)
|
|
|
729,177
|
|
|
|
33,241
|
|
|
|
6.09
|
%
|
|
|
914,128
|
|
|
|
41,021
|
|
|
|
6.00
|
%
|
|
Mortgages held for sale
|
|
|
1,186
|
|
|
|
50
|
|
|
|
5.63
|
%
|
|
|
587
|
|
|
|
22
|
|
|
|
5.01
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total interest earning assets
|
|
|
1,087,514
|
|
|
|
38,550
|
|
|
|
4.74
|
%
|
|
|
1,258,389
|
|
|
|
45,950
|
|
|
|
4.88
|
%
|
|
Allowance for loan losses
|
|
|
(20,829
|
)
|
|
|
|
|
|
|
|
|
|
|
(31,848
|
)
|
|
|
|
|
|
|
|
|
|
Other assets
|
|
|
138,658
|
|
|
|
|
|
|
|
|
|
|
|
130,814
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
$
|
1,205,343
|
|
|
|
|
|
|
|
|
|
|
$
|
1,357,355
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES AND STOCKHOLDERS’ EQUITY:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest-bearing deposits
|
|
|
404,674
|
|
|
|
300
|
|
|
|
0.10
|
%
|
|
|
447,423
|
|
|
|
794
|
|
|
|
0.24
|
%
|
|
Time deposits
|
|
|
383,870
|
|
|
|
3,868
|
|
|
|
1.35
|
%
|
|
|
502,434
|
|
|
|
6,318
|
|
|
|
1.68
|
%
|
|
Short-term borrowings
|
|
|
4,568
|
|
|
|
10
|
|
|
|
0.29
|
%
|
|
|
3,578
|
|
|
|
12
|
|
|
|
0.45
|
%
|
|
Long-term borrowings
|
|
|
30,928
|
|
|
|
595
|
|
|
|
2.57
|
%
|
|
|
30,928
|
|
|
|
465
|
|
|
|
2.01
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total interest bearing liabilities
|
|
|
824,040
|
|
|
|
4,773
|
|
|
|
0.77
|
%
|
|
|
984,363
|
|
|
|
7,589
|
|
|
|
1.03
|
%
|
|
Non-interest-bearing deposits
|
|
|
278,699
|
|
|
|
|
|
|
|
|
|
|
|
262,235
|
|
|
|
|
|
|
|
|
|
|
Other liabilities
|
|
|
19,811
|
|
|
|
|
|
|
|
|
|
|
|
17,983
|
|
|
|
|
|
|
|
|
|
|
Equity
|
|
|
82,793
|
|
|
|
|
|
|
|
|
|
|
|
92,774
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities and shareholders’ equity
|
|
$
|
1,205,343
|
|
|
|
|
|
|
|
|
|
|
$
|
1,357,355
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net interest income
(3)
|
|
|
|
|
|
$
|
33,777
|
|
|
|
|
|
|
|
|
|
|
$
|
38,361
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net interest spread
|
|
|
|
|
|
|
|
|
|
|
3.97
|
%
|
|
|
|
|
|
|
|
|
|
|
3.85
|
%
|
|
Average yield on earning assets (2) (3)
|
|
|
|
|
|
|
|
|
|
|
4.74
|
%
|
|
|
|
|
|
|
|
|
|
|
4.88
|
%
|
|
Interest expense to earning assets
|
|
|
|
|
|
|
|
|
|
|
0.59
|
%
|
|
|
|
|
|
|
|
|
|
|
0.81
|
%
|
|
Net interest margin (2) (3)
|
|
|
|
|
|
|
|
|
|
|
4.15
|
%
|
|
|
|
|
|
|
|
|
|
|
4.08
|
%
|
|
Reconciliation of Non-GAAP measure:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Tax Equivalent Net Interest Income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net interest income
|
|
|
|
|
|
$
|
33,632
|
|
|
|
|
|
|
|
|
|
|
$
|
38,176
|
|
|
|
|
|
|
Tax equivalent adjustment for municipal loan interest
|
|
|
|
|
|
|
125
|
|
|
|
|
|
|
|
|
|
|
|
134
|
|
|
|
|
|
|
Tax equivalent adjustment for municipal bond interest
|
|
|
|
|
|
|
20
|
|
|
|
|
|
|
|
|
|
|
|
51
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Tax equivalent net interest income
|
|
|
|
|
|
$
|
33,777
|
|
|
|
|
|
|
|
|
|
|
$
|
38,361
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-GAAP financial mesures have inherent limitations, are not required to be uniformly applied, and are not audited.
Management believes that presentation of this non-GAAP measure provides useful information frequently used by shareholders in the evaluation
of a company.
Non-GAAP financial measures have limitations as analytical tools and should not be considered in isolation or as a substitue for
analyses of results as reported under GAAP.
|
(1)
|
Non-performing loans of approximately $30.1 million at 9/30/2012 and $78.1 million for 9/30/2011 are included in the average loan balances.
|
|
(2)
|
Loan interest income includes loan fee income of $205,000, and $198,000 for the nine months ended 09/30/2012, and 09/30/2011, respectively.
|
|
(3)
|
Tax-exempt income has been adjusted to a tax equivalent basis at a 40% effective rate. The amount of such adjustment was an increase to recorded pre-tax income of
$145,000 and $185,000 for the nine months ended September 30, 2012, and September 30, 2011, respectively.
|
37
The following table shows the period to period changes in net interest income due to rate or volume. The
continued reduction in higher-cost time deposits has resulted in a decline in interest expense, from both a reduction in volume and rates paid on these deposits. In addition, rates paid on other interest-bearing deposits have declined in the current
period as compared to rates paid in the prior year. Deleveraging on the asset side of the balance sheet has been through the reduction of loan balances. This has resulted in a decrease in loan interest income primarily due to a decline in loan
volume, rather than any changes in yields. The increase in net interest income in third quarter 2012 is primarily due to collection of interest from the sale of and placement back on accrual of loans in non-accrual status, as previously mentioned.
An increase in premium amortization contributed to a decrease in investment securities interest income in third quarter 2012, as noted above. This was partially mitigated by the contribution due to increased volume of investment securities as
compared to the previous year.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Three Months Ended
|
|
|
For the Three Months Ended
|
|
|
For the Nine Months Ended
|
|
|
|
|
September 30, 2012
vs. June 31, 2012
|
|
|
September 30, 2012
vs. September 30, 2011
|
|
|
September 30, 2012
vs. September 30, 2011
|
|
|
|
|
Increase (Decrease) Due To
|
|
|
Increase (Decrease) Due To
|
|
|
Increase (Decrease) Due To
|
|
|
(Dollars in Thousands)
|
|
Volume
|
|
|
Rate
|
|
|
Net
Change
|
|
|
Volume
|
|
|
Rate
|
|
|
Net
Change
|
|
|
Volume
|
|
|
Rate
|
|
|
Net
Change
|
|
|
ASSETS:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest earning balances due from banks
|
|
$
|
1
|
|
|
$
|
—
|
|
|
$
|
1
|
|
|
$
|
(2
|
)
|
|
$
|
1
|
|
|
$
|
(1
|
)
|
|
$
|
(62
|
)
|
|
|
(6
|
)
|
|
$
|
(68
|
)
|
|
Federal funds sold
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
Investments—taxable
|
|
|
69
|
|
|
|
(230
|
)
|
|
|
(161
|
)
|
|
|
187
|
|
|
|
(312
|
)
|
|
|
(125
|
)
|
|
|
881
|
|
|
|
(401
|
)
|
|
|
480
|
|
|
Investments—nontaxable
|
|
|
(10
|
)
|
|
|
(2
|
)
|
|
|
(12
|
)
|
|
|
(1
|
)
|
|
|
1
|
|
|
|
—
|
|
|
|
(86
|
)
|
|
|
8
|
|
|
|
(78
|
)
|
|
Investments—equity securities
|
|
|
—
|
|
|
|
(16
|
)
|
|
|
(16
|
)
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
18
|
|
|
|
18
|
|
|
Gross loans
|
|
|
(593
|
)
|
|
|
(296
|
)
|
|
|
(889
|
)
|
|
|
(2,803
|
)
|
|
|
(12
|
)
|
|
|
(2,815
|
)
|
|
|
(8,281
|
)
|
|
|
501
|
|
|
|
(7,780
|
)
|
|
Mortgages held for sale
|
|
|
9
|
|
|
|
(5
|
)
|
|
|
4
|
|
|
|
24
|
|
|
|
(13
|
)
|
|
|
11
|
|
|
|
22
|
|
|
|
6
|
|
|
|
28
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total interest earning assets
|
|
|
(524
|
)
|
|
|
(549
|
)
|
|
|
(1,073
|
)
|
|
|
(2,595
|
)
|
|
|
(335
|
)
|
|
|
(2,930
|
)
|
|
|
(7,526
|
)
|
|
|
126
|
|
|
|
(7,400
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES AND STOCKHOLDERS’ EQUITY:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest-bearing deposits
|
|
|
(1
|
)
|
|
|
2
|
|
|
|
1
|
|
|
|
(11
|
)
|
|
|
(39
|
)
|
|
|
(50
|
)
|
|
|
(77
|
)
|
|
|
(417
|
)
|
|
|
(494
|
)
|
|
Time deposits
|
|
|
(99
|
)
|
|
|
(56
|
)
|
|
|
(155
|
)
|
|
|
(456
|
)
|
|
|
(307
|
)
|
|
|
(763
|
)
|
|
|
(1,486
|
)
|
|
|
(964
|
)
|
|
|
(2,450
|
)
|
|
Short-term borrowings
|
|
|
1
|
|
|
|
(1
|
)
|
|
|
—
|
|
|
|
1
|
|
|
|
(2
|
)
|
|
|
(1
|
)
|
|
|
3
|
|
|
|
(5
|
)
|
|
|
(2
|
)
|
|
Long-term borrowings
|
|
|
—
|
|
|
|
97
|
|
|
|
97
|
|
|
|
—
|
|
|
|
113
|
|
|
|
113
|
|
|
|
—
|
|
|
|
130
|
|
|
|
130
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total interest bearing liabilities
|
|
|
(99
|
)
|
|
|
42
|
|
|
|
(57
|
)
|
|
|
(466
|
)
|
|
|
(235
|
)
|
|
|
(701
|
)
|
|
|
(1,560
|
)
|
|
|
(1,256
|
)
|
|
|
(2,816
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net increase (decrease) in net interest income
|
|
$
|
(425
|
)
|
|
$
|
(591
|
)
|
|
$
|
(1,016
|
)
|
|
$
|
(2,129
|
)
|
|
$
|
(100
|
)
|
|
$
|
(2,229
|
)
|
|
$
|
(5,966
|
)
|
|
$
|
1,382
|
|
|
$
|
(4,584
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
38
As shown in the table below, the planned deleveraging of the Bank has resulted in the decline of loan and
deposit balances:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Dollars in Thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Averages for the Three Months Ended
|
|
September 30,
|
|
|
June 30,
|
|
|
|
|
|
%
|
|
|
September 30,
|
|
|
|
|
|
%
|
|
|
|
|
2012
|
|
|
2012
|
|
|
$ Change
|
|
|
Change
|
|
|
2011
|
|
|
$ Change
|
|
|
Change
|
|
|
Assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and due from banks
|
|
$
|
26,828
|
|
|
$
|
30,830
|
|
|
$
|
(4,002
|
)
|
|
|
-13
|
%
|
|
$
|
27,847
|
|
|
$
|
(1,019
|
)
|
|
|
-4
|
%
|
|
Interest-bearing due from banks
|
|
|
45,341
|
|
|
|
43,897
|
|
|
|
1,444
|
|
|
|
3
|
%
|
|
|
48,987
|
|
|
|
(3,646
|
)
|
|
|
-7
|
%
|
|
Federal funds sold
|
|
|
3,169
|
|
|
|
3,310
|
|
|
|
(141
|
)
|
|
|
-4
|
%
|
|
|
3,149
|
|
|
|
20
|
|
|
|
1
|
%
|
|
Investment securities
|
|
|
317,529
|
|
|
|
306,206
|
|
|
|
11,323
|
|
|
|
4
|
%
|
|
|
285,997
|
|
|
|
31,532
|
|
|
|
11
|
%
|
|
Loans, net of deferred loan fees
|
|
|
691,572
|
|
|
|
728,810
|
|
|
|
(37,238
|
)
|
|
|
-5
|
%
|
|
|
874,277
|
|
|
|
(182,705
|
)
|
|
|
-21
|
%
|
|
Allowance for loan losses
|
|
|
(19,992
|
)
|
|
|
(20,635
|
)
|
|
|
643
|
|
|
|
-3
|
%
|
|
|
(27,488
|
)
|
|
|
7,496
|
|
|
|
-27
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loans
|
|
|
671,580
|
|
|
|
708,175
|
|
|
|
(36,595
|
)
|
|
|
-5
|
%
|
|
|
846,789
|
|
|
|
(175,209
|
)
|
|
|
-21
|
%
|
|
Other assets
|
|
|
107,227
|
|
|
|
109,611
|
|
|
|
(2,384
|
)
|
|
|
-2
|
%
|
|
|
104,582
|
|
|
|
2,645
|
|
|
|
3
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
$
|
1,171,674
|
|
|
$
|
1,202,029
|
|
|
$
|
(30,355
|
)
|
|
|
-3
|
%
|
|
$
|
1,317,351
|
|
|
$
|
(145,677
|
)
|
|
|
-11
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total deposits
|
|
$
|
1,033,848
|
|
|
$
|
1,065,465
|
|
|
$
|
(31,617
|
)
|
|
|
-3
|
%
|
|
$
|
1,172,386
|
|
|
$
|
(138,538
|
)
|
|
|
-12
|
%
|
|
Borrowings
|
|
|
35,972
|
|
|
|
35,035
|
|
|
|
937
|
|
|
|
3
|
%
|
|
|
35,269
|
|
|
|
703
|
|
|
|
2
|
%
|
|
Other liabilities
|
|
|
20,558
|
|
|
|
19,922
|
|
|
|
636
|
|
|
|
3
|
%
|
|
|
18,419
|
|
|
|
2,139
|
|
|
|
12
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities
|
|
|
1,090,378
|
|
|
|
1,120,422
|
|
|
|
(30,044
|
)
|
|
|
-3
|
%
|
|
|
1,226,074
|
|
|
|
(135,696
|
)
|
|
|
-11
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Preferred equity
|
|
|
40,691
|
|
|
|
40,575
|
|
|
|
116
|
|
|
|
0
|
%
|
|
|
40,192
|
|
|
|
499
|
|
|
|
1
|
%
|
|
Common equity
|
|
|
40,605
|
|
|
|
41,032
|
|
|
|
(427
|
)
|
|
|
-1
|
%
|
|
|
51,085
|
|
|
|
(10,480
|
)
|
|
|
-21
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total equity
|
|
|
81,296
|
|
|
|
81,607
|
|
|
|
(311
|
)
|
|
|
0
|
%
|
|
|
91,277
|
|
|
|
(9,981
|
)
|
|
|
-11
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities and stockholders’ equity
|
|
$
|
1,171,674
|
|
|
$
|
1,202,029
|
|
|
$
|
(30,355
|
)
|
|
|
-3
|
%
|
|
$
|
1,317,351
|
|
|
$
|
(145,677
|
)
|
|
|
-11
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Averages for the Nine Months Ended
|
|
September30,
2012
|
|
|
September 30,
2011
|
|
|
$ Change
|
|
|
%
Change
|
|
|
|
|
|
|
|
|
|
|
|
Assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and due from banks
|
|
$
|
31,828
|
|
|
$
|
26,660
|
|
|
$
|
5,168
|
|
|
|
19
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest-bearing due from banks
|
|
|
42,663
|
|
|
|
75,985
|
|
|
|
(33,322
|
)
|
|
|
-44
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Federal funds sold
|
|
|
3,171
|
|
|
|
3,170
|
|
|
|
1
|
|
|
|
0
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investment securities
|
|
|
311,317
|
|
|
|
264,519
|
|
|
|
46,798
|
|
|
|
18
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loans, net of deferred loan fees
|
|
|
728,800
|
|
|
|
912,395
|
|
|
|
(183,595
|
)
|
|
|
-20
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Allowance for loan losses
|
|
|
(20,829
|
)
|
|
|
(31,848
|
)
|
|
|
11,019
|
|
|
|
-35
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loans
|
|
|
707,971
|
|
|
|
880,547
|
|
|
|
(172,576
|
)
|
|
|
-20
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other assets
|
|
|
108,393
|
|
|
|
106,474
|
|
|
|
1,919
|
|
|
|
2
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
$
|
1,205,343
|
|
|
$
|
1,357,355
|
|
|
$
|
(152,012
|
)
|
|
|
-11
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total deposits
|
|
$
|
1,067,243
|
|
|
$
|
1,212,092
|
|
|
$
|
(144,849
|
)
|
|
|
-12
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Borrowings
|
|
|
35,496
|
|
|
|
34,506
|
|
|
|
990
|
|
|
|
3
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other liabilities
|
|
|
19,811
|
|
|
|
17,983
|
|
|
|
1,828
|
|
|
|
10
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities
|
|
|
1,122,550
|
|
|
|
1,264,581
|
|
|
|
(142,031
|
)
|
|
|
-11
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Preferred equity
|
|
|
40,576
|
|
|
|
40,097
|
|
|
|
479
|
|
|
|
1
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common equity
|
|
|
42,217
|
|
|
|
52,677
|
|
|
|
(10,460
|
)
|
|
|
-20
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total equity
|
|
|
82,793
|
|
|
|
92,774
|
|
|
|
(9,981
|
)
|
|
|
-11
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities and stockholders’ equity
|
|
$
|
1,205,343
|
|
|
$
|
1,357,355
|
|
|
$
|
(152,012
|
)
|
|
|
-11
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
39
AVERAGE INTEREST EARNING ASSETS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Dollars in Thousands)
Averages for the Three Months Ended
|
|
September 30,
2012
|
|
|
% of
Total
|
|
|
June 30,
2012
|
|
|
% of
Total
|
|
|
$
Change
|
|
|
%
Change
|
|
|
September 30,
2011
|
|
|
% of
Total
|
|
|
$
Change
|
|
|
%
Change
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest-bearing deposits
|
|
$
|
43,841
|
|
|
|
4
|
%
|
|
$
|
42,397
|
|
|
|
4
|
%
|
|
$
|
1,444
|
|
|
|
3
|
%
|
|
$
|
47,487
|
|
|
|
4
|
%
|
|
$
|
(3,646
|
)
|
|
|
-8
|
%
|
|
Interest-bearing certificate of deposits
|
|
|
1,500
|
|
|
|
0
|
%
|
|
|
1,500
|
|
|
|
0
|
%
|
|
|
—
|
|
|
|
0
|
%
|
|
|
1,500
|
|
|
|
0
|
%
|
|
|
—
|
|
|
|
0
|
%
|
|
Fed funds sold
|
|
|
3,169
|
|
|
|
0
|
%
|
|
|
3,310
|
|
|
|
0
|
%
|
|
|
(141
|
)
|
|
|
-4
|
%
|
|
|
3,149
|
|
|
|
0
|
%
|
|
|
20
|
|
|
|
1
|
%
|
|
Investments
|
|
|
317,529
|
|
|
|
30
|
%
|
|
|
306,206
|
|
|
|
28
|
%
|
|
|
11,323
|
|
|
|
4
|
%
|
|
|
285,997
|
|
|
|
24
|
%
|
|
|
31,532
|
|
|
|
11
|
%
|
|
Gross loans
|
|
|
691,869
|
|
|
|
66
|
%
|
|
|
729,203
|
|
|
|
68
|
%
|
|
|
(37,334
|
)
|
|
|
-5
|
%
|
|
|
875,930
|
|
|
|
72
|
%
|
|
|
(184,061
|
)
|
|
|
-21
|
%
|
|
Loans held for sale
|
|
|
1,764
|
|
|
|
0
|
%
|
|
|
1,100
|
|
|
|
0
|
%
|
|
|
664
|
|
|
|
60
|
%
|
|
|
440
|
|
|
|
0
|
%
|
|
|
1,324
|
|
|
|
301
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total average interest-earning assets
|
|
$
|
1,059,672
|
|
|
|
100
|
%
|
|
$
|
1,083,716
|
|
|
|
100
|
%
|
|
$
|
(24,044
|
)
|
|
|
-2
|
%
|
|
$
|
1,214,503
|
|
|
|
100
|
%
|
|
$
|
(154,831
|
)
|
|
|
-13
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Averages for the Nine Months Ended
|
|
September 30,
2012
|
|
|
% of
Total
|
|
|
September
30, 2011
|
|
|
% of
Total
|
|
|
$ Change
|
|
|
%
Change
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest-bearing deposits
|
|
$
|
41,163
|
|
|
|
4
|
%
|
|
$
|
74,485
|
|
|
|
6
|
%
|
|
$
|
(33,322
|
)
|
|
|
-45
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest-bearing certificate of deposits
|
|
|
1,500
|
|
|
|
0
|
%
|
|
|
1,500
|
|
|
|
0
|
%
|
|
|
—
|
|
|
|
0
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fed funds sold
|
|
|
3,171
|
|
|
|
0
|
%
|
|
|
3,170
|
|
|
|
0
|
%
|
|
|
1
|
|
|
|
0
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investments
|
|
|
311,317
|
|
|
|
29
|
%
|
|
|
264,519
|
|
|
|
21
|
%
|
|
|
46,798
|
|
|
|
18
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross loans
|
|
|
729,177
|
|
|
|
67
|
%
|
|
|
914,128
|
|
|
|
73
|
%
|
|
|
(184,951
|
)
|
|
|
-20
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loans held for sale
|
|
|
1,186
|
|
|
|
0
|
%
|
|
|
587
|
|
|
|
0
|
%
|
|
|
599
|
|
|
|
102
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total average interest-earning assets
|
|
$
|
1,087,514
|
|
|
|
100
|
%
|
|
$
|
1,258,389
|
|
|
|
100
|
%
|
|
$
|
(170,875
|
)
|
|
|
-14
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-interest Income
Non-interest income for the quarter ended September 30, 2012 increased compared to the quarter ended September 30, 2011. Service charge income on deposit accounts declined due to a reduction in
the amount of non-sufficient check items. Growth in investment brokerage and annuity fees due to an increase in sales volume was accompanied by similar growth in income from increased mortgage banking activity. Continued repositioning of the
investment securities portfolio to adjust to changes in market outlook occurred during the current quarter, resulting in higher net gains on sale of securities. Other non-interest income increased due to a gain from sale of fixed assets associated
with the sale of a former branch location.
Non-interest income for the nine months ended September 30, 2012 grew as compared to the nine
months ended September 30, 2011 due to an increase in net gains on sales of securities. Mortgage banking income increased and service charge income on deposits decreased during the nine-month period consistent with the third quarter results.
Non-interest income for the current quarter increased from the quarter ended June 30, 2012 primarily due to the increase in net gains on
sales of securities, investment brokerage revenue and mortgage banking fees, as explained above.
In November 2010, the Federal Deposit
Insurance Corporation (“FDIC”) issued mandates on overdraft payment programs applicable to its supervised institutions, including the Bank. These restrictions were effective July 1, 2011. The Bank began implementing changes to its
overdraft payment program in the third quarter of 2011 to comply with the FDIC’s mandates. The Company believes these mandates have continued to adversely affect non-interest income.
40
Non-interest income
(Dollars in Thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For The Three Months Ended
|
|
September 30,
2012
|
|
|
June
30, 2012
|
|
|
$ Change
|
|
|
% Change
|
|
|
September 30,
2011
|
|
|
$ Change
|
|
|
% Change
|
|
|
Service charges on deposit accounts
|
|
$
|
847
|
|
|
$
|
888
|
|
|
$
|
(41
|
)
|
|
|
-5
|
%
|
|
$
|
946
|
|
|
$
|
(99
|
)
|
|
|
-10
|
%
|
|
Other commissions and fees
|
|
|
676
|
|
|
|
697
|
|
|
|
(21
|
)
|
|
|
-3
|
%
|
|
|
724
|
|
|
|
(48
|
)
|
|
|
-7
|
%
|
|
Net gain on sale of securities, available for sale
|
|
|
713
|
|
|
|
227
|
|
|
|
486
|
|
|
|
214
|
%
|
|
|
227
|
|
|
|
486
|
|
|
|
214
|
%
|
|
Investment brokerage and annuity fees
|
|
|
581
|
|
|
|
370
|
|
|
|
211
|
|
|
|
57
|
%
|
|
|
468
|
|
|
|
113
|
|
|
|
24
|
%
|
|
Mortgage banking fees
|
|
|
204
|
|
|
|
105
|
|
|
|
99
|
|
|
|
94
|
%
|
|
|
61
|
|
|
|
143
|
|
|
|
234
|
%
|
|
Other non-interest income:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Increase in value of BOLI
|
|
|
123
|
|
|
|
118
|
|
|
|
5
|
|
|
|
4
|
%
|
|
|
126
|
|
|
|
(3
|
)
|
|
|
-2
|
%
|
|
Other non-interest income
|
|
|
206
|
|
|
|
189
|
|
|
|
17
|
|
|
|
9
|
%
|
|
|
115
|
|
|
|
91
|
|
|
|
79
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total non-interest income
|
|
$
|
3,350
|
|
|
$
|
2,594
|
|
|
$
|
756
|
|
|
|
29
|
%
|
|
$
|
2,667
|
|
|
$
|
683
|
|
|
|
26
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For The Nine Months Ended
|
|
September 30,
2012
|
|
|
September 30,
2011
|
|
|
$ Change
|
|
|
% Change
|
|
|
Service charges on deposit accounts
|
|
$
|
2,600
|
|
|
$
|
2,822
|
|
|
$
|
(222
|
)
|
|
|
-8
|
%
|
|
Other commissions and fees
|
|
|
2,022
|
|
|
|
2,040
|
|
|
|
(18
|
)
|
|
|
-1
|
%
|
|
Net gain on sale of securities, available for sale
|
|
|
3,108
|
|
|
|
1,000
|
|
|
|
2,108
|
|
|
|
211
|
%
|
|
Investment brokerage and annuity fees
|
|
|
1,389
|
|
|
|
1,394
|
|
|
|
(5
|
)
|
|
|
0
|
%
|
|
Mortgage banking fees
|
|
|
424
|
|
|
|
270
|
|
|
|
154
|
|
|
|
57
|
%
|
|
Other non-interest income:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Increase in value of BOLI
|
|
|
366
|
|
|
|
384
|
|
|
|
(18
|
)
|
|
|
-5
|
%
|
|
Other non-interest income
|
|
|
518
|
|
|
|
552
|
|
|
|
(34
|
)
|
|
|
-6
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total non-interest income
|
|
$
|
10,427
|
|
|
$
|
8,462
|
|
|
$
|
1,965
|
|
|
|
23
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-interest Expense
Non-interest expense for the current quarter declined from the quarter ended June 30, 2012. Salaries and employee benefits expense fell primarily due to branch consolidation, branch sales and
administrative restructuring initiatives completed earlier in 2012. This was despite an expense of approximately $500,000 in the current period due to costs associated with the adoption of updated actuarial projections related to deferred benefit
obligations. In addition, an expense of approximately $200,000 was incurred in second quarter 2012 to enhance our provision for off-balance sheet credit risk. Other non-interest expenses also declined as second quarter 2012 results included
approximately $300,000 in costs related to the retirement of fixed assets due to branch consolidation or sale. These decreases were offset by increases in net cost of operations of OREO and professional fees.
Non-interest expense for the three months ended September 30, 2012 was relatively unchanged compared to the three months ended September 30,
2011 in total. Salaries and employee benefits expense fell primarily due to branch consolidation, branch sales and administrative restructuring initiatives completed earlier in 2012. This was despite the expense related to deferred benefit
obligations as noted above. In addition, net cost of OREO increased primarily due to an impairment charge of approximately $600,000 taken on one land development parcel currently held as OREO. Professional fees included approximately $900,000 in
expenses associated with capital strategy activities. A number of expense categories experienced declines due to Company-wide efforts to reduce expenses. In addition, FDIC assessments dropped commensurate with the decline in total assets over the
period. Problem loan expenses increased primarily due to increased expenses associated with credit resolution efforts.
Non-interest expense
for the nine months ended September 30, 2012 decreased compared to the nine months ended September 30, 2011 due to the changes listed above specifically related to the current quarter and also due to salaries and employee benefits expense
which fell primarily due to branch consolidation, branch sales and administrative restructuring initiatives completed earlier in 2012. A number of expense categories experienced declines due to Company-wide efforts to reduce expenses. Such
reductions were primarily the result of operating fewer branch locations. In addition, FDIC assessments dropped commensurate with the decline in total assets over the period. Problem loan expenses increased primarily due to payment of $1.3 million
in delinquent property taxes to acquire OREO properties in first and second quarter 2012. Other non-interest expenses decreased despite a cost of approximately $900,000 to retire assets as a result of the branch consolidation and sales initiative
completed in second quarter 2012.
41
Non-interest expense
(Dollars in Thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For The Three Months Ended
|
|
September 30,
2012
|
|
|
June 30,
2012
|
|
|
$ Change
|
|
|
% Change
|
|
|
September 30,
2011
|
|
|
$ Change
|
|
|
% Change
|
|
|
Salaries and employee benefits
|
|
$
|
6,065
|
|
|
$
|
6,277
|
|
|
$
|
(212
|
)
|
|
|
-3
|
%
|
|
$
|
6,395
|
|
|
$
|
(330
|
)
|
|
|
-5
|
%
|
|
Net cost of operations of other real estate owned and foreclosed assets
|
|
|
883
|
|
|
|
1,223
|
|
|
|
(340
|
)
|
|
|
-28
|
%
|
|
|
644
|
|
|
|
239
|
|
|
|
37
|
%
|
|
Net occupancy and equipment
|
|
|
1,694
|
|
|
|
1,761
|
|
|
|
(67
|
)
|
|
|
-4
|
%
|
|
|
2,140
|
|
|
|
(446
|
)
|
|
|
-21
|
%
|
|
FDIC and state assessments
|
|
|
690
|
|
|
|
711
|
|
|
|
(21
|
)
|
|
|
-3
|
%
|
|
|
800
|
|
|
|
(110
|
)
|
|
|
-14
|
%
|
|
Professional fees
|
|
|
1,020
|
|
|
|
629
|
|
|
|
391
|
|
|
|
62
|
%
|
|
|
613
|
|
|
|
407
|
|
|
|
66
|
%
|
|
Communications
|
|
|
411
|
|
|
|
453
|
|
|
|
(42
|
)
|
|
|
-9
|
%
|
|
|
488
|
|
|
|
(77
|
)
|
|
|
-16
|
%
|
|
Advertising
|
|
|
166
|
|
|
|
193
|
|
|
|
(27
|
)
|
|
|
-14
|
%
|
|
|
241
|
|
|
|
(75
|
)
|
|
|
-31
|
%
|
|
Third-party loan costs
|
|
|
165
|
|
|
|
314
|
|
|
|
(149
|
)
|
|
|
-47
|
%
|
|
|
196
|
|
|
|
(31
|
)
|
|
|
-16
|
%
|
|
Professional liability insurance
|
|
|
215
|
|
|
|
213
|
|
|
|
2
|
|
|
|
1
|
%
|
|
|
202
|
|
|
|
13
|
|
|
|
6
|
%
|
|
Problem loan expense
|
|
|
570
|
|
|
|
789
|
|
|
|
(219
|
)
|
|
|
-28
|
%
|
|
|
263
|
|
|
|
307
|
|
|
|
117
|
%
|
|
Other non-interest expense:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Director fees
|
|
|
120
|
|
|
|
120
|
|
|
|
—
|
|
|
|
0
|
%
|
|
|
98
|
|
|
|
22
|
|
|
|
22
|
%
|
|
Internet costs
|
|
|
113
|
|
|
|
114
|
|
|
|
(1
|
)
|
|
|
-1
|
%
|
|
|
161
|
|
|
|
(48
|
)
|
|
|
-30
|
%
|
|
ATM debit card costs
|
|
|
210
|
|
|
|
196
|
|
|
|
14
|
|
|
|
7
|
%
|
|
|
196
|
|
|
|
14
|
|
|
|
7
|
%
|
|
Business development
|
|
|
61
|
|
|
|
71
|
|
|
|
(10
|
)
|
|
|
-14
|
%
|
|
|
81
|
|
|
|
(20
|
)
|
|
|
-25
|
%
|
|
Amortization
|
|
|
105
|
|
|
|
116
|
|
|
|
(11
|
)
|
|
|
-9
|
%
|
|
|
116
|
|
|
|
(11
|
)
|
|
|
-9
|
%
|
|
Supplies
|
|
|
91
|
|
|
|
97
|
|
|
|
(6
|
)
|
|
|
-6
|
%
|
|
|
154
|
|
|
|
(63
|
)
|
|
|
-41
|
%
|
|
Other non-interest expense
|
|
|
636
|
|
|
|
970
|
|
|
|
(334
|
)
|
|
|
-34
|
%
|
|
|
510
|
|
|
|
126
|
|
|
|
25
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total non-interest expense
|
|
$
|
13,215
|
|
|
$
|
14,247
|
|
|
$
|
(1,032
|
)
|
|
|
-7
|
%
|
|
$
|
13,298
|
|
|
$
|
(83
|
)
|
|
|
-1
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For The Nine Months Ended
|
|
September 30,
2012
|
|
|
September 30,
2011
|
|
|
$ Change
|
|
|
% Change
|
|
|
Salaries and employee benefits
|
|
$
|
19,152
|
|
|
$
|
20,534
|
|
|
$
|
(1,382
|
)
|
|
|
-7
|
%
|
|
Net cost of operations of other real estate owned and foreclosed assets
|
|
|
4,530
|
|
|
|
7,174
|
|
|
|
(2,644
|
)
|
|
|
-37
|
%
|
|
Net occupancy and equipment
|
|
|
5,267
|
|
|
|
5,959
|
|
|
|
(692
|
)
|
|
|
-12
|
%
|
|
FDIC and state assessments
|
|
|
2,072
|
|
|
|
2,721
|
|
|
|
(649
|
)
|
|
|
-24
|
%
|
|
Professional fees
|
|
|
2,057
|
|
|
|
2,246
|
|
|
|
(189
|
)
|
|
|
-8
|
%
|
|
Communications
|
|
|
1,332
|
|
|
|
1,443
|
|
|
|
(111
|
)
|
|
|
-8
|
%
|
|
Advertising
|
|
|
557
|
|
|
|
693
|
|
|
|
(136
|
)
|
|
|
-20
|
%
|
|
Third-party loan costs
|
|
|
734
|
|
|
|
923
|
|
|
|
(189
|
)
|
|
|
-20
|
%
|
|
Professional liability insurance
|
|
|
641
|
|
|
|
577
|
|
|
|
64
|
|
|
|
11
|
%
|
|
Problem loan expense
|
|
|
2,647
|
|
|
|
453
|
|
|
|
2,194
|
|
|
|
484
|
%
|
|
Other non-interest expense:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Director fees
|
|
|
349
|
|
|
|
299
|
|
|
|
50
|
|
|
|
17
|
%
|
|
Internet costs
|
|
|
371
|
|
|
|
387
|
|
|
|
(16
|
)
|
|
|
-4
|
%
|
|
ATM debit card costs
|
|
|
545
|
|
|
|
502
|
|
|
|
43
|
|
|
|
9
|
%
|
|
Business development
|
|
|
203
|
|
|
|
255
|
|
|
|
(52
|
)
|
|
|
-20
|
%
|
|
Amortization
|
|
|
337
|
|
|
|
383
|
|
|
|
(46
|
)
|
|
|
-12
|
%
|
|
Supplies
|
|
|
324
|
|
|
|
421
|
|
|
|
(97
|
)
|
|
|
-23
|
%
|
|
Other non-interest expense
|
|
|
2,880
|
|
|
|
1,941
|
|
|
|
939
|
|
|
|
48
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total non-interest expense
|
|
$
|
43,998
|
|
|
$
|
46,911
|
|
|
$
|
(2,913
|
)
|
|
|
-6
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income Taxes
The Company recorded an income tax provision for the three months ended September 30, 2012, June 30, 2012, and September 30, 2011. The provision was made for minimum state income taxes
owed.
As of September 30, 2012, the Company maintained a full valuation allowance of $38.8 million against its deferred tax asset. If
the Company returns to sustained profitability, all or a portion of the deferred tax asset valuation allowance would be reversed. A reversal of the deferred tax asset valuation allowance would decrease the Company’s income tax expense and
increase net income. Currently, the only tax expense the Company is recognizing relates to Oregon minimum tax.
42
BALANCE SHEET OVERVIEW
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Dollars in Thousands)
|
|
September 30,
2012
|
|
|
June 30, 2012
|
|
|
$ Change
|
|
|
%
Change
|
|
|
September 30,
2011
|
|
|
$ Change
|
|
|
%
Change
|
|
|
Assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
65,543
|
|
|
$
|
87,868
|
|
|
$
|
(22,325
|
)
|
|
|
-25
|
%
|
|
$
|
66,061
|
|
|
$
|
(518
|
)
|
|
|
-1
|
%
|
|
Interest-bearing certificates of deposit
|
|
|
1,500
|
|
|
|
1,500
|
|
|
|
—
|
|
|
|
0
|
%
|
|
|
1,500
|
|
|
|
—
|
|
|
|
0
|
%
|
|
Investment securities
|
|
|
328,627
|
|
|
|
306,032
|
|
|
|
22,595
|
|
|
|
7
|
%
|
|
|
303,927
|
|
|
|
24,700
|
|
|
|
8
|
%
|
|
Gross loans, net of deferred fees
|
|
|
676,101
|
|
|
|
710,465
|
|
|
|
(34,364
|
)
|
|
|
-5
|
%
|
|
|
851,838
|
|
|
|
(175,737
|
)
|
|
|
-21
|
%
|
|
Allowance for loan losses
|
|
|
(19,174
|
)
|
|
|
(19,518
|
)
|
|
|
344
|
|
|
|
2
|
%
|
|
|
(26,975
|
)
|
|
|
7,801
|
|
|
|
29
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loans
|
|
|
656,927
|
|
|
|
690,947
|
|
|
|
(34,020
|
)
|
|
|
-5
|
%
|
|
|
824,863
|
|
|
|
(167,936
|
)
|
|
|
-20
|
%
|
|
Other assets
|
|
|
104,953
|
|
|
|
109,127
|
|
|
|
(4,174
|
)
|
|
|
-4
|
%
|
|
|
104,760
|
|
|
|
193
|
|
|
|
0
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
$
|
1,157,550
|
|
|
$
|
1,195,474
|
|
|
$
|
(37,924
|
)
|
|
|
-3
|
%
|
|
$
|
1,301,111
|
|
|
$
|
(143,561
|
)
|
|
|
-11
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities and stockholders’ equity
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total deposits
|
|
$
|
1,014,982
|
|
|
$
|
1,045,602
|
|
|
$
|
(30,620
|
)
|
|
|
-3
|
%
|
|
$
|
1,161,032
|
|
|
$
|
(146,050
|
)
|
|
|
-13
|
%
|
|
Borrowings
|
|
|
37,965
|
|
|
|
34,496
|
|
|
|
3,469
|
|
|
|
10
|
%
|
|
|
33,801
|
|
|
|
4,164
|
|
|
|
12
|
%
|
|
Other liabilities
|
|
|
23,549
|
|
|
|
36,087
|
|
|
|
(12,538
|
)
|
|
|
-35
|
%
|
|
|
17,938
|
|
|
|
5,611
|
|
|
|
31
|
%
|
|
Stockholders’ equity
|
|
|
81,054
|
|
|
|
79,289
|
|
|
|
1,765
|
|
|
|
2
|
%
|
|
|
88,340
|
|
|
|
(7,286
|
)
|
|
|
-8
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities and stockholders’ equity
|
|
$
|
1,157,550
|
|
|
$
|
1,195,474
|
|
|
$
|
(37,924
|
)
|
|
|
-3
|
%
|
|
$
|
1,301,111
|
|
|
$
|
(143,561
|
)
|
|
|
-11
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The Company’s liquidity position remains strong as evidenced by its current level of combined cash and cash
equivalents and investment securities. In an effort to improve its net interest income and margin, the Company reduced its cash equivalents balances while increasing its investment securities portfolio since March 31, 2011. Cash equivalents as
of June 30, 2012 included $15.4 million to be transferred to another financial institution as part of the sale of two branches. Over the past year, the Company increased its government guaranteed collateralized mortgage obligations and
mortgage-backed securities. Municipal securities rated AA or better with maturities generally ranging from 5 to 15 years were also purchased during this period. The expected duration of the investment portfolio was 3.9 years at September 30,
2012, compared to 3.7 years at June 30, 2012, and 4.2 years at September 30, 2011.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Dollars in Thousands)
|
|
September 30,
2012
|
|
|
% of
Total
|
|
|
June 30, 2012
|
|
|
% of
Total
|
|
|
$ Change
|
|
|
% Change
|
|
|
September 30,
2011
|
|
|
% of
Total
|
|
|
$ Change
|
|
|
% Change
|
|
|
Cash and due from banks
|
|
$
|
24,277
|
|
|
|
6
|
%
|
|
$
|
26,522
|
|
|
|
7
|
%
|
|
$
|
(2,245
|
)
|
|
|
-8
|
%
|
|
$
|
28,551
|
|
|
|
8
|
%
|
|
$
|
(4,274
|
)
|
|
|
-15
|
%
|
|
Cash equivalents:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Federal fund sold
|
|
|
3,025
|
|
|
|
1
|
%
|
|
|
8,940
|
|
|
|
2
|
%
|
|
|
(5,915
|
)
|
|
|
-66
|
%
|
|
|
3,180
|
|
|
|
1
|
%
|
|
|
(155
|
)
|
|
|
-5
|
%
|
|
Interest-bearing deposits
|
|
|
38,241
|
|
|
|
10
|
%
|
|
|
52,406
|
|
|
|
13
|
%
|
|
|
(14,165
|
)
|
|
|
-27
|
%
|
|
|
34,330
|
|
|
|
9
|
%
|
|
|
3,911
|
|
|
|
11
|
%
|
|
Total cash equivalents
|
|
|
65,543
|
|
|
|
17
|
%
|
|
|
87,868
|
|
|
|
22
|
%
|
|
|
(22,325
|
)
|
|
|
-25
|
%
|
|
|
66,061
|
|
|
|
18
|
%
|
|
|
(518
|
)
|
|
|
-1
|
%
|
|
Interest-bearing certificates of deposit
|
|
|
1,500
|
|
|
|
0
|
%
|
|
|
1,500
|
|
|
|
0
|
%
|
|
|
—
|
|
|
|
0
|
%
|
|
|
1,500
|
|
|
|
0
|
%
|
|
|
—
|
|
|
|
0
|
%
|
|
Investment securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Collateralized mortgage obligations
|
|
|
151,961
|
|
|
|
38
|
%
|
|
|
140,797
|
|
|
|
36
|
%
|
|
|
11,164
|
|
|
|
8
|
%
|
|
|
136,051
|
|
|
|
37
|
%
|
|
|
15,910
|
|
|
|
12
|
%
|
|
Mortgage-backed securities
|
|
|
91,397
|
|
|
|
23
|
%
|
|
|
91,992
|
|
|
|
23
|
%
|
|
|
(595
|
)
|
|
|
-1
|
%
|
|
|
61,337
|
|
|
|
16
|
%
|
|
|
30,060
|
|
|
|
49
|
%
|
|
U.S. Government and agency securities
|
|
|
-
|
|
|
|
0
|
%
|
|
|
1,799
|
|
|
|
0
|
%
|
|
|
(1,799
|
)
|
|
|
-100
|
%
|
|
|
50,307
|
|
|
|
13
|
%
|
|
|
(50,307
|
)
|
|
|
-100
|
%
|
|
Obligations of states and political subdivisions
|
|
|
77,225
|
|
|
|
20
|
%
|
|
|
65,321
|
|
|
|
17
|
%
|
|
|
11,904
|
|
|
|
18
|
%
|
|
|
50,922
|
|
|
|
14
|
%
|
|
|
26,303
|
|
|
|
52
|
%
|
|
Investment securities - Other Community Reinvestment Act
|
|
|
4,962
|
|
|
|
1
|
%
|
|
|
2,975
|
|
|
|
1
|
%
|
|
|
1,987
|
|
|
|
67
|
%
|
|
|
2,000
|
|
|
|
1
|
%
|
|
|
2,962
|
|
|
|
148
|
%
|
|
Restricted equity securities
|
|
|
3,082
|
|
|
|
1
|
%
|
|
|
3,148
|
|
|
|
1
|
%
|
|
|
(66
|
)
|
|
|
-2
|
%
|
|
|
3,310
|
|
|
|
1
|
%
|
|
|
(228
|
)
|
|
|
-7
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total investment securities
|
|
|
328,627
|
|
|
|
83
|
%
|
|
|
306,032
|
|
|
|
78
|
%
|
|
|
22,595
|
|
|
|
7
|
%
|
|
|
303,927
|
|
|
|
82
|
%
|
|
|
24,700
|
|
|
|
8
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total cash and cash equivalents and investments
|
|
$
|
395,670
|
|
|
|
100
|
%
|
|
$
|
395,400
|
|
|
|
100
|
%
|
|
$
|
270
|
|
|
|
0
|
%
|
|
$
|
371,488
|
|
|
|
100
|
%
|
|
$
|
24,182
|
|
|
|
7
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total cash and cash equivalents and investments as a percent of total assets
|
|
|
|
|
|
|
34
|
%
|
|
|
|
|
|
|
33
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
29
|
%
|
|
|
|
|
|
|
|
|
43
INVESTMENT SECURITIES
The following table shows the changes in the investment portfolio for the periods presented:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Dollars in Thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Three Months Ended
|
|
September
30, 2012
|
|
|
June 30,
2012
|
|
|
$ Change
|
|
|
September 30,
2011
|
|
|
$ Change
|
|
|
Balance beginning of period
|
|
$
|
306,032
|
|
|
$
|
289,589
|
|
|
$
|
16,443
|
|
|
$
|
290,816
|
|
|
$
|
15,216
|
|
|
Principal purchases
|
|
|
83,468
|
|
|
|
52,921
|
|
|
|
30,547
|
|
|
|
32,422
|
|
|
|
51,046
|
|
|
Proceeds from sales
|
|
|
(50,022
|
)
|
|
|
(22,835
|
)
|
|
|
(27,187
|
)
|
|
|
(15,471
|
)
|
|
|
(34,551
|
)
|
|
Principal paydowns, maturities, and calls
|
|
|
(11,210
|
)
|
|
|
(13,026
|
)
|
|
|
1,816
|
|
|
|
(6,142
|
)
|
|
|
(5,068
|
)
|
|
Gains on sales of securities
|
|
|
853
|
|
|
|
274
|
|
|
|
579
|
|
|
|
227
|
|
|
|
626
|
|
|
Losses on sales of securities
|
|
|
(140
|
)
|
|
|
(47
|
)
|
|
|
(93
|
)
|
|
|
—
|
|
|
|
(140
|
)
|
|
Change in unrealized gains (loss) before tax
|
|
|
1,506
|
|
|
|
675
|
|
|
|
831
|
|
|
|
3,274
|
|
|
|
(1,768
|
)
|
|
Amortization and accretion of discounts and premiums
|
|
|
(1,860
|
)
|
|
|
(1,519
|
)
|
|
|
(341
|
)
|
|
|
(1,199
|
)
|
|
|
(661
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total investment portfolio
|
|
$
|
328,627
|
|
|
$
|
306,032
|
|
|
$
|
22,595
|
|
|
$
|
303,927
|
|
|
$
|
24,700
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Nine Months Ended
|
|
September 30,
2012
|
|
|
September 30,
2011
|
|
|
$ Change
|
|
|
Balance beginning of period
|
|
$
|
319,415
|
|
|
$
|
218,290
|
|
|
$
|
101,125
|
|
|
Principal purchases
|
|
|
163,356
|
|
|
|
242,390
|
|
|
|
(79,034
|
)
|
|
Proceeds from sales
|
|
|
(121,872
|
)
|
|
|
(129,766
|
)
|
|
|
7,894
|
|
|
Principal paydowns, maturities, and calls
|
|
|
(33,709
|
)
|
|
|
(29,799
|
)
|
|
|
(3,910
|
)
|
|
Gains on sales of securities
|
|
|
3,295
|
|
|
|
1,229
|
|
|
|
2,066
|
|
|
Losses on sales of securities
|
|
|
(187
|
)
|
|
|
(229
|
)
|
|
|
42
|
|
|
Change in unrealized gains (loss) before tax
|
|
|
2,927
|
|
|
|
4,487
|
|
|
|
(1,560
|
)
|
|
Amortization and accretion of discounts and premiums
|
|
|
(4,598
|
)
|
|
|
(2,675
|
)
|
|
|
(1,923
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total investment portfolio
|
|
$
|
328,627
|
|
|
$
|
303,927
|
|
|
$
|
24,700
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
44
LOANS
The Bank’s total loan portfolio continues to decline, reflecting the Company’s efforts to reduce adversely classified loans. These declines are accentuated by soft loan demand due to continued
weakness in the local and national economy. As a result, commercial, real estate construction, and commercial & industrial loan balances declined from year end. Loan totals have also declined because the Company exited a number of higher
risk rated loan relationships over the past year which contributed to the contraction in the commercial real estate and construction, land development & other land loan categories over the same period. This included a reduction, after
charge-offs, of approximately $15 million in loan balances associated with settlement of the largest non-performing lending relationship in first quarter 2012.
Interest and fees earned on our loan portfolio are our primary source of revenue. Our ability to achieve loan growth will be dependent on many factors, including the ability to raise additional capital,
effects of competition, economic conditions in our markets, retention of key personnel and valued customers, and our ability to close loans in the pipeline.
At September 30, 2012, the Bank had outstanding loan commitments of $19.4 million to persons serving as directors, executive officers, principal stockholders and their related interests. This
compares to $20.3 million and $22.9 million at June 30, 2012 and September 30, 2011, respectively. These loans, when made, were made in the ordinary course of business on substantially the same terms, including interest rates, maturities
and collateral, as comparable loans made to customers not related to the Bank.
The Company manages new commercial, including agricultural,
loan origination volume using concentration limits that establish maximum exposure levels by designated industry segment, real estate product types, geography, and single borrower limits. We expect the commercial loan portfolio to be an important
contributor to growth in future revenues as we continue to seek to limit our exposure to construction and development and commercial real estate.
Loans by category
(Dollars in Thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
September 30,
2012
|
|
|
% of
Gross
Loans
|
|
|
June 30, 2012
|
|
|
% of
Gross
Loans
|
|
|
$ Change
|
|
|
%
Change
|
|
|
September 30,
2011
|
|
|
% of
Gross
Loans
|
|
|
$ Change
|
|
|
%
Change
|
|
|
Construction, Land Dev & Other Land
|
|
$
|
36,434
|
|
|
|
5
|
%
|
|
$
|
47,968
|
|
|
|
7
|
%
|
|
$
|
(11,534
|
)
|
|
|
-24
|
%
|
|
$
|
94,692
|
|
|
|
11
|
%
|
|
$
|
(58,258
|
)
|
|
|
-62
|
%
|
|
Commercial & Industrial
|
|
|
115,395
|
|
|
|
17
|
%
|
|
|
116,457
|
|
|
|
16
|
%
|
|
|
(1,062
|
)
|
|
|
-1
|
%
|
|
|
131,559
|
|
|
|
15
|
%
|
|
|
(16,164
|
)
|
|
|
-12
|
%
|
|
Commercial Real Estate Loans
|
|
|
402,237
|
|
|
|
60
|
%
|
|
|
423,569
|
|
|
|
60
|
%
|
|
|
(21,332
|
)
|
|
|
-5
|
%
|
|
|
477,747
|
|
|
|
56
|
%
|
|
|
(75,510
|
)
|
|
|
-16
|
%
|
|
Secured Multifamily Residential
|
|
|
20,221
|
|
|
|
3
|
%
|
|
|
20,604
|
|
|
|
3
|
%
|
|
|
(383
|
)
|
|
|
-2
|
%
|
|
|
21,886
|
|
|
|
3
|
%
|
|
|
(1,665
|
)
|
|
|
-8
|
%
|
|
Other Loans Secured by 1-4 Family RE
|
|
|
43,400
|
|
|
|
7
|
%
|
|
|
44,026
|
|
|
|
6
|
%
|
|
|
(626
|
)
|
|
|
-1
|
%
|
|
|
49,522
|
|
|
|
6
|
%
|
|
|
(6,122
|
)
|
|
|
-12
|
%
|
|
Loans to Individuals, Family & Personal Expense
|
|
|
21,859
|
|
|
|
3
|
%
|
|
|
23,248
|
|
|
|
3
|
%
|
|
|
(1,389
|
)
|
|
|
-6
|
%
|
|
|
25,683
|
|
|
|
3
|
%
|
|
|
(3,824
|
)
|
|
|
-15
|
%
|
|
Indirect Consumer
|
|
|
23,264
|
|
|
|
3
|
%
|
|
|
22,692
|
|
|
|
3
|
%
|
|
|
572
|
|
|
|
3
|
%
|
|
|
20,810
|
|
|
|
2
|
%
|
|
|
2,454
|
|
|
|
12
|
%
|
|
Other Loans
|
|
|
13,316
|
|
|
|
2
|
%
|
|
|
12,037
|
|
|
|
2
|
%
|
|
|
1,279
|
|
|
|
11
|
%
|
|
|
31,361
|
|
|
|
4
|
%
|
|
|
(18,045
|
)
|
|
|
-58
|
%
|
|
Overdrafts
|
|
|
228
|
|
|
|
0
|
%
|
|
|
227
|
|
|
|
0
|
%
|
|
|
1
|
|
|
|
0
|
%
|
|
|
297
|
|
|
|
0
|
%
|
|
|
(69
|
)
|
|
|
-23
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross loans
|
|
|
676,354
|
|
|
|
|
|
|
|
710,828
|
|
|
|
|
|
|
|
(34,474
|
)
|
|
|
-5
|
%
|
|
|
853,557
|
|
|
|
|
|
|
|
(177,203
|
)
|
|
|
-21
|
%
|
|
Less: allowance for loan losses
|
|
|
(19,174
|
)
|
|
|
-3
|
%
|
|
|
(19,518
|
)
|
|
|
-3
|
%
|
|
|
344
|
|
|
|
2
|
%
|
|
|
(26,975
|
)
|
|
|
-3
|
%
|
|
|
7,801
|
|
|
|
29
|
%
|
|
Less: deferred fees and restructured loan concessions
|
|
|
(253
|
)
|
|
|
0
|
%
|
|
|
(363
|
)
|
|
|
0
|
%
|
|
|
110
|
|
|
|
30
|
%
|
|
|
(1,719
|
)
|
|
|
0
|
%
|
|
|
1,466
|
|
|
|
85
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loans, net
|
|
$
|
656,927
|
|
|
|
|
|
|
$
|
690,947
|
|
|
|
|
|
|
$
|
(34,020
|
)
|
|
|
-5
|
%
|
|
$
|
824,863
|
|
|
|
|
|
|
$
|
(167,936
|
)
|
|
|
-20
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The composition of the Bank’s loan portfolio was as follows for the periods shown:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Dollars in Thousands)
|
|
September 30, 2012
|
|
|
December 31, 2011
|
|
|
|
|
|
|
|
Funded
Loan
Totals
|
|
|
% of
Gross
Loans
|
|
|
Unfunded
Loan
Commit-
ments
|
|
|
% of Commit-
ments
|
|
|
Total Loan
Commit-
ments
|
|
|
Funded Loan
Totals
|
|
|
% of
Gross
Loans
|
|
|
Unfunded
Loan
Commit-
ments
|
|
|
% of
Commit-
ments
|
|
|
Total Loan
Commit-
ments
|
|
|
$ Change
Total
Loan
Commit-
ments
|
|
|
Construction, Land Dev & Other Land
|
|
$
|
36,434
|
|
|
|
5
|
%
|
|
$
|
473
|
|
|
|
1
|
%
|
|
$
|
36,907
|
|
|
$
|
81,241
|
|
|
|
10
|
%
|
|
$
|
2,203
|
|
|
|
3
|
%
|
|
$
|
83,444
|
|
|
$
|
(46,537
|
)
|
|
Commercial & Industrial
|
|
|
115,395
|
|
|
|
17
|
%
|
|
|
46,860
|
|
|
|
67
|
%
|
|
|
162,255
|
|
|
|
124,422
|
|
|
|
16
|
%
|
|
|
49,387
|
|
|
|
63
|
%
|
|
|
173,809
|
|
|
$
|
(11,554
|
)
|
|
Commercial Real Estate Loans
|
|
|
402,237
|
|
|
|
60
|
%
|
|
|
434
|
|
|
|
1
|
%
|
|
|
402,671
|
|
|
|
449,347
|
|
|
|
56
|
%
|
|
|
1,723
|
|
|
|
2
|
%
|
|
|
451,070
|
|
|
$
|
(48,399
|
)
|
|
Secured Multifamily Residential
|
|
|
20,221
|
|
|
|
3
|
%
|
|
|
14
|
|
|
|
0
|
%
|
|
|
20,235
|
|
|
|
21,792
|
|
|
|
3
|
%
|
|
|
—
|
|
|
|
0
|
%
|
|
|
21,792
|
|
|
$
|
(1,557
|
)
|
|
Other Loans Secured by 1-4 Family RE
|
|
|
43,400
|
|
|
|
7
|
%
|
|
|
18,645
|
|
|
|
26
|
%
|
|
|
62,045
|
|
|
|
47,912
|
|
|
|
6
|
%
|
|
|
18,355
|
|
|
|
23
|
%
|
|
|
66,267
|
|
|
$
|
(4,222
|
)
|
|
Loans to Individuals, Family & Personal Expense
|
|
|
21,859
|
|
|
|
3
|
%
|
|
|
832
|
|
|
|
1
|
%
|
|
|
22,691
|
|
|
|
24,034
|
|
|
|
3
|
%
|
|
|
732
|
|
|
|
1
|
%
|
|
|
24,766
|
|
|
$
|
(2,075
|
)
|
|
Indirect Consumer
|
|
|
23,264
|
|
|
|
3
|
%
|
|
|
—
|
|
|
|
0
|
%
|
|
|
23,264
|
|
|
|
21,272
|
|
|
|
3
|
%
|
|
|
270
|
|
|
|
0
|
%
|
|
|
21,542
|
|
|
$
|
1,722
|
|
|
Other Loans
|
|
|
13,316
|
|
|
|
2
|
%
|
|
|
3,070
|
|
|
|
4
|
%
|
|
|
16,386
|
|
|
|
27,594
|
|
|
|
3
|
%
|
|
|
6,299
|
|
|
|
8
|
%
|
|
|
33,893
|
|
|
$
|
(17,507
|
)
|
|
Overdrafts
|
|
|
228
|
|
|
|
0
|
%
|
|
|
—
|
|
|
|
0
|
%
|
|
|
228
|
|
|
|
264
|
|
|
|
0
|
%
|
|
|
—
|
|
|
|
0
|
%
|
|
|
264
|
|
|
$
|
(36
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross loans
|
|
$
|
676,354
|
|
|
|
100
|
%
|
|
$
|
70,328
|
|
|
|
100
|
%
|
|
$
|
746,682
|
|
|
$
|
797,878
|
|
|
|
100
|
%
|
|
$
|
78,969
|
|
|
|
100
|
%
|
|
$
|
876,847
|
|
|
$
|
(130,165
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
45
The total loan commitments (funded and unfunded) by loan type and geographic region were as follows for the
periods shown:
(Dollars in Thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
September 30, 2012
|
|
|
|
|
Southern
|
|
|
Mid-Central
|
|
|
Northern
|
|
|
Sacramento
|
|
|
|
|
|
|
|
Oregon
|
|
|
Oregon
|
|
|
California
|
|
|
Valley
|
|
|
Total
|
|
|
Construction, Land Dev & Other Land
|
|
$
|
19,685
|
|
|
$
|
7,523
|
|
|
$
|
1,944
|
|
|
$
|
7,282
|
|
|
$
|
36,434
|
|
|
Commercial & Industrial
|
|
|
69,907
|
|
|
|
14,487
|
|
|
|
9,656
|
|
|
|
21,345
|
|
|
|
115,395
|
|
|
Commercial Real Estate Loans
|
|
|
173,269
|
|
|
|
81,737
|
|
|
|
30,876
|
|
|
|
116,355
|
|
|
|
402,237
|
|
|
Secured Multifamily Residential
|
|
|
11,935
|
|
|
|
5,701
|
|
|
|
1,299
|
|
|
|
1,286
|
|
|
|
20,221
|
|
|
Other Loans Secured by 1-4 Family RE
|
|
|
21,784
|
|
|
|
5,525
|
|
|
|
8,955
|
|
|
|
7,136
|
|
|
|
43,400
|
|
|
Loans to Individuals, Family & Personal Expense
|
|
|
10,463
|
|
|
|
7,746
|
|
|
|
2,440
|
|
|
|
1,210
|
|
|
|
21,859
|
|
|
Indirect Consumer
|
|
|
5,062
|
|
|
|
12,923
|
|
|
|
5,179
|
|
|
|
100
|
|
|
|
23,264
|
|
|
Other Loans
|
|
|
3,059
|
|
|
|
483
|
|
|
|
2,258
|
|
|
|
7,516
|
|
|
|
13,316
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Subtotal
|
|
$
|
315,164
|
|
|
$
|
136,125
|
|
|
$
|
62,607
|
|
|
$
|
162,230
|
|
|
|
676,126
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Overdrafts
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
228
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
676,354
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The table provided below summarizes the Bank’s level of concentrations in commercial real estate as of
September 30, 2012, June 30, 2012 and September 30, 2011, respectively, as defined in the Interagency Guidelines for Real Estate Lending and the Commercial Real Estate Lending Joint Guidance policy. The results displayed document
the Bank’s successful efforts to reduce CRE concentrations in the loan portfolio. Management anticipates that its continued efforts to reduce adversely classified assets will result in further reductions in concentrations of commercial real
estate.
Commercial Real Estate (“CRE”)
Portfolio Policy Concentrations
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
September 30,
2012
|
|
|
June 30, 2012
|
|
|
September 30,
2011
|
|
|
Guideline
|
|
|
Total Regulatory CRE
1
|
|
|
239
|
%
|
|
|
261
|
%
|
|
|
314
|
%
|
|
|
300
|
%
|
|
Construction & Land Development CRE
2
|
|
|
30
|
%
|
|
|
40
|
%
|
|
|
76
|
%
|
|
|
100
|
%
|
|
As a percent of total risk based capital (“TRBC”)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1
|
Consists of CRE Const, CRE Residential SFR 1-4 Const, CRE Land Dev & Other Land, CRE NOO
Term, C&I Loans not RE Secured to Finance CRE Activities
|
|
2
|
Consists of CRE Const, CRE Residential SFR 1-4 Const, CRE Land Dev & Other Land
|
As shown in the table below, the distribution of our commercial real estate loan portfolio at September 30,
2012, was fairly consistent with our branch presence in our operating markets.
Total CRE by count and geographic region
(Dollars in Thousands) except number of loans
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
September 30, 2012
|
|
|
|
|
Southern
Oregon
|
|
|
Mid-Central
Oregon
|
|
|
Northern
California
|
|
|
Sacramento
Valley
|
|
|
Total
|
|
|
Commercial Real Estate Loans
|
|
$
|
173,269
|
|
|
$
|
81,737
|
|
|
$
|
30,876
|
|
|
$
|
116,355
|
|
|
$
|
402,237
|
|
|
Number of loans in region
|
|
|
298
|
|
|
|
83
|
|
|
|
67
|
|
|
|
118
|
|
|
|
566
|
|
|
Number of branches in region
|
|
|
11
|
|
|
|
6
|
|
|
|
8
|
|
|
|
7
|
|
|
|
32
|
|
Commercial real estate markets continue to be vulnerable to financial and valuation pressures that may limit refinance
options and negatively impact borrowers’ ability to perform under existing loan agreements. Declining values of commercial real estate or higher market interest rates may have a further adverse impact on the ability of borrowers with maturing
loans to satisfy loan to value ratios required to renew such loans.
46
DEPOSITS AND BORROWINGS
The trend in the decline in total deposits continues from recent quarters. This decrease was mainly due to the decision to continue to reduce higher cost time deposit balances. Time deposits declined as a
percentage of the Company’s total deposits in the most recent quarter versus the previous quarter and the same quarter last year. In addition, deposits have declined as a result of the branch consolidation and sale of two branches during second
quarter 2012. These branches represented approximately $102.0 million, or less than 10% of total Bank-wide deposits as of December 31, 2011. As of September 30, 2012, only $30.6 million in deposits have been lost as a result of this
initiative, including $16.3 million located in the two branches sold to another financial institution. This represents a loss of 29.7% of deposits in these branches prior to consolidation and sale, or 2.7% of total deposits as of December 31,
2011.
The combination of the Company’s efforts to reduce higher-cost time deposits and recent deposit pricing strategies to lower
interest rates in concert with market conditions has reduced the average rate paid on total deposits in third quarter 2012 from both the previous quarter and the same quarter in 2011. It has also increased the proportion of the Company’s
funding from non-interest bearing and lower-cost non-maturity deposits over this period.
Total brokered deposits were $241,000 at
September 30, 2012 and December 31, 2011. These deposits are currently not being replaced as they mature.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Dollars in Thousands)
|
|
September 30,
2012
|
|
|
Percent of
Total
|
|
|
June 30, 2012
|
|
|
Percent
of Total
|
|
|
$ Change
|
|
|
September 30,
2011
|
|
|
Percent of
Total
|
|
|
$ Change
|
|
|
Interest-bearing demand and money market
|
|
$
|
301,976
|
|
|
|
30
|
%
|
|
$
|
313,750
|
|
|
|
30
|
%
|
|
$
|
(11,774
|
)
|
|
$
|
338,014
|
|
|
|
29
|
%
|
|
$
|
(36,038
|
)
|
|
Savings
|
|
|
91,335
|
|
|
|
9
|
%
|
|
|
89,426
|
|
|
|
9
|
%
|
|
|
1,909
|
|
|
|
88,455
|
|
|
|
8
|
%
|
|
|
2,880
|
|
|
Time deposits
|
|
|
346,054
|
|
|
|
34
|
%
|
|
|
368,442
|
|
|
|
35
|
%
|
|
|
(22,388
|
)
|
|
|
454,704
|
|
|
|
39
|
%
|
|
|
(108,650
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total interest-bearing deposits
|
|
|
739,365
|
|
|
|
73
|
%
|
|
|
771,618
|
|
|
|
74
|
%
|
|
|
(32,253
|
)
|
|
|
881,173
|
|
|
|
76
|
%
|
|
|
(141,808
|
)
|
|
Non-interest bearing demand
|
|
|
275,617
|
|
|
|
27
|
%
|
|
|
273,984
|
|
|
|
26
|
%
|
|
|
1,633
|
|
|
|
279,859
|
|
|
|
24
|
%
|
|
|
(4,242
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total deposits
|
|
$
|
1,014,982
|
|
|
|
100
|
%
|
|
$
|
1,045,602
|
|
|
|
100
|
%
|
|
$
|
(30,620
|
)
|
|
$
|
1,161,032
|
|
|
|
100
|
%
|
|
$
|
(146,050
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
47
The following table summarizes the quarterly average dollar amount in each of the deposit and borrowing
categories during the three months ended September 30, 2012, June 30, 2012 and September 30, 2012 and the nine months ended September 30, 2012 and September 30, 2011:
(Dollars in Thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Averages for the Three Months Ended
|
|
September 30,
2012
|
|
|
% of
Total
|
|
|
June 30,
2012
|
|
|
% of
Total
|
|
|
$ Change
|
|
|
%
Change
|
|
|
September 30,
2011
|
|
|
% of
Total
|
|
|
$ Change
|
|
|
%
Change
|
|
|
Non-interest bearing demand deposits
|
|
$
|
278,714
|
|
|
|
27
|
%
|
|
$
|
277,983
|
|
|
|
27
|
%
|
|
$
|
731
|
|
|
|
0
|
%
|
|
$
|
272,896
|
|
|
|
23
|
%
|
|
$
|
5,818
|
|
|
|
2
|
%
|
|
Interest bearing demand
|
|
|
310,150
|
|
|
|
30
|
%
|
|
|
311,997
|
|
|
|
29
|
%
|
|
|
(1,847
|
)
|
|
|
-1
|
%
|
|
|
344,054
|
|
|
|
29
|
%
|
|
|
(33,904
|
)
|
|
|
-10
|
%
|
|
Savings
|
|
|
89,935
|
|
|
|
9
|
%
|
|
|
90,741
|
|
|
|
8
|
%
|
|
|
(806
|
)
|
|
|
-1
|
%
|
|
|
86,937
|
|
|
|
8
|
%
|
|
|
2,998
|
|
|
|
3
|
%
|
|
Time deposits
|
|
|
355,049
|
|
|
|
34
|
%
|
|
|
384,744
|
|
|
|
36
|
%
|
|
|
(29,695
|
)
|
|
|
-8
|
%
|
|
|
468,499
|
|
|
|
40
|
%
|
|
|
(113,450
|
)
|
|
|
-24
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total average interest bearing deposits
|
|
|
755,134
|
|
|
|
73
|
%
|
|
|
787,482
|
|
|
|
73
|
%
|
|
|
(32,348
|
)
|
|
|
-4
|
%
|
|
|
899,490
|
|
|
|
77
|
%
|
|
|
(144,356
|
)
|
|
|
-16
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total average deposits
|
|
$
|
1,033,848
|
|
|
|
100
|
%
|
|
$
|
1,065,465
|
|
|
|
100
|
%
|
|
$
|
(31,617
|
)
|
|
|
-3
|
%
|
|
$
|
1,172,386
|
|
|
|
100
|
%
|
|
$
|
(138,538
|
)
|
|
|
-12
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Securities sold under agreements to repurchase
|
|
$
|
5,044
|
|
|
|
14
|
%
|
|
$
|
4,107
|
|
|
|
12
|
%
|
|
$
|
937
|
|
|
|
23
|
%
|
|
$
|
4,341
|
|
|
|
12
|
%
|
|
$
|
703
|
|
|
|
16
|
%
|
|
Junior subordinated debentures
|
|
|
30,928
|
|
|
|
86
|
%
|
|
|
30,928
|
|
|
|
88
|
%
|
|
|
—
|
|
|
|
0
|
%
|
|
|
30,928
|
|
|
|
88
|
%
|
|
|
—
|
|
|
|
0
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total average borrowings
|
|
$
|
35,972
|
|
|
|
100
|
%
|
|
$
|
35,035
|
|
|
|
100
|
%
|
|
$
|
937
|
|
|
|
3
|
%
|
|
$
|
35,269
|
|
|
|
100
|
%
|
|
$
|
703
|
|
|
|
2
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total average interest-bearing liabilities
|
|
$
|
791,106
|
|
|
|
|
|
|
$
|
822,517
|
|
|
|
|
|
|
$
|
(31,411
|
)
|
|
|
-4
|
%
|
|
$
|
934,759
|
|
|
|
|
|
|
$
|
(143,653
|
)
|
|
|
-15
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total average deposits and borrowings
|
|
$
|
1,069,820
|
|
|
|
|
|
|
$
|
1,100,500
|
|
|
|
|
|
|
$
|
(30,680
|
)
|
|
|
-3
|
%
|
|
$
|
1,207,655
|
|
|
|
|
|
|
$
|
(137,835
|
)
|
|
|
-11
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Averages for the Nine Months Ended
|
|
September 30,
2012
|
|
|
% of
Total
|
|
|
September 30,
2011
|
|
|
% of
Total
|
|
|
$ Change
|
|
|
%
Change
|
|
|
Non-interest bearing demand deposits
|
|
$
|
278,699
|
|
|
|
26
|
%
|
|
$
|
262,235
|
|
|
|
22
|
%
|
|
$
|
16,464
|
|
|
|
6
|
%
|
|
Interest bearing demand
|
|
|
314,968
|
|
|
|
30
|
%
|
|
|
361,868
|
|
|
|
30
|
%
|
|
|
(46,900
|
)
|
|
|
-13
|
%
|
|
Savings
|
|
|
89,706
|
|
|
|
8
|
%
|
|
|
85,555
|
|
|
|
7
|
%
|
|
|
4,151
|
|
|
|
5
|
%
|
|
Time deposits
|
|
|
383,870
|
|
|
|
36
|
%
|
|
|
502,434
|
|
|
|
41
|
%
|
|
|
(118,564
|
)
|
|
|
-24
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total average interest bearing deposits
|
|
|
788,544
|
|
|
|
74
|
%
|
|
|
949,857
|
|
|
|
78
|
%
|
|
|
(161,313
|
)
|
|
|
-17
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total average deposits
|
|
$
|
1,067,243
|
|
|
|
100
|
%
|
|
$
|
1,212,092
|
|
|
|
100
|
%
|
|
$
|
(144,849
|
)
|
|
|
-12
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Securities sold under agreements to repurchase
|
|
$
|
4,568
|
|
|
|
13
|
%
|
|
$
|
3,567
|
|
|
|
10
|
%
|
|
$
|
1,001
|
|
|
|
28
|
%
|
|
Federal Home Loan Bank borrowings
|
|
|
—
|
|
|
|
0
|
%
|
|
|
11
|
|
|
|
0
|
%
|
|
|
(11
|
)
|
|
|
-100
|
%
|
|
Junior subordinated debentures
|
|
|
30,928
|
|
|
|
87
|
%
|
|
|
30,928
|
|
|
|
90
|
%
|
|
|
—
|
|
|
|
0
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total average borrowings
|
|
$
|
35,496
|
|
|
|
100
|
%
|
|
$
|
34,506
|
|
|
|
100
|
%
|
|
$
|
990
|
|
|
|
3
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total average interest-bearing liabilities
|
|
$
|
824,040
|
|
|
|
|
|
|
$
|
984,363
|
|
|
|
|
|
|
$
|
(160,323
|
)
|
|
|
-16
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total average deposits and borrowings
|
|
$
|
1,102,739
|
|
|
|
|
|
|
$
|
1,246,598
|
|
|
|
|
|
|
$
|
(143,859
|
)
|
|
|
-12
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Average total deposits declined 12% in both the three and nine months ended September 30, 2012 from the same periods
in 2011. This decrease was mainly due to the decision to continue to reduce higher cost time deposit balances, which declined 24% from the same quarter last year. Time deposits also declined as a percentage of the Company’s average total
deposits versus second quarter 2012. The combination of the Company’s efforts to reduce higher-cost time deposits and recent deposit pricing strategies to lower interest rates in concert with market conditions has helped reduce the average rate
paid on total deposits in 2012, down significantly from 2011. Whether we will continue to be successful maintaining or growing our low cost deposit base will depend on various factors, including deposit pricing strategies, market interest rates, the
effects of competition, client behavior, and regulatory changes and requirements.
At September 30, 2012, the balance of junior
subordinated debentures issued in connection with our prior issuances of trust preferred securities was $30.9 million or unchanged from September 30, 2011. Under the December 2009 Written Agreement with the Oregon Department of Consumer and
Business Services, Division of Finance and Corporate Securities (“DFCS”) and the Federal Reserve Bank (“Reserve Bank”), we must request regulatory approval prior to making payments on our trust preferred securities. For
additional detail regarding Bancorp’s outstanding debentures, see Note 7 in the financial statements included under Item 1 of this report.
48
CAPITAL
Capital ratios at the Bank have improved as compared to December 31, 2011, and September 30, 2011, primarily due to the Company’s deleveraging strategy and shift in the balance sheet mix to
less risk-weighted assets, such as investment securities. PremierWest Bank has met the quantitative thresholds to be considered “Well-Capitalized” under published regulatory standards for total risk-based capital and Tier 1 risk-based
capital at September 30, 2012. However, we continue to be subject to the terms of the Consent Order with the FDIC and have not yet reached the 10.00 percent leverage ratio required by the Consent Order, as the Bank’s leverage ratio as of
September 30, 2012 was 9.34 percent. An additional $7.7 million in capital would be needed to achieve the 10.00 percent leverage ratio requirement. As such, we are not considered “Well-Capitalized” under all applicable regulatory
requirements.
The Board of Governors of the Federal Reserve System (“Federal Reserve”) and the FDIC have established minimum
requirements for capital adequacy for bank holding companies and state non-member banks. For more information on these topics, see the discussions under the subheadings “Capital Adequacy Requirements” in the section “Supervision and
Regulation” included in Item 1 of the Company’s 2011 Form 10-K. The following table summarizes the capital measures of Bancorp and the Bank, respectively, at the dates listed below:
Bancorp:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
September 30,
2012
|
|
|
December 31,
2011
|
|
|
September 30,
2011
|
|
|
Regulatory Minimum to be
“Adequately Capitalized”
|
|
|
|
|
|
|
|
|
|
|
|
|
|
greater than or equal to
|
|
|
Total risk-based capital ratio
|
|
|
13.32
|
%
|
|
|
12.45
|
%
|
|
|
12.24
|
%
|
|
|
8.00
|
%
|
|
Tier 1 risk-based capital ratio
|
|
|
11.37
|
%
|
|
|
10.80
|
%
|
|
|
10.73
|
%
|
|
|
4.00
|
%
|
|
Leverage ratio
|
|
|
8.15
|
%
|
|
|
8.01
|
%
|
|
|
8.24
|
%
|
|
|
4.00
|
%
|
Bank:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
September 30,
2012
|
|
|
December 31,
2011
|
|
|
September 30,
2011
|
|
|
Regulatory Minimum to be
“Adequately Capitalized”
|
|
|
Regulatory Minimum to be
“Well-Capitalized”
|
|
|
|
|
|
|
|
|
|
|
|
|
|
greater than or equal to
|
|
|
greater than or equal to
|
|
|
Total risk-based capital ratio
|
|
|
14.28
|
%
|
|
|
13.03
|
%
|
|
|
12.71
|
%
|
|
|
8.00
|
%
|
|
|
10.00
|
%
|
|
Tier 1 risk-based capital ratio
|
|
|
13.02
|
%
|
|
|
11.77
|
%
|
|
|
11.45
|
%
|
|
|
4.00
|
%
|
|
|
6.00
|
%
|
|
Leverage ratio
|
|
|
9.34
|
%
|
|
|
8.72
|
%
|
|
|
8.80
|
%
|
|
|
4.00
|
%
|
|
|
5.00
|
%
|
The total risk based capital ratios of Bancorp include $30.9 million of junior subordinated debentures, of which $24.3
million qualified as Tier 1 capital at September 30, 2012, under guidance issued by the Federal Reserve. As provided in the Dodd-Frank Act, which was signed into law on July 21, 2010, Bancorp currently expects to continue to rely on these
junior subordinated debentures as part of its regulatory capital. However, Bancorp also expects that future regulations related to Basel III capital standards could adversely impact continued reliance on junior subordinated debentures.
49
The table below shows the quarter over quarter change in the Company’s capital ratios for the periods
presented:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
September 30,
2012
|
|
|
June 30,
2012
|
|
|
Change
|
|
|
September 30,
2011
|
|
|
Change
|
|
|
PremierWest Bancorp
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total risk-based capital ratio
|
|
|
13.32
|
%
|
|
|
12.80
|
%
|
|
|
0.52
|
|
|
|
12.24
|
%
|
|
|
1.08
|
|
|
Tier 1 risk-based capital ratio
|
|
|
11.37
|
%
|
|
|
10.87
|
%
|
|
|
0.50
|
|
|
|
10.73
|
%
|
|
|
0.64
|
|
|
Leverage ratio
|
|
|
8.15
|
%
|
|
|
7.91
|
%
|
|
|
0.24
|
|
|
|
8.24
|
%
|
|
|
(0.09
|
)
|
|
|
|
|
|
|
|
|
PremierWest Bank
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total risk-based capital ratio
|
|
|
14.28
|
%
|
|
|
13.64
|
%
|
|
|
0.64
|
|
|
|
12.71
|
%
|
|
|
1.57
|
|
|
Tier 1 risk-based capital ratio
|
|
|
13.02
|
%
|
|
|
12.37
|
%
|
|
|
0.65
|
|
|
|
11.45
|
%
|
|
|
1.57
|
|
|
Leverage ratio
|
|
|
9.34
|
%
|
|
|
9.01
|
%
|
|
|
0.33
|
|
|
|
8.80
|
%
|
|
|
0.54
|
|
FINANCIAL PERFORMANCE OVERVIEW
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For The Three Months Ended
|
|
September 30,
2012
|
|
|
June 30, 2012
|
|
|
Change
|
|
|
September 30,
2011
|
|
|
Change
|
|
|
Selective quarterly performance ratios
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Return on average assets, annualized
|
|
|
0.04
|
%
|
|
|
-0.66
|
%
|
|
|
0.70
|
|
|
|
-1.04
|
%
|
|
|
1.08
|
|
|
Return on average common equity, annualized
|
|
|
1.12
|
%
|
|
|
-19.26
|
%
|
|
|
20.38
|
|
|
|
-26.94
|
%
|
|
|
28.06
|
|
|
Efficiency ratio
(1)
|
|
|
94.57
|
%
|
|
|
100.13
|
%
|
|
|
(5.56
|
)
|
|
|
85.71
|
%
|
|
|
8.86
|
|
|
|
|
|
|
|
|
|
Share and per share information
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Average common shares outstanding—basic
|
|
|
10,034,741
|
|
|
|
10,034,741
|
|
|
|
—
|
|
|
|
10,035,241
|
|
|
|
(500
|
)
|
|
Average common shares outstanding—diluted
|
|
|
10,034,741
|
|
|
|
10,034,741
|
|
|
|
—
|
|
|
|
10,035,241
|
|
|
|
(500
|
)
|
|
Basic income (loss) per common share
|
|
$
|
0.01
|
|
|
$
|
(0.20
|
)
|
|
$
|
0.21
|
|
|
$
|
(0.35
|
)
|
|
$
|
0.36
|
|
|
Diluted income (loss) per common share
|
|
$
|
0.01
|
|
|
$
|
(0.20
|
)
|
|
$
|
0.21
|
|
|
$
|
(0.35
|
)
|
|
$
|
0.36
|
|
|
Book value per common share
(2)
|
|
$
|
4.02
|
|
|
$
|
3.85
|
|
|
$
|
0.17
|
|
|
$
|
4.79
|
|
|
$
|
(0.77
|
)
|
|
Tangible book value per common share
(3)
|
|
$
|
3.85
|
|
|
$
|
3.68
|
|
|
$
|
0.17
|
|
|
$
|
4.58
|
|
|
$
|
(0.73
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For The Nine Months Ended
|
|
September 30,
2012
|
|
|
September 30,
2011
|
|
|
Change
|
|
|
Selective quarterly performance ratios
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Return on average assets, annualized
|
|
|
-0.74
|
%
|
|
|
-1.33
|
%
|
|
|
0.59
|
|
|
Return on average common equity, annualized
|
|
|
-21.10
|
%
|
|
|
-34.39
|
%
|
|
|
13.29
|
|
|
Efficiency ratio
(1)
|
|
|
99.86
|
%
|
|
|
100.59
|
%
|
|
|
(0.73
|
)
|
|
|
|
|
|
|
Share and per share information
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Average common shares outstanding—basic
|
|
|
10,034,741
|
|
|
|
10,035,240
|
|
|
|
(499
|
)
|
|
Average common shares outstanding—diluted
|
|
|
10,034,741
|
|
|
|
10,035,240
|
|
|
|
(499
|
)
|
|
Basic loss per common share
|
|
$
|
(0.66
|
)
|
|
$
|
(1.35
|
)
|
|
$
|
0.69
|
|
|
Diluted loss per common share
|
|
$
|
(0.66
|
)
|
|
$
|
(1.35
|
)
|
|
$
|
0.69
|
|
|
(1)
|
Non-interest expense divided by net interest income plus non-interest income.
|
|
(2)
|
Book value is calculated as the total common equity (less preferred stock and the discount on preferred stock) divided by the period ending
|
|
number
|
of common shares outstanding.
|
|
(3)
|
Tangible book value is calculated as the total common equity (less preferred stock and the discount on preferred stock) less core deposit
|
|
intangibles
|
divided by the period ending number of common shares outstanding.
|
50
(Annualized, tax-equivalent basis)
For The Three Months Ended
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
September 30, 2012
|
|
|
June 30, 2012
|
|
|
Change
|
|
|
September 30, 2011
|
|
|
Change
|
|
|
Selective quarterly performance ratios
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Yield on average gross loans
(1)
|
|
|
6.07
|
%
|
|
|
6.32
|
%
|
|
|
(0.25
|
)
|
|
|
6.06
|
%
|
|
|
0.01
|
|
|
Yield on average investment securities
(1)(2)
|
|
|
1.71
|
%
|
|
|
2.02
|
%
|
|
|
(0.31
|
)
|
|
|
2.00
|
%
|
|
|
(0.29
|
)
|
|
Cost of average interest bearing deposits
|
|
|
0.64
|
%
|
|
|
0.70
|
%
|
|
|
(0.06
|
)
|
|
|
0.90
|
%
|
|
|
(0.26
|
)
|
|
Cost of average borrowings
|
|
|
2.93
|
%
|
|
|
1.93
|
%
|
|
|
1.00
|
|
|
|
1.72
|
%
|
|
|
1.21
|
|
|
Cost of average total deposits and borrowings
|
|
|
0.55
|
%
|
|
|
0.56
|
%
|
|
|
(0.01
|
)
|
|
|
0.72
|
%
|
|
|
(0.17
|
)
|
|
Yield on average interest-earning assets
|
|
|
4.56
|
%
|
|
|
4.91
|
%
|
|
|
(0.35
|
)
|
|
|
4.93
|
%
|
|
|
(0.37
|
)
|
|
Cost of average interest-bearing liabilities
|
|
|
0.75
|
%
|
|
|
0.75
|
%
|
|
|
—
|
|
|
|
0.93
|
%
|
|
|
(0.18
|
)
|
|
Net interest spread
|
|
|
3.81
|
%
|
|
|
4.16
|
%
|
|
|
(0.35
|
)
|
|
|
4.00
|
%
|
|
|
(0.19
|
)
|
|
Net interest margin
(1)
|
|
|
4.01
|
%
|
|
|
4.34
|
%
|
|
|
(0.33
|
)
|
|
|
4.21
|
%
|
|
|
(0.20
|
)
|
For The Nine Months Ended
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
September 30, 2012
|
|
|
September 30, 2011
|
|
|
Change
|
|
|
Selective quarterly performance ratios
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Yield on average gross loans
(1)
|
|
|
6.09
|
%
|
|
|
6.00
|
%
|
|
|
0.09
|
|
|
Yield on average investment securities
(1)(2)
|
|
|
1.97
|
%
|
|
|
1.91
|
%
|
|
|
0.06
|
|
|
Cost of average interest bearing deposits
|
|
|
0.71
|
%
|
|
|
1.00
|
%
|
|
|
(0.29
|
)
|
|
Cost of average borrowings
|
|
|
2.28
|
%
|
|
|
1.85
|
%
|
|
|
0.43
|
|
|
Cost of average total deposits and borrowings
|
|
|
0.58
|
%
|
|
|
0.81
|
%
|
|
|
(0.23
|
)
|
|
Yield on average interest-earning assets
|
|
|
4.74
|
%
|
|
|
4.88
|
%
|
|
|
(0.14
|
)
|
|
Cost of average interest-bearing liabilities
|
|
|
0.77
|
%
|
|
|
1.03
|
%
|
|
|
(0.26
|
)
|
|
Net interest spread
|
|
|
3.97
|
%
|
|
|
3.85
|
%
|
|
|
0.12
|
|
|
Net interest margin
(1)
|
|
|
4.15
|
%
|
|
|
4.08
|
%
|
|
|
0.07
|
|
|
(1)
|
Tax-exempt income has been adjusted to a tax equivalent basis at a 40% rate.
|
|
(2)
|
Includes interest-bearing cash equivalents.
|
51
ASSET QUALITY
At September 30, 2012, the Company experienced a continued decrease in adversely classified loans, due to a decline in both loans rated substandard or worse but not impaired and non-performing loans.
Non-performing loans have continued to decline primarily in the construction and land development loan category, as a result of improvements in credit quality ratings, transfers to OREO, pay offs, and charge-offs of impaired loans. Of those loans
currently designated as non-performing, approximately $9.6 million, or 31.4%, are current as to payment of principal and interest.
The
Company monitors delinquencies, defined as loans on accruing status 30-89 days past due, as an indicator of future non-performing assets. Total 30-89 days delinquencies remain below 1.00%, mirroring the improvement in overall credit quality noted
previously. Loans to individuals experienced an increase in delinquencies in third quarter due to a more assertive collection methodology being applied to loans formerly housed in the Bank’s now dissolved Finance Company. This approach is
expected to reduce delinquencies going forward. While the local and national economy continues to languish, more borrowers are demonstrating the ability to adjust to current economic conditions.
At September 30, 2012, total non-performing assets were down compared to June 30, 2012 and September 30, 2011. Non-performing assets and
non-performing loans also declined during this period in terms of percentage of total assets and loans, respectively. The amount of additions to non-performing loans declined in the current quarter as compared to the previous quarter and the same
quarter in 2011.
Adversely classified loans
(Dollars in Thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
September 30,
2012
|
|
|
June 30, 2012
|
|
|
$ Change
|
|
|
% Change
|
|
|
September 30,
2011
|
|
|
$ Change
|
|
|
% Change
|
|
|
Rated substandard or worse but not impaired
|
|
$
|
73,225
|
|
|
$
|
79,643
|
|
|
$
|
(6,418
|
)
|
|
|
-8
|
%
|
|
$
|
114,223
|
|
|
$
|
(40,998
|
)
|
|
|
-36
|
%
|
|
Impaired
|
|
|
30,473
|
|
|
|
38,453
|
|
|
|
(7,980
|
)
|
|
|
-21
|
%
|
|
|
78,210
|
|
|
|
(47,737
|
)
|
|
|
-61
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total adversely classified loans*
|
|
$
|
103,698
|
|
|
$
|
118,096
|
|
|
$
|
(14,398
|
)
|
|
|
-12
|
%
|
|
$
|
192,433
|
|
|
$
|
(88,735
|
)
|
|
|
-46
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross loans
|
|
$
|
676,354
|
|
|
$
|
710,828
|
|
|
$
|
(34,474
|
)
|
|
|
-5
|
%
|
|
$
|
853,557
|
|
|
$
|
(177,203
|
)
|
|
|
-21
|
%
|
|
Adversely classified loans to gross loans
|
|
|
15.33
|
%
|
|
|
16.61
|
%
|
|
|
-1.28
|
%
|
|
|
|
|
|
|
22.54
|
%
|
|
|
-7.21
|
%
|
|
|
|
|
|
Allowance for loan losses
|
|
$
|
19,174
|
|
|
$
|
19,518
|
|
|
$
|
(344
|
)
|
|
|
-2
|
%
|
|
$
|
26,975
|
|
|
$
|
(7,801
|
)
|
|
|
-29
|
%
|
|
*
|
Adversely classified loans are defined as loans having a well-defined weakness or weaknesses related to the borrower’s financial capacity or to pledged collateral
that may jeopardize the repayment of the debt. They are characterized by the possibility that the Bank may sustain some loss if the deficiencies giving rise to the substandard classification are not corrected.
|
30-89 Days Past Due by type
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Dollars in Thousands)
|
|
September 30,
2012
|
|
|
% of
Category
|
|
|
June 30, 2012
|
|
|
% of
Category
|
|
|
$ Change
|
|
|
September 30,
2011
|
|
|
% of
Category
|
|
$ Change
|
|
|
Construction, Land Dev & Other Land
|
|
$
|
771
|
|
|
|
18
|
%
|
|
$
|
—
|
|
|
|
0
|
%
|
|
$
|
771
|
|
|
$
|
—
|
|
|
0%
|
|
$
|
771
|
|
|
Commercial & Industrial
|
|
|
119
|
|
|
|
3
|
%
|
|
|
297
|
|
|
|
13
|
%
|
|
|
(178
|
)
|
|
|
—
|
|
|
0%
|
|
|
119
|
|
|
Commercial Real Estate Loans
|
|
|
—
|
|
|
|
0
|
%
|
|
|
—
|
|
|
|
0
|
%
|
|
|
—
|
|
|
|
229
|
|
|
19%
|
|
|
(229
|
)
|
|
Secured Multifamily Residential
|
|
|
—
|
|
|
|
0
|
%
|
|
|
—
|
|
|
|
0
|
%
|
|
|
—
|
|
|
|
—
|
|
|
0%
|
|
|
—
|
|
|
Other Loans Secured by 1-4 Family RE
|
|
|
806
|
|
|
|
19
|
%
|
|
|
386
|
|
|
|
17
|
%
|
|
|
420
|
|
|
|
—
|
|
|
0%
|
|
|
806
|
|
|
Loans to Individuals, Family & Personal Expense
|
|
|
1,235
|
|
|
|
29
|
%
|
|
|
6
|
|
|
|
0
|
%
|
|
|
1,229
|
|
|
|
63
|
|
|
5%
|
|
|
1,172
|
|
|
Indirect Consumer
|
|
|
1,300
|
|
|
|
31
|
%
|
|
|
1,512
|
|
|
|
69
|
%
|
|
|
(212
|
)
|
|
|
916
|
|
|
76%
|
|
|
384
|
|
|
Other Loans
|
|
|
8
|
|
|
|
0
|
%
|
|
|
—
|
|
|
|
0
|
%
|
|
|
8
|
|
|
|
—
|
|
|
0%
|
|
|
8
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accruing loans 30-89 days past due
|
|
|
4,239
|
|
|
|
|
|
|
|
2,201
|
|
|
|
|
|
|
|
2,038
|
|
|
|
1,208
|
|
|
|
|
|
3,031
|
|
|
Nonaccruing loans 30-89 days past due
|
|
|
8,201
|
|
|
|
|
|
|
|
2,628
|
|
|
|
|
|
|
|
5,573
|
|
|
|
3,316
|
|
|
|
|
|
4,885
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total loans 30-89 days past due
|
|
$
|
12,440
|
|
|
|
|
|
|
$
|
4,829
|
|
|
|
|
|
|
$
|
7,611
|
|
|
$
|
4,524
|
|
|
|
|
$
|
7,916
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accruing Loans 30-89 days past due to total accruing loans
|
|
|
0.66
|
%
|
|
|
|
|
|
|
0.33
|
%
|
|
|
|
|
|
|
|
|
|
|
0.16
|
%
|
|
|
|
|
|
|
52
Non-performing Loans
(Dollars in Thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Three Months Ended
|
|
September 30,
2012
|
|
|
June 30, 2012
|
|
|
$ Change
|
|
|
September 30,
2011
|
|
|
$ Change
|
|
|
Balance beginning of period
|
|
$
|
38,453
|
|
|
$
|
55,880
|
|
|
$
|
(17,427
|
)
|
|
|
92,505
|
|
|
$
|
(54,052
|
)
|
|
Transfers from performing loans
|
|
|
8,188
|
|
|
|
831
|
|
|
|
7,357
|
|
|
|
2,391
|
|
|
|
5,797
|
|
|
Loans returned to performing status
|
|
|
(3,007
|
)
|
|
|
(5,508
|
)
|
|
|
2,501
|
|
|
|
(3,068
|
)
|
|
|
61
|
|
|
Transfers to OREO
|
|
|
(990
|
)
|
|
|
(2,760
|
)
|
|
|
1,770
|
|
|
|
(4,731
|
)
|
|
|
3,741
|
|
|
Principal reduction from payment
|
|
|
(10,000
|
)
|
|
|
(5,862
|
)
|
|
|
(4,138
|
)
|
|
|
(1,980
|
)
|
|
|
(8,020
|
)
|
|
Principal reduction from charge-off
|
|
|
(2,171
|
)
|
|
|
(4,128
|
)
|
|
|
1,957
|
|
|
|
(6,907
|
)
|
|
|
4,736
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total non-performing loans
|
|
$
|
30,473
|
|
|
$
|
38,453
|
|
|
$
|
(7,980
|
)
|
|
$
|
78,210
|
|
|
$
|
(47,737
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Percentage of non-performing loans to total gross loans
|
|
|
4.51
|
%
|
|
|
5.41
|
%
|
|
|
|
|
|
|
9.16
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Nine Months Ended
|
|
September 30,
2012
|
|
|
September 30,
2011
|
|
|
$ Change
|
|
|
Balance beginning of period
|
|
$
|
76,241
|
|
|
$
|
129,616
|
|
|
$
|
(53,375
|
)
|
|
Transfers from performing loans
|
|
|
22,854
|
|
|
|
9,874
|
|
|
|
12,980
|
|
|
Loans returned to performing status
|
|
|
(8,515
|
)
|
|
|
(4,428
|
)
|
|
|
(4,087
|
)
|
|
Transfers to OREO
|
|
|
(22,995
|
)
|
|
|
(13,103
|
)
|
|
|
(9,892
|
)
|
|
Principal reduction from payment
|
|
|
(24,493
|
)
|
|
|
(17,675
|
)
|
|
|
(6,818
|
)
|
|
Principal reduction from charge-off
|
|
|
(12,619
|
)
|
|
|
(26,074
|
)
|
|
|
13,455
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total non-performing loans
|
|
$
|
30,473
|
|
|
$
|
78,210
|
|
|
$
|
(47,737
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
53
The following table summarizes the Company’s non-performing assets as of the periods shown:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Dollars in Thousands)
|
|
September 30,
2012
|
|
|
June 30, 2012
|
|
|
$ Change
|
|
|
September 30,
2011
|
|
|
$ Change
|
|
|
Loans on nonaccrual status
|
|
$
|
30,082
|
|
|
$
|
38,307
|
|
|
$
|
(8,225
|
)
|
|
$
|
78,109
|
|
|
$
|
(48,027
|
)
|
|
Loans past due greater than 90 days but not on non accrual status
|
|
|
391
|
|
|
|
146
|
|
|
|
245
|
|
|
|
101
|
|
|
|
290
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total non-performing loans
|
|
|
30,473
|
|
|
|
38,453
|
|
|
|
(7,980
|
)
|
|
|
78,210
|
|
|
|
(47,737
|
)
|
|
Other real estate owned and foreclosed assets
|
|
|
29,288
|
|
|
|
33,895
|
|
|
|
(4,607
|
)
|
|
|
28,127
|
|
|
|
1,161
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total non-performing assets
|
|
$
|
59,761
|
|
|
$
|
72,348
|
|
|
$
|
(12,587
|
)
|
|
$
|
106,337
|
|
|
$
|
(46,576
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Percentage of non-performing assets to total assets
|
|
|
5.16
|
%
|
|
|
6.05
|
%
|
|
|
|
|
|
|
8.17
|
%
|
|
|
|
|
At September 30, 2012, total non-performing assets were down compared to June 30, 2012. Non-performing assets
and loans have also declined in terms of percentage of total assets and loans, respectively. The amount of additions to non-performing assets has slowed during 2012 versus the prior year. This is due to the positive impact of business improvement
plans implemented by a number of borrowers in response to the current economic downturn.
Reductions in non-performing loans were largely due
to the Company taking ownership of additional residential and commercial properties related to loans which previously were on nonaccrual status, nonaccrual loan payoffs, charge-offs, and the return of loans to performing status.
The following table summarizes the Company’s non-performing loans by loan type and geographic region as of September 30, 2012:
(Dollars in Thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
September 30, 2012
|
|
|
|
|
Non-performing Loans
|
|
|
|
|
Southern
Oregon
|
|
|
Mid-Central
Oregon
|
|
|
Northern
California
|
|
|
Sacramento
Valley
|
|
|
Totals
|
|
|
Funded
Loan
Totals
|
|
|
Percent NPL to Funded
Loan Totals by
Category
|
|
|
Construction, Land Dev & Other Land
|
|
$
|
916
|
|
|
$
|
1,838
|
|
|
$
|
571
|
|
|
$
|
2,152
|
|
|
$
|
5,477
|
|
|
$
|
36,434
|
|
|
|
15.0
|
%
|
|
Commercial & Industrial
|
|
|
1,132
|
|
|
|
219
|
|
|
|
394
|
|
|
|
—
|
|
|
|
1,745
|
|
|
|
115,395
|
|
|
|
1.5
|
%
|
|
Commercial Real Estate Loans
|
|
|
4,430
|
|
|
|
8,234
|
|
|
|
1,444
|
|
|
|
5,085
|
|
|
|
19,193
|
|
|
|
402,237
|
|
|
|
4.8
|
%
|
|
Secured Multifamily Residential
|
|
|
221
|
|
|
|
—
|
|
|
|
334
|
|
|
|
—
|
|
|
|
555
|
|
|
|
20,221
|
|
|
|
2.7
|
%
|
|
Other Loans Secured by 1-4 Family RE
|
|
|
713
|
|
|
|
354
|
|
|
|
548
|
|
|
|
515
|
|
|
|
2,130
|
|
|
|
43,400
|
|
|
|
4.9
|
%
|
|
Loans to Individuals, Family & Personal Expense
|
|
|
14
|
|
|
|
52
|
|
|
|
12
|
|
|
|
—
|
|
|
|
78
|
|
|
|
21,859
|
|
|
|
0.4
|
%
|
|
Indirect Consumer
|
|
|
14
|
|
|
|
114
|
|
|
|
21
|
|
|
|
—
|
|
|
|
149
|
|
|
|
23,264
|
|
|
|
0.6
|
%
|
|
Other Loans
|
|
|
1,099
|
|
|
|
—
|
|
|
|
—
|
|
|
|
47
|
|
|
|
1,146
|
|
|
|
13,316
|
|
|
|
8.6
|
%
|
|
Overdrafts
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
228
|
|
|
|
0.0
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total non-performing loans
|
|
$
|
8,539
|
|
|
$
|
10,811
|
|
|
$
|
3,324
|
|
|
$
|
7,799
|
|
|
$
|
30,473
|
|
|
$
|
676,354
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-performing loans to total funded loans
|
|
|
2.7
|
%
|
|
|
7.9
|
%
|
|
|
5.3
|
%
|
|
|
4.8
|
%
|
|
|
4.5
|
%
|
|
|
|
|
|
|
|
|
|
Total funded loans
|
|
$
|
315,270
|
|
|
$
|
136,171
|
|
|
$
|
62,628
|
|
|
$
|
162,285
|
|
|
$
|
676,354
|
|
|
|
|
|
|
|
|
|
54
The following tables summarize the Company’s troubled debt restructured loans by type and geographic
region as of September 30, 2012:
(Dollars in Thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
September 30, 2012
|
|
|
|
|
Restructured loans
|
|
|
|
|
Southern
Oregon
|
|
|
Mid
Oregon
|
|
|
Northern
California
|
|
|
Sacramento
Valley
|
|
|
Totals
|
|
|
Number of
Loans
|
|
|
Construction, Land Dev & Other Land
|
|
$
|
331
|
|
|
$
|
1,838
|
|
|
$
|
127
|
|
|
$
|
2,665
|
|
|
$
|
4,961
|
|
|
|
11
|
|
|
Commercial & Industrial
|
|
|
3,437
|
|
|
|
—
|
|
|
|
584
|
|
|
|
214
|
|
|
|
4,235
|
|
|
|
9
|
|
|
Commercial Real Estate Loans
|
|
|
5,563
|
|
|
|
8,641
|
|
|
|
161
|
|
|
|
—
|
|
|
|
14,365
|
|
|
|
8
|
|
|
Other Loans Secured by 1-4 Family RE
|
|
|
1,032
|
|
|
|
—
|
|
|
|
307
|
|
|
|
514
|
|
|
|
1,853
|
|
|
|
10
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total restructured loans
|
|
$
|
10,363
|
|
|
$
|
10,479
|
|
|
$
|
1,179
|
|
|
$
|
3,393
|
|
|
$
|
25,414
|
|
|
|
38
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The following table presents the Company’s troubled debt restructured loans by year of maturity, according to the
restructured terms, as of September 30, 2012:
|
|
|
|
|
|
|
(Dollars in Thousands)
|
|
|
|
|
Year of Maturity
|
|
Amount
|
|
|
2012
|
|
$
|
7,588
|
|
|
2013
|
|
|
4,856
|
|
|
2014
|
|
|
4,243
|
|
|
2015
|
|
|
3,832
|
|
|
2016
|
|
|
863
|
|
|
Thereafter
|
|
|
4,032
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
25,414
|
|
|
|
|
|
|
|
The Company’s OREO property disposition activities continued at a steady pace in the third quarter of 2012. The
level of additional properties taken into the OREO portfolio decreased from the second quarter 2012 and third quarter 2011. This corresponds to a modest improvement in overall real estate valuations experienced over the period. However, the level of
additional real estate properties taken into the OREO portfolio increased for the nine months ended September 30, 2012 as compared to the same period in 2011. This is due to the approximately $15 million in properties taken into OREO in first
quarter 2012 associated with settlement of the Company’s largest non-performing lending relationship. OREO valuation adjustments in the current period, which included a $600,000 impairment charge on one land development parcel, declined as
compared to second quarter 2012, but increased as compared to third quarter 2011. OREO valuation adjustments for the nine months ended September 30, 2012 declined as compared to the same period in 2011. This also corresponds to a modest
improvement in overall real estate valuations, as previously noted.
During the three months ended September 30, 2012, the Company
disposed of 10 OREO properties with a book value of $5.0 million while acquiring 3 properties with a book value of $990,000. At September 30, 2012, the OREO portfolio consisted of 76 properties. The largest balances in the OREO portfolio at the
end of the quarter were attributable to income-producing properties and residential or commercial site development projects, all of which are located within our footprint.
55
Other real estate owned and foreclosed assets
(Dollars in Thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Three Months Ended
|
|
September 30,
2012
|
|
|
June 30,
2012
|
|
|
$ Change
|
|
|
September 30,
2011
|
|
|
$ Change
|
|
|
Other real estate owned, beginning of period
|
|
$
|
33,895
|
|
|
$
|
35,434
|
|
|
$
|
(1,539
|
)
|
|
$
|
27,579
|
|
|
$
|
6,316
|
|
|
Transfers from outstanding loans
|
|
|
990
|
|
|
|
2,760
|
|
|
|
(1,770
|
)
|
|
|
4,731
|
|
|
|
(3,741
|
)
|
|
Improvements and other additions
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
Proceeds from sales
|
|
|
(4,975
|
)
|
|
|
(3,217
|
)
|
|
|
(1,758
|
)
|
|
|
(3,476
|
)
|
|
|
(1,499
|
)
|
|
Net gain (loss) on sales
|
|
|
613
|
|
|
|
383
|
|
|
|
230
|
|
|
|
166
|
|
|
|
447
|
|
|
Impairment charges
|
|
|
(1,235
|
)
|
|
|
(1,465
|
)
|
|
|
230
|
|
|
|
(873
|
)
|
|
|
(362
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total other real estate owned
|
|
$
|
29,288
|
|
|
$
|
33,895
|
|
|
$
|
(4,607
|
)
|
|
$
|
28,127
|
|
|
$
|
1,161
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Nine Months Ended
|
|
September
30, 2012
|
|
|
September
30, 2011
|
|
|
$ Change
|
|
|
Other real estate owned, beginning of period
|
|
$
|
22,829
|
|
|
$
|
32,009
|
|
|
$
|
(9,180
|
)
|
|
Transfers from outstanding loans
|
|
|
22,995
|
|
|
|
13,103
|
|
|
|
9,892
|
|
|
Improvements and other additions
|
|
|
—
|
|
|
|
10
|
|
|
|
(10
|
)
|
|
Proceeds from sales
|
|
|
(12,470
|
)
|
|
|
(10,605
|
)
|
|
|
(1,865
|
)
|
|
Net gain (loss) on sales
|
|
|
333
|
|
|
|
1,293
|
|
|
|
(960
|
)
|
|
Impairment charges
|
|
|
(4,399
|
)
|
|
|
(7,683
|
)
|
|
|
3,284
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total other real estate owned
|
|
$
|
29,288
|
|
|
$
|
28,127
|
|
|
$
|
1,161
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other real estate owned and foreclosed assets by type
(Dollars in Thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
September
30, 2012
|
|
|
# of
Properties
|
|
|
June 30,
2012
|
|
|
# of
Properties
|
|
|
$ Change
|
|
|
September 30,
2011
|
|
|
# of
Properties
|
|
|
$ Change
|
|
|
Construction, Land Dev & Other Land
|
|
$
|
11,302
|
|
|
|
36
|
|
|
$
|
13,236
|
|
|
|
43
|
|
|
$
|
(1,934
|
)
|
|
$
|
26,895
|
|
|
|
109
|
|
|
$
|
(15,593
|
)
|
|
Farmland
|
|
|
4,044
|
|
|
|
2
|
|
|
|
4,043
|
|
|
|
2
|
|
|
|
1
|
|
|
|
—
|
|
|
|
—
|
|
|
|
4,044
|
|
|
1-4 Family Residential Properties
|
|
|
1,150
|
|
|
|
13
|
|
|
|
612
|
|
|
|
11
|
|
|
|
538
|
|
|
|
1,209
|
|
|
|
4
|
|
|
|
(59
|
)
|
|
Nonfarm Nonresidential Properties
|
|
|
12,792
|
|
|
|
25
|
|
|
|
16,004
|
|
|
|
27
|
|
|
|
(3,212
|
)
|
|
|
23
|
|
|
|
1
|
|
|
|
12,769
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total OREO by type
|
|
$
|
29,288
|
|
|
|
76
|
|
|
$
|
33,895
|
|
|
|
83
|
|
|
|
(4,607
|
)
|
|
$
|
28,127
|
|
|
|
114
|
|
|
|
1,161
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
ALLOWANCE FOR LOAN LOSSES
The Company’s allowance for loan losses continues to decline in concert with the reduction in adversely classified loans, loan delinquencies and other relevant credit metrics. With the reduction in
net charge-offs and change in the loan portfolio composition over the past several years, loss factors used in Management’s estimates to establish reserve levels have declined commensurately. As a result, amounts provided to the allowance for
loan losses declined for the nine months ended September 30, 2012, as compared to the same period in 2011. There was no provision provided in the quarter ended September 30, 2012 versus the second quarter of 2012 and the same period in
2011 due to a significant reduction in adversely-classified loans since third quarter 2011.
For the quarter ended September 30, 2012,
total gross and net loan charge-offs were down compared to the quarter ended June 30, 2012, and the quarter ended September 30, 2011. Recoveries in third quarter 2012 were up compared to the other periods primarily due to a $725,000
recovery through the sale of a note associated with a previously charged-off loan and a $500,000 recovery from a guarantor of a previously charged-off loan. The net charge-offs in the current period were concentrated in the construction and land
development and non-owner occupied commercial real estate loan categories. The ratio of net loan charge-offs to average gross loans (annualized) for the current quarter was down compared to the previous quarter and the same quarter one year ago.
The overall risk profile of the Company’s loan portfolio continues to improve, as stated above. However, the trend of future provision
for loan losses will depend primarily on economic conditions, level of adversely-classified assets, and changes in collateral values.
56
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Allowance for Loan Losses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Dollars in Thousands)
For
the Three Months Ended
|
|
September 30,
2012
|
|
|
June 30, 2012
|
|
|
$ Change
|
|
|
%
Change
|
|
|
September 30,
2011
|
|
|
$ Change
|
|
|
%
Change
|
|
|
Gross loans outstanding at end of period
|
|
$
|
676,354
|
|
|
$
|
710,828
|
|
|
$
|
(34,474
|
)
|
|
|
-5
|
%
|
|
$
|
853,557
|
|
|
$
|
(177,203
|
)
|
|
|
-21
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Average loans outstanding, gross
|
|
$
|
691,869
|
|
|
$
|
729,203
|
|
|
$
|
(37,334
|
)
|
|
|
-5
|
%
|
|
$
|
875,930
|
|
|
$
|
(184,061
|
)
|
|
|
-21
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Allowance for loan losses, beginning of period
|
|
$
|
19,518
|
|
|
$
|
20,324
|
|
|
$
|
(806
|
)
|
|
|
-4
|
%
|
|
$
|
28,433
|
|
|
$
|
(8,915
|
)
|
|
|
-31
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Charge-offs:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial
|
|
|
(96
|
)
|
|
|
(4
|
)
|
|
|
(92
|
)
|
|
|
|
|
|
|
(75
|
)
|
|
|
(21
|
)
|
|
|
|
|
|
Real Estate
|
|
|
(1,201
|
)
|
|
|
(2,567
|
)
|
|
|
1,366
|
|
|
|
|
|
|
|
(5,440
|
)
|
|
|
4,239
|
|
|
|
|
|
|
Consumer
|
|
|
(241
|
)
|
|
|
(229
|
)
|
|
|
(12
|
)
|
|
|
|
|
|
|
(310
|
)
|
|
|
69
|
|
|
|
|
|
|
Other
|
|
|
(633
|
)
|
|
|
(1,328
|
)
|
|
|
695
|
|
|
|
|
|
|
|
(1,082
|
)
|
|
|
449
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total charge-offs
|
|
|
(2,171
|
)
|
|
|
(4,128
|
)
|
|
|
1,957
|
|
|
|
47
|
%
|
|
|
(6,907
|
)
|
|
|
4,736
|
|
|
|
69
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Recoveries:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial
|
|
|
61
|
|
|
|
1,028
|
|
|
|
(967
|
)
|
|
|
|
|
|
|
204
|
|
|
|
(143
|
)
|
|
|
|
|
|
Real Estate
|
|
|
1,606
|
|
|
|
822
|
|
|
|
784
|
|
|
|
|
|
|
|
89
|
|
|
|
1,517
|
|
|
|
|
|
|
Consumer
|
|
|
89
|
|
|
|
163
|
|
|
|
(74
|
)
|
|
|
|
|
|
|
56
|
|
|
|
33
|
|
|
|
|
|
|
Other
|
|
|
71
|
|
|
|
34
|
|
|
|
37
|
|
|
|
|
|
|
|
50
|
|
|
|
21
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total recoveries
|
|
|
1,827
|
|
|
|
2,047
|
|
|
|
(220
|
)
|
|
|
-11
|
%
|
|
|
399
|
|
|
|
1,428
|
|
|
|
358
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net charge-offs
|
|
|
(344
|
)
|
|
|
(2,081
|
)
|
|
|
1,737
|
|
|
|
83
|
%
|
|
|
(6,508
|
)
|
|
|
6,164
|
|
|
|
95
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Provision charged to income
|
|
|
—
|
|
|
|
1,275
|
|
|
|
(1,275
|
)
|
|
|
-100
|
%
|
|
|
5,050
|
|
|
|
(5,050
|
)
|
|
|
-100
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Allowance for loan losses, end of period
|
|
$
|
19,174
|
|
|
$
|
19,518
|
|
|
$
|
(344
|
)
|
|
|
-2
|
%
|
|
$
|
26,975
|
|
|
$
|
(7,801
|
)
|
|
|
-29
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ratio of net loans charged-off to average gross loans outstanding, annualized
|
|
|
0.20
|
%
|
|
|
1.15
|
%
|
|
|
(0.95
|
)
|
|
|
|
|
|
|
2.95
|
%
|
|
|
(2.75
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ratio of allowance for loan losses to gross loans outstanding
|
|
|
2.83
|
%
|
|
|
2.75
|
%
|
|
|
0.08
|
|
|
|
|
|
|
|
3.16
|
%
|
|
|
(0.33
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Allowance for loan losses as a percentage of adversely classified loans
|
|
|
18.49
|
%
|
|
|
16.53
|
%
|
|
|
1.96
|
|
|
|
|
|
|
|
14.02
|
%
|
|
|
4.47
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Allowance for loan losses to total non-performing loans
|
|
|
62.92
|
%
|
|
|
50.76
|
%
|
|
|
12.16
|
|
|
|
|
|
|
|
34.49
|
%
|
|
|
28.43
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Nine Months Ended
|
|
September 30,
2012
|
|
|
September 30,
2011
|
|
|
$ Change
|
|
|
%
Change
|
|
|
Gross loans outstanding at end of period
|
|
$
|
676,354
|
|
|
$
|
853,557
|
|
|
$
|
(177,203
|
)
|
|
|
-21
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Average loans outstanding, gross
|
|
$
|
729,177
|
|
|
$
|
914,128
|
|
|
$
|
(184,951
|
)
|
|
|
-20
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Allowance for loan losses, beginning of period
|
|
$
|
22,683
|
|
|
$
|
35,582
|
|
|
$
|
(12,899
|
)
|
|
|
-36
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Charge-offs:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial
|
|
|
(452
|
)
|
|
|
(2,693
|
)
|
|
|
2,241
|
|
|
|
|
|
|
Real Estate
|
|
|
(8,948
|
)
|
|
|
(21,337
|
)
|
|
|
12,389
|
|
|
|
|
|
|
Consumer
|
|
|
(724
|
)
|
|
|
(589
|
)
|
|
|
(135
|
)
|
|
|
|
|
|
Other
|
|
|
(2,495
|
)
|
|
|
(1,455
|
)
|
|
|
(1,040
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total charge-offs
|
|
|
(12,619
|
)
|
|
|
(26,074
|
)
|
|
|
13,455
|
|
|
|
52
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Recoveries:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial
|
|
|
1,177
|
|
|
|
4,914
|
|
|
|
(3,737
|
)
|
|
|
|
|
|
Real Estate
|
|
|
2,575
|
|
|
|
785
|
|
|
|
1,790
|
|
|
|
|
|
|
Consumer
|
|
|
316
|
|
|
|
261
|
|
|
|
55
|
|
|
|
|
|
|
Other
|
|
|
267
|
|
|
|
157
|
|
|
|
110
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total recoveries
|
|
|
4,335
|
|
|
|
6,117
|
|
|
|
(1,782
|
)
|
|
|
-29
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net charge-offs
|
|
|
(8,284
|
)
|
|
|
(19,957
|
)
|
|
|
11,673
|
|
|
|
58
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Provision charged to income
|
|
|
4,775
|
|
|
|
11,350
|
|
|
|
(6,575
|
)
|
|
|
-58
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Allowance for loan losses, end of period
|
|
$
|
19,174
|
|
|
$
|
26,975
|
|
|
$
|
(7,801
|
)
|
|
|
-29
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ratio of net loans charged-off to average gross loans outstanding, annualized
|
|
|
1.52
|
%
|
|
|
2.92
|
%
|
|
|
(1.40
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
57
An allowance for loan losses has been established based on management’s best estimate, as of the
balance sheet date, of probable losses inherent in the loan portfolio. For more information regarding the Company’s allowance for loan losses and net loan charge-offs, see the discussion under the subheadings “Credit Management”,
“Allowance for Credit Losses and Net Loan Charge-offs” and “Critical Accounting Policies” included in Item 7 of the Company’s 2011 Form10-K.
The allowance for loan losses represents the Company’s estimate as to the probable credit losses inherent in its loan portfolio. The allowance for loan losses is increased through periodic charges to
earnings through provision for loan losses and represents the aggregate amount, net of loans charged-off and recoveries on previously charged-off loans, that is needed to establish an appropriate reserve for credit losses. The allowance is estimated
based on a variety of factors and using a methodology as described below:
|
|
•
|
|
The Company classifies loans into relatively homogeneous pools by loan type in accordance with regulatory guidelines for regulatory reporting purposes.
The Company regularly reviews all loans within each loan category to establish risk ratings for them that include Pass, Watch, Special Mention, Substandard, Doubtful and Loss. Pursuant to “Accounting by Creditors for Impairment of a Loan,”
the impaired portion of collateral dependent loans is charged-off. Other risk-related loans not considered impaired have loss factors applied to the various loan pool balances to establish loss potential for provisioning purposes.
|
|
|
•
|
|
Analyses are performed to establish the loss factors based on historical experience, as well as expected losses based on qualitative evaluations of
such factors as the economic trends and conditions, industry conditions, levels and trends in delinquencies and impaired loans, levels and trends in charge-offs and recoveries, among others. Minimum loss factors are then established based on a
weighted average of historical loss experience by risk classification within each loan category pool. The minimum or historical loss factor, whichever is larger, is applied to loan category pools segregated by risk classification to estimate the
loss inherent in the Company’s loan portfolio pursuant to “Accounting for Contingencies.”
|
|
|
•
|
|
Additionally, impaired loans are evaluated for loss potential on an individual basis in accordance with “Accounting by Creditors for Impairment of
a Loan,” and specific reserves are established based on thorough analysis of collateral values where loss potential exists. When an impaired loan is collateral dependent and a deficiency exists in the fair value of real estate collateralizing
the loan in comparison to the associated loan balance, the deficiency is charged-off at that time. Impaired loans are reviewed no less frequently than quarterly.
|
|
|
•
|
|
Generally, external appraisals on all adversely classified loans are updated every six to twelve months. We obtain appraisals from a pre-approved list
of independent, third party appraisal firms. Approval is based on experience, reputation, character, consistency and knowledge of the respective real estate market. At a minimum, it is ascertained that the appraiser: (a) is currently licensed
in the state in which the property is located, (b) is experienced in the appraisal of properties similar to the property being appraised, (c) is actively engaged in the appraisal work, (d) has knowledge of the current real estate
market conditions and financing trends, (e) is reputable, and (f) is not on the Bank’s exclusionary list of appraisers. Our Appraisal Review Department will either conduct a review of the appraisal, or will outsource the review to a
qualified approved third party appraiser. Upon receipt and review, an external appraisal is utilized to measure a loan for potential impairment. Our impairment analysis documents the date of the appraisal used in the analysis, whether the preparer
deems the appraisal to be current, and if not, allows for an internal valuation adjustments with justification. Any adjustments from appraised value to net realizable value are detailed and justified in the impairment analysis and reflected in the
allowance for loan losses, as appropriate. Although an external appraisal is the primary source to value collateral dependent loans, we may also utilize values obtained through purchase and sale agreements, negotiated short sales, or the sales price
of the note. These alternative sources of value are used only if deemed to be more representative of value based on updated information regarding collateral resolution. Impairment analyses are updated on a quarterly basis. Based on these processes,
we do not believe there are significant time lapses for the recognition of additional loan loss provisions or charge-offs from the date they become known.
|
|
|
•
|
|
In the event that a current appraisal to support the fair value of the real estate collateral underlying an impaired loan has not yet been received but
the Company believes that the collateral value is insufficient to support the loan amount, an impairment reserve is recorded. In these instances, the receipt of a current appraisal triggers an updated review of the collateral support for the loan
and any deficiency is charged-off or reserved at that time. In those instances where a current appraisal is not available in a timely manner in relation to a financial reporting cut-off date, the Company’s internal appraisal review department
prepares or reviews a collateral valuation based on a number of factors including, but not limited to, property location, local price volatility, local economic conditions, and recent comparable sales. In all cases, the costs to sell the subject
property are deducted in arriving at the fair value of the collateral. Any unpaid property taxes or similar expenses are expensed at the time the property is acquired by the Bank.
|
58
In prior quarters, loss factors used to estimate loss potential within the loan portfolio were solely based
on actual historical experience. Beginning in second quarter 2012, minimum loss factors are also developed based on a weighted average of historical loss experience by risk classification within each loan category pool. The minimum or
historical loss factor, whichever is larger, is now applied to loan category pools segregated by risk classification to estimate the loss inherent in the Company’s loan portfolio pursuant to “Accounting for Contingencies.” Similarly,
the minimum or actual loss factor is used as a basis for establishing a nominal reserve on unfunded balances (net available credit), depending on the loan category. This change in methodology had no material impact on the Company’s total
allowance for loan losses.
The Company’s allowance for loan losses continues to decline in concert with the reduction in adversely
classified assets and continued reduction in loan delinquencies and other relevant credit metrics. With the reduction in net charge-offs over the past several years, loss factors used in Management’s estimates have declined commensurately.
Overall, we believe that the allowance for loan losses is adequate to absorb probable losses in the loan portfolio at September 30,
2012, although there can be no assurance that future loan losses will not exceed our current estimates. The process for determining the adequacy of the allowance for loan losses is critical to our financial results. Please see Item 1A
“Risk Factors” in our 2011 Form 10-K and Item 1A “Risk Factors” in this report.
LIQUIDITY AND SOURCES OF FUNDS
The Bank’s sources of funds include customer deposits, loan repayments, advances from the FHLB, maturities of investment securities,
sales of “Available-for-Sale” securities, loan and OREO sales, net income, if any, loans taken out at the Reserve Bank discount window, and the use of Federal Funds markets. Stated maturities of investment securities, loan repayments from
maturities and core deposits are a relatively stable source of funds, while brokered deposit inflows, unscheduled loan prepayments, and loan and OREO sales are not. Deposit inflows, sales of securities, loan and OREO properties, and unscheduled loan
prepayments may, amongst other factors, be influenced by general interest rate levels, interest rates available on other investments, competition, pricing consideration, and general economic conditions.
Deposits are our primary source of funds. Our loan to deposit ratio has declined since December 31, 2011 as a result of weak loan demand due to the
current economic downturn and the Bank’s planned initiatives to reduce the level of higher risk loans. The decline in loan balances has resulted in an increase in the more liquid, but lower yielding investment securities portfolio. In light of
our substantial liquidity position, we continued to reduce higher cost time deposits during the most recent quarter.
The following table
summarizes the primary liquidity, current ratio, net non-core funding dependency, and loan to deposit ratios of the Company. The primary liquidity ratio represents the sum of net cash, short-term and marketable assets and available borrowing lines
divided by deposits. The current ratio consists of the sum of fed funds sold and interest-bearing deposits divided by total assets. The net non-core funding dependency ratio is non-core liabilities less short-term investments divided by long-term
assets. The Company’s primary liquidity, current ratio, and net non-core funding dependency ratios remained strong at quarter end:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
September 30,
2012
|
|
|
June 30,
2012
|
|
|
September 30,
2011
|
|
|
|
|
|
|
Primary liquidity
|
|
|
34.59
|
%
|
|
|
33.42
|
%
|
|
|
29.00
|
%
|
|
Fed funds sold and interest-bearing deposits/total assets (current ratio)
|
|
|
3.69
|
%
|
|
|
5.26
|
%
|
|
|
24.20
|
%
|
|
Net non-core funding dependency
|
|
|
-3.56
|
%
|
|
|
-5.20
|
%
|
|
|
-1.00
|
%
|
|
Gross loans to deposits
|
|
|
66.64
|
%
|
|
|
67.98
|
%
|
|
|
73.50
|
%
|
An analysis of liquidity should encompass a review of the changes that appear in the consolidated statements of cash flow
for the nine months ended September 30, 2012 and 2011. The statement of cash flows includes operating, investing, and financing categories.
Cash flows provided by operating activities were $8.7 million with the difference between cash provided by operating activities and a net loss of $4.8 million consisting primarily of noncash items of $4.8
million in the loan loss provision and $2.0 million in depreciation and amortization, $4.6 million in amortization and accretion on investment securities, and $4.1 million of net loss on sale of OREO and other foreclosed assets. Also, included in
cash flows from operating activities was $3.1 million net gain on sale of investment securities.
59
Cash flows provided by investing activities of $95.5 million consisted primarily of $155.6 million proceeds
from sales, calls, pay downs, and maturities of securities, $90.0 million in net loan pay downs, $12.5 million in proceeds from the sale of OREO, offset by $163.4 million used for purchases of securities.
Cash flows used in financing activities of $110.0 million consisted primarily of $112.8 million net decrease in deposits offset by $2.8 million in net
increase in securities sold under agreements to repurchase.
At September 30, 2012, the Bank had $7.0 million in borrowings from
securities sold under an agreement to repurchase with various business customers. At September 30, 2012, the Bank had no outstanding borrowings against its $58.2 million in established borrowing capacity with the FHLB. The Bank had no
outstanding borrowings at September 30, 2012 and December 31, 2011. The borrowing capacity at the FHLB declined from year end as the Company elected to hold a higher balance of unpledged securities. The Bank’s borrowing facility is
subject to collateral and stock ownership requirements. The Bank also had an available discount window primary credit line with the Federal Reserve Bank of San Francisco of approximately $8.9 million, and $15.0 million from a correspondent bank with
no balance outstanding on either facility, both of which are pursuant to collateralized credit arrangements.
In June 2010, Bancorp entered
into a Written Agreement with the Federal Reserve Bank of San Francisco and DFCS. For detailed discussion of the Written Agreement, see Item 1, “Business – Supervision and Regulation” in our 2011 10-K. Under the Written
Agreement, Bancorp may not directly or indirectly take dividends or other forms of payment representing a reduction in capital from the Bank without the prior written approval of the Reserve Bank and the DFCS. Also, under our Memorandum of
Understanding, the Bank may not pay dividends to the holding company without the consent of the FDIC and the DFCS. At September 30, 2012, the holding company did not have any borrowing arrangements of its own.
Off-Balance Sheet Arrangements
At
September 30, 2012, the Bank had off-balance sheet financial instruments of $70.4 million compared to $71.2 million at June 30, 2012 and $87.2 million at September 30, 2011. For additional information regarding off-balance sheet
arrangements and future financial commitments, see Note 9 “Commitments and Contingent Liabilities” in the financial statements included under Item 1 of this report.
Critical Accounting Policies
Management has identified the calculation of our allowance
for credit losses, valuation of OREO, and estimates relating to income taxes as critical accounting policies. Each of these policies are discussed in our 2011 10-K under the heading “Management’s Discussion and Analysis of Financial
Condition and Results of Operation – Critical Accounting Policies.”
REGULATORY AGREEMENT
In April 2010, the Company stipulated to the issuance of a Consent Order (“the Agreement”) with the FDIC and the DFCS, the Bank’s principal
regulators, directing the Bank to take actions intended to strengthen its overall condition, many of which were already or in the process of being implemented by the Bank. In June 2010, the Company entered into a Written Agreement with the Federal
Reserve Bank of San Francisco and the DFCS, which routinely accompanies or follows a Consent Order from the FDIC and provides for similar restrictions and requirements at the holding company level. For a more detailed discussion, please reference
the Company’s
Forms 8-K
filed April 8, 2010 and June 4, 2010.
The Agreement required, among other things, that the
Bank:
|
|
•
|
|
Increase and maintain its Tier 1 Capital in such an amount to ensure that the Bank’s leverage ratio equals or exceeds 10% by October 3, 2010,
|
|
|
•
|
|
Reduce assets classified “Substandard” in the report of examination to not more than 100% of the Bank’s Tier 1 capital and allowance for
loan and lease loss reserve (ALLL) by November 2, 2010, and
|
|
|
•
|
|
Reduce assets classified “Substandard” in the report of examination to not more than 70% of the Bank’s Tier 1 capital plus ALLL by
April 1, 2011.
|
As of the date of this report, we believe that the Company and the Bank had achieved all of these
requirements with the exception of the leverage ratio requirement. Prior to completing the Agreement with the FDIC in April 2010, we completed a common stock offering that raised $33.2 million in gross proceeds, which raised the Bank’s Tier 1
leverage ratio from 5.70% at December 31, 2009, to 8.21% at March 31, 2010. Subsequently the Bank has engaged in balance sheet management activities, including loan and deposit reductions which have further increased its capital ratios as
noted above. Similarly, the Company has reduced its assets classified “Substandard” to 51.8% of Tier 1 capital plus ALLL as of September 30, 2012. As previously noted, the Company has demonstrated progress and is committed to
achieving all the requirements of the Agreement.
60