California | | 33-0937517 |
(State of Incorporation) | | (IRS Employer Identification No) |
Large accelerated filer ¨ | Accelerated filer þ |
Non-accelerated filer ¨ (Do not check if a smaller reporting company) | Smaller Reporting Company ¨ |
| Page |
Part I - Financial Information | 1 |
Item 1. Financial Statements (Unaudited) | 1 |
Consolidated Balance Sheets | 1 |
Consolidated Statements of Income | 2 |
Consolidated Statements of Comprehensive Income | 3 |
Consolidated Statements of Cash Flows | 4 |
Notes to Unaudited Consolidated Financial Statements | 5 |
| |
Item 2. Management’s Discussion & Analysis of Financial Condition & Results of Operations | 27 |
Forward-Looking Statements | 27 |
Critical Accounting Policies | 27 |
Overview of the Results of Operations and Financial Condition | 28 |
Earnings Performance | 29 |
Net Interest Income and Net Interest Margin | 29 |
Provision for Loan and Lease Losses | 33 |
Non-interest Income and Non-Interest Expense | 34 |
Provision for Income Taxes | 36 |
Balance Sheet Analysis | 37 |
Earning Assets | 37 |
Investments | 37 |
Loan and Lease Portfolio | 38 |
Nonperforming Assets | 40 |
Allowance for Loan and Lease Losses | 41 |
Off-Balance Sheet Arrangements | 43 |
Other Assets | 43 |
Deposits and Interest-Bearing Liabilities | 44 |
Deposits | 44 |
Other Interest-Bearing Liabilities | 45 |
Non-Interest Bearing Liabilities | 46 |
Liquidity and Market Risk Management | 46 |
Capital Resources | 48 |
| |
Item 3. Qualitative & Quantitative Disclosures about Market Risk 50 | |
| |
Item 4. Controls and Procedures | 50 |
| |
Part II - Other Information | 51 |
Item 1. - Legal Proceedings | 51 |
Item 1A. - Risk Factors | 51 |
Item 2. - Unregistered Sales of Equity Securities and Use of Proceeds | 51 |
Item 3. - Defaults upon Senior Securities | 51 |
Item 4. - (Removed and Reserved) | 51 |
Item 5. - Other Information | 51 |
Item 6. - Exhibits | 52 |
| |
Signatures | 53 |
| | September 30, 2013 | | December 31, 2012 | | ||
| | (unaudited) | | (audited) | | ||
ASSETS | | | | | | | |
Cash and due from banks | | $ | 48,651 | | $ | 42,079 | |
Interest-bearing deposits in banks | | | 12,318 | | | 19,739 | |
Total Cash & Cash Equivalents | | | 60,969 | | | 61,818 | |
Investment securities available for sale | | | 406,089 | | | 380,188 | |
Loans held for sale | | | 267 | | | 210 | |
Loans and leases: | | | | | | | |
Gross loans and leases | | | 810,328 | | | 879,795 | |
Allowance for loan and lease losses | | | (11,824) | | | (13,873) | |
Deferred loan and lease fees, net | | | 1,246 | | | 1,156 | |
Net Loans and Leases | | | 799,750 | | | 867,078 | |
Premises and equipment, net | | | 20,493 | | | 21,830 | |
Operating leases, net | | | - | | | 12 | |
Foreclosed assets | | | 8,904 | | | 19,754 | |
Goodwill | | | 5,544 | | | 5,544 | |
Other assets | | | 81,283 | | | 81,469 | |
TOTAL ASSETS | | $ | 1,383,299 | | $ | 1,437,903 | |
| | | | | | | |
LIABILITIES AND SHAREHOLDERS' EQUITY | | | | | | | |
LIABILITIES | | | | | | | |
Deposits: | | | | | | | |
Non-interest bearing | | $ | 354,814 | | $ | 352,597 | |
Interest bearing | | | 796,664 | | | 821,437 | |
Total Deposits | | | 1,151,478 | | | 1,174,034 | |
Federal funds purchased and repurchase agreements | | | 5,696 | | | 1,419 | |
Short-term borrowings | | | - | | | 36,650 | |
Long-term borrowings | | | - | | | 5,000 | |
Junior subordinated debentures | | | 30,928 | | | 30,928 | |
Other liabilities | | | 17,141 | | | 15,980 | |
TOTAL LIABILITIES | | | 1,205,243 | | | 1,264,011 | |
SHAREHOLDERS' EQUITY | | | | | | | |
Common stock, no par value; 24,000,000 shares authorized; 14,194,659 and 14,106,959 shares issued and outstanding at September 30, 2013 and | | | 65,505 | | | 64,384 | |
December 31, 2012, respectively | | | | | | | |
Additional paid in capital | | | 2,624 | | | 2,660 | |
Retained earnings | | | 109,942 | | | 103,128 | |
Accumulated other comprehensive (loss) income | | | (15) | | | 3,720 | |
TOTAL SHAREHOLDERS' EQUITY | | | 178,056 | | | 173,892 | |
| | | | | | | |
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY | | $ | 1,383,299 | | $ | 1,437,903 | |
1 | ||
| | Three Months Ended September 30, | | Nine Months Ended September 30, | | ||||||||
| | 2013 | | 2012 | | 2013 | | 2012 | | ||||
Interest income: | | | | | | | | | | | | | |
Interest and fees on loans | | $ | 10,932 | | $ | 11,954 | | $ | 33,207 | | $ | 34,251 | |
Interest on investment securities: | | | | | | | | | | | | | |
Taxable | | | 1,132 | | | 1,523 | | | 3,328 | | | 5,159 | |
Tax-exempt | | | 699 | | | 700 | | | 1,990 | | | 2,052 | |
Interest on federal funds sold and interest- bearing deposits | | | 28 | | | 15 | | | 72 | | | 51 | |
Total interest income | | | 12,791 | | | 14,192 | | | 38,597 | | | 41,513 | |
| | | | | | | | | | | | | |
Interest expense: | | | | | | | | | | | | | |
Interest on deposits | | | 606 | | | 796 | | | 1,894 | | | 2,490 | |
Interest on short-term borrowings | | | 4 | | | 23 | | | 16 | | | 41 | |
Interest on long-term borrowings | | | - | | | 51 | | | 33 | | | 231 | |
Interest on mandatorily redeemable trust preferred securities | | | 180 | | | 193 | | | 536 | | | 586 | |
Total interest expense | | | 790 | | | 1,063 | | | 2,479 | | | 3,348 | |
| | | | | | | | | | | | | |
Net Interest Income | | | 12,001 | | | 13,129 | | | 36,118 | | | 38,165 | |
| | | | | | | | | | | | | |
Provision for loan losses | | | 800 | | | 4,700 | | | 2,850 | | | 10,610 | |
| | | | | | | | | | | | | |
Net Interest Income after Provision for Loan Losses | | | 11,201 | | | 8,429 | | | 33,268 | | | 27,555 | |
| | | | | | | | | | | | | |
Non-interest income: | | | | | | | | | | | | | |
Service charges on deposit accounts | | | 2,354 | | | 2,525 | | | 6,642 | | | 7,229 | |
Gains on investment securities available-for-sale | | | - | | | 90 | | | 6 | | | 161 | |
Other income, net | | | 1,965 | | | 1,765 | | | 5,808 | | | 5,213 | |
Total non-interest income | | | 4,319 | | | 4,380 | | | 12,456 | | | 12,603 | |
| | | | | | | | | | | | | |
Non-interest expense: | | | | | | | | | | | | | |
Salaries and employee benefits | | | 5,394 | | | 5,278 | | | 16,717 | | | 15,855 | |
Occupancy expense | | | 1,554 | | | 1,669 | | | 4,702 | | | 4,721 | |
Other | | | 4,542 | | | 4,548 | | | 12,608 | | | 13,441 | |
Total non-interest expenses | | | 11,490 | | | 11,495 | | | 34,027 | | | 34,017 | |
| | | | | | | | | | | | | |
Income before income taxes | | | 4,030 | | | 1,314 | | | 11,697 | | | 6,141 | |
| | | | | | | | | | | | | |
Provision for income taxes | | | 663 | | | (321) | | | 2,198 | | | 54 | |
| | | | | | | | | | | | | |
Net Income | | $ | 3,367 | | $ | 1,635 | | $ | 9,499 | | $ | 6,087 | |
| | | | | | | | | | | | | |
PER SHARE DATA | | | | | | | | | | | | | |
Book value | | $ | 12.54 | | $ | 12.37 | | $ | 12.54 | | $ | 12.37 | |
Cash dividends | | $ | 0.07 | | $ | 0.06 | | $ | 0.19 | | $ | 0.18 | |
Earnings per share basic | | $ | 0.24 | | $ | 0.12 | | $ | 0.67 | | $ | 0.43 | |
Earnings per share diluted | | $ | 0.23 | | $ | 0.12 | | $ | 0.67 | | $ | 0.43 | |
Average shares outstanding, basic | | | 14,176,732 | | | 14,103,543 | | | 14,139,697 | | | 14,102,880 | |
Average shares outstanding, diluted | | | 14,329,177 | | | 14,138,682 | | | 14,256,782 | | | 14,114,962 | |
| | | | | | | | | | | | | |
Total shareholder Equity (in thousands) | | $ | 178,056 | | $ | 174,473 | | $ | 178,056 | | $ | 174,473 | |
Shares outstanding | | | 14,194,659 | | | 14,103,849 | | | 14,194,659 | | | 14,103,849 | |
Dividends Paid (in thousands) | | $ | 992 | | $ | 846 | | $ | 2,686 | | $ | 2,538 | |
2 | ||
| | Three Months Ended September 30, | | Nine Months Ended September 30, | | ||||||||
| | 2013 | | 2012 | | 2013 | | 2012 | | ||||
Net Income | | $ | 3,367 | | $ | 1,635 | | $ | 9,499 | | $ | 6,087 | |
Other comprehensive income, before tax: | | | | | | | | | | | | | |
Unrealized gains on securities: | | | | | | | | | | | | | |
Unrealized holding (losses) gains arising during period | | | (100) | | | 1,926 | | | (6,342) | | | 3,635 | |
Less: reclassification adjustment for gains (1) included in net income | | | - | | | (90) | | | (6) | | | (161) | |
Other comprehensive (loss) income, before tax | | | (100) | | | 1,836 | | | (6,348) | | | 3,474 | |
Income tax expense related to items of other comprehensive (loss) income, net of tax | | | 41 | | | (756) | | | 2,613 | | | (1,434) | |
Other comprehensive (loss) income | | | (59) | | | 1,080 | | | (3,735) | | | 2,040 | |
| | | | | | | | | | | | | |
Comprehensive income | | $ | 3,308 | | $ | 2,715 | | $ | 5,764 | | $ | 8,127 | |
3 | ||
| | Nine Months Ended September 30, | | ||||
| | 2013 | | 2012 | | ||
Cash flows from operating activities: | | | | | | | |
Net income | | $ | 9,499 | | $ | 6,087 | |
Adjustments to reconcile net income to net cash provided by operating activities: | | | | | | | |
Gain on sales of securities | | | (6) | | | (161) | |
Gain on sales of loans | | | (92) | | | (139) | |
(Gain) Loss on disposal of fixed assets | | | (15) | | | 10 | |
Loss on sale on foreclosed assets | | | 568 | | | 709 | |
Writedowns on foreclosed assets | | | 695 | | | 1,610 | |
Share-based compensation expense | | | 218 | | | 183 | |
Provision for loan losses | | | 2,850 | | | 10,610 | |
Depreciation | | | 1,639 | | | 1,813 | |
Net amortization on securities premiums and discounts | | | 6,441 | | | 6,214 | |
Increase in unearned net loan fees | | | (90) | | | (304) | |
Increase in cash surrender value of life insurance policies | | | (1,389) | | | (30) | |
Proceeds from sales of loans portfolio | | | 3,662 | | | 5,717 | |
Increase in loans held-for-sale | | | (3,627) | | | (4,842) | |
Decrease (Increase) in interest receivable and other assets | | | 3,119 | | | (677) | |
Increase in other liabilities | | | 1,161 | | | 1,179 | |
Net Decrease in FHLB Stock | | | 438 | | | 670 | |
Deferred Income Tax Provision | | | 378 | | | 318 | |
Excess tax benefit from equity based compensation | | | (253) | | | (39) | |
Net cash provided by operating activities | | | 25,196 | | | 28,928 | |
| | | | | | | |
Cash flows from investing activities: | | | | | | | |
Maturities of securities available for sale | | | 1,399 | | | 1,080 | |
Proceeds from sales/calls of securities available for sale | | | 3,454 | | | 11,319 | |
Purchases of securities available for sale | | | (120,352) | | | (99,084) | |
Principal pay downs on securities available for sale | | | 76,815 | | | 75,953 | |
Net Decrease (Increase) in loans receivable, net | | | 61,039 | | | (125,316) | |
Purchases of premises and equipment, net | | | (275) | | | (3,204) | |
Proceeds from sales of foreclosed assets | | | 13,116 | | | 13,898 | |
Net cash provided by (used in) investing activities | | | 35,196 | | | (125,354) | |
| | | | | | | |
Cash flows from financing activities: | | | | | | | |
(Decrease) Increase in deposits | | | (22,556) | | | 59,585 | |
(Decrease) Increase in borrowed funds | | | (41,650) | | | 20,780 | |
Increase in repurchase agreements | | | 4,277 | | | 597 | |
Cash dividends paid | | | (2,686) | | | (2,538) | |
Stock options exercised | | | 1,121 | | | 22 | |
Excess tax benefit from equity based compensation | | | 253 | | | 39 | |
Net cash (used in) provided by financing activities | | | (61,241) | | | 78,485 | |
| | | | | | | |
Decrease in cash and due from banks | | | (849) | | | (17,941) | |
| | | | | | | |
Cash and Cash Equivalents | | | | | | | |
Beginning of period | | | 61,818 | | | 63,036 | |
End of period | | $ | 60,969 | | $ | 45,095 | |
4 | ||
5 | ||
6 | ||
| | September 30, 2013 | | December 31, 2012 | | ||
Commitments to extend credit | | $ | 438,054 | | $ | 225,400 | |
Standby letters of credit | | $ | 8,616 | | $ | 6,690 | |
Commercial letters of credit | | $ | 8,071 | | $ | 8,539 | |
| · | Level 1: Quoted prices (unadjusted) for identical assets or liabilities in active markets that the entity has the ability to access as of the measurement date. |
7 | ||
| · | Level 2: Significant observable inputs other than Level 1 prices, such as quoted prices for similar assets or liabilities, quoted prices in markets that are not active, and other inputs that are observable or can be corroborated by observable market data. |
| | |
| · | Level 3: Significant unobservable inputs that reflect a company’s own assumptions about the factors that market participants would likely consider in pricing an asset or liability. |
| · | Cash and cash equivalents and fed funds sold: For cash and cash equivalents and fed funds sold, the carrying amount is estimated to be fair value. |
| | |
| · | Investment securities: The fair values of investment securities are determined by obtaining quoted prices on nationally recognized securities exchanges or by matrix pricing, which is a mathematical technique used widely in the industry to value debt securities by relying on their relationship to other benchmark quoted securities when quoted prices for specific securities are not readily available. |
| | |
| · | Loans and leases: For variable-rate loans and leases that re-price frequently with no significant change in credit risk or interest rate spread, fair values are based on carrying values. Fair values for other loans and leases are estimated by discounting projected cash flows at interest rates being offered at each reporting date for loans and leases with similar terms, to borrowers of comparable creditworthiness. The carrying amount of accrued interest receivable approximates its fair value. |
| | |
| · | Loans held for sale: Since loans designated by the Company as available-for-sale are typically sold shortly after making the decision to sell them, realized gains or losses are usually recognized within the same period and fluctuations in fair values are thus not relevant for reporting purposes. If available-for-sale loans stay on our books for an extended period of time, the fair value of those loans is determined using quoted secondary-market prices. |
| | |
| · | Collateral-dependent impaired loans: Impaired loans carried at fair value are those for which it is probable that the bank will be unable to collect all amounts due according to the contractual terms of the original loan agreement, and the carrying value has been written down to the fair value of the loan. The carrying value is equivalent to the fair value of the collateral, net of expected disposition costs where applicable, for collateral-dependent loans. |
| | |
| · | Cash surrender value of life insurance policies: The fair values are based on net cash surrender values at each reporting date. |
| | |
| · | Investments in, and capital commitments to, limited partnerships: The fair values of our investments in WNC Institutional Tax Credit Fund Limited Partnerships and any other limited partnerships are estimated using quarterly indications of value provided by the general partner. The fair values of undisbursed capital commitments are assumed to be the same as their book values. |
| | |
| · | Other investments: Certain investments for which no secondary market exists are carried at cost unless an impairment analysis indicates the need for adjustments, and the carrying amount for those investments approximates their estimated fair value. |
| | |
| · | Deposits: Fair values for demand deposits and other non-maturity deposits are equal to the amount payable on demand at the reporting date, which is the carrying amount. Fair values for fixed-rate certificates of deposit are estimated using a cash flow analysis, discounted at interest rates being offered at each reporting date by the Bank for certificates with similar remaining maturities. The carrying amount of accrued interest payable approximates its fair value. |
8 | ||
| · | Short-term borrowings: The carrying amounts approximate fair values for federal funds purchased, overnight FHLB advances, borrowings under repurchase agreements, and other short-term borrowings maturing within ninety days of the reporting dates. Fair values of other short-term borrowings are estimated by discounting projected cash flows at the Company’s current incremental borrowing rates for similar types of borrowing arrangements. |
| | |
| · | Long-term borrowings: The fair values of the Company’s long-term borrowings are estimated using projected cash flows discounted at the Company’s current incremental borrowing rates for similar types of borrowing arrangements. |
| | |
| · | Subordinated debentures: The fair values of subordinated debentures are determined based on the current market value for like instruments of a similar maturity and structure. |
| | |
| · | Commitments to extend credit and letters of credit: If funded, the carrying amounts for currently unused commitments would approximate fair values for the newly created financial assets at the funding date. However, because of the high degree of uncertainty with regard to whether or not those commitments will ultimately be funded, fair values for loan commitments and letters of credit in their current undisbursed state cannot reasonably be estimated, and only notional values are disclosed in the table below. |
9 | ||
Fair Value of Financial Instruments | | | | | | | | | | | | | | | | |
(dollars in thousands, unaudited) | | | | | | | | | | | | | | | | |
| | September 30, 2013 | | |||||||||||||
| | | | | Estimated Fair Value | | ||||||||||
| | | | | Quoted Prices in | | | | | | | | | | | |
| | | | | Active Markets | | Significant | | Significant | | | | | |||
| | | | | for | | Observable | | Unobservable | | | | | |||
| | Carrying | | Identical Assets | | Inputs | | Inputs | | | | | ||||
| | Amount | | (Level 1) | | (Level 2) | | (Level 3) | | Total | | |||||
Financial Assets: | | | | | | | | | | | | | | | | |
Cash and cash equivalents | | $ | 60,969 | | $ | 60,969 | | $ | - | | $ | - | | $ | 60,969 | |
Investment securities available for sale | | | 406,089 | | | 2,089 | | | 404,000 | | | - | | | 406,089 | |
Loans and leases, net | | | 784,330 | | | - | | | 825,383 | | | - | | | 825,383 | |
Collateral dependent impaired loans | | | 15,420 | | | - | | | 15,420 | | | - | | | 15,420 | |
Loans held-for-sale | | | 267 | | | 267 | | | - | | | - | | | 267 | |
Cash surrender value of life insurance policies | | | 39,396 | | | - | | | 39,396 | | | - | | | 39,396 | |
Other investments | | | 5,932 | | | - | | | 5,932 | | | - | | | 5,932 | |
Investment in Limited Partnership | | | 9,551 | | | - | | | 9,551 | | | - | | | 9,551 | |
Accrued interest receivable | | | 4,897 | | | - | | | 4,897 | | | - | | | 4,897 | |
| | | | | | | | | | | | | | | | |
Financial Liabilities: | | | | | | | | | | | | | | | | |
Deposits: | | | | | | | | | | | | | | | | |
Noninterest-bearing | | $ | 354,814 | | $ | 354,814 | | $ | - | | $ | - | | $ | 354,814 | |
Interest-bearing | | | 796,664 | | | - | | | 718,978 | | | - | | | 718,978 | |
Fed Funds Purchased and Repurchase Agreements | | | 5,696 | | | - | | | 5,696 | | | - | | | 5,696 | |
Short-term borrowings | | | - | | | - | | | - | | | - | | | - | |
Long-term borrowings | | | - | | | - | | | - | | | - | | | - | |
Subordinated debentures | | | 30,928 | | | - | | | 19,373 | | | - | | | 19,373 | |
Limited partnership capital commitment | | | 1,015 | | | - | | | 1,015 | | | - | | | 1,015 | |
Accrued Interest Payable | | | 162 | | | - | | | 162 | | | - | | | 162 | |
| | Notional Amount | | |
Off-balance-sheet financial instruments: | | | | |
Commitments to extend credit | | $ | 438,054 | |
Standby letters of credit | | | 8,616 | |
Commercial lines of credit | | | 8,071 | |
| | December 31, 2012 | | |||||||||||||
| | | | | Estimated Fair Value | | ||||||||||
| | | | | Quoted Prices in | | | | | | | | | | | |
| | | | | Active Markets | | Significant | | Significant | | | | | |||
| | | | | for | | Observable | | Unobservable | | | | | |||
| | Carrying | | Identical Assets | | Inputs | | Inputs | | | | | ||||
| | Amount | | (Level 1) | | (Level 2) | | (Level 3) | | Total | | |||||
Financial Assets: | | | | | | | | | | | | | | | | |
Cash and cash equivalents | | $ | 61,818 | | $ | 61,818 | | $ | - | | $ | - | | $ | 61,818 | |
Investment securities available for sale | | | 380,188 | | | 1,809 | | | 378,379 | | | - | | | 380,188 | |
Loans and leases, net | | | 839,629 | | | - | | | 873,309 | | | - | | | 873,309 | |
Collateral dependent impaired loans | | | 27,449 | | | - | | | 27,449 | | | - | | | 27,449 | |
Loans held-for-sale | | | 210 | | | 210 | | | - | | | - | | | 210 | |
Cash surrender value of life insurance policies | | | 38,007 | | | - | | | 38,007 | | | - | | | 38,007 | |
Other Investments | | | 6,370 | | | - | | | 6,370 | | | - | | | 6,370 | |
Investment in Limited Partnership | | | 10,316 | | | - | | | 10,316 | | | - | | | 10,316 | |
Accrued Interest Receivable | | | 5,095 | | | - | | | 5,095 | | | - | | | 5,095 | |
| | | | | | | | | | | | | | | | |
Financial Liabilities: | | | | | | | | | | | | | | | | |
Deposits: | | | | | | | | | | | | | | | | |
Noninterest-bearing | | $ | 352,597 | | $ | 352,597 | | $ | - | | $ | - | | $ | 352,597 | |
Interest-bearing | | | 821,437 | | | - | | | 821,911 | | | - | | | 821,911 | |
Fed Funds Purchased and Repurchase Agreements | | | 1,419 | | | - | | | 1,419 | | | - | | | 1,419 | |
Short-term borrowings | | | 36,650 | | | - | | | 36,650 | | | - | | | 36,650 | |
Long-term borrowings | | | 5,000 | | | - | | | 5,038 | | | - | | | 5,038 | |
Subordinated debentures | | | 30,928 | | | - | | | 12,141 | | | - | | | 12,141 | |
Limited partnership capital commitment | | | 962 | | | - | | | 962 | | | - | | | 962 | |
Accrued Interest Payable | | | 304 | | | - | | | 304 | | | - | | | 304 | |
| | Notional Amount | | |
Off-balance-sheet financial instruments: | | | | |
Commitments to extend credit | | $ | 225,400 | |
Standby letters of credit | | | 6,690 | |
Commercial lines of credit | | | 8,539 | |
10 | ||
| · | Investment securities: The fair values of securities available for sale are determined by obtaining quoted prices on nationally recognized securities exchanges or by matrix pricing, which is a mathematical technique used widely in the industry to value debt securities by relying on the their relationship to other benchmark quoted securities. |
| | |
| · | Collateral-dependent impaired loans: Impaired loans carried at fair value are those for which it is probable that the bank will be unable to collect all amounts due (including both principal and interest) according to the contractual terms of the original loan agreement, and the carrying value has been written down to the fair value of the loan. The carrying value is equivalent to the fair value of the collateral based on current appraisals, net of expected disposition costs where applicable, for collateral-dependent loans. |
| | |
| · | Foreclosed assets: Repossessed real estate (OREO) and other assets are carried at the lower of cost or fair value. Fair value is the appraised value less expected selling costs for OREO and some other assets such as mobile homes, and for all other assets fair value is represented by the estimated sales proceeds as determined using reasonably available sources. Foreclosed assets for which appraisals can be feasibly obtained are periodically measured for impairment using updated appraisals. Fair values for other foreclosed assets are adjusted as necessary, subsequent to a periodic re-evaluation of expected cash flows and the timing of resolution. If impairment is determined to exist, the book value of a foreclosed asset is immediately written down to its estimated impaired value through the income statement, thus the carrying amount is equal to the fair value and there is no valuation allowance. |
11 | ||
Fair Value Measurements - Recurring | | | | | | | | | | | | | |
(dollars in thousands, unaudited) | | | | | | | | | | | | | |
| | Fair Value Measurements at September 30, 2013, Using | | ||||||||||
| | Quoted Prices in | | | | | | | | | | | |
| | Active Markets | | Significant | | Significant | | | | | |||
| | for | | Observable | | Unobservable | | | | | |||
| | Identical Assets | | Inputs | | Inputs | | | | | |||
| | (Level 1) | | (Level 2) | | (Level 3) | | Total | | ||||
Investment Securities | | | | | | | | | | | | | |
U.S. Government agencies | | $ | - | | $ | 4,030 | | $ | - | | $ | 4,030 | |
Obligations of states and political subdivisions | | | - | | | 91,726 | | | - | | | 91,726 | |
U.S. Government agencies collateralized by mortgage obligations | | | - | | | 307,968 | | | - | | | 307,968 | |
Other Securities | | | 2,089 | | | 276 | | | - | | | 2,365 | |
| | | | | | | | | | | | | |
Total availabe-for-sale securities | | $ | 2,089 | | $ | 404,000 | | $ | - | | $ | 406,089 | |
| | Fair Value Measurements at December 31, 2012, Using | | ||||||||||
| | Quoted Prices in | | | | | | | | | | | |
| | Active Markets | | Significant | | Significant | | | | | |||
| | for | | Observable | | Unobservable | | | | | |||
| | Identical Assets | | Inputs | | Inputs | | | | | |||
| | (Level 1) | | (Level 2) | | (Level 3) | | Total | | ||||
Investment Securities | | | | | | | | | | | | | |
U.S. Government agencies | | $ | - | | $ | 2,973 | | $ | - | | $ | 2,973 | |
Obligations of states and political subdivisions | | | - | | | 73,986 | | | - | | | 73,986 | |
U.S. Government agencies collateralized by mortgage obligations | | | - | | | 301,389 | | | - | | | 301,389 | |
Other Securities | | | 1,809 | | | 31 | | | - | | | 1,840 | |
| | | | | | | | | | | | | |
Total availabe-for-sale securities | | $ | 1,809 | | $ | 378,379 | | $ | - | | $ | 380,188 | |
12 | ||
Fair Value Measurements - Nonrecurring | | | | | | | | | | | | | |
(dollars in thousands, unaudited) | | | | | | | | | | | | | |
| | Fair Value Measurements at September 30, 2013, Using | | ||||||||||
| | Quoted Prices in | | | | | | | | | | | |
| | Active Markets | | Significant | | Significant | | | | | |||
| | for | | Observable | | Unobservable | | | | | |||
| | Identical Assets | | Inputs | | Inputs | | | | | |||
| | (Level 1) | | (Level 2) | | (Level 3) | | Total | | ||||
Collateral Dependent Impaired Loans | | $ | - | | $ | 15,420 | | $ | - | | $ | 15,420 | |
Foreclosed Assets | | $ | - | | $ | 8,904 | | $ | - | | $ | 8,904 | |
| | Fair Value Measurements at December 31, 2012, Using | | ||||||||||
| | Quoted Prices in | | | | | | | | | | | |
| | Active Markets | | Significant | | Significant | | | | | |||
| | for | | Observable | | Unobservable | | | | | |||
| | Identical Assets | | Inputs | | Inputs | | | | | |||
| | (Level 1) | | (Level 2) | | (Level 3) | | Total | | ||||
Collateral Dependent Impaired Loans | | $ | - | | $ | 27,449 | | $ | - | | $ | 27,449 | |
Foreclosed Assets | | $ | - | | $ | 19,754 | | $ | - | | $ | 19,754 | |
13 | ||
| | September 30, 2013 | | ||||||||||
| | | | Gross | | Gross | | | | ||||
| | Amortized | | Unrealized | | Unrealized | | Estimated | | ||||
| | Cost | | Gains | | Losses | | Fair Value | | ||||
| | | | | | | | | | | | | |
U.S. Government agencies | | $ | 4,147 | | $ | - | | $ | (117) | | $ | 4,030 | |
Obligations of state and political subdivisions | | | 92,423 | | | 1,802 | | | (2,499) | | | 91,726 | |
U.S. Government agencies collateralized by mortgage obligations | | | 308,207 | | | 2,450 | | | (2,689) | | | 307,968 | |
Equity Securities | | | 1,336 | | | 1,029 | | | - | | | 2,365 | |
| | $ | 406,113 | | $ | 5,281 | | $ | (5,305) | | $ | 406,089 | |
| | December 31, 2012 | | ||||||||||
| | | | Gross | | Gross | | | | ||||
| | Amortized | | Unrealized | | Unrealized | | Estimated | | ||||
| | Cost | | Gains | | Losses | | Fair Value | | ||||
| | | | | | | | | | | | | |
U.S. Government agencies | | $ | 2,987 | | $ | 3 | | $ | (17) | | $ | 2,973 | |
Obligations of state and political subdivisions | | | 70,736 | | | 3,430 | | | (180) | | | 73,986 | |
U.S. Government agencies collateralized by mortgage obligations | | | 298,806 | | | 3,547 | | | (964) | | | 301,389 | |
Equity Securities | | | 1,336 | | | 508 | | | (4) | | | 1,840 | |
| | $ | 373,865 | | $ | 7,488 | | $ | (1,165) | | $ | 380,188 | |
14 | ||
Investment Portfolio - Unrealized Losses | | ||||||||||||
(dollars in thousands, unaudited) | | September 30, 2013 | | ||||||||||
| | Less than Twelve Months | | Over Twelve Months | | ||||||||
| | Gross | | | | Gross | | | | ||||
| | Unrealized | | | | Unrealized | | | | ||||
| | Losses | | Fair Value | | Losses | | Fair Value | | ||||
| | | | | | | | | | | | | |
U.S. Government Agencies | | $ | (117) | | $ | 4,030 | | $ | - | | $ | - | |
Obligations of State and Political Subdivisions | | | (2,411) | | | 38,766 | | | (88) | | | 1,576 | |
U.S. Government agencies collateralized by mortgage obligations | | | (2,583) | | | 150,312 | | | (106) | | | 6,526 | |
Other Securities | | | - | | | - | | | - | | | - | |
Total | | $ | (5,111) | | $ | 193,108 | | $ | (194) | | $ | 8,102 | |
| | December 31, 2012 | | ||||||||||
| | Less than Twelve Months | | Over Twelve Months | | ||||||||
| | Gross | | | | Gross | | | | ||||
| | Unrealized | | | | Unrealized | | | | ||||
| | Losses | | Fair Value | | Losses | | Fair Value | | ||||
| | | | | | | | | | | | | |
U.S. Government Agencies | | $ | (17) | | $ | 1,996 | | $ | - | | $ | - | |
Obligations of State and Political Subdivisions | | | (180) | | | 9,324 | | | - | | | - | |
U.S. Government agencies collateralized by mortgage obligations | | | (903) | | | 106,799 | | | (61) | | | 6,965 | |
Other Securities | | | (4) | | | 242 | | | - | | | - | |
Total | | $ | (1,104) | | $ | 118,361 | | $ | (61) | | $ | 6,965 | |
| · | Pass: Larger non-homogeneous loans not meeting the risk rating definitions below, and smaller homogeneous loans that are not assessed on an individual basis. |
| | |
| · | Special mention: Loans which have potential issues that deserve the close attention of management. If left uncorrected, those potential weaknesses could eventually diminish the prospects for full repayment of principal and interest according to the contractual terms of the loan agreement, or could result in deterioration of the Company’s credit position at some future date. |
| | |
| · | Substandard: Loans that have at least one clear and well-defined weakness which could jeopardize the ultimate recoverability of all principal and interest, such as a borrower displaying a highly leveraged position, unfavorable financial operating results and/or trends, uncertain repayment sources or a deteriorated financial condition. |
| | |
| · | Impaired: A loan is considered impaired when, based on current information and events, it is probable that the Company will be unable to collect all amounts due according to the contractual terms of the loan agreement. Impaired loans include all nonperforming loans, restructured troubled debt (TDRs), and certain other loans that are still being maintained on accrual status. A TDR may be nonperforming or performing, depending on its accrual status and the demonstrated ability of the borrower to comply with restructured terms (see “Troubled Debt Restructurings” section below for additional information on TDRs). |
15 | ||
Credit Quality Classifications | | |||||||||||||||
(dollars in thousands, unaudited) | | |||||||||||||||
| | September 30, 2013 | | |||||||||||||
| | | | Special | | | | | | | | |||||
| | Pass | | Mention | | Substandard < |