PINX:NRLB Quarterly Report 10-Q Filing - 3/31/2012

Effective Date 3/31/2012

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Table of Contents

 

 

 

U.S. SECURITIES AND EXCHANGE COMMISSION

Washington, D.C.  20549

 

FORM 10-Q

 

x      Quarterly report under Section 13 or 15(d) of the Securities Exchange Act of 1934

 

for the quarterly period ended March 31, 2012

 

o         Transition report under Section 13 or 15(d) of the Securities Exchange Act of 1934

 

(No fee required) for the period from                  to                

 

Commission File Number 0-27666

 

NORTHERN CALIFORNIA BANCORP, INC.

(Name of Small Business Issuer in its Charter)

 

Incorporated in the State of California

IRS Employer Identification Number 77-0421107

Address:  601 Munras Avenue, Monterey, CA 93940

Telephone: (831) 649-4600

 

Check whether the issuer: (1) filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act during the past 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.  Yes x  No o

 

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

 

Indicate by check mark whether the registrant is an accelerated filer, a non-accelerated filer, or a smaller reporting company (as defined in Rule 12b-2 of the Act).

 

Large accelerated filer o

 

Accelerated filer o

 

 

 

Non-accelerated filer o

 

Smaller reporting company x

 

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act.  Yes o  No x

 

As of May 11, 2011, the Corporation had 1,785,891 shares of common stock outstanding.

 

 

 



Table of Contents

 

TABLE OF CONTENTS

 

Facing Page

1

Table of Contents

2

PART I

Financial Information

3-6

Item 1

Financial Statements

 

 

Consolidated Balance Sheets

3

 

Consolidated Statements of Operations

4

 

Consolidated Statements of Comprehensive Income

5

 

Consolidated Statements of Changes in Shareholders’ Equity

6

 

Consolidated Statements of Cash Flows

7

 

Notes to Consolidated Financial Statements

8-29

Item 2

Management’s Discussion and Analysis of Financial Condition and Results of Operations

30-53

Item 3

Quantitative Disclosures About Market Risk

54

Item 4

Controls and Procedures

54

 

 

 

PART II

Other Information

 

Item 1

Legal Proceedings

55

Item 2

Unregistered Sales of Equity Securities and Use of Proceeds

55

Item 3

Defaults Upon Senior Securities

55

Item 4

Mine Safety Disclosures

55

Item 5

Other Information

55

Item 6

Exhibits

56

Signatures

56

Certifications

57-60

 

2



Table of Contents

 

PART I-FINANCIAL INFORMATION

 

Item 1.         FINANCIAL STATEMENTS

 

NORTHERN CALIFORNIA BANCORP, INC.

AND SUBSIDIARY

CONSOLIDATED BALANCE SHEETS

 

 

 

MARCH 31

 

DECEMBER 31

 

(Dollars in thousands, except share data)

 

2012

 

2011

 

 

 

(Unaudited)

 

(Audited)

 

ASSETS:

 

 

 

 

 

Cash and Due From Banks

 

$

30,014

 

$

10,536

 

Trading Assets

 

18

 

17

 

Investment Securities, available for sale (Note 6)

 

24,363

 

41,793

 

Other Investments

 

3,108

 

3,227

 

Loans Held for Sale, at lower of cost or market

 

1,775

 

1,471

 

Loans, net of allowance for loan losses of $4,323 in 2012; $4,320 in 2011 (Note 7)

 

140,257

 

148,027

 

Bank Premises and Equipment, Net

 

4,358

 

4,427

 

Cash Surrender Value of Life Insurance

 

4,385

 

4,354

 

Foreclosed assets

 

28,722

 

28,722

 

Interest Receivable and Other Assets

 

2,527

 

3,103

 

Total Assets

 

$

239,527

 

$

245,677

 

 

 

 

 

 

 

LIABILITIES AND SHAREHOLDERS’ EQUITY:

 

 

 

 

 

 

 

 

 

 

 

Non interest-bearing demand

 

$

36,846

 

$

31,331

 

Interest-bearing demand

 

21,041

 

19,358

 

Savings

 

14,202

 

14,405

 

Time less than $100,000

 

79,197

 

90,040

 

Time in denominations of $100,000 or more

 

46,388

 

48,479

 

Total Deposits

 

197,674

 

203,613

 

 

 

 

 

 

 

Federal Home Loan Bank borrowed funds

 

23,000

 

23,000

 

Revolving line of credit

 

2,700

 

2,700

 

Junior Subordinated Debt Securities

 

8,248

 

8,248

 

Payable for Investment Securities Purchased

 

427

 

 

Interest Payable and Other Liabilities

 

3,384

 

4,520

 

Total Liabilities

 

235,433

 

242,081

 

 

 

 

 

 

 

Shareholders’ Equity:

 

 

 

 

 

Common Stock - No Par Value

 

 

 

 

 

Authorized 50,000,000 shares

 

 

 

 

 

Outstanding:1,785,891 in 2012 and 2011

 

5,094

 

5,094

 

Accumulated Deficit

 

(2,198

)

(3,265

)

Accumulated Other Comprehensive Income

 

1,198

 

1,767

 

Total Shareholders’ Equity

 

4,094

 

3,596

 

Total Liabilities & Shareholders’ Equity

 

$

239,527

 

$

245,677

 

 

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

 

3



Table of Contents

 

NORTHERN CALIFORNIA BANCORP, INC.

AND SUBSIDIARY

CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)

 

 

 

THREE-MONTH

 

 

 

PERIOD ENDING

 

 

 

March 31

 

(Dollars in thousands except share data)

 

2012

 

2011

 

INTEREST INCOME:

 

 

 

 

 

Loans

 

$

2,111

 

$

2,205

 

Time deposits with other financial institutions

 

6

 

6

 

Investment securities

 

449

 

592

 

Total Interest Income

 

2,566

 

2,803

 

 

 

 

 

 

 

INTEREST EXPENSE:

 

 

 

 

 

Interest-bearing transaction accounts

 

5

 

5

 

Savings and time deposit accounts

 

284

 

366

 

Time deposits in denominations of $100,000 or more

 

197

 

301

 

Notes payable and other

 

339

 

410

 

Total Interest Expense

 

825

 

1,082

 

 

 

 

 

 

 

Net Interest Income

 

1,741

 

1,721

 

Provision for loan losses

 

 

1,100

 

Net interest income, after provision for loan losses

 

1,741

 

621

 

 

 

 

 

 

 

NON-INTEREST INCOME:

 

 

 

 

 

Service charges on deposit accounts

 

76

 

85

 

Income from sales and servicing of Small Business Administration Loans

 

111

 

50

 

Gain on sales of investment securities

 

800

 

8

 

Other income

 

171

 

1,087

 

Total non-interest income

 

1,158

 

1,230

 

 

 

 

 

 

 

NON-INTEREST EXPENSE:

 

 

 

 

 

Salaries and Employee Benefits

 

874

 

912

 

Occupancy and Equipment Expense

 

238

 

263

 

Foreclosed assets, net

 

(138

)

326

 

Professional Fees

 

332

 

461

 

Data Processing

 

56

 

56

 

FDIC and State Assessments

 

161

 

222

 

Other general and administrative

 

307

 

1,009

 

Total non-interest expenses

 

1,830

 

3,249

 

 

 

 

 

 

 

Income (loss) before tax provision

 

1,069

 

(1,398

)

Income tax provision

 

1

 

59

 

Net income (loss)

 

$

1,068

 

$

(1,457

)

 

 

 

 

 

 

Earnings (loss) per common share

 

 

 

 

 

Basic

 

$

0.60

 

$

(0.82

)

Diluted

 

$

0.60

 

$

(0.82

)

 

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

 

4



Table of Contents

 

NORTHERN CALIFORNIA BANCORP, INC.

AND SUBSIDIARY

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(UNAUDITED)

 

 

 

For the three months ended
March 31

 

 

 

2012

 

2011

 

 

 

 

 

 

 

Net income (loss)

 

$

1,068

 

$

(1,457

)

 

 

 

 

 

 

Other comprehensive income (loss)

 

 

 

 

 

Net unrealized holding gain on securities available for sale

 

231

 

232

 

Reclassification adjustment for gains realized inincome

 

(800

)

(8

)

Net unrealized gain (loss)

 

(569

)

224

 

Tax effect

 

 

 

Other comprehensive income (loss)

 

(569

)

224

 

Total Comprehensive income (loss)

 

$

499

 

$

(1,233

)

 

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

 

5



Table of Contents

 

NORTHERN CALIFORNIA BANCORP, INC.

AND SUBSIDIARY

CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY

(UNAUDITED)

 

 

 

 

 

 

 

 

 

Accumulated

 

 

 

 

 

 

 

 

 

 

 

Other Comprehensive

 

 

 

 

 

Number of

 

Common

 

Retained

 

Income

 

 

 

(in thousands except share data)

 

Shares

 

Stock

 

Earnings

 

(Loss)

 

Total

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance at December 31, 2009

 

1,783,230

 

$

5,088

 

$

11,092

 

$

(30

)

$

16,150

 

 

 

 

 

 

 

 

 

 

 

 

 

Comprehensive loss:

 

 

 

 

 

 

 

 

 

 

 

Net loss for the year

 

 

 

(706

)

 

(706

)

Change in net unrealized loss on AFS securities and other assets, net of recalssification adjustment and tax effect

 

 

 

 

(1,144

)

(1,144

)

Total comprehensive loss

 

 

 

 

 

 

 

 

 

(1,850

)

Exercise of stock options

 

2,661

 

6

 

 

 

6

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance at December 31, 2010 (Audited)

 

1,785,891

 

5,094

 

10,386

 

(1,174

)

14,306

 

 

 

 

 

 

 

 

 

 

 

 

 

Comprehensive loss:

 

 

 

 

 

 

 

 

 

 

 

Net loss for the year

 

 

 

(13,652

)

 

(13,652

)

Change in net unrealized loss on AFS securities and other assets, net of recalssification adjustment and tax effect

 

 

 

 

2,941

 

2,941

 

Total comprehensive loss

 

 

 

 

 

 

 

 

 

(10,711

)

Balance at December 31, 2011 (Audited)

 

1,785,891

 

5,094

 

(3,266

)

1,767

 

3,595

 

 

 

 

 

 

 

 

 

 

 

 

 

Comprehensive income:

 

 

 

 

 

 

 

 

 

 

 

Net income for the year

 

 

 

1,068

 

 

1,068

 

Change in net unrealized loss on AFS securities and other assets net of tax recalssification adjustment

 

 

 

 

(569

)

(569

)

Total comprehensive income

 

 

 

 

 

 

 

 

 

499

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance at March 31, 2012 (Unaudited)

 

1,785,891

 

$

5,094

 

$

(2,198

)

$

1,198

 

$

4,094

 

 

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

 

6



Table of Contents

 

NORTHERN CALIFORNIA BANCORP, INC.

AND SUBSIDIARY

CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)

 

 

 

THREE MONTH PERIOD ENDED

 

 

 

MARCH 31,

 

 

 

2012

 

2011

 

CASH FLOWS FROM OPERATING ACTIVITIES

 

 

 

 

 

Net income (loss)

 

$

1,068

 

$

(1,457

)

Adjustments to reconcile net income (loss) to net cash provided (used) by operating activities:

 

 

 

 

 

Depreciation and amortization expense

 

70

 

84

 

Provision for loan losses

 

 

1,100

 

Provision for foreclosed asset losses

 

 

83

 

Realized gain on sales of available-for-sale securities, net

 

(800

)

(8

)

Amortization of deferred loan (fees), net

 

26

 

17

 

Net amortization (accretion) of discounts and premiums on investment securities, net

 

(15

)

(28

)

Deferred income tax provision (benefit)

 

 

373

 

Increase in cash surrender value of life insurance

 

(31

)

(32

)

(Increase) decrease in assets:

 

 

 

 

 

Trading assets

 

(1

)

2

 

Loans held for sale

 

(304

)

772

 

Interest receivable

 

369

 

194

 

Other assets

 

206

 

679

 

Increase (decrease) in liabilities:

 

 

 

 

 

Interest payable

 

(35

)

(157

)

Other liabilities

 

(1,101

)

(635

)

Net cash provided (used) by operating activities

 

(548

)

987

 

 

 

 

 

 

 

CASH FLOWS FROM INVESTING ACTIVITIES

 

 

 

 

 

Activity in available-for sale securities

 

 

 

 

 

Sales

 

17,997

 

514

 

Maturities, prepayments, and calls

 

105

 

38

 

Purchases

 

 

(3,445

)

Redemption of stock investments, restricted

 

119

 

119

 

Net (increase) decrease in loans

 

7,745

 

(6,439

)

Proceeds from sale of equipment

 

 

144

 

Additions to bank premises and equipment

 

(1

)

(24

)

Net cash provided (used) by investing activities

 

25,965

 

(9,093

)

 

 

 

 

 

 

CASH FLOWS FROM FINANCING ACTIVITIES

 

 

 

 

 

Net decrease in deposits

 

(5,939

)

(4,950

)

Proceeds from borrowings

 

 

5,245

 

Net cash provided (used) by financing activities

 

(5,939

)

295

 

 

 

 

 

 

 

Net increase (decrease) in cash and cash equivalents

 

19,478

 

(7,811

)

 

 

 

 

 

 

CASH AND CASH EQUIVALENTS, BEGINNING

 

10,536

 

16,400

 

 

 

 

 

 

 

CASH AND CASH EQUIVALENTS, ENDING

 

$

30,014

 

$

8,589

 

 

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

 

7



Table of Contents

 

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

 

(NOTE 1) NATURE OF BUSINESS AND BASIS OF PRESENTATION

 

Nature of Business

 

Northern California Bancorp, Inc. (the “Corporation”) was incorporated on August 29, 1995, as a for-profit corporation under the California Corporate laws for the principal purpose of engaging in banking and non-banking activities as allowed for a bank holding company.  The Corporation’s sources of revenues at this time are dividends on investments, gains on securities transactions and potential dividends, management fees and tax equalization payments, if any, from its wholly-owned bank subsidiary, Monterey County Bank (the “Bank”).

 

The Corporation owns 100% of the Bank which operates four full service branches in Monterey County, California. The Corporation owns 100% of the common stock of two unconsolidated special purpose business trusts, “Northern California Bancorp, Inc. Trust I” and “Northern California Bancorp, Inc. Trust II.”

 

Basis of Presentation

 

The interim condensed consolidated financial statements of the Corporation and the Bank are unaudited and reflect all adjustments (consisting only of normal recurring adjustments), which are, in the opinion of Management, necessary for a fair presentation, in all material respects, of the consolidated financial position and operating results of the Corporation for the interim periods.  The results of operations for the three months ended March 31, 2012 are not necessarily indicative of the results to be expected for the entire fiscal year ending December 31, 2012.  The year-end consolidated balance sheet data at December 31, 2011 was derived from the Corporation’s consolidated audited financial statements.  All material intercompany balances and transactions have been eliminated in consolidation.

 

This financial information should be read in conjunction with the consolidated audited financial statements and the notes thereto included in the Corporation’s Form 10-K for the fiscal year ended December 31, 2011.

 

(NOTE 2) CRITICAL ACCOUNTING POLICIES

 

The preparation of financial statements in accordance with accounting principles generally accepted in the United States of America requires Management to make a number of judgments, estimates and assumptions that affect the reported amount of assets, liabilities, income and expenses in the Corporation’s financial statements and accompanying notes.  Management believes that the judgments, estimates and assumptions used in preparation of the Corporation’s financial statements are appropriate given the factual circumstances as of March 31, 2012.

 

Various elements of the Corporation’s accounting policies, by their nature, are inherently subject to estimation techniques, valuation assumptions and other subjective assessments.  Critical accounting policies are those that involve the most complex and subjective decisions and assessments and have the greatest potential impact on the Corporation’s results of operation.  In particular, Management has identified one accounting policy that, due to judgments, estimates and assumptions inherent in this policy and the sensitivity of the Corporation’s financial statements to those judgments, estimates and assumptions, is critical to an understanding of the Corporation’s financial statements.

 

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Table of Contents

 

This policy relates to the methodology that determines the Corporation’s allowance for loan losses.  Management has discussed the development and selection of this critical accounting policy with the Corporation’s Audit Committee of the Board of Directors.  Although Management believes the level of the allowance at March 31, 2012 is adequate to absorb losses inherent in the loan portfolio, a decline in the regional economy may result in increasing losses that cannot reasonably be predicted at this time.  For further information regarding the allowance for loan losses see “Provision and Allowance for Loan Losses” included elsewhere herein.

 

Due to the credit concentration of the Corporation’s loan portfolio in real estate secured loans, the value of collateral is heavily dependent upon real estate values in the Monterey region. Therefore, a decrease in real estate values in this region could have a negative impact on the allowance for loan losses. In addition, regulatory agencies, as an integral part of their examination process, periodically review the Corporation’s allowance for loan losses and may require the Corporation to make additions to the allowance based on their judgment about information available to them at the time of their examinations.

 

Another critical accounting policy relates to the valuation of other real estate owned (OREO). Assets acquired through, or in lieu of, loan foreclosure are held for sale and are initially recorded at fair value less cost to sell at the date of foreclosure, establishing a new cost basis. Subsequent to foreclosure, valuations are periodically performed by Management and the assets are carried at the lower of carrying amount or fair value less estimated cost to sell. Any write-down to fair value at the time of transfer to OREO is charged to the allowance for loan losses. Property is evaluated regularly to ensure that the recorded amount is supported by its current fair value and that valuation allowances to reduce the carrying amount to fair value less estimated costs to dispose are recorded as necessary. Revenue and expenses from operations of OREO and changes in the valuation allowance are included in net expenses from OREO.

 

A third critical accounting policy relates to the valuation of deferred tax assets. The Corporation is permitted to recognize deferred tax assets only to the extent that they are expected to be used to reduce amounts that have been paid or will be paid to tax authorities. Management reviews this each quarter by comparing the amount of the deferred tax assets with amounts paid in the past that might be recovered by carryback provisions in the tax code and with anticipated taxable income expected to be generated from operations in the future. If it does not appear that the deferred tax assets are usable, a valuation allowance would be established to acknowledge their uncertain benefit.

 

(NOTE 3) RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS

 

In May 2011, the Financial Accounting Standards Board (FASB) issued an accounting standards update to improve the comparability between U.S. GAAP fair value accounting and reporting requirements and International Financial Reporting Standards (IFRS) fair value accounting and reporting requirements. Additional disclosures required by the update include: (i) disclosure of quantitative information regarding the unobservable inputs used in any fair value measurement classified as Level 3 in the fair value hierarchy in addition to an explanation of the valuation techniques used in valuing Level 3 items and information regarding the sensitivity in the valuation of Level 3 items to changes in the values assigned to unobservable inputs; (ii) categorization by level within the fair value hierarchy of items not recognized on the balance sheet at fair value but for which fair values are required to be disclosed; and (iii) instances where the fair values disclosed for non-financial assets were based on a highest and best use assumption when in fact the assets are not being utilized in that capacity.

 

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Table of Contents

 

The amendments in the update are effective for interim and annual periods beginning on or after December 15, 2011. The required disclosures became effective for the Corporation on January 1, 2012, and are reflected in Note 9. The provisions of this update had no impact on the Corporation’s financial position, results of operations or cash flows.

 

In June 2011, the FASB issued an accounting standards update to increase the prominence of items included in Other Comprehensive Income and facilitate the convergence of U.S. GAAP with IFRS. The update prohibits continued presentation of Other Comprehensive Income in the Statement of Shareholders’ Equity. The update requires that all non-owner changes in shareholders’ equity be presented in either a single continuous statement of comprehensive income or in two separate but continuous statements. The amendments in the update are effective for interim and annual periods beginning on or after December 15, 2011. The Corporation adopted the provisions of this update on January 1, 2012 and therefore has presented other comprehensive income in conformity with the new reporting requirements as of March 31, 2012. The provisions of this update had no impact on the Corporation’s financial position, results of operation or cash flows.

 

(NOTE 4) STOCK BASED COMPENSATION

 

The Corporation’s compensation cost relating to share-based payment transactions is recognized in the financial statements based upon the fair value of the equity or liability instruments issued. Based on the stock-based compensation awards outstanding for the three months ended March 31, 2012 and 2011, there was no stock-based compensation expense.

 

Under the Corporation’s 1998 Stock Option Plan, the Corporation may grant incentive stock options and non-qualified stock options to directors, officers, and employees of the Corporation and its subsidiary, so long as the Corporation owns a majority of the equity interest of such subsidiary.  Incentive stock options are granted at fair value of the common stock on the date of grant.  However, an incentive stock option granted to an individual owning 10% or more of the Corporation’s stock after such grant must have an exercise price of at least 110% of such fair market value and an exercise period of not more than five years.  Non-qualified stock options may be granted at prices not lower than 85% of the fair market value of the common stock on the date of grant.  The Board of Directors (the “Board”) is authorized to determine when options become exercisable within a period not exceeding 10 years from the date of grant.  Under the 1998 Stock Option Plan, 12,500 shares of common stock have been reserved for the granting of these options.  At March 31, 2012, 12,500 options were outstanding.  During 2012, no options were granted and no options were exercised by officers, employees, or Board members.  As of March 31, 2012, all options have vested.

 

No further options may be granted under the 1998 Stock Option Plan.  The plan provided that options could be granted for a period of ten years from the date the Plan was adopted by the Board.  The Board adopted the Plan on April 16, 1998.  The Plan remains in effect until all options granted under the Plan have been exercised or have expired.

 

Under the Corporation’s 2007 Stock Option Plan, the Corporation may grant incentive stock options and non-qualified stock options to directors, officers, and employees of the Corporation and its subsidiary, so long as the Corporation owns a majority of the equity interest of such subsidiary.  Incentive stock options are granted at fair value of the common stock on the date of grant.

 

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Table of Contents

 

However, an incentive stock option granted to an individual owning 10% or more of the Corporation’s stock after such grant must have an exercise price of at least 110% of such fair market value and an exercise period of not more than five years.  The Board is authorized to determine when options become exercisable within a period not exceeding 10 years from the date of grant.  Under the Plan, 300,000 shares of common stock have been reserved for the granting of these options.  As of March 31, 2012, no options have been granted under the 2007 Stock Option Plan.

 

(NOTE 5) EARNINGS PER SHARE

 

Basic earnings (loss) per share represents income (loss) available to common stockholders divided by the weighted-average number of common shares outstanding during the period.  Diluted earnings (loss) per share reflects additional common shares that would have been outstanding, if potential dilutive common shares had been issued, as well as any adjustment to income that would result from the assumed issuance.  Potential common shares that may be issued by the Corporation relate to outstanding stock options and are determined using the treasury stock method.

 

The weighted-average number of shares used in computing basic and diluted earnings (loss) per share is as follows:

 

 

 

Earnings (Loss) per share Calculation

 

 

 

For the three months ended March 31

 

 

 

2012

 

2011

 

 

 

 

 

Weighted

 

 

 

 

 

Weighted

 

 

 

 

 

Net

 

Average

 

Per Share

 

Net

 

Average

 

Per Share

 

 

 

Income

 

Shares

 

Amount

 

Income

 

Shares

 

Amount

 

Basic earnings (loss) per share

 

$

1,068

 

1,785,891

 

$

0.60

 

$

(1,457

)

1,785,891

 

$

(0.82

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Effect of dilutive shares assumed exercise of outstanding options

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Diluted earnings (loss) per share

 

$

1,068

 

1,785,891

 

$

0.60

 

$

(1,457

)

1,785,891

 

$

(0.82

)

 

(NOTE 6) INVESTMENT SECURITIES

 

The following table presents investment securities available for sale at March 31, 2012 and December 31, 2011:

 

 

 

March 31, 2012

 

 

 

Amortized
Cost

 

Gross
Unrealized
Gains

 

Gross
Unrealized
Loss

 

Fair Value

 

 

 

(Dollars in thousands)

 

Securities Available for Sale

 

 

 

 

 

 

 

 

 

Mortgage Backed Securities

 

$

520

 

$

25

 

$

 

$

545

 

State/Local Agency Securities

 

22,685

 

1,133

 

 

23,818

 

 

 

 

 

 

 

 

 

 

 

Total securities available for sale

 

$

23,205

 

$

1,158

 

$

 

$

24,363

 

 

11



Table of Contents

 

 

 

December 31, 2011

 

 

 

Amortized
Cost

 

Gross
Unrealized
Gains

 

Gross
Unrealized
Loss

 

Fair Value

 

 

 

(Dollars in thousands)

 

Securities Available for Sale

 

 

 

 

 

 

 

 

 

Mortgage Backed Securities

 

$

525

 

$

 

$

(1

)

$

524

 

State/Local Agency Securities

 

39,539

 

1,798

 

(68

)

41,269

 

 

 

 

 

 

 

 

 

 

 

Total securities available for sale

 

$

40,064

 

$

1,798

 

$

(69

)

$

41,793

 

 

In addition, the Corporation maintains a trading account, at fair value, consisting of marketable securities.  At March 31, 2012 and December 31, 2011 the account value was $18,000 and $17,000, respectively.

 

The amortized cost and fair value of debt securities by contractual maturity date at March 31, 2012 are as follows:

 

 

 

Available for Sale

 

 

 

Amortized
Cost

 

Fair
Value

 

 

 

(Dollars in thousands)

 

 

 

 

 

 

 

Due between five and ten years

 

$

360

 

$

363

 

Due after ten years

 

22,845

 

24,000

 

Total securities available for sale

 

$

23,205

 

$

24,363

 

 

Proceeds from calls, maturity, payments and sales of investment securities for the three months ended March 31, 2012 and 2011 were $18,102,000 and $552,000, respectively.  Realized gains for the three months ended March 31, 2012 and 2011 were $800,000, and $8,000, respectively.

 

At December 31, 2011, mortgage-backed obligations with a carrying value of $524,000 were pledged to secure advances from the Federal Home Loan Bank “FHLB”. No securities were pledged to secure advances from the FHLB at March 31, 2012.

 

At March 31, 2012 and December 31, 2011, state/local agency obligations with a carrying value of $7,835,000 and $9,137,000, respectively, were pledged to secure a discount window line with the Federal Reserve Bank.

 

At March 31, 2012, no securities had a gross unrealized loss.

 

Information pertaining to securities with gross unrealized losses at December 31, 2011, aggregated by investment category and length of time that individual securities have been in a continuous loss position follows:

 

12



Table of Contents

 

 

 

Less than 12 Months

 

12 Months or More

 

Total

 

 

 

Fair

 

Unrealized

 

Fair

 

Unrealized

 

Fair

 

Unrealized

 

 

 

Value

 

Loss

 

Value

 

Loss

 

Value

 

Loss

 

 

 

(Dollars in thousands)

 

Securities Available for Sale:

 

 

 

 

 

 

 

 

 

 

 

 

 

State/Local Agency Securities

 

$

524

 

$

(1

)

$

2,231

 

$

(68

)

$

2,755

 

$

(69

)

 

At a minimum, Management evaluates securities for other-than-temporary impairment on a quarterly basis, and more frequently when economic or market concerns warrant such evaluation. Consideration is given to: (1) the length of time and the extent to which the fair value has been less than cost; (2) the financial condition and near-term prospects of the issuer; (3) the Bank’s intention not to sell the security; and (4) the lack of any need to sell the security before recovery of its cost basis.

 

On December 31, 2011, 5 securities had an unrealized loss with aggregate depreciation of 0.17% from the Bank’s amortized cost basis. The unrealized losses relate to securities issued by state and local government agencies.  All such securities are deemed to be investment grade as determined either by Moody or Standard and Poor’s or, for unrated securities, by an independent consultant.  Based on this and the factors stated in the previous paragraph, no decline is deemed to be other-than-temporary.

 

(NOTE 7) LOANS AND ALLOWANCE FOR LOAN LOSSES

 

The following table presents information on loans and the allowance for loan losses at March 31, 2012 and December 31, 2011:

 

 

 

March 31

 

December 31

 

 

 

2012

 

2011

 

 

 

(Dollars in thousands)

 

Commercial and industrial

 

$

22,369

 

$

22,630

 

Construction and land

 

10,497

 

9,064

 

Real Estate - commercial

 

63,395

 

69,824

 

Real Estate - residential

 

40,332

 

43,630

 

Consumer

 

193

 

223

 

SBA - unguaranteed portion held for investment

 

4,291

 

4,088

 

SBA - guaranteed portion

 

4,365

 

3,586

 

Other

 

993

 

880

 

Total

 

146,435

 

153,925

 

Allowance for loan losses

 

(4,323

)

(4,320

)

Deferred origination fees, net

 

(80

)

(107

)

Loans, net

 

$

142,032

 

$

149,498

 

 

Loans held for sale totaled $1,775,000 and $1,471,000 at March 31, 2012 and December 31, 2011, respectively, and are included in the SBA guaranteed portion above.

 

13



Table of Contents

 

The following tables present an analysis of credit quality indicators by loan class at March 31, 2012 and December 31, 2011. Information has been updated for each credit quality indicator as of these dates.

 

 

 

March 31, 2012

 

 

 

Grade

 

 

 

Pass

 

Special
Mention

 

Substandard

 

Doubtful

 

Total

 

 

 

 

 

 

 

 

 

 

 

 

 

Construction and land:

 

 

 

 

 

 

 

 

 

 

 

Land

 

$

6,480

 

$

 

$

4,017

 

$

 

$

10,497

 

 

 

 

 

 

 

 

 

 

 

 

 

One to four residential:

 

 

 

 

 

 

 

 

 

 

 

First liens

 

31,127

 

 

3,876

 

 

35,003

 

Junior liens

 

4,287

 

 

1,042

 

 

5,329

 

 

 

 

 

 

 

 

 

 

 

 

 

Commercial real estate:

 

 

 

 

 

 

 

 

 

 

 

Owner occupied

 

20,395

 

 

5,415

 

 

25,810

 

Non-owner occupied

 

35,202

 

 

2,383

 

 

37,585

 

 

 

 

 

 

 

 

 

 

 

 

 

Commercial and industrial:

 

 

 

 

 

 

 

 

 

 

 

Secured

 

10,216

 

 

1,160

 

 

11,376

 

Unsecured

 

9,364

 

1,045

 

239

 

345

 

10,993

 

 

 

 

 

 

 

 

 

 

 

 

 

Consumer

 

193

 

 

 

 

193

 

 

 

 

 

 

 

 

 

 

 

 

 

SBA:

 

 

 

 

 

 

 

 

 

 

 

SBA, unguaranteed portion held for investment

 

4,127

 

 

164

 

 

4,291

 

SBA, guaranteed portion

 

2,794

 

 

 

1,571

 

4,365

 

 

 

 

 

 

 

 

 

 

 

 

 

Other

 

993

 

 

 

 

993

 

 

 

 

 

 

 

 

 

 

 

 

 

Total

 

$

125,178

 

$

1,045

 

$

18,296

 

$

1,916

 

$

146,435

 

 

14



Table of Contents

 

 

 

December 31, 2011

 

 

 

Grade

 

 

 

Pass

 

Special
Mention

 

Substandard

 

Doubtful

 

Total

 

 

 

 

 

 

 

 

 

 

 

 

 

Construction and land:

 

 

 

 

 

 

 

 

 

 

 

Land

 

$

7,668

 

$

 

$

1,396

 

$

 

$

9,064

 

 

 

 

 

 

 

 

 

 

 

 

 

One to four residential:

 

 

 

 

 

 

 

 

 

 

 

First liens

 

34,049

 

 

3,749

 

 

37,798

 

Junior liens

 

4,788

 

163

 

881

 

 

5,832

 

 

 

 

 

 

 

 

 

 

 

 

 

Commercial real estate:

 

 

 

 

 

 

 

 

 

 

 

Owner occupied

 

25,138

 

 

5,436

 

 

30,574

 

Non-owner occupied

 

36,865

 

 

2,385

 

 

39,250

 

 

 

 

 

 

 

 

 

 

 

 

 

Commercial and industrial:

 

 

 

 

 

 

 

 

 

 

 

Secured

 

10,702

 

 

1,337

 

 

12,039

 

Unsecured

 

10,192

 

 

50

 

349

 

10,591

 

 

 

 

 

 

 

 

 

 

 

 

 

Consumer

 

189

 

 

34

 

 

223

 

 

 

 

 

 

 

 

 

 

 

 

 

SBA:

 

 

 

 

 

 

 

 

 

 

 

SBA, unguaranteed portion held for investment

 

3,917

 

 

171

 

 

4,088

 

SBA, guaranteed portion

 

2,337

 

 

85

 

1,164

 

3,586

 

 

 

 

 

 

 

 

 

 

 

 

 

Other

 

880

 

 

 

 

880

 

 

 

 

 

 

 

 

 

 

 

 

 

Total

 

$

136,725

 

$

163

 

$

15,524

 

$

1,513

 

$

153,925

 

 

The Corporation’s policies, consistent with regulatory guidelines, provide for the classification of loans and other assets that are considered to be of lesser quality as substandard, doubtful, or loss assets. An asset is considered substandard if it is inadequately protected by the current net worth and paying capacity of the obligor or of the collateral pledged, if any. Substandard assets include those assets characterized by the distinct possibility that the Bank will sustain some loss if the deficiencies are not corrected. Assets classified as doubtful have all of the weaknesses inherent in those classified substandard with the added characteristic that the weaknesses make collection or liquidation in full highly questionable or improbable, based on currently existing facts, conditions and values. Assets (or portions of assets) classified as loss are those considered uncollectible and of such little value that their continuance as assets is not warranted. Assets that do not expose the Bank to risk sufficient to warrant classification in one of the aforementioned categories, but which possess potential weaknesses that deserve close attention, are required to be designated as special mention.

 

When assets are classified as substandard or doubtful, the Corporation allocates a portion of the related general loss allowances to such assets as the Corporation deems prudent. Determinations as to the classification of assets and the amount of loss allowances are subject to review by regulatory agencies, who can require that we establish additional loss allowances. The Bank regularly reviews its asset portfolio to determine whether any assets require classification in accordance with applicable regulations.

 

15



Table of Contents

 

The following tables set forth an aging analysis of past due loans by loan class at March 31, 2012 and December 31, 2011:

 

 

 

March 31, 2012

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Recorded

 

 

 

 

 

 

 

90 Days

 

 

 

 

 

 

 

Investment

 

 

 

30-59 Days

 

60-89 Days

 

or More

 

Total

 

 

 

Total

 

90 Days or more

 

 

 

Past Due

 

Past Due

 

Past Due

 

Past Due

 

Current

 

Loans

 

and Accruing

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Construction and land:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Land

 

$

 

$

 

$

2,817

 

$

2,817

 

$

7,680

 

$

10,497

 

$

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

One to four residential:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

First liens

 

492

 

115

 

54

 

661

 

34,342

 

35,003

 

 

Junior liens

 

 

 

 

 

5,329

 

5,329

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Commercial real estate:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Owner occupied

 

 

 

 

 

25,810

 

25,810

 

 

Non-owner occupied

 

 

 

851

 

851

 

36,734

 

37,585

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Commercial and industrial:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Secured

 

 

 

 

 

11,376

 

11,376

 

 

Unsecured

 

 

345

 

 

345

 

10,648

 

10,993

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Consumer

 

 

 

 

 

193

 

193

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

SBA:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

SBA, unguaranteed portion held for investment

 

266

 

 

 

266

 

4,025

 

4,291

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

SBA, guaranteed portion

 

 

 

1,571

 

1,571

 

2,794

 

4,365

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Other

 

 

 

 

 

993

 

993

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total

 

$

758

 

$

460

 

$

5,293

 

$

6,511

 

$

139,924

 

$

146,435

 

$

 

 

16



Table of Contents

 

 

 

December 31, 2011

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Recorded

 

 

 

 

 

 

 

90 Days

 

 

 

 

 

 

 

Investment

 

 

 

30-59 Days

 

60-89 Days

 

or More

 

Total

 

 

 

Total

 

90 Days or more

 

 

 

Past Due

 

Past Due

 

Past Due

 

Past Due

 

Current

 

Loans

 

and Accruing

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Construction and land:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Land

 

$

2,498

 

$

 

$

196

 

$

2,694

 

$

6,370

 

$

9,064

 

$

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

One to four residential:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

First liens

 

415

 

192

 

 

607

 

37,191

 

37,798

 

 

Junior liens

 

 

163

 

 

163

 

5,669

 

5,832

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Commercial real estate:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Owner occupied

 

 

 

 

 

31,918

 

31,918

 

 

Non-owner occupied

 

 

 

851

 

851

 

37,055

 

37,906

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Commercial and industrial:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Secured

 

69

 

 

 

69

 

11,969

 

12,038

 

 

Unsecured

 

 

 

 

 

10,592

 

10,592

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Consumer

 

 

 

 

 

223

 

223

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

SBA:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

SBA, unguaranteed portion held for investment

 

15

 

 

 

15

 

4,073

 

4,088

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

SBA, guaranteed portion

 

 

 

1,249

 

1,249

 

2,337

 

3,586

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Other

 

 

 

 

 

880

 

880

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total

 

$

2,997

 

$

355

 

$

2,296

 

$

5,648

 

$

148,277

 

$

153,925

 

$

 

 

17



Table of Contents

 

Loans by portfolio segment, and the related allowance for loan loss for each segment, are presented below as of March 31, 2012 and December 31, 2011. Loans and the allowance for loan losses are further segregated by impairment methodology.

 

 

 

March 31, 2012

 

 

 

Loan Balance

 

Allowance for Loan & Lease Losses:

 

 

 

Individually
evaluated for
impairment

 

Collectively
evaluated for
impairment

 

Balance

 

Individually
evaluated for
impairment

 

Collectively
evaluated for
impairment

 

Balance

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Construction and Land

 

$

4,017

 

$

6,480

 

$

10,497

 

$

14

 

$

144

 

$

158

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

One to Four Residential:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

First lien

 

3,822

 

31,181

 

35,003

 

400

 

521

 

921

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Junior lien

 

1,095

 

4,234

 

5,329

 

93

 

359

 

452

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Commercial real estate

 

7,798

 

55,597

 

63,395

 

320

 

502

 

822

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Commercial and Industrial

 

1,744

 

20,625

 

22,369

 

322

 

1,101

 

1,423

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Consumer

 

 

193

 

193

 

 

2

 

2

 

 

 

 

 

 

 

 

 

 

 

 

 

 </