XNAS:TCBK TriCo Bancshares Quarterly Report 10-Q Filing - 3/31/2012

Effective Date 3/31/2012

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Table of Contents

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

 

 

FORM 10-Q

 

 

 

x Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

for the quarterly period ended: March 31, 2012

 

¨ Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

for the transition period from            to             .

Commission File Number: 000-10661

 

 

TriCo Bancshares

(Exact Name of Registrant as Specified in Its Charter)

 

 

 

CALIFORNIA   94-2792841

(State or Other Jurisdiction

of Incorporation or Organization)

 

(I.R.S. Employer

Identification Number)

63 Constitution Drive

Chico, California 95973

(Address of Principal Executive Offices)(Zip Code)

(530) 898-0300

(Registrant’s Telephone Number, Including Area Code)

 

 

Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    x  Yes    ¨  No

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

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

 

Large accelerated filer   ¨    Accelerated filer   x
Non-accelerated filer   ¨      Smaller reporting company   ¨

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

Indicate the number of shares outstanding for each of the issuer’s classes of common stock, as of the latest practical date:

Common stock, no par value: 15,982,958 shares outstanding as of May 4, 2012

 

 

 


Table of Contents

TriCo Bancshares

FORM 10-Q

TABLE OF CONTENTS

 

     Page  

Forward-Looking Statements

     1   

PART I – FINANCIAL INFORMATION

     2   

Item 1 – Financial Statements

     2   

Financial Summary

     44   

Item  2 – Management’s Discussion and Analysis of Financial Condition and Results of Operations

     45   

Item 3 – Quantitative and Qualitative Disclosures about Market Risk

     61   

Item 4 – Controls and Procedures

     61   

PART II – OTHER INFORMATION

     61   

Item 1 – Legal Proceedings

     61   

Item 1A – Risk Factors

     62   

Item 2 – Unregistered Sales of Equity Securities and Use of Proceeds

     62   

Item 5 – Other Information

     62   

Item 6 – Exhibits

     63   

Signatures

     64   

Exhibits

  


Table of Contents

FORWARD-LOOKING STATEMENTS

This report on Form 10-Q contains forward-looking statements about TriCo Bancshares (the “Company”) that are subject to the protection of the safe harbor provisions contained in the Private Securities Litigation Reform Act of 1995. These forward-looking statements are based on the current knowledge and belief of the Company’s management (“Management”) and include information concerning the Company’s possible or assumed future financial condition and results of operations. When you see any of the words “believes”, “expects”, “anticipates”, “estimates”, or similar expressions, it may mean the Company is making forward-looking statements. A number of factors, some of which are beyond the Company’s ability to predict or control, could cause future results to differ materially from those contemplated. The reader is directed to the Company’s annual report on Form 10-K for the year ended December 31, 2011, and Part II, Item 1A of this report for further discussion of factors which could affect the Company’s business and cause actual results to differ materially from those suggested by any forward-looking statement made in this report. Such Form 10-K and this report should be read to put any forward-looking statements in context and to gain a more complete understanding of the risks and uncertainties involved in the Company’s business. Any forward-looking statement may turn out to be wrong and cannot be guaranteed. The Company does not intend to update any forward-looking statement after the date of this report.

 

1


Table of Contents

PART I – FINANCIAL INFORMATION

Item 1. Financial Statements

TRICO BANCSHARES

CONDENSED CONSOLIDATED BALANCE SHEETS

(In thousands, except share data; unaudited)

 

     At March 31,
2012
    At December 31,
2011
 

Assets:

    

Cash and due from banks

   $ 74,542      $ 73,652   

Cash at Federal Reserve and other banks

     607,218        563,623   
  

 

 

   

 

 

 

Cash and cash equivalents

     681,760        637,275   

Securities available-for-sale

     212,157        229,223   

Restricted equity securities

     10,508        10,610   

Loans held for sale

     5,869        10,219   

Loans

     1,511,085        1,551,032   

Allowance for loan losses

     (45,452     (45,914
  

 

 

   

 

 

 

Total loans, net

     1,465,633        1,505,118   

Foreclosed assets, net

     14,789        16,332   

Premises and equipment, net

     19,814        19,893   

Cash value of life insurance

     50,853        50,403   

Interest receivable

     7,095        7,312   

Goodwill

     15,519        15,519   

Other intangible assets, net

     1,248        1,301   

Mortgage servicing rights

     4,784        4,603   

Indemnification asset

     3,405        4,405   

Other assets

     39,474        43,384   
  

 

 

   

 

 

 

Total assets

   $ 2,532,908      $ 2,555,597   
  

 

 

   

 

 

 

Liabilities and Shareholders’ Equity:

    

Liabilities:

    

Deposits:

    

Noninterest-bearing demand

   $ 564,143      $ 541,276   

Interest-bearing

     1,605,603        1,649,260   
  

 

 

   

 

 

 

Total deposits

     2,169,746        2,190,536   

Interest payable

     1,587        1,674   

Reserve for unfunded commitments

     2,550        2,740   

Other liabilities

     29,675        30,427   

Other borrowings

     69,074        72,541   

Junior subordinated debt

     41,238        41,238   
  

 

 

   

 

 

 

Total liabilities

     2,313,870        2,339,156   
  

 

 

   

 

 

 

Commitments and contingencies (Note 18)

    

Shareholders’ equity:

    

Common stock, no par value: 50,000,000 shares authorized; issued and outstanding:

    

15,978,958 at March 31, 2012

     84,336     

15,978,958 at December 31, 2011

       84,079   

Retained earnings

     131,044        128,551   

Accumulated other comprehensive income, net of tax

     3,658        3,811   
  

 

 

   

 

 

 

Total shareholders’ equity

     219,038        216,441   
  

 

 

   

 

 

 

Total liabilities and shareholders’ equity

   $ 2,532,908      $ 2,555,597   
  

 

 

   

 

 

 

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

 

2


Table of Contents

TRICO BANCSHARES

CONDENSED CONSOLIDATED STATEMENTS OF INCOME

(In thousands, except per share data; unaudited)

 

     Three months ended
March 31,
 
     2012     2011  

Interest and dividend income:

    

Loans, including fees

   $ 24,929      $ 21,722   

Debt securities:

    

Taxable

     1,746        2,374   

Tax exempt

     108        140   

Dividends

     13        7   

Interest bearing cash at

    

Federal Reserve and other banks

     368        191   
  

 

 

   

 

 

 

Total interest and dividend income

     27,164        24,434   
  

 

 

   

 

 

 

Interest expense:

    

Deposits

     1,184        1,827   

Other borrowings

     606        593   

Junior subordinated debt

     338        310   
  

 

 

   

 

 

 

Total interest expense

     2,128        2,730   
  

 

 

   

 

 

 

Net interest income

     25,036        21,704   

Provision for loan losses

     3,996        7,001   
  

 

 

   

 

 

 

Net interest income after provision for loan losses

     21,040        14,703   
  

 

 

   

 

 

 

Noninterest income:

    

Service charges and fees

     5,952        5,782   

Gain on sale of loans

     1,650        725   

Commissions on sale of non-deposit investment products

     819        360   

Increase in cash value of life insurance

     450        450   

Other

     (606     2,033   
  

 

 

   

 

 

 

Total noninterest income

     8,265        9,350   
  

 

 

   

 

 

 

Noninterest expense:

    

Salaries and related benefits

     12,762        10,793   

Other

     10,153        8,878   
  

 

 

   

 

 

 

Total noninterest expense

     22,915        19,671   
  

 

 

   

 

 

 

Income before income taxes

     6,390        4,382   
  

 

 

   

 

 

 

Provision for income taxes

     2,459        1,582   
  

 

 

   

 

 

 

Net income

   $ 3,931      $ 2,800   
  

 

 

   

 

 

 

Earnings per share:

    

Basic

   $ 0.25      $ 0.18   

Diluted

   $ 0.25      $ 0.17   

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

 

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Table of Contents

TRICO BANCSHARES

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(In thousands; unaudited)

 

     Three months ended
March 31,
 
     2012     2011  

Net income

   $ 3,931      $ 2,800   

Other comprehensive income, net of tax:

    

Unrealized holding losses on securities arising during the period

     (153     (224
  

 

 

   

 

 

 

Other comprehensive loss

     (153     (224
  

 

 

   

 

 

 

Comprehensive income

   $ 3,778      $ 2,576   
  

 

 

   

 

 

 

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

TRICO BANCSHARES

CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY

(In thousands, except share and per share data; unaudited)

 

     Shares of
Common
Stock
     Common
Stock
     Retained
Earnings
    Accumulated
Other
Comprehensive
Income
    Total  

Balance at December 31, 2010

     15,860,138       $ 81,554       $ 117,533      $ 1,310      $ 200,397   

Comprehensive income:

            

Net income

           2,800          2,800   

Other comprehensive loss

             (224     (224

Stock option vesting

        265             265   

Dividends paid ($0.09 per share)

           (1,427       (1,427
  

 

 

    

 

 

    

 

 

   

 

 

   

 

 

 

Balance at March 31, 2011

     15,860,138       $ 81,819       $ 118,906      $ 1,086      $ 201,811   
  

 

 

    

 

 

    

 

 

   

 

 

   

 

 

 

Balance at December 31, 2011

     15,978,958       $ 84,079       $ 128,551      $ 3,811      $ 216,441   

Comprehensive income:

            

Net income

           3,931          3,931   

Other comprehensive loss

             (153     (153

Stock option vesting

        257             257   

Dividends paid ($0.09 per share)

           (1,438       (1,438
  

 

 

    

 

 

    

 

 

   

 

 

   

 

 

 

Balance at March 31, 2012

     15,978,958       $ 84,336       $ 131,044      $ 3,658      $ 219,038   
  

 

 

    

 

 

    

 

 

   

 

 

   

 

 

 

See accompanying notes to unaudited condensed consolidated financial statements.

 

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TRICO BANCSHARES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(In thousands; unaudited)

 

     For the three months ended March 31,  
     2012     2011  

Operating activities:

    

Net income

   $ 3,931      $ 2,800   

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

    

Depreciation of premises and equipment, and amortization

     1,765        830   

Amortization of intangible assets

     53        85   

Provision for loan losses

     3,996        7,001   

Amortization of investment securities premium, net

     329        377   

Originations of loans for resale

     (58,041     (32,499

Proceeds from sale of loans originated for resale

     63,491        35,131   

Gain on sale of loans

     (1,650     (725

Change in market value of mortgage servicing rights

     369        60   

Provision for losses on foreclosed assets

     83        449   

Loss (gain) on sale of foreclosed assets

     358        (200

Loss on disposal of fixed assets

     235        9   

Increase in cash value of life insurance

     (450     (450

Stock option vesting expense

     257        265   

Change in reserve for unfunded commitments

     (190     50   

Change in:

    

Interest receivable

     217        190   

Interest payable

     (87     (107

Other assets and liabilities, net

     3,522        (2,951
  

 

 

   

 

 

 

Net cash from operating activities

     18,188        10,315   
  

 

 

   

 

 

 

Investing activities:

    

Proceeds from maturities of securities available-for-sale

     20,060        22,139   

Purchases of securities available-for-sale

     (3,588     (25,456

Net redemption of restricted equity securities

     102        —     

Loan principal (increases) decreases, net

     33,795        24,056   

Proceeds from sale of foreclosed assets

     3,021        2,205   

Improvements of foreclosed assets

     (225     (17

Proceeds from sale of premises and equipment

     —          1   

Purchases of premises and equipment

     (1,173     (88
  

 

 

   

 

 

 

Net cash from investing activities

     51,992        22,840   
  

 

 

   

 

 

 

Financing activities:

    

Net (decrease) increase in deposits

     (20,790     7,739   

Net change in short-term other borrowings

     (3,467     (4,239

Dividends paid

     (1,438     (1,427
  

 

 

   

 

 

 

Net cash from financing activities

     (25,695     2,073   
  

 

 

   

 

 

 

Net change in cash and cash equivalents

     44,485        35,228   
  

 

 

   

 

 

 

Cash and cash equivalents at beginning of period

     637,275        371,066   
  

 

 

   

 

 

 

Cash and cash equivalents at end of period

   $ 681,760      $ 406,294   
  

 

 

   

 

 

 

Supplemental disclosure of noncash activities:

    

Loans transferred to other real estate owned

   $ 1,694      $ 1,523   

Unrealized net loss on securities available for sale

   $ (265   $ (387

Supplemental disclosure of cash flow activity:

    

Cash paid for interest expense

   $ 2,215      $ 2,837   

Cash paid for income taxes

     —        $ 2,620   

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

 

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Table of Contents

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

Note 1 –Summary of Significant Accounting Policies

Principles of Consolidation

The consolidated financial statements include the accounts of the Company, and its wholly-owned subsidiary, Tri Counties Bank (the “Bank”). All significant intercompany accounts and transactions have been eliminated in consolidation.

Use of Estimates in the Preparation of Financial Statements

The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires Management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. On an on-going basis, the Company evaluates its estimates, including those related to the adequacy of the allowance for loan losses, investments, intangible assets, income taxes and contingencies. The Company bases its estimates on historical experience and on various other assumptions that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions. The allowance for loan losses, goodwill and other intangible assets, income taxes, fair value of assets acquired and liabilities assumed in business combinations, and the valuation of mortgage servicing rights are the only accounting estimates that materially affect the Company’s consolidated financial statements.

As described in Note 2, the Bank assumed the banking operations of two failed financial institutions from the FDIC under whole bank purchase agreements. The acquired assets and assumed liabilities were measured at estimated fair value values as required by Financial Accounting Standards Board (FASB) Accounting Standards Codification (ASC) 805, Business Combinations. The Company made significant estimates and exercised significant judgment in accounting for the acquisitions. The Company determined loan fair values based on loan file reviews, loan risk ratings, appraised collateral values, expected cash flows and historical loss factors. Foreclosed assets were primarily valued based on appraised values of the repossessed loan collateral. An identifiable intangible was also recorded representing the fair value of the core deposit customer base based on an evaluation of the cost of such deposits relative to alternative funding sources. The fair value of time deposits and borrowings were determined based on the present value of estimated future cash flows using current rates as of the acquisition date.

Significant Group Concentration of Credit Risk

The Company grants agribusiness, commercial, consumer, and residential loans to customers located throughout the northern San Joaquin Valley, the Sacramento Valley and northern mountain regions of California. The Company has a diversified loan portfolio within the business segments located in this geographical area. The Company currently classifies all its operation into one business segment that it denotes as community banking.

Cash and Cash Equivalents

For purposes of the consolidated statements of cash flows, cash and cash equivalents include cash on hand, amounts due from banks and federal funds sold.

Investment Securities

The Company classifies its debt and marketable equity securities into one of three categories: trading, available-for-sale or held-to-maturity. Trading securities are bought and held principally for the purpose of selling in the near term. Held-to-maturity securities are those securities which the Company has the ability and intent to hold until maturity. All other securities not included in trading or held-to-maturity are classified as available-for-sale. During the three months ended March 31, 2012 and the year ended December 31, 2011, the Company did not have any securities classified as either held-to-maturity or trading. Available-for-sale securities are recorded at fair value. Unrealized gains and losses, net of the related tax effect, on available-for-sale securities are reported as a separate component of other accumulated comprehensive income (loss) in shareholders’ equity until realized. Premiums and discounts are amortized or accreted over the life of the related investment security as an adjustment to yield using the effective interest method. Dividend and interest income are recognized when earned. Realized gains and losses are derived from the amortized cost of the security sold.

The Company assesses other-than-temporary impairment (“OTTI”) based on whether it intends to sell a security or if it is likely that the Company would be required to sell the security before recovery of the amortized cost basis of the investment, which may be maturity. For debt securities, if we intend to sell the security or it is likely that we will be required to sell the security before recovering its cost basis, the entire impairment loss would be recognized in earnings as an OTTI. If we do not intend to sell the security and it is not likely that we will be required to sell the security but we do not expect to recover the entire amortized cost basis of the security, only the portion of the impairment loss representing credit losses would be recognized in earnings. The credit loss on a security is measured as the difference between the amortized cost basis and the present value of the cash flows expected to be collected. Projected cash flows are discounted by the original or current effective interest rate depending on the nature of the security being measured for potential OTTI. The remaining impairment related to all other factors, the difference between the present value of the cash flows expected to be collected and fair value, is recognized as a charge to other comprehensive income (“OCI”). Impairment losses related to all other factors are presented as separate categories within OCI. The accretion of the amount recorded in OCI increases the carrying value of the investment and does not affect earnings. If there is an indication of additional credit losses the security is re-evaluated according to the procedures described above. No OTTI losses were recognized during the three months ended March 31, 2012 and the year ended December 31, 2011.

 

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Restricted Equity Securities

Restricted equity securities represent the Company’s investment in the stock of the Federal Home Loan Bank of San Francisco (“FHLB”) and are carried at par value, which reasonably approximates its fair value. While technically these are considered equity securities, there is no market for the FHLB stock. Therefore, the shares are considered as restricted investment securities. Management periodically evaluates FHLB stock for other-than-temporary impairment. Management’s determination of whether these investments are impaired is based on its assessment of the ultimate recoverability of cost rather than by recognizing temporary declines in value. The determination of whether a decline affects the ultimate recoverability of cost is influenced by criteria such as (1) the significance of any decline in net assets of the FHLB as compared to the capital stock amount for the FHLB and the length of time this situation has persisted, (2) commitments by the FHLB to make payments required by law or regulation and the level of such payments in relation to the operating performance of the FHLB, (3) the impact of legislative and regulatory changes on institutions and, accordingly, the customer base of the FHLB, and (4) the liquidity position of the FHLB.

As a member of the FHLB system, the Company is required to maintain a minimum level of investment in FHLB stock based on specific percentages of its outstanding mortgages, total assets, or FHLB advances. The Company may request redemption at par value of any stock in excess of the minimum required investment. Stock redemptions are at the discretion of the FHLB.

Loans Held for Sale

Loans originated and intended for sale in the secondary market are carried at the lower of aggregate cost or fair value, as determined by aggregate outstanding commitments from investors of current investor yield requirements. Net unrealized losses are recognized through a valuation allowance by charges to noninterest income.

Mortgage loans held for sale are generally sold with the mortgage servicing rights retained by the Company. The carrying value of mortgage loans sold is reduced by the cost allocated to the associated mortgage servicing rights. Gains or losses on the sale of loans that are 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.

Loans and Allowance for Loan Losses

Loans originated by the Company, i.e., not purchased or acquired in a business combination, are referred to as originated loans. Originated loans are reported at the principal amount outstanding, net of deferred loan fees and costs. Loan origination and commitment fees and certain direct loan origination costs are deferred, and the net amount is amortized as an adjustment of the related loan’s yield over the actual life of the loan. Originated loans on which the accrual of interest has been discontinued are designated as nonaccrual loans.

Originated loans are placed in nonaccrual status when reasonable doubt exists as to the full, timely collection of interest or principal, or a loan becomes contractually past due by 90 days or more with respect to interest or principal and is not well secured and in the process of collection. When an originated loan is placed on nonaccrual status, all interest previously accrued but not collected is reversed. Income on such loans is then recognized only to the extent that cash is received and where the future collection of principal is probable. Interest accruals are resumed on such loans only when they are brought fully current with respect to interest and principal and when, in the judgment of Management, the loan is estimated to be fully collectible as to both principal and interest.

An allowance for loan losses for originated loans is established through a provision for loan losses charged to expense. Originated loans and deposit related overdrafts are charged against the allowance for loan losses when Management believes that the collectability of the principal is unlikely or, with respect to consumer installment loans, according to an established delinquency schedule. The allowance is an amount that Management believes will be adequate to absorb probable losses inherent in existing loans and leases, based on evaluations of the collectability, impairment and prior loss experience of loans and leases. The evaluations take into consideration such factors as changes in the nature and size of the portfolio, overall portfolio quality, loan concentrations, specific problem loans, and current economic conditions that may affect the borrower’s ability to pay. The Company defines an originated loan as impaired when it is probable the Company will be unable to collect all amounts due according to the contractual terms of the loan agreement. Impaired originated loans are measured based on the present value of expected future cash flows discounted at the loan’s original effective interest rate. As a practical expedient, impairment may be measured based on the loan’s observable market price or the fair value of the collateral if the loan is collateral dependent. When the measure of the impaired loan is less than the recorded investment in the loan, the impairment is recorded through a valuation allowance.

In situations related to originated loans where, for economic or legal reasons related to a borrower’s financial difficulties, the Company grants a concession for other than an insignificant period of time to the borrower that the Company would not otherwise consider, the related loan is classified as a troubled debt restructuring (TDR). The Company strives to identify borrowers in financial difficulty early and work with them to modify to more affordable terms before their loan reaches nonaccrual status. These modified terms may include rate reductions, principal forgiveness, payment forbearance and other actions intended to minimize the economic loss and to avoid foreclosure or repossession of the collateral. In cases where the Company grants the borrower new terms that result in the loan being classified as a TDR, the Company measures any impairment on the restructuring as noted above for impaired loans. TDR loans are classified as impaired until they are fully paid off or charged off. Loans that are in nonaccrual status at the time they become TDR loans, remain in nonaccrual status until the borrower demonstrates a sustained period of performance which the Company generally believes to be six consecutive months of payments, or equivalent. Otherwise, TDR loans are subject to the same nonaccrual and charge-off policies as noted above with respect to their restructured principal balance.

 

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Credit risk is inherent in the business of lending. As a result, the Company maintains an allowance for loan losses to absorb losses inherent in the Company’s originated loan portfolio. This is maintained through periodic charges to earnings. These charges are included in the Consolidated Statements of Income as provision for loan losses. All specifically identifiable and quantifiable losses are immediately charged off against the allowance. However, for a variety of reasons, not all losses are immediately known to the Company and, of those that are known, the full extent of the loss may not be quantifiable at that point in time. The balance of the Company’s allowance for originated loan losses is meant to be an estimate of these unknown but probable losses inherent in the portfolio.

The Company formally assesses the adequacy of the allowance for originated loan losses on a quarterly basis. Determination of the adequacy is based on ongoing assessments of the probable risk in the outstanding originated loan portfolio, and to a lesser extent the Company’s originated loan commitments. These assessments include the periodic re-grading of credits based on changes in their individual credit characteristics including delinquency, seasoning, recent financial performance of the borrower, economic factors, changes in the interest rate environment, growth of the portfolio as a whole or by segment, and other factors as warranted. Loans are initially graded when originated. They are re-graded as they are renewed, when there is a new loan to the same borrower, when identified facts demonstrate heightened risk of nonpayment, or if they become delinquent. Re-grading of larger problem loans occurs at least quarterly. Confirmation of the quality of the grading process is obtained by independent credit reviews conducted by consultants specifically hired for this purpose and by various bank regulatory agencies.

The Company’s method for assessing the appropriateness of the allowance for originated loan losses includes specific allowances for impaired originated loans and leases, formula allowance factors for pools of credits, and allowances for changing environmental factors (e.g., interest rates, growth, economic conditions, etc.). Allowance factors for loan pools were based on historical loss experience by product type and prior risk rating. For the period ended March 31, 2012, management changed some of the assumptions utilized in the Allowance for Loan Losses estimate calculation. These changes were intended to more accurately reflect the current risk in the loan portfolio and to better estimate the losses inherent but not yet quantifiable. These changes included the conversion to a historical loss migration analysis intended to better determine the appropriate formula reserve ratio by loan category and risk rating, the addition of an environmental factor related to the delinquency rate of loans not classified as impaired by loan category, the elimination of an unspecified reserve allocation previously intended to account for imprecision inherent in the overall calculation, and the reclassification of risk rating of certain consumer loans based on current credit score in an attempt to better identify the risk in the portfolio. The financial effect of these changes resulted in a net reduction in the calculated Allowance for Loan Losses of $1,388,000. Allowances for impaired loans are based on analysis of individual credits. Allowances for changing environmental factors are Management’s best estimate of the probable impact these changes have had on the originated loan portfolio as a whole. The allowance for originated loans is included in the allowance for loan losses.

Loans purchased or acquired in a business combination are referred to as acquired loans. Acquired loans are valued as of acquisition date in accordance with Financial Accounting Standards Board Accounting Standards Codification (“FASB ASC”) Topic 805, Business Combinations. Loans acquired with evidence of credit deterioration since origination for which it is probable that all contractually required payments will not be collected are referred to as purchased credit impaired (PCI) loans. PCI loans are accounted for under FASB ASC Topic 310-30, Loans and Debt Securities Acquired with Deteriorated Credit Quality. Under FASB ASC Topic 805 and FASB ASC Topic 310-30, PCI loans are recorded at fair value at acquisition date, factoring in credit losses expected to be incurred over the life of the loan. Accordingly, an allowance for loan losses is not carried over or recorded as of the acquisition date. Fair value is defined as the present value of the future estimated principal and interest payments of the loan, with the discount rate used in the present value calculation representing the estimated effective yield of the loan. Default rates, loss severity, and prepayment speed assumptions are periodically reassessed and our estimate of future payments is adjusted accordingly. The difference between contractual future payments and estimated future payments is referred to as the nonaccretable difference. The difference between estimated future payments and the present value of the estimated future payments is referred to as the accretable yield. The accretable yield represents the amount that is expected to be recorded as interest income over the remaining life of the loan. If after acquisition, the Company determines that the estimated future cash flows of a PCI loan are expected to be more than the originally estimated, an increase in the discount rate (effective yield) would be made such that the newly increased accretable yield would be recognized, on a level yield basis, over the remaining estimated life of the loan. If, after acquisition, the Company determines that the estimated future cash flows of a PCI loan are expected to be less than the previously estimated, the discount rate would first be reduced until the present value of the reduced cash flow estimate equals the previous present value however, the discount rate may not be lowered below its original level at acquisition. If the discount rate has been lowered to its original level and the present value has not been sufficiently lowered, an allowance for loan loss would be established through a provision for loan losses charged to expense to decrease the present value to the required level. If the estimated cash flows improve after an allowance has been established for a loan, the allowance may be partially or fully reversed depending on the improvement in the estimated cash flows. Only after the allowance has been fully reversed may the discount rate be increased. PCI loans are put on nonaccrual status when cash flows cannot be reasonably estimated. PCI loans on nonaccrual status are accounted for using the cost recovery method or cash basis method of income recognition. PCI loans are charged off when evidence suggests cash flows are not recoverable. Foreclosed assets from PCI loans are recorded in foreclosed assets at fair value with the fair value at time of foreclosure representing cash flow from the loan. ASC 310-30 allows PCI loans with similar risk characteristics and acquisition time frame to be “pooled” and have their cash flows aggregated as if they were one loan. The Company elected to use the “pooled” method of ASC 310-30 for PCI – other loans in both the Citizens and Granite acquisitions.

Acquired loans that are not PCI loans are referred to as purchased not credit impaired (PNCI) loans. PNCI loans are accounted for under FASB ASC Topic 310-20, Receivables – Nonrefundable Fees and Other Costs, in which interest income is accrued on a level-yield basis for performing loans. For income recognition purposes, this method assumes that all contractual cash flows will be collected, and no

 

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allowance for loan losses is established at the time of acquistion. Post-acquisition date, an allowance for loan losses may need to be established for acquired loans through a provision charged to earnings for credit losses incurred subsequent to acquisition. Under ASC 310-20, the loss would be measured based on the probable shortfall in relation to the contractual note requirements, consistent with our allowance for loan loss policy for similar loans.

When referring to PNCI and PCI loans we will use the terms “nonaccretable difference”, “accretable yield”, or “purchase discount”. Nonaccretable difference is the difference between undiscounted contractual cash flows due and undiscounted cash flows we expect to collect, or put another way, it is the undiscounted contractual cash flows we do not expect to collect. Accretable yield is the difference between undiscounted cash flows we expect to collect and the value at which we have recorded the loan on our financial statements. On the date of acquisition, all purchased loans are recorded on our consolidated financial statements at estimated fair value. Purchase discount is the difference between the estimated fair value of loans on the date of acquisition and the principal amount owed by the borrower, net of charge offs, on the date of acquisition. We may also refer to “discounts to principal balance of loans owed, net of charge-offs”. Discounts to principal balance of loans owed, net of charge-offs is the difference between principal balance of loans owed, net of charge-offs, and loans as recorded on our financial statements. Discounts to principal balance of loans owed, net of charge-offs arise from purchase discounts, and equal the purchase discount on the acquisition date.

Loans are also categorized as “covered” or “noncovered”. Covered loans refer to loans covered by a Federal Deposit Insurance Corporation (“FDIC”) loss sharing agreement. Noncovered loans refer to loans not covered by a FDIC loss sharing agreement.

Foreclosed Assets

Foreclosed assets include assets acquired through, or in lieu of, loan foreclosure. Foreclosed assets are held for sale and are initially recorded at fair value less estimated costs to sell at the date of foreclosure, establishing a new cost basis. Subsequent to foreclosure, management periodically performs valuations and the assets are carried at the lower of carrying amount or fair value less cost to sell. Revenue and expenses from operations and changes in the valuation allowance are included in other noninterest expense. Foreclosed assets that are not subject to a FDIC loss-share agreement are referred to as noncovered foreclosed assets.

Foreclosed assets acquired through FDIC-assisted acquisitions that are subject to a FDIC loss-share agreement, and all assets acquired via foreclosure of covered loans are referred to as covered foreclosed assets. Covered foreclosed assets are reported exclusive of expected reimbursement cash flows from the FDIC. Foreclosed covered loan collateral is transferred into covered foreclosed assets at the loan’s carrying value, inclusive of the acquisition date fair value discount.

Covered foreclosed assets are initially recorded at estimated fair value less estimated costs to sell on the acquisition date based on similar market comparable valuations less estimated selling costs. Any subsequent valuation adjustments due to declines in fair value will be charged to noninterest expense, and will be mostly offset by noninterest income representing the corresponding increase to the FDIC indemnification asset for the offsetting loss reimbursement amount. Any recoveries of previous valuation adjustments will be credited to noninterest expense with a corresponding charge to noninterest income for the portion of the recovery that is due to the FDIC.

Premises and Equipment

Land is carried at cost. Buildings and equipment, including those acquired under capital lease, are stated at cost less accumulated depreciation and amortization. Depreciation and amortization expenses are computed using the straight-line method over the estimated useful lives of the related assets or lease terms. Asset lives range from 3-10 years for furniture and equipment and 15-40 years for land improvements and buildings.

Goodwill and Other Intangible Assets

Goodwill represents the excess of costs over fair value of net assets of businesses acquired. Goodwill and other intangible assets acquired in a purchase business combination and determined to have an indefinite useful life are not amortized, but instead tested for impairment at least annually. Intangible assets with estimable useful lives are amortized over their respective estimated useful lives to their estimated residual values, and reviewed for impairment.

The Company has identifiable intangible assets consisting of core deposit intangibles (CDI) and minimum pension liability. CDI are amortized using an accelerated method over a period of ten years. Intangible assets related to minimum pension liability are adjusted annually based upon actuarial estimates.

Impairment of Long-Lived Assets and Goodwill

Long-lived assets, such as premises and equipment, and purchased intangibles subject to amortization, are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. Recoverability of assets to be held and used is measured by a comparison of the carrying amount of an asset to estimated undiscounted future cash flows expected to be generated by the asset. If the carrying amount of an asset exceeds its estimated future cash flows, an impairment charge is recognized by the amount by which the carrying amount of the asset exceeds the fair value of the asset. Assets to be disposed of would be separately presented in the balance sheet and reported at the lower of the carrying amount or fair value less costs to sell, and are no longer depreciated. The assets and liabilities of a disposed group classified as held for sale would be presented separately in the appropriate asset and liability sections of the consolidated balance sheet.

 

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As of December 31 of each year, goodwill is tested for impairment, and is tested for impairment more frequently if events and circumstances indicate that the asset might be impaired. An impairment loss is recognized to the extent that the carrying amount exceeds the asset’s fair value. This determination is made at the reporting unit level and consists of two steps. First, the Company determines the fair value of a reporting unit and compares it to its carrying amount. Second, if the carrying amount of a reporting unit exceeds its fair value, an impairment loss is recognized for any excess of the carrying amount of the reporting unit’s goodwill over the implied fair value of that goodwill. The implied fair value of goodwill is determined by allocating the fair value of the reporting unit in a manner similar to a purchase price allocation. The residual fair value after this allocation is the implied fair value of the reporting unit goodwill. Currently, and historically, the Company is comprised of only one reporting unit that operates within the business segment it has identified as “community banking”.

Mortgage Servicing Rights

Mortgage servicing rights (MSR) represent the Company’s right to a future stream of cash flows based upon the contractual servicing fee associated with servicing mortgage loans. Our MSR arise from residential mortgage loans that we originate and sell, but retain the right to service the loans. For sales of residential mortgage loans, a portion of the cost of originating the loan is allocated to the servicing right based on the fair values of the loan and the servicing right. The net gain from the retention of the servicing right is included in gain on sale of loans in noninterest income when the loan is sold. Fair value is based on market prices for comparable mortgage servicing contracts, when available, or alternatively, is based on a valuation model that calculates the present value of estimated future net servicing income. The valuation model incorporates assumptions that market participants would use in estimating future net servicing income, such as the cost to service, the discount rate, the custodial earnings rate, an inflation rate, ancillary income, prepayment speeds and default rates and losses. MSR are included in other assets. Servicing fees are recorded in noninterest income when earned.

The determination of fair value of our MSR requires management judgment because they are not actively traded. The determination of fair value for MSR requires valuation processes which combine the use of discounted cash flow models and extensive analysis of current market data to arrive at an estimate of fair value. The cash flow and prepayment assumptions used in our discounted cash flow model are based on empirical data drawn from the historical performance of our MSR, which we believe are consistent with assumptions used by market participants valuing similar MSR, and from data obtained on the performance of similar MSR. The key assumptions used in the valuation of MSR include mortgage prepayment speeds and the discount rate. These variables can, and generally will, change from quarter to quarter as market conditions and projected interest rates change. The key risks inherent with MSR are prepayment speed and changes in interest rates. The Company uses an independent third party to determine fair value of MSR.

Indemnification Asset

The Company has elected to account for amounts receivable under loss-share agreements with the FDIC as indemnification assets in accordance with FASB ASC Topic 805, Business Combinations. FDIC indemnification assets are initially recorded at fair value, based on the discounted value of expected future cash flows under the loss-share agreements. The difference between the fair value and the undiscounted cash flows the Company expects to collect from the FDIC will be accreted into noninterest income over the life of the FDIC indemnification asset. FDIC indemnification assets are reviewed quarterly and adjusted for any changes in expected cash flows based on recent performance and expectations for future performance of the covered portfolios. These adjustments are measured on the same basis as the related covered loans and covered other real estate owned. Any increases in cash flow of the covered assets over those expected will reduce the FDIC indemnification asset and any decreases in cash flow of the covered assets under those expected will increase the FDIC indemnification asset. Increases and decreases to the FDIC indemnification asset are recorded as adjustments to noninterest income.

Reserve for Unfunded Commitments

The reserve for unfunded commitments is established through a provision for losses – unfunded commitments charged to noninterest expense. The reserve for unfunded commitments is an amount that Management believes will be adequate to absorb probable losses inherent in existing commitments, including unused portions of revolving lines of credits and other loans, standby letters of credits, and unused deposit account overdraft privilege. The reserve for unfunded commitments is based on evaluations of the collectability, and prior loss experience of unfunded commitments. The evaluations take into consideration such factors as changes in the nature and size of the loan portfolio, overall loan portfolio quality, loan concentrations, specific problem loans and related unfunded commitments, and current economic conditions that may affect the borrower’s or depositor’s ability to pay.

Income Taxes

The Company’s accounting for income taxes is based on an asset and liability approach. The Company recognizes the amount of taxes payable or refundable for the current year, and deferred tax assets and liabilities for the future tax consequences that have been recognized in its financial statements or tax returns. The measurement of tax assets and liabilities is based on the provisions of enacted tax laws.

Off-Balance Sheet Credit Related Financial Instruments

In the ordinary course of business, the Company has entered into commitments to extend credit, including commitments under credit card arrangements, commercial letters of credit, and standby letters of credit. Such financial instruments are recorded when they are funded.

Geographical Descriptions

For the purpose of describing the geographical location of the Company’s loans, the Company has defined northern California as that area of California north of, and including, Stockton; central California as that area of the state south of Stockton, to and including, Bakersfield; and southern California as that area of the state south of Bakersfield.

 

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Reclassifications

Certain amounts reported in previous consolidated financial statements have been reclassified to conform to the presentation in this report. These reclassifications did not affect previously reported net income or total shareholders’ equity.

Recent Accounting Pronouncements

FASB issued ASU No. 2011-02, Receivables (Topic 310): A Creditor’s Determination of Whether a Restructuring Is a Troubled Debt Restructuring. This Update provides additional guidance relating to when creditors should classify loan modifications as troubled debt restructurings. This Update also ends the deferral issued in January 2010 of the disclosures about troubled debt restructurings required by ASU No. 2010-20. The provisions of ASU No. 2011-02 and the disclosure requirements of ASU No. 2010-20 are effective for the Company’s interim reporting period ending September 30, 2011. The guidance applies retrospectively to restructurings occurring on or after January 1, 2011. The adoption of this Update did not have a material impact on the Company’s consolidated financial statements.

FASB issued ASU No. 2011-03, Transfers and Servicing (Topic 860): Reconsideration of Effective Control for Repurchase Agreements. This Update is intended to improve financial reporting of repurchase agreements and other agreements that both entitle and obligate a transferor to repurchase or redeem financial assets before their maturity. ASU 2011-03 removes from the assessment of effective control (i) the criterion requiring the transferor to have the ability to repurchase or redeem the financial assets on substantially the agreed terms, even in the event of default by the transferee, and (ii) the collateral maintenance guidance related to that criterion. ASU 2011-03 will be effective for the Company on January 1, 2012 and is not expected to have a significant impact on the Company’s consolidated financial statements.

FASB issued 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. ASU 2011-04 amends Topic 820, Fair Value Measurements and Disclosures, to converge the fair value measurement guidance in U.S. generally accepted accounting principles and International Financial Reporting Standards. ASU 2011-04 clarifies the application of existing fair value measurement requirements, changes certain principles in Topic 820 and requires additional fair value disclosures. ASU 2011-04 is effective for annual periods beginning after December 15, 2011, and did not have a significant impact on the Company’s consolidated financial statements.

FASB issued ASU No. 2011-05, Comprehensive Income (Topic 220)—Presentation of Comprehensive Income. ASU 2011-05 amends Topic 220, Comprehensive Income, to require that all nonowner changes in stockholders’ equity be presented in either a single continuous statement of comprehensive income or in two separate but consecutive statements. Additionally, ASU 2011-05 requires entities to present, on the face of the financial statements, reclassification adjustments for items that are reclassified from other comprehensive income to net income in the statement or statements where the components of net income and the components of other comprehensive income are presented. The option to present components of other comprehensive income as part of the statement of changes in stockholders’ equity was eliminated. ASU 2011-05 is effective for annual periods beginning after December 15, 2011, and did not have a significant impact on the Company’s consolidated financial statements.

FASB issued ASU 2011-08, Intangibles—Goodwill and Other (Topic 350)—Testing Goodwill for Impairment. ASU 2011-08 amends Topic 350, Intangibles – Goodwill and Other, to give entities the option to first assess qualitative factors to determine whether the existence of events or circumstances leads to a determination that it is more likely than not that the fair value of a reporting unit is less than its carrying amount. If, after assessing the totality of events or circumstances, an entity determines it is not more likely than not that the fair value of a reporting unit is less than its carrying amount, then performing the two-step impairment test is unnecessary. However, if an entity concludes otherwise, then it is required to perform the first step of the two-step impairment test by calculating the fair value of the reporting unit and comparing the fair value with the carrying amount of the reporting unit. ASU 2011-08 is effective for annual and interim impairment tests beginning after December 15, 2011, and did not have a significant impact on the Company’s consolidated financial statements.

FASB issued ASU 2011-11, Balance Sheet—Disclosures about Offsetting Assets and Liabilities (Topic 210). ASU 2011-11 requires an entity to disclose information about offsetting and related arrangements to enable users of its financial statements to understand the effect of those arrangements on its financial position. An entity is required to apply the amendments for annual reporting periods beginning on or after January 1, 2013, and interim periods within those annual periods. An entity should provide the disclosures required by those amendments retrospectively for all comparative periods presented. The Update is not expected to have a significant impact on the Company’s consolidated financial statements.

FASB issued ASU 2011-12, Comprehensive Income—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. ASU 2011-12 updates and supersedes certain pending paragraphs relating to the presentation on the face of the financial statements the effects of reclassifications out of accumulated other comprehensive income on the components of net income and other comprehensive income. This Update is effective concurrent with ASU 2011-05, and did not have a significant impact on the Company’s consolidated financial statements.

 

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Note 2—Business Combinations

On September 23, 2011, the California Department of Financial Institutions closed Citizens Bank of Northern California (“Citizens”), Nevada City, California and appointed the FDIC as receiver. That same date, the Bank assumed the banking operations of Citizens from the FDIC under a whole bank purchase and assumption agreement without loss sharing. With this agreement, the Bank added one administration building and seven traditional bank branches, including two in Grass Valley, and one in each of Nevada City, Penn Valley, Lake of the Pines, Truckee, and Auburn, California. This acquisition is consistent with the Bank’s community banking expansion strategy and provides further opportunity to fill in the Bank’s market presence in the Northern California market.

The assets acquired and liabilities assumed for the Citizens acquisition have been accounted for under the acquisition method of accounting (formerly the purchase method). The assets and liabilities, both tangible and intangible, were recorded at their estimated fair values as of the acquisition date. The fair values of the assets acquired and liabilities assumed were determined based on the requirements of the Fair Value Measurements and Disclosures topic of the FASB ASC. The tax treatment of FDIC assisted acquisitions is complex and subject to interpretations that may result in future adjustments of deferred taxes as of the acquisition date. The terms of the agreement provide for the FDIC to indemnify the Bank against claims with respect to liabilities of Citizens not assumed by the Bank and certain other types of claims identified in the agreement. The application of the acquisition method of accounting resulted in the recognition of a bargain purchase gain of $7,575,000 in the Citizens acquisition.

A summary of the net assets received in the Citizens acquisition, at their estimated fair values, is presented below:

 

     Citizens  
(In thousands)    September 23, 2011  

Asset acquired:

  

Cash and cash equivalents

   $ 80,707   

Securities available-for-sale

     9,353   

Restricted equity securities

     1,926   

Loans

     167,484   

Core deposit intangible

     898   

Foreclosed assets

     8,412   

Other assets

     1,524   
  

 

 

 

Total assets acquired

   $ 270,304   
  

 

 

 

Liabilities assumed:

  

Deposits

   $ 239,899   

Other borrowings

     22,038   

Other liabilities

     792   
  

 

 

 

Total liabilities assumed

   $ 262,729   
  

 

 

 

Net assets acquired/bargain purchase gain

   $ 7,575   
  

 

 

 

In FDIC-assisted transactions, only certain assets and liabilities are transferred to the acquirer and, depending on the nature and amount of the acquirer’s bid, the FDIC may be required to make a cash payment to the acquirer. In the Citizens acquisition, net assets with a cost basis of $26,682,000 were transferred to the Bank. In the Citizens acquisition, the Company recorded a bargain purchase gain of $7,575,000 representing the excess of the estimated fair value of the assets acquired over the estimated fair value of the liabilities assumed.

A summary of the estimated fair value adjustments resulting in the bargain purchase gain in the Citizens acquisition are presented below:

 

     Citizens  
(In thousands)    September 23, 2011  

Cost basis net assets acquired

   $ 26,682   

Cash payment received from FDIC

     44,140   

Fair value adjustments:

  

Cash and cash equivalents

     539   

Loans

     (57,745

Foreclosed assets

     (5,609

Core deposit intangible

     898   

Deposits

     (382

Borrowings

     (28

Other

     (920
  

 

 

 

Bargain purchase gain

   $ 7,575   
  

 

 

 

 

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The Bank acquired only certain assets and assumed certain liabilities of Citizens. A significant portion of Citizens’s operations, its facilities and its central operations and administrative functions were not retained by the Bank. Therefore, disclosure of supplemental pro forma financial information, especially prior period comparison is deemed neither practical nor meaningful given the troubled nature of Citizens prior to the date of acquisition. The Bank did not immediately acquire all the banking facilities, furniture or equipment of Citizens as part of the purchase and assumption agreement. However, the Bank had the option to lease the real estate and purchase the furniture and equipment from the FDIC. The term of this option expired 90 days from the acquisition date. Prior to the expiration of the option, the Bank agreed to purchase essentially all of the furniture and equipment, and assume all of the property leases except for the administration building and Citizen’s Auburn branch. During the three months ended March 31, 2012, the Bank transferred the operations of Citizen’s Auburn branch to the Bank’s existing branch in Auburn, and vacated the Citizen’s administration building.

The Company identified the loans acquired in the Citizens acquisition as either PNCI or PCI loans. The Company identified certain of the Citizens PCI loans as having cash flows that were not reasonably estimable and elected to place these loans in nonaccrual status under the cash basis method for income recognition (“PCI – cash basis” loans). The Company elected to use the ASC 310-30 “pooled” method of accounting for all other Citizens PCI loans (“PCI – other” loans).

The following table presents a reconciliation of the undiscounted contractual cash flows, nonaccretable difference, accretable yield, fair value, purchase discount, and principal balance of loans for the various categories of Citizens PNCI and PCI loans as of the acquisition date. For PCI loans, the purchase discount does not necessarily represent cash flows to be collected as a portion of it is a nonaccretable difference:

 

     Citizens Loans – September 23, 2011  
(In thousands)    PNCI     PCI -
other
    PCI -
cash basis
    Total  

Undiscounted contractual cash flows

   $ 230,106      $ 69,346      $ 35,205      $ 334,657   

Undiscounted cash flows not expected to be collected (nonaccretable difference)

     —          (26,846     (24,517     (51,363
  

 

 

   

 

 

   

 

 

   

 

 

 

Undiscounted cash flows expected to be collected

     230,106        42,500        10,688        283,295   

Accretable yield at acquisition

     (105,664     (10,146     —          (115,810
  

 

 

   

 

 

   

 

 

   

 

 

 

Estimated fair value of loans acquired at acquisition

     124,442        32,354        10,688        167,484   

Purchase discount

     20,364        23,207        14,174        57,745   
  

 

 

   

 

 

   

 

 

   

 

 

 

Principal balance loans acquired

   $ 144,806      $ 55,561      $ 24,863      $ 225,229   
  

 

 

   

 

 

   

 

 

   

 

 

 

In estimating the fair value of Citizens PNCI loans at the acquisition date, the Company calculated the contractual amount and timing of undiscounted principal and interest payments on an individual loan basis and then discounted those cash flows using an appropriate market rate of interest adjusted for liquidity and credit loss risks inherent in each loan. The Citizens PNCI loans expected accretable yield above represents undiscounted interest, and along with the purchase discount, is accounted for using an effective interest method consistent with our accounting for originated loans.

In estimating the fair value of Citizens PCI – cash basis loans at the acquisition date, the Company calculated the contractual amount and timing of undiscounted principal and interest payments and estimated the amount of undiscounted expected principal recovery using historic loss rates or estimated collateral values if applicable. The difference between these two amounts represents the nonaccretable difference. The Company used its estimate of the amount of undiscounted expected principal recovery as the fair value of the Citizens PCI – cash basis loans, and placed these loans in nonaccrual status. Interest income and principal reductions on these PCI – cash basis loans are recorded only when they are received. At each financial reporting date, the carrying value of each PCI – cash basis loan is compared to an updated estimate of expected principal payment or recovery for each loan. To the extent that the loan carrying amount exceeds the updated expected principal payment or recovery, a provision for loan loss would be recorded as a charge to income and an allowance for loan loss established.

In estimating the fair value of Citizens PCI – other loans at the acquisition date, the Company calculated the contractual amount and timing of undiscounted principal and interest payments and estimated the amount and timing of undiscounted expected principal and interest payments. The difference between these two amounts represents the nonaccretable difference. On the acquisition date, the amount by which the undiscounted expected cash flows exceed the estimated fair value of the acquired loans is the “accretable yield”. The accretable yield is then measured at each financial reporting date and represents the difference between the remaining undiscounted expected cash flows and the current carrying value of the loans. For PCI loans the accretable yield is accreted into interest income over the life of the estimated remaining cash flows. For further information regarding the accounting for PCI – other loans, and acquired loans in general, see the discussion under the heading “Loans and Allowance for Loan Losses” in Note 1 above.

 

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The following table presents the contractual maturity schedule of loans acquired in the Citizens acquisition and provides separate analyses with respect to fixed rate loans and floating rate loans as of September 23, 2011:

 

     Maturing  
(In thousands)    Due
Within one
year
     Due after
one through
five years
     Due after
five years
     Total      % of
total loans
 

Mortgage loans on real estate:

              

Residential 1-4 family

   $ 155       $ 362       $ 2,467       $ 2,984         1.3

Commercial

     7,131         20,563         104,169         131,863         58.5
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total mortgage loan on real estate

     7,286         20,925         106,636         134,847         59.8

Consumer:

              

Home equity lines of credit

     16,907         16,129         16,954         49,990         22.2

Home equity loans

     —           387         636         1,023         0.5

Auto Indirect

     3         102         —           105         0.0

Other

     36         431         3,726         4,193         1.9
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total consumer loans

     16,946         17,049         21,316         55,311         24.6

Commercial

     4,966         11,572         1,389         17,927         8.0

Construction:

              

Residential

     5,187         7,733         191         13,111         5.8

Commercial

     8         1,844         2,181         4,033         1.8
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total construction

     5,195         9,577         2,372         17,144         7.6
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total loans, net of deferred loan fees

   $ 34,393       $ 59,123       $ 131,713       $ 225,229         100.0
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total fixed rate loans

   $ 10,467       $ 17,214       $ 50,232       $ 77,913         34.6

Total variable rate loans

     23,926         41,909         81,481         147,316         65.4
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total loans

   $ 34,393       $ 59,123       $ 131,713       $ 225,229         100.0
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

The weighted average contractual loan yield for Citizens loans acquired on September 23, 2011 was 6.01%.

The Citizens acquisition increased the Bank’s deposits by $239,899,000 on September 23, 2011. The following table shows a summary of the deposits acquired and the weighted average interest rates in effect at the acquisition date:

 

     September 23, 2011  
(In thousands)    Amount      Weighted average
interest rate
 

Noninterest-bearing demand

   $ 79,814         —     

Interest-bearing demand

     37,551         0.02

Savings

     67,379         0.25

Time deposits less than $100,000

     28,714         0.91

Time deposits greater than $100,000

     26,059         1.01

Time deposit fair value adjustment

     382      
  

 

 

    

Total deposits

   $ 239,899      
  

 

 

    

At September 23, 2011, scheduled maturities of Citizens time deposits were as follows:

 

Maturing during the 12-month period ending September 23,    (In thousands)  

2012

   $ 45,250   

2013

     5,858   

2014

     1,074   

2015

     1,180   

Thereafter

     1,411   
  

 

 

 

Total

   $ 54,773   
  

 

 

 

As of September 23, 2011, Citizens had $26,059,000 in time deposits of $100,000 or more. The following table provides the scheduled maturities of these time deposits:

 

Maturing:    (In thousands)  

3 months of less

   $ 9,450   

Over 3 through 6 months

     5,135   

Over 6 through 12 months

     5,998   

Over 12 months

     5,476   
  

 

 

 

Total

   $ 26,059   
  

 

 

 

 

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Table of Contents

The operations of Citizens, included in the Company’s operating results from September 23, 2011 to December 31, 2011, added approximately $6,171,000 and $54,000 to interest income and interest expense, respectively, $1,462,000 to provision for loan losses, $8,029,000 to noninterest income, including a bargain purchase gain of $7,575,000, and $1,865,000 to noninterest expense. Included in the $6,171,000 of Citizens related interest income recorded from September 23, 2011 to December 31, 2011, is $3,146,000 of interest income from fair value discount accretion. Such operating results are not necessarily indicative of future operating results. Citizens’ results of operations prior to the acquisition are not included in the Company’s operating results. As of December 31, 2011, nonrecurring expenses related to the Citizens acquisition were insignificant.

During the three months ended March 31, 2012, the Company completed the conversion of Citizens’ information and data processing systems to the Bank’s systems, and consolidated the Citizens Auburn branch into the Bank’s existing Auburn branch. The operations of Citizens, included in the Company’s operating results from January 1, 2012 to March 31, 2012, added approximately $4,584,000 and $8,000 to interest income and interest expense, respectively, $1,467,000 to provision for loan losses, $145,000 to noninterest income, and $2,354,000 to noninterest expense. Included in the $4,584,000 of Citizens related interest income recorded from January 1, 2012 to March 31, 2012, is $1,972,000 of interest income from fair value discount accretion. Included in the $145,000 of Citizens related noninterest income recorded from January 1, 2012 to March 31, 2012, is a $230,000 loss on disposal of fixed assets related to the system conversion noted above. Included in the $2,354,000 of Citizens related noninterest expense recorded from January 1, 2012 to March 31, 2012, is $415,000 of outside data processing expenses related to the system conversion noted above. Such operating results are not necessarily indicative of future operating results. Citizens’ results of operations prior to the acquisition are not included in the Company’s operating results.

On May 28, 2010, the Office of the Comptroller of the Currency closed Granite Community Bank (“Granite”), Granite Bay, California and appointed the FDIC as receiver. That same date, the Bank assumed the banking operations of Granite from the FDIC under a whole bank purchase and assumption agreement with loss sharing. Under the terms of the loss sharing agreement, the FDIC will cover a substantial portion of any future losses on loans, related unfunded loan commitments, other real estate owned (OREO)/foreclosed assets and accrued interest on loans for up to 90 days. The FDIC will absorb 80% of losses and share in 80% of loss recoveries on the covered assets acquired from Granite. The loss sharing arrangements for non-single family residential and single family residential loans are in effect for 5 years and 10 years, respectively, and the loss recovery provisions are in effect for 8 years and 10 years, respectively, from the acquisition date. With this agreement, the Bank added one traditional bank branch in each of Granite Bay, Roseville and Auburn, California. This acquisition is consistent with the Bank’s community banking expansion strategy and provides further opportunity to fill in the Bank’s market presence in the greater Sacramento, California market.

The assets acquired and liabilities assumed for the Granite acquisition have been accounted for under the acquisition method of accounting (formerly the purchase method). The assets and liabilities, both tangible and intangible, were recorded at their estimated fair values as of the acquisition dates. The fair values of the assets acquired and liabilities assumed were determined based on the requirements of the Fair Value Measurements and Disclosures topic of the FASB ASC. The tax treatment of FDIC assisted acquisitions is complex and subject to interpretations that may result in future adjustments of deferred taxes as of the acquisition date. The terms of the agreements provide for the FDIC to indemnify the Bank against claims with respect to liabilities of Granite not assumed by the Bank and certain other types of claims identified in the agreement. The application of the acquisition method of accounting resulted in the recognition of a bargain purchase gain of $232,000 in the Granite acquisition. A summary of the net assets received in the Granite acquisition, at their estimated fair values, is presented below:

 

(In thousands)    Granite  
   May 28, 2010  

Asset acquired:

  

Cash and cash equivalents

   $ 18,764   

Securities available-for-sale

     2,954   

Restricted equity securities

     696   

Covered loans

     64,802   

Premises and equipment

     17   

Core deposit intangible

     562   

Covered foreclosed assets

     4,629   

FDIC indemnification asset

     7,466   

Other assets

     392   
  

 

 

 

Total assets acquired

   $ 100,282   
  

 

 

 

Liabilities assumed:

  

Deposits

   $ 95,001   

Other borrowings

     5,000   

Other liabilities

     49   
  

 

 

 

Total liabilities assumed

     100,050   
  

 

 

 

Net assets acquired/bargain purchase gain

   $ 232   
  

 

 

 

The loan portfolio and foreclosed assets acquired in the Granite acquisition are covered by a loss sharing agreement between the Bank and the FDIC, and are referred to as “covered loans” and “covered foreclosed assets”, respectively. These covered loans and covered foreclosed assets are recorded in Loans and Foreclosed assets, respectively, in the Company’s consolidated balance sheet. Collectively these balances are referred to as “covered assets”.

 

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Table of Contents

In FDIC-assisted transactions, only certain assets and liabilities are transferred to the acquirer and, depending on the nature and amount of the acquirer’s bid, the FDIC may be required to make a cash payment to the acquirer. In the Granite acquisition, net assets with a cost basis of $4,345,000 were transferred to the Bank. In the Granite acquisition, the Company recorded a bargain purchase gain of $232,000 representing the excess of the estimated fair value of the assets acquired over the estimated fair value of the liabilities assumed.

The Bank did not immediately acquire all the real estate, banking facilities, furniture or equipment of Granite as part of the purchase and assumption agreement. However, the Bank had the option to purchase or lease the real estate and furniture and equipment from the FDIC. During the quarter ended September 30, 2010, the Bank elected to close the Roseville branch and assume the leases for the Granite Bay and Auburn branches. The Bank purchased the existing furniture and equipment in the Granite Bay and Auburn branches from the FDIC for approximately $100,000.

A summary of the estimated fair value adjustments resulting in the bargain purchase gain in the Granite acquisition are presented below:

 

     Granite  
(In thousands)    May 28, 2010  

Cost basis net assets acquired

   $ 4,345   

Cash payment received from FDIC

     3,940   

Fair value adjustments:

  

Securities available-for-sale

     (118

Loans

     (13,189

Foreclosed assets

     (2,616

Core deposit intangible

     562   

FDIC indemnification asset

     7,466   

Deposits

     (209

Other

     51   
  

 

 

 

Bargain purchase gain

   $ 232   
  

 

 

 

Because of the significant credit discounts associated with the loans acquired in the Granite acquisition, the Company elected to account for all loans acquired in the Granite acquisition using the ASC 310-30 “pooled” method of accounting and thus categorize them as PCI – other loans.

In estimating the fair value of the covered loans at the acquisition date, we (a) calculated the contractual amount and timing of undiscounted principal and interest payments and (b) estimated the amount and timing of undiscounted expected principal and interest payments. The difference between these two amounts represents the nonaccretable difference.

On the acquisition date, the amount by which the undiscounted expected cash flows exceed the estimated fair value of the acquired loans is the “accretable yield”. The accretable yield is then measured at each financial reporting date and represents the difference between the remaining undiscounted expected cash flows and the current carrying value of the loans.

The following table presents a reconciliation of the undiscounted contractual cash flows, nonaccretable difference, accretable yield, fair value, purchase discount, and principal balance of loans for the Granite loans as of the acquisition date. For PCI loans, the purchase discount does not necessarily represent cash flows to be collected as a portion of it is a nonaccretable difference:

 

     Granite Loans  
     May 28, 2010  
(In thousands)    PCI - other  

Undiscounted contractual cash flows

   $ 99,179   

Undiscounted cash flows not expected to be collected (nonaccretable difference)

     (11,226
  

 

 

 

Undiscounted cash flows expected to be collected

     87,953   

Accretable yield at acquisition

     (23,151
  

 

 

 

Estimated fair value of loans acquired at acquisition

     64,802   

Purchase discount

     13,189   
  

 

 

 

Principal balance loans acquired

   $ 77,991   
  

 

 

 

 

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Table of Contents

Note 3 – Investment Securities

The amortized cost and estimated fair values of investments in debt and equity securities are summarized in the following tables:

 

     March 31, 2012  
     Amortized
Cost
     Gross
Unrealized
Gains
     Gross
Unrealized
Losses
    Estimated
Fair

Value
 

Securities Available-for-Sale

          (in thousands)        

Obligations of U.S. government corporations and agencies

   $ 190,479       $ 9,854       $ (39   $ 200,294   

Obligations of states and political subdivisions

     9,561         415         —          9,976   

Corporate debt securities

     1,852         35         —          1,887   
  

 

 

    

 

 

    

 

 

   

 

 

 

Total securities available-for-sale

   $ 201,892       $ 10,304       $ (39   $ 212,157   
  

 

 

    

 

 

    

 

 

   

 

 

 
     December 31, 2011  
     Amortized
Cost
     Gross
Unrealized
Gains
     Gross
Unrealized
Losses
    Estimated
Fair

Value
 

Securities Available-for-Sale

          (in thousands)        

Obligations of U.S. government corporations and agencies

   $ 207,284       $ 10,100         —        $ 217,384   

Obligations of states and political subdivisions

     9,561         467         —          10,028   

Corporate debt securities

     1,848         —         $ (37     1,811   
  

 

 

    

 

 

    

 

 

   

 

 

 

Total securities available-for-sale

   $ 218,693       $ 10,567       $ (37   $ 229,223   
  

 

 

    

 

 

    

 

 

   

 

 

 

No investment securities were sold during the three months ended March 31, 2012 or the year ended December 31, 2011. Investment securities with an aggregate carrying value of $105,082,000 and $110,763,000 at March 31, 2012 and December 31, 2011, respectively, were pledged as collateral for specific borrowings, lines of credit and local agency deposits.

The amortized cost and estimated fair value of debt securities at March 31, 2012 by contractual maturity are shown below. Actual maturities may differ from contractual maturities because borrowers may have the right to call or prepay obligations with or without call or prepayment penalties. At March 31, 2012, obligations of U.S. government corporations and agencies with a cost basis totaling $190,480,000 consist almost entirely of mortgage-backed securities whose contractual maturity, or principal repayment, will follow the repayment of the underlying mortgages. For purposes of the following table, the entire outstanding balance of these mortgage-backed securities issued by U.S. government corporations and agencies is categorized based on final maturity date. At March 31, 2012, the Company estimates the average remaining life of these mortgage-backed securities issued by U.S. government corporations and agencies to be approximately 3.2 years. Average remaining life is defined as the time span after which the principal balance has been reduced by half.

 

     Amortized
Cost
     Estimated
Fair Value
 

Investment Securities

   (in thousands)  

Due in one year

   $ 1,381       $ 1,437   

Due after one year through five years

     14,755         15,569   

Due after five years through ten years

     61,147         62,911   

Due after ten years

     124,609         132,240   
  

 

 

    

 

 

 

Totals

   $ 201,892       $ 212,157   
  

 

 

    

 

 

 

 

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Table of Contents

Gross unrealized losses on investment securities and the fair value of the related securities, aggregated by investment category and length of time that individual securities have been in a continuous unrealized loss position, were as follows:

 

     Less than 12 months     12 months or more      Total  
March 31, 2012:    Fair
Value
     Unrealized
Loss
    Fair
Value
     Unrealized
Loss
     Fair
Value
     Unrealized
Loss
 
                (in thousands)                

Securities Available-for-Sale:

                

Obligations of U.S. government corporations and agencies

   $ 3,543       $ (39     —           —         $ 3,543       $ (39

Obligations of states and political subdivisions

     —           —          —           —           —           —     

Corporate debt securities

     —           —          —           —           —           —     
  

 

 

    

 

 

   

 

 

    

 

 

    

 

 

    

 

 

 

Total securities available-for-sale

   $ 3,543       $ (39     —           —         $ 3,543       $ (39
  

 

 

    

 

 

   

 

 

    

 

 

    

 

 

    

 

 

 
     Less than 12 months     12 months or more      Total  
December 31, 2011    Fair
Value
     Unrealized
Loss
    Fair
Value
     Unrealized
Loss
     Fair
Value
     Unrealized
Loss
 
                (in thousands)                

Securities Available-for-Sale:

                

Obligations of U.S. government corporations and agencies

   $ 10         —          —           —         $ 10         —     

Obligations of states and political subdivisions

     —           —          —           —           —           —     

Corporate debt securities

     1,811       $ (37     —           —           1,811       $ (37
  

 

 

    

 

 

   

 

 

    

 

 

    

 

 

    

 

 

 

Total securities available-for-sale

   $ 1,821       $ (37     —           —         $ 1,821       $ (37
  

 

 

    

 

 

   

 

 

    

 

 

    

 

 

    

 

 

 

Obligations of U.S. government corporations and agencies: Unrealized losses on investments in obligations of U.S. government corporations and agencies are caused by interest rate increases. The contractual cash flows of these securities are guaranteed by U.S. Government Sponsored Entities (principally Fannie Mae and Freddie Mac). It is expected that the securities would not be settled at a price less than the amortized cost of the investment. Because the decline in fair value is attributable to changes in interest rates and not credit quality, and because the Company does not intend to sell and more likely than not will not be required to sell, these investments are not considered other-than-temporarily impaired. At March 31, 2012, two debt securities representing obligations of U.S. government corporations and agencies had an unrealized loss with aggregate depreciation of 1.09% from the Company’s amortized cost basis.

 

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Table of Contents

Note 4 – Loans

A summary of loan balances follows (in thousands):

 

     March 31, 2012  
     Originated     PNCI     PCI -
Cash basis
    PCI -
Other
    Total  

Mortgage loans on real estate:

          

Residential 1-4 family

   $ 115,609      $ 8,689        —        $ 6,202      $ 130,500   

Commercial

     695,349        89,047        28        32,435        816,859   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total mortgage loan on real estate

     810,958        97,736        28        38,637        947,359   

Consumer:

          

Home equity lines of credit

     315,987        19,808        8,492        5,775        350,062   

Home equity loans

     13,991        363        49        156        14,559   

Auto Indirect

     8,397        —          —          —          8,397   

Other

     20,737        2,886        —          48        23,671   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total consumer loans

     359,112        23,057        8,541        5,979        396,689   

Commercial

     114,583        1,392        1,090        11,278        128,343   

Construction:

          

Residential

     13,175        —          —          9,189        22,364   

Commercial

     12,666        —          —          3,664        16,330   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total construction

     25,841        —          —          12,853        38,694   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total loans, net of deferred loan fees

   $ 1,310,494      $ 122,185      $ 9,659      $ 68,747      $ 1,511,085   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total principal balance of loans owed, net of charge-offs

   $ 1,312,252      $ 139,680      $ 22,103      $ 89,379      $ 1,563,414   

Unamortized net deferred loan fees

     (1,758     —          —          —          (1,758

Discounts to principal balance of loans owed, net of charge-offs

     —          (17,495     (12,444     (20,632     (50,571
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total loans, net of unamortized deferred loan fees

   $ 1,310,494      $ 122,185      $ 9,659      $ 68,747      $ 1,511,085   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Noncovered loans

   $ 1,310,494      $ 122,185      $ 9,659      $ 23,105      $ 1,465,443   

Covered loans

     —          —          —          45,642        45,642   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total loans, net of unamortized deferred loan fees

   $ 1,310,494      $ 122,185      $ 9,659      $ 68,747      $ 1,511,085   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Allowance for loan loss

   $ (40,292   $ (373   $ (1,294   $ (3,493   $ (45,452
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

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Table of Contents

Note 4 – Loans (continued)

 

A summary of loan balances follows (in thousands):

 

     December 31, 2011  
     Originated     PNCI     PCI -
Cash basis
    PCI -
Other
    Total  

Mortgage loans on real estate:

          

Residential 1-4 family

   $ 118,320      $ 14,750        —        $ 6,516      $ 139,586   

Commercial

     699,682        93,428        —          33,226        826,336   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total mortgage loan on real estate

     818,002        108,178        —          39,742        965,922   

Consumer:

          

Home equity lines of credit

     321,834        20,902      $ 8,615        5,954        357,305   

Home equity loans

     14,320        367        —          157        14,844   

Auto Indirect

     10,821        —          —          —          10,821   

Other

     20,270        3,041        —          49        23,360   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total consumer loans

     367,245        24,310        8,615        6,160        406,330   

Commercial

     123,486        1,805        811        13,029        139,131   

Construction:

          

Residential

     13,908        —          —          8,214        22,122   

Commercial

     12,744        —          —          4,783        17,527   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total construction

     26,652        —          —          12,997        39,649   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total loans, net of deferred loan fees

   $ 1,335,385      $ 134,293      $ 9,426      $ 71,928      $ 1,551,032   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total principal balance of loans owed, net of charge-offs

   $ 1,337,693      $ 152,549      $ 22,137      $ 94,660      $ 1,607,039   

Unamortized net deferred loan fees

     (2,308     —          —          —          (2,308

Discounts to principal balance of loans owed, net of charge-offs

     —          (18,256     (12,711     (22,732     (53,699
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total loans, net of unamortized deferred loan fees

   $ 1,335,385      $ 134,293      $ 9,426      $ 71,928      $ 1,551,032   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Noncovered loans

   $ 1,335,385      $ 134,293      $ 9,426      $ 22,857      $ 1,501,961   

Covered loans

     —          —          —          49,071        49,071   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total loans, net of unamortized deferred loan fees

   $ 1,335,385      $ 134,293      $ 9,426      $ 71,928      $ 1,551,032   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Allowance for loan loss

   $ (41,458   $ (245   $ (1,034   $ (3,177   $ (45,914
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

The following is a summary of the change in accretable yield for PCI – other loans during the periods indicated (in thousands):

 

     Three months ended
March 31,
 
     2012     2011  

Change in accretable yield:

    

Balance at beginning of period

   $ 25,145      $ 17,717   

Acquisitions

     —          —     

Accretion to interest income

     (1,959     (1,034

Reclassification (to) from nonaccretable difference

     1,429        (2,284
  

 

 

   

 

 

 

Balance at end of period

   $ 24,615      $ 14,399   
  

 

 

   

 

 

 

Throughout these consolidated financial statements, and in particular in this Note 4 and Note 5, when we refer to “Loans” or “Allowance for loan losses” we mean all categories of loans, including Originated, PNCI, PCI – cash basis, and PCI—other. When we are not referring to all categories of loans, we will indicate which we are referring to – Originated, PNCI, PCI – cash basis, or PCI—other.

 

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Table of Contents

Note 5 – Allowance for Loan Losses

The following tables summarize the activity in the allowance for loan losses, and ending balance of loans, net of unearned fees for the periods indicated.

 

     Allowance for Loan Losses – Three months ended March 31, 2012  
     RE Mortgage     Home Equity     Auto
Indirect
    Other
Consum.
    C&I     Construction      Total  
(In thousands)    Resid.     Comm.     Lines     Loans           Resid.     Comm.     

Beginning balance

   $ 2,404      $ 13,217      $ 18,258      $ 1,101      $ 215      $ 932      $ 6,545      $ 1,817      $ 1,425       $ 45,914   

Charge-offs

     (223     (1,305     (2,625     (41     (40     (339     (281     (68     —           (4,922

Recoveries

     —          36        63        3        57        255        50        —          —           464   

Provision

     976        (1,967     6,336        204        343        (248     (1,764     (77     193         3,996   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

    

 

 

 

Ending balance

   $ 3,157      $ 9,981      $ 22,032      $ 1,267      $ 575      $ 600      $ 4,550      $ 1,672      $ 1,618       $ 45,452   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

    

 

 

 

Ending balance:

                     

Individ. evaluated for impairment

   $ 582      $ 1,041      $ 1,578      $ 59      $ 14      $ 17      $ 357      $ 80      $ 1,048       $ 4,776   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

    

 

 

 

Loans pooled for evaluation

   $ 2,463      $ 8,939      $ 18,949      $ 1,096      $ 560      $ 584      $ 2,563      $ 625      $ 110       $ 35,889   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

    

 

 

 

Loans acquired with deteriorated credit quality

   $ 113        —        $ 1,505      $ 111        —          —        $ 1,630      $ 967      $ 461       $ 4,787   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

    

 

 

 
     Loans, net of unearned fees – As of March 31, 2012  
     RE Mortgage     Home Equity     Auto
Indirect
    Other
Consum.
    C&I     Construction      Total  
(In thousands)    Resid.     Comm.     Lines     Loans           Resid.     Comm.     

Ending balance:

                     

Total loans

   $ 130,500      $ 816,859      $ 350,062      $ 14,559      $ 8,397      $ 23,671      $ 128,343      $ 22,364      $ 16,330       $ 1,511,085   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

    

 

 

 

Individ. evaluated for impairment

   $ 10,490      $ 69,817      $ 8,777      $ 549      $ 404      $ 177      $ 9,286      $ 5,606      $ 7,114       $ 112,220   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

    

 

 

 

Loans pooled for evaluation

   $ 113,808      $ 714,579      $ 327,018      $ 13,805      $ 7,993      $ 23,446      $ 106,689      $ 7,569      $ 5,552       $ 1,320,459   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

    

 

 

 

Loans acquired with deteriorated credit quality

   $ 6,202      $ 32,463      $ 14,267      $ 205        —        $ 48      $ 12,368      $ 9,189      $ 3,664       $ 78,406   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

    

 

 

 

 

     Allowance for Loan Losses – Three months ended March 31, 2011  
     RE Mortgage     Home Equity      Auto
Indirect
    Other
Consum.
    C&I     Construction     Total  
(In thousands)    Resid.     Comm.     Lines     Loans            Resid.     Comm.    

Beginning balance

   $ 3,007      $ 12,700      $ 15,054      $ 795       $ 1,229      $ 701      $ 5,991      $ 1,824      $ 1,270      $ 42,571   

Charge-offs

     (1,125     (368     (3,601     —           (135     (229     (1,556     (35     —          (7,049

Recoveries

     112        28        161        2         127        209        21        2        39        701   

Provision

     1,550        (333     4,682        114         (740     23        2,511        (396     (410     7,001   
  

 

 

   

 

 

   

 

 

   

 

 

    

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Ending balance

   $ 3,544      $ 12,027      $ 16,296      $ 911       $ 481      $ 704      $ 6,967      $ 1,395      $ 899      $ 43,224   
  

 

 

   

 

 

   

 

 

   

 

 

    

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Ending balance:

                     

Individ. evaluated for impairment

   $ 1,055      $ 917      $ 1,772      $ 14       $ 161      $ 16      $ 166      $ 136      $ 595      $ 4,832   
  

 

 

   

 

 

   

 

 

   

 

 

    

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Loans pooled for evaluation

   $ 2,471      $ 10,953      $ 13,972      $ 897       $ 319      $ 689      $ 4,781      $ 1,258      $ 143      $ 35,483   
  

 

 

   

 

 

   

 

 

   

 

 

    

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Loans acquired with deteriorated credit quality

   $ 18      $ 157      $ 553        —           —          —        $ 2,020        —        $ 161      $ 2,909   
  

 

 

   

 

 

   

 

 

   

 

 

    

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

     Loans, net of unearned fees – As of March 31, 2011  
     RE Mortgage      Home Equity      Auto
Indirect
     Other
Consum.
     C&I      Construction      Total  
(In thousands)    Resid.      Comm.      Lines      Loans               Resid.      Comm.     

Ending balance:

                             

Total loans

   $ 128,474       $ 695,089       $ 335,682       $ 16,035       $ 20,240       $ 16,185       $ 131,242       $ 23,772       $ 20,941       $ 1,387,660   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Individ. evaluated for impairment

   $ 12,735       $ 55,867       $ 9,091       $ 779       $ 1,125       $ 77       $ 5,158       $ 6,756       $ 7,471       $ 99,059   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Loans pooled for evaluation

   $ 109,338       $ 614,255       $ 319,471       $ 15,256       $ 19,115       $ 16,108       $ 117,068       $ 12,535       $ 13,470       $ 1,236,616   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Loans acquired with deteriorated credit quality

   $ 6,401       $ 24,967       $ 7,120         —           —           —         $ 9,016       $ 4,481         —         $ 51,985   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

 

21


Table of Contents

Note 5 – Allowance for Loan Losses (Continued)

 

As part of the on-going monitoring of the credit quality of the Company’s loan portfolio, management tracks certain credit quality indicators including, but not limited to, trends relating to (i) the level of criticized and classified loans, (ii) net charge-offs, (iii) non-performing loans, and (iv) delinquency within the portfolio.

The Company utilizes a risk grading system to assign a risk grade to each of its loans. Loans are graded on a scale ranging from Pass to Loss. A description of the general characteristics of the risk grades is as follows:

 

   

Pass – This grade represents loans ranging from acceptable to very little or no credit risk. These loans typically meet most if not all policy standards in regard to: loan amount as a percentage of collateral value, debt service coverage, profitability, leverage, and working capital.

 

   

Special Mention – This grade represents “Other Assets Especially Mentioned” in accordance with regulatory guidelines and includes loans that display some potential weaknesses which, if left unaddressed, may result in deterioration of the repayment prospects for the asset or may inadequately protect the Company’s position in the future. These loans warrant more than normal supervision and attention.

 

   

Substandard – This grade represents “Substandard” loans in accordance with regulatory guidelines. Loans within this rating typically exhibit weaknesses that are well defined to the point that repayment is jeopardized. Loss potential is, however, not necessarily evident. The underlying collateral supporting the credit appears to have sufficient value to protect the Company from loss of principal and accrued interest, or the loan has been written down to the point where this is true. There is a definite need for a well defined workout/rehabilitation program.

 

   

Doubtful – This grade represents “Doubtful” loans in accordance with regulatory guidelines. An asset classified as Doubtful has all the weaknesses inherent in a loan classified Substandard with the added characteristic that the weaknesses make collection or liquidation in full, on the basis of currently existing facts, conditions and values, highly questionable and improbable. Pending factors include proposed merger, acquisition, or liquidation procedures, capital injection, perfecting liens on additional collateral, and financing plans.

 

   

Loss – This grade represents “Loss” loans in accordance with regulatory guidelines. A loan classified as Loss is considered uncollectible and of such little value that its continuance as a bankable asset is not warranted. This classification does not mean that the loan has absolutely no recovery or salvage value, but rather that it is not practical or desirable to defer writing off the loan, even though some recovery may be affected in the future. The portion of the loan that is graded loss should be charged off no later than the end of the quarter in which the loss is identified.

The following tables present ending loan balances by loan category and risk grade as of the dates indicated:

 

     Credit Quality Indicators – As of March 31, 2012  
     RE Mortgage      Home Equity      Auto
Indirect
     Other
Consumer
     C&I      Construction      Total  
(In thousands)    Resid.      Comm.      Lines      Loans               Resid.      Comm.     

Originated loans:

                             

Pass

   $ 100,541       $ 580,788       $ 297,041       $ 12,760       $ 6,748       $ 19,952       $ 98,541       $ 6,874       $ 5,215       $ 1,128,460   

Special mention

     2,048         40,584         6,894         616         951         610         7,457         43         571         59,774   

Substandard

     13,020         73,977         12,051         615         698         175         8,585         6,256         6,880         122,257   

Loss

     —           —           1         —           —           —           —           2         —           3   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total Originated loans

   $ 115,609       $ 695,349       $ 315,987       $ 13,991       $ 8,397       $ 20,737       $ 114,583       $ 13,175       $ 12,666       $ 1,310,494   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

PNCI loans:

                             

Pass

   $ 8,427       $ 81,623       $ 18,482       $ 363         —         $ 2,700       $ 1,392         —           —         $ 112,987   

Special mention

     —           5,167         1,042         —           —           106         —           —           —           6,315   

Substandard

     262         2,257         284         —           —           80         —           —           —           2,883   

Loss

     —           —           —           —           —           —           —           —           —           —     
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total PNCI loans

   $ 8,689       $ 89,047       $ 19,808       $ 363         —         $ 2,886       $ 1,392         —           —         $ 122,185   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

PCI loans

   $ 6,202       $ 32,463       $ 14,267       $ 205         —         $ 48       $ 12,368       $ 9,189       $ 3,664       $ 78,406   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total loans

   $ 130,500       $ 816,859       $ 350,062       $ 14,559       $ 8,397       $ 23,671       $ 128,343       $ 22,364       $ 16,330       $ 1,511,085   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

 

22


Table of Contents

Note 5 – Allowance for Loan Losses (Continued)

 

     Credit Quality Indicators – As of December 31, 2011  
     RE Mortgage      Home Equity      Auto
Indirect
     Other
Consumer
     C&I      Construction      Total  
(In thousands)    Resid.      Comm.      Lines      Loans               Resid.      Comm.     

Originated loans:

                             

Pass

   $ 103,611       $ 574,167       $ 305,290       $ 13,478       $ 9,686       $ 19,871       $ 107,877       $ 6,872       $ 5,387       $ 1,146,239   

Special mention

     1,020         46,518         1,295         —           33         10         6,709         903         430         56,918   

Substandard

     13,689         78,997         15,249         842         1,102         389         8,900         6,133         6,927         132,228   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total Originated loans

   $ 118,320       $ 699,682       $ 321,834       $ 14,320       $ 10,821       $ 20,270       $ 123,486       $ 13,908       $ 12,744       $ 1,335,385   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

PNCI loans:

                             

Pass

   $ 14,576       $ 83,735       $ 20,053       $ 367         —         $ 3,034       $ 1,707         —           —         $ 123,472   

Special mention

     —           9,693         548         —           —           4         —           —           —           10,245   

Substandard

     174         —           301         —           —           3         98         —           —           576   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total PNCI loans

   $ 14,750       $ 93,428       $ 20,902       $ 367         —         $ 3,041       $ 1,805         —           —         $ 134,293   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

PCI loans

   $ 6,516       $ 33,226       $ 14,569       $ 157         —         $ 49       $ 13,840       $ 8,214       $ 4,783       $ 81,354   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total loans

   $ 139,586       $ 826,336       $ 357,305       $ 14,844       $ 10,821       $ 23,360       $ 139,131       $ 22,122       $ 17,527       $ 1,551,032   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Consumer loans, whether unsecured or secured by real estate, automobiles, or other personal property, are primarily susceptible to three primary risks; non-payment due to income loss, over-extension of credit and, when the borrower is unable to pay, shortfall in collateral value. Typically non-payment is due to loss of job and will follow general economic trends in the marketplace driven primarily by rises in the unemployment rate. Loss of collateral value can be due to market demand shifts, damage to collateral itself or a combination of the two.

Problem consumer loans are generally identified by payment history of the borrower (delinquency) or significant changes in the borrower’s credit rating. Current credit scores are obtained for all consumer loans on a quarterly basis, and risk ratings are adjusted appropriately. The Bank manages its consumer loan portfolios by monitoring delinquency and contacting borrowers to encourage repayment, suggest modifications if appropriate, and, when continued scheduled payments become unrealistic, initiate repossession or foreclosure through appropriate channels. Collateral values may be determined by appraisals obtained through Bank approved, licensed appraisers, qualified independent third parties, public value information (blue book values for autos), sales invoices, or other appropriate means. Appropriate valuations are obtained at initiation of the credit and periodically (every 3-12 months depending on collateral type) once repayment is questionable and the loan has been classified.

Commercial real estate loans generally fall into two categories, owner-occupied and non-owner occupied. Loans secured by owner occupied real estate are primarily susceptible to changes in the business conditions of the related business. This may be driven by, among other things, industry changes, geographic business changes, changes in the individual fortunes of the business owner, and general economic conditions and changes in business cycles. These same risks apply to commercial loans whether secured by equipment or other personal property or unsecured. Losses on loans secured by owner occupied real estate, equipment, or other personal property generally are dictated by the value of underlying collateral at the time of default and liquidation of the collateral. When default is driven by issues related specifically to the business owner, collateral values tend to provide better repayment support and may result in little or no loss. Alternatively, when default is driven by more general economic conditions, underlying collateral generally has devalued more and results in larger losses due to default. Loans secured by non-owner occupied real estate are primarily susceptible to risks associated with swings in occupancy or vacancy and related shifts in lease rates, rental rates or room rates. Most often these shifts are a result of changes in general economic or market conditions or overbuilding and resultant over-supply. Losses are dependent on value of underlying collateral at the time of default. Values are generally driven by these same factors and influenced by interest rates and required rates of return as well as changes in occupancy costs.

Construction loans, whether owner occupied or non-owner occupied commercial real estate loans or residential development loans, are not only susceptible to the related risks described above but the added risks of construction itself including cost over-runs, mismanagement of the project, or lack of demand or market changes experienced at time of completion. Again, losses are primarily related to underlying collateral value and changes therein as described above.

Problem commercial loans are generally identified by periodic review of financial information which may include financial statements, tax returns, rent rolls and payment history of the borrower (delinquency). Based on this information the Bank may decide to take any of several courses of action including demand for repayment, additional collateral or guarantors, and, when repayment becomes unlikely through borrower’s income and cash flow, repossession or foreclosure of the underlying collateral.

Collateral values may be determined by appraisals obtained through Bank approved, licensed appraisers, qualified independent third parties, public value information (blue book values for autos), sales invoices, or other appropriate means. Appropriate valuations are obtained at initiation of the credit and periodically (every 3-12 months depending on collateral type) once repayment is questionable and the loan has been classified.

 

23


Table of Contents

Once a loan becomes delinquent and repayment becomes questionable, a Bank collection officer will address collateral shortfalls with the borrower and attempt to obtain additional collateral. If this is not forthcoming and payment in full is unlikely, the Bank will estimate its probable loss, using a recent valuation as appropriate to the underlying collateral less estimated costs of sale, and charge the loan down to the estimated net realizable amount. Depending on the length of time until ultimate collection, the Bank may revalue the underlying collateral and take additional charge-offs as warranted. Revaluations may occur as often as every 3-12 months depending on the underlying collateral and volatility of values. Final charge-offs or recoveries are taken when collateral is liquidated and actual loss is known. Unpaid balances on loans after or during collection and liquidation may also be pursued through lawsuit and attachment of wages or judgment liens on borrower’s other assets.

The following table shows the ending balance of current, past due, and nonaccrual originated loans by loan category as of the date indicated:

 

     Analysis of Past Due and Nonaccrual Originated Loans – As of March 31, 2012  
     RE Mortgage      Home Equity      Auto
Indirect
     Other
Consumer
     C&I      Construction      Total  
(In thousands)    Resid.      Comm.      Lines      Loans               Resid.      Comm.     

Originated loan balance:

                             

Past due:

                             

30-59 Days

   $ 3,051       $ 6,641       $ 1,638       $ 79       $ 138       $ 8       $ 481       $ 220       $ 161       $ 12,417   

60-89 Days

     221         3,118         2,476         393         14         3         811         97         —           7,133   

> 90 Days

     2,134         11,125         2,303         35         105         10         4,902         780         39         21,433   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total past due

     5,406         20,884         6,417         507         257         21         6,194         1,097         200         40,983   

Current

     110,203         674,465         309,570         13,484         8,140         20,716         108,389         12,078         12,466         1,269,511   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total Originated loans

   $ 115,609       $ 695,349       $ 315,987       $ 13,991       $ 8,397       $ 20,737       $ 114,583       $ 13,175       $ 12,666       $ 1,310,494   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

> 90 Days and still accruing

     —           —           —           —           —           —         $ 111         —           —         $ 111   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Nonaccrual loans

   $ 8,296       $ 41,040       $ 7,001       $ 485       $ 348       $ 100       $ 7,085       $ 5,647       $ 651       $ 70,653   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

The following table shows the ending balance of current, past due, and nonaccrual PNCI loans by loan category as of the date indicated:

 

     Analysis of Past Due and Nonaccrual PNCI Loans – As of March 31, 2012  
     RE Mortgage      Home Equity      Auto
Indirect
     Other
Consumer
     C&I      Construction      Total  
(In thousands)    Resid.      Comm.      Lines      Loans               Resid.      Comm.     

PNCI loan balance:

                             

Past due:

                             

30-59 Days

   $ 4,592       $ 462       $ 521         —           —           —           —           —           —         $ 5,575   

60-89 Days

     175         —           226         —           —           —           —           —           —           401   

> 90 Days

     —           —           53         —           —           —           —           —           —           53   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total past due

     4,767         462         800         —           —           —           —           —           —           6,029   

Current

     3,922         88,585         19,008         363         —           2,886         1,392         —           —           116,156   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total PNCI loans

   $ 8,689       $ 89,047       $ 19,808       $ 363         —         $ 2,886       $ 1,392         —           —         $ 122,185   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

> 90 Days and still accruing

     —           —           —           —           —           —           —           —           —           —     
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Nonaccrual loans

     —         $ 1,693       $ 406         —           —         $ 47         —           —           —         $ 2,146   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

The following table shows the ending balance of current, past due, and nonaccrual originated loans by loan category as of the date indicated:

 

     Analysis of Past Due and Nonaccrual Originated Loans – As of December 31, 2011  
     RE Mortgage      Home Equity      Auto
Indirect
     Other
Consumer
     C&I      Construction      Total  
(In thousands)    Resid.      Comm.      Lines      Loans               Resid.      Comm.     

Originated loan balance:

                             

Past due:

                             

30-59 Days

   $ 1,715       $ 7,509       $ 2,586       $ 52       $ 181       $ 46       $ 683       $ 921         —         $ 13,693   

60-89 Days

     750         1,171         2,629         281         56         153         1,334         92         —           6,466   

> 90 Days

     3,279         9,892         3,129         114         130         5         4,929         2,088         —           23,566   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total past due

     5,744         18,572         8,344         447         367         204         6,946         3,101         —           43,725   

Current

     112,576         681,110         313,490         13,873         10,454         20,066         116,540         10,807         12,744         1,291,660   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total Originated loans

   $ 118,320       $ 699,682       $ 321,834       $ 14,320       $ 10,821       $ 20,270       $ 123,486       $ 13,908       $ 12,744       $ 1,335,385   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

> 90 Days and still accruing

     —         $ 500         —           —           —           —           —           —           —         $ 500   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Nonaccrual loans

   $ 8,525       $ 43,765       $ 8,307       $ 509       $ 509       $ 109       $ 7,257       $ 5,627       $ 667       $ 75,275   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

 

 

24


Table of Contents

The following table shows the ending balance of current, past due, and nonaccrual PNCI loans by loan category as of the date indicated: