ITEM 2.
|
MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
|
The following is managements discussion and analysis of the major factors that influenced our results of operations and financial
condition as of and for the three and nine months ended September 30, 2012. This analysis should be read in conjunction with our Annual Report on Form 10-K for the year ended December 31, 2011 (the 2011 Annual Report on Form
10-K) and with the unaudited consolidated financial statements and notes thereto set forth in this Quarterly Report on Form 10-Q for the quarterly period ended September 30, 2012 (this Report).
FORWARD-LOOKING STATEMENTS
Some of the statements under
Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations
and elsewhere in this Report constitute forward-looking
statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended (the Exchange Act). All statements in this Report other than statements
of historical fact are forward looking statements for purposes of federal and state securities laws, including, but not limited to, statements about anticipated future operating and financial performance, financial position and
liquidity, business strategies, regulatory and competitive outlook, investment and expenditure plans, capital and financing needs, plan and availability, plans and objectives of management for future operations, and other similar forecasts and
statements of expectation and statements of assumption underlying any of the foregoing. In some cases, you can identify forward-looking statements by terminology such as may, will, should, could,
expects, plans, intends, anticipates, believes, estimates, predicts, potential, or continue, or the negative of such terms and other
comparable terminology. Although we believe that the expectations reflected in the forward-looking statements are reasonable, we cannot guarantee future results, levels of activity, performance or achievements. These statements involve known and
unknown risks, uncertainties and other factors that may cause our actual results, levels of activity, performance or achievements to differ from those expressed or implied by the forward-looking statement. These factors include the following:
|
|
|
failure to maintain adequate levels of capital to support our operations;
|
|
|
|
a significant number of customers failing to perform under their loans or other extensions of credit;
|
|
|
|
fluctuations in interest rates and a decline in the level of our interest rate spread;
|
|
|
|
failure to attract or retain deposits and restrictions on taking brokered deposits;
|
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|
|
sources of liquidity available to us and to Hanmi Bank becoming limited or our potential inability to access sufficient sources of liquidity when
needed or the requirement that we obtain government waivers to do so;
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|
|
adverse changes in domestic or global financial markets, economic conditions or business conditions;
|
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|
|
regulatory restrictions on Hanmi Banks ability to pay dividends to us and on our ability to make payments on our obligations;
|
|
|
|
significant reliance on loans secured by real estate and the associated vulnerability to downturns in the local real estate market, natural disasters
and other variables impacting the value of real estate;
|
|
|
|
our use of appraisals in deciding whether to make loans secured by real property, which does not ensure that the value of the real property collateral
will be sufficient to pay our loans;
|
|
|
|
failure to attract or retain our key employees;
|
|
|
|
credit quality and the effect of credit quality on our provision for credit losses and allowance for loan losses;
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|
|
volatility and disruption in financial, credit and securities markets, and the price of our common stock;
|
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|
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deterioration in financial markets that may result in impairment charges relating to our securities portfolio;
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competition and demographic changes in our primary market areas;
|
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|
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global hostilities, acts of war or terrorism, including but not limited to, conflict between North Korea and South Korea;
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|
|
the effects of litigation against us;
|
|
|
|
significant government regulations, legislation and potential changes thereto, including as a result of the Dodd-Frank Act;
|
|
|
|
other risks described herein and in the other reports we file with the Securities and Exchange Commission; and
|
|
|
|
our ability to recapture deferred tax assets.
|
For a discussion of some of the other factors that might cause such a difference, see the discussion contained in this Report under the heading Item 2. Managements Discussion and Analysis of
Financial Condition and Results of Operations. Also see Item 1A. Risk Factors, Item 7. Managements Discussion and Analysis of Financial Condition and Results of Operations-Interest Rate Risk Management and
Capital Resources and Liquidity in our 2011 Annual Report on Form 10-K, including our Quarterly Reports on Form 10-Q, as well as other factors we identify from time to time in our periodic reports filed pursuant to the Exchange Act. We
undertake no obligation to update these forward-looking statements to reflect events or circumstances that occur after the date, on which such statements were made, except as required by law.
33
CRITICAL ACCOUNTING POLICIES
We have established various accounting policies that govern the application of GAAP in the preparation of our financial statements. Our significant accounting policies are described in the Notes to
Consolidated Financial Statements in our 2011 Annual Report on Form 10-K. Certain accounting policies require us to make significant estimates and assumptions that have a material impact on the carrying value of certain assets and liabilities,
and we consider these critical accounting policies. For a description of these critical accounting policies, see Item 7. Managements Discussion and Analysis of Financial Condition and Results of Operations Critical Accounting
Policies in our 2011 Annual Report on Form 10-K. We use estimates and assumptions based on historical experience and other factors that we believe to be reasonable under the circumstances. Actual results could differ significantly from these
estimates and assumptions, which could have a material impact on the carrying value of assets and liabilities at the balance sheet dates and our results of operations for the reporting periods. Management has discussed the development and selection
of these critical accounting policies with the Audit Committee of Hanmi Financials Board of Directors.
34
SELECTED FINANCIAL DATA
The following tables set forth certain selected financial data for the periods indicated.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of and for the
|
|
|
|
Three Months Ended
September 30,
|
|
|
Nine Months Ended
September 30,
|
|
|
|
2012
|
|
|
2011
|
|
|
2012
|
|
|
2011
|
|
|
|
(In Thousands, Except Per Share Data)
|
|
AVERAGE BALANCES:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Average Gross Loans, Net
(1)
|
|
$
|
1,958,819
|
|
|
$
|
2,077,934
|
|
|
$
|
1,982,369
|
|
|
$
|
2,149,101
|
|
Average Investment Securities
|
|
$
|
386,513
|
|
|
$
|
394,379
|
|
|
$
|
409,544
|
|
|
$
|
454,560
|
|
Average Interest-Earning Assets
|
|
$
|
2,694,571
|
|
|
$
|
2,660,776
|
|
|
$
|
2,671,300
|
|
|
$
|
2,785,115
|
|
Average Total Assets
|
|
$
|
2,829,778
|
|
|
$
|
2,700,629
|
|
|
$
|
2,765,308
|
|
|
$
|
2,813,865
|
|
Average Deposits
|
|
$
|
2,361,534
|
|
|
$
|
2,383,639
|
|
|
$
|
2,335,771
|
|
|
$
|
2,423,194
|
|
Average Borrowings
|
|
$
|
85,482
|
|
|
$
|
87,386
|
|
|
$
|
85,884
|
|
|
$
|
171,212
|
|
Average Interest-Bearing Liabilities
|
|
$
|
1,766,709
|
|
|
$
|
1,859,847
|
|
|
$
|
1,754,943
|
|
|
$
|
2,005,110
|
|
Average Stockholders Equity
|
|
$
|
352,980
|
|
|
$
|
200,971
|
|
|
$
|
313,816
|
|
|
$
|
189,658
|
|
PER SHARE DATA:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings Per Share Basic
|
|
$
|
0.42
|
|
|
$
|
0.22
|
|
|
$
|
2.43
|
|
|
$
|
1.20
|
|
Earnings Per Share Diluted
|
|
$
|
0.42
|
|
|
$
|
0.22
|
|
|
$
|
2.42
|
|
|
$
|
1.19
|
|
Common Shares Outstanding
|
|
|
31,489,201
|
|
|
|
18,907,299
|
|
|
|
31,489,201
|
|
|
|
18,907,299
|
|
Book Value Per Share
(2)
|
|
$
|
11.56
|
|
|
$
|
10.75
|
|
|
$
|
11.56
|
|
|
$
|
10.75
|
|
PERFORMANCE RATIOS:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Return on Average Assets
(3) (4)
|
|
|
1.87
|
%
|
|
|
0.62
|
%
|
|
|
3.69
|
%
|
|
|
1.08
|
%
|
Return on Average Stockholders Equity
(3) (5)
|
|
|
14.97
|
%
|
|
|
8.30
|
%
|
|
|
32.52
|
%
|
|
|
15.96
|
%
|
Efficiency Ratio
(6)
|
|
|
59.81
|
%
|
|
|
60.55
|
%
|
|
|
62.32
|
%
|
|
|
66.63
|
%
|
Net Interest Spread
(7)
|
|
|
3.34
|
%
|
|
|
3.34
|
%
|
|
|
3.35
|
%
|
|
|
3.29
|
%
|
Net Interest Margin
(8)
|
|
|
3.69
|
%
|
|
|
3.75
|
%
|
|
|
3.74
|
%
|
|
|
3.69
|
%
|
Average Stockholders Equity to Average Total Assets
|
|
|
12.47
|
%
|
|
|
7.44
|
%
|
|
|
11.35
|
%
|
|
|
6.74
|
%
|
SELECTED CAPITAL RATIOS:
(9)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Risk-Based Capital Ratio:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Hanmi Financial
|
|
|
20.79
|
%
|
|
|
14.58
|
%
|
|
|
|
|
|
|
|
|
Hanmi Bank
|
|
|
19.91
|
%
|
|
|
14.72
|
%
|
|
|
|
|
|
|
|
|
Tier 1 Risk-Based Capital Ratio:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Hanmi Financial
|
|
|
19.52
|
%
|
|
|
12.63
|
%
|
|
|
|
|
|
|
|
|
Hanmi Bank
|
|
|
18.63
|
%
|
|
|
13.42
|
%
|
|
|
|
|
|
|
|
|
Tier 1 Leverage Ratio:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Hanmi Financial
|
|
|
14.71
|
%
|
|
|
9.80
|
%
|
|
|
|
|
|
|
|
|
Hanmi Bank
|
|
|
14.05
|
%
|
|
|
10.41
|
%
|
|
|
|
|
|
|
|
|
ASSET QUALITY RATIOS:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-Performing Loans to Total Gross Loans
(10)
|
|
|
2.28
|
%
|
|
|
3.92
|
%
|
|
|
2.28
|
%
|
|
|
3.92
|
%
|
Non-Performing Assets to Total Assets
(11)
|
|
|
1.59
|
%
|
|
|
2.91
|
%
|
|
|
1.59
|
%
|
|
|
2.91
|
%
|
Net Loan Charge-Offs to Average Gross Loans
(12)
|
|
|
1.21
|
%
|
|
|
2.98
|
%
|
|
|
2.06
|
%
|
|
|
3.32
|
%
|
Allowance for Loan Losses to Total Gross Loans
|
|
|
3.38
|
%
|
|
|
5.06
|
%
|
|
|
3.38
|
%
|
|
|
5.06
|
%
|
Allowance for Loan Losses to Total Non-Performing Loans
|
|
|
147.92
|
%
|
|
|
129.24
|
%
|
|
|
147.92
|
%
|
|
|
129.24
|
%
|
(1)
|
Loans are net of deferred fees and related direct costs
|
(2)
|
Total stockholders equity divided by common shares outstanding
|
(3)
|
Calculation based on annualized net income
|
(4)
|
Net income divided by average total assets
|
(5)
|
Net income divided by average stockholders equity
|
(6)
|
Total non-interest expenses divided by the sum of net interest income before provision for credit losses and total non-interest income
|
(7)
|
Average yield earned on interest-earning assets less average rate paid on interest-bearing liabilities. Computed on a tax-equivalent basis using an effective marginal rate of 35 percent
|
(8)
|
Net interest income before provision for credit losses divided by average interest-earning assets. Computed on a tax-equivalent basis using an effective marginal rate of 35 percent
|
(9)
|
The required ratios for a well-capitalized institution, as defined by regulations of the Board of Governors of the Federal Reserve System, are 10 percent for the Total Risk-Based Capital Ratio
(total capital divided by total risk-weighted assets); 6 percent for the Tier 1 Risk-Based Capital Ratio (Tier 1 capital divided by total risk-weighted assets); and 5 percent for the Tier 1 Leverage Ratio (Tier 1 capital divided by average total
assets)
|
(10)
|
Non-performing loans consist of non-accrual loans and loans past due 90 days or more and still accruing interest
|
(11)
|
Non-performing assets consist of non-performing loans (see footnote (10) above) and other real estate owned
|
(12)
|
Calculation based on annualized net loan charge-offs
|
Non-GAAP
Financial Measures
Tangible Stockholders Equity to Tangible Assets Ratio
The ratio of tangible stockholders equity to tangible assets is supplemental financial information determined by a method other than
in accordance with U.S. generally accepted accounting principles (GAAP). This non-GAAP measure is used by management in the analysis of Hanmi Banks capital strength. Tangible equity is calculated by subtracting goodwill and other
intangible assets from total stockholders equity. Banking and financial institution regulators also exclude goodwill and other intangible assets from total stockholders equity when assessing the capital adequacy of a financial
institution. Management believes
35
the presentation of this financial measure excluding the impact of these items provides useful supplemental information that is essential to a proper understanding of the capital strength of
Hanmi Financial and the Bank. This disclosure should not be viewed as a substitution for results determined in accordance with GAAP, nor is it necessarily comparable to non-GAAP performance measures that may be presented by other companies.
The following table reconciles this non-GAAP performance measure to the GAAP performance measure for the periods indicated:
HANMI FINANCIAL CORPORATION
|
|
|
|
|
|
|
|
|
|
|
As of September 30,
|
|
|
|
2012
|
|
|
2011
|
|
|
|
(In Thousands)
|
|
Total Assets
|
|
$
|
2,841,857
|
|
|
$
|
2,686,570
|
|
Less Other Intangible Assets
|
|
|
(1,376
|
)
|
|
|
(1,664
|
)
|
|
|
|
|
|
|
|
|
|
Tangible Assets
|
|
$
|
2,840,481
|
|
|
$
|
2,684,906
|
|
|
|
|
|
|
|
|
|
|
Total Stockholders Equity
|
|
$
|
363,987
|
|
|
$
|
203,203
|
|
Less Other Intangible Assets
|
|
|
(1,376
|
)
|
|
|
(1,664
|
)
|
|
|
|
|
|
|
|
|
|
Tangible Stockholders Equity
|
|
$
|
362,611
|
|
|
$
|
201,539
|
|
|
|
|
|
|
|
|
|
|
Total Stockholders Equity to Total Assets Ratio
|
|
|
12.81
|
%
|
|
|
7.56
|
%
|
Tangible Common Equity to Tangible Assets Ratio
|
|
|
12.77
|
%
|
|
|
7.51
|
%
|
Common Shares Outstanding
|
|
|
31,489,201
|
|
|
|
18,907,299
|
|
Tangible Common Equity Per Common Share
|
|
$
|
11.52
|
|
|
$
|
10.66
|
|
HANMI BANK
|
|
|
|
|
|
|
|
|
|
|
As of September 30,
|
|
|
|
2012
|
|
|
2011
|
|
|
|
(In Thousands)
|
|
Total Assets
|
|
$
|
2,836,931
|
|
|
$
|
2,681,517
|
|
Less Other Intangible Assets
|
|
|
|
|
|
|
(94
|
)
|
|
|
|
|
|
|
|
|
|
Tangible Assets
|
|
$
|
2,836,931
|
|
|
$
|
2,681,423
|
|
|
|
|
|
|
|
|
|
|
Total Stockholders Equity
|
|
$
|
424,546
|
|
|
$
|
285,250
|
|
Less Other Intangible Assets
|
|
|
|
|
|
|
(94
|
)
|
|
|
|
|
|
|
|
|
|
Tangible Stockholders Equity
|
|
$
|
424,546
|
|
|
$
|
285,156
|
|
|
|
|
|
|
|
|
|
|
Total Stockholders Equity to Total Assets Ratio
|
|
|
14.96
|
%
|
|
|
10.64
|
%
|
Tangible Common Equity to Tangible Assets Ratio
|
|
|
14.96
|
%
|
|
|
10.63
|
%
|
36
EXECUTIVE OVERVIEW
Outlook for 2012
As set forth in our 2011 Annual
Report on Form 10-K, our strategic focuses for 2012 will be to enhance our capital position, continue to improve our credit quality and fully comply with all of the requirements of the Written Agreement.
We believe that our proactive initiatives to manage credit risk exposure have resulted in improvement of our asset quality over the past
several quarters. We are committed to refining our credit risk management systems to meet the challenges of our changing economic environment.
Based on our current liquidity and capital position, we have begun to consider strategic changes. We are currently planning to develop innovative new products and services as well as generate quality new
loans to expand our existing customer base with the goal of improving our profitability. In the event that the Written Agreement is lifted, we intend to pay interest in arrears on our outstanding junior subordinated debentures to bring them current.
RESULTS OF OPERATIONS
Net Interest Income
Our
primary source of revenue is net interest income, which is the difference between interest and fees derived from earning assets, and interest paid on liabilities obtained to fund those assets. Our net interest income is affected by changes in
the level and mix of interest-earning assets and interest-bearing liabilities, referred to as volume changes. Net interest income is also affected by changes in the yields earned on assets and rates paid on liabilities, referred to as rate
changes. Interest rates charged on our loans are affected principally by changes to interest rates, the demand for such loans, the supply of money available for lending purposes, and other competitive factors. Those factors are, in turn,
affected by general economic conditions and other factors beyond our control, such as federal economic policies, the general supply of money in the economy, legislative tax policies, governmental budgetary matters, and the actions of the Federal
Reserve Board (FRB).
Net interest income before provision for credit losses declined by $240,000, or 1.0 percent,
to $24.9 million for the third quarter of 2012, compared to net interest income before provision for credit losses of $25.2 million for the third quarter of 2011. Net interest income before provision for credit losses for the nine months ended
September 30, 2012 was $74.6 million, a decline of $2.1 million, from net interest income before provision for credit losses of $76.7 million for the nine months ended September 30, 2011. The decrease in net interest income from 2011
to 2012 was primarily attributable to the reduction in total loans and a decline in loan yields as new loans were originated at lower yields than loans existing in the portfolio. Net interest margin of 3.69 percent, for the third quarter of 2012,
was 6 basis points lower than net interest margin of 3.75 percent for the third quarter of 2011. Net interest margin for the nine months of 2012 was 3.74 percent, an increase of 5 basis points from 3.69 percent for the first nine months of
2011.
Interest income decreased by $2.3 million, or 7.2 percent, to $29.4 million for the third quarter of 2012, compared to
$31.7 million for the third quarter of 2011. Interest income for the first nine months of 2012 was also declined by $8.5 million, to $89.7 million, from $98.2 million for the first nine months of 2011. The decrease in interest income was also
primarily due to a decrease in loans and a decline in loan yields. Average net loan balances decreased by $119.1 million, to $1.96 billion for the third quarter of 2012, compared to $2.08 billion for the third quarter of 2011. Average net
loan balances for the nine months ended September 30, 2012 was $1.98 billion, a decline from $2.15 billion for the nine months ended September 30, 2011. The decrease in average net loans was a result of managements strategy to sell
problems loans as well as SBA loans guaranteed portion through the nine months of 2012, in addition to an increase in loans that were paid off during the period.
Yield on average net loans decreased to 5.44 percent for the third quarter of 2012, down from 5.60 percent for the third quarter of 2011. Yield on average net loans was 5.50 percent and 5.57 percent for
the nine months ended September 30, 2012 and 2011, respectively. The decrease in loan yields was a result of new loans originated at lower yields due to the overall decline in loan interest rates and stiff competition during the third quarter
of 2012 and first nine months of 2012. Yield on total investment securities and other earning assets decreased to 1.45 percent and 1.60 percent, for the three and nine months ended September 30, 2012, respectively, from 1.59 percent and
1.83 percent for the three and nine months ended September 30, 2011, respectively. The decline was due to the reinvestment of proceeds from securities sold at lower yields and an increase in the balance of lower yielding fed funds sold and
interest-bearing deposits in other banks.
Interest expense decreased $2.0 million, or 31.2 percent, to $4.5 million for the
third quarter of 2012 compared to $6.5 million for the third quarter of 2011. Interest expense for the first nine months of 2012 was $15.0 million, a decline of $6.4 million from $21.4 million for the first nine months of 2011. The average balance
of our interest bearing liabilities decreased $93.1 million
37
to $1.77 billion for the third quarter of 2012, compared to $1.86 billion for the third quarter of 2011, and decreased from $2.01 billion for the first nine months of 2011, to $1.75 billion for
the first nine months of 2012. The decrease is attributable to the Companys strategy of lowering overall cost of funds by allowing higher cost deposits to run off (i.e., not renew) when they mature. Total cost of interest bearing
liabilities decreased to 1.01 percent and 1.14 percent for the three and nine months ended September 30, 2012, respectively, from 1.39 percent and 1.43 percent for the three and nine months ended September 30, 2012, respectively. The
decline in cost of funds resulted from an improved deposits mix, reduced interest rates on deposits, and the reduction of higher costing time and money market deposits throughout the first nine months 2012.
38
The following table shows the average balances of assets, liabilities and stockholders
equity; the amount of interest income and interest expense; the average yield or rate for each category of interest-earning assets and interest-bearing liabilities; and the net interest spread and the net interest margin for the periods indicated.
All average balances are daily average balances.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
|
|
September 30, 2012
|
|
|
September 30, 2011
|
|
|
|
Average
Balance
|
|
|
Interest
Income/
Expense
|
|
|
Average
Rate/
Yield
|
|
|
Average
Balance
|
|
|
Interest
Income/
Expense
|
|
|
Average
Rate/
Yield
|
|
|
|
(In Thousands)
|
|
ASSETS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest-Earning Assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross Loans, Net of Deferred Loan Fees
(1)
|
|
$
|
1,958,819
|
|
|
$
|
26,781
|
|
|
|
5.44
|
%
|
|
$
|
2,077,934
|
|
|
$
|
29,355
|
|
|
|
5.60
|
%
|
Municipal Securities Taxable
|
|
|
44,887
|
|
|
|
452
|
|
|
|
4.03
|
%
|
|
|
10,732
|
|
|
|
115
|
|
|
|
4.29
|
%
|
Municipal Securities Tax Exempt
(2)
|
|
|
12,587
|
|
|
|
151
|
|
|
|
4.79
|
%
|
|
|
4,526
|
|
|
|
60
|
|
|
|
5.30
|
%
|
Obligations of Other U.S. Government Agencies
|
|
|
74,345
|
|
|
|
280
|
|
|
|
1.51
|
%
|
|
|
106,029
|
|
|
|
387
|
|
|
|
1.46
|
%
|
Other Debt Securities
|
|
|
254,694
|
|
|
|
1,260
|
|
|
|
1.98
|
%
|
|
|
273,092
|
|
|
|
1,519
|
|
|
|
2.22
|
%
|
Equity Securities
|
|
|
30,886
|
|
|
|
178
|
|
|
|
2.31
|
%
|
|
|
32,491
|
|
|
|
129
|
|
|
|
1.59
|
%
|
Federal Funds Sold
|
|
|
17,925
|
|
|
|
20
|
|
|
|
0.44
|
%
|
|
|
4,734
|
|
|
|
5
|
|
|
|
0.42
|
%
|
Term Federal Funds Sold
|
|
|
78,967
|
|
|
|
191
|
|
|
|
0.96
|
%
|
|
|
42,913
|
|
|
|
49
|
|
|
|
0.46
|
%
|
Interest-Bearing Deposits in Other Banks
|
|
|
221,461
|
|
|
|
142
|
|
|
|
0.26
|
%
|
|
|
108,325
|
|
|
|
75
|
|
|
|
0.28
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Interest-Earning Assets
|
|
|
2,694,571
|
|
|
|
29,455
|
|
|
|
4.35
|
%
|
|
|
2,660,776
|
|
|
|
31,694
|
|
|
|
4.73
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Noninterest-Earning Assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and Cash Equivalents
|
|
|
70,591
|
|
|
|
|
|
|
|
|
|
|
|
67,153
|
|
|
|
|
|
|
|
|
|
Allowance for Loan Losses
|
|
|
(71,481
|
)
|
|
|
|
|
|
|
|
|
|
|
(107,456
|
)
|
|
|
|
|
|
|
|
|
Other Assets
|
|
|
136,097
|
|
|
|
|
|
|
|
|
|
|
|
80,156
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Noninterest-Earning Assets
|
|
|
135,207
|
|
|
|
|
|
|
|
|
|
|
|
39,853
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
TOTAL ASSETS
|
|
|
2,829,778
|
|
|
|
|
|
|
|
|
|
|
|
2,700,629
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES AND STOCKHOLDERS EQUITY
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest-Bearing Liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deposits:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Savings
|
|
|
111,432
|
|
|
|
516
|
|
|
|
1.84
|
%
|
|
|
107,643
|
|
|
|
674
|
|
|
|
2.48
|
%
|
Money Market Checking and NOW Accounts
|
|
|
555,454
|
|
|
|
859
|
|
|
|
0.62
|
%
|
|
|
475,712
|
|
|
|
805
|
|
|
|
0.67
|
%
|
Time Deposits of $100,000 or More
|
|
|
660,036
|
|
|
|
1,467
|
|
|
|
0.88
|
%
|
|
|
854,894
|
|
|
|
3,237
|
|
|
|
1.50
|
%
|
Other Time Deposits
|
|
|
354,305
|
|
|
|
797
|
|
|
|
0.89
|
%
|
|
|
334,212
|
|
|
|
1,014
|
|
|
|
1.20
|
%
|
FHLB Advances
|
|
|
3,076
|
|
|
|
40
|
|
|
|
5.17
|
%
|
|
|
3,437
|
|
|
|
46
|
|
|
|
5.31
|
%
|
Other Borrowings
|
|
|
|
|
|
|
|
|
|
|
0.00
|
%
|
|
|
1,543
|
|
|
|
|
|
|
|
0.00
|
%
|
Junior Subordinated Debentures
|
|
|
82,406
|
|
|
|
804
|
|
|
|
3.88
|
%
|
|
|
82,406
|
|
|
|
739
|
|
|
|
3.56
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Interest-Bearing Liabilities
|
|
|
1,766,709
|
|
|
|
4,483
|
|
|
|
1.01
|
%
|
|
|
1,859,847
|
|
|
|
6,515
|
|
|
|
1.39
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Noninterest-Bearing Liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Demand Deposits
|
|
|
680,307
|
|
|
|
|
|
|
|
|
|
|
|
611,178
|
|
|
|
|
|
|
|
|
|
Other Liabilities
|
|
|
29,782
|
|
|
|
|
|
|
|
|
|
|
|
28,633
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Noninterest-Bearing Liabilities
|
|
|
710,089
|
|
|
|
|
|
|
|
|
|
|
|
639,811
|
|
|
|
|
|
|
|
|
|
Total Liabilities
|
|
|
2,476,798
|
|
|
|
|
|
|
|
|
|
|
|
2,499,658
|
|
|
|
|
|
|
|
|
|
Stockholders Equity
|
|
|
352,980
|
|
|
|
|
|
|
|
|
|
|
|
200,971
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
TOTAL LIABILITIES AND STOCKHOLDERS EQUITY
|
|
$
|
2,829,778
|
|
|
|
|
|
|
|
|
|
|
$
|
2,700,629
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NET INTEREST INCOME
|
|
|
|
|
|
$
|
24,972
|
|
|
|
|
|
|
|
|
|
|
$
|
25,179
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
COST OF DEPOSITS
|
|
|
|
|
|
|
|
|
|
|
0.61
|
%
|
|
|
|
|
|
|
|
|
|
|
0.95
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NET INTEREST SPREAD
(3)
|
|
|
|
|
|
|
|
|
|
|
3.34
|
%
|
|
|
|
|
|
|
|
|
|
|
3.34
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NET INTEREST MARGIN
(4)
|
|
|
|
|
|
|
|
|
|
|
3.69
|
%
|
|
|
|
|
|
|
|
|
|
|
3.75
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1)
|
Loans are net of deferred fees and related direct costs, but excluding the allowance for loan losses. Non-accrual loans are included in the average loan balance. Loan fees have been included in the
calculation of interest income. Loan fees were $282,000 and $557,000 for the three months ended September 30, 2012 and 2011, respectively.
|
(2)
|
Computed on a tax-equivalent basis using an effective marginal rate of 35 percent.
|
(3)
|
Represents the average rate earned on interest-earning assets less the average rate paid on interest-bearing liabilities.
|
(4)
|
Represents annualized net interest income as a percentage of average interest-earning assets.
|
39
The table below shows changes in interest income and interest expense and the amounts
attributable to variations in interest rates and volumes for the periods indicated. The variances attributable to simultaneous volume and rate changes have been allocated to the change due to volume and the change due to rate categories in
proportion to the relationship of the absolute dollar amount attributable solely to the change in volume and to the change in rate.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended September 30, 2012 vs.
Three Months
Ended September 30, 2011
|
|
|
|
Increases (Decreases) Due to Change in
|
|
|
|
Volume
|
|
|
Rate
|
|
|
Total
|
|
|
|
(In Thousands)
|
|
Interest and Dividend Income:
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross Loans, Net of Deferred Loan Fees
|
|
$
|
(1,697
|
)
|
|
$
|
(877
|
)
|
|
$
|
(2,574
|
)
|
Municipal Securities-Taxable
|
|
|
344
|
|
|
|
(7
|
)
|
|
|
337
|
|
Municipal Securities-Tax Exempt
|
|
|
97
|
|
|
|
(6
|
)
|
|
|
91
|
|
Obligations of Other U.S. Government Agencies
|
|
|
(119
|
)
|
|
|
12
|
|
|
|
(107
|
)
|
Other Debt Securities
|
|
|
(98
|
)
|
|
|
(161
|
)
|
|
|
(259
|
)
|
Equity Securities
|
|
|
(6
|
)
|
|
|
55
|
|
|
|
49
|
|
Federal Funds Sold
|
|
|
15
|
|
|
|
0
|
|
|
|
15
|
|
Term Federal Funds Sold
|
|
|
61
|
|
|
|
81
|
|
|
|
142
|
|
Interest-Bearing Deposits in Other Banks
|
|
|
74
|
|
|
|
(7
|
)
|
|
|
67
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Interest and Dividend Income
|
|
|
(1,329
|
)
|
|
|
(910
|
)
|
|
|
(2,239
|
)
|
Interest Expense:
|
|
|
|
|
|
|
|
|
|
|
|
|
Savings
|
|
|
23
|
|
|
|
(181
|
)
|
|
|
(158
|
)
|
Money Market Checking and NOW Accounts
|
|
|
126
|
|
|
|
(72
|
)
|
|
|
54
|
|
Time Deposits of 100,000 or More
|
|
|
(630
|
)
|
|
|
(1,140
|
)
|
|
|
(1,770
|
)
|
Other Time Deposits
|
|
|
58
|
|
|
|
(275
|
)
|
|
|
(217
|
)
|
FHLB Advances
|
|
|
(5
|
)
|
|
|
(1
|
)
|
|
|
(6
|
)
|
Other Borrowings
|
|
|
|
|
|
|
|
|
|
|
|
|
Junior Subordinated Debentures
|
|
|
|
|
|
|
65
|
|
|
|
65
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Interest Expense
|
|
|
(428
|
)
|
|
|
(1,604
|
)
|
|
|
(2,032
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Change in Net Interest Income
|
|
$
|
(1,757
|
)
|
|
$
|
(2,514
|
)
|
|
$
|
(4,271
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the three months ended September 30, 2012 and 2011, net interest income before provision for
credit losses on a tax-equivalent basis was $25.0 million and $25.2 million, respectively. Interest income decreased 7.1 percent to $29.5 million for the three months ended September 30, 2012 from $31.7 million for the same period in 2011.
Interest expense decreased 31.2 percent to $4.5 million for the three months ended September 30, 2012 from $6.5 million for the same period in 2011. The net interest spread and net interest margin for the three months ended September 30,
2012 were 3.34 percent and 3.69 percent, respectively, compared to 3.34 percent and 3.75 percent, respectively, for the same period in 2011. The decrease in net interest income was primarily due to the decrease in gross loans resulting from the
disposition of non-performing loans under the credit quality improvement strategy, coupled with relatively weak loan demand in current challenging business and economic conditions. This decrease was partially offset by lower deposit costs resulting
from the replacement of high-cost promotional time deposits with low-cost deposit products through a series of core deposit campaigns.
Average gross loans decreased by $119.1 million, or 5.7 percent, to $1.96 billion for the three months ended September 30, 2012 from $2.08 billion for the same period in 2011. Average investment
securities decreased by $7.9 million, or 2.0 percent, to $386.5 million for the three months ended September 30, 2012 from $394.4 million for the same period in 2011. Average interest-earning assets increased by $33.8 million, or 1.3 percent,
to $2.69 billion for the three months ended September 30, 2012 from $2.66 billion for the same period in 2011. The increase in average interest earning assets was mainly due to an increase in overall liquidity position resulting from the
capital raise of $77.1 million, in net proceeds, during the fourth quarter of 2011, partially offset by a $22.1 million decrease in total deposits. The average interest-bearing liabilities decreased by $93.1 million, or 5.0 percent, to $1.77 billion
for the three months ended September 30, 2012, from $1.86 billion for the same period in 2011.
The average yield on
interest-earning assets decreased by 38 basis points to 4.35 percent for the three months ended September 30, 2012, from 4.73 percent for the three months ended September 30, 2011, primarily due to lower yields on the loan portfolio in the
current low interest rate environment and an excess cash balance. Total loan interest and fee income decreased by $2.6 million, or 8.8 percent, to $26.8 million for the three months ended September 30, 2012, from $29.4 million for the three
months ended September 30, 2011, due primarily to a 5.7 percent decrease in the average gross loans and lower interest rates on new loans due to rising competition in the market. The average yield on loans decreased to 5.44 percent for the
three months ended September 30, 2012, from 5.60 percent for the three months ended September 30, 2011. The average cost on interest-bearing liabilities decreased by 37 basis points to 1.01 percent for the three months ended
September 30, 2012, from 1.39 percent for the three months ended September 30, 2011. This decrease was primarily due to a continued shift in funding sources toward lower-cost funds through disciplined deposit pricing while reducing
wholesale funds and rate sensitive deposits. There were no brokered deposits for the three months ended September 30, 2012 and 2011.
40
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine Months Ended
|
|
|
|
September 30, 2012
|
|
|
September 30, 2011
|
|
|
|
Average
Balance
|
|
|
Interest
Income/
Expense
|
|
|
Average
Rate/
Yield
|
|
|
Average
Balance
|
|
|
Interest
Income/
Expense
|
|
|
Average
Rate/
Yield
|
|
|
|
(In Thousands)
|
|
ASSETS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest-Earning Assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross Loans, Net of Deferred Loan Fees
(1)
|
|
$
|
1,982,369
|
|
|
$
|
81,564
|
|
|
|
5.50
|
%
|
|
$
|
2,149,101
|
|
|
$
|
89,508
|
|
|
|
5.57
|
%
|
Municipal Securities Taxable
|
|
|
44,881
|
|
|
|
1,340
|
|
|
|
3.98
|
%
|
|
|
13,930
|
|
|
|
433
|
|
|
|
4.14
|
%
|
Municipal Securities Tax Exempt
(2)
|
|
|
12,959
|
|
|
|
460
|
|
|
|
4.73
|
%
|
|
|
4,373
|
|
|
|
179
|
|
|
|
5.46
|
%
|
Obligations of Other U.S. Government Agencies
|
|
|
75,058
|
|
|
|
985
|
|
|
|
1.75
|
%
|
|
|
134,779
|
|
|
|
1,639
|
|
|
|
1.62
|
%
|
Other Debt Securities
|
|
|
276,646
|
|
|
|
3,955
|
|
|
|
1.91
|
%
|
|
|
301,478
|
|
|
|
5,717
|
|
|
|
2.53
|
%
|
Equity Securities
|
|
|
31,486
|
|
|
|
512
|
|
|
|
2.17
|
%
|
|
|
34,030
|
|
|
|
394
|
|
|
|
1.54
|
%
|
Federal Funds Sold
|
|
|
16,545
|
|
|
|
53
|
|
|
|
0.43
|
%
|
|
|
6,160
|
|
|
|
22
|
|
|
|
0.48
|
%
|
Term Federal Funds Sold
|
|
|
91,898
|
|
|
|
684
|
|
|
|
0.99
|
%
|
|
|
25,542
|
|
|
|
94
|
|
|
|
0.49
|
%
|
Interest-Bearing Deposits in Other Banks
|
|
|
139,458
|
|
|
|
269
|
|
|
|
0.26
|
%
|
|
|
115,722
|
|
|
|
243
|
|
|
|
0.28
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Interest-Earning Assets
|
|
|
2,671,300
|
|
|
|
89,822
|
|
|
|
4.49
|
%
|
|
|
2,785,115
|
|
|
|
98,229
|
|
|
|
4.72
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Noninterest-Earning Assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and Cash Equivalents
|
|
|
70,303
|
|
|
|
|
|
|
|
|
|
|
|
67,791
|
|
|
|
|
|
|
|
|
|
Allowance for Loan Losses
|
|
|
(79,502
|
)
|
|
|
|
|
|
|
|
|
|
|
(125,990
|
)
|
|
|
|
|
|
|
|
|
Other Assets
|
|
|
103,207
|
|
|
|
|
|
|
|
|
|
|
|
86,949
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Noninterest-Earning Assets
|
|
|
94,008
|
|
|
|
|
|
|
|
|
|
|
|
28,750
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
TOTAL ASSETS
|
|
|
2,765,308
|
|
|
|
|
|
|
|
|
|
|
|
2,813,865
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES AND STOCKHOLDERS EQUITY
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest-Bearing Liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deposits:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Savings
|
|
|
109,605
|
|
|
|
1,675
|
|
|
|
2.04
|
%
|
|
|
110,795
|
|
|
|
2,157
|
|
|
|
2.60
|
%
|
Money Market Checking and NOW Accounts
|
|
|
512,086
|
|
|
|
2,313
|
|
|
|
0.60
|
%
|
|
|
471,179
|
|
|
|
2,817
|
|
|
|
0.80
|
%
|
Time Deposits of $100,000 or More
|
|
|
700,443
|
|
|
|
5,978
|
|
|
|
1.14
|
%
|
|
|
943,366
|
|
|
|
10,773
|
|
|
|
1.53
|
%
|
Other Time Deposits
|
|
|
346,925
|
|
|
|
2,545
|
|
|
|
0.98
|
%
|
|
|
308,558
|
|
|
|
2,910
|
|
|
|
1.26
|
%
|
FHLB Advances
|
|
|
3,478
|
|
|
|
126
|
|
|
|
4.84
|
%
|
|
|
87,369
|
|
|
|
618
|
|
|
|
0.95
|
%
|
Other Borrowings
|
|
|
|
|
|
|
|
|
|
|
0.00
|
%
|
|
|
1,437
|
|
|
|
1
|
|
|
|
0.09
|
%
|
Junior Subordinated Debentures
|
|
|
82,406
|
|
|
|
2,400
|
|
|
|
3.89
|
%
|
|
|
82,406
|
|
|
|
2,148
|
|
|
|
3.49
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Interest-Bearing Liabilities
|
|
|
1,754,943
|
|
|
|
15,037
|
|
|
|
1.14
|
%
|
|
|
2,005,110
|
|
|
|
21,424
|
|
|
|
1.43
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Noninterest-Bearing Liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Demand Deposits
|
|
|
666,712
|
|
|
|
|
|
|
|
|
|
|
|
589,296
|
|
|
|
|
|
|
|
|
|
Other Liabilities
|
|
|
29,837
|
|
|
|
|
|
|
|
|
|
|
|
29,801
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Noninterest-Bearing Liabilities
|
|
|
696,549
|
|
|
|
|
|
|
|
|
|
|
|
619,097
|
|
|
|
|
|
|
|
|
|
Total Liabilities
|
|
|
2,451,492
|
|
|
|
|
|
|
|
|
|
|
|
2,624,207
|
|
|
|
|
|
|
|
|
|
Stockholders Equity
|
|
|
313,816
|
|
|
|
|
|
|
|
|
|
|
|
189,658
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
TOTAL LIABILITIES AND STOCKHOLDERS EQUITY
|
|
$
|
2,765,308
|
|
|
|
|
|
|
|
|
|
|
$
|
2,813,865
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NET INTEREST INCOME
|
|
|
|
|
|
$
|
74,785
|
|
|
|
|
|
|
|
|
|
|
$
|
76,805
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
COST OF DEPOSITS
|
|
|
|
|
|
|
|
|
|
|
0.72
|
%
|
|
|
|
|
|
|
|
|
|
|
1.03
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NET INTEREST SPREAD
(3)
|
|
|
|
|
|
|
|
|
|
|
3.35
|
%
|
|
|
|
|
|
|
|
|
|
|
3.29
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NET INTEREST MARGIN
(4)
|
|
|
|
|
|
|
|
|
|
|
3.74
|
%
|
|
|
|
|
|
|
|
|
|
|
3.69
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1)
|
Loans are net of deferred fees and related direct costs, but excluding the allowance for loan losses. Non-accrual loans are included in the average loan balance. Loan fees have been included in the
calculation of interest income. Loan fees were $1.0 million and $1.6 million for the nine months ended September 30, 2012 and 2011, respectively.
|
(2)
|
Computed on a tax-equivalent basis using an effective marginal rate of 35 percent.
|
(3)
|
Represents the average rate earned on interest-earning assets less the average rate paid on interest-bearing liabilities.
|
(4)
|
Represents annualized net interest income as a percentage of average interest-earning assets.
|
41
The table below shows changes in interest income and interest expense and the amounts
attributable to variations in interest rates and volumes for the periods indicated. The variances attributable to simultaneous volume and rate changes have been allocated to the change due to volume and the change due to rate categories in
proportion to the relationship of the absolute dollar amount attributable solely to the change in volume and to the change in rate.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine Months Ended September 30, 2012 vs.
Nine Months Ended
September 30, 2011
|
|
|
Increases (Decreases) Due to Change in
|
|
|
|
Volume
|
|
|
Rate
|
|
|
Total
|
|
|
|
(In Thousands)
|
|
Interest and Dividend Income:
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross Loans, Net of Deferred Loan Fees
|
|
$
|
(6,779
|
)
|
|
$
|
(1,165
|
)
|
|
$
|
(7,944
|
)
|
Municipal Securities-Taxable
|
|
|
902
|
|
|
|
5
|
|
|
|
907
|
|
Municipal Securities-Tax Exempt
|
|
|
278
|
|
|
|
3
|
|
|
|
281
|
|
Obligations of Other U.S. Government Agencies
|
|
|
(628
|
)
|
|
|
(26
|
)
|
|
|
(654
|
)
|
Other Debt Securities
|
|
|
(441
|
)
|
|
|
(1,321
|
)
|
|
|
(1,762
|
)
|
Equity Securities
|
|
|
2
|
|
|
|
116
|
|
|
|
118
|
|
Federal Funds Sold
|
|
|
31
|
|
|
|
(0
|
)
|
|
|
31
|
|
Term Federal Funds Sold
|
|
|
423
|
|
|
|
167
|
|
|
|
590
|
|
Interest-Bearing Deposits in Other Banks
|
|
|
28
|
|
|
|
(2
|
)
|
|
|
26
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Interest and Dividend Income
|
|
|
(6,184
|
)
|
|
|
(2,223
|
)
|
|
|
(8,407
|
)
|
Interest Expense:
|
|
|
|
|
|
|
|
|
|
|
|
|
Savings
|
|
|
(23
|
)
|
|
|
(459
|
)
|
|
|
(482
|
)
|
Money Market Checking and NOW Accounts
|
|
|
(9
|
)
|
|
|
(495
|
)
|
|
|
(504
|
)
|
Time Deposits of 100,000 or More
|
|
|
(2,404
|
)
|
|
|
(2,391
|
)
|
|
|
(4,795
|
)
|
Other Time Deposits
|
|
|
28
|
|
|
|
(393
|
)
|
|
|
(365
|
)
|
FHLB Advances
|
|
|
(417
|
)
|
|
|
(75
|
)
|
|
|
(492
|
)
|
Other Borrowings
|
|
|
|
|
|
|
(1
|
)
|
|
|
(1
|
)
|
Junior Subordinated Debentures
|
|
|
|
|
|
|
252
|
|
|
|
252
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Interest Expense
|
|
|
(2,825
|
)
|
|
|
(3,562
|
)
|
|
|
(6,387
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Change in Net Interest Income
|
|
$
|
(9,009
|
)
|
|
$
|
(5,785
|
)
|
|
$
|
(14,794
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the nine months ended September 30, 2012 and 2011, net interest income before provision for
credit losses on a tax-equivalent basis was $74.8 million and $76.8 million, respectively. Interest income decreased 8.6 percent to $89.8 million for the nine months ended September 30, 2012 from $98.2 million for the same period in 2011.
Interest expense decreased 29.9 percent to $15.0 million for the nine months ended September 30, 2012 from $21.4 million for the same period in 2011. The net interest spread and net interest margin for the nine months ended September 30,
2012 were 3.35 percent and 3.74 percent, respectively, compared to 3.29 percent and 3.69 percent, respectively, for the same period in 2011. The decrease in net interest income was primarily due to the decrease in gross loans resulting from the
disposition of non-performing loans under the credit quality improvement strategy, coupled with relatively weak loan demand in current challenging business and economic conditions. This decrease was partially offset by lower deposit costs resulting
from the replacement of high-cost promotional time deposits with low-cost deposit products through a series of core deposit campaigns.
Average gross loans decreased by $166.7 million, or 7.8 percent, to $1.98 billion for the nine months ended September 30, 2012 from $2.15 billion for the same period in 2011. Average investment
securities decreased by $45.0 million, or 9.9 percent, to $409.5 million for the nine months ended September 30, 2012 from $454.6 million for the same period in 2011. Average interest-earning assets decreased by $113.8 million, or 4.1 percent,
to $2.67 billion for the nine months ended September 30, 2012 from $2.79 billion for the same period in 2011. The decrease in average interest earning assets was a direct result of our balance sheet deleveraging and credit quality improvement
strategy during 2011and 2012 through the disposition of problem assets while maintaining a strong level of liquidity. Consistent with this strategy, the average interest-bearing liabilities decreased by $250.2 million, or 12.5 percent, to $1.75
billion for the nine months ended September 30, 2012, from $2.01 billion for the same period in 2011. Average Federal Home Loan Bank advances decreased by $83.9 million, or 96.0 percent, to $3.5 million for the nine months ended
September 30, 2012, from $87.4 million for the same period in 2011.
The average yield on interest-earning assets
decreased by 23 basis points to 4.49 percent for the nine months ended September 30, 2012, from 4.72 percent for the nine months ended September 30, 2011, primarily due to lower yields on investment securities and loan portfolio yield in
the current low interest rate environment. Total loan interest and fee income decreased by $7.9 million, or 8.8 percent, to $81.6 million for the nine months ended September 30, 2012, from $89.5 million for the nine months ended
September 30,2011, due primarily to a 7.8 percent decrease in the average gross loans.
The average yield on loans
decreased by 7 basis points to 5.50 percent for the nine months ended September 30, 2012, from 5.57 percent for the nine months ended September 30, 2011. The average cost on interest-bearing liabilities decreased by 29 basis points to 1.14
percent for the nine months ended September 30, 2012, from 1.43 percent for the nine months ended September 30, 2011. This decrease was primarily due to a continued shift in funding sources toward lower-cost funds through disciplined
deposit pricing while reducing wholesale funds and rate sensitive deposits. There were no brokered deposits for the nine months ended September 30, 2012 and 2011.
42
Provision for Credit Losses
In anticipation of credit risks inherent in our lending business, we set aside allowance for loan losses through charges to earnings. These charges are made not only for our outstanding loan
portfolio, but also for off-balance sheet items, such as commitments to extend credit, or letters of credit. The charges made for our outstanding loan portfolio are recorded to the allowance for loan losses, whereas charges for off-balance
sheet items are recorded to the reserve for off-balance sheet items, and are presented as a component of other liabilities.
For the nine months ended September 30, 2012, overall credit quality has continued to improve and net charge-offs have decreased to
less than $30.6 million for the past three quarters. Non-accrual loans declined by 42.7 percent, delinquencies declined by 42.5 percent, and net charge-offs were reduced by 42.9 percent from September 30, 2011 to September 30,
2012. All other credit metrics have also experienced improvements as the quality of the loan portfolio has improved. Although we experienced an overall improvement in credit quality in the loan portfolio, the allowance for loan losses coverage
ratio of our loan portfolio remained high at 3.38 percent at September 30, 2012. Therefore, during the third quarter of 2012 we recorded no provision for credit losses. Provision for credit losses for the nine months ended
September 30, 2012 was $6.0 million as we did record provisions of $2.0 million and $4.0 million in the first and second quarter of 2012, respectively. For the third quarter and first nine months of 2011, provision for credit losses
totaled $8.1 million.
Non-Interest Income
The following table sets forth the various components of non-interest income for the periods indicated:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
|
|
|
|
|
September 30,
|
|
|
Increase (Decrease)
|
|
|
|
2012
|
|
|
2011
|
|
|
Amount
|
|
|
Percentage
|
|
|
|
(In Thousands)
|
|
Service Charges on Deposit Accounts
|
|
$
|
2,851
|
|
|
$
|
3,225
|
|
|
$
|
(374
|
)
|
|
|
-11.6
|
%
|
Insurance Commissions
|
|
|
1,092
|
|
|
|
940
|
|
|
|
152
|
|
|
|
16.2
|
%
|
Remittance Fees
|
|
|
476
|
|
|
|
469
|
|
|
|
7
|
|
|
|
1.5
|
%
|
Trade Finance Fees
|
|
|
274
|
|
|
|
341
|
|
|
|
(67
|
)
|
|
|
-19.6
|
%
|
Other Service Charges and Fees
|
|
|
361
|
|
|
|
389
|
|
|
|
(28
|
)
|
|
|
-7.2
|
%
|
Bank-Owned Life Insurance Income
|
|
|
235
|
|
|
|
237
|
|
|
|
(2
|
)
|
|
|
-0.8
|
%
|
Gain on Sales of SBA Loans Guaranteed Portion
|
|
|
1,772
|
|
|
|
1,612
|
|
|
|
160
|
|
|
|
9.9
|
%
|
Net Loss on Sales of Other Loans
|
|
|
(515
|
)
|
|
|
(3,057
|
)
|
|
|
2,542
|
|
|
|
-83.2
|
%
|
Net Gain on Sales of Investment Securities
|
|
|
10
|
|
|
|
1,704
|
|
|
|
(1,694
|
)
|
|
|
-99.4
|
%
|
Impairment Loss on Investment Securities
|
|
|
(176
|
)
|
|
|
|
|
|
|
(176
|
)
|
|
|
NM
|
|
Other Operating Income
|
|
|
140
|
|
|
|
118
|
|
|
|
22
|
|
|
|
18.6
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Non-Interest Income
|
|
$
|
6,520
|
|
|
$
|
5,978
|
|
|
$
|
542
|
|
|
|
9.1
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine Months Ended
September 30,
|
|
|
Increase (Decrease)
|
|
|
|
2012
|
|
|
2011
|
|
|
Amount
|
|
|
Percentage
|
|
|
|
(In Thousands)
|
|
Service Charges on Deposit Accounts
|
|
$
|
8,955
|
|
|
|
9,644
|
|
|
$
|
(689
|
)
|
|
|
-7.1
|
%
|
Insurance Commissions
|
|
|
3,622
|
|
|
|
3,403
|
|
|
|
219
|
|
|
|
6.4
|
%
|
Remittance Fees
|
|
|
1,417
|
|
|
|
1,430
|
|
|
|
(13
|
)
|
|
|
-0.9
|
%
|
Trade Finance Fees
|
|
|
858
|
|
|
|
966
|
|
|
|
(108
|
)
|
|
|
-11.2
|
%
|
Other Service Charges and Fees
|
|
|
1,105
|
|
|
|
1,090
|
|
|
|
15
|
|
|
|
1.4
|
%
|
Bank-Owned Life Insurance Income
|
|
|
872
|
|
|
|
700
|
|
|
|
172
|
|
|
|
24.6
|
%
|
Net Gain on Sales of SBA Loans
|
|
|
7,245
|
|
|
|
1,612
|
|
|
|
5,633
|
|
|
|
349.4
|
%
|
Net Loss on Sales of Other Loans
|
|
|
(8,234
|
)
|
|
|
(3,472
|
)
|
|
|
(4,762
|
)
|
|
|
137.2
|
%
|
Net Gain on Sales of Investment Securities
|
|
|
1,392
|
|
|
|
1,634
|
|
|
|
(242
|
)
|
|
|
-14.8
|
%
|
Impairment Loss on Investment Securities
|
|
|
(292
|
)
|
|
|
|
|
|
|
(292
|
)
|
|
|
NM
|
|
Other Operating Income
|
|
|
402
|
|
|
|
496
|
|
|
|
(94
|
)
|
|
|
-19.0
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Non-Interest Income
|
|
$
|
17,342
|
|
|
$
|
17,503
|
|
|
$
|
(161
|
)
|
|
|
-0.9
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total non-interest income increased to $6.5 million for the third quarter of 2012, compared to $6.0
million for the same period in 2011. Non-interest income as a percentage of average assets was 0.23 percent for the third quarter of 2012, up from 0.22 percent of average assets for the third quarter of 2011. Total non-interest income for the nine
months ended September 30, 2012 was $17.3 million, compared to $17.5 million for the same period in 2011. Non-interest income as a percentage of average assets for the first nine months of 2012 was 0.63 percent, slightly up from 0.62
percent for the same period in 2011.
One of our largest sources of non-interest income for the three months ended
September 30, 2012 was net gain on sale of SBA loans guaranteed portion, which totaled $1.8 million, or 27.2 percent of total non-interest income, compared to a net gain on sale of SBA loans guaranteed portion totaling $1.6 million, or 27.0
percent of non-interest income for the same period of the previous year. Gain on sale of SBA loans guaranteed portion for the first nine months of 2012 totaled $7.2 million, or 41.8 percent of total non-interest income, an increase from $1.6
million, or 9.2 percent for the first nine months of 2011.
43
Our other large source of non-interest income for the third quarter of 2012 was service
charges on deposit accounts, which represented 43.7 percent of our total non-interest income for the three months ended September 30, 2012, and 51.6 percent of non-interest income for the nine months ended September 30, 2012. Service
charge income decreased to $2.9 million for the third quarter of 2012, compared with $3.2 million for the prior years same period.
Net loss on sales of other loans, which includes the valuation to loans held for sale, decreased to $515,000 for the three months ended September 30, 2012 from $3.1 million for the three months ended
September 30, 2011. But the net loss on sales of other loans increased to $8.2 million for the first nine months of 2012 from $3.5 million for prior years same period. The increase in net loss on sales of other loans from periods in 2011
to 2012 was a result of the managements effort to reduce problem and non-performing assets.
Valuation of loans held for
sale is recorded on loans previously categorized as held-for-sale that were not sold and experienced a decline in value. If the value of a held-for-sale loan, or underlying property, has declined based on quoted prices or appraisals, a valuation is
recorded to reflect the decline. Valuation of loans held-for-sale totaled $519,000 and $2.3 million for the three months and nine months ended September 30, 2012, respectively, compared to $0 and $2.9 million for the three months and nine
months ended September 30, 2011. The decline in valuations on held-for-sale loans from 2011 to 2012 was a result of a reduction in loan sales and loans held-for-sale during the first nine months of 2012.
44
Non-Interest Expense
The following table sets forth the breakdown of non-interest expense for the periods indicated:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
September 30,
|
|
|
Increase (Decrease)
|
|
|
|
2012
|
|
|
2011
|
|
|
Amount
|
|
|
Percentage
|
|
|
|
(In Thousands)
|
|
Salaries and Employee Benefits
|
|
$
|
9,148
|
|
|
$
|
8,146
|
|
|
$
|
1,002
|
|
|
|
12.3
|
%
|
Occupancy and Equipment
|
|
|
2,623
|
|
|
|
2,605
|
|
|
|
18
|
|
|
|
0.7
|
%
|
Deposit Insurance Premiums and Regulatory Assessments
|
|
|
283
|
|
|
|
1,552
|
|
|
|
(1,269
|
)
|
|
|
-81.8
|
%
|
Data Processing
|
|
|
1,211
|
|
|
|
1,383
|
|
|
|
(172
|
)
|
|
|
-12.4
|
%
|
Other Real Estate Owned Expense
|
|
|
352
|
|
|
|
(86
|
)
|
|
|
438
|
|
|
|
509.3
|
%
|
Professional Fees
|
|
|
1,112
|
|
|
|
1,147
|
|
|
|
(35
|
)
|
|
|
-3.1
|
%
|
Directors and Officers Liability Insurance
|
|
|
296
|
|
|
|
737
|
|
|
|
(441
|
)
|
|
|
-59.8
|
%
|
Supplies and Communications
|
|
|
669
|
|
|
|
712
|
|
|
|
(43
|
)
|
|
|
-6.0
|
%
|
Advertising and Promotion
|
|
|
1,023
|
|
|
|
631
|
|
|
|
392
|
|
|
|
62.1
|
%
|
Loan-Related Expense
|
|
|
164
|
|
|
|
222
|
|
|
|
(58
|
)
|
|
|
-26.1
|
%
|
Amortization of Other Intangible Assets
|
|
|
41
|
|
|
|
161
|
|
|
|
(120
|
)
|
|
|
-74.5
|
%
|
Expense related to Unconsummated Capital Offerings
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NM
|
|
Other Operating Expenses
|
|
|
1,882
|
|
|
|
1,642
|
|
|
|
240
|
|
|
|
14.6
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Non-Interest Expense
|
|
$
|
18,804
|
|
|
$
|
18,852
|
|
|
$
|
(48
|
)
|
|
|
-0.3
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine Months Ended
September 30,
|
|
|
Increase (Decrease)
|
|
|
|
2012
|
|
|
2011
|
|
|
Amount
|
|
|
Percentage
|
|
|
|
(In Thousands)
|
|
Salaries and Employee Benefits
|
|
$
|
27,707
|
|
|
$
|
26,032
|
|
|
$
|
1,675
|
|
|
|
6.4
|
%
|
Occupancy and Equipment
|
|
|
7,839
|
|
|
|
7,820
|
|
|
|
19
|
|
|
|
0.2
|
%
|
Deposit Insurance Premiums and Regulatory Assessments
|
|
|
3,182
|
|
|
|
4,999
|
|
|
|
(1,817
|
)
|
|
|
-36.3
|
%
|
Data Processing
|
|
|
3,762
|
|
|
|
4,269
|
|
|
|
(507
|
)
|
|
|
-11.9
|
%
|
Other Real Estate Owned Expense
|
|
|
377
|
|
|
|
1,549
|
|
|
|
(1,172
|
)
|
|
|
-75.7
|
%
|
Professional Fees
|
|
|
2,950
|
|
|
|
3,074
|
|
|
|
(124
|
)
|
|
|
-4.0
|
%
|
Directors and Officers Liability Insurance
|
|
|
888
|
|
|
|
2,204
|
|
|
|
(1,316
|
)
|
|
|
-59.7
|
%
|
Supplies and Communications
|
|
|
1,803
|
|
|
|
1,786
|
|
|
|
17
|
|
|
|
1.0
|
%
|
Advertising and Promotion
|
|
|
2,633
|
|
|
|
2,105
|
|
|
|
528
|
|
|
|
25.1
|
%
|
Loan-Related Expense
|
|
|
452
|
|
|
|
631
|
|
|
|
(179
|
)
|
|
|
-28.4
|
%
|
Amortization of Other Intangible Assets
|
|
|
157
|
|
|
|
569
|
|
|
|
(412
|
)
|
|
|
-72.4
|
%
|
Expense related to Unconsummated Capital Offerings
|
|
|
|
|
|
|
2,220
|
|
|
|
(2,220
|
)
|
|
|
-100.0
|
%
|
Other Operating Expenses
|
|
|
5,563
|
|
|
|
5,541
|
|
|
|
22
|
|
|
|
0.4
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Non-Interest Expense
|
|
$
|
57,313
|
|
|
$
|
62,799
|
|
|
$
|
(5,486
|
)
|
|
|
-8.7
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total non-interest expense decreased to $18.8 million for the third quarter of 2012, compared to $18.9
million for the same period in 2011. Non-interest expense as a percentage of average assets was 0.66 percent for the third quarter of 2012, down from 0.70 percent of average assets for the third quarter of 2011. Total non-interest expense for the
nine months ended September 30, 2012 was $57.3 million, compared to $62.8 million for the nine months ended September 30, 2011. Non-interest income as a percentage of average assets for the first nine months of 2012 was 2.07 percent,
down from 2.23 percent for the first nine months of 2011.
Reflecting continuing asset quality improvement, premiums for
deposit insurance premium and regulatory assessments decreased by $1.2 million and $1.8 million, or 81.8 percent and 36.3 percent, to $283,000 and $3.2 million for the three and nine months ended September 30, 2012, respectively, compared to
$1.6 million and $5.0 million for the three and nine months ended September 30, 2011, respectively. For the same reason, along with a change in new insurance carriers, directors and officers liability insurance also decreased by $441,000 and
$1.3 million, or 59.8 percent and 59.7 percent, to $296,000 and $888,000, for the three and nine months ended September 30, 2012, respectively, compared to $737,000 and $2.2 million for the three and nine months ended September 30, 2011,
respectively. Other real estate owned expenses decreased by $1.2 million due mainly to our reduction of OREO properties over the past several quarters.
Salaries and employee benefits, however, increased by $1.0 million and $1.7 million, or 12.3 percent and 6.4 percent, to $9.1 million or $27.7 million, for the three and nine months ended
September 30, 2012, respectively, compared to $8.1 million and $26.0 million for the three and nine months ended September 30, 2011, respectively, due mainly to increased bonus provision recorded and incentive commissions during 2012.
Provision for Income Taxes
We accounted for income taxes under the asset and liability method, which requires the recognition of deferred tax assets and liabilities for the expected future tax consequences of events that have been
included in the financial statements. Under this method,
45
deferred tax assets and liabilities are determined based on the differences between the financial statements and tax basis of assets and liabilities using enacted tax rates in effect for the year
in which the differences are expected to reverse. The effect of a change in tax rates on deferred tax assets and liabilities is recognized in income in the period that includes the enacted date.
We record net tax assets to the extent we believe these assets will more likely than not be realized. In making such determination, we
consider all available positive and negative evidence, including scheduled reversals of deferred tax liabilities, projected future taxable income, tax planning strategies and recent financial operations. To the extent future earnings are recognized,
the realization of the deferred tax asset will be recorded as a credit to income tax expense. Until such time as the valuation allowance is reversed, we will generally not record an income tax provision or benefit on the statement of operations. Our
deferred tax valuation allowance was $5.4 million and $82.3 million at September 30, 2012 and December 31, 2011, respectively. For the three and nine months ended as of September 30, 2012, we reversed a valuation allowance of $4.9
million and $57.9 million, respectively, on its deferred tax assets.
Pursuant to Sections 382 and 383 of the Internal Revenue
Code, annual use of net operating loss and credit carryforwards may be limited in the event a cumulative change in ownership of more than 50 percentage points occurs by one or more five-percent shareholders within a three-year period. We determined
that such an ownership change occurred as of November 18, 2011, as a result of a registered rights and best efforts public offering and an underwritten public offering of our common stock. Based on calculations, this ownership change resulted
in estimated limitations on the utilization of net operating loss carryforwards and tax credits. We estimate that approximately $5.3 million of our California net operating loss carryforward deferred tax asset will be effectively eliminated and no
valuation allowance reversal was recognized for such deferred tax assets. Pursuant to Section 382, a portion of the limited net operating loss carryforwards becomes available for use each year. We estimate that approximately $10.4 million of
the restricted net operating loss carryforwards become available for such use.
FINANCIAL CONDITION
Investment Portfolio
Investment securities are classified as held to maturity or available for sale in accordance with GAAP. Those securities that we have the
ability and the intent to hold to maturity are classified as held to maturity. All other securities are classified as available for sale. There were no trading securities as of September 30, 2012 and December 31,
2011. Securities classified as held to maturity are stated at cost, adjusted for amortization of premiums and accretion of discounts, and available for sale securities are stated at fair value. The composition of our investment portfolio reflects
our investment strategy of providing a relatively stable source of interest income while maintaining an appropriate level of liquidity. The investment portfolio also provides a source of liquidity by pledging as collateral or through repurchase
agreement and collateral for certain public funds deposits.
As of September 30, 2012, the investment portfolio was
composed primarily of mortgage-backed securities, U.S. government agency securities, and collateralized mortgage obligations. Investment securities available for sale were 100.00 percent and 86.47 percent of the total investment portfolio as of
September 30, 2012 and December 31, 2011, respectively. Most of the securities held carried fixed interest rates. Other than holdings of U.S. government agency securities, there were no investments in securities of any one issuer exceeding
10 percent of stockholders equity as of September 30, 2012 and December 31, 2011.
During the three months
ended September 30, 2012, all held-to-maturity securities were reclassified to available-for-sale securities. The reclassified securities carried a fair value of $52.6 million and an amortized cost of $50.6 million at September 30, 2012.
As more than 95% of the reclassified securities were municipal bonds, the Company decided to reclassify all held-to-maturity securities to available-for-sale securities to be more proactive under the current municipal market with a rising risk of
default.
As of September 30, 2012, securities available for sale were $410.2 million, or 14.43 percent of total assets,
compared to $381.9 million, or 13.91 percent of total assets, as of December 31, 2011. For the nine months ended September 30, 2012, our securities available for sale increased by $28.3 million; however, total investment portfolio,
including both held-to-maturity and available-for-sale securities, decreased by $31.4 million, or 7.1 percent, from $441.6 million as of December 31, 2011, in the form of sales, calls, prepayments and scheduled amortization, which was partially
offset by the purchase of $179.1 million to maintain an investment portfolio mix and size consistent with our capital market expectations and asset-liability management strategies.
46
The following table summarizes the amortized cost, estimated fair value and unrealized gain
(loss) on investment securities as of the dates indicated:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
September 30, 2012
|
|
|
December 30, 2011
|
|
|
|
Amortized
Cost
|
|
|
Estimated
Fair
Value
|
|
|
Unrealized
Gain
(Loss)
|
|
|
Amortized
Cost
|
|
|
Estimated
Fair
Value
|
|
|
Unrealized
Gain
(Loss)
|
|
|
|
(In Thousands)
|
|
Securities Held to Maturity:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Municipal Bonds-Tax Exempt
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
9,815
|
|
|
$
|
9,867
|
|
|
$
|
52
|
|
Municipal Bonds-Taxable
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
38,797
|
|
|
|
38,392
|
|
|
|
(405
|
)
|
Mortgage-Backed Securities
(1)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3,137
|
|
|
|
3,128
|
|
|
|
(9
|
)
|
U.S. Government Agency Securities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
7,993
|
|
|
|
7,976
|
|
|
|
(17
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Securities Held to Maturity
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
59,742
|
|
|
$
|
59,363
|
|
|
$
|
(379
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Securities Available for Sale:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mortgage-Backed Securities
(1)
|
|
$
|
138,173
|
|
|
$
|
142,168
|
|
|
$
|
3,995
|
|
|
$
|
110,433
|
|
|
$
|
113,005
|
|
|
$
|
2,572
|
|
Collateralized Mortgage Obligations
(1)
|
|
|
100,125
|
|
|
|
101,390
|
|
|
|
1,265
|
|
|
|
161,214
|
|
|
|
162,837
|
|
|
|
1,623
|
|
U.S. Government Agency Securities
|
|
|
79,027
|
|
|
|
79,164
|
|
|
|
137
|
|
|
|
72,385
|
|
|
|
72,548
|
|
|
|
163
|
|
Municipal Bonds-Tax Exempt
|
|
|
12,232
|
|
|
|
12,738
|
|
|
|
506
|
|
|
|
3,389
|
|
|
|
3,482
|
|
|
|
93
|
|
Municipal Bonds-Taxable
|
|
|
44,336
|
|
|
|
46,234
|
|
|
|
1,898
|
|
|
|
5,901
|
|
|
|
6,138
|
|
|
|
237
|
|
Corporate Bonds
|
|
|
20,467
|
|
|
|
19,897
|
|
|
|
(570
|
)
|
|
|
20,460
|
|
|
|
19,836
|
|
|
|
(624
|
)
|
Other Securities
|
|
|
8,264
|
|
|
|
8,328
|
|
|
|
64
|
|
|
|
3,318
|
|
|
|
3,335
|
|
|
|
17
|
|
Equity Securities
|
|
|
354
|
|
|
|
291
|
|
|
|
(63
|
)
|
|
|
647
|
|
|
|
681
|
|
|
|
34
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Securities Available for Sale
|
|
$
|
402,978
|
|
|
$
|
410,210
|
|
|
$
|
7,232
|
|
|
$
|
377,747
|
|
|
$
|
381,862
|
|
|
$
|
4,115
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1)
|
Collateralized by residential mortgages and guaranteed by U.S. government sponsored entities.
|
The amortized cost and estimated fair value of investment securities as of September 30,
2012, by contractual maturity, are shown below. Although mortgage-backed securities and collateralized mortgage obligations have contractual maturities through 2042, expected maturities may differ from contractual maturities because borrowers may
have the right to call or prepay obligations with or without call or prepayment penalties.
|
|
|
|
|
|
|
|
|
|
|
Available for Sale
|
|
|
|
Amortized
Cost
|
|
|
Estimated
Fair Value
|
|
|
|
(In Thousands)
|
|
Within One Year
|
|
$
|
|
|
|
$
|
|
|
Over One Year Through Five Years
|
|
|
33,266
|
|
|
|
32,891
|
|
Over Five Years Through Ten Years
|
|
|
94,078
|
|
|
|
95,429
|
|
Over Ten Years
|
|
|
36,982
|
|
|
|
38,041
|
|
Mortgage-Backed Securities
|
|
|
138,173
|
|
|
|
142,168
|
|
Collateralized Mortgage Obligations
|
|
|
100,125
|
|
|
|
101,390
|
|
Equity Securities
|
|
|
354
|
|
|
|
291
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
402,978
|
|
|
$
|
410,210
|
|
|
|
|
|
|
|
|
|
|
In accordance with FASB ASC 320, Investments Debt and Equity Securities, which amended
current other-than-temporary impairment (OTTI) guidance, we periodically evaluate our investments for OTTI. For the three and nine months ended September 30, 2012, we recorded $176,000 and $292,000, respectively, in OTTI charges in
earnings on an available-for-sale security.
The Company had an equity security with a carrying value of $218,000 at
September 30, 2012. During 2012, the issuers financial condition had deteriorated and it was determined that the value on the investment is other-than- temporarily impaired. Based on the closing price of the shares at September 30,
2012, we recorded an OTTI charge of $176,000 to write down the value of the investment security to its fair value. For the nine months ended September 30, 2012, the total OTTI charge on this equity security was $292,000.
47
We perform periodic reviews for impairment in accordance with FASB ASC 320. Gross unrealized
losses on investment securities available for sale, the estimated fair value of the related securities and the number of securities aggregated by investment category and length of time that individual securities have been in a continuous unrealized
loss position, were as follows as of September 30, 2012 and December 31, 2011:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Holding Period
|
|
|
|
Less Than 12 Months
|
|
|
12 Months or More
|
|
|
Total
|
|
Investment Securities
Available for Sale
|
|
Gross
Unrealized
Loss
|
|
|
Estimated
Fair
Value
|
|
|
Number
of
Securities
|
|
|
Gross
Unrealized
Loss
|
|
|
Estimated
Fair
Value
|
|
|
Number
of
Securities
|
|
|
Gross
Unrealized
Loss
|
|
|
Estimated
Fair
Value
|
|
|
Number
of
Securities
|
|
|
|
(In Thousands, Except Number of Securities)
|
|
September 30, 2012
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mortgage-Backed Securities
|
|
$
|
1
|
|
|
$
|
5,988
|
|
|
|
1
|
|
|
$
|
|
|
|
$
|
|
|
|
|
|
|
|
$
|
1
|
|
|
$
|
5,988
|
|
|
|
1
|
|
Collateralized Mortgage Obligations
|
|
|
31
|
|
|
|
9,890
|
|
|
|
4
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
31
|
|
|
|
9,890
|
|
|
|
4
|
|
U.S. Government Agency Securities
|
|
|
48
|
|
|
|
19,448
|
|
|
|
6
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
48
|
|
|
|
19,448
|
|
|
|
6
|
|
Municipal Bonds-Taxable
|
|
|
108
|
|
|
|
2,544
|
|
|
|
2
|
|
|
|
19
|
|
|
|
1,962
|
|
|
|
3
|
|
|
|
127
|
|
|
|
4,506
|
|
|
|
5
|
|
Corporate Bonds
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
632
|
|
|
|
10,350
|
|
|
|
3
|
|
|
|
632
|
|
|
|
10,350
|
|
|
|
3
|
|
Other Securities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
35
|
|
|
|
965
|
|
|
|
1
|
|
|
|
35
|
|
|
|
965
|
|
|
|
1
|
|
Equity Securities
|
|
|
63
|
|
|
|
73
|
|
|
|
1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
63
|
|
|
|
73
|
|
|
|
1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
251
|
|
|
$
|
37,943
|
|
|
|
14
|
|
|
$
|
686
|
|
|
$
|
13,277
|
|
|
|
7
|
|
|
$
|
937
|
|
|
$
|
51,220
|
|
|
|
21
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2011
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mortgage-Backed Securities
|
|
$
|
1
|
|
|
$
|
3,076
|
|
|
|
1
|
|
|
$
|
|
|
|
$
|
|
|
|
|
|
|
|
$
|
1
|
|
|
$
|
3,076
|
|
|
|
1
|
|
Collateralized Mortgage Obligations
|
|
|
260
|
|
|
|
36,751
|
|
|
|
16
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
260
|
|
|
|
36,751
|
|
|
|
16
|
|
U.S. Government Agency Securities
|
|
|
5
|
|
|
|
6,061
|
|
|
|
2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
5
|
|
|
|
6,061
|
|
|
|
2
|
|
Corporate Bonds
|
|
|
41
|
|
|
|
4,445
|
|
|
|
2
|
|
|
|
583
|
|
|
|
15,391
|
|
|
|
4
|
|
|
|
624
|
|
|
|
19,836
|
|
|
|
6
|
|
Other Securities
|
|
|
1
|
|
|
|
12
|
|
|
|
1
|
|
|
|
40
|
|
|
|
959
|
|
|
|
1
|
|
|
|
41
|
|
|
|
971
|
|
|
|
2
|
|
Equity Securities
|
|
|
51
|
|
|
|
85
|
|
|
|
1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
51
|
|
|
|
85
|
|
|
|
1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
359
|
|
|
$
|
50,430
|
|
|
|
23
|
|
|
$
|
623
|
|
|
$
|
16,350
|
|
|
|
5
|
|
|
$
|
982
|
|
|
$
|
66,780
|
|
|
|
28
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The impairment losses described previously are not included in the table above. All individual securities
that have been in a continuous unrealized loss position for 12 months or longer as of September 30, 2012 and December 31, 2011 had investment grade ratings upon purchase. The issuers of these securities have not established any cause for
default on these securities and the various rating agencies have reaffirmed these securities long-term investment grade status as of September 30, 2012. These securities have fluctuated in value since their purchase dates as market
interest rates have fluctuated.
FASB ASC 320 requires other-than-temporarily impaired investment securities to be written
down when fair value is below amortized cost in circumstances where: (1) an entity has the intent to sell a security; (2) it is more likely than not that an entity will be required to sell the security before recovery of its amortized cost
basis; or (3) an entity does not expect to recover the entire amortized cost basis of the security. If an entity intends to sell a security or if it is more likely than not the entity will be required to sell the security before recovery, an
OTTI write-down is recognized in earnings equal to the entire difference between the securitys amortized cost basis and its fair value. If an entity does not intend to sell the security or it is not more likely than not that it will be
required to sell the security before recovery, the OTTI write-down is separated into an amount representing credit loss, which is recognized in earnings, and the amount related to all other factors, which is recognized in other comprehensive income.
The Company does not intend to sell these securities and it is not more likely than not that we will be required to sell the
investments before the recovery of its amortized cost bases. In addition, the unrealized losses on municipal and corporate bonds are not considered other-than-temporarily impaired as the bonds are rated investment grade and there are no credit
quality concerns with the issuers. Interest payments have been made as scheduled, and management believes this will continue in the future and that the bonds will be repaid in full as scheduled. Therefore, in managements opinion, all
securities, other than the OTTI write-down related to an equity security, that have been in a continuous unrealized loss position for the past 12 months or longer as of September 30, 2012 and December 31, 2011 are not
other-than-temporarily impaired, and therefore, no other impairment charges as of September 30, 2012 and December 31, 2011 are warranted.
Investment securities available for sale with carrying values of $19.4 million and $45.8 million as of September 30, 2012 and December 31, 2011, respectively, were pledged to secure FHLB
advances, public deposits and for other purposes as required or permitted by law.
48
Loan Portfolio
The following table shows the loan composition by type, excluding loans held for sale, as of the dates indicated.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
September 30,
2012
|
|
|
December 31,
2011
|
|
|
Increase (Decrease)
|
|
|
|
|
Amount
|
|
|
Percentage
|
|
|
|
(In Thousands)
|
|
Real Estate Loans:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial Property
|
|
$
|
728,419
|
|
|
$
|
663,023
|
|
|
$
|
65,396
|
|
|
|
9.9
|
%
|
Construction
|
|
|
7,868
|
|
|
|
33,976
|
|
|
|
(26,108
|
)
|
|
|
-76.8
|
%
|
Residential Property
|
|
|
103,774
|
|
|
|
52,921
|
|
|
|
50,853
|
|
|
|
96.1
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Real Estate Loans
|
|
|
840,061
|
|
|
|
749,920
|
|
|
|
90,141
|
|
|
|
12.0
|
%
|
Commercial and Industrial Loans:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial Term
|
|
|
861,906
|
|
|
|
944,836
|
|
|
|
(82,930
|
)
|
|
|
-8.8
|
%
|
Commercial Lines of Credit
|
|
|
54,266
|
|
|
|
55,770
|
|
|
|
(1,504
|
)
|
|
|
-2.7
|
%
|
SBA Loans
|
|
|
134,264
|
|
|
|
116,192
|
|
|
|
18,072
|
|
|
|
15.6
|
%
|
International Loans
|
|
|
29,378
|
|
|
|
28,676
|
|
|
|
702
|
|
|
|
2.4
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Commercial and Industrial Loans
|
|
|
1,079,814
|
|
|
|
1,145,474
|
|
|
|
(65,660
|
)
|
|
|
-5.7
|
%
|
Consumer Loans
(1)
|
|
|
38,415
|
|
|
|
43,346
|
|
|
|
(4,931
|
)
|
|
|
-11.4
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Gross Loans
|
|
|
1,958,290
|
|
|
|
1,938,740
|
|
|
|
19,550
|
|
|
|
1.0
|
%
|
Allowance for Loans Losses
|
|
|
(66,107
|
)
|
|
|
(89,936
|
)
|
|
|
23,829
|
|
|
|
-26.5
|
%
|
Deferred Loan Costs
|
|
|
630
|
|
|
|
216
|
|
|
|
414
|
|
|
|
191.7
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loan Receivables, Net
|
|
$
|
1,892,813
|
|
|
$
|
1,849,020
|
|
|
$
|
43,793
|
|
|
|
2.4
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1)
|
Consumer loans include home equity line of credit.
|
As of September 30, 2012 and December 31, 2011, loans receivable (excluding loans held for sale), net of deferred loan costs
and allowance for loan losses, totaled $1.89 billion and $1.85 billion, respectively, representing an increase of $43.8 million, or 2.4 percent. Total gross loans increased by $19.6 million, or 1.0 percent, to $1.96 billion as of September 30,
2012, from $1.94 billion as of December 31, 2011.
During the nine months ended September 30, 2012, total loan
disbursement consisted of $278.4 million in term loans and $11.4 million in lines of credits. The Bank also purchased one year adjustable rate single family residential mortgage loans totaling $67.6 million during the first quarter of 2012 and
commercial real estate loans totaling $15.2 million during the second quarter of 2012. During the nine months ended September 30, 2012, we experienced decreases in loans from $89.8 million transfers to loans held for sale, $34.3 million gross
charge-offs, $154.3 million pay-offs, and other net amortizations.
As of September 30, 2012, our loan portfolio included
the following concentrations of loans to one type of industry that were greater than 10 percent of total gross loans outstanding:
|
|
|
|
|
|
|
|
|
Industry
|
|
Balance as of
September 30, 2012
|
|
|
Percentage of Total
Gross Loans Outstanding
|
|
|
|
(In Thousands)
|
|
|
|
|
Lessor of Non-Residential Buildings
|
|
$
|
359,517
|
|
|
|
18.36
|
%
|
Accommodation/Hospitality
|
|
$
|
301,858
|
|
|
|
15.41
|
%
|
Gasoline Stations
|
|
$
|
270,740
|
|
|
|
13.83
|
%
|
There was no other concentration of loans to any one type of industry exceeding ten percent of total
gross loans outstanding.
Non-Performing Assets
Non-performing loans consist of loans on non-accrual status and loans 90 days or more past due and still accruing interest. Non-performing assets consist of non-performing loans and OREO. Loans are placed
on non-accrual status when, in the opinion of management, the full timely collection of principal or interest is in doubt. Generally, the accrual of interest is discontinued when principal or interest payments become more than 90 days past due,
unless management believes the loan is adequately collateralized and in the process of collection. However, in certain instances, we may place a particular loan on non-accrual status earlier, depending upon the individual circumstances surrounding
the loans delinquency. When an asset is placed on non-accrual status, previously accrued but unpaid interest is reversed against current income. Subsequent collections of cash are applied as principal reductions when received, except when the
ultimate collectability of principal is probable, in which case interest payments are credited to income. Non-accrual assets may be restored to accrual status when principal and interest become current and full repayment is expected. Interest income
is recognized on the accrual basis for impaired loans not meeting the criteria for non-accrual. OREO consists of properties acquired by foreclosure or similar means that management intends to offer for sale.
Managements classification of a loan as non-accrual is an indication that there is reasonable doubt as to the full collectability
of principal or interest on the loan; at this point, we stop recognizing income from the interest on the loan and reverse any uncollected interest that had been accrued but unpaid. These loans may or may not be collateralized, but collection efforts
are continuously pursued.
Except for non-performing loans set forth below, management is not aware of any loans as of
September 30, 2012 and December 31, 2011 for which known credit problems of the borrower would cause serious doubts as to the ability of such borrowers to comply with their present loan repayment terms, or any known events that would
result in the loan being designated as non-performing at some future date. Management cannot, however, predict the extent to which a deterioration in general economic conditions, real estate values, increases in general rates of interest, or changes
in the financial condition or business of borrower may adversely affect a borrowers ability to pay.
49
The following table provides information with respect to the components of non-performing
assets as of the dates indicated:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
September 30,
2012
|
|
|
December 31,
2011
|
|
|
Increase (Decrease)
|
|
|
|
|
Amount
|
|
|
Percentage
|
|
|
|
(In Thousands)
|
|
Non-Performing Loans:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Real Estate Loans:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial Property
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Retail
|
|
$
|
1,102
|
|
|
$
|
1,260
|
|
|
$
|
(158
|
)
|
|
|
-12.5
|
%
|
Land
|
|
|
2,037
|
|
|
|
2,362
|
|
|
|
(325
|
)
|
|
|
-13.8
|
%
|
Other
|
|
|
|
|
|
|
1,199
|
|
|
|
(1,199
|
)
|
|
|
-100.0
|
%
|
Construction
|
|
|
7,868
|
|
|
|
8,310
|
|
|
|
(442
|
)
|
|
|
-5.3
|
%
|
Residential Property
|
|
|
1,411
|
|
|
|
2,097
|
|
|
|
(686
|
)
|
|
|
-32.7
|
%
|
Commercial and Industrial Loans:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial Term
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unsecured
|
|
|
8,106
|
|
|
|
7,706
|
|
|
|
400
|
|
|
|
5.2
|
%
|
Secured By Real Estate
|
|
|
8,418
|
|
|
|
11,725
|
|
|
|
(3,307
|
)
|
|
|
-28.2
|
%
|
Commercial Lines of Credit
|
|
|
1,359
|
|
|
|
1,431
|
|
|
|
(72
|
)
|
|
|
-5.0
|
%
|
SBA Loans
|
|
|
13,048
|
|
|
|
15,479
|
|
|
|
(2,431
|
)
|
|
|
-15.7
|
%
|
Consumer Loans
|
|
|
1,343
|
|
|
|
809
|
|
|
|
534
|
|
|
|
66.0
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Non-Accrual Loans
|
|
|
44,692
|
|
|
|
52,378
|
|
|
|
(7,686
|
)
|
|
|
-14.7
|
%
|
Loans 90 Days or More Past Due and Still Accruing (as to Principal of Interest):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NM
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Non-Performing Loans
(1)
|
|
|
44,692
|
|
|
|
52,378
|
|
|
|
(7,686
|
)
|
|
|
-14.7
|
%
|
Other Real Estate Owned
|
|
|
364
|
|
|
|
180
|
|
|
|
184
|
|
|
|
102.2
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Non-Performing Assets
|
|
$
|
45,056
|
|
|
$
|
52,558
|
|
|
$
|
(7,502
|
)
|
|
|
-14.3
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-Performing Loans as a Percentage of Total Gross Loans
|
|
|
2.28
|
%
|
|
|
2.70
|
%
|
|
|
|
|
|
|
|
|
Non-Performing Assets as a Percentage of Total Assets
|
|
|
1.59
|
%
|
|
|
1.91
|
%
|
|
|
|
|
|
|
|
|
Total Debt Restructured Performing Loans
|
|
$
|
16,965
|
|
|
$
|
28,375
|
|
|
|
|
|
|
|
|
|
(1)
|
Includes troubled debt restructured non-performing loans of $21.0 million and $23.2 million as of September 30, 2012 and December 31, 2011, respectively.
|
Non-accrual loans totaled $44.7 million as of September 30, 2012, compared to $52.4 million as of December 31, 2011,
representing a 14.7 percent decrease. Delinquent loans (defined as 30 days or more past due) were $20.2 million as of September 30, 2012, compared to $35.2 million as of December 31, 2011, representing a 42.5 percent decrease. Of the $20.2
million delinquent loans as of September 30, 2012, $16.2 million was included in non-performing loans. The $21.2 million of $35.2 million delinquent loans as of December 31, 2011 was included in non-performing loans. During the nine months
ended September 30, 2012, loans totaling $38.8 million were placed on nonaccrual status. The additions to nonaccrual loans were offset by $11.1 million in charge-offs, $27.0 million in sales of problem loans, $13.8 million in principal paydowns
and payoffs, $3.9 million that were placed back to accrual status, $1.3 million that were transferred to OREO, and $4.4 million classified to loans held for sale.
The ratio of non-performing loans to total gross loans also decreased to 2.28 percent at September 30, 2012 from 2.70 percent at December 31, 2011. During the same period, our allowance for loan
losses decreased by $23.8 million, or 26.5 percent, to $66.1 million from $89.9 million. Of the $44.7 million non-performing loans, approximately $38.9 million were impaired based on the definition contained in FASB ASC 310,
Receivables
, which resulted in aggregate impairment reserve of $3.6 million as of September 30, 2012. We calculate our allowance for the collateral-dependent loans as the difference between the outstanding loan balance and
the value of the collateral as determined by recent appraisals less estimated costs to sell. The allowance for collateral-dependent loans varies from loan to loan based on the collateral coverage of the loan at the time of designation as
non-performing. We continue to monitor the collateral coverage, based on recent appraisals, on these loans on a quarterly basis and adjust the allowance accordingly.
As of September 30, 2012, other real estate owned consisted of two properties with a combined carrying value of $364,000 with a valuation adjustment of $257,000. For the nine months ended
September 30, 2012, five properties were transferred from loans receivable to other real estate owned at fair value less selling cost of $2.6 million and recorded a valuation adjustment of $301,000. As of December 31, 2011, there was one
real estate owned property, located in Colorado, with a net carrying value of $180,000.
We evaluate loan impairment in
accordance with applicable GAAP. Loans are considered impaired when it is probable that we will be unable to collect all amounts due according to the contractual terms of the loan agreement, including scheduled interest payments. Impaired loans are
measured based on the present value of expected future cash flows discounted at the loans effective interest rate or, as an expedient, at the loans observable market price or the fair value of the collateral if the loan is collateral
dependent, less costs to sell. If the measure of the impaired loan is less than the recorded investment in the loan, the deficiency will be charged off against the allowance for loan losses or, alternatively, a specific allocation will be
established. Additionally, impaired loans are specifically excluded from the quarterly migration analysis when determining the amount of the allowance for loan losses required for the period.
50
The following table provides information on impaired loans as of the dates indicated:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Recorded
Investment
|
|
|
Unpaid
Principal
Balance
|
|
|
With No
Related
Allowance
Recorded
|
|
|
With
Allowance
Recorded
|
|
|
Related
Allowance
|
|
|
|
(In Thousands)
|
|
September 30, 2012
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Real Estate Loans:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial Property
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Retail
|
|
$
|
2,606
|
|
|
$
|
2,680
|
|
|
$
|
2,606
|
|
|
$
|
|
|
|
$
|
|
|
Land
|
|
|
2,037
|
|
|
|
2,204
|
|
|
|
2,037
|
|
|
|
|
|
|
|
|
|
Other
|
|
|
532
|
|
|
|
532
|
|
|
|
|
|
|
|
532
|
|
|
|
37
|
|
Construction
|
|
|
7,868
|
|
|
|
8,075
|
|
|
|
7,868
|
|
|
|
|
|
|
|
|
|
Residential Property
|
|
|
3,272
|
|
|
|
3,323
|
|
|
|
576
|
|
|
|
2,696
|
|
|
|
731
|
|
Commercial and Industrial Loans:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial Term
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unsecured
|
|
|
13,595
|
|
|
|
14,535
|
|
|
|
451
|
|
|
|
13,144
|
|
|
|
3,825
|
|
Secured By Real Estate
|
|
|
19,841
|
|
|
|
20,967
|
|
|
|
16,733
|
|
|
|
3,108
|
|
|
|
655
|
|
Commercial Lines of Credit
|
|
|
1,547
|
|
|
|
1,713
|
|
|
|
863
|
|
|
|
684
|
|
|
|
3
|
|
SBA Loans
|
|
|
6,101
|
|
|
|
10,113
|
|
|
|
4,515
|
|
|
|
1,586
|
|
|
|
665
|
|
Consumer Loans
|
|
|
1,238
|
|
|
|
1,283
|
|
|
|
266
|
|
|
|
972
|
|
|
|
398
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
58,637
|
|
|
$
|
65,425
|
|
|
$
|
35,915
|
|
|
$
|
22,722
|
|
|
$
|
6,314
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2011
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Real Estate Loans:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial Property
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Retail
|
|
$
|
1,260
|
|
|
$
|
1,260
|
|
|
$
|
1,100
|
|
|
$
|
160
|
|
|
$
|
126
|
|
Land
|
|
|
3,178
|
|
|
|
3,210
|
|
|
|
|
|
|
|
3,178
|
|
|
|
360
|
|
Other
|
|
|
14,773
|
|
|
|
14,823
|
|
|
|
1,131
|
|
|
|
13,642
|
|
|
|
3,004
|
|
Construction
|
|
|
14,120
|
|
|
|
14,120
|
|
|
|
14,120
|
|
|
|
|
|
|
|
|
|
Residential Property
|
|
|
5,368
|
|
|
|
5,408
|
|
|
|
3,208
|
|
|
|
2,160
|
|
|
|
128
|
|
Commercial and Industrial Loans:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial Term
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unsecured
|
|
|
16,035
|
|
|
|
16,559
|
|
|
|
244
|
|
|
|
15,791
|
|
|
|
10,793
|
|
Secured By Real Estate
|
|
|
53,159
|
|
|
|
54,156
|
|
|
|
14,990
|
|
|
|
38,169
|
|
|
|
7,062
|
|
Commercial Lines of Credit
|
|
|
1,431
|
|
|
|
1,554
|
|
|
|
715
|
|
|
|
716
|
|
|
|
716
|
|
SBA Loans
|
|
|
11,619
|
|
|
|
12,971
|
|
|
|
9,445
|
|
|
|
2,174
|
|
|
|
1,167
|
|
Consumer Loans
|
|
|
746
|
|
|
|
788
|
|
|
|
511
|
|
|
|
235
|
|
|
|
26
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
121,689
|
|
|
$
|
124,849
|
|
|
$
|
45,464
|
|
|
$
|
76,225
|
|
|
$
|
23,382
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
51
The following table provides information on impaired loans for the period indicated:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Average
Recorded
Investment
for the Three
Months
Ended
|
|
|
Interest
Income
Recognized
for the Three
Months
Ended
|
|
|
Average
Recorded
Investment
for the Nine
Months
Ended
|
|
|
Interest
Income
Recognized
for the Nine
Months
Ended
|
|
|
|
(In Thousands)
|
|
September 30, 2012
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Real Estate Loans:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial Property
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Retail
|
|
$
|
2,597
|
|
|
$
|
47
|
|
|
$
|
2,162
|
|
|
$
|
95
|
|
Land
|
|
|
2,054
|
|
|
|
45
|
|
|
|
2,134
|
|
|
|
136
|
|
Other
|
|
|
534
|
|
|
|
5
|
|
|
|
937
|
|
|
|
38
|
|
Construction
|
|
|
7,868
|
|
|
|
29
|
|
|
|
8,016
|
|
|
|
207
|
|
Residential Property
|
|
|
3,279
|
|
|
|
34
|
|
|
|
3,265
|
|
|
|
118
|
|
Commercial and Industrial Loans:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial Term
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unsecured
|
|
|
13,723
|
|
|
|
214
|
|
|
|
14,079
|
|
|
|
644
|
|
Secured By Real Estate
|
|
|
19,990
|
|
|
|
342
|
|
|
|
21,834
|
|
|
|
1,300
|
|
Commercial Lines of Credit
|
|
|
1,555
|
|
|
|
16
|
|
|
|
1,742
|
|
|
|
46
|
|
SBA Loans
|
|
|
6,168
|
|
|
|
330
|
|
|
|
7,489
|
|
|
|
813
|
|
Consumer Loans
|
|
|
1,257
|
|
|
|
49
|
|
|
|
1,021
|
|
|
|
59
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
59,025
|
|
|
$
|
1,111
|
|
|
$
|
62,679
|
|
|
$
|
3,456
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
September 30, 2011
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Real Estate Loans:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial Property
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Retail
|
|
$
|
8,754
|
|
|
$
|
27
|
|
|
$
|
9,733
|
|
|
$
|
78
|
|
Land
|
|
|
16,376
|
|
|
|
12
|
|
|
|
22,192
|
|
|
|
12
|
|
Other
|
|
|
21,768
|
|
|
|
282
|
|
|
|
21,879
|
|
|
|
372
|
|
Construction
|
|
|
11,057
|
|
|
|
272
|
|
|
|
11,201
|
|
|
|
317
|
|
Residential Property
|
|
|
2,364
|
|
|
|
8
|
|
|
|
2,386
|
|
|
|
8
|
|
Commercial and Industrial Loans:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial Term
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unsecured
|
|
|
18,972
|
|
|
|
82
|
|
|
|
19,554
|
|
|
|
148
|
|
Secured By Real Estate
|
|
|
66,108
|
|
|
|
813
|
|
|
|
64,667
|
|
|
|
1,809
|
|
Commercial Lines of Credit
|
|
|
2,398
|
|
|
|
2
|
|
|
|
2,631
|
|
|
|
5
|
|
SBA Loans
|
|
|
19,333
|
|
|
|
23
|
|
|
|
20,256
|
|
|
|
63
|
|
Consumer Loans
|
|
|
1,181
|
|
|
|
1
|
|
|
|
1,286
|
|
|
|
3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
168,311
|
|
|
$
|
1,522
|
|
|
$
|
175,785
|
|
|
$
|
2,815
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The following is a summary of interest foregone on impaired loans for the periods indicated:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
September 30,
|
|
|
Nine Months Ended
September 30,
|
|
|
|
2012
|
|
|
2011
|
|
|
2012
|
|
|
2011
|
|
|
|
(In Thousands)
|
|
Interest Income That Would Have Been Recognized Had Impaired Loans
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Performed in Accordance With Their Original Terms
|
|
$
|
1,382
|
|
|
$
|
3,063
|
|
|
$
|
4,315
|
|
|
$
|
7,143
|
|
Less: Interest Income Recognized on Impaired Loans
|
|
|
(1,111
|
)
|
|
|
(1,522
|
)
|
|
|
(3,456
|
)
|
|
|
(2,815
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest Foregone on Impaired Loans
|
|
$
|
271
|
|
|
$
|
1,541
|
|
|
$
|
859
|
|
|
$
|
4,328
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the nine months ended September 30, 2012, we restructured monthly payments for 50 loans,
with a net carrying value of $12.9 million at the time of modification, which we subsequently classified as troubled debt restructured loans. Temporary payment structure modifications included, but were not limited to, extending the maturity date,
reducing the amount of principal and/or interest due monthly, and/or allowing for interest only monthly payments for six months or less. As of September 30, 2012, troubled debt restructurings on accrual status totaled $17.0 million, all of
which were temporary interest rate and payment reductions and extensions of maturity, and a $2.2 million reserve relating to these loans is included in the allowance for loan losses. For the restructured loans on accrual status, we determined that,
based on the financial capabilities of the borrowers at the time of the loan restructuring and the borrowers past performance in the payment of debt service under the previous loan terms, performance and collection under the revised terms is
probable. As of September 30, 2012, troubled debt restructuring on non-accrual status totaled $21.0 million, and a $2.6 million reserve relating to these loans is included in the allowance for loan losses.
As of December 31, 2011, troubled debt restructurings on accrual status totaled $28.4 million, all of which were temporary interest
rate and payment reductions, and an $8.0 million reserve relating to these loans is included in the allowance for loan losses. As of December 31, 2011, troubled debt restructuring on non-accrual status totaled $23.2 million, and a $6.3 million
reserve relating to these loans is included in the allowance for loan losses.
52
Allowance for Loan Losses and Allowance for Off-Balance Sheet Items
Provisions to the allowance for loan losses are made quarterly to recognize probable loan losses. The quarterly provision is based on the
allowance need, which is determined through analysis involving quantitative calculations based on historic loss rates for general reserves and individual impairment calculations for specific allocations to impaired loans as well as qualitative
adjustments.
To determine general reserve requirements, existing loans are divided into ten general loan pools of risk-rated
loans (commercial real estate, construction, commercial term unsecured, commercial term T/D secured, commercial line of credit, SBA, international, consumer installment, consumer line of credit, and miscellaneous loans) as well as
three homogenous loan pools (residential mortgage, auto loans, and credit card). For risk-rated loans, migration analysis allocates historical losses by loan pool and risk grade (pass, special mention, substandard, and doubtful) to determine risk
factors for potential loss inherent in the current outstanding loan portfolio.
During the first quarter of 2011, to enhance
reserve calculations to better reflect the Banks current loss profile, the two loan pools of commercial real estate and commercial term T/D secured were subdivided according to the 21 collateral codes used by the Bank to identify
commercial property types (apartment, auto, car wash, casino, church, condominium, gas station, golf course, industrial, land, manufacturing, medical, mixed used, motel, office, retail, school, supermarket, warehouse, wholesale, and others). This
further segregation allows the Bank to more specifically allocate reserves within the commercial real estate portfolio according to risks defined by historic loss as well as current loan concentrations of the different collateral types.
Risk factor calculations were previously based on 12-quarters of historic loss analysis with 1.5 to 1 weighting given to the most recent
six quarters. In the second quarter of 2011, the historic loss window was reduced to eight quarters with 1.5 to 1 weighting given to the most recent four quarters. The enhanced window places greater emphasis on losses taken by the Bank within the
past year, as recent loss history is more relevant to the Banks risks given the rapid changes to asset quality within the current economic conditions.
As homogenous loans are bulk graded, the risk grade is not factored into the historical loss analysis; however, as with risk-rated loans, risk factor calculations are based on 8-quarters of historic loss
analysis with 1.5 to 1 weighting given to the most recent four quarters.
The Bank will charge off a loan and declare a loss
when its collectability is sufficiently questionable that the Bank can no longer justify showing the loan as an asset on its balance sheet. To determine if a loan should be charged off, all possible sources of repayment are analyzed, including the
potential for future cash flow from income or liquidation of other assets, the value of any collateral, and the strength of co-makers or guarantors. When these sources do not provide a reasonable probability that principal can be collected in full,
the Bank will fully or partially charge off the loan.
For purposes of determining the allowance for credit losses, the loan
portfolio is subdivided into three portfolio segments: real estate, commercial and industrial, and consumer. The portfolio segment of real estate contains the allowance loan pools of commercial real estate, construction, and residential mortgage.
The portfolio segment of commercial and industrial contains the loan pools of commercial term unsecured, commercial term T/D secured, commercial line of credit, SBA, international, and miscellaneous. Lastly, the portfolio segment of
consumer contains the loan pools of consumer installment, consumer line of credit, auto, and credit card.
Real estate loans,
which are mostly dependent on rental income from non-owner occupied or investor properties, have been subject to increased losses. Prior to 2009, no historic losses were recorded for loans secured by commercial real estate. However, given the
decrease in sales and increase in vacancies due to the current slowed economy, losses in loans secured by office and retail properties have been significant. Loans secured by vacant land have also had significant losses as valuations have decreased
and further development has been limited. Also, commercial term T/D secured loans, which are mostly owner-occupied property loans, have been subject to decreases in collateral value and have had more losses than prior to the current economic
condition. Similarly, construction loans have been subject to losses due to unforeseen difficulties in completion of projects. As such, allocations to general reserves for those loan pools have been higher than that of loan pools with lower risk.
Residential mortgage loans constitute a limited concentration within the Banks entire loan portfolio, and losses as well as supplementary reserves have been minimal.
Commercial and industrial loans, which are largely subject to changes in business cash flow, have had the most historic losses within the Banks entire loan portfolio. The largest loan pool within
the commercial and industrial sector is commercial term T/D secured, which are mostly loans secured by owner-occupied business properties. Loans secured by car washes, gas stations, golf courses, and motels have had the most significant
losses, as the hospitality and recreation industries have been negatively affected by the current economy. As such, allocations to general reserve for those loan pools have been increased. Also, commercial term unsecured and SBA loans have
had considerable losses and additional general reserves as decreased business cash flow due to the challenging economic condition has weakened borrowers repayment abilities.
53
Consumer loans constitute a limited concentration within the Banks loan portfolio and
are mostly evaluated in bulk for general reserve requirements due to the relatively small volume per loan.
Specific reserves
are allocated for loans deemed impaired. FASB ASC 310,
Receivables
, indicates that a loan is impaired when it is probable that a creditor will be unable to collect all amounts due, including principal and
interest, according to the contractual terms and schedules of the loan agreement. Loans that represent significant concentrations of credit, material non-performing loans, insider loans and other material credit exposures are subject to FASB ASC 310
impairment analysis.
Loans that are determined to be impaired under FASB ASC 310, are individually analyzed to estimate the
Banks exposure to loss based on the following factors: the borrowers character, the current financial condition of the borrower and the guarantor, the borrowers resources, the borrowers payment history, repayment ability,
debt servicing ability, action plan, the prevailing value of the underlying collateral, the Banks lien position, general economic conditions, specific industry conditions, and outlook for the future.
The loans identified as impaired are measured using one of the three methods of valuations: (1) the present value of expected future
cash flows discounted at the loans effective interest rate, (2) the fair market value of the collateral if the loan is collateral dependent, or (3) the loans observable market price.
When determining the appropriate level for allowance for loan losses, the management considers qualitative adjustments for any factors
that are likely to cause estimated credit losses associated with the Banks current portfolio to differ from historical loss experience, including but not limited to:
|
|
|
changes in lending policies and procedures, including underwriting standards and collection, charge-offs, and recovery practice;
|
|
|
|
changes in national and local economic and business conditions and developments, including the condition of various market segments;
|
|
|
|
changes in the nature and volume of the portfolio;
|
|
|
|
changes in the trend of the volume and severity of past due and classified loans, and trends in the volume of non-accrual loans, troubled debt
restructurings, charge-offs and other loan modifications;
|
|
|
|
changes in the quality of the Banks loan review system and the degree of oversight by the Board of Directors;
|
|
|
|
the existence and effect of any concentrations of credit, and changes in the level of such concentrations;
|
|
|
|
transfer risk on cross-border lending activities; and
|
|
|
|
the effect of external factors such as competition and legal and regulatory requirements as well as declining collateral values on the level of
estimated credit losses in the Banks current portfolio. In order to systematically quantify the credit risk impact of trends and changes within the loan portfolio, a credit risk matrix is utilized. The above factors are considered on a loan
pool by loan pool basis subsequent to, and in conjunction with, a loss migration analysis. The credit risk matrix provides various scenarios with positive or negative impact on the asset portfolio along with corresponding basis points for
qualitative adjustments.
|
54
The following table reflects our allocation of allowance for loan and lease losses by loan
category as well as the loans receivable for each loan type:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
September 30, 2012
|
|
|
December 31, 2011
|
|
|
|
Allowance
Amount
|
|
|
Loans
Receivable
|
|
|
Allowance
Amount
|
|
|
Loans
Receivable
|
|
|
|
(In Thousands)
|
|
Real Estate Loans:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial Property
|
|
$
|
19,420
|
|
|
$
|
728,419
|
|
|
$
|
17,129
|
|
|
$
|
663,023
|
|
Construction
|
|
|
|
|
|
|
7,868
|
|
|
|
1,403
|
|
|
|
33,976
|
|
Residential Property
|
|
|
1,803
|
|
|
|
103,774
|
|
|
|
1,105
|
|
|
|
52,921
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Real Estate Loans
|
|
|
21,223
|
|
|
|
840,061
|
|
|
|
19,637
|
|
|
|
749,920
|
|
Commercial and Industrial Loans:
|
|
|
42,664
|
|
|
|
1,079,814
|
|
|
|
66,005
|
|
|
|
1,145,474
|
|
Consumer Loans
|
|
|
2,220
|
|
|
|
38,415
|
|
|
|
2,243
|
|
|
|
43,346
|
|
Unallocated
|
|
|
|
|
|
|
|
|
|
|
2,051
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
66,107
|
|
|
$
|
1,958,290
|
|
|
$
|
89,936
|
|
|
$
|
1,938,740
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The following table sets forth certain information regarding our allowance for loan losses and allowance
for off-balance sheet items for the periods presented. Allowance for off-balance sheet items is determined by applying reserve factors according to loan pool and grade as well as actual current commitment usage figures by loan type to existing
contingent liabilities.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of and for the Three Months Ended
|
|
|
As of and for the Nine Months Ended
|
|
|
|
September 30,
2012
|
|
|
June 30,
2012
|
|
|
September 30,
2011
|
|
|
September 30,
2012
|
|
|
September 30,
2011
|
|
|
|
(In Thousands)
|
|
Allowance for Loan Losses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at Beginning of Period
|
|
$
|
71,893
|
|
|
$
|
81,052
|
|
|
$
|
109,029
|
|
|
$
|
89,936
|
|
|
$
|
146,059
|
|
Actual Charge-Offs
|
|
|
(7,223
|
)
|
|
|
(14,716
|
)
|
|
|
(16,551
|
)
|
|
|
(34,260
|
)
|
|
|
(62,384
|
)
|
Recoveries on Loans Previously Charged Off
|
|
|
1,320
|
|
|
|
1,324
|
|
|
|
1,045
|
|
|
|
3,681
|
|
|
|
8,822
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Loan Charge-Offs
|
|
|
(5,903
|
)
|
|
|
(13,392
|
)
|
|
|
(15,506
|
)
|
|
|
(30,579
|
)
|
|
|
(53,562
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Provision Charged to Operating Expense
|
|
|
117
|
|
|
|
4,233
|
|
|
|
7,269
|
|
|
|
6,750
|
|
|
|
8,295
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at End of Period
|
|
$
|
66,107
|
|
|
$
|
71,893
|
|
|
$
|
100,792
|
|
|
$
|
66,107
|
|
|
$
|
100,792
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Allowance for Off-Balance Sheet Items:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at Beginning of Period
|
|
$
|
2,348
|
|
|
$
|
2,581
|
|
|
$
|
2,391
|
|
|
$
|
2,981
|
|
|
$
|
3,417
|
|
Provision Charged to (Reversal of Charged to) Operating Expense
|
|
|
(117
|
)
|
|
|
(233
|
)
|
|
|
831
|
|
|
|
(750
|
)
|
|
|
(195
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at End of Period
|
|
$
|
2,231
|
|
|
$
|
2,348
|
|
|
$
|
3,222
|
|
|
$
|
2,231
|
|
|
$
|
3,222
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ratios:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Loan Charge-Offs to Average Total Gross Loans
(1)
|
|
|
1.21
|
%
|
|
|
2.67
|
%
|
|
|
2.98
|
%
|
|
|
2.06
|
%
|
|
|
3.32
|
%
|
Net Loan Charge-Offs to Total Gross Loans
(1)
|
|
|
1.21
|
%
|
|
|
2.75
|
%
|
|
|
3.11
|
%
|
|
|
2.08
|
%
|
|
|
3.59
|
%
|
Allowance for Loan Losses to Average Total Gross Loans
|
|
|
3.37
|
%
|
|
|
3.59
|
%
|
|
|
4.85
|
%
|
|
|
3.33
|
%
|
|
|
4.69
|
%
|
Allowance for Loan Losses to Total Gross Loans
|
|
|
3.38
|
%
|
|
|
3.69
|
%
|
|
|
5.06
|
%
|
|
|
3.38
|
%
|
|
|
5.06
|
%
|
Net Loan Charge-Offs to Allowance for Loan Losses
(1)
|
|
|
35.72
|
%
|
|
|
74.51
|
%
|
|
|
61.54
|
%
|
|
|
61.68
|
%
|
|
|
70.85
|
%
|
Net Loan Charge-Offs to Provision Charged to Operating Expenses
|
|
|
5,045.30
|
%
|
|
|
316.37
|
%
|
|
|
213.32
|
%
|
|
|
453.02
|
%
|
|
|
645.71
|
%
|
Allowance for Loan Losses to Non-Performing Loans
|
|
|
147.92
|
%
|
|
|
159.26
|
%
|
|
|
129.24
|
%
|
|
|
147.92
|
%
|
|
|
129.24
|
%
|
Balance:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Average Total Gross Loans Outstanding During Period
|
|
$
|
1,958,819
|
|
|
$
|
2,003,475
|
|
|
$
|
2,077,934
|
|
|
$
|
1,982,369
|
|
|
$
|
2,149,101
|
|
Total Gross Loans Outstanding at End of Period
|
|
$
|
1,958,290
|
|
|
$
|
1,949,624
|
|
|
$
|
1,992,031
|
|
|
$
|
1,958,290
|
|
|
$
|
1,992,031
|
|
Non-Performing Loans at End of Period
|
|
$
|
44,692
|
|
|
$
|
45,143
|
|
|
$
|
77,991
|
|
|
$
|
44,692
|
|
|
$
|
77,991
|
|
(1)
|
Net loan charge-offs are annualized to calculate the ratios.
|
The allowance for loan losses decreased by $23.8 million, or 26.5 percent, to $66.1 million as
of September 30, 2012, compared to $89.9 million as of December 31, 2011. The allowance for loan losses as a percentage of total gross loans decreased to 3.38 percent as of September 30, 2012 from 4.64 percent as of December 31,
2011. The provision for loan losses decreased by $1.5 million to $6.8 million for the nine months ended September 30, 2012 from $8.3 million for the nine months ended September 30, 2011. The $6.8 million provision for loan losses was
offset by the $750,000 reversal in provision for off-balance items, resulting in a $6.0 million total provision for credit losses for the nine months ended September 30, 2012. The $8.3 million provision for loan losses was offset by the
$195,000 reversal in provision for off-balance items, resulting in an $8.1 million provision for credit losses for the nine months ended September 30, 2011.
55
The decrease in the allowance for loan losses as of September 30, 2012 was due
primarily to decreases in historical loss rates, and classified assets. Due to these factors, general reserves decreased by $6.2 million, or 14.8 percent, to $35.6 million as of September 30, 2012 as compared to $41.8 million at
December 31, 2011. However, total qualitative reserves increased by $1.5 million, or 6.2 percent, to $24.1 million as of September 30, 2012 as compared to $22.6 million as of December 31, 2011, due mainly to an additional qualitative
factor related to charge-offs and losses from problem notes.
Total impaired loans, excluding loans held for sale, decreased
by $63.1 million, or 51.8 percent, to $58.6 million as of September 30, 2012 as compared to $121.7 million at December 31, 2011. Accordingly, specific reserve allocations associated with impaired loans decreased by $17.1 million, or 73.1
percent, to $6.3 million as of September 30, 2012 as compared to $23.4 million as of December 31, 2011.
The
following table presents a summary of net charge-offs by the loan portfolio.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of and for the
|
|
|
|
Three Months Ended
September 30,
|
|
|
Nine Months Ended
September 30,
|
|
|
|
2012
|
|
|
2011
|
|
|
2012
|
|
|
2011
|
|
|
|
(In Thousands)
|
|
Charge-offs:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Real Estate Loans:
|
|
$
|
1,321
|
|
|
$
|
2,142
|
|
|
$
|
9,406
|
|
|
$
|
14,786
|
|
Commercial Term
|
|
|
4,576
|
|
|
|
8,573
|
|
|
|
22,190
|
|
|
|
32,512
|
|
Commercial Lines of Credit
|
|
|
201
|
|
|
|
1,916
|
|
|
|
203
|
|
|
|
5,646
|
|
SBA Loans
|
|
|
794
|
|
|
|
3,435
|
|
|
|
1,686
|
|
|
|
8,339
|
|
International Loans
|
|
|
|
|
|
|
99
|
|
|
|
|
|
|
|
219
|
|
Consumer Loans
|
|
|
331
|
|
|
|
386
|
|
|
|
775
|
|
|
|
882
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Charge-offs
|
|
|
7,223
|
|
|
|
16,551
|
|
|
|
34,260
|
|
|
|
62,384
|
|
Recoveries:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Real Estate Loans:
|
|
|
58
|
|
|
|
|
|
|
|
575
|
|
|
|
2,744
|
|
Commercial Term
|
|
|
913
|
|
|
|
925
|
|
|
|
2,470
|
|
|
|
5,518
|
|
Commercial Lines of Credit
|
|
|
269
|
|
|
|
59
|
|
|
|
291
|
|
|
|
291
|
|
SBA Loans
|
|
|
64
|
|
|
|
23
|
|
|
|
284
|
|
|
|
79
|
|
International Loans
|
|
|
5
|
|
|
|
7
|
|
|
|
8
|
|
|
|
137
|
|
Consumer Loans
|
|
|
11
|
|
|
|
31
|
|
|
|
53
|
|
|
|
53
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Recoveries
|
|
|
1,320
|
|
|
|
1,045
|
|
|
|
3,681
|
|
|
|
8,822
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Charge-offs
|
|
$
|
5,903
|
|
|
$
|
15,506
|
|
|
$
|
30,580
|
|
|
$
|
53,562
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the three months ended September 30, 2012, total charge-offs were $7.2 million, a decrease of
$9.4 million, or 56.6 percent, from $16.6 million for the three months ended September 30, 2011. The decreases in the three months ended September 30, 2012 from the three months ended September 30, 2011 were mainly due to decreases in
charge-offs of commercial term loans by $4.0 million, SBA loans by $2.6 million and commercial lines of credit by $1.7 million.
The Bank recorded in other liabilities an allowance for off-balance sheet exposure, primarily unfunded loan commitments, of $2.2 million
and $3.0 million as of September 30, 2012 and December 31, 2011, respectively. The decrease was primarily due to lower reserve factors based on historical loss rates. The Bank closely monitors the borrowers repayment capabilities
while funding existing commitments to ensure losses are minimized. Based on managements evaluation and analysis of portfolio credit quality and prevailing economic conditions, we believe these reserves are adequate for losses inherent in the
loan portfolio and off-balance sheet exposure as of September 30, 2012 and December 31, 2011.
Deposits
The following table shows the composition of deposits by type as of the dates indicated.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
September 30,
2012
|
|
|
December 31,
2011
|
|
|
Increase (Decrease)
|
|
|
|
|
Amount
|
|
|
Percentage
|
|
|
|
(In Thousands)
|
|
Demand Noninterest-Bearing
|
|
$
|
694,345
|
|
|
$
|
634,466
|
|
|
$
|
59,879
|
|
|
|
9.4
|
%
|
Interest-Bearing:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Savings
|
|
|
111,654
|
|
|
|
104,664
|
|
|
|
6,990
|
|
|
|
6.7
|
%
|
Money Market Checking and NOW Accounts
|
|
|
563,785
|
|
|
|
449,854
|
|
|
|
113,931
|
|
|
|
25.3
|
%
|
Time Deposits of $100,000 or More
|
|
|
635,802
|
|
|
|
822,165
|
|
|
|
(186,363
|
)
|
|
|
-22.7
|
%
|
Other Time Deposits
|
|
|
357,799
|
|
|
|
333,761
|
|
|
|
24,038
|
|
|
|
7.2
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Deposits
|
|
$
|
2,363,385
|
|
|
$
|
2,344,910
|
|
|
$
|
18,475
|
|
|
|
0.8
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total deposits increased by $18.5 million, or 0.8 percent, to $2.36 billion as of September 30, 2012
from $2.34 billion as of December 31, 2011. The increases in total deposits were the direct results of strategic plans aiming to increase core deposits while reducing the reliance on volatile wholesale funds and rate-sensitive time deposits.
During the first nine months ended September 30, 2012, $494.9 million of high-cost promotional time deposits and $51.5 million of deposits raised from rate listing services matured.
56
While time deposits of $100,000 or more decreased by $186.4 million, or 22.7 percent, to
$635.8 million at September 30, 2012 from $822.2 million at December 31, 2011, core deposits (defined as demand, savings, money market, NOW accounts and other time deposits) increased by $204.8 million, or 13.5 percent, to $1.73 billion at
September 30, 2012 from $1.52 billion at December 31, 2011. Time deposits of $250,000 or more also decreased by $98.4 million, or 27.0 percent, to $266.5 million from $364.9 million at December 31, 2011. Noninterest-bearing demand
deposits represented 29.4 percent of total deposits at September 30, 2012 compared to 27.1 percent at December 31, 2011. We had no brokered deposits as of September 30, 2012 and December 31, 2011.
Federal Home Loan Bank Advances and Other Borrowings
FHLB advances and other borrowings mostly take the form of advances from the FHLB of San Francisco and overnight federal funds. At September 30, 2012, advances from the FHLB were $3.0 million, a
decrease of $274,000 from $3.3 million at December 31, 2011, with a remaining maturity of 1.63 years at 5.27 percent.
Junior
Subordinated Debentures
During the second half of 2004, we issued two junior subordinated notes bearing interest at the
three-month London Interbank Offered Rate (LIBOR) plus 2.90 percent totaling $61.8 million and one junior subordinated note bearing interest at the three-month LIBOR plus 2.63 percent totaling $20.6 million. The outstanding subordinated
debentures related to these offerings, the proceeds of which were used to finance the purchase of Pacific Union Bank, totaled $82.4 million at September 30, 2012 and December 31, 2011. In October 2008, we committed to the FRB that no
interest payments on the junior subordinated debentures would be made without the prior written consent of the FRB. Therefore, in order to preserve its capital position, Hanmi Financials Board of Directors has elected to defer quarterly
interest payments on its outstanding junior subordinated debentures until further notice, beginning with the interest payment that was due on January 15, 2009. In addition, we are prohibited from making interest payments on our outstanding
junior subordinated debentures under the terms of our recently issued regulatory enforcement actions without the prior written consent of the FRB and DFI. Accrued interest payable on junior subordinated debentures amounted to $12.2 million and $9.8
million at September 30, 2012 and December 31, 2011, respectively.
57
INTEREST RATE RISK MANAGEMENT
Interest rate risk indicates our exposure to market interest rate fluctuations. The movement of interest rates directly and inversely
affects the economic value of fixed-income assets, which is the present value of future cash flow discounted by the current interest rate; under the same conditions, the higher the current interest rate, the higher the denominator of discounting.
Interest rate risk management is intended to decrease or increase the level of our exposure to market interest rates. The level of interest rate risk can be managed through such means as the changing of gap positions and the volume of fixed-income
assets. For successful management of interest rate risk, we use various methods to measure existing and future interest rate risk exposures, giving effect to historical attrition rates of core deposits. In addition to regular reports used in
business operations, repricing gap analysis, stress testing and simulation modeling are the main measurement techniques used to quantify interest rate risk exposure.
The following table shows the status of our gap position as of September 30, 2012:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Less
Than
Three
Months
|
|
|
More Than
Three
Months But
Less Than
One Year
|
|
|
More Than
One Year
But Less
Than Five
Years
|
|
|
More Than
Five Years
|
|
|
Non-
Interest-
Sensitive
|
|
|
Total
|
|
|
|
(In Thousands)
|
|
ASSETS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and Due from Bank
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
72,053
|
|
|
$
|
72,053
|
|
Interest-Bearing Deposits in Other Banks
|
|
|
217,375
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
217,375
|
|
Fed Funds Sold
|
|
|
13,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
13,000
|
|
Restricted Cash
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
4,393
|
|
|
|
4,393
|
|
Term Fed Funds Sold
|
|
|
55,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
55,000
|
|
Investment Securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fixed Rate
|
|
|
29,773
|
|
|
|
61,207
|
|
|
|
156,620
|
|
|
|
79,573
|
|
|
|
17,597
|
|
|
|
344,770
|
|
Floating Rate
|
|
|
36,089
|
|
|
|
15,527
|
|
|
|
11,751
|
|
|
|
1,888
|
|
|
|
186
|
|
|
|
65,441
|
|
Loans:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fixed Rate
|
|
|
61,904
|
|
|
|
141,794
|
|
|
|
354,833
|
|
|
|
18,108
|
|
|
|
|
|
|
|
576,639
|
|
Floating Rate
|
|
|
1,271,129
|
|
|
|
57,806
|
|
|
|
21,177
|
|
|
|
73
|
|
|
|
|
|
|
|
1,350,185
|
|
Non-Accrual
(1)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
48,981
|
|
|
|
48,981
|
|
Deferred Loan Fees, Discount, and Allowance for Loan Losses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(72,256
|
)
|
|
|
(72,256
|
)
|
Federal Home Loan Bank and Federal Reserve Bank Stock
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
29,882
|
|
|
|
|
|
|
|
29,882
|
|
Other Assets
|
|
|
|
|
|
|
28,816
|
|
|
|
|
|
|
|
5,107
|
|
|
|
102,472
|
|
|
|
136,395
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
TOTAL ASSETS
|
|
$
|
1,684,269
|
|
|
$
|
305,150
|
|
|
$
|
544,382
|
|
|
$
|
134,630
|
|
|
$
|
173,425
|
|
|
$
|
2,841,857
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES AND STOCKHOLDERS EQUITY
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deposits:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Demand Noninterest-Bearing
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
694,345
|
|
|
$
|
694,345
|
|
Savings
|
|
|
9,204
|
|
|
|
19,773
|
|
|
|
58,465
|
|
|
|
24,211
|
|
|
|
|
|
|
|
111,654
|
|
Money Market Checking and NOW Accounts
|
|
|
69,325
|
|
|
|
177,397
|
|
|
|
209,610
|
|
|
|
107,452
|
|
|
|
|
|
|
|
563,785
|
|
Time Deposits
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fixed Rate
|
|
|
154,474
|
|
|
|
607,287
|
|
|
|
231,780
|
|
|
|
2
|
|
|
|
|
|
|
|
993,543
|
|
Floating Rate
|
|
|
59
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
59
|
|
Federal Home Loan Bank Advances
|
|
|
95
|
|
|
|
294
|
|
|
|
2,640
|
|
|
|
|
|
|
|
|
|
|
|
3,029
|
|
Junior Subordinated Debentures
|
|
|
82,406
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
82,406
|
|
Other Liabilities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
29,049
|
|
|
|
29,049
|
|
Stockholders Equity
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
363,987
|
|
|
|
363,987
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
TOTAL LIABILITIES AND STOCKHOLDERS EQUITY
|
|
$
|
315,563
|
|
|
$
|
804,752
|
|
|
$
|
502,496
|
|
|
$
|
131,665
|
|
|
$
|
1,087,381
|
|
|
$
|
2,841,857
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Repricing Gap
|
|
$
|
1,368,706
|
|
|
$
|
(499,602
|
)
|
|
$
|
41,886
|
|
|
$
|
2,966
|
|
|
$
|
(913,956
|
)
|
|
$
|
|
|
Cumulative Repricing Gap
|
|
$
|
1,368,706
|
|
|
$
|
869,104
|
|
|
$
|
910,990
|
|
|
$
|
913,956
|
|
|
$
|
|
|
|
$
|
|
|
Cumulative Repricing Gap as a Percentage of Total Assets
|
|
|
48.16
|
%
|
|
|
30.58
|
%
|
|
|
32.06
|
%
|
|
|
32.16
|
%
|
|
|
0.00
|
%
|
|
|
|
|
Cumulative Repricing Gap as a Percentage of Interest-Earning Assets
|
|
|
50.78
|
%
|
|
|
32.25
|
%
|
|
|
33.80
|
%
|
|
|
33.91
|
%
|
|
|
0.00
|
%
|
|
|
|
|
(1)
|
Includes non-accrual loans in loans held for sale.
|
The repricing gap analysis measures the static timing of repricing risk of assets and liabilities (i.e., a point-in-time analysis
measuring the difference between assets maturing or repricing in a period and liabilities maturing or repricing within the same period). Assets are assigned to maturity and repricing categories based on their expected repayment or repricing dates,
and liabilities are assigned based on their repricing or maturity dates. Core deposits that have no maturity dates (demand deposits, savings, money market checking and NOW accounts and other time deposits) are assigned to categories based on
expected decay rates.
As of September 30, 2012, the cumulative repricing gap for the three-month period was at an
asset-sensitive position and 50.78 percent of interest-earning assets, which increased from 36.85 percent as of December 31, 2011. The increase was mainly due to a $302.5 million decrease in fixed rate time deposits, a $118.3 million increase
in cash and due from other banks, and a $34.4 million increase in floating rate loans, partially offset by a $47.0 million decrease in federal funds sold.
58
The cumulative repricing gap for the twelve-month period was at an asset-sensitive position
and was 32.25 percent of interest-earning assets, which increased from 22.26 percent as of December 31, 2011. The increase was mainly due to a $288.1 million decrease in fixed rate time deposits, a $116.3 million increase in cash and due from
other banks, a $62.8 million increase in floating rate loans, and a $50.0 million increase in money market checking and NOW accounts, partially offset by a $67.0 million decrease in federal funds sold, a $42.8 million decrease in fixed rate
investment securities, and a $40.5 million increase in fixed rate loans.
The following table summarizes the status of the
cumulative gap position as of the dates indicated.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Less Than Three Months
|
|
|
Less Than Twelve Months
|
|
|
|
September 30,
2012
|
|
|
December 31,
2011
|
|
|
September 30,
2012
|
|
|
December 31,
2011
|
|
|
|
(In Thousands)
|
|
Cumulative Repricing Gap
|
|
$
|
1,368,706
|
|
|
$
|
960,898
|
|
|
$
|
869,104
|
|
|
$
|
580,284
|
|
Percentage of Total Assets
|
|
|
48.16
|
%
|
|
|
35.01
|
%
|
|
|
30.58
|
%
|
|
|
21.14
|
%
|
Percentage of Interest-Earning Assets
|
|
|
50.78
|
%
|
|
|
36.85
|
%
|
|
|
32.25
|
%
|
|
|
22.26
|
%
|
The spread between interest income on interest-earning assets and interest expense on interest-bearing
liabilities is the principal component of net interest income, and interest rate changes substantially affect our financial performance. We emphasize capital protection through stable earnings rather than maximizing yield. In order to achieve stable
earnings, we prudently manage our assets and liabilities and closely monitor the percentage changes in net interest income and equity value in relation to limits established within our guidelines.
To supplement traditional gap analysis, we perform simulation modeling to estimate the potential effects of interest rate changes. The
following table summarizes one of the stress simulations performed to forecast the impact of changing interest rates on net interest income and the market value of interest-earning assets and interest-bearing liabilities reflected on our balance
sheet (i.e., an instantaneous parallel shift in the yield curve of the magnitude indicated). This sensitivity analysis is compared to policy limits, which specify the maximum tolerance level for net interest income exposure over a one-year horizon,
given the basis point adjustment in interest rates reflected below.
|
|
|
|
|
|
|
|
|
Rate Shock Table
|
|
|
Percentage Change
|
|
Change in Amount
|
Change in
Interest
Rate
|
|
Net
Interest
Income
|
|
Economic
Value of
Equity
|
|
Net
Interest
Income
|
|
Economic
Value of
Equity
|
|
|
(In Thousands)
|
200%
|
|
12.84%
|
|
4.99%
|
|
$12,730
|
|
$19,984
|
100%
|
|
5.52%
|
|
2.58%
|
|
$5,479
|
|
$10,347
|
(100%)
|
|
(1)
|
|
(1)
|
|
(1)
|
|
(1)
|
(200%)
|
|
(1)
|
|
(1)
|
|
(1)
|
|
(1)
|
(1)
|
The table above only reflects the impact of upward shocks due to the fact that a downward
parallel shock of 100 basis points or more is not possible given that some short-term rates are currently less than one percent.
|
The estimated sensitivity does not necessarily represent our forecast and the results may not be indicative of actual changes to our net interest income. These estimates are based upon a number of
assumptions including: the nature and timing of interest rate levels including yield curve shape, prepayments on loans and securities, pricing strategies on loans and deposits, and replacement of asset and liability cash flows. While the assumptions
used are based on current economic and local market conditions, there is no assurance as to the predictive nature of these conditions, including how customer preferences or competitor influences might change.
59
CAPITAL RESOURCES AND LIQUIDITY
Capital Resources
Historically, our primary source of capital has been the retention of operating earnings. In order to ensure adequate levels of capital, the Board continually assesses projected sources and uses of
capital in conjunction with projected increases in assets and levels of risk. Management considers, among other things, earnings generated from operations, and access to capital from financial markets through the issuance of additional securities,
including common stock or notes, to meet our capital needs.
As of September 30, 2012, the Bank was well
capitalized according to the regulatory guidelines.
Hanmi Financial and the Bank are required to notify the FRB if
their respective capital ratios fall below those set forth in the capital plan submitted to the FRB.
Based on submissions to
and consultations with the FRB, we believe that the Bank has taken the required corrective action and has complied with substantially all of the requirements of the Written Agreement.
Liquidity Hanmi Financial
Currently, management believes that Hanmi Financial, on a stand-alone basis, has adequate liquid assets to meet its operating cash needs through December 31, 2012. On August 29, 2008, we elected
to suspend payment of quarterly dividends on our common stock in order to preserve our capital position. In addition, we are prohibited from making interest payments on our outstanding junior subordinated debentures under the terms of the Written
Agreement without the prior written consent on FRB, beginning with the interest payment that was due on January 15, 2009. Accrued interest payable on junior subordinated debentures amounted to $12.2 million and $9.8 million at
September 30, 2012 and December 31, 2011, respectively. Upon the termination of the Written Agreement, management intends to pay interest in arrears on our junior subordinated debentures to bring them current. As of September 30,
2012, Hanmi Financials liquid assets, including amounts deposited with the Bank, totaled $30.2 million, down from $31.7 million as of December 31, 2011.
Liquidity Hanmi Bank
Management believes that the Bank, on a
stand-alone basis, has adequate liquid assets to meet its current obligations. The Banks primary funding source will continue to be deposits originating from its branch platform. The Banks wholesale funds historically consisted of FHLB
advances and brokered deposits. As of September 30, 2012, the Bank had no brokered deposits, and had FHLB advances of $3.0 million compared to $3.3 million as of December 31, 2011.
The Banks primary source of borrowings is the FHLB, from which the Bank is eligible to borrow up to 15 percent of its total
assets. As of September 30, 2012, the total borrowing capacity available based on pledged collateral and the remaining available borrowing capacity were $317.5 million and $314.5 million, respectively. The Banks FHLB borrowings
as of September 30, 2012 totaled $3.0 million, representing 0.11 percent of total assets.
The amount that the
FHLB is willing to advance differs based on the quality and character of qualifying collateral pledged by the Bank, and the advance rates for qualifying collateral may be adjusted upwards or downwards by the FHLB from time to time. To the extent
deposit renewals and deposit growth are not sufficient to fund maturing and withdrawable deposits, repay maturing borrowings, fund existing and future loans and investment securities and otherwise fund working capital needs and capital expenditures,
the Bank may utilize the remaining borrowing capacity from its FHLB borrowing arrangement.
As a means of augmenting its
liquidity, the Bank had an available borrowing source of $56.1 million from the Federal Reserve Discount Window (the Fed Discount Window), to which the Bank pledged loans with a carrying value of $90.8 million, and had no borrowings
as of September 30, 2012. Additionally, the Bank is currently in the primary credit of the Borrower in Custody Program of the Fed Discount Window. The primary credit is available to depository institutions in sound overall condition to meet
short-term (typically overnight), backup funding needs. Normally, prime credit will be granted on a no-questions-asked, minimal administered basis generally with no restriction. Furthermore, in October 2011, South Street Securities
LLC extended a line of credit to the Bank for reverse repurchase agreements up to a maximum of $100.0 million.
Current
market conditions have limited the Banks liquidity sources principally to interest-bearing deposits, unpledged marketable securities, and secured funding outlets such as the FHLB and Fed Discount Window. There can be no assurance that actions
by the FHLB or Federal Reserve Bank would not reduce the Banks borrowing capacity or that the Bank would be able to continue to replace deposits at competitive rates.
60
The Bank has Contingency Funding Plans (CFPs) designed to ensure that liquidity
sources are sufficient to meet its ongoing obligations and commitments, particularly in the event of a liquidity contraction. The CFPs are designed to examine and quantify its liquidity under various stress scenarios. Furthermore, the
CFPs provide a framework for management and other critical personnel to follow in the event of a liquidity contraction or in anticipation of such an event. The CFPs address authority for activation and decision making, liquidity options and the
responsibilities of key departments in the event of a liquidity contraction.
The Bank believes that it has adequate liquidity
resources to fund its obligations with its interest-bearing deposits, unpledged marketable securities, and secured credit lines with the FHLB and Fed Discount Window.
OFF-BALANCE SHEET ARRANGEMENTS
For a discussion of off-balance sheet
arrangements, see Note 10 Off-Balance Sheet Commitments of Notes to Consolidated Financial Statements (Unaudited) in this Quarterly Report on Form 10-Q and Item 1. Business Off-Balance Sheet Commitments in our
2011 Annual Report on Form 10-K.
CONTRACTUAL OBLIGATIONS
There have been no material changes to the contractual obligations described in our 2011 Annual Report on Form 10-K.
RECENTLY ISSUED ACCOUNTING STANDARDS
FASB ASU No. 2011-08,
Testing Goodwill for Impairment (Topic 350)
FASB ASU 2011-08 permits an entity to make a qualitative assessment of whether it is more likely than not that a reporting units fair value is less than its carrying amount
before applying the two-step goodwill impairment test. If an entity concludes it is not more likely than not that the fair value of a reporting unit is less than its carrying amount, it need not perform the two-step impairment test. The amendments
in FASB ASU 2011-08 are effective for annual and interim goodwill impairment tests performed for fiscal years beginning after December 15, 2011. Adoption of FASB ASU 2011-08 did not have a significant impact on our financial condition or result
of operations.
FASB ASU 2011-05, Presentation of Comprehensive Income (Topic 220)
FASB ASU
2011-05 is intended to improve the comparability, consistency, and transparency of financial reporting and to increase the prominence of items reported in other comprehensive income. To increase the prominence of items reported in other
comprehensive income and to facilitate convergence of U.S. GAAP and IFRS, the FASB decided to eliminate the option to present components of other comprehensive income as part of the statement of changes in stockholders equity, among other
amendments in this Update. These amendments apply to all entities that report items of other comprehensive income, in any period presented. Under the amendments to Topic 220, an entity has the option to present the total of comprehensive income, the
components of net income, and the components of other comprehensive income either in a single continuous statement of comprehensive income or in two separate but consecutive statements.
The amendments in FASB ASU 2011-05 are effective fiscal years, and interim periods within those years, beginning after December 15,
2011. Adoption of FASB ASU 2011-05 did not have a significant impact on our financial condition or result of operations.
FASB ASU 2011-04, Amendments to Achieve Common Fair Value Measurement and Disclosure Requirements in U.S. GAAP and IFRSs
(Topic 820)
FASB ASU 2011-04 provides guidance on fair value measurement and disclosure requirements that the FASB deemed largely identical across U.S. GAAP and IFRS. The requirements do not extend the use of fair value
accounting, but provide guidance on how it should be applied where its use is already required or allowed. ASU 2011-04 supersedes most of the guidance in ASC topic 820, but many of the changes are clarifications of existing guidance or wording
changes to reflect IFRS 13. Amendments in FASB ASU 2011-04 change the wording used to describe U.S. GAAP requirements for fair value and disclosing information about fair value measurements. FASB ASU 2011-04 is effective for interim and annual
reporting periods beginning after December 15, 2011, and early application is not permitted. Adoption of FASB ASU 2011-04 did not have a significant impact on our financial condition or result of operations.
SUBSEQUENT EVENTS
On
October 29, 2012, the DFI informed the Bank that the Banks overall condition has improved and that the Memorandum of Understanding entered into between the Bank and the DFI on May 1, 2012 (the MOU) has been terminated. Accordingly,
the Bank is no longer subjected to any of the requirements imposed by the MOU.
On October 31, 2012, Lonny D.
Robinson tendered his resignation as Executive Vice President and Chief Financial Officer of Hanmi Financial and the Bank, effective November 13, 2012. Mr. Robinsons resignation does not stem from any disagreement with Hanmi
Financial or the Bank. Concurrently with Mr. Robinsons resignation, the Board of Directors of Hanmi Financial has appointed Mark Yoon as interim Chief Financial Officer, effective November 13, 2012. Mr. Yoon currently serves as
Hanmi Financials Senior Vice President and Chief Strategy Officer and will continue in those roles while he serves as interim Chief Financial Officer.
Management has evaluated subsequent events through the date of issuance of the financial data included herein. Other than the events disclosed above, there have been no subsequent events that occurred
during such period would require disclosure in this Quarterly Report on Form 10-Q or would be required to be recognized in the Consolidated Financial Statements (Unaudited) as of September 30, 2012.
61