Notes to Consolidated Financial Statements
Republic First Bancorp, Inc. (“The Company”) is a one-bank holding company organized and incorporated under the laws of the Commonwealth of Pennsylvania. It is comprised of one wholly-owned subsidiary, Republic First Bank, which does business under the name of Republic Bank (“Republic”). Republic is a Pennsylvania state chartered bank that offers a variety of banking services to individuals and businesses throughout the Greater Philadelphia and South Jersey area through its offices and store locations in Philadelphia, Montgomery, Delaware and Camden Counties. The Company also has three unconsolidated subsidiaries, which are statutory trusts established by the Company in connection with its sponsorship of three separate issuances of trust preferred securities.
The Company and Republic encounter vigorous competition for market share in the geographic areas they serve from bank holding companies, national, regional and other community banks, thrift institutions, credit unions and other non-bank financial organizations, such as mutual fund companies, insurance companies and brokerage companies.
The Company and Republic are subject to federal and state regulations governing virtually all aspects of their activities, including but not limited to, lines of business, liquidity, investments, the payment of dividends and others. Such regulations and the cost of adherence to such regulations can have a significant impact on earnings and financial condition.
2.
|
Summary of Significant Accounting Policies
|
Basis of Presentation
The consolidated financial statements include the accounts of the Company and its wholly-owned subsidiary, Republic. The Company follows accounting standards set by the Financial Accounting Standards Board (“FASB”). The FASB sets accounting principles generally accepted in the United States of America (“US GAAP”) that are followed to ensure consistent reporting of financial condition, results of operations, and cash flows.
The Company has evaluated subsequent events through the date of issuance of the financial data included herein.
Risks and Uncertainties and Certain Significant Estimates
The earnings of the Company depend primarily on the earnings of Republic. The earnings of Republic are dependent primarily upon the level of net interest income, which is the difference between interest earned on its interest-earning assets, such as loans and investments, and the interest paid on its interest-bearing liabilities, such as deposits and borrowings. Accordingly, our results of operations are subject to risks and uncertainties surrounding our exposure to changes in the interest rate environment.
Prepayments on residential real estate mortgage and other fixed rate loans and mortgage-backed securities vary significantly and may cause significant fluctuations in interest margins.
The preparation of financial statements in conformity with US GAAP requires management to make significant estimates and assumptions that affect the reported amounts of assets and liabilities and disclosures of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.
Significant estimates are made by management in determining the allowance for loan losses, carrying values of other real estate owned, assessment of other than temporary impairment (“OTTI”) of investment securities, fair value of financial instruments and the realization of deferred income tax assets. Consideration is given to a variety of factors in establishing these estimates.
In estimating the allowance for loan losses, management considers current economic conditions, diversification of the loan portfolio, delinquency statistics, results of internal loan reviews, borrowers’ perceived financial and managerial strengths, the adequacy of underlying collateral, if collateral dependent, or present value of future cash flows, and other relevant factors. An estimate for the carrying value of other real estate owned is normally derived through appraisals which are updated on a regular basis or through agreements of sale that have been negotiated. Because the allowance for loan losses and carrying value of other real estate owned are dependent, to a great extent, on the general economy and other conditions that may be beyond the Company’s control, the estimate of the allowance for loan losses and the carrying values of other real estate owned could differ materially in the near term.
In estimating OTTI of investment securities, securities are evaluated on at least a quarterly basis and more frequently when market conditions warrant such an evaluation, to determine whether a decline in their value is other than temporary. To determine whether a loss in value is other than temporary, management utilizes criteria such as the reasons underlying the decline, the magnitude and duration of the decline, the intent to hold the security and the likelihood of the Company not being required to sell the security prior to an anticipated recovery in the fair value. The term “other than temporary” is not intended to indicate that the decline is permanent, but indicates that the prospect for a near-term recovery of value is not necessarily favorable, or that there is a lack of evidence to support a realizable value equal to or greater than the carrying value of investment. Once a decline in value is determined to be other than temporary, the value of the security is reduced by the portion of the decline related to credit impairment.
In evaluating the Company’s ability to recover deferred tax assets, management considers all available positive and negative evidence. Management also makes assumptions on the amount of future taxable income, the reversal of temporary differences and the implementation of feasible and prudent tax planning strategies. These assumptions require management to make judgments that are consistent with the plans and estimates used to manage the Company’s business. As a result of cumulative losses in recent years and the uncertain nature of the current economic environment, the Company has decided to currently exclude future taxable income from its analysis on the ability to recover deferred tax assets and has recorded a valuation allowance against its deferred tax assets. An increase or decrease in the valuation allowance would result in an adjustment to income tax expense and could have a significant impact on the Company’s future earnings.
Significant Group Concentrations of Credit Risk
Most of the Company’s activities are with customers located within the Greater Philadelphia region. Note 3 – Investment Securities discusses the types of investment securities that the Company invests in. Note 4 – Loans Receivable discusses the types of lending that the Company engages in as well as loan concentrations. The Company does not have a significant concentration of credit risk with any one customer.
Cash and Cash Equivalents
For purposes of the statements of cash flows, the Company considers all cash and due from banks, interest-bearing deposits with an original maturity of ninety days or less and federal funds sold, maturing in ninety days or less, to be cash and cash equivalents.
Restrictions on Cash and Due from Banks
Republic is required to maintain certain average reserve balances as established by the Federal Reserve Board. The amounts of those balances for the reserve computation periods that include December 31, 2012 and 2011 were approximately $1,597,000 and $554,000, respectively. These requirements were satisfied through the restriction of vault cash and a balance at the Federal Reserve Bank of Philadelphia.
Investment Securities
Held to Maturity
– Certain debt securities that management has the positive intent and ability to hold until maturity are classified as held to maturity and are carried at their remaining unpaid principal balances, net of unamortized premiums or unaccreted discounts. Premiums are amortized and discounts are accreted using the interest method over the estimated remaining term of the underlying security.
Available for Sale –
Debt and equity securities that will be held for indefinite periods of time, including securities that may be sold in response to changes in market interest or prepayment rates, needs for liquidity, and changes in the availability of and in the yield of alternative investments, are classified as available for sale. These assets are carried at fair value. Unrealized gains and losses are excluded from operations and are reported net of tax as a separate component of other comprehensive income until realized. Realized gains and losses on the sale of investment securities are reported in the consolidated statements of operations and determined using the adjusted cost of the specific security sold on the trade date.
Investment securities are evaluated on at least a quarterly basis, and more frequently when market conditions warrant such an evaluation, to determine whether a decline in their value is other-than-temporary. To determine whether a loss in value is other-than-temporary, management utilizes criteria such as the reasons underlying the decline, the magnitude and duration of the decline, the intent to hold the security and the likelihood of the Company not being required to sell the security prior to an anticipated recovery in the fair value. The term “other-than-temporary” is not intended to indicate that the decline is permanent, but indicates that the prospects for a near-term recovery of value is not necessarily favorable, or that there is a lack of evidence to support a realizable value equal to or greater than the carrying value of the investment. Once a decline in value is determined to be other-than-temporary, the portion of the decline related to credit impairment is charged to earnings. Impairment charges on bank pooled trust preferred securities of $34,000, $42,000, and $372,000 were recognized during the years ended December 31, 2012, 2011 and 2010, respectively, as a result of estimated other-than-temporary impairment.
Restricted Stock
Restricted stock, which represents a required investment in the capital stock of correspondent banks related to available credit facilities, was carried at cost as of December 31, 2012 and 2011. As of those dates, restricted stock consisted of investments in the capital stock of the FHLB of Pittsburgh and Atlantic Central Bankers Bank (“ACBB”). The required investment in the capital stock of the FHLB is calculated based on outstanding loan balances and open credit facilities with the FHLB. Excess investments are returned to Republic on a quarterly basis. In December 2009, the FHLB notified member banks that it was temporarily suspending the repurchase of capital stock along with all dividend payments. In October 2010, the FHLB of Pittsburgh lifted this suspension and began partial repurchases of excess investments in its capital stock. Total repurchases of excess capital stock held by Republic in 2012, 2011, and 2010 were $1.5 million, $1.2 million, and $335,000, respectively. Decisions regarding any future repurchase of restricted stock will be made on a quarterly basis. In February 2012, the FHLB issued its first dividend payment since 2008 and continued to pay quarterly dividends throughout the remainder of 2012.
Management evaluates the restricted stock for impairment in accordance with guidance under ASC 942-10
Financial Services- Depository and Lending.
Management’s determination of whether these investments are impaired is based on their assessment of the ultimate recoverability of their cost rather than by recognizing temporary declines in value. The determination of whether a decline affects the ultimate recoverability of their cost is influenced by criteria such as (1) the significance of the decline in net assets of the FHLB as compared to the capital stock amount for the FHLB and the length of time this situation has persisted, (2) commitments by the FHLB to make payments required by law or regulation and the level of such payments in relation to the operating performance of the FHLB, and (3) the impact of legislative and regulatory changes on institutions and, accordingly, on the customer base of the FHLB.
Management believes no impairment charge is necessary related to restricted stock as of December 31, 2012 and December 31, 2011.
Loans Receivable
The loans receivable portfolio is segmented into commercial real estate loans, construction and land development loans, commercial and industrial loans, owner occupied real estate loans, consumer and other loans, and residential mortgages. Consumer loans consist of home equity loans and other consumer loans.
Loans that management has the intent and ability to hold for the foreseeable future or until maturity or payoff are stated at the amount of unpaid principal, reduced by unearned income and an allowance for loan losses. Interest on loans is calculated based upon the principal amounts outstanding. The Company defers and amortizes certain origination and commitment fees, and certain direct loan origination costs over the contractual life of the related loan. This results in an adjustment of the related loans yield.
The Company accounts for amortization of premiums and accretion of discounts related to loans purchased based upon the effective interest method. If a loan prepays in full before the contractual maturity date, any unamortized premiums, discounts or fees are recognized immediately as an adjustment to interest income.
Loans are generally classified as non-accrual if they are past due as to maturity or payment of principal or interest for a period of more than 90 days, unless such loans are well-secured and in the process of collection. Loans that are on a current payment status or past due less than 90 days may also be classified as non-accrual if repayment in full of principal and/or interest is in doubt. Loans may be returned to accrual status when all principal and interest amounts contractually due are reasonably assured of repayment within an acceptable period of time, and there is a sustained period of repayment performance of interest and principal by the borrower, in accordance with the contractual terms. Generally, in the case of non-accrual loans, cash received is applied to reduce the principal outstanding.
Allowance for Credit Losses
The allowance for credit losses consists of the allowance for loan losses and the reserve for unfunded lending commitments. The allowance for loan losses represents management’s estimate of losses inherent in the loan portfolio as of the balance sheet date and is recorded as a reduction to loans. The reserve for unfunded lending commitments represents management’s estimate of losses inherent in its unfunded loan commitments and is recorded in other liabilities on the consolidated balance sheet. The allowance for credit losses is established through a provision for loan losses charged to operations. Loans are charged against the allowance when management believes that the collectability of the loan principal is unlikely. Recoveries on loans previously charged off are credited to the allowance.
The allowance for credit losses is an amount that represents management’s estimate of known and inherent losses related to the loan portfolio and unfunded loan commitments. Because the allowance for credit losses is dependent, to a great extent, on the general economy and other conditions that may be beyond Republic’s control, the estimate of the allowance for credit losses could differ materially in the near term.
The allowance consists of specific, general and unallocated components. The specific component relates to loans that are categorized as “internally classified”. For such loans that are also classified as impaired, an allowance is established when the discounted cash flows (or collateral value or observable market price) of the impaired loan is lower than the carrying value of that loan. The general component covers non-classified loans and is based on historical loss experience adjusted for qualitative factors. An unallocated component is maintained to cover uncertainties that could affect management’s estimate of probable losses. The unallocated component of the allowance reflects the margin of imprecision inherent in the underlying assumptions used in the methodologies for estimating specific and general losses in the portfolio. All identified losses are immediately charged off and therefore no portion of the allowance for loan losses is restricted to any individual loan or group of loans, and the entire allowance is available to absorb any and all loan losses.
In estimating the allowance for credit losses, management considers current economic conditions, past loss experience, diversification of the loan portfolio, delinquency statistics, results of internal loan reviews and regulatory examinations, borrowers’ perceived financial and managerial strengths, the adequacy of underlying collateral, if collateral dependent, or present value of future cash flows, and other relevant and qualitative risk factors. These qualitative risk factors include:
1)
Lending policies and procedures, including underwriting standards and collection, charge-off and recovery practices.
2)
National, regional and local economic and business conditions as well as the condition of various segments.
3)
Nature and volume of the portfolio and terms of loans.
4)
Experience, ability and depth of lending management and staff.
5)
Volume and severity of past due, classified and nonaccrual loans as well as other loan modifications.
6)
Quality of the Company’s loan review system, and the degree of oversight by the Company’s Board of Directors.
7)
Existence and effect of any concentration of credit and changes in the level of such concentrations.
8)
Effect of external factors, such as competition and legal and regulatory requirements.
Each factor is assigned a value to reflect improving, stable or declining conditions based on management’s best judgment using relevant information available at the time of the evaluation. Adjustments to the factors are supported through documentation of changes in conditions in a narrative accompanying the allowance for loan loss calculation.
A loan is considered impaired when, based on current information and events, it is probable that the Company will be unable to collect the scheduled payments of principal or interest when due according to the contractual terms of the loan agreement. Factors considered by management in determining impairment, include payment status, collateral value, and the probability of collecting scheduled principal and interest payments when due. Loans that experience insignificant payment delays and payment shortfalls generally are not classified as impaired. Management determines the significance of payment delays and payment shortfalls on a case-by-case basis, taking into consideration all the circumstances surrounding the loan and the borrower, including the length of the delay, the reasons for the delay, the borrower’s prior payment record, and the amount of the shortfall in relation to the principal and interest owed. Impairment is measured on a loan-by-loan basis for commercial and construction loans by the present value of expected future cash flows discounted at the loan’s effective interest rate, the loan’s obtainable market price, or the fair value of the collateral if the loan is collateral dependent.
An allowance for loan losses is established for an impaired loan if its carrying value exceeds its estimated fair value. The estimated fair values of substantially all of the Company’s impaired loans are measured based on the estimated fair value of the loan’s collateral.
For commercial loans secured by real estate, estimated fair values are determined primarily through third-party appraisals. When a real estate secured loan becomes impaired, a decision is made regarding whether an updated certified appraisal of the real estate is necessary. This decision is based on various considerations, including the age of the most recent appraisal, the loan-to-value ratio based on the original appraisal and the condition of the property. Appraised values are discounted to arrive at the estimated selling price of the collateral, which is considered to be the estimated fair value. The discounts also include estimated costs to sell the property.
For commercial and industrial loans secured by non-real estate collateral, such as accounts receivable, inventory and equipment, estimated fair values are determined based on the borrower’s financial statements, inventory reports, accounts receivable agings or equipment appraisals or invoices. Indications of value from these sources are generally discounted based on the age of the financial information or the quality of the assets.
Large groups of smaller balance homogeneous loans are collectively evaluated for impairment. Accordingly, the Company does not separately identify individual residential mortgage loans, home equity loans and other consumer loans for impairment disclosures, unless such loans are the subject of a troubled debt restructuring agreement.
Loans whose terms are modified are classified as troubled debt restructurings if the Company grants such borrowers concessions and it is deemed that those borrowers are experiencing financial difficulty. Concessions granted under a troubled debt restructuring generally involve a temporary reduction in interest rate or an extension of a loan’s stated maturity date. Non-accrual troubled debt restructurings are restored to accrual status if principal and interest payments, under the modified terms, are current for six consecutive months after modification. Loans classified as troubled debt restructurings are designated as impaired.
The allowance calculation methodology includes further segregation of loan classes into risk rating categories. The borrower’s overall financial condition, repayment sources, guarantors and value of collateral, if appropriate, are evaluated annually for commercial loans or when credit deficiencies arise, such as delinquent loan payments, for commercial and consumer loans. Credit quality risk ratings include regulatory classifications of special mention, substandard, doubtful and loss. Loans classified special mention have potential weaknesses that deserve management’s close attention. If uncorrected, the potential weaknesses may result in deterioration of the repayment prospects. Loans classified substandard have a well-defined weakness or weaknesses that jeopardize the liquidation of the debt. They include loans that are inadequately protected by the current sound net worth and paying capacity of the obligor or of the collateral pledged, if any. Loans classified doubtful have all the weaknesses inherent in loans classified substandard with the added characteristic that collection or liquidation in full, on the basis of current conditions and facts, is highly improbable. Loans classified as a loss are considered uncollectible and are charged to the allowance for loan losses. Loans not classified are rated pass.
In addition, federal and state regulatory agencies, as an integral part of their examination process, periodically review the Company’s allowance for loan losses and may require the Company to recognize additions to the allowance based on their judgments about information available to them at the time of their examination, which may not be currently available to management. Based on management’s comprehensive analysis of the loan portfolio, management believes the current level of the allowance for loan losses is adequate.
Transfers of Financial Assets
The Company accounts for the transfers and servicing financial assets in accordance with ASC 860
, Accounting for Transfers and Servicing of Financial Assets and Extinguishment of Liabilities
. ASC 860
,
revises the standards for accounting for the securitizations and other transfers of financial assets and collateral.
Transfers of financial assets are accounted for as sales, when control over the assets has been surrendered. Control over transferred assets is deemed to be surrendered when (1) the assets have been isolated from the Company, (2) the transferee obtains the right (free of conditions that constrain it from taking advantage of that right) to pledge or exchange the transferred assets, and (3) the Company does not maintain effective control over the transferred assets through an agreement to repurchase them before their maturity.
Loans Held for Sale
Loans held for sale consist of the guaranteed portion of SBA loans that the Company intends to sell after origination and are reflected at the lower of aggregate cost or fair value. When the sale of the loan occurs, the premium received is combined with the estimated present value of future cash flows on the related servicing asset and recorded as a Gain on the Sale of SBA loans which is categorized as non-interest income. Subsequent fees collected for servicing of the sold portion of a loan are reduced by amortization on the servicing asset and recorded as a net amount in Loan Advisory and Servicing Fees, which is also categorized as non-interest income.
Guarantees
The Company accounts for guarantees in accordance with ASC 815
Guarantor’s Accounting and Disclosure Requirements for Guarantees, including Indirect Guarantees of Indebtedness of Others
. ASC 815
requires a guarantor entity, at the inception of a guarantee covered by the measurement provisions of the interpretation, to record a liability for the fair value of the obligation undertaken in issuing the guarantee. The Company has financial and performance letters of credit. Financial letters of credit require the Company to make payment if the customer’s financial condition deteriorates, as defined in the agreements. Performance letters of credit require the Company to make payments if the customer fails to perform certain non-financial contractual obligations. The maximum potential undiscounted amount of future payments of these letters of credit as of December 31, 2012 is $4.3 million and they expire as follows: $4.2 million in 2013 and $75,000 in 2014. Amounts due under these letters of credit would be reduced by any proceeds that the Company would be able to obtain in liquidating the collateral for the loans, which varies depending on the customer.
Premises and Equipment
Premises and equipment (including land) are stated at cost less accumulated depreciation and amortization. Depreciation of furniture and equipment is calculated over the estimated useful life of the asset using the straight-line method for financial reporting purposes, and accelerated methods for income tax purposes. The estimated useful lives are 40 years for buildings and 3 to 13 years for furniture, fixtures and equipment. Leasehold improvements are amortized over the shorter of their estimated useful lives or terms of their respective leases, which range from 1 to 30 years. Repairs and maintenance are charged to current operations as incurred, and renewals and major improvements are capitalized.
Other Real Estate Owned
Other real estate owned consists of assets acquired through, or in lieu of, loan foreclosure. They are held for sale and are initially recorded at fair value less cost to sell at the date of foreclosure, establishing a new cost basis. Subsequent to foreclosure, valuations are periodically performed by management and the assets are carried at the lower of carrying amount or fair value, less the cost to sell. Revenue and expenses from operations and changes in the valuation allowance are included in net expenses from other real estate owned.
Bank Owned Life Insurance
The Company invests in bank owned life insurance (“BOLI”) policies on certain employees. The Company is the owner and beneficiary of the policies. This life insurance investment is carried at the cash surrender value of the underlying policies. Income from the increase in cash surrender value of the policies is included in other income on the statement of operations.
Advertising Costs
It is the Company’s policy to expense advertising costs in the period in which they are incurred.
Income Taxes
Income tax accounting guidance results in two components of income tax expense: current and deferred. Current income tax expense reflects taxes to be paid or refunded for the current period by applying the provisions of the enacted tax law to the taxable income or excess of deductions over revenues. The Company determines deferred income taxes using the liability (or balance sheet) method. Under this method, the net deferred tax asset or liability is based on the tax effects of the differences between the book and tax bases of assets and liabilities and enacted changes in tax rates and laws are recognized in the period in which they occur.
Deferred income tax expense results from changes in deferred tax assets and liabilities between periods. Deferred tax assets are reduced by a valuation allowance if, based on the weight of the evidence available, it is more likely than not that some portion or all of a deferred tax asset will not be realized.
The Company accounts for uncertain tax positions if it is more likely than not, based on the technical merits, that the tax position will be realized or sustained upon examination. The term more likely than not means a likelihood of more than 50 percent; the terms examined and upon examination also include resolution of the related appeals or litigation processes, if any. A tax position that meets the more-likely-than-not recognition threshold is initially and subsequently measured as the largest amount of tax benefit that has a greater than 50 percent likelihood of being realized upon settlement with a taxing authority that has full knowledge of all relevant information. The determination of whether or not a tax position has met the more-likely-than-not recognition threshold considers the facts, circumstances, and information available at the reporting date and is subject to management’s judgment.
The Company recognizes interest and penalties on income taxes, if any, as a component of the provision for income taxes.
Stock Based Compensation
The Company has a Stock Option and Restricted Stock Plan (“Plan”), under which the Company may grant options, restricted stock or stock appreciation rights to the Company’s employees, directors, and certain consultants. Under the terms of the Plan, 1.5 million shares of common stock, plus an annual increase equal to the number of shares needed to restore the maximum number of shares that may be available for grant under the Plan to 1.5 million shares, are available for such grants. As of December 31, 2012, the only grants under the Plan have been option grants. The Plan provides that the exercise price of each option granted equals the market price of the Company’s stock on the date of grant. Options granted pursuant to the Plan vest within one to five years from the date of grant and have a maximum term of 10 years.
Earnings Per Share
Earnings per share (“EPS”) consists of two separate components, basic EPS and diluted EPS. Basic EPS is computed by dividing net income (loss) by the weighted average number of common shares outstanding for each period presented. Diluted EPS is calculated by dividing net income (loss) by the weighted average number of common shares outstanding plus dilutive common stock equivalents (“CSE”). CSEs consist of dilutive stock options granted through the Company’s Plan and convertible securities related to the trust preferred securities issued in 2008. In the diluted EPS computation, the after tax interest expense on the trust preferred securities issuance is added back to the net income. In 2012, 2011 and 2010, the effect of CSEs and the related add back of after tax interest expense was considered anti-dilutive and therefore was not included in the EPS calculations.
The calculation of EPS for the years ended December 31, 2012, 2011 and 2010 is as follows:
(dollars in thousands, except per share amounts)
|
|
2012
|
|
|
2011
|
|
|
2010
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss)
|
|
$
|
3,614
|
|
|
$
|
(24,702
|
)
|
|
$
|
(10,690
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average shares outstanding
|
|
|
25,973
|
|
|
|
25,973
|
|
|
|
18,593
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) per share – basic and diluted
|
|
$
|
0.14
|
|
|
$
|
(0.95
|
)
|
|
$
|
(0.57
|
)
|
Comprehensive Income / (Loss)
The Company presents as a component of comprehensive income (loss) the amounts from transactions and other events, which currently are excluded from the consolidated statements of operations and are recorded directly to shareholders’ equity. These amounts consist of unrealized holding gains (losses) on available for sale securities.
Trust Preferred Securities
The Company has sponsored three outstanding issues of corporation-obligated mandatorily redeemable capital securities of a subsidiary trust holding solely junior subordinated debentures of the corporation, more commonly known as trust preferred securities. The subsidiary trusts are not consolidated with the Company for financial reporting purposes. The purpose of the issuances of these securities was to increase capital. The trust preferred securities qualify as Tier 1 capital for regulatory purposes in amounts up to 25% of total Tier 1 capital.
Variable Interest Entities
In January 2003, the FASB issued FASB Interpretation 46 (ASC 810),
Consolidation of Variable Interest Entities
. ASC 810 clarifies the application of Accounting Research Bulletin 51,
Consolidated Financial Statements
, to certain entities in which voting rights are not effective in identifying the investor with the controlling financial interest. An entity is subject to consolidation under ASC 810 if the investors either do not have sufficient equity at risk for the entity to finance its activities without additional subordinated financial support, are unable to direct the entity’s activities, or are not exposed to the entity’s losses or entitled to its residual returns ("variable interest entities"). Variable interest entities within the scope of ASC 810 will be required to be consolidated by their primary beneficiary. The primary beneficiary of a variable interest entity is determined to be the party that absorbs a majority of the entity's expected losses, receives a majority of its expected returns, or both.
The Company does not consolidate its subsidiary trusts. ASC 810 precludes consideration of the call option embedded in the preferred securities when determining if the Company has the right to a majority of the trusts’ expected residual returns. The non-consolidation results in the investment in the common securities of the trusts to be included in other assets with a corresponding increase in outstanding debt of $676,000. In addition, the income received on the Company’s investment in the common securities of the trusts is included in other income. The adoption of ASC 810 did not have a material impact on the financial position or results of operations. The Federal Reserve has issued final guidance on the regulatory capital treatment for the trust-preferred securities issued by the capital trusts as a result of the adoption of ASC 810. The final rule retained the current maximum percentage of total capital permitted for trust preferred securities at 25%, but enacted changes to the rules governing trust preferred securities that affect their use as part of the collection of entities known as “restricted core capital elements”. The rule took effect March 31, 2009. The adoption of this guidance did not have a material impact on the Company’s capital rates.
Recent Accounting Pronouncements
ASU 2011-11
“Balance Sheet (Topic 210) – Disclosures about Offsetting Assets and Liabilities” amends Balance Sheet (Topic 210) to require an entity to disclose both gross and net information about both financial instruments and transactions eligible for offset in the statement of financial position and instruments and transactions subject to an agreement similar to a master netting arrangement. The financial instruments and transactions would include derivatives, sale and repurchase agreements and reverse sale and repurchase agreements, and securities borrowing and lending arrangements. ASU 2011-11 is effective for annual and interim periods beginning on January 1, 2012, and is not expected to have a significant impact on the Company’s financial statements.
ASU 2013-02
In February 2013, the FASB issued ASU 2013-02, “Reporting of Amounts Reclassified Out of Comprehensive Income.” The amendments in this ASU are intended to improve the reporting of reclassifications out of accumulated other comprehensive income by requiring an entity to report the effect of significant reclassifications out of accumulated other comprehensive income on the respective line items in net income if the amount being reclassified is required to be reclassified in its entirety to net income. For other amounts that are not required to be reclassified in their entirety to net income in the same reporting period, an entity is required to cross-reference other disclosures required that provide additional detail about those amounts. This would be the case when a portion of the amount reclassified out of accumulated other comprehensive income is reclassified to a balance sheet account instead of directly to income or expense in the same reporting period. The ASU is effective for public entities for reporting periods beginning after December 15, 2012. The Company is evaluating the impact of the ASU, but does not expect a material impact on the financial statements.
Reclassifications
Certain reclassifications have been made to 2011 and 2010 information to conform to the 2012 presentation. The reclassifications had no effect on results of operations.
A summary of the amortized cost and market value of securities available for sale and securities held to maturity at December 31, 2012 and 2011 is as follows:
|
|
At December 31, 2012
|
|
(dollars in thousands)
|
|
Amortized Cost
|
|
|
Gross Unrealized Gains
|
|
|
Gross Unrealized Losses
|
|
|
Fair
Value
|
|
Collateralized mortgage obligations
|
|
$
|
97,959
|
|
|
$
|
1,830
|
|
|
$
|
(6
|
)
|
|
$
|
99,783
|
|
Mortgage-backed securities
|
|
|
20,626
|
|
|
|
1,014
|
|
|
|
-
|
|
|
|
21,640
|
|
Municipal securities
|
|
|
11,150
|
|
|
|
967
|
|
|
|
(16
|
)
|
|
|
12,101
|
|
Corporate bonds
|
|
|
32,231
|
|
|
|
639
|
|
|
|
(185
|
)
|
|
|
32,685
|
|
Asset-backed securities
|
|
|
19,785
|
|
|
|
135
|
|
|
|
(191
|
)
|
|
|
19,729
|
|
Trust Preferred Securities
|
|
|
5,785
|
|
|
|
-
|
|
|
|
(2,598
|
)
|
|
|
3,187
|
|
Other securities
|
|
|
131
|
|
|
|
3
|
|
|
|
-
|
|
|
|
134
|
|
Total securities available for sale
|
|
$
|
187,667
|
|
|
$
|
4,588
|
|
|
$
|
(2,996
|
)
|
|
$
|
189,259
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. Government agencies
|
|
$
|
1
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
1
|
|
Other securities
|
|
|
66
|
|
|
|
2
|
|
|
|
-
|
|
|
|
68
|
|
Total securities held to maturity
|
|
$
|
67
|
|
|
$
|
2
|
|
|
$
|
-
|
|
|
$
|
69
|
|
|
|
At December 31, 2011
|
|
(dollars in thousands)
|
|
Amortized Cost
|
|
|
Gross Unrealized Gains
|
|
|
Gross Unrealized Losses
|
|
|
Fair
Value
|
|
Collateralized mortgage obligations
|
|
$
|
117,382
|
|
|
$
|
2,629
|
|
|
$
|
-
|
|
|
$
|
120,011
|
|
Mortgage-backed securities
|
|
|
12,764
|
|
|
|
1,352
|
|
|
|
-
|
|
|
|
14,116
|
|
Municipal securities
|
|
|
10,863
|
|
|
|
494
|
|
|
|
(323
|
)
|
|
|
11,034
|
|
Corporate bonds
|
|
|
26,881
|
|
|
|
17
|
|
|
|
(1,281
|
)
|
|
|
25,617
|
|
Trust Preferred Securities
|
|
|
6,375
|
|
|
|
-
|
|
|
|
(2,965
|
)
|
|
|
3,410
|
|
Other securities
|
|
|
131
|
|
|
|
4
|
|
|
|
-
|
|
|
|
135
|
|
Total securities available for sale
|
|
$
|
174,396
|
|
|
$
|
4,496
|
|
|
$
|
(4,569
|
)
|
|
$
|
174,323
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. Government agencies
|
|
$
|
2
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
2
|
|
Other securities
|
|
|
138
|
|
|
|
4
|
|
|
|
-
|
|
|
|
142
|
|
Total securities held to maturity
|
|
$
|
140
|
|
|
$
|
4
|
|
|
$
|
-
|
|
|
$
|
144
|
|
The maturity distribution of the amortized cost and estimated market value of investment securities by contractual maturity at December 31, 2012 is as follows:
|
|
Available for Sale
|
|
|
Held to Maturity
|
|
(dollars in thousands)
|
|
Amortized Cost
|
|
|
Estimated
Fair Value
|
|
|
Amortized Cost
|
|
|
Estimated
Fair Value
|
|
Due in 1 year or less
|
|
$
|
16,066
|
|
|
$
|
16,429
|
|
|
$
|
46
|
|
|
$
|
48
|
|
After 1 year to 5 years
|
|
|
67,168
|
|
|
|
69,049
|
|
|
|
21
|
|
|
|
21
|
|
After 5 years to 10 years
|
|
|
90,263
|
|
|
|
88,605
|
|
|
|
-
|
|
|
|
-
|
|
After 10 years
|
|
|
14,170
|
|
|
|
15,176
|
|
|
|
-
|
|
|
|
-
|
|
Total
|
|
$
|
187,667
|
|
|
$
|
189,259
|
|
|
$
|
67
|
|
|
$
|
69
|
|
Expected maturities will differ from contractual maturities because borrowers have the right to call or prepay obligations with or without prepayment penalties.
As of December 31, 2012 and December 31, 2011, the collateralized mortgage obligations and mortgage backed securities included in the investment securities portfolio consist solely of securities issued by U.S. government sponsored agencies. There were no private label mortgage securities held in the investment securities portfolio as of those dates. The Company did not hold any mortgage-backed securities that were rated “Alt-A” or “Subprime” as of December 31, 2012 and December 31, 2011. In addition, the Company did not hold any private issued CMO’s as of December 31, 2012 and December 31, 2011. As of December 31, 2012, the asset-backed securities consist solely of Sallie Mae bonds collateralized by student loans which are guaranteed by the U.S. Department of Education. There were no asset-backed securities in the portfolio as of December 31, 2011.
In instances when a determination is made that an other-than-temporary impairment exists with respect to a debt security but the investor does not intend to sell the debt security and it is more likely than not that the investor will not be required to sell the debt security prior to its anticipated recovery, FASB Accounting Standards Codification (“ASC”) 320-10, Investments – Debt and Equity Securities, requires the other-than-temporary impairment to be separated into (a) the amount of the total other-than-temporary impairment related to a decrease in cash flows expected to be collected from the debt security (the credit loss) and (b) the amount of the total other-than-temporary impairment related to all other factors. The amount of the total other-than-temporary impairment related to other factors is recognized in other comprehensive income. Impairment charges (credit losses) on trust preferred securities for the year ended December 31, 2012, 2011 and 2010 amounted to $34,000, $42,000 and $372,000, respectively.
The Company realized gross gains on the sale of securities of $737,000 in 2012. The related sale proceeds amounted to $25.8 million. The tax provision applicable to these gross gains in 2012 amounted to approximately $265,000. The Company realized gross gains on the sale of securities of $640,000 in 2011. The related sale proceeds amounted to $34.3 million. The tax provision applicable to these gross gains in 2011 amounted to approximately $224,000. The Company realized gross gains on the sale of securities of $1.3 million in 2010. The related sale proceeds amounted to $18.2 million. The tax provision applicable to these gross gains in 2010 amounted to approximately $439,000.
At December 31, 2012 and 2011, investment securities in the amount of approximately $100.8 million and $87.3 million, respectively, were pledged as collateral for public deposits and certain other deposits as required by law.
The following table presents a roll-forward of the balance of credit-related impairment losses on securities held at December 31, 2012 and 2011 for which a portion of OTTI was recognized in other comprehensive income:
(dollars in thousands)
|
|
2012
|
|
|
2011
|
|
|
|
|
|
|
|
|
Beginning Balance, January 1
st
|
|
$
|
3,925
|
|
|
$
|
3,883
|
|
Additional credit-related impairment loss on securities for which an
|
|
|
|
|
|
|
|
|
other-than-temporary impairment was previously recognized
|
|
|
34
|
|
|
|
42
|
|
Reductions for securities paid off during the period
|
|
|
-
|
|
|
|
-
|
|
Reductions for securities for which the amount previously recognized in other
|
|
|
|
|
|
|
|
|
comprehensive income was recognized in earnings because the Company
|
|
|
|
|
|
|
|
|
intends to sell the security
|
|
|
-
|
|
|
|
-
|
|
Ending Balance, December 31,
|
|
$
|
3,959
|
|
|
$
|
3,925
|
|
The following tables show the fair value and gross unrealized losses associated with the investment portfolio, aggregated by investment category and length of time that individual securities have been in a continuous unrealized loss position as of December 31, 2012 and 2011:
|
|
At December 31, 2012
|
|
|
|
Less than 12 months
|
|
|
12 months or more
|
|
|
Total
|
|
(dollars in thousands)
|
|
Fair
Value
|
|
|
Unrealized Losses
|
|
|
Fair
Value
|
|
|
Unrealized Losses
|
|
|
Fair
Value
|
|
|
Unrealized Losses
|
|
Collateralized mortgage obligations
|
|
$
|
9,991
|
|
|
$
|
6
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
9,991
|
|
|
$
|
6
|
|
Municipal securities
|
|
|
1,050
|
|
|
|
16
|
|
|
|
-
|
|
|
|
-
|
|
|
|
1,050
|
|
|
|
16
|
|
Corporate bonds
|
|
|
-
|
|
|
|
-
|
|
|
|
9,811
|
|
|
|
185
|
|
|
|
9,811
|
|
|
|
185
|
|
Asset-backed securities
|
|
|
9,218
|
|
|
|
191
|
|
|
|
-
|
|
|
|
-
|
|
|
|
9,218
|
|
|
|
191
|
|
Trust Preferred Securities
|
|
|
-
|
|
|
|
-
|
|
|
|
3,187
|
|
|
|
2,598
|
|
|
|
3,187
|
|
|
|
2,598
|
|
Total
|
|
$
|
20,259
|
|
|
$
|
213
|
|
|
$
|
12,998
|
|
|
$
|
2,783
|
|
|
$
|
33,257
|
|
|
$
|
2,996
|
|
|
|
At December 31, 2011
|
|
|
|
Less than 12 months
|
|
|
12 months or more
|
|
|
Total
|
|
(dollars in thousands)
|
|
Fair
Value
|
|
|
Unrealized Losses
|
|
|
Fair
Value
|
|
|
Unrealized Losses
|
|
|
Fair
Value
|
|
|
Unrealized Losses
|
|
Collateralized mortgage obligations
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
9
|
|
|
$
|
-
|
|
|
$
|
9
|
|
|
$
|
-
|
|
Municipal securities
|
|
|
-
|
|
|
|
-
|
|
|
|
4,490
|
|
|
|
323
|
|
|
|
4,490
|
|
|
|
323
|
|
Corporate bonds
|
|
|
18,714
|
|
|
|
1,281
|
|
|
|
-
|
|
|
|
-
|
|
|
|
18,714
|
|
|
|
1,281
|
|
Trust Preferred Securities
|
|
|
-
|
|
|
|
-
|
|
|
|
3,410
|
|
|
|
2,965
|
|
|
|
3,410
|
|
|
|
2,965
|
|
Total
|
|
$
|
18,714
|
|
|
$
|
1,281
|
|
|
$
|
7,909
|
|
|
$
|
3,288
|
|
|
$
|
26,623
|
|
|
$
|
4,569
|
|
The impairment of the investment portfolio totaled $3.0 million with a total fair value of $33.3 million at December 31, 2012. The most significant component of this impairment is related to the trust preferred securities held in the portfolio. Unrealized losses on the trust preferred securities amounted to $2.6 million at December 31, 2012. The unrealized losses associated with the trust preferred securities are a result of the secondary market for such securities becoming inactive and are considered temporary at this time.
The following table provides additional detail about trust preferred securities as of December 31, 2012.
(dollars in thousands)
|
Class / Tranche
|
|
Amortized Cost
|
|
|
Fair
Value
|
|
|
Unrealized Losses
|
|
|
Lowest Credit Rating Assigned
|
|
|
Number of Banks Currently Performing
|
|
|
Deferrals / Defaults as % of Current Balance
|
|
|
Conditional Default Rates for 2013 and beyond
|
|
|
Cumulative OTTI Life to Date
|
|
Preferred Term Securities IV
|
Mezzanine Notes
|
|
$
|
49
|
|
|
$
|
40
|
|
|
$
|
(9
|
)
|
|
CCC
|
|
|
|
5
|
|
|
|
27
|
%
|
|
|
0.37
|
%
|
|
$
|
-
|
|
Preferred Term Securities VII
|
Mezzanine Notes
|
|
|
1,497
|
|
|
|
1,126
|
|
|
|
(371
|
)
|
|
|
C
|
|
|
|
11
|
|
|
|
59
|
|
|
|
0.34
|
|
|
|
2,173
|
|
TPREF Funding II
|
Class B Notes
|
|
|
739
|
|
|
|
334
|
|
|
|
(405
|
)
|
|
|
C
|
|
|
|
16
|
|
|
|
43
|
|
|
|
0.36
|
|
|
|
260
|
|
TPREF Funding III
|
Class B2 Notes
|
|
|
1,520
|
|
|
|
745
|
|
|
|
(775
|
)
|
|
|
C
|
|
|
|
17
|
|
|
|
35
|
|
|
|
0.34
|
|
|
|
480
|
|
Trapeza CDO I, LLC
|
Class C1 Notes
|
|
|
556
|
|
|
|
236
|
|
|
|
(320
|
)
|
|
|
C
|
|
|
|
10
|
|
|
|
51
|
|
|
|
0.38
|
|
|
|
470
|
|
ALESCO Preferred Funding IV
|
Class B1 Notes
|
|
|
604
|
|
|
|
290
|
|
|
|
(314
|
)
|
|
|
C
|
|
|
|
38
|
|
|
|
23
|
|
|
|
0.36
|
|
|
|
396
|
|
ALESCO Preferred Funding V
|
Class C1 Notes
|
|
|
820
|
|
|
|
416
|
|
|
|
(404
|
)
|
|
|
C
|
|
|
|
39
|
|
|
|
33
|
|
|
|
0.36
|
|
|
|
180
|
|
Total
|
|
|
$
|
5,785
|
|
|
$
|
3,187
|
|
|
$
|
(2,598
|
)
|
|
|
|
|
|
|
136
|
|
|
|
38
|
%
|
|
|
|
|
|
$
|
3,959
|
|
At December 31, 2012, the investment portfolio included twenty-five municipal securities with a total market value of $12.1 million. Five of these securities carried an unrealized loss at December 31, 2012. Each of the municipal securities are reviewed quarterly for impairment. Research on each issuer is completed to ensure the financial stability of the municipal entity. The largest geographic concentration was in California where thirteen municipal securities had a market value of $6.3 million. As of December 31, 2012, management found no evidence of OTTI on any of the municipal securities held in the investment securities portfolio.
At December 31, 2012, the investment portfolio included seven corporate bonds with a total market value of $32.7 million. Two of these securities carried an unrealized loss at December 31, 2012. At December 31, 2012, the investment portfolio included two asset-backed securities with a total market value of $19.8 million, the majority of which (97%) is guaranteed by the U.S. Department of Education. One of these securities carried an unrealized loss at December 31, 2012. Management found no evidence of OTTI on any of these securities and the unrealized losses are due to changes in market value resulting from changes in market interest rates and are considered temporary as of December 31, 2012.
The following table sets forth the Company’s gross loans by major categories as of December 31, 2012 and 2011:
(dollars in thousands)
|
|
December 31, 2012
|
|
|
December 31, 2011
|
|
|
|
|
|
|
|
|
Commercial real estate
|
|
$
|
335,561
|
|
|
$
|
344,377
|
|
Construction and land development
|
|
|
26,659
|
|
|
|
35,061
|
|
Commercial and industrial
|
|
|
103,768
|
|
|
|
87,668
|
|
Owner occupied real estate
|
|
|
126,242
|
|
|
|
102,777
|
|
Consumer and other
|
|
|
23,449
|
|
|
|
16,683
|
|
Residential mortgage
|
|
|
2,442
|
|
|
|
3,150
|
|
Total loans receivable
|
|
|
618,121
|
|
|
|
589,716
|
|
Deferred costs (fees)
|
|
|
(220
|
)
|
|
|
(224
|
)
|
Allowance for loan losses
|
|
|
(9,542
|
)
|
|
|
(12,050
|
)
|
Net loans receivable
|
|
$
|
608,359
|
|
|
$
|
577,442
|
|
A loan is considered impaired, in accordance with ASC 310 Receivables, when based on current information and events, it is probable that the Company will be unable to collect all amounts due from the borrower in accordance with the contractual terms of the loan. Impaired loans include nonperforming commercial loans, but also include internally classified accruing loans.
The following table summarizes information with regard to impaired loans by loan portfolio class as of December 31, 2012 and 2011:
|
|
December 31, 2012
|
|
|
December 31, 2011
|
|
(dollars in thousands)
|
|
Recorded Investment
|
|
|
Unpaid Principal Balance
|
|
|
Related Allowance
|
|
|
Recorded Investment
|
|
|
Unpaid Principal Balance
|
|
|
Related Allowance
|
|
With no related allowance recorded:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial real estate
|
|
$
|
19,231
|
|
|
$
|
20,000
|
|
|
$
|
-
|
|
|
$
|
11,053
|
|
|
$
|
11,123
|
|
|
$
|
-
|
|
Construction and land development
|
|
|
3,153
|
|
|
|
6,312
|
|
|
|
-
|
|
|
|
6,165
|
|
|
|
12,011
|
|
|
|
-
|
|
Commercial and industrial
|
|
|
3,793
|
|
|
|
7,106
|
|
|
|
-
|
|
|
|
4,781
|
|
|
|
4,895
|
|
|
|
-
|
|
Owner occupied real estate
|
|
|
505
|
|
|
|
505
|
|
|
|
-
|
|
|
|
506
|
|
|
|
506
|
|
|
|
-
|
|
Consumer and other
|
|
|
912
|
|
|
|
1,146
|
|
|
|
-
|
|
|
|
958
|
|
|
|
1,196
|
|
|
|
-
|
|
Total
|
|
$
|
27,594
|
|
|
$
|
35,069
|
|
|
$
|
-
|
|
|
$
|
23,463
|
|
|
$
|
29,731
|
|
|
$
|
-
|
|
With an allowance recorded:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial real estate
|
|
$
|
6,085
|
|
|
$
|
6,085
|
|
|
$
|
1,077
|
|
|
$
|
9,023
|
|
|
$
|
9,023
|
|
|
$
|
2,066
|
|
Construction and land development
|
|
|
593
|
|
|
|
3,700
|
|
|
|
70
|
|
|
|
818
|
|
|
|
1,933
|
|
|
|
98
|
|
Commercial and industrial
|
|
|
3,147
|
|
|
|
3,255
|
|
|
|
861
|
|
|
|
3,539
|
|
|
|
6,009
|
|
|
|
629
|
|
Owner occupied real estate
|
|
|
3,450
|
|
|
|
3,450
|
|
|
|
860
|
|
|
|
1,356
|
|
|
|
1,356
|
|
|
|
311
|
|
Consumer and other
|
|
|
146
|
|
|
|
155
|
|
|
|
75
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Total
|
|
$
|
13,421
|
|
|
$
|
16,645
|
|
|
$
|
2,943
|
|
|
$
|
14,736
|
|
|
$
|
18,321
|
|
|
$
|
3,104
|
|
Total:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial real estate
|
|
$
|
25,316
|
|
|
$
|
26,085
|
|
|
$
|
1,077
|
|
|
$
|
20,076
|
|
|
$
|
20,146
|
|
|
$
|
2,066
|
|
Construction and land development
|
|
|
3,746
|
|
|
|
10,012
|
|
|
|
70
|
|
|
|
6,983
|
|
|
|
13,944
|
|
|
|
98
|
|
Commercial and industrial
|
|
|
6,940
|
|
|
|
10,361
|
|
|
|
861
|
|
|
|
8,320
|
|
|
|
10,904
|
|
|
|
629
|
|
Owner occupied real estate
|
|
|
3,955
|
|
|
|
3,955
|
|
|
|
860
|
|
|
|
1,862
|
|
|
|
1,862
|
|
|
|
311
|
|
Consumer and other
|
|
|
1,058
|
|
|
|
1,301
|
|
|
|
75
|
|
|
|
958
|
|
|
|
1,196
|
|
|
|
-
|
|
Total
|
|
$
|
41,015
|
|
|
$
|
51,714
|
|
|
$
|
2,943
|
|
|
$
|
38,199
|
|
|
$
|
48,052
|
|
|
$
|
3,104
|
|
The following table presents additional information regarding the Company’s impaired loans for the years ended December 31, 2012 and 2011:
|
|
Years Ended December 31,
|
|
|
|
2012
|
|
|
2011
|
|
(dollars in thousands)
|
|
Average Recorded Investment
|
|
|
Interest Income Recognized
|
|
|
Average Recorded Investment
|
|
|
Interest Income Recognized
|
|
With no related allowance recorded:
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial real estate
|
|
$
|
15,675
|
|
|
$
|
821
|
|
|
$
|
27,122
|
|
|
$
|
881
|
|
Construction and land development
|
|
|
4,587
|
|
|
|
112
|
|
|
|
15,096
|
|
|
|
128
|
|
Commercial and industrial
|
|
|
4,366
|
|
|
|
128
|
|
|
|
3,422
|
|
|
|
128
|
|
Owner occupied real estate
|
|
|
912
|
|
|
|
32
|
|
|
|
1,470
|
|
|
|
37
|
|
Consumer and other
|
|
|
875
|
|
|
|
9
|
|
|
|
759
|
|
|
|
2
|
|
Total
|
|
$
|
26,415
|
|
|
$
|
1,102
|
|
|
$
|
47,869
|
|
|
$
|
1,176
|
|
With an allowance recorded:
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial real estate
|
|
$
|
7,207
|
|
|
$
|
312
|
|
|
$
|
12,126
|
|
|
$
|
535
|
|
Construction and land development
|
|
|
1,163
|
|
|
|
-
|
|
|
|
4,599
|
|
|
|
26
|
|
Commercial and industrial
|
|
|
3,393
|
|
|
|
47
|
|
|
|
3,735
|
|
|
|
15
|
|
Owner occupied real estate
|
|
|
2,542
|
|
|
|
154
|
|
|
|
2,359
|
|
|
|
112
|
|
Consumer and other
|
|
|
87
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Total
|
|
$
|
14,392
|
|
|
$
|
513
|
|
|
$
|
22,819
|
|
|
$
|
688
|
|
Total:
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial real estate
|
|
$
|
22,882
|
|
|
$
|
1,133
|
|
|
$
|
39,248
|
|
|
$
|
1,416
|
|
Construction and land development
|
|
|
5,750
|
|
|
|
112
|
|
|
|
19,695
|
|
|
|
154
|
|
Commercial and industrial
|
|
|
7,759
|
|
|
|
175
|
|
|
|
7,157
|
|
|
|
143
|
|
Owner occupied real estate
|
|
|
3,454
|
|
|
|
186
|
|
|
|
3,829
|
|
|
|
149
|
|
Consumer and other
|
|
|
962
|
|
|
|
9
|
|
|
|
759
|
|
|
|
2
|
|
Total
|
|
$
|
40,807
|
|
|
$
|
1,615
|
|
|
$
|
70,688
|
|
|
$
|
1,864
|
|
The total average recorded investment on the Company’s impaired loans for the year ended December 31, 2010 was $100.3 million and the related interest income recognized for the year ended December 31, 2010 was $2.7 million. If these loans were performing under their original contractual rate, interest income on such loans would have increased approximately $699,000 and $583,000 for the years ended December 31, 2012 and 2011, respectively.
The Company completed the sale of $59.0 million of distressed loans and foreclosed properties to a single investor during 2011. The loans and foreclosed properties included in the sale had a book balance of $45.1 million and included $28.4 million non-accrual loans and other real estate owned. Net proceeds from the sale amounted to $30.6 million after deducting amounts due for outstanding liens, related expenses and applicable transfer taxes. This transaction resulted in additional provisions of $9.6 million through the provision for loan losses and $4.8 million through loss on sale of OREO during the fourth quarter of 2011.
Included in loans are loans due from directors and other related parties of $9.1 million and $16.9 million at December 31, 2012 and 2011, respectively. All loans made to directors have substantially the same terms and interest rates as other bank borrowers. The Board of Directors approves loans to individual directors to confirm that collateral requirements, terms and rates are comparable to other borrowers and are in compliance with underwriting policies.
The following presents the activity in amount due from directors and other related parties for the years ended December 31, 2012 and 2011.
(dollars in thousands)
|
|
December 31, 2012
|
|
|
December 31, 2011
|
|
Balance at beginning of year
|
|
$
|
16,941
|
|
|
$
|
16,376
|
|
Additions
|
|
|
259
|
|
|
|
1,727
|
|
Repayments
|
|
|
(8,072
|
)
|
|
|
(1,162
|
)
|
Balance at end of year
|
|
$
|
9,128
|
|
|
$
|
16,941
|
|
5. Allowances for Loan Losses
The following is an analysis of the changes in the allowance for loan losses for the years ended December 31, 2012, 2011 and 2010:
(dollars in thousands)
|
|
December 31,
2012
|
|
|
December 31,
2011
|
|
|
December 31,
2010
|
|
Balance at beginning of year
|
|
$
|
12,050
|
|
|
$
|
11,444
|
|
|
$
|
12,841
|
|
Provision for loan losses
|
|
|
1,350
|
|
|
|
15,966
|
|
|
|
16,600
|
|
Recoveries of loans previously charged off
|
|
|
134
|
|
|
|
109
|
|
|
|
1,171
|
|
Loan charge-offs
|
|
|
(3,992
|
)
|
|
|
(15,469
|
)
|
|
|
(19,168
|
)
|
Balance at end of year
|
|
$
|
9,542
|
|
|
$
|
12,050
|
|
|
$
|
11,444
|
|
The following tables provide the activity in and ending balances of the allowance for loan losses by loan portfolio class at and for the years ended December 31, 2012 and 2011:
(dollars in thousands)
|
|
Commercial Real Estate
|
|
|
Construction and Land Development
|
|
|
Commercial and Industrial
|
|
|
Owner Occupied Real Estate
|
|
|
Consumer and Other
|
|
|
Residential Mortgage
|
|
|
Unallocated
|
|
|
Total
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year ended December 31, 2012
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Allowance for loan losses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Beginning balance
|
|
$
|
7,372
|
|
|
$
|
558
|
|
|
$
|
1,928
|
|
|
$
|
1,963
|
|
|
$
|
113
|
|
|
$
|
23
|
|
|
$
|
93
|
|
|
$
|
12,050
|
|
Charge-offs
|
|
|
(1,582
|
)
|
|
|
(1,004
|
)
|
|
|
(1,304
|
)
|
|
|
-
|
|
|
|
(102
|
)
|
|
|
-
|
|
|
|
-
|
|
|
|
(3,992
|
)
|
Recoveries
|
|
|
-
|
|
|
|
105
|
|
|
|
-
|
|
|
|
-
|
|
|
|
29
|
|
|
|
-
|
|
|
|
-
|
|
|
|
134
|
|
Provisions (credits)
|
|
|
(1,811
|
)
|
|
|
1,614
|
|
|
|
1,256
|
|
|
|
4
|
|
|
|
194
|
|
|
|
(6
|
)
|
|
|
99
|
|
|
|
1,350
|
|
Ending balance
|
|
$
|
3,979
|
|
|
$
|
1,273
|
|
|
$
|
1,880
|
|
|
$
|
1,967
|
|
|
$
|
234
|
|
|
$
|
17
|
|
|
$
|
192
|
|
|
$
|
9,542
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year ended December 31, 2011
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Allowance for loan losses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Beginning balance
|
|
$
|
7,243
|
|
|
$
|
837
|
|
|
$
|
1,443
|
|
|
$
|
1,575
|
|
|
$
|
130
|
|
|
$
|
41
|
|
|
$
|
175
|
|
|
$
|
11,444
|
|
Charge-offs
|
|
|
(8,783
|
)
|
|
|
(3,719
|
)
|
|
|
(1,088
|
)
|
|
|
(1,838
|
)
|
|
|
(41
|
)
|
|
|
-
|
|
|
|
-
|
|
|
|
(15,469
|
)
|
Recoveries
|
|
|
44
|
|
|
|
10
|
|
|
|
-
|
|
|
|
15
|
|
|
|
40
|
|
|
|
-
|
|
|
|
-
|
|
|
|
109
|
|
Provisions (credits)
|
|
|
8,868
|
|
|
|
3,430
|
|
|
|
1,573
|
|
|
|
2,211
|
|
|
|
(16
|
)
|
|
|
(18
|
)
|
|
|
(82
|
)
|
|
|
15,966
|
|
Ending balance
|
|
$
|
7,372
|
|
|
$
|
558
|
|
|
$
|
1,928
|
|
|
$
|
1,963
|
|
|
$
|
113
|
|
|
$
|
23
|
|
|
$
|
93
|
|
|
$
|
12,050
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The following tables provide a summary of the allowance for loan losses and balance of loans receivable by loan class and by impairment method as of December 31, 2012 and 2011:
(dollars in thousands)
|
|
Commercial Real Estate
|
|
|
Construction and Land Development
|
|
|
Commercial and Industrial
|
|
|
Owner Occupied Real Estate
|
|
|
Consumer and Other
|
|
|
Residential Mortgage
|
|
|
Unallocated
|
|
|
Total
|
|
December 31, 2012
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Allowance for loan losses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Individually evaluated for impairment
|
|
$
|
1,077
|
|
|
$
|
70
|
|
|
$
|
861
|
|
|
$
|
860
|
|
|
$
|
75
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
2,943
|
|
Collectively evaluated for impairment
|
|
|
2,902
|
|
|
|
1,203
|
|
|
|
1,019
|
|
|
|
1,107
|
|
|
|
159
|
|
|
|
17
|
|
|
|
192
|
|
|
|
6,599
|
|
Total allowance for loan losses
|
|
$
|
3,979
|
|
|
$
|
1,273
|
|
|
$
|
1,880
|
|
|
$
|
1,967
|
|
|
$
|
234
|
|
|
$
|
17
|
|
|
$
|
192
|
|
|
$
|
9,542
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loans receivable:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loans evaluated individually
|
|
$
|
25,316
|
|
|
$
|
3,746
|
|
|
$
|
6,940
|
|
|
$
|
3,955
|
|
|
$
|
1,058
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
41,015
|
|
Loans evaluated collectively
|
|
|
310,245
|
|
|
|
22,913
|
|
|
|
96,828
|
|
|
|
122,287
|
|
|
|
22,391
|
|
|
|
2,442
|
|
|
|
-
|
|
|
|
577,106
|
|
Total loans receivable
|
|
$
|
335,561
|
|
|
$
|
26,659
|
|
|
$
|
103,768
|
|
|
$
|
126,242
|
|
|
$
|
23,449
|
|
|
$
|
2,442
|
|
|
$
|
-
|
|
|
$
|
618,121
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(dollars in thousands)
|
|
Commercial Real Estate
|
|
|
Construction and Land Development
|
|
|
Commercial and Industrial
|
|
|
Owner Occupied Real Estate
|
|
|
Consumer and Other
|
|
|
Residential Mortgage
|
|
|
Unallocated
|
|
|
Total
|
|
December 31, 2011
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Allowance for loan losses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Individually evaluated for impairment
|
|
$
|
2,066
|
|
|
$
|
98
|
|
|
$
|
629
|
|
|
$
|
311
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
3,104
|
|
Collectively evaluated for impairment
|
|
|
5,306
|
|
|
|
460
|
|
|
|
1,299
|
|
|
|
1,652
|
|
|
|
113
|
|
|
|
23
|
|
|
|
93
|
|
|
|
8,946
|
|
Total allowance for loan losses
|
|
$
|
7,372
|
|
|
$
|
558
|
|
|
$
|
1,928
|
|
|
$
|
1,963
|
|
|
$
|
113
|
|
|
$
|
23
|
|
|
$
|
93
|
|
|
$
|
12,050
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loans receivable:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loans evaluated individually
|
|
$
|
20,076
|
|
|
$
|
6,983
|
|
|
$
|
8,320
|
|
|
$
|
1,862
|
|
|
$
|
958
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
38,199
|
|
Loans evaluated collectively
|
|
|
324,301
|
|
|
|
28,078
|
|
|
|
79,348
|
|
|
|
100,915
|
|
|
|
15,725
|
|
|
|
3,150
|
|
|
|
-
|
|
|
|
551,517
|
|
Total loans receivable
|
|
$
|
344,377
|
|
|
$
|
35,061
|
|
|
$
|
87,668
|
|
|
$
|
102,777
|
|
|
$
|
16,683
|
|
|
$
|
3,150
|
|
|
$
|
-
|
|
|
$
|
589,716
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The performance and credit quality of the loan portfolio is also monitored by analyzing the age of the loans receivable as determined by the length of time a recorded payment is past due. The following table presents the classes of the loan portfolio summarized by the past due status as of December 31, 2012 and 2011:
(dollars in thousands)
|
|
30-59
Days Past Due
|
|
|
60-89
Days Past Due
|
|
|
Greater than 90 Days
|
|
|
Total
Past Due
|
|
|
Current
|
|
|
Total
Loans Receivable
|
|
|
Loans Receivable > 90 Days and Accruing
|
|
At December 31, 2012:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial real estate
|
|
$
|
772
|
|
|
$
|
26,000
|
|
|
$
|
7,987
|
|
|
$
|
34,759
|
|
|
$
|
300,802
|
|
|
$
|
335,561
|
|
|
$
|
-
|
|
Construction and land development
|
|
|
-
|
|
|
|
261
|
|
|
|
1,342
|
|
|
|
1,603
|
|
|
|
25,056
|
|
|
|
26,659
|
|
|
|
-
|
|
Commercial and industrial
|
|
|
86
|
|
|
|
-
|
|
|
|
4,693
|
|
|
|
4,779
|
|
|
|
98,989
|
|
|
|
103,768
|
|
|
|
-
|
|
Owner occupied real estate
|
|
|
285
|
|
|
|
1,562
|
|
|
|
968
|
|
|
|
2,815
|
|
|
|
123,427
|
|
|
|
126,242
|
|
|
|
-
|
|
Consumer and other
|
|
|
-
|
|
|
|
-
|
|
|
|
1,058
|
|
|
|
1,058
|
|
|
|
22,391
|
|
|
|
23,449
|
|
|
|
202
|
|
Residential mortgage
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
2,442
|
|
|
|
2,442
|
|
|
|
-
|
|
Total
|
|
$
|
1,143
|
|
|
$
|
27,823
|
|
|
$
|
16,048
|
|
|
$
|
45,014
|
|
|
$
|
573,107
|
|
|
$
|
618,121
|
|
|
$
|
202
|
|
At December 31, 2011:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial real estate
|
|
$
|
8,662
|
|
|
$
|
390
|
|
|
$
|
1,880
|
|
|
$
|
10,932
|
|
|
$
|
333,445
|
|
|
$
|
344,377
|
|
|
$
|
-
|
|
Construction and land development
|
|
|
-
|
|
|
|
-
|
|
|
|
4,022
|
|
|
|
4,022
|
|
|
|
31,039
|
|
|
|
35,061
|
|
|
|
-
|
|
Commercial and industrial
|
|
|
-
|
|
|
|
-
|
|
|
|
4,673
|
|
|
|
4,673
|
|
|
|
82,995
|
|
|
|
87,668
|
|
|
|
748
|
|
Owner occupied real estate
|
|
|
1,043
|
|
|
|
-
|
|
|
|
-
|
|
|
|
1,043
|
|
|
|
101,734
|
|
|
|
102,777
|
|
|
|
-
|
|
Consumer and other
|
|
|
1
|
|
|
|
-
|
|
|
|
737
|
|
|
|
738
|
|
|
|
15,945
|
|
|
|
16,683
|
|
|
|
-
|
|
Residential mortgage
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
3,150
|
|
|
|
3,150
|
|
|
|
-
|
|
Total
|
|
$
|
9,706
|
|
|
$
|
390
|
|
|
$
|
11,312
|
|
|
$
|
21,408
|
|
|
$
|
568,308
|
|
|
$
|
589,716
|
|
|
$
|
748
|
|
The following table presents the classes of the loan portfolio summarized by the aggregate pass rating and the classified ratings of special mention, substandard and doubtful within our internal risk rating system as of December 31, 2012 and 2011:
(dollars in thousands)
|
|
Pass
|
|
|
Special Mention
|
|
|
Substandard
|
|
|
Doubtful
|
|
|
Total
|
|
December 31, 2012:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial real estate
|
|
$
|
300,174
|
|
|
$
|
9,174
|
|
|
$
|
26,213
|
|
|
$
|
-
|
|
|
$
|
335,561
|
|
Construction and land development
|
|
|
22,652
|
|
|
|
261
|
|
|
|
3,746
|
|
|
|
-
|
|
|
|
26,659
|
|
Commercial and industrial
|
|
|
96,051
|
|
|
|
642
|
|
|
|
7,075
|
|
|
|
-
|
|
|
|
103,768
|
|
Owner occupied real estate
|
|
|
121,381
|
|
|
|
906
|
|
|
|
3,955
|
|
|
|
-
|
|
|
|
126,242
|
|
Consumer and other
|
|
|
22,033
|
|
|
|
100
|
|
|
|
1,316
|
|
|
|
-
|
|
|
|
23,449
|
|
Residential mortgage
|
|
|
2,442
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
2,442
|
|
Total
|
|
$
|
564,733
|
|
|
$
|
11,083
|
|
|
$
|
42,305
|
|
|
$
|
-
|
|
|
$
|
618,121
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2011:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial real estate
|
|
$
|
310,364
|
|
|
$
|
8,573
|
|
|
$
|
25,440
|
|
|
$
|
-
|
|
|
$
|
344,377
|
|
Construction and land development
|
|
|
27,224
|
|
|
|
-
|
|
|
|
7,837
|
|
|
|
-
|
|
|
|
35,061
|
|
Commercial and industrial
|
|
|
77,888
|
|
|
|
248
|
|
|
|
9,532
|
|
|
|
-
|
|
|
|
87,668
|
|
Owner occupied real estate
|
|
|
99,031
|
|
|
|
-
|
|
|
|
3,746
|
|
|
|
-
|
|
|
|
102,777
|
|
Consumer and other
|
|
|
15,468
|
|
|
|
209
|
|
|
|
1,006
|
|
|
|
-
|
|
|
|
16,683
|
|
Residential mortgage
|
|
|
3,150
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
3,150
|
|
Total
|
|
$
|
533,125
|
|
|
$
|
9,030
|
|
|
$
|
47,561
|
|
|
$
|
-
|
|
|
$
|
589,716
|
|
The following table shows non-accrual loans by class as of December 31, 2012 and 2011:
(dollars in thousands)
|
|
December 31, 2012
|
|
|
December 31, 2011
|
|
Commercial real estate
|
|
$
|
7,987
|
|
|
$
|
1,880
|
|
Construction and land development
|
|
|
1,342
|
|
|
|
4,022
|
|
Commercial and industrial
|
|
|
4,693
|
|
|
|
3,925
|
|
Owner occupied real estate
|
|
|
968
|
|
|
|
-
|
|
Consumer and other
|
|
|
856
|
|
|
|
737
|
|
Residential mortgage
|
|
|
-
|
|
|
|
-
|
|
Total
|
|
$
|
15,846
|
|
|
$
|
10,564
|
|
If these loans were performing under their original contractual rate, interest income on such loans would have increased approximately $699,000, $583,000, and $2.4 million, for 2012, 2011 and 2010, respectively.
Troubled Debt Restructurings
The Company adopted the amendments in Accounting Standards Update No. 2011-02 during the quarter ended September 30, 2011. As required, the Company reassessed all restructurings that occurred on or after January 1, 2011 for identification as a potential troubled debt restructuring. Since the adoption of this accounting guidance, the Company has identified four loan relationships as troubled debt restructurings for which the allowance for credit loss had previously been measured under a general allowance for credit losses methodology (ASC 450-20). Upon identifying these loans as troubled debt restructurings, the Company also identified them as impaired under the guidance in Section 310-10-35.
The following table summarizes information in regards to troubled debt restructurings for the years ended December 31, 2012 and 2011:
(dollars in thousands)
|
|
Accrual Status
|
|
|
Non-Accrual Status
|
|
|
Total Modifications
|
|
December 31, 2012:
|
|
|
|
|
|
|
|
|
|
Commercial real estate
|
|
$
|
1,261
|
|
|
$
|
-
|
|
|
$
|
1,261
|
|
Construction and land development
|
|
|
2,069
|
|
|
|
-
|
|
|
|
2,069
|
|
Commercial and industrial
|
|
|
2,248
|
|
|
|
-
|
|
|
|
2,248
|
|
Owner occupied real estate
|
|
|
1,933
|
|
|
|
-
|
|
|
|
1,933
|
|
Consumer and other
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Residential mortgage
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Total
|
|
$
|
7,511
|
|
|
$
|
-
|
|
|
$
|
7,511
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2011:
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial real estate
|
|
$
|
2,383
|
|
|
$
|
-
|
|
|
$
|
2,383
|
|
Construction and land development
|
|
|
2,625
|
|
|
|
-
|
|
|
|
2,625
|
|
Commercial and industrial
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Owner occupied real estate
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Consumer and other
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Residential mortgage
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Total
|
|
$
|
5,008
|
|
|
$
|
-
|
|
|
$
|
5,008
|
|
There were two new troubled debt restructurings identified during each of the years ended December 31, 2012 and 2011. There were no troubled debt restructurings that subsequently defaulted during these periods.
The Company modified one owner occupied real estate loan during the year ended December 31, 2012. In accordance with the modified terms of this owner occupied real estate loan, the Company extended the maturity date of the loan. In addition the effective interest rate of the modified loan was reduced when compared to the interest rate of the original loan. The owner occupied real estate loan has been and continues to be an accruing loan. The borrower has remained current since the modification. The pre-modification and post-modification balances were each $1,946,000.
The Company modified one commercial and industrial loan during the year ended December 31, 2012. In accordance with the modified terms of the commercial and industrial loan, the Company implemented a hard maturity date whereas the loan had formerly been a demand note. The loan has also been converted from interest only payments to a term-out of the debt on this loan. In addition, the Company modified the amortization time frame and reduced the effective interest rate when compared to the interest rate of the original loan. The Company also extended the maturity date of the loan. The commercial and industrial loan has been and continues to be an accruing loan. The borrower has remained current since the modification. The pre-modification and post-modification balances were each $2,248,000.
The Company modified one commercial real estate loan and one construction and land development loan during the year ended December 31, 2011. As a result of the modified terms of the new commercial estate loan, the Company accelerated the maturity date of the loan. The effective interest rate of the modified commercial real estate loan was reduced when compared to the interest rate of the original loan. The commercial real estate loan has also been converted to interest only payments for a period of time. The commercial real estate loan has been and continues to be an accruing loan. The borrower has remained current since the modification. The pre-modification and post-modification balances were $2,535,000 and $2,565,000, respectively. As a result of the modified terms of the new construction and land development loan, the Company extended the maturity date of the loan. The effective interest rate of the modified construction and land development loan was reduced when compared to the interest rate of the original loan. The construction and land development loan has been and continues to be an accruing loan. The borrower has remained current since the modification. The pre-modification and post-modification balances were each $2,625,000.
6.
|
Premises and Equipment
|
A summary of premises and equipment is as follows:
(dollars in thousands)
|
|
December 31, 2012
|
|
|
December 31, 2011
|
|
Land
|
|
$
|
200
|
|
|
$
|
200
|
|
Bank building
|
|
|
1,051
|
|
|
|
1,030
|
|
Leasehold improvements
|
|
|
18,714
|
|
|
|
18,657
|
|
Furniture, fixtures and equipment
|
|
|
6,894
|
|
|
|
6,473
|
|
Construction in progress
|
|
|
5,143
|
|
|
|
5,166
|
|
|
|
|
32,002
|
|
|
|
31,526
|
|
Less accumulated depreciation
|
|
|
(10,026
|
)
|
|
|
(8,019
|
)
|
Net premises and equipment
|
|
$
|
21,976
|
|
|
$
|
23,507
|
|
Depreciation expense on premises, equipment and leasehold improvements amounted to approximately $2.0 million, $2.1 million, and $2.0 million in 2012, 2011 and 2010, respectively. The construction in progress balance of $5.1 million mainly represents costs incurred for the selection and development of future store locations. Of this balance, $4.0 million represents land purchased for two specific store locations. Costs to complete the projects in process are estimated to be $8.0 million as of December 31, 2012.
Republic has a line of credit with the Federal Home Loan Bank (“FHLB”) of Pittsburgh with a maximum borrowing capacity of $302.1 million as of December 31, 2012. As of December 31, 2012 and 2011, there were no fixed term or overnight advances against this line of credit. There were no fixed term advances outstanding at any month-end during 2012 and 2011. The maximum amount of overnight borrowings outstanding at any month-end was $0 in 2012 and $31.0 million in 2011.
Republic also has a line of credit in the amount of $10.0 million available for the purchase of federal funds through another correspondent bank. At December 31, 2012 and 2011, Republic had no amount outstanding against this line. The maximum amount of overnight advances on this line at any month end was $4.5 million in 2012 and $0 in 2011.
Subordinated debt and corporation-obligated-mandatorily redeemable capital securities of subsidiary trust holding solely junior obligations of the corporation:
The Company has sponsored three outstanding issues of corporation-obligated mandatorily redeemable capital securities of a subsidiary trust holding solely junior subordinated debentures of the corporation, more commonly known as trust preferred securities. The subsidiary trusts are not consolidated with the Company for financial reporting purposes. The purpose of the issuances of these securities was to increase capital. The trust preferred securities qualify as Tier 1 capital for regulatory purposes in amounts up to 25% of total Tier 1 capital.
In December 2006, Republic Capital Trust II (“Trust II”) issued $6.0 million of trust preferred securities to investors and $0.2 million of common securities to the Company. Trust II purchased $6.2 million of junior subordinated debentures of the Company due 2037, and the Company used the proceeds to call the securities of Republic Capital Trust I (“Trust I”). The debentures supporting Trust II have a variable interest rate, adjustable quarterly, at 1.73% over the 3-month Libor. The Company may call the securities on any interest payment date after five years without a prepayment penalty.
On June 28, 2007, the Company caused Republic Capital Trust III (“Trust III”), through a pooled offering, to issue $5.0 million of trust preferred securities to investors and $0.2 million common securities to the Company. Trust III purchased $5.2 million of junior subordinated debentures of the Company due 2037, which have a variable interest rate, adjustable quarterly, at 1.55% over the 3 month Libor. The Company has the ability to call the securities on any interest payment date without a prepayment penalty.
On June 10, 2008, the Company caused Republic First Bancorp Capital Trust IV (“Trust IV”) to issue $10.8 million of convertible trust preferred securities as part of the Company’s strategic capital plan. The securities were purchased by various investors, including Vernon W. Hill, II, founder and chairman (retired) of Commerce Bancorp and, since the investment, a consultant to the Company, a family trust of Harry D. Madonna, chairman, president and chief executive officer of the Company, and Theodore J. Flocco, Jr., who, since the investment, has been elected to the Company’s Board of Directors and serves as the Chairman of the Audit Committee. Trust IV also issued $0.3 million of common securities to the Company. Trust IV purchased $11.1 million of junior subordinated debentures due 2038, which pay interest at an annual rate of 8.0% and are callable after the fifth year. The trust preferred securities of Trust IV are convertible into approximately 1.7 million shares of common stock of the Company, based on a conversion price of $6.50 per share of Company common stock, and at December 31, 2012 were fully convertible.
The following is a breakdown, by contractual maturities of the Company’s certificates of deposit for the years 2013 through 2017.
(dollars in thousands)
|
|
2013
|
|
|
2014
|
|
|
2015
|
|
|
2016
|
|
|
2017
|
|
|
Thereafter
|
|
|
Total
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Certificates of Deposit
|
|
$
|
97,267
|
|
|
$
|
10,344
|
|
|
$
|
4,791
|
|
|
$
|
10,235
|
|
|
$
|
597
|
|
|
$
|
-
|
|
|
$
|
123,234
|
|
Certificates of deposit of $100,000 or more totaled $78.3 million and $136.8 million at December 31, 2012 and 2011, respectively.
Deposits of related parties totaled $59.4 million and $75.7 million at December 31, 2012 and 2011, respectively.
The (benefit) provision for income taxes for the years ended December 31, 2012, 2011 and 2010 consists of the following:
(dollars in thousands)
|
|
2012
|
|
|
2011
|
|
|
2010
|
|
Current
|
|
|
|
|
|
|
|
|
|
Federal
|
|
$
|
81
|
|
|
$
|
(71
|
)
|
|
$
|
(341
|
)
|
State
|
|
|
-
|
|
|
|
-
|
|
|
|
4
|
|
Deferred
|
|
|
(225
|
)
|
|
|
8,262
|
|
|
|
(5,737
|
)
|
Total provision (benefit) for income taxes
|
|
$
|
(144
|
)
|
|
$
|
8,191
|
|
|
$
|
(6,074
|
)
|
The following table reconciles the difference between the actual tax provision and the amount per the statutory federal income tax rate of 35.0% for the years ended December 31, 2012, 2011 and 2010.
(dollars in thousands)
|
|
2012
|
|
|
2011
|
|
|
2010
|
|
Tax (benefit) provision computed at statutory rate
|
|
$
|
1,214
|
|
|
$
|
(5,779
|
)
|
|
$
|
(5,867
|
)
|
Tax exempt interest
|
|
|
(257
|
)
|
|
|
(265
|
)
|
|
|
(156
|
)
|
Bank owned life insurance
|
|
|
(26
|
)
|
|
|
(48
|
)
|
|
|
(64
|
)
|
Deferred tax asset valuation allowance
|
|
|
(1,002
|
)
|
|
|
14,912
|
|
|
|
-
|
|
Other
|
|
|
(73
|
)
|
|
|
(629
|
)
|
|
|
13
|
|
Total provision (benefit) for income taxes
|
|
$
|
(144
|
)
|
|
$
|
8,191
|
|
|
$
|
(6,074
|
)
|
The significant components of the Company’s net deferred tax asset as of December 31, 2012 and 2011 are as follows:
(dollars in thousands)
|
|
2012
|
|
|
2011
|
|
Deferred tax assets
|
|
|
|
|
|
|
Allowance for loan losses
|
|
$
|
3,427
|
|
|
$
|
4,327
|
|
Deferred compensation
|
|
|
733
|
|
|
|
709
|
|
Unrealized loss on securities available for sale
|
|
|
-
|
|
|
|
26
|
|
Realized loss in other than temporary impairment charge
|
|
|
1,121
|
|
|
|
1,109
|
|
Interest income on non-accrual loans
|
|
|
1,000
|
|
|
|
778
|
|
Net operating loss carryforward
|
|
|
11,689
|
|
|
|
12,557
|
|
Other
|
|
|
1,284
|
|
|
|
633
|
|
Total deferred tax assets
|
|
|
19,254
|
|
|
|
20,139
|
|
Deferred tax liabilities
|
|
|
|
|
|
|
|
|
Deferred loan costs
|
|
|
712
|
|
|
|
634
|
|
Unrealized gain on securities available for sale
|
|
|
572
|
|
|
|
-
|
|
Other
|
|
|
450
|
|
|
|
610
|
|
Total deferred tax liabilities
|
|
|
1,734
|
|
|
|
1,244
|
|
Net deferred tax asset before valuation allowance
|
|
|
17,520
|
|
|
|
18,895
|
|
Less: valuation allowance
|
|
|
(13,910
|
)
|
|
|
(14,912
|
)
|
Net deferred tax asset
|
|
$
|
3,610
|
|
|
$
|
3,983
|
|
The Company’s net deferred tax asset before the consideration of a valuation allowance decreased to $17.4 million at December 31, 2012 compared to $18.9 million at December 31, 2011. This decrease was primarily driven by a decrease in the net operating loss (“NOL”) carryforward balance during the twelve month period ended December 31, 2012 along with a change in the balance of certain temporary timing differences. The $17.4 million net deferred tax asset as of December 31, 2012 is comprised of $11.7 million currently recognizable through NOL carryforwards and $5.8 million attributable to several items associated with temporary timing differences which will reverse at some point in the future to provide a net reduction in tax liabilities. The Company’s largest future reversal relates to its allowance for loan losses, which totaled $3.4 million as of December 31, 2012.
The Company evaluates the carrying amount of its deferred tax assets on a quarterly basis or more frequently, if necessary, in accordance with the guidance provided in Financial Accounting Standards Board (FASB) Accounting Standards Codification Topic 740 (ASC 740), in particular, applying the criteria set forth therein to determine whether it is more likely than not (i.e. a likelihood of more than 50%) that some portion, or all, of the deferred tax asset will not be realized within its life cycle, based on the weight of available evidence. If management makes a determination based on the available evidence that it is more likely than not that some portion or all of the deferred tax assets will not be realized in future periods a valuation allowance is calculated and recorded. These determinations are inherently subjective and dependent upon estimates and judgments concerning management’s evaluation of both positive and negative evidence.
In conducting the deferred tax asset analysis, the Company believes it is important to consider the unique characteristics of an industry or business. In particular, characteristics such as business model, level of capital and reserves held by financial institutions and their ability to absorb potential losses are important distinctions to be considered for bank holding companies like the Company. In addition, it is also important to consider that NOLs for federal income tax purposes can generally be carried back two years and carried forward for a period of twenty years. In order to realize our deferred tax assets, we must generate sufficient taxable income in such future years.
In assessing the need for a valuation allowance, the Company carefully weighed both positive and negative evidence currently available. Judgment is required when considering the relative impact of such evidence. The weight given to the potential effect of positive and negative evidence must be commensurate with the extent to which it can be objectively verified. A cumulative loss in recent years is a significant piece of negative evidence that is difficult to overcome. Based on the analysis of available positive and negative evidence, the Company determined that a valuation allowance should be recorded as of December 31, 2012 and 2011.
When determining an estimate for a valuation allowance, the Company assessed the possible sources of taxable income available under tax law to realize a tax benefit for deductible temporary differences and carryforwards as defined in ASC 740-10-30. As a result of cumulative losses in recent years and the uncertain nature of the current economic environment, the Company did not use projections of future taxable income, exclusive of reversing temporary timing differences and carryforwards, as a factor. The Company will continue to exclude future taxable income as a factor until it can show consistent and sustained profitability.
The Company did assess tax planning strategies as defined under ASC 740-10-30 to determine the amount of a valuation allowance. Strategies reviewed included the sale of investment securities and loans with fair values greater than book values, redeployment of cash and cash equivalents into higher yielding investment options, a switch from tax-exempt to taxable investments and loans, and the election of a decelerated depreciation method for tax purposes for future fixed asset purchases. The Company believes that these tax planning strategies are (a.) prudent and feasible, (b.) steps that the Company would not ordinarily take, but would take to prevent an operating loss or tax credit carryforward from expiring unused, and (c.) would result in the realization of existing deferred tax assets. These tax planning strategies, if implemented, would result in taxable income in the first full reporting period after deployment and accelerate the recovery of deferred tax asset balances if faced with the inability to recover those assets or the risk of potential expiration. The Company believes that these are viable tax planning strategies and appropriately considered in the analysis at this time, but may not align with the strategic direction of the organization today and therefore, has no present intention to implement such strategies.
The net deferred tax asset balance before consideration of a valuation allowance was $17.4 million as of December 31, 2012 and $18.9 million as of December 31, 2011. The tax planning strategies assessed resulted in the projected realization of approximately $3.6 million in tax assets as of December 31, 2012 and $4.0 million as of December 31, 2011 which can be considered more likely than not to be realized. Accordingly, the Company recorded a partial valuation allowance related to the deferred tax asset balance in the amount of $13.8 million as of December 31, 2012 and $14.9 million as of December 31, 2011.
The deferred tax asset will continue to be analyzed on a quarterly basis for changes affecting realizability. As the Company continues to record consecutive quarters of profitable results, projections of future taxable income become more reliable and can again be used as a factor in assessing the ability to fully realize the deferred tax asset. When the determination is made to include projections of future taxable income as a factor, the valuation allowance will be reduced accordingly resulting in a corresponding increase in net income.
The Internal Revenue Service has completed its audits of the Company’s federal tax returns for all tax years through December 31, 2008. There are currently no audits in progress.
10.
|
Financial Instruments with Off-Balance Sheet Risk
|
The Company is a party to financial instruments with off-balance-sheet risk in the normal course of business to meet the financing needs of its customers. These financial instruments include commitments to extend credit and standby letters of credit. These instruments involve to varying degrees, elements of credit and interest rate risk in excess of the amount recognized in the financial statements.
Credit risk is defined as the possibility of sustaining a loss due to the failure of the other parties to a financial instrument to perform in accordance with the terms of the contract. The maximum exposure to credit loss under commitments to extend credit and standby letters of credit is represented by the contractual amount of these instruments. The Company uses the same underwriting standards and policies in making credit commitments as it does for on-balance-sheet instruments.
Financial instruments whose contract amounts represent potential credit risk are commitments to extend credit of approximately $99.7 million and $78.7 million and standby letters of credit of approximately $4.3 million and $3.5 million at December 31, 2012 and 2011, respectively. Commitments often expire without being drawn upon. Of the $99.7 million of commitments to extend credit at December 31, 2012, substantially all were variable rate commitments.
Commitments to extend credit are agreements to lend to a customer as long as there is no violation of any condition established in the contract. Commitments generally have fixed expiration dates or other termination clauses and many require the payment of a fee. Since many of the commitments are expected to expire without being drawn upon, the total commitment amounts do not necessarily represent future cash requirements. The Company evaluates each customer’s creditworthiness on a case-by-case basis. The amount of collateral obtained upon extension of credit is based on management’s credit evaluation of the customer. Collateral held varies but may include real estate, marketable securities, pledged deposits, equipment and accounts receivable.
Standby letters of credit are conditional commitments issued that guarantee the performance of a customer to a third party. The credit risk and collateral policy involved in issuing letters of credit is essentially the same as that involved in extending loan commitments. The amount of collateral obtained is based on management’s credit evaluation of the customer. Collateral held varies but may include real estate, marketable securities, pledged deposits, equipment and accounts receivable. Management believes that the proceeds obtained through a liquidation of such collateral would be sufficient to cover the maximum potential amount of future payments required under the corresponding guarantees. The current amount of liability as of December 31, 2012 and 2011 for guarantees under standby letters of credit issued is not material.
11.
|
Commitments and Contingencies
|
Lease Arrangements
As of December 31, 2012, the Company had entered into non-cancelable leases expiring through August 31, 2037, including renewal options. The leases are accounted for as operating leases. The minimum annual rental payments required under these leases are as follows (dollars in thousands):
Year Ended
|
|
Amount
|
|
|
|
|
|
2013
|
|
$
|
2,322
|
|
2014
|
|
|
2,364
|
|
2015
|
|
|
2,381
|
|
2016
|
|
|
2,297
|
|
2017
|
|
|
2,336
|
|
Thereafter
|
|
|
28,221
|
|
Total
|
|
$
|
39,921
|
|
The Company incurred rent expense of $2.2 million, $2.1 million, and $1.9 million for the years ended December 31, 2012, 2011 and 2010, respectively.
Other
The Company and Republic are from time to time a party (plaintiff or defendant) to lawsuits that are in the normal course of business. While any litigation involves an element of uncertainty, management is of the opinion that the liability of the Company and Republic, if any, resulting from such actions will not have a material effect on the financial condition or results of operations of the Company and Republic.
Dividend payments by Republic to the Company are subject to the Pennsylvania Banking Code of 1965 (the “Banking Code”) and the Federal Deposit Insurance Act (the “FDIA”). Under the Banking Code, no dividends may be paid except from “accumulated net earnings” (generally, undivided profits). Under the FDIA, an insured bank may pay no dividends if the bank is in arrears in the payment of any insurance assessment due to the FDIC. Under current banking laws, Republic would be limited to $15.3 million of dividends plus an additional amount equal to its net profit for 2013, up to the date of any such dividend declaration. However, dividends would be further limited in order to maintain capital ratios.
State and Federal regulatory authorities have adopted standards for the maintenance of adequate levels of capital by Republic. Federal banking agencies impose three minimum capital requirements on the Company’s risk-based capital ratios based on total capital, Tier 1 capital, and a leverage capital ratio. The risk-based capital ratios measure the adequacy of a bank’s capital against the riskiness of its assets and off-balance sheet activities. Failure to maintain adequate capital is a basis for “prompt corrective action” or other regulatory enforcement action. In assessing a bank’s capital adequacy, regulators also consider other factors such as interest rate risk exposure; liquidity, funding and market risks; quality and level or earnings; concentrations of credit; quality of loans and investments; risks of any nontraditional activities; effectiveness of bank policies; and management’s overall ability to monitor and control risks.
Management believes that Republic met, as of December 31, 2012, all capital adequacy requirements to which it is subject. As of December 31, 2012 and 2011, the FDIC categorized Republic as well capitalized under the regulatory framework for prompt corrective action provisions of the Federal Deposit Insurance Act. There are no calculations or events since that notification that management believes have changed Republic’s category.
The following table presents the Company’s and Republic’s capital regulatory ratios at December 31, 2012 and 2011:
|
|
Actual
|
|
|
For Capital Adequacy Purposes
|
|
|
To be well capitalized under FDIC capital guidelines
|
|
(dollars in thousands)
|
|
Amount
|
|
|
Ratio
|
|
|
Amount
|
|
|
Ratio
|
|
|
Amount
|
|
|
Ratio
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
At December 31, 2012:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total risk based capital
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Republic
|
|
$
|
96,366
|
|
|
|
12.70
|
%
|
|
$
|
60,685
|
|
|
|
8.00
|
%
|
|
$
|
75,857
|
|
|
|
10.00
|
%
|
Company
|
|
|
97,006
|
|
|
|
12.73
|
%
|
|
|
60,971
|
|
|
|
8.00
|
%
|
|
|
-
|
|
|
|
-
|
|
Tier one risk based capital
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Republic
|
|
|
86,883
|
|
|
|
11.45
|
%
|
|
|
30,343
|
|
|
|
4.00
|
%
|
|
|
45,514
|
|
|
|
6.00
|
%
|
Company
|
|
|
87,479
|
|
|
|
11.48
|
%
|
|
|
30,485
|
|
|
|
4.00
|
%
|
|
|
-
|
|
|
|
-
|
|
Tier one leveraged capital
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Republic
|
|
|
86,883
|
|
|
|
8.96
|
%
|
|
|
38,786
|
|
|
|
4.00
|
%
|
|
|
48,483
|
|
|
|
5.00
|
%
|
Company
|
|
|
87,479
|
|
|
|
9.01
|
%
|
|
|
38,838
|
|
|
|
4.00
|
%
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
At December 31, 2011:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total risk based capital
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Republic
|
|
$
|
91,622
|
|
|
|
12.90
|
%
|
|
$
|
56,826
|
|
|
|
8.00
|
%
|
|
$
|
72,218
|
|
|
|
10.00
|
%
|
Company
|
|
|
93,383
|
|
|
|
13.09
|
%
|
|
|
57,068
|
|
|
|
8.00
|
%
|
|
|
-
|
|
|
|
-
|
|
Tier one risk based capital
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Republic
|
|
|
82,704
|
|
|
|
11.64
|
%
|
|
|
28,413
|
|
|
|
4.00
|
%
|
|
|
43,331
|
|
|
|
6.00
|
%
|
Company
|
|
|
84,259
|
|
|
|
11.81
|
%
|
|
|
28,534
|
|
|
|
4.00
|
%
|
|
|
-
|
|
|
|
-
|
|
Tier one leveraged capital
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Republic
|
|
|
82,704
|
|
|
|
8.62
|
%
|
|
|
38,359
|
|
|
|
4.00
|
%
|
|
|
44,946
|
|
|
|
5.00
|
%
|
Company
|
|
|
84,259
|
|
|
|
8.77
|
%
|
|
|
38,411
|
|
|
|
4.00
|
%
|
|
|
-
|
|
|
|
-
|
|
Defined Contribution Plan
The Company has a defined contribution plan pursuant to the provision of 401(k) of the Internal Revenue Code. The Plan covers all full-time employees who meet age and service requirements. The plan provides for elective employee contributions with a matching contribution from the Company limited to 4% of total salary. The total expense charged to Republic, and included in salaries and employee benefits relating to the plan, was $366,000 in 2012, $307,000 in 2011 and $266,000 in 2010.
Directors’ and Officers’ Plans
The Company has agreements that provide for an annuity payment upon the retirement or death of certain directors and officers, ranging from $15,000 to $25,000 per year for ten years. The agreements were modified for most participants in 2001, to establish a minimum age of 65 to qualify for the payments. All participants are fully vested. The accrued benefits under the plan at both December 31, 2012 and 2011 totaled $1.4 million. The expense for the years ended December 31, 2012, 2011 and 2010, totaled $27,000, $27,000, and $55,000, respectively. The Company funded the plan through the purchase of certain life insurance contracts. The cash surrender value of these contracts (owned by the Company) aggregated $2.0 million and $1.9 million at December 31, 2012 and 2011, respectively, which is included in other assets.
The Company maintains a deferred compensation plan for the benefit of certain officers and directors. As of December 31, 2012, no additional individuals may participate in the plan. The plan permits certain participants to make elective contributions to their accounts, subject to applicable provisions of the Internal Revenue Code. In addition, the Company may make discretionary contributions to participant accounts. Company contributions are subject to vesting, and generally vest three years after the end of the plan year to which the contribution applies, subject to acceleration of vesting upon certain changes in control (as defined in the plan) and to forfeiture upon termination for cause (as defined in the plan). Participant accounts are adjusted to reflect contributions and distributions, and income, gains, losses, and expenses as if the accounts had been invested in permitted investments selected by the participants, including Company common stock. The plan provides for distributions upon retirement and, subject to applicable limitations under the Internal Revenue Code, limited hardship withdrawals. As of December 31, 2012 and 2011, $681,000 and $572,000, respectively, in benefits had vested.
Expense recognized for the deferred compensation plan for 2012, 2011, and 2010 was $109,000, $112,000 and $177,000, respectively. Although the plan is an unfunded plan, and does not require the Company to segregate any assets, the Company has purchased shares of Company common stock in anticipation of its obligation to pay benefits under the plan. Such shares are classified in the financial statements as stock held by deferred compensation plan. The Company purchased 24,489 shares of the Company common stock for $100,000 in 2010. No purchases were made in 2012 and 2011. As of December 31, 2012, approximately 112,542 shares of Company common stock were classified as stock held by deferred compensation plan.
14.
|
Fair Value Measurements and Fair Values of Financial Instruments
|
Management uses its best judgment in estimating the fair value of the Company’s financial instruments; however, there are inherent weaknesses in any estimation technique. Therefore, for substantially all financial instruments, the fair value estimates herein are not necessarily indicative of the amounts the Company could have realized in a sales transaction on the dates indicated. The estimated fair value amounts have been measured as of their respective year-ends and have not been re-evaluated or updated for purposes of these financial statements subsequent to those respective dates. As such, the estimated fair values of these financial instruments subsequent to the respective reporting dates may be different than the amounts reported at each year-end.
The Company follows the guidance issued under ASC 820,
Fair Value Measurements and Disclosures
, which defines fair value, establishes a framework for measuring fair value under GAAP, and identifies required disclosures on fair value measurements.
ASC 820-10 establishes a fair value hierarchy that prioritizes the inputs to valuation methods used to measure fair value. The hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (Level 1 measurements) and the lowest priority to unobservable inputs (Level 3 measurements). The three levels of the fair value hierarchy under ASC 820-10 are as follows:
Level 1
: Unadjusted quoted prices in active markets that are accessible at the measurement date for identical, unrestricted assets or liabilities.
Level 2
: Quoted prices in markets that are not active, or inputs that are observable either directly or indirectly, for substantially the full term of the asset or liability.
Level 3
: Prices or valuation techniques that require inputs that are both significant to the fair value measurement and unobservable (i.e. supported with little or no market activity).
An asset or liability’s level within the fair value hierarchy is based on the lowest level of input that is significant to the fair value measurement.
For financial assets measured at fair value on a recurring basis, the fair value measurements by level within the fair value hierarchy used at December 31, 2012 and 2011 were as follows:
(dollars in thousands)
|
|
Total
|
|
|
(Level 1)
Quoted Prices in Active Markets for Identical Assets
|
|
|
(Level 2)
Significant Other Observable Inputs
|
|
|
(Level 3)
Significant Unobservable Inputs
|
|
December 31, 2012:
|
|
|
|
|
|
|
|
|
|
|
|
|
Collateralized mortgage obligations
|
|
$
|
99,783
|
|
|
$
|
-
|
|
|
$
|
99,783
|
|
|
$
|
-
|
|
Mortgage-backed securities
|
|
|
21,640
|
|
|
|
-
|
|
|
|
21,640
|
|
|
|
-
|
|
Municipal securities
|
|
|
12,101
|
|
|
|
-
|
|
|
|
12,101
|
|
|
|
-
|
|
Corporate bonds
|
|
|
32,685
|
|
|
|
-
|
|
|
|
29,678
|
|
|
|
3,007
|
|
Asset-backed securities
|
|
|
19,729
|
|
|
|
-
|
|
|
|
19,729
|
|
|
|
-
|
|
Trust Preferred Securities
|
|
|
3,187
|
|
|
|
-
|
|
|
|
-
|
|
|
|
3,187
|
|
Other securities
|
|
|
134
|
|
|
|
-
|
|
|
|
134
|
|
|
|
-
|
|
Securities Available for Sale
|
|
$
|
189,259
|
|
|
$
|
-
|
|
|
$
|
183,065
|
|
|
$
|
6,194
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2011:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Collateralized mortgage obligations
|
|
$
|
120,011
|
|
|
$
|
-
|
|
|
$
|
120,011
|
|
|
$
|
-
|
|
Mortgage-backed securities
|
|
|
14,116
|
|
|
|
-
|
|
|
|
14,116
|
|
|
|
-
|
|
Municipal securities
|
|
|
11,034
|
|
|
|
-
|
|
|
|
11,034
|
|
|
|
-
|
|
Corporate bonds
|
|
|
25,617
|
|
|
|
-
|
|
|
|
22,613
|
|
|
|
3,004
|
|
Trust Preferred Securities
|
|
|
3,410
|
|
|
|
-
|
|
|
|
-
|
|
|
|
3,410
|
|
Other securities
|
|
|
135
|
|
|
|
-
|
|
|
|
135
|
|
|
|
-
|
|
Securities Available for Sale
|
|
$
|
174,323
|
|
|
$
|
-
|
|
|
$
|
167,909
|
|
|
$
|
6,414
|
|
The following table presents a reconciliation of the securities available for sale measured at fair value on a recurring basis using significant unobservable inputs (Level 3) for the years ended December 31, 2012, 2011, and 2010:
|
|
Year Ended
December 31, 2012
|
|
|
Year Ended
December 31, 2011
|
|
|
Year Ended
December 31, 2010
|
|
Level 3 Investments Only
(dollars in thousands)
|
|
Trust Preferred Securities
|
|
|
Corporate Bonds
|
|
|
Trust Preferred Securities
|
|
|
Corporate Bonds
|
|
|
Trust Preferred Securities
|
|
|
Corporate Bonds
|
|
Balance, January 1,
|
|
$
|
3,410
|
|
|
$
|
3,004
|
|
|
$
|
3,450
|
|
|
$
|
3,000
|
|
|
$
|
3,926
|
|
|
$
|
-
|
|
Security transferred to Level 3 measurement
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
3,000
|
|
Unrealized gains (losses)
|
|
|
401
|
|
|
|
3
|
|
|
|
2
|
|
|
|
4
|
|
|
|
(104
|
)
|
|
|
-
|
|
Paydowns
|
|
|
(590
|
)
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Impairment charges on Level 3
|
|
|
(34
|
)
|
|
|
-
|
|
|
|
(42
|
)
|
|
|
-
|
|
|
|
(372
|
)
|
|
|
-
|
|
Balance, December 31,
|
|
$
|
3,187
|
|
|
$
|
3,007
|
|
|
$
|
3,410
|
|
|
$
|
3,004
|
|
|
$
|
3,450
|
|
|
$
|
3,000
|
|
For assets measured at fair value on a nonrecurring basis, the fair value measurements by level within the fair value hierarchy used at December 31, 2012 and 2011, respectively, were as follows:
(dollars in thousands)
|
|
Total
|
|
|
(Level 1)
Quoted Prices in Active Markets for Identical Assets
|
|
|
(Level 2)
Significant Other Observable Inputs
|
|
|
(Level 3)
Significant Unobservable Inputs
|
|
December 31, 2012:
|
|
|
|
|
|
|
|
|
|
|
|
|
Impaired loans
|
|
$
|
19,876
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
19,876
|
|
Other real estate owned
|
|
|
3,642
|
|
|
|
-
|
|
|
|
-
|
|
|
|
3,642
|
|
SBA servicing assets
|
|
|
2,340
|
|
|
|
-
|
|
|
|
-
|
|
|
|
2,340
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2011:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Impaired loans
|
|
$
|
15,659
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
15,659
|
|
Other real estate owned
|
|
|
6,479
|
|
|
|
-
|
|
|
|
-
|
|
|
|
6,479
|
|
SBA servicing assets
|
|
|
1,102
|
|
|
|
-
|
|
|
|
-
|
|
|
|
1,102
|
|
The table below presents additional quantitative information about Level 3 assets measured at fair value on a nonrecurring basis (dollars in thousands):
|
|
Quantitative Information about Level 3 Fair Value Measurements
December 31, 2012
|
Asset Description
|
|
Fair Value
|
|
Valuation Technique
|
|
Unobservable Input
|
|
Range Weighted Average
|
Impaired loans
|
|
$
|
19,876
|
|
Fair Value of Collateral (1)
|
|
Appraised Value (2)
|
|
|
0% - 48%
|
(15%)
|
|
|
|
|
|
|
|
|
|
|
|
|
Other real estate owned
|
|
$
|
3,642
|
|
Fair Value of Collateral (1)
|
|
Appraised Value (2)
Sales Price
|
|
|
2% - 8%
|
(5%)
|
|
|
|
|
|
|
|
|
|
|
|
|
SBA Servicing Assets
|
|
$
|
2,340
|
|
Fair Value
|
|
Individual Loan
Valuation (3)
|
|
|
(3
|
)
|
(1)
|
Fair value is generally determined through independent appraisals of the underlying collateral, which include Level 3 inputs that are
not identifiable.
|
(2)
|
Appraisals may be adjusted by management for qualitative factors such as economic conditions and estimated liquidation expenses.
|
(3)
|
There is a lack of transactional data in this market place for the non-guaranteed portion of SBA loans.
|
(4)
|
The range and weighted average of qualitative factors such as economic conditions and estimated liquidation expenses are presented
as a percent of the appraised value.
|
The significant unobservable inputs for impaired loans and other real estate owned are the appraised value or an agreed upon sales price. These values are adjusted for estimated costs to sell which are incremental direct costs to transact a sale such as broker commissions, legal fees, closing costs and title transfer fees. The costs must be considered essential to the sale and would not have been incurred if the decision to sell had not been made. The costs to sell are based on costs associated with the Company’s actual sales of other real estate owned which are assessed annually.
The following table presents an analysis of the activity in the SBA servicing assets for the years ended December 31, 2012 and 2011:
(dollars in thousands)
|
|
2012
|
|
|
2011
|
|
Beginning balance, January 1st
|
|
$
|
1,102
|
|
|
$
|
-
|
|
Additions
|
|
|
1,175
|
|
|
|
1,160
|
|
Fair value adjustments
|
|
|
63
|
|
|
|
(58
|
)
|
Ending balance, December 31st
|
|
$
|
2,340
|
|
|
$
|
1,102
|
|
Fair Value Assumptions
The following information should not be interpreted as an estimate of the fair value of the entire Company since a fair value calculation is only provided for a limited portion of the Company’s assets and liabilities. Due to a wide range of valuation techniques and the degree of subjectivity used in making the estimates, comparisons between the Company’s disclosures and those of other companies may not be meaningful. The following methods and assumptions were used to estimate the fair values of the Company’s financial instruments at December 31, 2012 and December 31, 2011:
Cash and Cash Equivalents (Carried at Cost)
The carrying amounts reported in the balance sheet for cash and cash equivalents approximate those assets’ fair values.
Investment Securities
The fair value of securities available for sale (carried at fair value) and held to maturity (carried at amortized cost) are determined by obtaining quoted market prices on nationally recognized securities exchanges (Level 1), or matrix pricing (Level 2), which is a mathematical technique used widely in the industry to value debt securities without relying exclusively on quoted market prices for the specific securities but rather by relying on the securities’ relationship to other benchmark quoted prices. For certain securities, which are not traded in active markets or are subject to transfer restrictions, valuations are adjusted to reflect illiquidity and/or non-transferability, and such adjustments, are generally based on available market evidence (Level 3). In the absence of such evidence, management’s best estimate is used. Management’s best estimate consists of both internal and external support on certain Level 3 investments. Internal cash flow models using a present value formula that includes assumptions market participants would use along with indicative exit pricing obtained from broker/dealers (where available) were used to support fair values of certain Level 3 investments.
The types of instruments valued based on matrix pricing in active markets include all of the Company’s U.S. government and agency securities, corporate bonds, asset backed securities, and municipal obligations. Such instruments are generally classified within Level 2 of the fair value hierarchy. As required by ASC 820-10, the Company does not adjust the matrix pricing for such instruments.
Level 3 is for positions that are not traded in active markets or are subject to transfer restrictions, and may be adjusted to reflect illiquidity and/or non-transferability, with such adjustment generally based on available market evidence. In the absence of such evidence, management’s best estimate is used. Subsequent to inception, management only changes Level 3 inputs and assumptions when corroborated by evidence such as transactions in similar instruments, completed or pending third-party transactions in the underlying investment or comparable entities, subsequent rounds of financing, recapitalizations and other transactions across the capital structure, offerings in the equity or debt markets, and changes in financial ratios or cash flows. The Level 3 investment securities classified as available for sale are comprised of various issues of trust preferred securities and a single corporate bond.
The trust preferred securities are pools of similar securities that are grouped into an asset structure commonly referred to as collateralized debt obligations (“CDOs”) which consist of the debt instruments of various banks, diversified by the number of participants in the security as well as geographically.
The secondary market for these securities has become inactive, and therefore these securities are classified as Level 3 securities. The fair value analysis does not reflect or represent the actual terms or prices at which any party could purchase the securities. There is currently a limited secondary market for the securities and there can be no assurance that any secondary market for the securities will expand.
An independent, third party pricing service is used to estimate the current fair market value of each CDO held in the investment securities portfolio. The calculations used to determine fair value are based on the attributes of the trust preferred securities, the financial condition of the issuers of the trust preferred securities, and market based assumptions. The INTEX CDO Deal Model Library was utilized to obtain information regarding the attributes of each security and its specific collateral as of December 31, 2012 and December 31, 2011. Financial information on the issuers was also obtained from Bloomberg, the FDIC, the Office of Thrift Supervision and SNL Financial. Both published and unpublished industry sources were utilized in estimating fair value. Such information includes loan prepayment speed assumptions, discount rates, default rates, and loss severity percentages. Due to the current state of the global capital and financial markets, the fair market valuation is subject to greater uncertainty that would otherwise exist.
The fair market valuation for each CDO was determined based on discounted cash flow analyses. The cash flows are primarily dependent on the estimated speeds at which the trust preferred securities are expected to prepay, the estimated rates at which the trust preferred securities are expected to defer payments, the estimated rates at which the trust preferred securities are expected to default, and the severity of the losses on securities that do default.
Prepayment Assumptions.
CDOs generally allow for prepayments without a prepayment penalty any time after five years. Due to the lack of new CDOs and the relative poor conditions of the financial institution industry, the rates of voluntary prepayments are estimated at 2% for both December 31, 2012 and 2011.
Prepayments affect the securities in three ways. First, prepayments lower the absolute amount of excess spread, an important credit enhancement. Second, the prepayments are directed to the senior tranches, the effect of which is to increase the overcollateralization of the mezzanine layer, the layer at which the Company is located in each of the securities. However, the prepayments can lead to adverse selection in which the strongest institutions have prepaid, leaving the weaker institutions in the pool, thus mitigating the effect of the increased overcollateralization. Third, prepayments can limit the numeric and geographic diversity of the pool, leading to concentration risks.
Deferral and Default Rates.
Bank pooled trust preferred securities include a provision that allows the issuing bank to defer interest payments for up to five years. The estimates for the rates of deferral are based on the financial condition of the trust preferred issuers in the pool. Estimates for the conditional default rates are based on the bank pooled trust preferred securities themselves as well as the financial condition of the trust preferred issuers in the pool.
Estimates for the near-term rates of deferral and conditional default are based on key financial ratios relating to the financial institutions’ capitalization, asset quality, profitability and liquidity. Each bank in each security is evaluated based on ratings from outside services including Standard & Poors, Moody’s, Fitch, Bankrate.com and The Street.com. Recent stock price information is considered, as well as the 52 week high and low, for each bank in each security. Also, the receipt and repayment of TARP funding is considered, and if so, the amount. Finally, each bank’s ability to generate capital (internally or externally), which is predictive of a troubled bank’s ability to recover, is considered.
Loss Severity.
The fact that an issuer defaults on a loan, does not necessarily mean that the investor will lose all of their investment. Thus, it is important to understand not only the default assumption, but also the expected loss given a default, or the loss severity assumption.
Both Standard & Poors and Moody’s Analytics have performed and published research that indicates that recoveries on CDOs are low (less than 20%). The loss severity estimates are estimated at a range of 80% to 100%.
Bond Waterfall
. The CDOs have several tranches: Senior tranches, Mezzanine tranches and the Residual or income tranches. The Company invested in the mezzanine tranches in each of the CDOs currently in the investment securities portfolio. The Senior and Mezzanine tranches were over-collateralized at issuance, meaning that the par value of the underlying collateral was more than the balance issued on the tranches. The terms generally provide that if the performing collateral balances fall below certain triggers, then income is diverted from the residual tranches to pay the Senior and Mezzanine tranches. However, if significant deferrals occur, income could also be diverted from the Mezzanine tranches to pay the Senior tranches.
The INTEX desktop model calculates collateral cash flows based on the attributes of the CDOs as of the collateral cut-off date of December 15, 2012 and certain valuation input assumptions for the underlying collateral. Allocations of the cash flows to securities are based on the overcollateralization and interest coverage tests (triggers), events of default and liquidation, deferrals of interest, mandatory auction calls, optional redemptions and any interest rate hedge agreements.
Internal Rate of Return.
Internal rates of return are the pre-tax yield rates used to discount the future cash flow stream expected from the collateral cash flow. The marketplace for the CDOs at December 31, 2012 and December 31, 2011 was not active. This is evidenced by a significant widening of the bid/ask spreads the markets in which the CDOs trade and then by a significant decrease in the volume of trades relative to historical levels. The new issue market is also inactive and few new trust preferred securities have been issued since 2007.
Increases (decreases) in actual or expected issuer defaults tend to decrease (increase) the fair value of the Company’s senior and mezzanine tranches of CDOs. The values of the Company’s mezzanine tranches of CDOs are also affected by expected future interest rates. However, due to the structure of each security, timing of cash flows, and secondary effects on the financial performance of the underlying issuers, the effects of changes in future interest rates on the fair value of the Company’s holdings are not quantifiably estimable.
ASC 820-10 provides guidance on the discount rates to be used when a market is not active. The discount rate should take into account the time value of money, price for bearing the uncertainty in the cash flows and other case specific factors that would be considered by market participants, including a liquidity adjustment. The discount rate used is a LIBOR 3-month and LIBOR 6-month forward-looking curve plus a range of 400 to 1022 basis points.
Also included in Level 3 investment securities classified as available for sale is a single-issuer corporate bond transferred from Level 2 in 2010 since the bond is not actively traded. Impairment would depend on the repayment ability of the underlying issuer, which is assessed through a detailed quarterly review of the issuer’s financial statements. The issuer is a “well capitalized” financial institution as defined by federal banking regulations and has demonstrated the ability to raise additional capital, when necessary, through the public capital markets. The fair value of this corporate bond is estimated by obtaining a price of a comparable floating rate debt instrument through Bloomberg.
Loans Receivable, including Loans Held For Sale (Carried at Cost)
The fair values of loans are estimated using discounted cash flow analyses, using market rates at the balance sheet date that reflect the credit and interest rate-risk inherent in the loans. Projected future cash flows are calculated based upon contractual maturity or call dates, projected repayments and prepayments of principal. Generally, for variable rate loans that reprice frequently and with no significant change in credit risk, fair values are based on carrying values. Due to the significant judgment involved in evaluating credit quality, loans are classified within Level 3 of the fair value hierarchy.
Impaired Loans (Carried at Lower of Cost or Fair Value)
Impaired loans are those that the company has measured impairment based on the fair value of the loan’s collateral. Fair value is generally determined based upon independent third party appraisals of the properties, or discounted cash flows based upon the expected proceeds. These assets are included as Level 3 fair values, based upon the lowest level of input that is significant to the fair value measurements. The fair value consists of the loan balances less any valuation allowance. The valuation allowance amount is calculated as the difference between the recorded investment in a loan and the present value of expected future cash flows or it is calculated based on discounted collateral values if the loans are collateral dependent.
Other Real Estate Owned (Carried at Lower of Cost or Fair Value)
These assets are carried at the lower of cost or fair value. At December 31, 2012 these assets are carried at current fair value.
SBA Servicing Asset (Carried at Fair Value)
The SBA servicing asset is initially recorded when loans are sold and the servicing rights are retained and recorded on the balance sheet. Updated fair values are obtained on a quarterly basis and adjustments are presented as loan advisory and servicing fees on the statement of operations. The valuation begins with the projection of future cash flows for each asset based on their unique characteristics, our market-based assumptions for prepayment speeds and estimated losses and recoveries. The present value of the future cash flows are then calculated utilizing our market-based discount ratio assumptions. In all cases, we model expected payments for every loan for each quarterly period in order to create the most detailed cash flow stream possible.
The Company uses assumptions and estimates in determining the impairment of the SBA servicing asset. These assumptions include prepayment speeds and discount rates commensurate with the risks involved and comparable to assumptions used by participants to value and bid serving rights available for sale in the market. At December 31, 2012, the sensitivity of the current fair value of the SBA loan servicing rights to immediate 10% and 20% adverse changes in key assumptions are included in the accompanying table.
|
|
December 31, 2012
|
|
|
|
(dollars in thousands)
|
|
SBA Servicing Assets
|
|
|
|
Fair Value of SBA Servicing Assets
|
|
$
|
2,340
|
|
|
|
|
|
|
Compositions of SBA Loans Service for Other
|
|
|
|
|
Fixed-rate SBA loans
|
|
|
0
|
%
|
Adjustable-rate SBA loans
|
|
|
100
|
%
|
Total
|
|
|
100
|
%
|
|
|
|
|
|
Weighted Average Remaining Term
|
|
21.4 years
|
|
|
|
|
|
|
Prepayment Speed
|
|
|
6.59
|
%
|
Effect on fair value of a 10% increase
|
|
$
|
(55
|
)
|
Effect on fair value of a 20% increase
|
|
|
(107
|
)
|
|
|
|
|
|
Weighted Average Discount Rate
|
|
|
14.23
|
%
|
Effect on fair value of a 10% increase
|
|
$
|
(115
|
)
|
Effect on fair value of a 20% increase
|
|
|
(222
|
)
|
The sensitivity calculations above are hypothetical and should not be considered to be predictive of future performance. As indicated, changes in value based on adverse changes in assumptions generally cannot be extrapolated because the relationship of the change in assumption to the change in value may not be linear. Also in this table, the effect of an adverse variation in a particular assumption on the value of the SBA servicing rights is calculated without changing any other assumption. While in reality, changes in one factor may magnify or counteract the effect of the change.
Restricted Stock (Carried at Cost)
The carrying amount of restricted stock approximates fair value, and considers the limited marketability of such securities.
Accrued Interest Receivable and Payable (Carried at Cost)
The carrying amounts of accrued interest receivable and accrued interest payable approximates fair value.
Deposit Liabilities (Carried at Cost)
The fair values disclosed for demand deposits (e.g., interest and noninterest checking, passbook savings and money market accounts) are, by definition, equal to the amount payable on demand at the reporting date (i.e., their carrying amounts). Fair values for fixed-rate certificates of deposit are estimated using a discounted cash flow calculation that applies interest rates currently being offered in the market on certificates to a schedule of aggregated expected monthly maturities on time deposits.
Short-Term Borrowings (Carried at Cost)
The carrying amounts of short-term borrowings approximate their fair values.
FHLB Advances (Carried at Cost)
Fair values of FHLB advances are estimated using discounted cash flow analysis, based on quoted prices for new FHLB advances with similar credit risk characteristics, terms and remaining maturity. These prices obtained from this active market represent a market value that is deemed to represent the transfer price if the liability were assumed by a third party.
Subordinated Debt (Carried at Cost)
Fair values of subordinated debt are estimated using discounted cash flow analysis, based on market rates currently offered on such debt with similar credit risk characteristics, terms and remaining maturity. Due to the significant judgment involved in developing the spreads used to value the subordinated debt, it is classified within Level 3 of the fair value hierarchy.
Off-Balance Sheet Financial Instruments (Disclosed at Notional amounts)
Fair values for the Company’s off-balance sheet financial instruments (lending commitments and letters of credit) are based on fees currently charged in the market to enter into similar agreements, taking into account, the remaining terms of the agreements and the counterparties’ credit standing.
The estimated fair values of the Company’s financial instruments were as follows at December 31, 2012 and 2011:
|
|
Fair Value Measurements at December 31, 2012
|
|
(dollars in thousands)
|
|
Carrying Amount
|
|
|
Fair
Value
|
|
|
Quoted Prices in Active Markets for Identical Assets
(Level 1)
|
|
|
Significant Other Observable Inputs
(Level 2)
|
|
|
Significant Unobservable Inputs
(Level 3)
|
|
Balance Sheet Data
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Financial assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
128,004
|
|
|
$
|
128,004
|
|
|
$
|
128,004
|
|
|
$
|
-
|
|
|
$
|
-
|
|
Investment securities available for sale
|
|
|
189,259
|
|
|
|
189,259
|
|
|
|
-
|
|
|
|
183,065
|
|
|
|
6,194
|
|
Investment securities held to maturity
|
|
|
67
|
|
|
|
69
|
|
|
|
-
|
|
|
|
69
|
|
|
|
-
|
|
Restricted stock
|
|
|
3,816
|
|
|
|
3,816
|
|
|
|
-
|
|
|
|
3,816
|
|
|
|
-
|
|
Loans held for sale
|
|
|
82
|
|
|
|
82
|
|
|
|
-
|
|
|
|
-
|
|
|
|
82
|
|
Loans receivable, net
|
|
|
608,359
|
|
|
|
603,237
|
|
|
|
-
|
|
|
|
-
|
|
|
|
603,237
|
|
SBA servicing assets
|
|
|
2,340
|
|
|
|
2,340
|
|
|
|
-
|
|
|
|
-
|
|
|
|
2,340
|
|
Accrued interest receivable
|
|
|
3,128
|
|
|
|
3,128
|
|
|
|
-
|
|
|
|
3,128
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Financial liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deposits
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Demand, savings and money market
|
|
$
|
765,967
|
|
|
$
|
765,967
|
|
|
$
|
-
|
|
|
$
|
765,967
|
|
|
$
|
-
|
|
Time
|
|
|
123,234
|
|
|
|
124,044
|
|
|
|
-
|
|
|
|
124,044
|
|
|
|
-
|
|
Subordinated debt
|
|
|
22,476
|
|
|
|
20,187
|
|
|
|
-
|
|
|
|
-
|
|
|
|
20,187
|
|
Accrued interest payable
|
|
|
301
|
|
|
|
301
|
|
|
|
-
|
|
|
|
301
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Off-Balance Sheet Data
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commitments to extend credit
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Standby letters-of-credit
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair Value Measurements at December 31, 2011
|
|
(dollars in thousands)
|
|
Carrying Amount
|
|
|
Fair
Value
|
|
|
Quoted Prices in Active Markets for Identical Assets
(Level 1)
|
|
|
Significant Other Observable Inputs
(Level 2)
|
|
|
Significant Unobservable Inputs
(Level 3)
|
|
Balance Sheet Data
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Financial assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
230,955
|
|
|
$
|
230,955
|
|
|
$
|
230,955
|
|
|
$
|
-
|
|
|
$
|
-
|
|
Investment securities available for sale
|
|
|
174,323
|
|
|
|
174,323
|
|
|
|
-
|
|
|
|
167,909
|
|
|
|
6,414
|
|
Investment securities held to maturity
|
|
|
140
|
|
|
|
144
|
|
|
|
-
|
|
|
|
144
|
|
|
|
-
|
|
Restricted stock
|
|
|
5,321
|
|
|
|
5,321
|
|
|
|
-
|
|
|
|
5,321
|
|
|
|
-
|
|
Loans held for sale
|
|
|
925
|
|
|
|
1,021
|
|
|
|
-
|
|
|
|
-
|
|
|
|
1,021
|
|
Loans receivable, net
|
|
|
577,442
|
|
|
|
576,052
|
|
|
|
-
|
|
|
|
-
|
|
|
|
576,052
|
|
SBA servicing assets
|
|
|
1,102
|
|
|
|
1,102
|
|
|
|
-
|
|
|
|
-
|
|
|
|
1,102
|
|
Accrued interest receivable
|
|
|
3,003
|
|
|
|
3,003
|
|
|
|
-
|
|
|
|
3,003
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Financial liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deposits
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Demand, savings and money market
|
|
$
|
735,670
|
|
|
$
|
735,670
|
|
|
$
|
-
|
|
|
$
|
735,670
|
|
|
$
|
-
|
|
Time
|
|
|
216,941
|
|
|
|
218,137
|
|
|
|
-
|
|
|
|
218,137
|
|
|
|
-
|
|
Subordinated debt
|
|
|
22,476
|
|
|
|
18,247
|
|
|
|
-
|
|
|
|
-
|
|
|
|
18,247
|
|
Accrued interest payable
|
|
|
1,049
|
|
|
|
1,049
|
|
|
|
-
|
|
|
|
1,049
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Off-Balance Sheet Data
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commitments to extend credit
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Standby letters-of-credit
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
15. Stock Based Compensation
The Company has a Stock Option and Restricted Stock Plan (“Plan”), under which the Company may grant options, restricted stock or stock appreciation rights to the Company’s employees, directors, and certain consultants. Under the terms of the Plan, 1.5 million shares of common stock, plus an annual increase equal to the number of shares needed to restore the maximum number of shares that may be available for grant under the Plan to 1.5 million shares, are available for such grants. As of December 31, 2012, the only grants under the Plan have been option grants. The Plan provides that the exercise price of each option granted equals the market price of the Company’s stock on the date of grant. Any option granted vests within one to five years and has a maximum term of ten years.
The Company utilized the Black-Scholes option pricing model to calculate the estimated fair value of each stock option granted on the date of the grant. A summary of the assumptions used in the Black-Scholes option pricing model for 2012, 2011 and 2010 is as follows:
|
|
2012
|
|
2011
|
|
2010
|
Dividend yield
(1)
|
|
0.0%
|
|
0.0%
|
|
0.0%
|
Expected volatility
(2)
|
|
53.12% to 54.49%
|
|
43.33% to 49.11%
|
|
33.67% to 37.37%
|
Risk-free interest rate
(3)
|
|
1.01% to 1.61%
|
|
1.38% to 2.84%
|
|
1.90% to 3.46%
|
Expected life
(4)
|
|
7.0 years
|
|
7.0 years
|
|
7.0 years
|
|
|
|
|
|
|
|
(1)
A dividend yield of 0.0% is utilized because cash dividends have never been paid.
(2)
Expected volatility is based on Bloomberg’s seven year volatility calculation for “FRBK” stock.
(3)
The risk-free interest rate is based on the seven year Treasury bond.
(4)
The expected life reflects a 3 to 4 year “all or nothing” vesting period, the maximum ten year term and review of historical behavior
.
During 2012, 146,000 shares vested as compared to 53,500 shares in 2011 and 10,000 shares in 2010. Expense is recognized ratably over the period required to vest. At December 31, 2012 the intrinsic value of the 964,530 options outstanding was $44,200, while the intrinsic value of the 253,930 exercisable (vested) options was $0. During 2012, 171,637 options were forfeited with a weighted average grant date fair value of $243,063.
Information regarding stock based compensation for the years ended December 31, 2012, 2011 and 2010 is set forth below:
|
|
2012
|
|
|
2011
|
|
|
2010
|
|
Stock based compensation expense recognized
|
|
$
|
370,000
|
|
|
$
|
359,000
|
|
|
$
|
276,000
|
|
Number of unvested stock options
|
|
|
710,600
|
|
|
|
612,350
|
|
|
|
445,350
|
|
Fair value of unvested stock options
|
|
$
|
1,091,948
|
|
|
$
|
1,337,780
|
|
|
$
|
1,158,861
|
|
Amount remaining to be recognized as expense
|
|
$
|
467,314
|
|
|
$
|
554,763
|
|
|
$
|
531,757
|
|
The remaining amount of $467,314 will be recognized as expense through August 2016.
A summary of stock option activity under the Plan as of December 31, 2012, 2011 and 2010 is as follows:
|
|
For the Years Ended December 31,
|
|
|
|
2012
|
|
|
2011
|
|
|
2010
|
|
|
|
Shares
|
|
|
Weighted Average Exercise Price
|
|
|
Shares
|
|
|
Weighted Average Exercise Price
|
|
|
Shares
|
|
|
Weighted Average Exercise Price
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding, beginning of year
|
|
|
839,417
|
|
|
$
|
6.04
|
|
|
|
663,500
|
|
|
$
|
7.32
|
|
|
|
544,304
|
|
|
$
|
8.03
|
|
Granted
|
|
|
296,750
|
|
|
|
1.95
|
|
|
|
263,850
|
|
|
|
3.12
|
|
|
|
162,000
|
|
|
|
4.55
|
|
Exercised
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(7,454
|
)
|
|
|
1.81
|
|
Forfeited
|
|
|
(171,637
|
)
|
|
|
8.32
|
|
|
|
(87,933
|
)
|
|
|
5.73
|
|
|
|
(35,350
|
)
|
|
|
6.81
|
|
Outstanding, end of year
|
|
|
964,530
|
|
|
$
|
4.38
|
|
|
|
839,417
|
|
|
$
|
6.04
|
|
|
|
663,500
|
|
|
$
|
7.32
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Options exercisable at year-end
|
|
|
253,930
|
|
|
$
|
7.92
|
|
|
|
227,067
|
|
|
$
|
9.00
|
|
|
|
218,150
|
|
|
$
|
8.81
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average fair value of options granted during the year
|
|
|
|
|
|
$
|
1.05
|
|
|
|
|
|
|
$
|
1.61
|
|
|
|
|
|
|
$
|
1.90
|
|
A summary of stock option exercises and related proceeds during the years ended December 31, 2012, 2011 and 2010 is as follows:
|
|
For the Years Ended December 31,
|
|
|
|
2012
|
|
|
2011
|
|
|
2010
|
|
|
|
|
|
|
|
|
|
|
|
Number of options exercised
|
|
|
-
|
|
|
|
-
|
|
|
|
7,454
|
|
Cash received
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
13,492
|
|
Intrinsic value
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
2,982
|
|
Tax benefit
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
1,044
|
|
The following table summarizes information about options outstanding at December 31, 2012:
Options Outstanding
|
|
|
Options Exercisable
|
|
Range of Exercise Prices
|
|
|
Number Outstanding
|
|
|
Weighted-Average Remaining Contractual Life
|
|
|
Weighted-Average Exercise Price
|
|
|
Shares
|
|
|
Weighted-Average Exercise Price
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
1.39 to $2.36
|
|
|
|
325,750
|
|
|
|
9.1
|
|
|
$
|
1.94
|
|
|
|
-
|
|
|
$
|
-
|
|
$
3.15 to $5.12
|
|
|
|
310,250
|
|
|
|
7.7
|
|
|
|
3.72
|
|
|
|
-
|
|
|
|
-
|
|
$
5.70 to $8.72
|
|
|
|
304,757
|
|
|
|
5.0
|
|
|
|
7.11
|
|
|
|
230,157
|
|
|
|
7.56
|
|
$
9.93 to $12.13
|
|
|
|
23,773
|
|
|
|
3.3
|
|
|
|
11.36
|
|
|
|
23,773
|
|
|
|
11.36
|
|
|
|
|
|
|
964,530
|
|
|
|
|
|
|
$
|
4.38
|
|
|
|
253,930
|
|
|
$
|
7.92
|
|
A roll-forward of non-vested options during the year ended December 31, 2012 is as follows:
|
|
Number of Shares
|
|
|
Weighted-Average Grant Date Fair Value
|
|
Nonvested, beginning of year
|
|
|
612,350
|
|
|
$
|
2.18
|
|
Granted
|
|
|
296,750
|
|
|
|
1.05
|
|
Vested
|
|
|
(146,000
|
)
|
|
|
3.39
|
|
Forfeited
|
|
|
(52,500
|
)
|
|
|
1.76
|
|
Nonvested, end of year
|
|
|
710,600
|
|
|
$
|
1.54
|
|
16. Segment Reporting
The Company has one reportable segment: community banking. The community banking segment primarily encompasses the commercial loan and deposit activities of Republic, as well as consumer loan products in the area surrounding its stores.
17. Transactions with Affiliates and Related Parties
At December 31, 2012 and 2011, Republic had outstanding balances of $3.3 million and $10.0 million, respectively, of commercial loans, which had been participated to First Bank of Delaware (“FBD”), a wholly-owned subsidiary of the Company prior to January 1, 2005. As of December 31, 2012 and 2011 Republic had outstanding balances of $0 and $5.8 million of commercial loan balances it had purchased from FBD. The above loan participations and sales were made at arms length. They are made as a result of lending limit and other regulatory requirements.
The Board of Directors of FBD approved a Plan of Liquidation and Dissolution on April 27, 2012. As a result of stockholder approval of the Plan of Dissolution, FBD executed the FBD Liquidating Trust Agreement. On November 6, 2012, FBD gave notice to the Financial Industry Regulatory Authority of its intent to dissolve on or about November 16, 2012.
The Company made payments to related parties in the amount of $346,000 during 2012 as compared to $333,000 during 2011 and $470,000 during 2010. The disbursements made during 2012, 2011 and 2010 include $95,000, $83,000, and $195,000, respectively, in fees for marketing and graphic design services paid to InterArch, a company owned by the spouse of Vernon W. Hill, II. Mr. Hill is a major shareholder of the Company, owning 9.9% of the common shares currently outstanding. He also acts as a consultant for the Company and is paid $250,000 annually.
18. Parent Company Financial Information
The following financial statements for Republic First Bancorp, Inc. (Parent Company) should be read in conjunction with the consolidated financial statements and the other notes related to the consolidated financial statements.
Balance Sheet
|
|
December 31, 2012 and 2011
|
|
(Dollars in thousands)
|
|
|
|
|
|
|
|
|
|
|
December 31, 2012
|
|
|
December 31, 2011
|
|
ASSETS
|
|
|
|
|
|
|
Cash
|
|
$
|
736
|
|
|
$
|
2,055
|
|
Corporation-obligated mandatorily redeemable capital securities of subsidiary trust holding junior obligations of the corporation
|
|
|
676
|
|
|
|
676
|
|
Investment in subsidiaries
|
|
|
88,945
|
|
|
|
83,343
|
|
Other assets
|
|
|
2,848
|
|
|
|
2,306
|
|
Total Assets
|
|
$
|
93,205
|
|
|
$
|
88,380
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES AND SHAREHOLDERS’ EQUITY
|
|
|
|
|
|
|
|
|
Liabilities
|
|
|
|
|
|
|
|
|
Accrued expenses
|
|
$
|
827
|
|
|
$
|
1,053
|
|
Corporation-obligated mandatorily redeemable
securities of subsidiary trust holding solely junior
subordinated debentures of the corporation
|
|
|
22,476
|
|
|
|
22,476
|
|
Total Liabilities
|
|
|
23,303
|
|
|
|
23,529
|
|
|
|
|
|
|
|
|
|
|
Shareholders’ Equity
|
|
|
|
|
|
|
|
|
Total Shareholders’ Equity
|
|
|
69,902
|
|
|
|
64,851
|
|
|
|
|
|
|
|
|
|
|
Total Liabilities and Shareholders’ Equity
|
|
$
|
93,205
|
|
|
$
|
88,380
|
|
Statements of Operations, Comprehensive Income (Loss), and Changes in Shareholders’ Equity
|
|
For the years ended December 31, 2012, 2011 and 2010
|
|
(Dollars in thousands)
|
|
|
|
|
|
2012
|
|
|
2011
|
|
|
2010
|
|
|
|
|
|
|
|
|
|
|
|
Interest income
|
|
$
|
34
|
|
|
$
|
33
|
|
|
$
|
33
|
|
Dividend income from subsidiaries
|
|
|
-
|
|
|
|
212
|
|
|
|
1,294
|
|
Total income
|
|
|
34
|
|
|
|
245
|
|
|
|
1,327
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Trust preferred interest expense
|
|
|
1,134
|
|
|
|
1,117
|
|
|
|
1,119
|
|
Expenses
|
|
|
317
|
|
|
|
288
|
|
|
|
208
|
|
Total expenses
|
|
|
1,451
|
|
|
|
1,405
|
|
|
|
1,327
|
|
Net loss before taxes
|
|
|
(1,417
|
)
|
|
|
(1,160
|
)
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Benefit for income taxes
|
|
|
(496
|
)
|
|
|
(406
|
)
|
|
|
-
|
|
Loss before undistributed income of subsidiaries
|
|
|
(921
|
)
|
|
|
(754
|
)
|
|
|
-
|
|
Equity in undistributed income (loss) of subsidiaries
|
|
|
4,535
|
|
|
|
(23,948
|
)
|
|
|
(10,690
|
)
|
Net income (loss)
|
|
$
|
3,614
|
|
|
$
|
(24,702
|
)
|
|
$
|
(10,690
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss)
|
|
$
|
3,614
|
|
|
$
|
(24,702
|
)
|
|
$
|
(10,690
|
)
|
Total other comprehensive income (loss)
|
|
|
1,067
|
|
|
|
1,048
|
|
|
|
(420
|
)
|
Total comprehensive income (loss)
|
|
$
|
4,681
|
|
|
$
|
(23,654
|
)
|
|
$
|
(11,110
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shareholders’ equity, beginning of year
|
|
$
|
64,851
|
|
|
$
|
88,146
|
|
|
$
|
70,264
|
|
Shares issued under common stock offering
|
|
|
-
|
|
|
|
-
|
|
|
|
28,802
|
|
Stock based compensation
|
|
|
370
|
|
|
|
359
|
|
|
|
276
|
|
Exercise of stock options
|
|
|
-
|
|
|
|
-
|
|
|
|
14
|
|
Stock purchases for deferred compensation plan
|
|
|
-
|
|
|
|
-
|
|
|
|
(100
|
)
|
Net income (loss)
|
|
|
3,614
|
|
|
|
(24,702
|
)
|
|
|
(10,690
|
)
|
Total other comprehensive income (loss)
|
|
|
1,067
|
|
|
|
1,048
|
|
|
|
(420
|
)
|
Shareholders’ equity, end of year
|
|
$
|
69,902
|
|
|
$
|
64,851
|
|
|
$
|
88,146
|
|
Statements of Cash Flows
|
|
For the years ended December 31, 2012, 2011 and 2010
|
|
(Dollars in thousands)
|
|
|
|
|
|
2012
|
|
|
2011
|
|
|
2010
|
|
Cash flows from operating activities:
|
|
|
|
|
|
|
|
|
|
Net income (loss)
|
|
$
|
3,614
|
|
|
$
|
(24,702
|
)
|
|
$
|
(10,690
|
)
|
Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock purchases for deferred compensation plan
|
|
|
-
|
|
|
|
-
|
|
|
|
(100
|
)
|
Share based compensation
|
|
|
370
|
|
|
|
359
|
|
|
|
276
|
|
Increase in other assets
|
|
|
(542
|
)
|
|
|
(486
|
)
|
|
|
(82
|
)
|
(Decrease) increase in other liabilities
|
|
|
(226
|
)
|
|
|
223
|
|
|
|
101
|
|
Equity in undistributed (income) losses of subsidiaries
|
|
|
(4,535
|
)
|
|
|
23,948
|
|
|
|
10,690
|
|
Net cash (used in) provided by operating activities
|
|
|
(1,319
|
)
|
|
|
(658
|
)
|
|
|
195
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows from investing activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Investment in subsidiary
|
|
|
-
|
|
|
|
(8,000
|
)
|
|
|
(30,000
|
)
|
Net cash used in investing activities
|
|
|
-
|
|
|
|
(8,000
|
)
|
|
|
(30,000
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows from financing activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Net proceeds from stock offering
|
|
|
-
|
|
|
|
-
|
|
|
|
28,802
|
|
Exercise of stock options
|
|
|
-
|
|
|
|
-
|
|
|
|
14
|
|
Net cash provided by financing activities
|
|
|
-
|
|
|
|
-
|
|
|
|
28,816
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Decrease in cash
|
|
|
(1,319
|
)
|
|
|
(8,658
|
)
|
|
|
(989
|
)
|
Cash, beginning of period
|
|
|
2,055
|
|
|
|
10,713
|
|
|
|
11,702
|
|
Cash, end of period
|
|
$
|
736
|
|
|
$
|
2,055
|
|
|
$
|
10,713
|
|
19. Quarterly Financial Data (unaudited)
The following represents summarized unaudited quarterly financial data of the Company for each of the quarters ended during 2012 and 2011.
Summary of Selected Quarterly Consolidated Financial Data
|
|
(dollars in thousands, except per share data)
|
|
|
|
|
|
|
|
For the Quarter Ended
|
|
|
|
December 31
st
|
|
|
September 30
th
|
|
|
June 30
th
|
|
|
March 31
st
|
|
2012
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest income
|
|
$
|
9,423
|
|
|
$
|
9,612
|
|
|
$
|
9,649
|
|
|
$
|
9,576
|
|
Interest expense
|
|
|
1,406
|
|
|
|
1,436
|
|
|
|
1,624
|
|
|
|
1,900
|
|
Net interest income
|
|
|
8,017
|
|
|
|
8,176
|
|
|
|
8,025
|
|
|
|
7,676
|
|
Provision (credit) for loan losses
|
|
|
750
|
|
|
|
850
|
|
|
|
500
|
|
|
|
(750
|
)
|
Non-interest income
|
|
|
2,852
|
|
|
|
1,831
|
|
|
|
2,499
|
|
|
|
1,646
|
|
Non-interest expense
|
|
|
9,269
|
|
|
|
8,787
|
|
|
|
9,010
|
|
|
|
8,836
|
|
Provision (benefit) for income taxes
|
|
|
(54
|
)
|
|
|
(28
|
)
|
|
|
7
|
|
|
|
(69
|
)
|
Net income
|
|
$
|
904
|
|
|
$
|
398
|
|
|
$
|
1,007
|
|
|
$
|
1,305
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income per share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
$
|
0.03
|
|
|
$
|
0.02
|
|
|
$
|
0.04
|
|
|
$
|
0.05
|
|
Diluted
|
|
$
|
0.03
|
|
|
$
|
0.02
|
|
|
$
|
0.04
|
|
|
$
|
0.05
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2011
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest income
|
|
$
|
9,556
|
|
|
$
|
9,726
|
|
|
$
|
9,657
|
|
|
$
|
9,334
|
|
Interest expense
|
|
|
2,067
|
|
|
|
2,087
|
|
|
|
2,131
|
|
|
|
1,914
|
|
Net interest income
|
|
|
7,489
|
|
|
|
7,639
|
|
|
|
7,526
|
|
|
|
7,420
|
|
Provision for loan losses
|
|
|
10,300
|
|
|
|
616
|
|
|
|
1,500
|
|
|
|
3,550
|
|
Non-interest income
|
|
|
3,423
|
|
|
|
3,955
|
|
|
|
2,076
|
|
|
|
1,127
|
|
Non-interest expense
|
|
|
14,092
|
|
|
|
9,105
|
|
|
|
9,011
|
|
|
|
8,992
|
|
Provision (benefit) for income taxes
|
|
|
9,598
|
|
|
|
509
|
|
|
|
(429
|
)
|
|
|
(1,487
|
)
|
Net income (loss)
|
|
$
|
(23,078
|
)
|
|
$
|
1,364
|
|
|
$
|
(480
|
)
|
|
$
|
(2,508
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) per share
(1)
:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
$
|
(0.89
|
)
|
|
$
|
0.05
|
|
|
$
|
(0.02
|
)
|
|
$
|
(0.10
|
)
|
Diluted
|
|
$
|
(0.89
|
)
|
|
$
|
0.05
|
|
|
$
|
(0.02
|
)
|
|
$
|
(0.10
|
)
|
(1)
|
Quarterly net income (loss) per share does not add to full year net income (loss) per share due to rounding.
|