|
x
|
QUARTERLY
REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934
|
¨
|
TRANSITION
REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934
|
Washington
(State
or other jurisdiction of
incorporation
or organization)
|
91-1815009
(IRS
Employer Identification No.)
|
PART
I
|
FINANCIAL
INFORMATION
|
3
|
ITEM
1.
|
FINANCIAL
STATEMENTS (UNAUDITED)
|
3
|
CONDENSED
CONSOLIDATED BALANCE SHEETS SEPTEMBER 30, 2010 AND DECEMBER 31,
2009
|
3
|
|
CONDENSED
CONSOLIDATED STATEMENTS OF INCOME THREE AND NINE MONTHS ENDED SEPTEMBER
30, 2010 AND 2009
|
4
|
|
CONDENSED
CONSOLIDATED STATEMENTS OF CASH FLOWS NINE MONTHS ENDED SEPTEMBER 30, 2010
AND 2009
|
5
|
|
CONDENSED
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY NINE MONTHS ENDED
SEPTEMBER 30, 2010 AND 2009
|
6
|
|
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
|
7
|
|
ITEM
2.
|
MANAGEMENT'S
DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
|
19
|
ITEM
3.
|
QUANTITATIVE
AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
|
34
|
ITEM
4.
|
CONTROLS
AND PROCEDURES
|
34
|
PART
II
|
OTHER
INFORMATION
|
35
|
ITEM
1.
|
LEGAL
PROCEEDINGS
|
35
|
ITEM 1A.
|
RISK
FACTORS
|
35
|
ITEM
2.
|
UNREGISTERED
SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
|
35
|
ITEM
3.
|
DEFAULTS
UPON SENIOR SECURITIES
|
35
|
ITEM
4.
|
[RESERVED]
|
35
|
ITEM
5.
|
OTHER
INFORMATION
|
35
|
ITEM
6.
|
EXHIBITS35
|
35
|
SIGNATURES35
|
36
|
September 30, 2010
|
December 31, 2009
|
|||||||
Assets
|
||||||||
Cash
and due from banks
|
$ | 11,313 | $ | 12,836 | ||||
Interest
bearing deposits in banks
|
24,755 | 35,068 | ||||||
Federal
funds sold
|
— | 5,000 | ||||||
Investment
securities available-for-sale (amortized cost of $43,303 and
$54,981)
|
43,591 | 53,677 | ||||||
Investment
securities held-to-maturity (fair value of $6,771 and
$7,594)
|
6,613 | 7,449 | ||||||
Federal
Home Loan Bank stock, at cost
|
3,182 | 3,182 | ||||||
Loans
held for sale
|
20,339 | 12,389 | ||||||
Loans
|
466,585 | 482,246 | ||||||
Allowance
for credit losses
|
11,511 | 11,092 | ||||||
Loans,
net
|
455,074 | 471,154 | ||||||
Premises
and equipment
|
15,374 | 15,914 | ||||||
Other
real estate owned
|
9,651 | 6,665 | ||||||
Accrued
interest receivable
|
2,435 | 2,537 | ||||||
Cash
surrender value of life insurance
|
16,616 | 16,207 | ||||||
Goodwill
|
11,282 | 11,282 | ||||||
Other
intangible assets
|
1,339 | 1,445 | ||||||
Other
assets
|
12,714 | 13,821 | ||||||
Total
assets
|
$ | 634,278 | $ | 668,626 | ||||
Liabilities
and Shareholders' Equity
|
||||||||
Deposits:
|
||||||||
Demand,
non-interest bearing
|
$ | 90,537 | $ | 86,046 | ||||
Savings
and interest-bearing demand
|
240,902 | 229,281 | ||||||
Time,
interest-bearing
|
202,800 | 252,368 | ||||||
Total
deposits
|
534,239 | 567,695 | ||||||
Accrued
interest payable
|
1,250 | 1,125 | ||||||
Secured
borrowings
|
939 | 977 | ||||||
Short-term
borrowings
|
10,500 | 4,500 | ||||||
Long-term
borrowings
|
10,500 | 21,000 | ||||||
Junior
subordinated debentures
|
13,403 | 13,403 | ||||||
Other
liabilities
|
3,041 | 2,277 | ||||||
Total
liabilities
|
573,872 | 610,977 | ||||||
Commitments
and Contingencies (Note 6)
|
— | — | ||||||
Shareholders'
Equity
|
||||||||
Common
Stock (par value $1); 25,000,000 shares authorized; 10,121,853 shares
issued and outstanding at September 30, 2010 and December 31,
2009
|
10,122 | 10,122 | ||||||
Additional
paid-in capital
|
41,304 | 41,270 | ||||||
Retained
earnings
|
9,215 | 7,599 | ||||||
Accumulated
other comprehensive loss
|
(235 | ) | (1,342 | ) | ||||
Total
shareholders' equity
|
60,406 | 57,649 | ||||||
Total
liabilities and shareholders' equity
|
$ | 634,278 | $ | 668,626 |
Three Months Ended
September 30,
|
Nine Months Ended
September 30,
|
|||||||||||||||
2010
|
2009
|
2010
|
2009
|
|||||||||||||
Interest
and dividend income
|
||||||||||||||||
Loans
|
$ | 7,086 | $ | 7,508 | $ | 21,499 | $ | 22,485 | ||||||||
Investment
securities and FHLB dividends
|
516 | 751 | 1,726 | 2,224 | ||||||||||||
Deposits
with banks and federal funds sold
|
29 | 43 | 92 | 71 | ||||||||||||
Total
interest and dividend income
|
7,631 | 8,302 | 23,317 | 24,780 | ||||||||||||
Interest
Expense
|
||||||||||||||||
Deposits
|
1,550 | 2,355 | 5,118 | 7,196 | ||||||||||||
Other
borrowings
|
338 | 407 | 1,074 | 1,426 | ||||||||||||
Total
interest expense
|
1,888 | 2,762 | 6,192 | 8,622 | ||||||||||||
Net
Interest Income
|
5,743 | 5,540 | 17,125 | 16,158 | ||||||||||||
Provision
for credit losses
|
850 | 3,170 | 2,850 | 8,544 | ||||||||||||
Net
interest income after provision for credit losses
|
4,893 | 2,370 | 14,275 | 7,614 | ||||||||||||
Non-interest
Income
|
||||||||||||||||
Service
charges on deposits
|
464 | 427 | 1,338 | 1,249 | ||||||||||||
Net
gain on sales of other real estate owned
|
19 | — | 273 | — | ||||||||||||
Gain
on sales of loans
|
1,010 | 1,028 | 2,859 | 3,605 | ||||||||||||
Net
gain on sales of investments available-for-sale
|
— | 116 | 402 | 419 | ||||||||||||
Earnings
on bank owned life insurance
|
144 | 123 | 409 | 364 | ||||||||||||
Other
operating income
|
378 | 294 | 920 | 880 | ||||||||||||
Total
non-interest income
|
2,015 | 1,988 | 6,201 | 6,517 | ||||||||||||
Non-interest
Expense
|
||||||||||||||||
Salaries
and employee benefits
|
3,378 | 3,366 | 9,913 | 10,315 | ||||||||||||
Occupancy
and equipment
|
669 | 687 | 2,043 | 2,013 | ||||||||||||
Other
real estate owned write-downs
|
73 | 22 | 564 | 2,539 | ||||||||||||
Other
real estate owned operating costs
|
166 | 156 | 425 | 303 | ||||||||||||
Professional
services
|
204 | 182 | 582 | 587 | ||||||||||||
FDIC
and State assessments
|
332 | 950 | 1,043 | 1,573 | ||||||||||||
Data
processing
|
245 | 245 | 802 | 793 | ||||||||||||
Other
|
1,264 | 1,461 | 3,548 | 3,698 | ||||||||||||
Total
non-interest expense
|
6,331 | 7,069 | 18,920 | 21,821 | ||||||||||||
Income
(loss) before income taxes
|
577 | (2,711 | ) | 1,556 | (7,690 | ) | ||||||||||
Provision
(benefit) for income taxes
|
98 | (952 | ) | (60 | ) | (3,352 | ) | |||||||||
Net
Income (Loss)
|
$ | 479 | $ | (1,759 | ) | $ | 1,616 | $ | (4,338 | ) | ||||||
Earnings
(loss) per common share:
|
||||||||||||||||
Basic
|
$ | 0.05 | $ | (0.19 | ) | $ | 0.16 | $ | (0.54 | ) | ||||||
Diluted
|
0.05 | (0.19 | ) | 0.16 | (0.54 | ) | ||||||||||
Weighted
Average shares outstanding:
|
||||||||||||||||
Basic
|
10,121,853 | 9,424,229 | 10,121,853 | 8,005,901 | ||||||||||||
Diluted
|
10,121,853 | 9,424,229 | 10,121,853 | 8,005,901 |
2010
|
2009
|
|||||||
OPERATING
ACTIVITIES
|
||||||||
Net
income (loss)
|
$ | 1,616 | $ | (4,338 | ) | |||
Adjustments
to reconcile net income (loss) to net cash provided by (used in) operating
activities:
|
||||||||
Provision
for credit losses
|
2,850 | 8,544 | ||||||
Depreciation
and amortization
|
1,186 | 1,167 | ||||||
Deferred
income taxes
|
— | (1 | ) | |||||
Origination
of loans held for sale
|
(141,541 | ) | (220,515 | ) | ||||
Proceeds
of loans held for sale
|
136,480 | 225,678 | ||||||
Gain
on sales of loans
|
(2,859 | ) | (3,605 | ) | ||||
Gain
on sale of investments available for sale
|
(402 | ) | (419 | ) | ||||
Gain
on sale of other real estate owned
|
(273 | ) | — | |||||
Loss
on sale of premises and equipment
|
6 | — | ||||||
Decrease
in accrued interest receivable
|
102 | 59 | ||||||
Increase
in accrued interest payable
|
125 | 77 | ||||||
Other
real estate owned write-downs
|
564 | 3,226 | ||||||
Other,
net
|
760 | (3,554 | ) | |||||
Net
cash provided by (used in) operating activities
|
(1,386 | ) | 6,319 | |||||
INVESTING
ACTIVITIES
|
||||||||
Net
(increase) decrease in federal funds sold
|
5,000 | (4,225 | ) | |||||
Net
(increase) decrease in interest bearing balances with
banks
|
10,313 | (49,385 | ) | |||||
Purchase
of securities held-to-maturity
|
(56 | ) | (1,312 | ) | ||||
Purchase
of securities available-for-sale
|
(9,827 | ) | (19,304 | ) | ||||
Proceeds
from maturities of investments held-to-maturity
|
889 | 138 | ||||||
Proceeds
from sales of securities available-for-sale
|
15,669 | 9,991 | ||||||
Proceeds
from maturities of securities available-for-sale
|
6,195 | 6,308 | ||||||
Net
(increase) decrease in loans
|
6,620 | (10,617 | ) | |||||
Proceeds
from sales of other real estate owned
|
3,371 | 1,219 | ||||||
Purchase
of premises and equipment
|
(317 | ) | (479 | ) | ||||
Net
cash provided by (used in) investing activities
|
37,857 | (67,666 | ) | |||||
FINANCING
ACTIVITIES
|
||||||||
Net
increase (decrease) in deposits
|
(33,456 | ) | 67,498 | |||||
Net
decrease in short-term borrowings
|
(4,500 | ) | (23,500 | ) | ||||
Net
decrease in secured borrowings
|
(38 | ) | (365 | ) | ||||
Proceeds
from issuance of long-term borrowings
|
— | 3,000 | ||||||
Issuance
of common stock
|
— | 12,394 | ||||||
Payment
of cash dividends
|
— | (333 | ) | |||||
Net
cash provided by (used in) financing activities
|
(37,994 | ) | 58,694 | |||||
Net
decrease in cash and due from banks
|
(1,523 | ) | (2,653 | ) | ||||
Cash
and due from Banks
|
||||||||
Beginning
of period
|
12,836 | 16,182 | ||||||
End
of period
|
$ | 11,313 | $ | 13,529 | ||||
SUPPLEMENTAL
DISCLOSURES OF CASH FLOW INFORMATION
|
||||||||
Cash
payments for:
|
||||||||
Interest
|
$ | 6,067 | $ | 8,545 | ||||
Income
taxes
|
725 | 90 | ||||||
SUPPLEMENTAL
SCHEDULE OF NONCASH INVESTING AND FINANCING ACTIVITIES
|
||||||||
Change
in fair value of securities available-for-sale, net of tax
|
$ | 1,051 | $ | 1,628 | ||||
Other
real estate owned acquired in settlement of loans
|
(7,056 | ) | (7,828 | ) | ||||
Financed
sale of other real estate owned
|
408 | — | ||||||
Reclass
of current portion of long-term borrowings to short-term
borrowings
|
10,500 | 4,500 | ||||||
Transfer
of loans held for sale to loans held for investment
|
— | 943 |
Shares
of
Common
Stock
|
Common
Stock
|
Additional
Paid-in
Capital
|
Retained
Earnings
|
Accumulated
Other
Comprehensive
Loss
|
Total
|
|||||||||||||||||||
Balance
January 1, 2009
|
7,317,430 | $ | 7,318 | $ | 31,626 | $ | 13,937 | $ | (2,807 | ) | $ | 50,074 | ||||||||||||
Other
comprehensive income (loss):
|
||||||||||||||||||||||||
Net
loss
|
(4,338 | ) | (4,338 | ) | ||||||||||||||||||||
Unrealized
holding gain on securities of $893 (net of tax of $589) less
reclassification adjustment for net gains included in net
income of $277 (net of tax of $142)
|
1,628 | 1,628 | ||||||||||||||||||||||
Amortization
of unrecognized prior service costs and net (gains)/losses
|
(16 | ) | (16 | ) | ||||||||||||||||||||
Comprehensive
income (loss)
|
(2,726 | ) | ||||||||||||||||||||||
Issuance
of common stock
|
2,804,423 | 2,804 | 9,590 | 12,394 | ||||||||||||||||||||
Stock
compensation expense
|
39 | 39 | ||||||||||||||||||||||
|
|
|
|
|
|
|||||||||||||||||||
Balance
September 30, 2009
|
10,121,853 | $ | 10,122 | $ | 41,255 | $ | 9,599 | $ | (1,195 | ) | $ | 59,781 | ||||||||||||
Balance
January 1, 2010
|
10,121,853 | $ | 10,122 | $ | 41,270 | $ | 7,599 | $ | (1,342 | ) | $ | 57,649 | ||||||||||||
Other
comprehensive income:
|
||||||||||||||||||||||||
Net
income
|
1,616 | 1,616 | ||||||||||||||||||||||
Unrealized
holding gain on securities of $1,316 (net of tax of $869) less
reclassification adjustment for net gains included in net income of $265
(net of tax of $137)
|
1,051 | 1,051 | ||||||||||||||||||||||
Amortization
of unrecognized prior service costs and net (gains)/losses
|
56 | 56 | ||||||||||||||||||||||
Comprehensive
income
|
2,723 | |||||||||||||||||||||||
Stock
compensation expense
|
34 | 34 | ||||||||||||||||||||||
|
|
|
|
|
|
|||||||||||||||||||
Balance
September 30, 2010
|
10,121,853 | $ | 10,122 | $ | 41,304 | $ | 9,215 | $ | (235 | ) | $ | 60,406 |
Three Months Ended
September 30,
|
Nine Month Ended
September 30,
|
|||||||||||||||
2010
|
2009
|
2010
|
2009
|
|||||||||||||
Basic:
|
||||||||||||||||
Net
income (loss)
|
$ | 479 | $ | (1,759 | ) | $ | 1,616 | $ | (4,338 | ) | ||||||
Weighted
average shares outstanding
|
10,121,853 | 9,424,229 | 10,121,853 | 8,005,901 | ||||||||||||
Basic
earnings (loss) per share
|
$ | 0.05 | $ | (0.19 | ) | $ | 0.16 | $ | (0.54 | ) | ||||||
Diluted:
|
||||||||||||||||
Net
income (loss)
|
$ | 479 | $ | (1,759 | ) | $ | 1,616 | $ | (4,338 | ) | ||||||
Weighted
average shares outstanding
|
10,121,853 | 9,424,229 | 10,121,853 | 8,005,901 | ||||||||||||
Effect
of dilutive stock options
|
— | — | — | — | ||||||||||||
Weighted
average shares outstanding assuming dilution
|
10,121,853 | 9,424,229 | 10,121,853 | 8,005,901 | ||||||||||||
Diluted
earnings (loss) per share
|
$ | 0.05 | $ | (0.19 | ) | $ | 0.16 | $ | (0.54 | ) |
Securities Held-to-Maturity
|
Amortized
Cost
|
Unrealized
Gains
|
Unrealized
Losses
|
Fair
Value
|
||||||||||||
September
30, 2010
|
||||||||||||||||
State
and municipal securities
|
$ | 6,216 | $ | 134 | $ | — | $ | 6,350 | ||||||||
Agency
MBS
|
397 | 24 | — | 421 | ||||||||||||
Total
|
$ | 6,613 | $ | 158 | $ | — | $ | 6,771 | ||||||||
December
31, 2009
|
||||||||||||||||
State
and municipal securities
|
$ | 6,958 | $ | 124 | $ | — | $ | 7,082 | ||||||||
Agency
MBS
|
491 | 21 | — | 512 | ||||||||||||
Total
|
$ | 7,449 | $ | 145 | $ | — | $ | 7,594 |
Securities Available-for-Sale
|
Amortized
Cost
|
Unrealized
Gains
|
Unrealized
Losses
|
Fair
Value
|
||||||||||||
September
30, 2010
|
||||||||||||||||
U.S.
Government securities
|
$ | 1,113 | $ | 16 | $ | — | $ | 1,129 | ||||||||
State
and municipal securities
|
19,755 | 1,390 | — | 21,145 | ||||||||||||
Agency
MBS
|
7,784 | 200 | 13 | 7,971 | ||||||||||||
Non-agency
MBS
|
11,635 | 20 | 1,356 | 10,299 | ||||||||||||
Corporate
securities
|
3,016 | 44 | 13 | 3,047 | ||||||||||||
Total
|
$ | 43,303 | $ | 1,670 | $ | 1,382 | $ | 43,591 | ||||||||
December
31, 2009
|
||||||||||||||||
U.S.
Government securities
|
$ | 933 | $ | 40 | $ | — | $ | 973 | ||||||||
State
and municipal securities
|
21,294 | 821 | 35 | 22,080 | ||||||||||||
Agency
MBS
|
11,023 | 156 | 15 | 11,164 | ||||||||||||
Non-agency
MBS
|
16,731 | 121 | 2,392 | 14,460 | ||||||||||||
Mutual
funds
|
5,000 | — | — | 5,000 | ||||||||||||
Total
|
$ | 54,981 | $ | 1,138 | $ | 2,442 | $ | 53,677 |
Less than 12 Months
|
12 months or More
|
Total
|
||||||||||||||||||||||
Available-for-Sale
|
Fair
Value
|
Gross
Unrealized
Losses
|
Fair
Value
|
Gross
Unrealized
Losses
|
Fair
Value
|
Gross
Unrealized
Losses
|
||||||||||||||||||
September
30, 2010
|
||||||||||||||||||||||||
Agency
MBS
|
$ | 1,031 | $ | 13 | $ | — | $ | — | $ | 1,031 | $ | 13 | ||||||||||||
Non-agency
MBS
|
2,506 | 87 | 6,912 | 1,269 | 9,418 | 1,356 | ||||||||||||||||||
Corporate
securities
|
1,011 | 13 | — | — | 1,011 | 13 | ||||||||||||||||||
Total
|
$ | 4,548 | $ | 113 | $ | 6,912 | $ | 1,269 | $ | 11,460 | $ | 1,382 | ||||||||||||
December
31, 2009
|
||||||||||||||||||||||||
State
and municipal securities
|
$ | 1,835 | $ | 2 | $ | 2,638 | $ | 33 | $ | 4,473 | $ | 35 | ||||||||||||
Agency
MBS
|
1,408 | 15 | — | — | 1,408 | 15 | ||||||||||||||||||
Non-agency
MBS
|
4,530 | 347 | 7,778 | 2,045 | 12,308 | 2,392 | ||||||||||||||||||
Total
|
$ | 7,773 | $ | 364 | $ | 10,416 | $ | 2,078 | $ | 18,189 | $ | 2,442 |
September 30,
2010
|
December 31,
2009
|
|||||||
Commercial
and industrial
|
$ | 90,836 | $ | 93,125 | ||||
Real
estate:
|
||||||||
Construction
and land development
|
52,615 | 64,812 | ||||||
Residential
1-4 family
|
101,416 | 91,821 | ||||||
Multi-family
|
9,058 | 8,605 | ||||||
Commercial
real estate – owner occupied
|
106,950 | 105,663 | ||||||
Commercial
real estate – non owner occupied
|
94,932 | 99,521 | ||||||
Farmland
|
22,934 | 22,824 | ||||||
Installment
|
9,040 | 9,145 | ||||||
Less
unearned income
|
(857 | ) | (881 | ) | ||||
Total
Loans
|
$ | 486,924 | $ | 494,635 |
Three Months
Ended
September 30,
|
Nine Months
Ended
September 30,
|
Twelve Months
Ended
Ended December 31,
|
||||||||||||||||||
2010
|
2009
|
2010
|
2009
|
2009
|
||||||||||||||||
Balance
at beginning of period
|
$ | 11,244 | $ | 10,203 | $ | 11,092 | $ | 7,623 | $ | 7,623 | ||||||||||
Provision
for credit losses
|
850 | 3,170 | 2,850 | 8,544 | 9,944 | |||||||||||||||
Charge-offs
|
(639 | ) | (1,808 | ) | (2,507 | ) | (4,616 | ) | (6,524 | ) | ||||||||||
Recoveries
|
56 | 15 | 76 | 29 | 49 | |||||||||||||||
Net
charge-offs
|
(583 | ) | (1,793 | ) | (2,431 | ) | (4,587 | ) | (6,475 | ) | ||||||||||
Balance
at end of period
|
$ | 11,511 | $ | 11,580 | $ | 11,511 | $ | 11,580 | $ | 11,092 |
September 30, 2010
|
December 31, 2009
|
|||||||
Impaired
loans without a valuation allowance
|
$ | 9,609 | $ | 22,776 | ||||
Impaired
loans with a valuation allowance
|
749 | 2,962 | ||||||
Total
impaired loans
|
$ | 10,358 | $ | 25,738 | ||||
Valuation
allowance related to impaired loans
|
375 | 638 | ||||||
Average
investment in impaired loans
|
$ | 18,861 | $ | 28,725 |
Grant period ended
|
Expected
Life
|
Risk Free
Interest Rate
|
Expected
Volatility
|
Dividend
Yield
|
Average
Fair Value
|
||||||||||||
September
30, 2010
|
6.5 years
|
3.20 | % | 18.95 | % | — | % | $ | 0.34 |
Shares
|
Weighted
Average
Exercise Price
|
Weighted
Average
Remaining
Contractual
Term ( Years)
|
Aggregate
Intrinsic
Value
|
|||||||||||||
September
30, 2010
|
||||||||||||||||
Outstanding
beginning of period
|
820,837 | $ | 11.08 | |||||||||||||
Granted
|
1,000 | 7.00 | ||||||||||||||
Exercised
|
— | — |
|
|||||||||||||
Forfeited
|
(3,225 | ) | 11.27 | |||||||||||||
Outstanding
end of period
|
818,612 | $ | 11.07 | 4.6 | $ | — | ||||||||||
Exercisable
end of period
|
554,727 | $ | 12.43 | 2.7 | $ | — | ||||||||||
September
30, 2009
|
||||||||||||||||
Outstanding
beginning of period
|
684,527 | $ | 12.58 | |||||||||||||
Granted
|
— | — | ||||||||||||||
Exercised
|
— | — | ||||||||||||||
Forfeited
|
(42,130 | ) | 13.76 | |||||||||||||
Outstanding
end of period
|
642,397 | $ | 12.50 | 3.8 | $ | — | ||||||||||
Exercisable
end of period
|
560,832 | $ | 12.35 | 3.3 | $ | — |
2010
|
2009
|
|||||||||||||||
Shares
|
Weighted
Average Fair
Value
|
Shares
|
Weighted
Average Fair
Value
|
|||||||||||||
Non-vested
beginning of period
|
290,915 | $ | 0.60 | 126,940 | $ | 1.62 | ||||||||||
Granted
|
1,000 | 0.34 | — | — | ||||||||||||
Vested
|
(25,850 | ) | 1.89 | (26,235 | ) | 1.87 | ||||||||||
Forfeited
|
(2,180 | ) | 0.67 | (19,140 | ) | 1.50 | ||||||||||
Non-vested
end of period
|
263,885 | $ | 0.47 | 81,565 | $ | 1.56 |
September 30,
|
December 31,
|
|||||||
2010
|
2009
|
|||||||
Commitments
to extend credit
|
$ | 84,123 | $ | 71,435 | ||||
Standby
letters of credit
|
1,030 | 1,164 |
Readily Available
Market Prices
Level 1
|
Observable
Inputs
Level 2
|
Significant
Unobservable
Inputs
Level 3
|
Total
|
|||||||||||||
September 30, 2010
|
||||||||||||||||
Securities
available-for-sale
|
||||||||||||||||
U.S.
Government securities
|
$ | — | $ | 1,129 | $ | — | $ | 1,129 | ||||||||
State
and municipal securities
|
— | 19,634 | 1,511 | 21,145 | ||||||||||||
Agency
MBS
|
— | 7,971 | — | 7,971 | ||||||||||||
Non-agency
MBS
|
— | 10,299 | — | 10,299 | ||||||||||||
Corporate
securities
|
2,037 | 1,010 | — | 3,047 | ||||||||||||
Total
|
$ | 2,037 | $ | 40,043 | $ | 1,511 | $ | 43,591 | ||||||||
December
31, 2009
|
||||||||||||||||
Securities
available-for-sale
|
||||||||||||||||
U.S.
Government securities
|
$ | — | $ | 973 | $ | — | $ | 973 | ||||||||
State
and municipal securities
|
— | 20,487 | 1,593 | 22,080 | ||||||||||||
Agency
MBS
|
— | 11,164 | — | 11,164 | ||||||||||||
Non-agency
MBS
|
— | 14,460 | — | 14,460 | ||||||||||||
Mutual
Funds
|
5,000 | — | — | 5,000 | ||||||||||||
Total
|
$ | 5,000 | $ | 47,084 | $ | 1,593 | $ | 53,677 |
Beginning
balance
|
$ | 1,593 | ||
Included
in other comprehensive loss
|
(82 | ) | ||
Balance
at September 30, 2010
|
$ | 1,511 |
Readily Available
Market Prices
Level 1
|
Observable
Inputs
Level 2
|
Significant
Unobservable
Inputs
Level 3
|
Total
|
|||||||||||||
September
30, 2010
|
||||||||||||||||
Impaired
loans
|
$ | — | $ | — | $ | 840 | $ | 840 | ||||||||
OREO
|
$ | — | $ | — | $ | 7,175 | $ | 7,175 | ||||||||
December
31, 2009
|
||||||||||||||||
Loans
held for sale
|
$ | — | $ | 12,389 | $ | — | $ | 12,389 | ||||||||
Impaired
loans
|
$ | — | $ | — | $ | 7,987 | $ | 7,987 | ||||||||
OREO
|
$ | — | $ | — | $ | 7,285 | $ | 7,285 |
2010
|
2009
|
|||||||||||||||
Carrying
|
Fair
|
Carrying
|
Fair
|
|||||||||||||
Amount
|
Value
|
Amount
|
Value
|
|||||||||||||
Financial
Assets
|
||||||||||||||||
Cash
and due from banks, interest-bearing deposits in banks,
and federal funds sold
|
$ | 36,068 | $ | 36,068 | $ | 52,904 | $ | 52,904 | ||||||||
Investment
securities available for sale
|
43,591 | 43,591 | 53,677 | 53,677 | ||||||||||||
Investment
securities held to maturity
|
6,613 | 6,771 | 7,449 | 7,594 | ||||||||||||
Loans
held for sale
|
20,339 | 20,562 | 12,389 | 12,389 | ||||||||||||
Loans,
net
|
455,074 | 425,885 | 471,154 | 397,151 | ||||||||||||
Financial
Liabilities
|
||||||||||||||||
Deposits
|
$ | 534,239 | $ | 535,889 | $ | 567,695 | $ | 569,391 | ||||||||
Short-term
borrowings
|
10,500 | 10,816 | 4,500 | 4,601 | ||||||||||||
Long-term
borrowings
|
10,500 | 10,909 | 21,000 | 21,554 | ||||||||||||
Secured
borrowings
|
939 | 939 | 977 | 977 | ||||||||||||
Junior
subordinated debentures
|
13,403 | 7,249 | 13,403 | 6,412 |
|
·
|
The
Company reported its third consecutive quarter of profitability with net
income for the three and nine months ended September 30, 2010 of $479,000
and $1,616,000, respectively, representing increases of $2,238,000 and
$5,954,000, compared to net losses of $(1,759,000) and $(4,338,000) for
the same periods in 2009. The increase was primarily related to an
improvement in net interest margin and a decrease in provision for credit
losses.
|
|
·
|
Return
on average assets and return on average equity were 0.33% and 3.68%,
respectively, for the nine months ended September 30, 2010, compared to
(0.88%) and (11.00%), respectively, for the same periods in
2009.
|
|
·
|
Net
interest income increased $203,000 for the three months ended September
30, 2010 to $5,743,000 compared to the same period of the prior year. Net
interest income increased $967,000 for the nine months ended September 30,
2010 to $17,125,000 compared to the same period of the prior year. The
increase is primarily the result of a decrease in funding costs. Net
interest margin improved to 3.95% for the nine months ended September 30,
2010 compared to 3.60% one year
ago.
|
|
·
|
The
Bank remains well capitalized with a total risk-based capital ratio of
14.30% at September 30, 2010, compared to 13.07% at December 31,
2009.
|
|
·
|
Total
assets were $634,278,000 at September 30, 2010, a decrease of $34,348,000,
or 5.14%, over year-end 2009. Reduction in construction and land
development loans as well as decreases in interest bearing deposits in
banks and investments, which were used to fund brokered deposit run-off,
were the primary contributors to the overall asset
decline.
|
|
·
|
Non-performing
assets (“NPAs”) decreased during the quarter and totaled $16,279,000 at
September 30, 2010, which represents 2.57% of total assets, and is a
decrease from $17,531,000 at June 30, 2010 and a decrease from September
30, 2009 when NPAs were $27,008,000. NPAs are now at the lowest level in
over two years.
|
|
·
|
Provision
for credit losses decreased to $850,000 and $2,850,000 for the three and
nine months ended September 30, 2010, respectively, compared to $3,170,000
and $8,544,000 for the same periods one year ago. The allowance for credit
losses increased to 2.36% of total loans (including loans held for sale)
compared to 2.24% at year-end 2009.
|
|
·
|
The
Company continues to be successful in reducing overall exposure to
construction and land development loans. This segment of the portfolio,
totaling $52.6 million at September 30, 2010, accounts for approximately
10.8% of the total loan portfolio (including loans held for sale), as
opposed to $83.0 million and 16.8% one year
ago.
|
|
·
|
Total
deposits decreased $33,456,000, or 5.89%, for the nine months ended
September 30, 2010, compared to December 31, 2009. Due to excess
liquidity, management’s strategy was to reduce higher cost time deposits,
including brokered deposits, in order to improve the cost of funds and net
interest margin. The Company’s liquidity ratio of approximately 41% at
September 30, 2010 remains strong and translates into over $259 million in
available funding to meet loan and deposit
needs.
|
2010
|
2009
|
|||||||||||||||||||||||
Interest
|
Interest
|
|||||||||||||||||||||||
Average
|
Income
|
Avg
|
Average
|
Income
|
Avg
|
|||||||||||||||||||
(dollars
in thousands)
|
Balance
|
(Expense)
|
Rate
|
Balance
|
(Expense)
|
Rate
|
||||||||||||||||||
Interest
Earning Assets
|
||||||||||||||||||||||||
Loans
(1)
|
$ | 479,207 | $ | 7,169 | * | 5.98 | % | $ | 494,370 | $ | 7,582 | * |
6.13
|
% | ||||||||||
Taxable
securities
|
24,758 | 275 | 4.44 | 35,823 | 486 | 5.43 | ||||||||||||||||||
Tax-exempt
securities
|
23,826 | 366 | * | 6.14 | 25,296 | 402 | * | 6.36 | ||||||||||||||||
Federal
Home Loan Bank Stock
|
3,183 | — | — | 3,183 | — | — | ||||||||||||||||||
Interest
earning balances with banks
|
35,992 | 29 | 0.32 | 51,113 | 43 | 0.34 | ||||||||||||||||||
Total
interest earning assets
|
$ | 566,966 | $ | 7,839 | 5.53 | % | $ | 609,785 | $ | 8,513 | 5.58 | % | ||||||||||||
Cash
and due from banks
|
11,006 | 10,791 | ||||||||||||||||||||||
Bank
premises and equipment (net)
|
15,507 | 16,383 | ||||||||||||||||||||||
Other
real estate owned
|
8,667 | 10,348 | ||||||||||||||||||||||
Other
assets
|
44,326 | 36,125 | ||||||||||||||||||||||
Allowance
for credit losses
|
(11,524 | ) | (10,223 | ) | ||||||||||||||||||||
Total
assets
|
$ | 634,948 | $ | 673,209 | ||||||||||||||||||||
Interest
Bearing Liabilities
|
||||||||||||||||||||||||
Savings
and interest bearing demand
|
$ | 236,125 | $ | (425 | ) | 0.72 | % | $ | 211,003 | $ | (444 | ) | 0.84 | % | ||||||||||
Time
deposits
|
211,979 | (1,125 | ) | 2.12 | 276,317 | (1,911 | ) | 2.77 | ||||||||||||||||
Total
deposits
|
448,104 | (1,550 | ) | 1.38 | 487,320 | (2,355 | ) | 1.93 | ||||||||||||||||
Short-term
borrowings
|
8 | — | — | — | — | — | ||||||||||||||||||
Long-term
borrowings
|
21,261 | (196 | ) | 3.69 | 28,304 | (260 | ) | 3.67 | ||||||||||||||||
Secured
borrowings
|
945 | (15 | ) | 6.35 | 995 | (17 | ) | 6.83 | ||||||||||||||||
Junior
subordinated debentures
|
13,403 | (127 | ) | 3.79 | 13,403 | (130 | ) | 3.88 | ||||||||||||||||
Total
borrowings
|
35,617 | (338 | ) | 3.80 | 42,702 | (407 | ) | 3.81 | ||||||||||||||||
Total
interest-bearing liabilities
|
$ | 483,721 | $ | (1,888 | ) | 1.56 | % | $ | 530,022 | $ | (2,762 | ) | 2.08 | % | ||||||||||
Demand
deposits
|
87,066 | 82,793 | ||||||||||||||||||||||
Other
liabilities
|
4,129 | 3,667 | ||||||||||||||||||||||
Shareholders’
equity
|
60,032 | 56,727 | ||||||||||||||||||||||
Total
liabilities and shareholders’ equity
|
$ | 634,948 | $ | 673,209 | ||||||||||||||||||||
Net
interest income
|
$ | 5,951 | * | $ | 5,751 | * | ||||||||||||||||||
Net
interest spread
|
4.20 | % | 3.77 | % | ||||||||||||||||||||
Net
interest margin
|
4.05 | % | 3.63 | % | ||||||||||||||||||||
Tax
equivalent adjustment
|
$ | 208 | * | $ | 211 | * |
2010
|
2009
|
|||||||||||||||||||||||
Interest
|
Interest
|
|||||||||||||||||||||||
Average
|
Income
|
Avg
|
Average
|
Income
|
Avg
|
|||||||||||||||||||
(dollars in thousands)
|
Balance
|
(Expense)
|
Rate
|
Balance
|
(Expense)
|
Rate
|
||||||||||||||||||
Interest
Earning Assets
|
||||||||||||||||||||||||
Loans
(1)
|
$ | 486,996 | $ | 21,734 | * | 5.95 | % | $ | 502,193 | $ | 22,677 | * | 6.02 | % | ||||||||||
Taxable
securities
|
26,782 | 976 | 4.86 | 34,217 | 1,448 | 5.64 | ||||||||||||||||||
Tax-exempt
securities
|
24,685 | 1,136 | * | 6.14 | 24,700 | 1,176 | * | 6.35 | ||||||||||||||||
Federal
Home Loan Bank Stock
|
3,183 | — | — | 3,119 | — | — | ||||||||||||||||||
Interest
earning balances with banks
|
37,016 | 92 | 0.33 | 34,241 | 71 | 0.28 | ||||||||||||||||||
Total
interest earning assets
|
$ | 578,662 | $ | 23,938 | 5.52 | % | $ | 598,470 | $ | 25,372 | 5.65 | % | ||||||||||||
Cash
and due from banks
|
10,442 | 10,455 | ||||||||||||||||||||||
Bank
premises and equipment (net)
|
15,679 | 16,520 | ||||||||||||||||||||||
Other
real estate owned
|
7,892 | 8,476 | ||||||||||||||||||||||
Other
assets
|
43,798 | 31,459 | ||||||||||||||||||||||
Allowance
for credit losses
|
(11,476 | ) | (8,898 | ) | ||||||||||||||||||||
Total
assets
|
$ | 644,997 | $ | 656,482 | ||||||||||||||||||||
Interest
Bearing Liabilities
|
||||||||||||||||||||||||
Savings
and interest bearing demand
|
$ | 232,591 | $ | (1,301 | ) | 0.75 | % | $ | 205,413 | $ | (1,356 | ) | 0.88 | % | ||||||||||
Time
deposits
|
228,400 | (3,817 | ) | 2.23 | 269,330 | (5,840 | ) | 2.89 | ||||||||||||||||
Total
deposits
|
460,991 | (5,118 | ) | 1.48 | 474,743 | (7,196 | ) | 2.02 | ||||||||||||||||
Short-term
borrowings
|
3 | — | — | 4,154 | (26 | ) | 0.83 | |||||||||||||||||
Long-term
borrowings
|
23,907 | (656 | ) | 3.66 | 33,736 | (928 | ) | 3.67 | ||||||||||||||||
Secured
borrowings958
|
(46 | ) | 6.40 | 1,325 | (59 | ) | 5.94 | |||||||||||||||||
Junior
subordinated debentures
|
13,403 | (372 | ) | 3.70 | 13,403 | (413 | ) | 4.11 | ||||||||||||||||
Total
borrowings
|
38,271 | (1,074 | ) | 3.74 | 52,618 | (1,426 | ) | 3.61 | ||||||||||||||||
Total
interest-bearing liabilities
|
$ | 499,262 | $ | (6,192 | ) | 1.65 | % | $ | 527,361 | $ | (8,622 | ) | 2.18 | % | ||||||||||
Demand
deposits
|
83,002 | 74,795 | ||||||||||||||||||||||
Other
liabilities
|
4,154 | 1,695 | ||||||||||||||||||||||
Shareholders’
equity
|
58,579 | 52,631 | ||||||||||||||||||||||
Total
liabilities and shareholders’ equity
|
$ | 644,997 | $ | 656,482 | ||||||||||||||||||||
Net
interest income
|
$ | 17,746 | * | $ | 16,750 | * | ||||||||||||||||||
Net
interest spread
|
4.09 | % | 3.73 | % | ||||||||||||||||||||
Net
interest margin
|
3.95 | % | 3.60 | % | ||||||||||||||||||||
Tax
equivalent adjustment
|
$ | 621 | * | $ | 592 | * |
September
|
June
|
March
|
December
|
September
|
||||||||||||||||
(dollars in thousands)
|
30, 2010
|
30, 2010
|
31, 2010
|
31, 2009
|
30, 2009
|
|||||||||||||||
Loans
past due 30 days or more
|
$ | 6,119 | $ | 10,038 | $ | 12,105 | $ | 16,126 | $ | 18,038 | ||||||||||
%
of total loans
|
1.3 | % | 2.1 | % | 2.5 | % | 3.3 | % | 3.7 | % | ||||||||||
Impaired
loans
|
10,358 | 14,619 | 24,729 | 25,738 | 29,398 | |||||||||||||||
%
of total loans
|
2.1 | % | 3.0 | % | 5.0 | % | 5.2 | % | 6.1 | % | ||||||||||
Non-performing
assets
|
16,279 | 17,531 | 22,944 | 22,859 | 27,008 | |||||||||||||||
%
of total assets
|
2.6 | % | 2.7 | % | 3.5 | % | 3.4 | % | 4.0 | % |
SUMMARY OF NON-PERFORMING ASSETS
(in thousands)
|
September 30,
2010
|
December 31,
2009
|
September 30,
2009
|
|||||||||
Accruing
loans past due 90 days or more
|
$ | — | $ | 547 | $ | 793 | ||||||
Non-accrual
loans:
|
||||||||||||
Construction,
land development and other land loans
|
2,299 | 9,886 | 11,090 | |||||||||
Residential
real estate 1-4 family
|
1,142 | 1,323 | 1,140 | |||||||||
Multi-family
real estate
|
— | 353 | — | |||||||||
Commercial
real estate
|
1,613 | 2,949 | 2,156 | |||||||||
Farmland
|
186 | 87 | — | |||||||||
Consumer
|
— | — | — | |||||||||
Commercial
and industrial
|
1,350 | 1,049 | 1,636 | |||||||||
Total
non-accrual loans (2)
|
6,590 | 15,647 | 16,022 | |||||||||
Total
non-performing loans
|
6,590 | 16,194 | 16,815 | |||||||||
OREO
|
9,651 | 6,665 | 10,193 | |||||||||
Repossessed
assets
|
38 | — | — | |||||||||
Total
Non-Performing Assets
|
$ | 16,279 | $ | 22,859 | $ | 27,008 | ||||||
Allowance
for credit losses to non-performing loans
|
174.67 | % | 68.49 | % | 68.87 | % | ||||||
Allowance
for credit losses to non-performing assets
|
70.71 | % | 48.52 | % | 42.88 | % | ||||||
Non-performing
loans to total loans (1)
|
1.41 | % | 3.36 | % | 3.46 | % | ||||||
Non-performing
assets to total assets
|
2.57 | % | 3.42 | % | 3.96 | % |
(1)
|
excludes
loans held for sale
|
(2)
|
Includes
$1,025,000 in non-accrual troubled debt restructured loans (“TDRs”) as of
September 30, 2010, and are also considered impaired loans. There were no
TDRS as of December 31, 2009 or September 30,
2009.
|
September 30,
2010
|
December 31,
2009
|
|||||||
Commercial
and industrial
|
$ | 90,836 | $ | 93,125 | ||||
Real
estate:
|
||||||||
Construction
and land development
|
52,615 | 64,812 | ||||||
Residential
1-4 family
|
101,416 | 91,821 | ||||||
Multi-family
|
9,058 | 8,605 | ||||||
Commercial
real estate – owner occupied
|
106,950 | 105,663 | ||||||
Commercial
real estate – non owner occupied
|
94,932 | 99,521 | ||||||
Farmland
|
22,934 | 22,824 | ||||||
Installment
|
9,040 | 9,145 | ||||||
Less
unearned income
|
(857 | ) | (881 | ) | ||||
Total
Loans
|
486,924 | 494,635 | ||||||
Allowance
for credit losses
|
11,511 | 11,092 | ||||||
Net
Loans
|
$ | 475,413 | $ | 483,543 |
September 30,
2010
|
December 31,
2009
|
|||||||
Demand,
non-interest bearing
|
$ | 90,537 | $ | 86,046 | ||||
Interest
bearing demand
|
102,525 | 91,968 | ||||||
Money
market
|
85,346 | 86,260 | ||||||
Savings
|
53,031 | 51,053 | ||||||
Time,
interest bearing
|
202,800 | 252,368 | ||||||
Total
deposits
|
$ | 534,239 | $ | 567,695 |
Company
|
Bank
|
Requirements
|
||||||||||||||||||||||
September
30, 2010
|
December
31, 2009
|
September
30, 2010
|
December
31, 2009
|
Adequately
Capitalized
|
Well
Capitalized
|
|||||||||||||||||||
Tier
1 leverage ratio
|
9.82 | % | 9.06 | % | 9.88 | % | 9.03 | % | 4 | % | 5 | % | ||||||||||||
Tier
1 risk-based capital ratio
|
12.93 | % | 11.84 | % | 13.03 | % | 11.81 | % | 4 | % | 6 | % | ||||||||||||
Total
risk-based capital ratio
|
14.20 | % | 13.10 | % | 14.30 | % | 13.07 | % | 8 | % | 10 | % |
ITEM
1.
|
LEGAL
PROCEEDINGS
|
ITEM
1A.
|
RISK
FACTORS
|
ITEM
2.
|
UNREGISTERED
SALES OF EQUITY SECURITIES AND USE OF
PROCEEDS
|
ITEM
3.
|
DEFAULTS
UPON SENIOR SECURITIES
|
ITEM
4.
|
[Reserved]
|
ITEM
5.
|
OTHER
INFORMATION
|
ITEM
6.
|
EXHIBITS
|
PACIFIC
FINANCIAL CORPORATION
|
||
DATED:
November 12, 2010
|
By:
|
/s/ Dennis A. Long
|
Dennis
A. Long
|
||
Chief
Executive Officer
|
||
By:
|
/s/ Denise Portmann
|
|
Denise
Portmann
|
||
Chief
Financial Officer
|
EXHIBIT NO.
|
EXHIBIT
|
|
31.1
|
Certification
of CEO under Rule 13a – 14(a) of the Exchange Act.
|
|
31.2
|
Certification
of CFO under Rule 13a – 14(a) of the Exchange Act.
|
|
32
|
|
Certification
of CEO and CFO under 18 U.S.C. Section
1350.
|