x |
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
|
o |
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
|
California
|
77-0446957
|
|
(State or other jurisdiction of incorporation or organization)
|
(I.R.S. Employer Identification No.)
|
445 Pine Avenue, Goleta, California
|
93117
|
|
(Address of principal executive offices)
|
(Zip Code)
|
Accelerated filer o
|
||
Non-accelerated filer o (Do not check if a smaller reporting company)
|
Smaller reporting company x
|
PART I.
|
FINANCIAL INFORMATION
|
PAGE
|
ITEM 1.
|
FINANCIAL STATEMENTS (UNAUDITED)
|
|
3
|
||
4
|
||
5
|
||
6
|
||
7
|
||
8
|
||
The financial statements included in this Form 10-Q should be read in conjunction with Community West Bancshares’ Annual Report on Form 10-K for the fiscal year ended December 31, 2011. | ||
ITEM 2.
|
34
|
|
ITEM 3.
|
49
|
|
ITEM 4.
|
49
|
|
PART II.
|
OTHER INFORMATION
|
|
ITEM 1.
|
49
|
|
ITEM 1A.
|
49
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ITEM 3.
|
52
|
|
ITEM 6.
|
52
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|
54
|
September 30,
|
December 31,
|
|||||||
(in thousands, except shares)
|
2012
|
2011
|
||||||
Assets
|
||||||||
Cash and due from banks
|
$ | 32,281 | $ | 22,547 | ||||
Federal funds sold
|
25 | 25 | ||||||
Cash and cash equivalents
|
32,306 | 22,572 | ||||||
Time and interest-bearing deposits in other financial institutions
|
3,890 | 347 | ||||||
Investment securities available-for-sale, at fair value; amortized cost of $11,930 at September 30, 2012 and $23,350 at December 31, 2011
|
12,001 | 23,588 | ||||||
Investment securities held-to-maturity, at amortized cost; fair value of $13,637 at September 30, 2012 and $16,067 at December 31, 2011
|
12,822 | 15,335 | ||||||
Federal Home Loan Bank stock, at cost
|
3,618 | 4,214 | ||||||
Federal Reserve Bank stock, at cost
|
1,343 | 1,343 | ||||||
Loans:
|
||||||||
Loans held for sale, at lower of cost or fair value
|
62,894 | 77,303 | ||||||
Loans held for investment, net of allowance for loan losses of $15,055 at September 30, 2012 and $15,270 at December 31, 2011
|
397,044 | 455,413 | ||||||
Total loans
|
459,938 | 532,716 | ||||||
Foreclosed real estate and repossessed assets
|
3,761 | 6,701 | ||||||
Premises and equipment, net
|
3,112 | 3,090 | ||||||
Other assets
|
24,005 | 23,442 | ||||||
Total assets
|
$ | 556,796 | $ | 633,348 | ||||
Liabilities
|
||||||||
Deposits:
|
||||||||
Non-interest-bearing demand
|
$ | 54,466 | $ | 49,894 | ||||
Interest-bearing demand
|
274,894 | 289,796 | ||||||
Savings
|
16,443 | 19,429 | ||||||
Time deposits
|
114,163 | 152,143 | ||||||
Total deposits
|
459,966 | 511,262 | ||||||
Other borrowings
|
34,000 | 61,000 | ||||||
Convertible debentures
|
7,852 | 7,852 | ||||||
Other liabilities
|
4,165 | 2,608 | ||||||
Total liabilities
|
505,983 | 582,722 | ||||||
Stockholders' equity
|
||||||||
Preferred stock, no par value; 10,000,000 shares authorized; 15,600 shares issued and outstanding
|
15,275 | 15,074 | ||||||
Common stock, no par value; 20,000,000 shares authorized; 5,989,510 shares issued and outstanding at September 30, 2012 and December 31, 2011
|
33,449 | 33,422 | ||||||
Retained earnings
|
2,047 | 1,991 | ||||||
Accumulated other comprehensive income, net
|
42 | 139 | ||||||
Total stockholders' equity
|
50,813 | 50,626 | ||||||
Total liabilities and stockholders' equity
|
$ | 556,796 | $ | 633,348 |
Three months ended
|
Nine months ended
|
|||||||||||||||
September 30,
|
September 30,
|
|||||||||||||||
(in thousands, except per share amounts)
|
2012
|
2011
|
2012
|
2011
|
||||||||||||
Interest income
|
||||||||||||||||
Loans
|
$ | 7,324 | $ | 8,500 | $ | 23,236 | $ | 26,409 | ||||||||
Investment securities and other
|
188 | 268 | 631 | 825 | ||||||||||||
Total interest income
|
7,512 | 8,768 | 23,867 | 27,234 | ||||||||||||
Interest expense
|
||||||||||||||||
Deposits
|
970 | 1,414 | 3,287 | 4,556 | ||||||||||||
Other borrowings and convertible debentures
|
433 | 575 | 1,386 | 1,744 | ||||||||||||
Total interest expense
|
1,403 | 1,989 | 4,673 | 6,300 | ||||||||||||
Net interest income
|
6,109 | 6,779 | 19,194 | 20,934 | ||||||||||||
Provision for loan losses
|
1,293 | 4,511 | 5,176 | 8,651 | ||||||||||||
Net interest income after provision for loan losses
|
4,816 | 2,268 | 14,018 | 12,283 | ||||||||||||
Non-interest income
|
||||||||||||||||
Other loan fees
|
302 | 345 | 847 | 986 | ||||||||||||
Gains from loan sales, net
|
366 | 104 | 1,521 | 271 | ||||||||||||
Document processing fees
|
109 | 99 | 283 | 312 | ||||||||||||
Loan servicing, net
|
105 | 90 | 180 | 290 | ||||||||||||
Service charges
|
98 | 122 | 327 | 366 | ||||||||||||
Other
|
77 | 41 | 300 | 129 | ||||||||||||
Total non-interest income
|
1,057 | 801 | 3,458 | 2,354 | ||||||||||||
Non-interest expenses
|
||||||||||||||||
Salaries and employee benefits
|
2,899 | 3,079 | 8,526 | 8,895 | ||||||||||||
Occupancy and equipment expenses
|
451 | 487 | 1,365 | 1,486 | ||||||||||||
FDIC assessment
|
311 | 217 | 1,046 | 741 | ||||||||||||
Professional services
|
372 | 306 | 993 | 757 | ||||||||||||
Advertising and marketing
|
59 | 76 | 218 | 287 | ||||||||||||
Depreciation and amortization
|
78 | 93 | 231 | 286 | ||||||||||||
Loss on sale and write-down of foreclosed real estate and repossessed assets
|
189 | 1,361 | 969 | 2,019 | ||||||||||||
Data processing
|
127 | 138 | 407 | 393 | ||||||||||||
Other operating expenses
|
774 | 1,228 | 2,880 | 3,045 | ||||||||||||
Total non-interest expenses
|
5,260 | 6,985 | 16,635 | 17,909 | ||||||||||||
Income (loss) before provision for income taxes
|
613 | (3,916 | ) | 841 | (3,272 | ) | ||||||||||
Benefit for income taxes
|
- | (1,609 | ) | - | (1,340 | ) | ||||||||||
Net income (loss)
|
$ | 613 | $ | (2,307 | ) | $ | 841 | $ | (1,932 | ) | ||||||
Dividends and accretion on preferred stock
|
253 | 261 | 785 | 785 | ||||||||||||
Net income (loss) applicable to common stockholders
|
$ | 360 | $ | (2,568 | ) | $ | 56 | $ | (2,717 | ) | ||||||
Earnings (loss) per common share:
|
||||||||||||||||
Basic
|
$ | .06 | $ | (0.43 | ) | $ | .01 | $ | (0.45 | ) | ||||||
Diluted
|
$ | .06 | $ | (0.43 | ) | $ | .01 | $ | (0.45 | ) | ||||||
Basic weighted average number of common shares outstanding
|
5,990 | 5,988 | 5,990 | 5,977 | ||||||||||||
Diluted weighted average number of common shares outstanding
|
8,233 | 5,988 | 8,233 | 5,977 |
Three months ended
|
Nine months ended
|
|||||||||||||||
September 30,
|
September 30,
|
|||||||||||||||
(in thousands)
|
2012
|
2011
|
2012
|
2011
|
||||||||||||
Net income (loss)
|
$ | 613 | $ | (2,307 | ) | $ | 841 | $ | (1,932 | ) | ||||||
Other comprehensive loss, net of tax:
|
||||||||||||||||
Net unrealized gain (loss) on securities available-for-sale
|
7 | 9 | (97 | ) | (34 | ) | ||||||||||
Comprehensive income (loss)
|
$ | 620 | $ | (2,298 | ) | $ | 744 | $ | (1,966 | ) |
Preferred
|
Common Stock
|
Retained
|
Accumulated
Other
Comprehensive
|
Total
Stockholders’
|
||||||||||||||||||||
Stock
|
Shares |
Amount
|
Earnings
|
Income (Loss)
|
Equity
|
|||||||||||||||||||
(in thousands)
|
|
|||||||||||||||||||||||
Balances at
|
|
|
|
|
|
|
||||||||||||||||||
January 1, 2012
|
$ | 15,074 | 5,990 | $ | 33,422 | $ | 1,991 | $ | 139 | $ | 50,626 | |||||||||||||
Stock option expense, recognized in earnings
|
27 | 27 | ||||||||||||||||||||||
Comprehensive income:
|
||||||||||||||||||||||||
Net income
|
841 | 841 | ||||||||||||||||||||||
Change in unrealized gain (loss) Securities available-for-sale, net
|
(97 | ) | (97 | ) | ||||||||||||||||||||
Dividends and accretion on preferred stock
|
201 | (785 | ) | (584 | ) | |||||||||||||||||||
Balances at
|
||||||||||||||||||||||||
September 30, 2012
|
$ | 15,275 | 5,990 | $ | 33,449 | $ | 2,047 | $ | 42 | $ | 50,813 |
Community West Bancshares
|
||||||||||||||||||||||||
Consolidated Statement of Stockholders’ Equity
|
||||||||||||||||||||||||
Preferred
|
Common Stock
|
Retained
|
Accumulated
Other
Comprehensive
|
Total
Stockholders’
|
||||||||||||||||||||
Stock
|
Shares | Amount |
Earnings
|
Income (Loss)
|
Equity
|
|||||||||||||||||||
(in thousands)
|
|
|||||||||||||||||||||||
Balances at
|
|
|
|
|
|
|
||||||||||||||||||
January 1, 2011
|
$ | 14,807 | 5,916 | $ | 33,133 | $ | 13,523 | $ | 179 | $ | 61,642 | |||||||||||||
Stock option expense, recognized in earnings
|
22 | 22 | ||||||||||||||||||||||
Conversion of debentures
|
66 | 231 | 231 | |||||||||||||||||||||
Exercise of stock options
|
8 | 25 | 25 | |||||||||||||||||||||
Comprehensive income:
|
||||||||||||||||||||||||
Net income
|
(1,932 | ) | (1,932 | ) | ||||||||||||||||||||
Change in unrealized gain (loss) Securities available-for-sale, net
|
(34 | ) | (34 | ) | ||||||||||||||||||||
Dividends and accretion on preferred stock
|
200 | (785 | ) | (585 | ) | |||||||||||||||||||
Balances at
|
||||||||||||||||||||||||
September 30, 2011
|
$ | 15,007 | 5,990 | $ | 33,411 | $ | 10,806 | $ | 145 | $ | 59,369 |
Nine Months Ended September 30,
|
||||||||
|
2012
|
2011
|
||||||
(in thousands)
|
||||||||
Cash flows from operating activities:
|
||||||||
Net income (loss)
|
$ | 841 | $ | (1,932 | ) | |||
Adjustments to reconcile net income to net cash provided by operating activities:
|
||||||||
Provision for loan losses
|
5,176 | 8,651 | ||||||
Depreciation and amortization
|
231 | 286 | ||||||
Deferred income taxes
|
354 | 659 | ||||||
Stock-based compensation
|
27 | 22 | ||||||
Net amortization of discounts and premiums for investment securities
|
(21 | ) | (47 | ) | ||||
Net loss (gain) on:
|
||||||||
Sale and write-downs of foreclosed real estate and repossessed assets
|
1,076 | 2,019 | ||||||
Sale of loans held for sale
|
(1,521 | ) | (271 | ) | ||||
Sale of available-for-sale securities
|
(121 | ) | - | |||||
Loan originated for sale and principal collections, net
|
(2,379 | ) | 3,139 | |||||
Changes in:
|
||||||||
Servicing rights, net of amortization
|
(121 | ) | 86 | |||||
Other assets
|
(630 | ) | (5,300 | ) | ||||
Other liabilities
|
1,071 | (621 | ) | |||||
Net cash provided by operating activities
|
3,983 | 6,691 | ||||||
Cash flows from investing activities:
|
||||||||
Purchase of available-for-sale securities
|
- | (6,772 | ) | |||||
Principal pay downs and maturities of available-for-sale securities
|
7,446 | 2,069 | ||||||
Proceeds from sale of available-for-sale securities
|
4,137 | - | ||||||
Purchase of Federal Reserve stock
|
- | (21 | ) | |||||
Redemptions of Federal Home Loan Bank stock
|
596 | 612 | ||||||
Principal pay downs and maturities of held-to-maturity securities
|
2,493 | 5,287 | ||||||
Loan originations and principal collections, net
|
65,185 | 14,064 | ||||||
Proceeds from sale of foreclosed real estate and repossessed assets
|
8,181 | 5,227 | ||||||
Net (increase) decrease in time and interest-bearing deposits in other financial
institutions
|
(3,543 | ) | 50 | |||||
Purchase of premises and equipment, net
|
(253 | ) | (389 | ) | ||||
Net cash provided by investing activities
|
84,242 | 20,127 | ||||||
Cash flows from financing activities:
|
||||||||
Dividends and accretion on preferred stock
|
(195 | ) | (585 | ) | ||||
Exercise of stock options
|
- | 25 | ||||||
Net (decrease) increase in demand deposits and savings accounts
|
(13,316 | ) | 35,081 | |||||
Net decrease in time certificates of deposit
|
(37,980 | ) | (57,438 | ) | ||||
Proceeds from Federal Home Loan Bank advances
|
- | 11,000 | ||||||
Repayment of Federal Home Loan Bank and FRB advances
|
(27,000 | ) | (10,000 | ) | ||||
Net cash used in financing activities
|
(78,491 | ) | (21,917 | ) | ||||
Net increase in cash and cash equivalents
|
9,734 | 4,901 | ||||||
Cash and cash equivalents, beginning of year
|
22,572 | 6,226 | ||||||
Cash and cash equivalents, end of period
|
$ | 32,306 | $ | 11,127 | ||||
Supplemental Disclosure of Cash Flow Information:
|
||||||||
Cash paid for interest
|
$ | 4,631 | $ | 6,324 | ||||
Cash paid for income taxes
|
$ | 712 | $ | 1,941 | ||||
Supplemental Disclosure of Noncash Investing Activity:
|
||||||||
Transfers to foreclosed real estate and repossessed assets
|
$ | 6,317 | $ | 5,195 | ||||
Supplemental Disclosure of Noncash Financing Activity:
|
||||||||
Preferred stock dividends declared, not paid
|
$ | 388 | $ | - |
1.
|
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
|
|
·
|
Concentrations of credit
|
|
·
|
International risk
|
|
·
|
Trends in volume, maturity, and composition
|
|
·
|
Off-balance sheet
|
|
·
|
Volume and trend in delinquency
|
|
·
|
Economic conditions
|
|
·
|
Outside exams
|
|
·
|
Geographic distance
|
|
·
|
Policy and procedures
|
|
·
|
Staff experience and ability
|
|
·
|
Commercial Real Estate, Commercial, SBA, HELOC, Single Family Residential, and Consumer – Migration analysis combined with risk rating is used to determine the required allowance for all non-impaired loans. In addition, the migration results are adjusted based upon the qualitative factors previously discussed that affect this specific portfolio category. Reserves on impaired loans are determined based upon the individual characteristics of the loan.
|
|
·
|
Manufactured Housing – The allowance is calculated on the basis of loss history and risk rating, which is primarily a function of delinquency. In addition, the migration results are adjusted based upon the qualitative factors previously discussed that affect this specific portfolio.
|
|
·
|
The expected future cash flows are estimated and then discounted at the effective interest rate.
|
|
·
|
The value of the underlying collateral net of selling costs. Selling costs are estimated based on industry standards, the Company’s actual experience or actual costs incurred as appropriate. When evaluating real estate collateral, the Company typically uses appraisals or valuations, no more than twelve months old at time of evaluation. When evaluating non-real estate collateral securing the loan, the Company will use audited financial statements or appraisals no more than twelve months old at time of evaluation. Additionally for both real estate and non-real estate collateral, the Company may use other sources to determine value as deemed appropriate.
|
|
·
|
The loan’s observable market price.
|
2.
|
INVESTMENT SECURITIES
|
September 30, 2012
|
(in thousands)
|
|||||||||||||||
Gross
|
Gross
|
|||||||||||||||
Amortized
|
Unrealized
|
Unrealized
|
Fair
|
|||||||||||||
Available-for-sale securities
|
Cost
|
Gains
|
Losses
|
Value
|
||||||||||||
U.S. Government agency: MBS
|
$ | 164 | $ | 10 | $ | - | $ | 174 | ||||||||
U.S. Government agency: CMO
|
11,766 | 62 | (1 | ) | 11,827 | |||||||||||
Total
|
$ | 11,930 | $ | 72 | $ | (1 | ) | $ | 12,001 | |||||||
Held-to-maturity securities
|
||||||||||||||||
U.S. Government agency: MBS
|
$ | 12,822 | $ | 815 | $ | - | $ | 13,637 | ||||||||
Total
|
$ | 12,822 | $ | 815 | $ | - | $ | 13,637 |
December 31, 2011
|
(in thousands)
|
|||||||||||||||
Gross
|
Gross
|
|||||||||||||||
Amortized
|
Unrealized
|
Unrealized
|
Fair
|
|||||||||||||
Available-for-sale securities
|
Cost
|
Gains
|
Losses
|
Value
|
||||||||||||
U.S. Government agency: Notes
|
$ | 2,496 | $ | - | $ | (10 | ) | $ | 2,486 | |||||||
U.S. Government agency: MBS
|
4,486 | 186 | - | 4,672 | ||||||||||||
U.S. Government agency: CMO
|
16,368 | 66 | (4 | ) | 16,430 | |||||||||||
Total
|
$ | 23,350 | $ | 252 | $ | (14 | ) | $ | 23,588 | |||||||
Held-to-maturity securities
|
||||||||||||||||
U.S. Government agency: MBS
|
$ | 15,335 | $ | 732 | $ | - | $ | 16,067 | ||||||||
Total
|
$ | 15,335 | $ | 732 | $ | - | $ | 16,067 |
Total Amount
|
Less than One Year
|
One to Five Years
|
Five to
Ten Years
|
|||||||||||||||||||||||||||||
Amount
|
Yield
|
Amount
|
Yield
|
Amount
|
Yield
|
Amount
|
Yield
|
|||||||||||||||||||||||||
(dollars in thousands)
|
||||||||||||||||||||||||||||||||
Available-for-sale securities
|
||||||||||||||||||||||||||||||||
U. S. Government:
|
||||||||||||||||||||||||||||||||
Agency: MBS
|
$ | 174 | 2.66 | % | $ | - | 0.00 | % | $ | 68 | 2.55 | % | $ | 106 | 2.73 | % | ||||||||||||||||
Agency: CMO
|
11,827 | 0.85 | % | 2,678 | 1.16 | % | 9,149 | 0.76 | % | - | 0.00 | % | ||||||||||||||||||||
Total
|
$ | 12,001 | 0.88 | % | $ | 2,678 | 1.16 | % | $ | 9,217 | 0.77 | % | $ | 106 | 2.73 | % | ||||||||||||||||
Held-to-maturity securities
|
||||||||||||||||||||||||||||||||
U.S. Government:
|
||||||||||||||||||||||||||||||||
Agency: MBS
|
$ | 12,822 | 3.40 | % | $ | - | 0.00 | % | $ | 4,165 | 4.05 | % | $ | 8,657 | 3.08 | % | ||||||||||||||||
Total
|
$ | 12,822 | 3.40 | % | $ | - | 0.00 | % | $ | 4,165 | 4.05 | % | $ | 8,657 | 3.08 | % |
September 30, 2012
|
Less than 12 months
|
More than 12 months
|
Total
|
|||||||||||||||||||||
Fair
|
Unrealized
|
Fair
|
Unrealized
|
Fair
|
Unrealized
|
|||||||||||||||||||
Value
|
Losses
|
Value
|
Losses
|
Value
|
Losses
|
|||||||||||||||||||
(in thousands)
|
||||||||||||||||||||||||
Available-for-sale securities
|
||||||||||||||||||||||||
U.S. Government agency: CMO
|
$ | - | $ | - | $ | 1,196 | $ | 1 | $ | 1,196 | $ | 1 | ||||||||||||
Total
|
$ | - | $ | - | $ | 1,196 | $ | 1 | $ | 1,196 | $ | 1 |
December 31, 2011
|
Less than 12 months
|
More than 12 months
|
Total
|
|||||||||||||||||||||
Fair
|
Unrealized
|
Fair
|
Unrealized
|
Fair
|
Unrealized
|
|||||||||||||||||||
Value
|
Losses
|
Value
|
Losses
|
Value
|
Losses
|
|||||||||||||||||||
(in thousands)
|
||||||||||||||||||||||||
Available-for-sale securities
|
||||||||||||||||||||||||
U.S. Government agency: Notes
|
$ | 2,486 | $ | 10 | $ | - | $ | - | $ | 2,486 | $ | 10 | ||||||||||||
U.S. Government agency: CMO
|
4,275 | 4 | - | - | 4,275 | 4 | ||||||||||||||||||
Total
|
$ | 6,761 | $ | 14 | $ | - | $ | - | $ | 6,761 | $ | 14 |
3.
|
LOAN SALES AND SERVICING
|
Three Months Ended
September 30,
|
Nine Months Ended
September 30,
|
|||||||||||||||
2012
|
2011
|
2012
|
2011
|
|||||||||||||
(in thousands)
|
(in thousands)
|
|||||||||||||||
Beginning balance
|
$ | 456 | $ | 471 | $ | 419 | $ | 492 | ||||||||
Adjustment to fair value
|
(5 | ) | (14 | ) | 32 | (35 | ) | |||||||||
Ending balance
|
$ | 451 | $ | 457 | $ | 451 | $ | 457 |
September 30, 2012
|
||||
Weighted-Average Constant Prepayment Rate
|
5.66 | % | ||
Weighted-Average Life (in years)
|
6 | |||
Weighted-Average Discount Rate
|
12.94 | % |
September 30, 2012
|
||||
(in thousands)
|
||||
Discount Rate
|
||||
Increase in fair value from 100 basis points (“bps”) decrease
|
$ | 13 | ||
Decrease in fair value from 100 bps increase
|
(13 | ) | ||
Constant Prepayment Rate
|
||||
Increase in fair value from 10% decrease
|
$ | 7 | ||
Decrease in fair value from 10% increase
|
(7 | ) |
Three Months Ended
September 30,
|
Nine Months Ended
September 30,
|
|||||||||||||||
2012
|
2011
|
2012
|
2011
|
|||||||||||||
(in thousands)
|
(in thousands)
|
|||||||||||||||
Beginning balance
|
$ | 441 | $ | 724 | $ | 625 | $ | 782 | ||||||||
Amortization
|
(29 | ) | (28 | ) | (213 | ) | (86 | ) | ||||||||
Ending balance
|
$ | 412 | $ | 696 | $ | 412 | $ | 696 |
Three Months Ended
September 30,
|
Nine Months Ended
September 30,
|
|||||||||||||||
2012
|
2011
|
2012
|
2011
|
|||||||||||||
(in thousands)
|
(in thousands)
|
|||||||||||||||
Beginning balance
|
$ | 253 | $ | - | $ | - | $ | - | ||||||||
Additions through loan sales
|
72 | - | 349 | - | ||||||||||||
Adjustment to fair value
|
8 | - | (16 | ) | - | |||||||||||
Ending balance
|
$ | 333 | $ | - | $ | 333 | $ | - |
September 30, 2012
|
||||
Weighted-Average Constant Prepayment Rate
|
5.19 | % | ||
Weighted-Average Life (in years)
|
9 | |||
Weighted-Average Discount Rate
|
13.93 | % |
September 30, 2012
|
||||
(in thousands)
|
||||
Discount Rate
|
||||
Increase in fair value from 100 basis points (“bps”) decrease
|
$ | 13 | ||
Decrease in fair value from 100 bps increase
|
(13 | ) | ||
Constant Prepayment Rate
|
||||
Increase in fair value from 10% decrease
|
$ | 7 | ||
Decrease in fair value from 10% increase
|
(7 | ) |
4.
|
LOANS HELD FOR INVESTMENT
|
September 30,
|
December 31,
|
|||||||
2012
|
2011
|
|||||||
(in thousands)
|
||||||||
Manufactured housing
|
$ | 180,104 | $ | 189,331 | ||||
Commercial real estate
|
137,231 | 168,812 | ||||||
Commercial
|
34,291 | 42,058 | ||||||
SBA
|
31,549 | 37,888 | ||||||
HELOC
|
19,018 | 20,719 | ||||||
Single family real estate
|
9,947 | 11,779 | ||||||
Consumer
|
250 | 312 | ||||||
412,390 | 470,899 | |||||||
Less:
|
||||||||
Allowance for loan losses
|
15,055 | 15,270 | ||||||
Deferred costs, net
|
(162 | ) | (109 | ) | ||||
Discount on SBA loans
|
453 | 325 | ||||||
Loans held for investment, net
|
$ | 397,044 | $ | 455,413 |
30-59 Days
Past Due
|
60-89
Days
Past Due
|
Greater
Than 90
Days Past
Due
|
Total
Past
Due
|
Current
|
Total
Financing
Receivables
|
Recorded
Investment > 90
Days and
Accruing
|
||||||||||||||||||||||
(in thousands)
|
||||||||||||||||||||||||||||
Manufactured housing
|
$ | 414 | $ | 441 | $ | 414 | $ | 1,269 | $ | 178,835 | $ | 180,104 | $ | - | ||||||||||||||
Commercial real estate:
|
||||||||||||||||||||||||||||
Commercial real estate
|
- | - | 3,590 | 3,590 | 84,854 | 88,444 | - | |||||||||||||||||||||
504 1st TD
|
- | 551 | 548 | 1,099 | 34,626 | 35,725 | - | |||||||||||||||||||||
Land
|
- | - | - | - | 4,590 | 4,590 | - | |||||||||||||||||||||
Construction
|
- | - | - | - | 8,472 | 8,472 | - | |||||||||||||||||||||
Commercial
|
20 | 49 | 476 | 545 | 33,746 | 34,291 | 343 | |||||||||||||||||||||
SBA
|
309 | 3,883 | 2,893 | 7,085 | 24,464 | 31,549 | - | |||||||||||||||||||||
HELOC
|
- | - | - | - | 19,018 | 19,018 | - | |||||||||||||||||||||
Single family real estate
|
30 | 87 | 29 | 146 | 9,801 | 9,947 | - | |||||||||||||||||||||
Consumer
|
- | - | - | - | 250 | 250 | - | |||||||||||||||||||||
Total
|
$ | 773 | $ | 5,011 | $ | 7,950 | $ | 13,734 | $ | 398,656 | $ | 412,390 | $ | 343 |
30-59
Days Past
Due
|
60-89
Days Past
Due
|
Greater
Than 90
Days Past
Due
|
Total
Past
Due
|
Current
|
Total
Financing
Receivables
|
Recorded
Investment > 90
Days and
Accruing
|
||||||||||||||||||||||
(in thousands)
|
||||||||||||||||||||||||||||
Manufactured housing
|
$ | 2,279 | $ | 519 | $ | 902 | $ | 3,700 | $ | 185,631 | $ | 189,331 | $ | - | ||||||||||||||
Commercial real estate:
|
||||||||||||||||||||||||||||
Commercial real estate
|
247 | - | 3,718 | 3,965 | 104,260 | 108,225 | - | |||||||||||||||||||||
504 1st TD
|
300 | - | 2,068 | 2,368 | 34,958 | 37,326 | - | |||||||||||||||||||||
Land
|
- | - | - | - | 5,230 | 5,230 | - | |||||||||||||||||||||
Construction
|
- | - | 1,519 | 1,519 | 16,512 | 18,031 | - | |||||||||||||||||||||
Commercial
|
115 | 18 | 1,881 | 2,014 | 40,044 | 42,058 | 510 | |||||||||||||||||||||
SBA
|
629 | 53 | 9,332 | 10,014 | 27,874 | 37,888 | - | |||||||||||||||||||||
HELOC
|
258 | - | 75 | 333 | 20,386 | 20,719 | 74 | |||||||||||||||||||||
Single family real estate
|
41 | 7 | 944 | 992 | 10,787 | 11,779 | - | |||||||||||||||||||||
Consumer
|
- | - | - | - | 312 | 312 | - | |||||||||||||||||||||
Total
|
$ | 3,869 | $ | 597 | $ | 20,439 | $ | 24,905 | $ | 445,994 | $ | 470,899 | $ | 584 |
Three Months Ended
September 30,
|
Nine Months Ended
September 30,
|
|||||||||||||||
2012
|
2011
|
2012
|
2011
|
|||||||||||||
(in thousands)
|
(in thousands)
|
|||||||||||||||
Balance, beginning of period
|
$ | 15,446 | $ | 15,237 | $ | 15,270 | $ | 13,302 | ||||||||
Loans charged off
|
(1,946 | ) | (5,538 | ) | (6,403 | ) | (7,965 | ) | ||||||||
Recoveries on loans previously charged off
|
262 | 39 | 1,012 | 261 | ||||||||||||
Net charge-offs
|
(1,684 | ) | (5,499 | ) | (5,391 | ) | (7,704 | ) | ||||||||
Provision for loan losses
|
1,293 | 4,511 | 5,176 | 8,651 | ||||||||||||
Balance, end of period
|
$ | 15,055 | $ | 14,249 | $ | 15,055 | $ | 14,249 |
Allowance
6/30/12
|
Provision
|
Charge-offs
|
Recoveries
|
Net Charge-offs
|
Allowance
9/30/12
|
|||||||||||||||||||
|
|
(in thousands)
|
|
|
||||||||||||||||||||
Manufactured housing
|
$ | 5,187 | $ | 2,022 | $ | (1,212 | ) | $ | 3 | $ | (1,209 | ) | $ | 6,000 | ||||||||||
Commercial real estate
|
3,175 | 151 | (396 | ) | 31 | (365 | ) | 2,961 | ||||||||||||||||
Commercial
|
3,064 | (521 | ) | - | 81 | 81 | 2,624 | |||||||||||||||||
SBA
|
3,148 | (238 | ) | (241 | ) | 140 | (101 | ) | 2,809 | |||||||||||||||
HELOC
|
671 | (111 | ) | (74 | ) | - | (74 | ) | 486 | |||||||||||||||
Single family real estate
|
199 | (5 | ) | (23 | ) | 2 | (21 | ) | 173 | |||||||||||||||
Consumer
|
2 | (5 | ) | - | 5 | 5 | 2 | |||||||||||||||||
Total
|
$ | 15,446 | $ | 1,293 | $ | (1,946 | ) | $ | 262 | $ | (1,684 | ) | $ | 15,055 |
Allowance
12/31/11
|
Provision
|
Charge-offs
|
Recoveries
|
Net Charge-offs
|
Allowance
9/30/12
|
|||||||||||||||||||
|
|
(in thousands)
|
|
|
||||||||||||||||||||
Manufactured housing
|
$ | 4,629 | $ | 4,434 | $ | (3,115 | ) | $ | 52 | $ | (3,063 | ) | $ | 6,000 | ||||||||||
Commercial real estate
|
3,528 | 1,088 | (1,687 | ) | 32 | (1,655 | ) | 2,961 | ||||||||||||||||
Commercial
|
2,734 | 428 | (656 | ) | 118 | (538 | ) | 2,624 | ||||||||||||||||
SBA
|
3,877 | (1,218 | ) | (600 | ) | 750 | 150 | 2,809 | ||||||||||||||||
HELOC
|
349 | 163 | (76 | ) | 50 | (26 | ) | 486 | ||||||||||||||||
Single family real estate
|
150 | 279 | (261 | ) | 5 | (256 | ) | 173 | ||||||||||||||||
Consumer
|
3 | 2 | (8 | ) | 5 | (3 | ) | 2 | ||||||||||||||||
Total
|
$ | 15,270 | $ | 5,176 | $ | (6,403 | ) | $ | 1,012 | $ | (5,391 | ) | $ | 15,055 |
Allowance
6/30/11
|
Provision
|
Charge-offs
|
Recoveries
|
Net Charge-offs
|
Allowance
9/30/11
|
|||||||||||||||||||
|
|
(in thousands)
|
|
|
||||||||||||||||||||
Manufactured housing
|
$ | 4,295 | $ | (1,054 | ) | $ | (1,127 | ) | $ | - | $ | (1,127 | ) | $ | 2,114 | |||||||||
Commercial real estate
|
4,416 | 1,709 | (2,547 | ) | - | (2,547 | ) | 3,578 | ||||||||||||||||
Commercial
|
2,253 | 2,020 | (111 | ) | 3 | (108 | ) | 4,165 | ||||||||||||||||
SBA
|
3,351 | 1,218 | (1,152 | ) | 33 | (1,119 | ) | 3,450 | ||||||||||||||||
HELOC
|
649 | 131 | - | - | - | 780 | ||||||||||||||||||
Single family real estate
|
199 | 555 | (601 | ) | 3 | (598 | ) | 156 | ||||||||||||||||
Consumer
|
74 | (68 | ) | - | - | - | 6 | |||||||||||||||||
Total
|
$ | 15,237 | $ | 4,511 | $ | (5,538 | ) | $ | 39 | $ | (5,499 | ) | $ | 14,249 |
Allowance
12/31/10
|
Provision
|
Charge-offs
|
Recoveries
|
Net Charge-offs
|
Allowance
9/30/11
|
|||||||||||||||||||
|
|
(in thousands)
|
|
|
||||||||||||||||||||
Manufactured housing
|
$ | 4,168 | $ | (407 | ) | $ | (1,675 | ) | $ | 28 | $ | (1,647 | ) | $ | 2,114 | |||||||||
Commercial real estate
|
2,532 | 4,041 | (2,997 | ) | 2 | (2,995 | ) | 3,578 | ||||||||||||||||
Commercial
|
2,094 | 2,600 | (575 | ) | 46 | (529 | ) | 4,165 | ||||||||||||||||
SBA
|
3,753 | 1,456 | (1,929 | ) | 170 | (1,759 | ) | 3,450 | ||||||||||||||||
HELOC
|
547 | 233 | - | - | - | 780 | ||||||||||||||||||
Single family real estate
|
135 | 795 | (789 | ) | 15 | (774 | ) | 156 | ||||||||||||||||
Consumer
|
73 | (67 | ) | - | - | - | 6 | |||||||||||||||||
Total
|
$ | 13,302 | $ | 8,651 | $ | (7,965 | ) | $ | 261 | $ | (7,704 | ) | $ | 14,249 |
Loans
Collectively
Evaluated
|
Allowance
For Loan
Losses
|
Loans
Individually
Evaluated
|
Allowance For
Loan Losses
|
Total Loans Held
for Investment
|
Total Allowance for
Loan Losses
|
|||||||||||||||||||
|
|
(in thousands)
|
|
|
||||||||||||||||||||
Manufactured housing
|
$ | 168,740 | $ | 4,910 | $ | 11,364 | $ | 1,090 | $ | 180,104 | $ | 6,000 | ||||||||||||
Commercial real estate
|
116,865 | 2,961 | 20,366 | - | 137,231 | 2,961 | ||||||||||||||||||
Commercial
|
29,023 | 2,120 | 5,268 | 504 | 34,291 | 2,624 | ||||||||||||||||||
SBA
|
29,884 | 2,743 | 1,665 | 66 | 31,549 | 2,809 | ||||||||||||||||||
HELOC
|
18,362 | 475 | 656 | 11 | 19,018 | 486 | ||||||||||||||||||
Single family real estate
|
9,658 | 171 | 289 | 2 | 9,947 | 173 | ||||||||||||||||||
Consumer
|
248 | 2 | 2 | - | 250 | 2 | ||||||||||||||||||
Total
|
$ | 372,780 | $ | 13,382 | $ | 39,610 | $ | 1,673 | $ | 412,390 | $ | 15,055 |
Loans
Collectively
Evaluated
|
Allowance
For Loan
Losses
|
Loans
Individually
Evaluated
|
Allowance For
Loan Losses
|
Total Loans Held
for Investment
|
Total Allowance for
Loan Losses
|
|||||||||||||||||||
|
|
(in thousands)
|
|
|
||||||||||||||||||||
Manufactured housing
|
$ | 188,942 | $ | 4,629 | $ | 389 | $ | - | $ | 189,331 | $ | 4,629 | ||||||||||||
Commercial real estate
|
137,243 | 3,322 | 31,569 | 206 | 168,812 | 3,528 | ||||||||||||||||||
Commercial
|
36,029 | 2,734 | 6,029 | - | 42,058 | 2,734 | ||||||||||||||||||
SBA
|
35,981 | 3,835 | 1,907 | 42 | 37,888 | 3,877 | ||||||||||||||||||
HELOC
|
20,719 | 349 | - | - | 20,719 | 349 | ||||||||||||||||||
Single family real estate
|
11,779 | 150 | - | - | 11,779 | 150 | ||||||||||||||||||
Consumer
|
301 | 3 | 11 | - | 312 | 3 | ||||||||||||||||||
Total
|
$ | 430,994 | $ | 15,022 | $ | 39,905 | $ | 248 | $ | 470,899 | $ | 15,270 |
Without Specific
Valuation
Allowance
|
With Specific
Valuation
Allowance
|
Valuation
Allowance
|
Impaired Loans, net
|
|||||||||||||
(in thousands)
|
||||||||||||||||
Manufactured housing
|
$ | 4,795 | $ | 6,569 | $ | 1,090 | $ | 10,274 | ||||||||
Commercial real estate:
|
||||||||||||||||
Commercial real estate
|
15,392 | - | - | 15,392 | ||||||||||||
SBA 504 1st
|
1,827 | - | - | 1,827 | ||||||||||||
Construction
|
3,147 | - | - | 3,147 | ||||||||||||
Commercial
|
50 | 5,218 | 504 | 4,764 | ||||||||||||
HELOC
|
589 | 67 | 11 | 645 | ||||||||||||
SBA
|
1,163 | 502 | 66 | 1,599 | ||||||||||||
Single family real estate
|
212 | 77 | 2 | 287 | ||||||||||||
Consumer
|
- | 2 | - | 2 | ||||||||||||
Total
|
$ | 27,175 | $ | 12,435 | $ | 1,673 | $ | 37,937 |
Without Specific
Valuation
Allowance
|
With Specific
Valuation
Allowance
|
Valuation
Allowance
|
Impaired Loans, net
|
|||||||||||||
(in thousands)
|
||||||||||||||||
Manufactured housing
|
$ | 390 | $ | - | $ | - | $ | 390 | ||||||||
Commercial real estate:
|
||||||||||||||||
Commercial real estate
|
11,523 | 8,136 | 206 | 19,453 | ||||||||||||
SBA 504 1st
|
7,164 | - | - | 7,164 | ||||||||||||
Construction
|
4,746 | - | - | 4,746 | ||||||||||||
Commercial
|
6,029 | - | - | 6,029 | ||||||||||||
SBA
|
1,815 | 91 | 42 | 1,864 | ||||||||||||
Consumer
|
11 | - | - | 11 | ||||||||||||
Total
|
$ | 31,678 | $ | 8,227 | $ | 248 | $ | 39,657 |
Three Months Ended
September 30, 2012
|
Nine Months Ended
September 30, 2012
|
|||||||||||||||
Average Investment
in Impaired Loans
|
Interest Income
Recognized
|
Average Investment
in Impaired Loans
|
Interest Income
Recognized
|
|||||||||||||
(in thousands)
|
||||||||||||||||
Manufactured housing
|
$ | 11,050 | $ | 110 | $ | 7,782 | $ | 214 | ||||||||
Commercial real estate:
|
||||||||||||||||
Commercial real estate
|
16,399 | 99 | 19,071 | 315 | ||||||||||||
SBA 504 1st
|
2,042 | 16 | 4,496 | 116 | ||||||||||||
Land
|
- | - | - | - | ||||||||||||
Construction
|
3,189 | - | 5,937 | 108 | ||||||||||||
Commercial
|
5,442 | 70 | 5,591 | 235 | ||||||||||||
HELOC
|
383 | 7 | 248 | 7 | ||||||||||||
SBA
|
1,696 | 69 | 1,796 | 130 | ||||||||||||
Single family real estate
|
251 | 3 | 350 | 10 | ||||||||||||
Consumer
|
2 | - | 7 | - | ||||||||||||
Total
|
$ | 40,454 | $ | 374 | $ | 45,278 | $ | 1,135 |
Three Months Ended September 30, 2011
|
Nine Months Ended September 30, 2011
|
|||||||||||||||
Average Investment
in Impaired Loans
|
Interest Income
Recognized
|
Average Investment
in Impaired Loans
|
Interest Income
Recognized
|
|||||||||||||
(in thousands)
|
||||||||||||||||
Commercial real estate:
|
||||||||||||||||
Commercial real estate
|
$ | 17,044 | $ | 179 | $ | 13,917 | $ | 468 | ||||||||
SBA 504 1st
|
2,996 | 180 | 2,379 | 180 | ||||||||||||
Land
|
284 | - | 698 | - | ||||||||||||
Construction
|
11,511 | 178 | 8,108 | 178 | ||||||||||||
Commercial
|
4,947 | 75 | 4,165 | 225 | ||||||||||||
HELOC
|
- | - | - | - | ||||||||||||
SBA
|
2,975 | 113 | 3,293 | 113 | ||||||||||||
Single family real estate
|
- | - | - | - | ||||||||||||
Consumer
|
14 | - | 17 | 1 | ||||||||||||
Total
|
$ | 39,771 | $ | 725 | $ | 32,577 | $ | 1,165 |
September 30,
|
December 31,
|
|||||||
2012
|
2011
|
|||||||
(dollars in thousands)
|
||||||||
Nonaccrual loans
|
$ | 40,838 | $ | 42,343 | ||||
SBA guaranteed portion
|
(7,518 | ) | (13,673 | ) | ||||
Nonaccrual loans, net
|
$ | 33,320 | $ | 28,670 | ||||
Troubled debt restructured loans, gross
|
$ | 26,623 | $ | 17,885 | ||||
Loans 30 through 89 days past due with interest accruing
|
$ | 267 | $ | 3,114 | ||||
Allowance for loan losses to gross loans held for investment
|
3.65 | % | 3.24 | % |
September 30, 2012
|
December 31, 2011
|
|||||||
(in thousands)
|
||||||||
Manufactured housing
|
$ | 8,951 | $ | 3,397 | ||||
Commercial real estate:
|
||||||||
Commercial real estate
|
15,391 | 12,716 | ||||||
504 1st
|
1,542 | 3,148 | ||||||
Construction
|
3,147 | 4,746 | ||||||
Commercial
|
2,043 | 2,031 | ||||||
SBA
|
1,299 | 1,659 | ||||||
HELOC
|
656 | 29 | ||||||
Single family real estate
|
289 | 944 | ||||||
Consumer
|
2 | - | ||||||
Nonaccrual loans, net
|
$ | 33,320 | $ | 28,670 |
Pass
|
Special Mention
|
Substandard
|
Doubtful
|
Total
|
||||||||||||||||
(in thousands) | ||||||||||||||||||||
Manufactured housing
|
$ | 167,161 | $ | - | $ | 12,943 | $ | - | $ | 180,104 | ||||||||||
Commercial real estate:
|
||||||||||||||||||||
Commercial real estate
|
64,695 | 7,100 | 16,649 | - | 88,444 | |||||||||||||||
SBA 504 1st
|
33,010 | 271 | 2,444 | - | 35,725 | |||||||||||||||
Land
|
3,367 | 300 | 923 | - | 4,590 | |||||||||||||||
Construction
|
5,325 | - | 3,147 | - | 8,472 | |||||||||||||||
Commercial
|
28,375 | 1,781 | 4,033 | 102 | 34,291 | |||||||||||||||
SBA
|
16,956 | 1,479 | 2,507 | 12 | 20,954 | |||||||||||||||
HELOC
|
8,647 | 1,621 | 8,750 | - | 19,018 | |||||||||||||||
Single family real estate
|
9,542 | - | 405 | - | 9,947 | |||||||||||||||
Consumer
|
248 | - | 2 | - | 250 | |||||||||||||||
Total non-guaranteed
|
337,326 | 12,552 | 51,803 | 114 | 401,795 | |||||||||||||||
SBA guarantee
|
- | 7,242 | 3,353 | 10,595 | ||||||||||||||||
Total
|
$ | 337,326 | $ | 12,552 | $ | 59,045 | $ | 3,467 | $ | 412,390 |
Pass
|
Special Mention
|
Substandard
|
Doubtful
|
Total
|
||||||||||||||||
(in thousands)
|
||||||||||||||||||||
Manufactured housing
|
$ | 183,893 | $ | - | $ | 5,438 | $ | - | $ | 189,331 | ||||||||||
Commercial real estate:
|
||||||||||||||||||||
Commercial real estate
|
74,083 | 11,273 | 22,869 | - | 108,225 | |||||||||||||||
SBA 504 1st
|
28,699 | 349 | 8,278 | - | 37,326 | |||||||||||||||
Land
|
3,932 | 1,298 | - | - | 5,230 | |||||||||||||||
Construction
|
4,868 | - | 9,935 | 3,228 | 18,031 | |||||||||||||||
Commercial
|
29,360 | 3,578 | 7,756 | 1,364 | 42,058 | |||||||||||||||
SBA
|
19,510 | 397 | 2,470 | 34 | 22,411 | |||||||||||||||
HELOC
|
15,068 | 4,614 | 1,037 | - | 20,719 | |||||||||||||||
Single family real estate
|
10,718 | - | 1,061 | - | 11,779 | |||||||||||||||
Consumer
|
298 | - | 11 | 3 | 312 | |||||||||||||||
Total non-guaranteed
|
370,429 | 21,509 | 58,855 | 4,629 | 455,422 | |||||||||||||||
SBA guarantee
|
- | - | 8,541 | 6,936 | 15,477 | |||||||||||||||
Total
|
$ | 370,429 | $ | 21,509 | $ | 67,396 | $ | 11,565 | $ | 470,899 |
Book
Balance
(thousands)
|
Effect on
Allowance
for Loan
Loss
(thousands)
|
Book
Balance of
Loans with
Rate
Reduction
(thousands)
|
Average
Rate
Reduction
(bps)
|
Book
Balance of
Loans with
Term
Extension
(thousands)
|
Average
Extension
(months)
|
|||||||||||||||||||
Manufactured Housing
|
$ | 1,474 | $ | 341 | $ | - | - | $ | 1,474 | 171 | ||||||||||||||
Commercial
|
289 | 30 | - | - | 289 | 49 | ||||||||||||||||||
SBA
|
74 | 17 | - | - | 74 | 103 | ||||||||||||||||||
Total
|
$ | 1,837 | $ | 388 | $ | - | - | $ | 1,837 | 161 |
Book
Balance
(thousands)
|
Effect on
Allowance
for Loan
Loss
(thousands)
|
Book
Balance of
Loans with
Rate
Reduction
(thousands)
|
Average
Rate
Reduction
(bps)
|
Book
Balance of
Loans with
Term
Extension
(thousands)
|
Average
Extension
(months)
|
|||||||||||||||||||
Manufactured Housing
|
$ | 5,715 | $ | 888 | $ | 294 | 325 | $ | 5,715 | 159 | ||||||||||||||
RE Commercial
|
3,590 | 292 | - | - | 3,590 | 56 | ||||||||||||||||||
Construction
|
3,147 | 315 | 3,146 | 300 | 3,147 | 15 | ||||||||||||||||||
Commercial
|
1,021 | 139 | - | - | 1,021 | 55 | ||||||||||||||||||
SBA
|
411 | 56 | - | - | 411 | 78 | ||||||||||||||||||
Single family real estate
|
77 | 2 | - | - | 77 | 4 | ||||||||||||||||||
Total
|
$ | 13,961 | $ | 1,692 | $ | 3,440 | 320 | $ | 13,961 | 144 |
Three Months Ended September 30, 2012
|
Nine Months Ended September 30, 2012
|
|||||||||||||||||||||||
Book Balance
(thousands)
|
Effect on
Allowance for
Loan Loss
(thousands)
|
Number
of Loans
|
Book Balance
(thousands)
|
Effect on
Allowance for
Loan Loss
(thousands)
|
Number of
Loans
|
|||||||||||||||||||
Manufactured Housing
|
$ | 124 | $ | 4 | 3 | $ | 124 | $ | 4 | 3 | ||||||||||||||
Total
|
$ | 124 | $ | 4 | 3 | $ | 124 | $ | 4 | 3 |
5.
|
FAIR VALUE MEASUREMEN
|
Fair value measurements at September 30, 2012 using
|
||||||||||||||||
Quoted prices in
active markets for
identical assets
|
Significant other
observable inputs
|
Significant
unobservable
inputs
|
||||||||||||||
Description
|
Total
|
(Level 1)
|
(Level 2)
|
(Level 3)
|
||||||||||||
(in thousands)
|
||||||||||||||||
Investment securities available-for-sale
|
$ | 12,001 | $ | - | $ | 12,001 | $ | - | ||||||||
Interest only strips (included in other assets)
|
451 | - | - | 451 | ||||||||||||
Servicing asset (included in other assets)
|
333 | - | - | 333 | ||||||||||||
Total
|
$ | 12,785 | $ | - | $ | 12,001 | $ | 784 |
Fair value measurements at December 31, 2011 using
|
||||||||||||||||
Quoted prices in
active markets for
identical assets
|
Significant other
observable inputs
|
Significant
unobservable
inputs
|
||||||||||||||
Description
|
Total
|
(Level 1)
|
(Level 2)
|
(Level 3)
|
||||||||||||
(in thousands)
|
||||||||||||||||
Investment securities available-for-sale
|
$ | 23,588 | $ | - | $ | 23,588 | $ | - | ||||||||
Interest only strips (included in other assets)
|
419 | - | - | 419 | ||||||||||||
Total
|
$ | 24,007 | $ | - | $ | 23,588 | $ | 419 |
Fair value measurements at September 30, 2012
|
||||||||||||||||
Quoted prices in
active markets for
identical assets
|
Significant other
observable inputs
|
Significant
unobservable
inputs
|
||||||||||||||
Description
|
Total
|
(Level 1)
|
(Level 2)
|
(Level 3)
|
||||||||||||
(in thousands)
|
||||||||||||||||
Impaired loans, net
|
$ | 37,937 | $ | - | $ | 26,967 | $ | 10,970 | ||||||||
Loans held for sale
|
66,358 | - | 66,358 | - | ||||||||||||
Foreclosed real estate and repossessed assets
|
3,761 | - | 3,761 | - | ||||||||||||
Total
|
$ | 108,056 | $ | - | $ | 97,086 | $ | 10,970 |
Fair value measurements at December 31, 2011
|
||||||||||||||||
Quoted prices in
active markets for
identical assets
|
Significant other
observable inputs
|
Significant
unobservable
inputs
|
||||||||||||||
Description
|
Total
|
(Level 1)
|
(Level 2)
|
(Level 3)
|
||||||||||||
(in thousands)
|
||||||||||||||||
Impaired loans, net
|
$ | 39,656 | $ | - | $ | 23,490 | $ | 16,166 | ||||||||
Loans held for sale
|
79,545 | - | 79,545 | - | ||||||||||||
Foreclosed real estate and repossessed assets
|
6,701 | - | 6,701 | - | ||||||||||||
Total
|
$ | 125,902 | $ | - | $ | 109,736 | $ | 16,166 |
6.
|
BORROWINGS
|
7.
|
STOCKHOLDERS’ EQUITY
|
8.
|
EARNINGS PER SHARE
|
Three Months Ended
September 30,
|
Nine Months Ended
September 30,
|
|||||||||||||||
2012
|
2011
|
2012
|
2011
|
|||||||||||||
(dollars in thousands,
except per share data)
|
(dollars in thousands,
except per share data)
|
|||||||||||||||
Net income (loss)
|
$ | 613 | $ | (2,307 | ) | $ | 841 | $ | (1,932 | ) | ||||||
Less: Dividends and accretion on preferred stock
|
253 | 261 | 785 | 785 | ||||||||||||
Net income (loss) applicable to common stockholders
|
$ | 360 | $ | (2,568 | ) | $ | 56 | $ | (2,717 | ) | ||||||
Basic weighted average number of common shares outstanding
|
5,990 | 5,988 | 5,990 | 5,977 | ||||||||||||
Dilutive weighted average number of common shares outstanding
|
8,233 | 5,988 | 8,233 | 5,977 | ||||||||||||
Income (loss) per common share:
|
||||||||||||||||
Basic
|
$ | .06 | $ | (0.43 | ) | $ | .01 | $ | (0.45 | ) | ||||||
Diluted
|
$ | .06 | $ | (0.43 | ) | $ | .01 | $ | (0.45 | ) |
9.
|
FAIR VALUES OF FINANCIAL INSTRUMENTS
|
September 30, 2012
|
December 31, 2011
|
|||||||||||||||
Carrying
Amount
|
Estimated
Fair Value
|
Carrying
Amount
|
Estimated
Fair Value
|
|||||||||||||
(in thousands)
|
||||||||||||||||
Assets:
|
||||||||||||||||
Cash and cash equivalents
|
$ | 32,306 | $ | 32,306 | $ | 22,572 | $ | 22,572 | ||||||||
Time and interest-bearing deposits in other financial institutions
|
3,890 | 3,890 | 347 | 347 | ||||||||||||
Federal Reserve and Federal Home Loan Bank stock
|
4,961 | 4,961 | 5,557 | 5,557 | ||||||||||||
Investment securities
|
24,823 | 25,638 | 38,923 | 39,655 | ||||||||||||
Loans
|
459,938 | 478,911 | 532,716 | 512,524 | ||||||||||||
Liabilities:
|
||||||||||||||||
Deposits (other than time deposits)
|
345,803 | 345,803 | 359,119 | 359,119 | ||||||||||||
Time deposits
|
114,163 | 116,106 | 152,143 | 154,484 | ||||||||||||
Other borrowings
|
41,852 | 43,450 | 68,852 | 70,975 |
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
|
|
·
|
A decline in interest income of $1.3 million resulting from a combination of lower average interest-earning assets, $522.8 million for 3Q12 compared to $614.4 million for 3Q11 and higher yields on interest-earning assets of 5.72% for 3Q12 compared to 5.66% for 3Q11.
|
|
·
|
A provision for loan losses of $1.3 million for 3Q12 compared to $4.5 million for 3Q11, a decline of $3.2 million.
|
|
·
|
Net interest margin increased for 3Q12 to 4.65% compared to 4.38% for 3Q11 primarily from a decline in rates paid on funding sources from 1.49% for 3Q11 to 1.22% for 3Q12 and higher yields on interest-earning assets.
|
|
·
|
Non-interest expenses decreased $1.7 million, from $5.3 million in 3Q12 compared to $7.0 million in 3Q11. The decrease was primarily due to the $1.2 million decrease in the loss on sale and writedowns of foreclosed real estate and repossessed assets from $1.4 million in 3Q11 to $189,000 in 3Q12.
|
|
·
|
Closed remaining out-of-state (CO, OR, UT and WA) SBA lending operations in February 2012.
|
|
·
|
Sold $10.1 million of guaranteed SBA loans in March 2012, generating a net gain of $973,000 and $2.5 million of guaranteed USDA loans in September 2012, generating a net gain of $277,000.
|
|
·
|
Prepaid $5 million of FHLB advances in March 2012 and another $17 million in April 2012.
|
|
·
|
Sold $4 million of investment securities in March 2012 at a net gain of $121,000.
|
|
·
|
Sold $3.0 million in REO and repossessed assets in 1Q12, $4.3 million in 2Q12 and $944,000 in 3Q12;
|
|
·
|
Take appropriate steps to fully utilize the Company’s financial and managerial resources to serve as a source of strength to the Bank, including taking steps to ensure the Bank’s compliance with the OCC Agreement issued to it by the OCC, effective as of January 26, 2012, and any other supervisory action taken by the Bank’s federal and state regulators;
|
|
·
|
Refrain from declaring or paying dividends absent prior regulatory approval;
|
|
·
|
Refrain from taking dividends or any form of payment from the Bank representing a reduction in the Bank’s capital absent prior regulatory approval;
|
|
·
|
Refrain from incurring, increasing or guaranteeing any debt or repurchasing or redeeming any shares of its stock absent prior regulatory approval;
|
|
·
|
Develop and submit for regulatory approval a written capital plan to maintain sufficient capital on a consolidated basis, which capital plan should, at a minimum, address, consider and include current and future capital requirements on a consolidated basis and compliance with federal regulations and guidelines; the adequacy of the Bank’s capital, the sources and timing of funds necessary to fulfill future capital requirements; and the requirements of federal law that the Company serve as a source of strength to the Bank. The FRB accepted the capital plan on July 10, 2012;
|
|
·
|
Develop and submit for regulatory approval a cash flow projection of the Company’s planned sources and uses of cash for debt service, operating expenses and other purposes. The FRB accepted the cash flow projection on July 10, 2012;
|
|
·
|
Comply with appropriate regulatory notice and approval requirements when appointing any new directors or senior executive officers or changing the responsibilities of any senior executive officer and comply with the limitations on indemnification and severance payments set forth in Section 18(k) of the Federal Deposit Insurance Act (12 USC 1828(i)) and Part 359 of the FDIC’s implementing regulations; and
|
|
·
|
Furnish written progress reports to the FRB detailing the form and manner of any actions taken to secure compliance with the Regulatory Agreement.
|
Three Months Ended
September 30,
|
Increase
(Decrease) |
|||||||||||
2012
|
2011
|
|
||||||||||
(dollars in thousands, except per share amounts)
|
||||||||||||
Interest income
|
$ | 7,512 | $ | 8,768 | $ | (1,256 | ) | |||||
Interest expense
|
1,403 | 1,989 | (586 | ) | ||||||||
Net interest income
|
6,109 | 6,779 | (670 | ) | ||||||||
Provision for loan losses
|
1,293 | 4,511 | (3,218 | ) | ||||||||
Net interest income after provision for loan losses
|
4,816 | 2,268 | 2,548 | |||||||||
Non-interest income
|
1,057 | 801 | 256 | |||||||||
Non-interest expenses
|
5,260 | 6,985 | (1,725 | ) | ||||||||
Income (loss) before provision for income taxes
|
613 | (3,916 | ) | 4,529 | ||||||||
Benefit for income taxes
|
- | (1,609 | ) | 1,609 | ||||||||
Net income (loss)
|
$ | 613 | $ | (2,307 | ) | $ | 2,920 | |||||
Dividends and accretion on preferred stock
|
253 | 261 | (8 | ) | ||||||||
Net income (loss) applicable to common shareholders
|
$ | 360 | $ | (2,568 | ) | $ | 2,928 | |||||
Income (loss) per common share:
|
||||||||||||
Basic
|
$ | 0.06 | $ | (0.43 | ) | $ | 0.49 | |||||
Diluted
|
0.06 | (0.43 | ) | 0.49 | ||||||||
Comprehensive income (loss)
|
$ | 620 | $ | (2,298 | ) | $ | 2,918 |
Three Months Ended
September 30,
|
||||||||||||
2012 versus 2011
|
||||||||||||
Change due to
|
||||||||||||
Total change
|
Rate | Volume | ||||||||||
(in thousands)
|
||||||||||||
Loans, net
|
$ | (1,176 | ) | $ | 115 | $ | (1,291 | ) | ||||
Investment securities and other
|
(80 | ) | (10 | ) | (70 | ) | ||||||
Total interest-earning assets
|
(1,256 | ) | 105 | (1,361 | ) | |||||||
Deposits
|
(444 | ) | (280 | ) | (164 | ) | ||||||
Other borrowings
|
(142 | ) | 158 | (300 | ) | |||||||
Total interest-bearing liabilities
|
(586 | ) | (122 | ) | (464 | ) | ||||||
Net interest income
|
$ | (670 | ) | $ | 227 | $ | (897 | ) |
Allowance
6/30/12
|
Provision
|
Charge-offs
|
Recoveries
|
Net Charge-offs
|
Allowance
9/30/12
|
|||||||||||||||||||
|
|
(in thousands)
|
|
|
||||||||||||||||||||
Manufactured housing
|
$ | 5,187 | $ | 2,022 | $ | (1,212 | ) | $ | 3 | $ | (1,209 | ) | $ | 6,000 | ||||||||||
Commercial real estate
|
3,175 | 151 | (396 | ) | 31 | (365 | ) | 2,961 | ||||||||||||||||
Commercial
|
3,064 | (521 | ) | - | 81 | 81 | 2,624 | |||||||||||||||||
SBA
|
3,148 | (238 | ) | (241 | ) | 140 | (101 | ) | 2,809 | |||||||||||||||
HELOC
|
671 | (111 | ) | (74 | ) | - | (74 | ) | 486 | |||||||||||||||
Single family real estate
|
199 | (5 | ) | (23 | ) | 2 | (21 | ) | 173 | |||||||||||||||
Consumer
|
2 | (5 | ) | - | 5 | 5 | 2 | |||||||||||||||||
Total
|
$ | 15,446 | $ | 1,293 | $ | (1,946 | ) | $ | 262 | $ | (1,684 | ) | $ | 15,055 |
Allowance
6/30/11
|
Provision
|
Charge-offs
|
Recoveries
|
Net Charge-offs
|
Allowance
9/30/11
|
|||||||||||||||||||
|
|
(in thousands)
|
|
|
||||||||||||||||||||
Manufactured housing
|
$ | 4,295 | $ | (1,054 | ) | $ | (1,127 | ) | $ | - | $ | (1,127 | ) | $ | 2,114 | |||||||||
Commercial real estate
|
4,416 | 1,709 | (2,547 | ) | - | (2,547 | ) | 3,578 | ||||||||||||||||
Commercial
|
2,253 | 2,020 | (111 | ) | 3 | (108 | ) | 4,165 | ||||||||||||||||
SBA
|
3,351 | 1,218 | (1,152 | ) | 33 | (1,119 | ) | 3,450 | ||||||||||||||||
HELOC
|
649 | 131 | - | - | - | 780 | ||||||||||||||||||
Single family real estate
|
199 | 555 | (601 | ) | 3 | (598 | ) | 156 | ||||||||||||||||
Consumer
|
74 | (68 | ) | - | - | - | 6 | |||||||||||||||||
Total
|
$ | 15,237 | $ | 4,511 | $ | (5,538 | ) | $ | 39 | $ | (5,499 | ) | $ | 14,249 |
Nine Months Ended
September 30,
|
Increase
(Decrease)
|
|||||||||||
2012
|
2011
|
|||||||||||
(dollars in thousands, except per share amounts)
|
||||||||||||
Interest income
|
$ | 23,867 | $ | 27,234 | $ | (3,367 | ) | |||||
Interest expense
|
4,673 | 6,300 | (1,627 | ) | ||||||||
Net interest income
|
19,194 | 20,934 | (1,740 | ) | ||||||||
Provision for loan losses
|
5,176 | 8,651 | (3,475 | ) | ||||||||
Net interest income after provision for loan
losses
|
14,018 | 12,283 | 1,735 | |||||||||
Non-interest income
|
3,458 | 2,354 | 1,104 | |||||||||
Non-interest expenses
|
16,635 | 17,909 | (1,274 | ) | ||||||||
Income (loss) before provision for income taxes
|
841 | (3,272 | ) | 4,113 | ||||||||
Benefit for income taxes
|
- | (1,340 | ) | 1,340 | ||||||||
Net income (loss)
|
$ | 841 | $ | (1,932 | ) | $ | 2,773 | |||||
Dividends and accretion on preferred stock
|
785 | 785 | (2 | ) | ||||||||
Net income (loss) applicable to common shareholders
|
$ | 56 | $ | (2,717 | ) | $ | 2,775 | |||||
Income (loss) per common share:
|
||||||||||||
Basic
|
$ | 0.01 | $ | (0.45 | ) | $ | 0.46 | |||||
Diluted
|
$ | 0.01 | $ | (0.45 | ) | $ | 0.46 | |||||
Comprehensive income (loss)
|
$ | 744 | $ | (1,966 | ) | $ | 2,710 |
Nine Months Ended
September 30,
|
||||||||||||
2012 versus 2011
|
||||||||||||
Total |
Change due to
|
|||||||||||
change
|
Rate | Volume | ||||||||||
(in thousands) | ||||||||||||
Loans, net
|
$ | (3,173 | ) | $ | (95 | ) | $ | (3,078 | ) | |||
Investment securities and other
|
(194 | ) | (62 | ) | (132 | ) | ||||||
Total interest-earning assets
|
(3,367 | ) | (157 | ) | (3,210 | ) | ||||||
Deposits
|
(1,269 | ) | (847 | ) | (422 | ) | ||||||
Other borrowings
|
(358 | ) | 236 | (594 | ) | |||||||
Total interest-bearing liabilities
|
(1,627 | ) | (611 | ) | (1,016 | ) | ||||||
Net interest income
|
$ | (1,740 | ) | $ | 301 | $ | (2,041 | ) |
Allowance
12/31/11
|
Provision
|
Charge-offs
|
Recoveries
|
Net Charge-offs
|
Allowance
9/30/12
|
|||||||||||||||||||
|
|
(in thousands)
|
|
|
||||||||||||||||||||
Manufactured housing
|
$ | 4,629 | $ | 4,434 | $ | (3,115 | ) | $ | 52 | $ | (3,063 | ) | $ | 6,000 | ||||||||||
Commercial real estate
|
3,528 | 1,088 | (1,687 | ) | 32 | (1,655 | ) | 2,961 | ||||||||||||||||
Commercial
|
2,734 | 428 | (656 | ) | 118 | (538 | ) | 2,624 | ||||||||||||||||
SBA
|
3,877 | (1,218 | ) | (600 | ) | 750 | 150 | 2,809 | ||||||||||||||||
HELOC
|
349 | 163 | (76 | ) | 50 | (26 | ) | 486 | ||||||||||||||||
Single family real estate
|
150 | 279 | (261 | ) | 5 | (256 | ) | 173 | ||||||||||||||||
Consumer
|
3 | 2 | (8 | ) | 5 | (3 | ) | 2 | ||||||||||||||||
Total
|
$ | 15,270 | $ | 5,176 | $ | (6,403 | ) | $ | 1,012 | $ | (5,391 | ) | $ | 15,055 |
Allowance
12/31/10
|
Provision
|
Charge-offs
|
Recoveries
|
Net Charge-offs
|
Allowance
9/30/11
|
|||||||||||||||||||
|
|
(in thousands)
|
|
|
||||||||||||||||||||
Manufactured housing
|
$ | 4,168 | $ | (407 | ) | $ | (1,675 | ) | $ | 28 | $ | (1,647 | ) | $ | 2,114 | |||||||||
Commercial real estate
|
2,532 | 4,041 | (2,997 | ) | 2 | (2,995 | ) | 3,578 | ||||||||||||||||
Commercial
|
2,094 | 2,600 | (575 | ) | 46 | (529 | ) | 4,165 | ||||||||||||||||
SBA
|
3,753 | 1,456 | (1,929 | ) | 170 | (1,759 | ) | 3,450 | ||||||||||||||||
HELOC
|
547 | 233 | - | - | - | 780 | ||||||||||||||||||
Single family real estate
|
135 | 795 | (789 | ) | 15 | (774 | ) | 156 | ||||||||||||||||
Consumer
|
73 | (67 | ) | - | - | - | 6 | |||||||||||||||||
Total
|
$ | 13,302 | $ | 8,651 | $ | (7,965 | ) | $ | 261 | $ | (7,704 | ) | $ | 14,249 |
Three Months
Ended September 30,
|
Nine Months
Ended September 30,
|
|||||||||||||||
2012
|
2011
|
2012
|
2011
|
|||||||||||||
Interest-earning assets:
|
(dollars in thousands)
|
(dollars in thousands)
|
||||||||||||||
Federal funds sold and interest-earning deposits:
|
||||||||||||||||
Average balance
|
$ | 4,793 | $ | 1,245 | $ | 4,536 | $ | 1,253 | ||||||||
Interest income
|
3 | 2 | 8 | 8 | ||||||||||||
Average yield
|
0.24 | % | 0.78 | % | 0.24 | % | 0.81 | % | ||||||||
Investment securities:
|
||||||||||||||||
Average balance
|
$ | 33,082 | $ | 46,023 | $ | 37,200 | $ | 45,420 | ||||||||
Interest income
|
185 | 267 | 623 | 817 | ||||||||||||
Average yield
|
2.22 | % | 2.30 | % | 2.24 | % | 2.41 | % | ||||||||
Gross loans:
|
||||||||||||||||
Average balance (includes non-accrual loans)
|
$ | 484,944 | $ | 567,149 | $ | 511,646 | $ | 576,055 | ||||||||
Interest income
|
7,324 | 8,500 | 23,236 | 26,409 | ||||||||||||
Average yield
|
6.01 | % | 5.95 | % | 6.07 | % | 6.13 | % | ||||||||
Total interest-earning assets:
|
||||||||||||||||
Average balance
|
$ | 522,819 | $ | 614,417 | $ | 553,382 | $ | 622,728 | ||||||||
Interest income
|
7,512 | 8,768 | 23,867 | 27,234 | ||||||||||||
Average yield
|
5.72 | % | 5.66 | % | 5.76 | % | 5.85 | % | ||||||||
Interest-bearing liabilities:
|
||||||||||||||||
Interest-bearing demand deposits:
|
||||||||||||||||
Average balance
|
$ | 279,866 | $ | 281,263 | $ | 284,173 | $ | 279,044 | ||||||||
Interest expense
|
414 | 696 | 1,499 | 2,184 | ||||||||||||
Average cost of funds
|
0.59 | % | 0.98 | % | 0.70 | % | 1.05 | % | ||||||||
Savings deposits:
|
||||||||||||||||
Average balance
|
$ | 16,319 | $ | 20,898 | $ | 18,106 | $ | 21,011 | ||||||||
Interest expense
|
81 | 89 | 244 | 302 | ||||||||||||
Average cost of funds
|
1.96 | % | 1.70 | % | 1.80 | % | 1.92 | % | ||||||||
Time certificates of deposit:
|
||||||||||||||||
Average balance
|
$ | 120,614 | $ | 156,015 | $ | 136,393 | $ | 172,643 | ||||||||
Interest expense
|
475 | 629 | 1,544 | 2,070 | ||||||||||||
Average cost of funds
|
1.57 | % | 1.60 | % | 1.51 | % | 1.60 | % | ||||||||
Convertible debentures:
|
||||||||||||||||
Average balance
|
$ | 7,852 | $ | 7,854 | $ | 7,852 | $ | 7,884 | ||||||||
Interest expense
|
183 | 178 | 534 | 531 | ||||||||||||
Average cost of funds
|
9.25 | % | 9.00 | % | 9.08 | % | 9.00 | % | ||||||||
Other borrowings:
|
||||||||||||||||
Average balance
|
$ | 34,000 | $ | 64,742 | $ | 42,135 | $ | 63,531 | ||||||||
Interest expense
|
250 | 397 | 852 | 1,213 | ||||||||||||
Average cost of funds
|
2.93 | % | 2.43 | % | 2.70 | % | 2.55 | % | ||||||||
Total interest-bearing liabilities:
|
||||||||||||||||
Average balance
|
$ | 458,651 | $ | 530,772 | $ | 488,659 | $ | 544,113 | ||||||||
Interest expense
|
1,403 | 1,989 | 4,673 | 6,300 | ||||||||||||
Average cost of funds
|
1.22 | % | 1.49 | % | 1.28 | % | 1.55 | % | ||||||||
Net interest income
|
$ | 6,109 | $ | 6,779 | $ | 19,194 | $ | 20,934 | ||||||||
Net interest spread
|
4.50 | % | 4.18 | % | 4.48 | % | 4.30 | % | ||||||||
Average net margin
|
4.65 | % | 4.38 | % | 4.63 | % | 4.49 | % |
|
·
|
Average yields and rates are derived by dividing interest income by the average balances of interest-earning assets and by dividing interest expense by the average balances of interest-bearing liabilities for the periods indicated. Amounts outstanding are averages of daily balances during the applicable periods.
|
|
·
|
Nonaccrual loans are included in the average balance of loans outstanding.
|
|
·
|
Net interest income is the difference between the interest and fees earned on loans and investments and the interest expense paid on deposits and other liabilities. The amount by which interest income will exceed interest expense depends on the volume or balance of earning assets compared to the volume or balance of interest-bearing deposits and liabilities and the interest rate earned on those interest-earning assets compared to the interest rate paid on those interest-bearing liabilities.
|
|
·
|
Net interest margin is net interest income expressed as a percentage of average earning assets. It is used to measure the difference between the average rate of interest earned on assets and the average rate of interest that must be paid on liabilities used to fund those assets. To maintain its net interest margin, the Company must manage the relationship between interest earned and paid.
|
Selected balance sheet accounts
(dollars in thousands)
|
September 30,
2012
|
December 31,
2011
|
Increase
(Decrease)
|
Increase
(Decrease)
|
||||||||||||
Cash and cash equivalents
|
$ | 32,306 | $ | 22,572 | $ | 9,734 | 43.1 | % | ||||||||
Investment securities available-for-sale
|
12,001 | 23,588 | (11,587 | ) | (49.1 | )% | ||||||||||
Investment securities held-to-maturity
|
12,822 | 15,335 | (2,513 | ) | (16.4 | )% | ||||||||||
Loans - held for sale
|
62,894 | 77,303 | (14,409 | ) | (18.6 | )% | ||||||||||
Loans - held for investment, net
|
397,044 | 455,413 | (58,369 | ) | (12.8 | )% | ||||||||||
Total assets
|
556,796 | 633,348 | (76,552 | ) | (12.1 | )% | ||||||||||
Total deposits
|
459,966 | 511,262 | (51,296 | ) | (10.0 | )% | ||||||||||
Other borrowings and convertible debentures
|
41,852 | 68,852 | (27,000 | ) | (39.2 | )% | ||||||||||
Total stockholders' equity
|
50,813 | 50,626 | 187 | 0.4 | % |
September 30,
2012
|
December 31,
2011
|
Increase
(Decrease)
|
Increase
(Decrease)
|
|||||||||||||
(dollars in thousands)
|
||||||||||||||||
Non-interest-bearing deposits
|
$ | 54,466 | $ | 49,894 | $ | 4,572 | 9.2 | % | ||||||||
Interest-bearing deposits
|
274,894 | 289,796 | (14,902 | ) | (5.1 | )% | ||||||||||
Savings
|
16,443 | 19,429 | (2,986 | ) | (15.4 | )% | ||||||||||
Time deposits of $100,000 or more
|
98,362 | 128,254 | (29,892 | ) | (23.3 | )% | ||||||||||
Other time deposits
|
15,801 | 23,889 | (8,088 | ) | (33.9 | )% | ||||||||||
Total deposits
|
$ | 459,966 | $ | 511,262 | $ | (51,296 | ) | (10.0 | )% |
Without Specific
Valuation
Allowance
|
With Specific
Valuation
Allowance
|
Valuation
Allowance
|
Impaired Loans, net
|
|||||||||||||
(in thousands)
|
||||||||||||||||
Manufactured housing
|
$ | 4,795 | $ | 6,569 | $ | 1,090 | $ | 10,274 | ||||||||
Commercial real estate:
|
||||||||||||||||
Commercial real estate
|
15,392 | - | - | 15,392 | ||||||||||||
SBA 504 1st
|
1,827 | - | - | 1,827 | ||||||||||||
Construction
|
3,147 | - | - | 3,147 | ||||||||||||
Commercial
|
50 | 5,218 | 504 | 4,764 | ||||||||||||
HELOC
|
589 | 67 | 11 | 645 | ||||||||||||
SBA
|
1,163 | 502 | 66 | 1,599 | ||||||||||||
Single family real estate
|
212 | 77 | 2 | 287 | ||||||||||||
Consumer
|
- | 2 | - | 2 | ||||||||||||
Total
|
$ | 27,175 | $ | 12,435 | $ | 1,673 | $ | 37,937 |
Without Specific
Valuation
Allowance
|
With Specific
Valuation
Allowance
|
Valuation
Allowance
|
Impaired Loans, net
|
|||||||||||||
(in thousands)
|
||||||||||||||||
Manufactured housing
|
$ | 390 | $ | - | $ | - | $ | 390 | ||||||||
Commercial real estate:
|
||||||||||||||||
Commercial real estate
|
11,523 | 8,136 | 206 | 19,453 | ||||||||||||
SBA 504 1st
|
7,164 | - | - | 7,164 | ||||||||||||
Construction
|
4,746 | - | - | 4,746 | ||||||||||||
Commercial
|
6,029 | - | - | 6,029 | ||||||||||||
SBA
|
1,815 | 91 | 42 | 1,864 | ||||||||||||
Consumer
|
11 | - | - | 11 | ||||||||||||
Total
|
$ | 31,678 | $ | 8,227 | $ | 248 | $ | 39,657 |
Three Months Ended
September 30, 2012
|
Nine Months Ended
September 30, 2012
|
|||||||||||||||
Average Investment
in Impaired Loans
|
Interest Income
Recognized
|
Average Investment
in Impaired Loans
|
Interest Income
Recognized
|
|||||||||||||
(in thousands)
|
||||||||||||||||
Manufactured housing
|
$ | 11,050 | $ | 110 | $ | 7,782 | $ | 214 | ||||||||
Commercial real estate:
|
||||||||||||||||
Commercial real estate
|
16,399 | 99 | 19,071 | 315 | ||||||||||||
SBA 504 1st
|
2,042 | 16 | 4,496 | 116 | ||||||||||||
Land
|
- | - | - | - | ||||||||||||
Construction
|
3,189 | - | 5,937 | 108 | ||||||||||||
Commercial
|
5,442 | 70 | 5,591 | 235 | ||||||||||||
HELOC
|
383 | 7 | 248 | 7 | ||||||||||||
SBA
|
1,696 | 69 | 1,796 | 130 | ||||||||||||
Single family real estate
|
251 | 3 | 350 | 10 | ||||||||||||
Consumer
|
2 | - | 7 | - | ||||||||||||
Total
|
$ | 40,454 | $ | 374 | $ | 45,278 | $ | 1,135 |
Three Months Ended
September 30, 2011
|
Nine Months Ended
September 30, 2011
|
|||||||||||||||
Average Investment
in Impaired Loans
|
Interest Income
Recognized
|
Average Investment
in Impaired Loans
|
Interest Income
Recognized
|
|||||||||||||
(in thousands)
|
||||||||||||||||
Commercial real estate:
|
||||||||||||||||
Commercial real estate
|
$ | 17,044 | $ | 179 | $ | 13,917 | $ | 468 | ||||||||
SBA 504 1st
|
2,996 | 180 | 2,379 | 180 | ||||||||||||
Land
|
284 | - | 698 | - | ||||||||||||
Construction
|
11,511 | 178 | 8,108 | 178 | ||||||||||||
Commercial
|
4,947 | 75 | 4,165 | 225 | ||||||||||||
HELOC
|
- | - | - | - | ||||||||||||
SBA
|
2,975 | 113 | 3,293 | 113 | ||||||||||||
Single family real estate
|
- | - | - | - | ||||||||||||
Consumer
|
14 | - | 17 | 1 | ||||||||||||
Total
|
$ | 39,771 | $ | 725 | $ | 32,577 | $ | 1,165 |
September 30,
|
December 31,
|
|||||||
2012
|
2011
|
|||||||
(dollars in thousands)
|
||||||||
Nonaccrual loans
|
$ | 40,838 | $ | 42,343 | ||||
SBA guaranteed portion
|
(7,518 | ) | (13,673 | ) | ||||
Nonaccrual loans, net
|
$ | 33,320 | $ | 28,670 | ||||
Troubled debt restructured loans, gross
|
$ | 26,623 | $ | 17,885 | ||||
Loans 30 through 89 days past due with interest accruing
|
$ | 267 | $ | 3,114 | ||||
Allowance for loan losses to gross loans held for investment
|
3.65 | % | 3.24 | % |
Liquidity and Capital Resources
|
(dollars in thousands)
|
Total
Capital
|
Tier 1
Capital
|
Risk-
Weighted
Assets
|
Adjusted
Average
Assets
|
Total
Risk-
Based
Capital
Ratio
|
Tier 1
Risk-
Based
Capital
Ratio
|
Tier 1
Leverage
Ratio
|
|||||||||||||||||||||
(dollars in thousands)
|
||||||||||||||||||||||||||||
September 30, 2012
|
||||||||||||||||||||||||||||
CWBC (Consolidated)
|
$ | 64,111 | $ | 50,697 | $ | 437,344 | $ | 564,535 | 14.66 | % | 11.59 | % | 8.98 | % | ||||||||||||||
Capital in excess of well capitalized
|
$ | 20,377 | $ | 24,456 | $ | 22,470 | ||||||||||||||||||||||
CWB
|
$ | 60,732 | $ | 55,171 | $ | 437,236 | $ | 560,470 | 13.89 | % | 12.62 | % | 9.84 | % | ||||||||||||||
Capital in excess of well capitalized
|
$ | 17,008 | $ | 28,937 | $ | 27,148 | ||||||||||||||||||||||
December 31, 2011
|
||||||||||||||||||||||||||||
CWBC (Consolidated)
|
$ | 64,647 | $ | 50,423 | $ | 500,462 | $ | 637,752 | 12.92 | % | 10.08 | % | 7.91 | % | ||||||||||||||
Capital in excess of well capitalized
|
$ | 14,601 | $ | 20,395 | $ | 18,535 | ||||||||||||||||||||||
CWB
|
$ | 59,018 | $ | 52,650 | $ | 500,173 | $ | 637,434 | 11.80 | % | 10.53 | % | 8.26 | % | ||||||||||||||
Capital in excess of
well capitalized
|
$ | 9,001 | $ | 22,640 | $ | 20,778 | ||||||||||||||||||||||
Minimum capital ratios required by the OCC Agreement
|
12.00 | % | 9.00 | % | ||||||||||||||||||||||||
Well capitalized ratios
|
10.00 | % | 6.00 | % | 5.00 | % | ||||||||||||||||||||||
Adequately capitalized ratios
|
8.00 | % | 4.00 | % | 4.00 | % |
|
·
|
Tier 1 capital at least equal to 9.00% of adjusted total assets, and
|
|
·
|
Total risk-based capital at least equal to 12.00% of risk weighted assets
|
Supervision and Regulation
|
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
|
CONTROLS AND PROCEDURES
|
PART II –
|
OTHER INFORMATION
|
LEGAL PROCEEDINGS
|
RISK FACTORS
|
|
●
|
Achieving on or before May 25, 2012, and maintaining a Tier 1 Leverage Capital ratio of 9% and Total Risk-Based Capital ratio of 12%.
|
|
●
|
Writing a 3-year strategic plan, which incorporates the capital component.
|
|
●
|
Continuing to improve the Bank’s credit quality and administration thereof, including the monitoring of and proper accounting for problem assets and the allowance for loan losses.
|
|
●
|
Continuing to adhere to and implement the Bank’s liquidity risk management program.
|
|
●
|
Organizing a compliance committee to monitor and coordinate the Bank’s compliance with and adherence to the provisions of the Agreement.
|
|
●
|
a reduction in our ability to generate or originate revenue-producing assets as a result of compliance with heightened capital standards;
|
|
|
●
|
an increase in the cost of operations due to greater regulatory oversight, supervision and examination of banks and bank holding companies, and higher deposit insurance premiums;
|
|
●
|
a limitation on our ability to expand consumer product and service offerings due to anticipated stricter consumer protection laws and regulations.
|
|
●
|
general economic conditions, either nationally or locally in some or all areas in which business is conducted, or conditions in the real estate or securities markets or the banking industry which could affect liquidity in the capital markets, the volume of loan origination, deposit flows, real estate values, the levels of non-interest income and the amount of loan losses;
|
|
●
|
changes in existing loan portfolio composition and credit quality, and changes in loan loss requirements;
|
|
●
|
legislative or regulatory changes which may adversely affect the Company’s business, including but not limited to the impact of the Dodd-Frank Wall Street Reform and Consumer Protection Act and the regulations required to be promulgated thereunder;
|
|
●
|
the Company’s success in implementing its new business initiatives, including expanding its product line, adding new branches and ATM centers and successfully building its brand image;
|
|
●
|
changes in interest rates which may reduce net interest margin and net interest income;
|
|
●
|
increases in competitive pressure among financial institutions or non-financial institutions;
|
|
●
|
technological changes which may be more difficult to implement or expensive than anticipated;
|
|
●
|
changes in deposit flows, loan demand, real estate values, borrowing facilities, capital markets and investment opportunities which may adversely affect the business;
|
|
●
|
changes in accounting principles, policies or guidelines which may cause conditions to be perceived differently;
|
|
●
|
litigation or other matters before regulatory agencies, whether currently existing or commencing in the future, which may delay the occurrence or non-occurrence of events longer than anticipated;
|
|
●
|
the ability to originate and purchase loans with attractive terms and acceptable credit quality;
|
|
●
|
the ability to utilize deferred tax assets;
|
|
●
|
the ability to attract and retain key members of management; and
|
|
●
|
the ability to realize cost efficiencies.
|
DEFAULTS UPON SENIOR SECURITIES
|
EXHIBITS
|
|
31.1
|
Certification of Chief Executive Officer of the Registrant pursuant to Rule 13a-14(a) or Rule 15d-14(a), promulgated under the Securities Exchange Act of 1934, as amended.
|
|
31.2
|
Certification of Chief Financial Officer of the Registrant pursuant to Rule 13a-14(a) or Rule 15d-14(a), promulgated under the Securities Exchange Act of 1934, as amended.
|
|
32.1*
|
Certification of Chief Executive Officer and Chief Financial Officer of the Registrant pursuant to Rule 13a-14(b) or Rule 15d-14(b), promulgated under the Securities Exchange Act of 1934, as Amended, and 18 U.S.C. 1350.
|
|
101**
|
The following materials from the Company’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2012, formatted in XBRL (Extensible Business Reporting Language): (i) the Consolidated Balance Sheets; (ii) the Consolidated Income Statements; (iii) the Consolidated Statement of Stockholders’ Equity; (iv) the Consolidated Statements of Cash Flows; and (v) the Notes to the Consolidated Financial Statements.
|
|
*
|
This certification is furnished to, but shall not be deemed filed, with the Commission. This certification shall not be deemed to be incorporated by reference into any filing under the Securities Act of 1933 or the Securities Exchange Act of 1934, except to the extent that the Registrant specifically incorporates it by reference.
|
|
**
|
Furnished, not filed.
|
COMMUNITY WEST BANCSHARES
|
|||
(Registrant)
|
|||
Date: November 13, 2012
|
By:
|
/s/ Charles G. Baltuskonis
|
|
Charles G. Baltuskonis
|
|||
Executive Vice President and
|
|||
Chief Financial Officer
|
|||
On Behalf of Registrant and as
|
|||
Principal Financial and Accounting
|
|||
Officer
|
Exhibit
Number
|
Description of Document |
|
Certification of Chief Executive Officer of the Registrant pursuant to Rule 13a-14(a) or Rule 15d-14(a), promulgated under the Securities Exchange Act of 1934, as amended.
|
|
Certification of Chief Financial Officer of the Registrant pursuant to Rule 13a-14(a) or Rule 15d-14(a), promulgated under the Securities Exchange Act of 1934, as amended.
|
|
Certification of Chief Executive Officer and Chief Financial Officer of the Registrant pursuant to Rule 13a-14(b) or Rule 15d-14(b), promulgated under the Securities Exchange Act of 1934, as amended, and 18 U.S.C. 1350.
|
101**
|
The following materials from the Company’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2012, formatted in XBRL (Extensible Business Reporting Language): (i) the Consolidated Balance Sheets; (ii) the Consolidated Income Statements; (iii) the Consolidated Statement of Stockholders’ Equity; (iv) the Consolidated Statements of Cash Flows; and (v) the Notes to the Consolidated Financial Statements.
|
|
*
|
This certification is furnished to, but shall not be deemed filed, with the Commission. This certification shall not be deemed to be incorporated by reference into any filing under the Securities Act of 1933 or the Securities Exchange Act of 1934, except to the extent that the Registrant specifically incorporates it by reference.
|
|
**
|
Furnished, not filed.
|
|
1.
|
I have reviewed this quarterly report on Form 10-Q of Community West Bancshares;
|
|
2.
|
Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
|
|
3.
|
Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
|
|
4.
|
The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and we have:
|
|
a.
|
Designed such disclosure controls and procedures or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this quarterly report is being prepared;
|
|
b.
|
Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
|
|
c.
|
Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
|
|
d.
|
Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting: and
|
|
5.
|
The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of registrant’s board of directors (or persons performing the equivalent functions):
|
|
a)
|
All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
|
|
b)
|
Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.
|
/s/ Martin E. Plourd
|
|||
Martin E. Plourd
|
|||
President and Chief Executive Officer
|
|||
Community West Bancshares | |||
November 13, 2012
|
|
1.
|
I have reviewed this quarterly report on Form 10-Q of Community West Bancshares;
|
|
2.
|
Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
|
|
3.
|
Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
|
|
4.
|
The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and we have:
|
|
a.
|
Designed such disclosure controls and procedures or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this quarterly report is being prepared;
|
|
b.
|
Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
|
|
c.
|
Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
|
|
d.
|
Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting: and
|
|
5.
|
The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of registrant’s board of directors (or persons performing the equivalent functions):
|
|
a)
|
All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
|
|
b)
|
Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.
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/s/ Charles G. Baltuskonis
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Charles G. Baltuskonis
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Executive Vice President and
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Chief Financial Officer
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Community West Bancshares
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November 13, 2012
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1.
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The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended and
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2.
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The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Registrant as of and for the periods presented in the Report.
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/s/ Martin E. Plourd
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Martin E. Plourd
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President and Chief Executive Officer
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/s/ Charles G. Baltuskonis
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Charles G. Baltuskonis
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Executive Vice President and
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Chief Financial Officer
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November 13, 2012
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EARNINGS PER SHARE (Details) (USD $)
In Thousands, except Share data, unless otherwise specified |
3 Months Ended | 9 Months Ended | ||
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Sep. 30, 2012
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Sep. 30, 2011
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Sep. 30, 2012
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Sep. 30, 2011
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Reconciliation of basic and diluted earnings per share [Abstract] | ||||
Net income (loss) | $ 613 | $ (2,307) | $ 841 | $ (1,932) |
Less: Dividends and accretion on preferred stock | 253 | 261 | 785 | 785 |
Net income (loss) applicable to common stockholders | $ 360 | $ (2,568) | $ 56 | $ (2,717) |
Basic weighted average number of common shares outstanding (in shares) | 5,990,000 | 5,988,000 | 5,990,000 | 5,977,000 |
Diluted weighted average number of common shares outstanding (in shares) | 8,233,000 | 5,988,000 | 8,233,000 | 5,977,000 |
Income (loss) per common share: [Abstract] | ||||
Basic (in dollars per share) | $ 0.06 | $ (0.43) | $ 0.01 | $ (0.45) |
Diluted (in dollars per share) | $ 0.06 | $ (0.43) | $ 0.01 | $ (0.45) |
Debenture shares not included in diluted earnings per share calculation (in shares) | 2,243,429 | 2,243,429 |
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
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9 Months Ended | ||||||||||||||||||||||||||||||
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Sep. 30, 2012
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SUMMARY OF SIGNIFICANT OF ACCOUNTING POLICIES [Abstract] | |||||||||||||||||||||||||||||||
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES | 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Loans Held for Investment – Loans are recognized at the principal amount outstanding, net of unearned income, loan participations and amounts charged off. Unearned income includes deferred loan origination fees reduced by loan origination costs. Unearned income on loans is amortized to interest income over the life of the related loan using the level yield method. The following is a description of the loan categories held for investment. Commercial Loans In addition to traditional term commercial loans made to business customers, the Company grants revolving business lines of credit. Under the terms of the revolving lines of credit, the Company grants a maximum loan amount, which remains available to the business during the loan term. Generally, as part of the loan requirements, the business agrees to maintain its primary banking relationship with the Company. The collateral for these loans typically are secured by UCC-1 financing statements, real estate and personal guarantees. The Company does not extend material loans of this type in excess of two years. Commercial Real Estate Commercial real estate and construction loans are primarily made for the purpose of purchasing, improving or constructing single-family residences, commercial or industrial properties. This loan category also includes SBA 504 loans and land loans. A substantial portion of the Company's real estate construction loans are first and second trust deeds on the construction of owner-occupied single family dwellings. The Company also makes real estate construction loans on commercial properties. These consist of first and second trust deeds collateralized by the related real property. Construction loans are generally written with terms of six to eighteen months and usually do not exceed a loan to appraised value of 80%. All construction loans require UCC-1 filings to secure on-site building materials, including but not limited to lumber, plumbing fixtures and dry wall. Commercial and industrial real estate loans are secured by nonresidential property. Office buildings or other commercial property primarily secure these loans. Loan to appraised value ratios on nonresidential real estate loans are generally restricted to 75% of appraised value of the underlying real property if occupied by the owner or owner's business; otherwise, these loans are generally restricted to 70% of appraised value of the underlying real property. SBA 504 loans are made in conjunction with Certified Development Companies. These loans are granted to purchase or construct real estate or acquire machinery and equipment. The loan is structured with a conventional first trust deed provided by a private lender and a second trust deed which is funded through the sale of debentures. The predominant structure is terms of 10% down payment, 50% conventional first loan and 40% debenture. Construction loans of this type must provide additional collateral to reduce the loan-to-value to approximately 75%. Conventional and investor loans are sometimes funded by our secondary-market partners and the Company receives a premium for these transactions. SBA Loans SBA loans consist of 7(a) and Business and Industry loans ("B&I"). The 7(a) loan proceeds are used for working capital, machinery and equipment purchases, land and building purposes, leasehold improvements and debt refinancing. At present, the SBA guarantees as much as 85% on loans up to $150,000 and 75% on loans more than $150,000. In certain instances, the Company sells a portion of the loans, however, under the SBA 7(a) loan program, the Company is required to retain a minimum of 5% of the principal balance of each loan it sells into the secondary market. Agricultural Loans for real estate and operating lines The Company has expanded its agricultural lending program for agricultural land, agricultural operational lines, and agricultural term loans for crops, equipment and livestock. The primary product is supported by guarantees issued from the U.S. Department of Agriculture ("USDA"), Farm Service Agency ("FSA"), and the USDA Business and Industry loan program. The FSA loans typically issue a 90% guarantee up to $1,214,000 for 40 years or 480 months. The rates are typically fixed for 5 years and reset on the 61st month. The agricultural term loans and operating lines can be either fixed or variable. The operating lines are committed up to 7 years or 84 months and the term loans can be for 7 years or 84 months. The USDA Business and Industry loans have up to 80% guarantee on loan amounts up to $5,000,000. These loans can be utilized for rural commercial real estate and equipment. The loans can be up to 30 years or 360 months. The rates can be fixed or variable. Single Family Real Estate Loans The Company originates loans that consist of first and second mortgage loans secured by trust deeds on one-to-four family homes. These loans are made to borrowers for purposes such as purchasing a home, refinancing an existing home, interest rate reduction, home improvement, or debt consolidation. Generally, these loans are underwritten to specific investor guidelines and are committed for sale to that investor. Although the majority of these loans are sold servicing released into the secondary market, a relatively small percentage is held as part of the Company's portfolio. Manufactured Housing Loans The Company originates loans secured by manufactured homes located in approved mobile home parks in our primary lending area of Santa Barbara and Ventura Counties as well as along the California coast. The loans are serviced internally and are originated under one of two programs: fixed rate loans written for terms of 10 to 20 years; and adjustable rate loans written for a term of 30 years with the initial interest rates fixed for the first 5 or 10 years and then adjusting annually subject to caps and floors. HELOC The Company provides lines of credit collateralized by residential real estate, home equity lines of credit ("HELOC"), for consumer related purposes. Typically, HELOCs are collateralized by a second deed of trust. The combined loan-to-value, first trust deed and second trust deed, are not to exceed 75% on all new HELOCs. Other Installment Loans Installment loans consist of automobile and general-purpose loans made to individuals. These loans are primarily fixed rate. Provision and Allowance for Loan Losses – The Company maintains a detailed, systematic analysis and procedural discipline to determine the amount of the allowance for loan losses ("ALL"). The ALL is based on estimates and is intended to be adequate to provide for probable losses inherent in the loan portfolio. This process involves deriving probable loss estimates that are based on migration analysis/historical loss rates and qualitative factors that are based on management's judgment. The migration analysis and historical loss rate calculations are based upon the annualized loss rates utilizing a twelve-quarter loss history. Migration analysis is utilized for the Commercial Real Estate, Commercial, SBA, HELOC, Single Family Residential, and Consumer portfolios. The historical loss rate method is utilized for the homogeneous loan categories, primarily the Manufactured Housing portfolio. The migration analysis takes into account the risk rating of loans that are charged off in each loan category. Loans that are considered Doubtful are typically charged off. The following is a description of the characteristics of loans graded Pass, Special Mention, Substandard, Doubtful and Loss. Loan ratings are reviewed as part of our normal loan monitoring process, but, at a minimum, updated on an annual basis. Pass Loans rated in this category are acceptable loans, appropriately underwritten, bearing an ordinary risk of loss to the Company. Loans in this category are loans to quality borrowers with financial statements presenting a good primary source as well as an adequate secondary source of repayment. In the case of individuals, borrowers deserving of this rating are quality borrowers demonstrating a reasonable level of secure income, a net worth adequate to support the loan and presenting a good primary source as well as an adequate secondary source of repayment. Special Mention A Special Mention loan has potential weaknesses that deserve management's close attention. If left uncorrected, these potential weaknesses may result in deterioration of the repayment prospects for the loan or in the institution's credit position at some future date. Special mention assets are not adversely classified and do not expose an institution to sufficient risk to warrant adverse classification. Substandard A Substandard loan is inadequately protected by the current sound net worth and paying capacity of the obligor or of the collateral pledged, if any. Loans so classified have a well-defined weakness or weaknesses that jeopardize the liquidation of the debt. They are characterized by the distinct possibility that the Company will sustain some loss if the deficiencies are not corrected. Doubtful A loan classified Doubtful has all the weaknesses inherent in one classified Substandard with the added characteristic that the weaknesses make collection or liquidation in full, on the basis of currently existing facts, conditions, and values, highly questionable and improbable. The possibility of loss is extremely high, but because of certain important and reasonably specific pending factors, which may work to the advantage and strengthening of the loan, its classification as an estimated loss is deferred until its more exact status may be determined. Pending factors include proposed merger, acquisition or liquidation procedures, capital injection, perfecting liens on additional collateral and refinancing plans. Loss Loans classified Loss are considered uncollectible and of such little value that their continuance as bankable loans is not warranted. This classification does not mean that the asset has absolutely no recovery or salvage value, but rather it is not practical or desirable to defer writing off this loan even though partial recovery may be affected in the future. Losses are taken in the period in which they surface as uncollectible. The following is the Company's policy regarding charging off loans by loan categories. Commercial, Commercial Real Estate and SBA Loans Charge-offs on these loan categories are taken as soon as all or a portion of any loan balance is deemed to be uncollectible. A loan is considered uncollectible when the debtor is delinquent in principal or interest repayment 90 days or more and, in the opinion of the Company, improvement in the debtor's ability to repay the debt in a timely manner is doubtful. Also, collateral value is insufficient to cover the outstanding indebtedness. Loans secured by real estate on which principal or interest is due and unpaid for 90 days are evaluated for possible charge-down and placed on non-accrual. Generally, loan balances are charged-down to the fair value of the property, if, based on a current appraisal, an apparent deficiency exists. In the event there is no perceived equity, the loan is charged-off in full like any other unsecured loan, which is not secured and over 90 days. Single Family Real Estate, HELOC's and Manufactured Housing Loans Consumer loans and residential mortgages secured by one-to-four family residential properties, HELOC and manufactured housing loans in which principal or interest is due and unpaid for 90 days, are evaluated for possible charge-down. Loan balances are charged-down to the fair value of the property if, based on a current appraisal, an apparent deficiency exists. In the event there is no perceived equity, the loan is generally charged-off in full like any other consumer loan, which is not secured and unpaid over 90-120 days. Consumer Loans All consumer loans (excluding real estate mortgages, home equity loans and savings secured loans) are charged-off or charged-down to net recoverable value before becoming 120 days or 5 payments delinquent. Consumer losses are identified well before the 120 day limit whenever possible. Net recoverable value can only be determined if the collateral is in the Company's possession, and its liquidation value can be verified and realized in the near term. The second component of the ALL covers qualitative factors related to non-impaired loans. The qualitative allowance on each of the loan pools is based on the following factors:
The ALL calculation for the different loan portfolios is as follows:
The Company evaluates and individually assesses for impairment loans generally greater than $500,000, classified as substandard or doubtful in addition to loans either on nonaccrual, considered a troubled debt restructuring ("TDR") or when other conditions exist which lead management to review for possible impairment. The $500,000 threshold for the evaluation of individual loans for impairment represents a change instituted in the second quarter of 2012. Previously, the threshold for the evaluation of loans for impairment was $100,000. Measurement of impairment on impaired loans is determined on a loan-by-loan basis and in total establishes a specific reserve for impaired loans. The amount of impairment is determined by comparing the recorded investment in each loan with its value measured by one of three methods.
Interest income is not recognized on impaired loans except for limited circumstances in which a loan, although impaired, continues to perform in accordance with the loan contract and the borrower provides financial information to support maintaining the loan on accrual. The Company determines the appropriate ALL on a monthly basis and updates the qualitative factors quarterly. Any differences between estimated and actual observed losses from the prior month are reflected in the current period in determining the appropriate ALL determination and adjusted as deemed necessary. The review of the adequacy of the allowance takes into consideration such factors as concentrations of credit, changes in the growth, size and composition of the loan portfolio, overall and individual portfolio quality, review of specific problem loans, collateral, guarantees and economic and environmental conditions that may affect the borrowers' ability to pay and/or the value of the underlying collateral. Additional factors considered include: geographic location of borrowers, changes in the Company's product-specific credit policy and lending staff experience. These estimates depend on the outcome of future events and, therefore, contain inherent uncertainties. The Company's ALL is maintained at a level believed adequate by management to absorb known and inherent probable losses on existing loans. A provision for loan losses is charged to expense. The allowance is charged for losses when management believes that full recovery on the loan is unlikely. The Company has outsourced and centralized appraisal management processes that track and monitor appraisals, appraisal reviews and other valuations. The centralization focus is to ensure the use of qualified and independent appraisers capable of providing reliable real estate values in the context of ever changing market conditions. The review process is monitored to ensure application of the appropriate appraisal methodology, agreement with the interpretation of market data and the resultant real estate value. The process also provides the means of tracking the performance quality of the appraisers on the Company's approved appraiser list. Any loan evaluation that results in the Company determining that elevated credit risk and/or default risk exists and also exhibits a lack of a timely valuation of the collateral or apparent collateral value deterioration is reappraised and reevaluated to determine the current extent of any change in collateral value and credit risk. A similar review process is conducted quarterly on all classified and criticized real estate credits to determine the timeliness and adequacy of the real estate collateral value. Foreclosed Real Estate and Repossessed Assets – Foreclosed real estate and other repossessed assets are recorded at fair value at the time of foreclosure less estimated costs to sell. Any excess of loan balance over the fair value less estimated costs to sell of the other assets is charged-off against the allowance for loan losses. Any excess of the fair value less estimated costs to sell over the loan balance is recorded as a loan loss recovery to the extent of the loan loss previously charged-off against the allowance for loan losses; and, if greater, recorded as a gain on foreclosed real estate. Subsequent to the legal ownership date, management periodically performs a new valuation and the asset is carried at the lower of carrying amount or fair value less estimated costs to sell. Operating expenses or income, and gains or losses on disposition of such properties, are recorded in current operations. Income Taxes – The Company uses the asset and liability method, which recognizes a liability or asset representing the tax effects of future deductible or taxable amounts that have been recognized in the consolidated financial statements. Due to tax regulations, certain items of income and expense are recognized in different periods for tax return purposes than for financial statement reporting. These items represent "temporary differences." Deferred income taxes are recognized for the tax effect of temporary differences between the tax basis of assets and liabilities and their financial reporting amounts at each period end based on enacted tax laws and statutory tax rates applicable to the periods in which the differences are expected to affect taxable income. A valuation allowance is established for deferred tax assets if, based on weight of available evidence, it is more likely than not that some portion or all of the deferred tax assets may not be realized. As of December 31, 2011, the deferred tax asset, net of valuation allowance, totaled $306,000. Management evaluates the Company's deferred tax asset for recoverability using a consistent approach which considers the relative impact of negative and positive evidence, including the Company's historical profitability and projections of future taxable income. The Company is required to establish a valuation allowance for deferred tax asset and record a charge to income if Management determines, based on available evidence at the time the determination is made, that it is more likely than not that some portion or all of the deferred tax asset may not be realized. For the three-year period ended December 31, 2011, the Company was in a cumulative pretax loss position. For purposes of establishing a deferred tax valuation allowance, this cumulative pretax loss position was considered significant, objective evidence that the Company may not be able to realize some portion of the deferred tax asset in the future. As a result, the Company established a valuation allowance for the deferred tax asset of $6.7 million as of December 31, 2011. The net deferred tax asset of $306,000 represented the estimated amount of tax that Management has determined may be recoverable through carryback of tax losses to prior years. Net income represents positive evidence for the reduction of the deferred tax valuation allowance. Based on net income of $841,000 for the first nine months ended September 30, 2012, the deferred tax valuation allowance was reduced by $354,000 to $6.3 million at September 30, 2012. The net deferred tax asset increased from $306,000 at December 31, 2011 to $660,000 at September 30, 2012. The Company is subject to the provisions of ASC 740, Income Taxes (ASC 740). ASC 740 prescribes a more-likely-than-not threshold for the financial statement recognition of uncertain tax positions. ASC 740 clarifies the accounting for income taxes by prescribing a minimum recognition threshold and measurement attribute for the financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return. On a quarterly basis, the Company evaluates income tax accruals in accordance with ASC 740 guidance on uncertain tax positions. Earnings Per Share - Basic earnings per common share is computed using the weighted average number of common shares outstanding for the period divided into the net income (loss) applicable to common shareholders. Diluted earnings per share include the effect of all dilutive potential common shares for the period. Potentially dilutive common shares include stock options, warrants and shares that could result from the conversion of debenture bonds. Recent Accounting Pronouncements – In May 2011, the FASB issued ASU No. 2011-04, "Amendments to Achieve Common Fair Value Measurement and Disclosure Requirements in U.S. GAAP and IFRSs." ASU No. 2011-04 results in a consistent definition of fair value and common requirements for measurement of and disclosure about fair value between U.S. GAAP and International Financial Reporting Standards ("IFRS"). The changes to U.S. GAAP as a result of ASU No. 2011-04 are as follows: (1) The concepts of highest and best use and valuation premise are only relevant when measuring the fair value of nonfinancial assets (that is, it does not apply to financial assets or any liabilities); (2) U.S. GAAP currently prohibits application of a blockage factor in valuing financial instruments with quoted prices in active markets. ASU No. 2011-04 extends that prohibition to all fair value measurements; (3) An exception is provided to the basic fair value measurement principles for an entity that holds a group of financial assets and financial liabilities with offsetting positions in market risks or counterparty credit risk that are managed on the basis of the entity's net exposure to either of those risks. This exception allows the entity, if certain criteria are met, to measure the fair value of the net asset or liability position in a manner consistent with how market participants would price the net risk position; (4) Aligns the fair value measurement of instruments classified within an entity's shareholders' equity with the guidance for liabilities; and (5) Disclosure requirements have been enhanced for recurring Level 3 fair value measurements to disclose quantitative information about unobservable inputs and assumptions used, to describe the valuation processes used by the entity, and to describe the sensitivity of fair value measurements to changes in unobservable inputs and interrelationships between those inputs. In addition, entities must report the level in the fair value hierarchy of items that are not measured at fair value in the balance sheet but whose fair value must be disclosed. The provisions of ASU No. 2011-04 are effective for the Company's interim reporting period beginning on or after December 15, 2011. The adoption of ASU No. 2011-04 did not have a material impact on the Company's balance sheets and statements of income. In June 2011, the FASB issued ASU No. 2011-05, "Presentation of Comprehensive Income." The provisions of ASU No. 2011-05 allow an entity the option to present the total of comprehensive income, the components of net income, and the components of other comprehensive income ("OCI") either in a single continuous statement of comprehensive income or in two separate but consecutive statements. In both choices, an entity is required to present each component of net income along with total net income, each component of OCI along with a total for OCI, and a total amount for comprehensive income. The statement(s) are required to be presented with equal prominence as the other primary financial statements. ASU No. 2011-05 eliminates the option to present the components of OCI as part of the statement of changes in shareholders' equity but does not change the items that must be reported in OCI or when an item of OCI must be reclassified to net income. The provisions of ASU No. 2011-05 are effective for the Company's interim reporting period beginning on or after December 15, 2011, with retrospective application required. The adoption of ASU No. 2011-05 resulted in presentation changes to the Company's statements of income and the addition of a statement of comprehensive income. The adoption of ASU No. 2011-05 had no impact on the Company's balance sheets. In December 2011, the FASB issued ASU 2011-12 "Deferral of the Effective Date for Amendments to the Presentation of Reclassifications of Items Out of Accumulated Other Comprehensive Income in Accounting Standards Update No. 2011-05". The amendments are being made to allow the FASB time to re-deliberate whether to present on the face of the financial statements the effects of reclassifications out of accumulated other comprehensive income on the components of net income and OCI for all periods presented. Entities should continue to report reclassifications out of accumulated other comprehensive income consistent with the presentation requirements in effect before ASU 2011-05. The adoption of ASU 2011-12 will have no impact on the Company's balance sheets. |