SECURITIES AND EXCHANGE COMMISSION
Washington D.C. 20549
FORM 10-Q
Quarterly Report
Pursuant to Section 13 or 15(d) of
the Securities Exchange Act of 1934
For the Quarterly Period Ended March 31, 2012
FNB BANCORP
(Exact name of registrant as specified in its charter)
California
(State or other jurisdiction of incorporation)
000-49693 | 91-2115369 |
(Commission File Number) | (IRS Employer Identification No.) |
975 El Camino Real, South San Francisco, California | 94080 |
(Address of principal executive offices) | (Zip Code) |
Registrants telephone number, including area code: (650) 588-6800
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x No o
Indicate by check mark whether the registrant has submitted electronically and posted on its Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). x Yes o No
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):
Large accelerated filer o | Accelerated filer o | |
Non-accelerated filer x | Smaller reporting company o | |
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes o No x
Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date: Common Stock as of May 2, 2012: 3,511,252 shares.
FNB BANCORP
QUARTERLY REPORT ON FORM 10-Q
TABLE OF CONTENTS
2 |
FNB BANCORP AND SUBSIDIARY
(UNAUDITED)
March 31, | December 31, | |||||||
(Dollar amounts in thousands) | 2012 | 2011 | ||||||
ASSETS | ||||||||
Cash and due from banks | $ | 45,118 | $ | 38,474 | ||||
Securities available-for-sale, at fair value | 205,353 | 187,664 | ||||||
Loans, net of allowance for loan losses of $8,287 and $9,897 on March 31, 2012 and December 31, 2011, respectively | 447,302 | 443,721 | ||||||
Bank premises, equipment, and leasehold improvements, net | 13,042 | 13,227 | ||||||
Bank-owned life insurance, net | 11,491 | 9,521 | ||||||
Other equity securities | 4,580 | 4,608 | ||||||
Accrued interest receivable | 3,577 | 3,614 | ||||||
Other real estate owned | 1,920 | 2,747 | ||||||
Prepaid expenses | 1,844 | 2,107 | ||||||
Goodwill | 1,841 | 1,841 | ||||||
Other assets | 10,581 | 8,117 | ||||||
Total assets | $ | 746,649 | $ | 715,641 | ||||
LIABILITIES AND STOCKHOLDERS EQUITY | ||||||||
Deposits | ||||||||
Demand, noninterest bearing | $ | 150,199 | $ | 139,382 | ||||
Demand, interest bearing | 65,996 | 63,308 | ||||||
Savings and money market | 327,592 | 310,237 | ||||||
Time | 107,904 | 108,851 | ||||||
Total deposits | 651,691 | 621,778 | ||||||
Accrued expenses and other liabilities | 7,068 | 6,667 | ||||||
Total liabilities | 658,759 | 628,445 | ||||||
Stockholders equity: | ||||||||
Preferred stock - series C - no par value, authorized and outstanding 12,600 shares (liquidation preference of $1,000 per share) | 12,600 | 12,600 | ||||||
Common stock, no par value, authorized 10,000,000 shares; issued and outstanding 3,507,428 shares at March 31, 2012 and 3,506,405 shares at December 31, 2011 | 48,966 | 48,895 | ||||||
Retained earnings | 23,318 | 22,427 | ||||||
Accumulated other comprehensive income, net of tax | 3,006 | 3,274 | ||||||
Total stockholders equity | 87,890 | 87,196 | ||||||
Total liabilities and stockholders equity | $ | 746,649 | $ | 715,641 | ||||
See accompanying notes to consolidated financial statements.
3 |
FNB BANCORP AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF EARNINGS
(UNAUDITED)
Three months ended | ||||||||
March 31, | ||||||||
(Dollar amounts in thousands, except per share amounts) | 2012 | 2011 | ||||||
Interest income: | ||||||||
Interest and fees on loans | $ | 6,755 | $ | 7,438 | ||||
Interest on taxable securities | 613 | 404 | ||||||
Interest on tax-exempt securities | 514 | 377 | ||||||
Total interest income | 7,882 | 8,219 | ||||||
Interest expense: | ||||||||
Deposits | 684 | 884 | ||||||
Total interest expense | 684 | 884 | ||||||
Net interest income | 7,198 | 7,335 | ||||||
Provision for loan losses | 400 | 450 | ||||||
Net interest income after provision for loan losses | 6,798 | 6,885 | ||||||
Noninterest income: | ||||||||
Service charges | 752 | 697 | ||||||
Credit card fees | 153 | 150 | ||||||
Gain on sale of available-for-sale securities | 484 | 22 | ||||||
Bank-owned life insurance policy earnings | 467 | 81 | ||||||
Other income | 64 | 63 | ||||||
Total noninterest income | 1,920 | 1,013 | ||||||
Noninterest expense: | ||||||||
Salaries and employee benefits | 3,774 | 3,486 | ||||||
Occupancy expense | 600 | 556 | ||||||
Equipment expense | 446 | 408 | ||||||
Professional fees | 588 | 364 | ||||||
FDIC assessment | 180 | 375 | ||||||
Acquisition related expense | 175 | | ||||||
Telephone, postage and supplies | 278 | 313 | ||||||
Operating losses | 108 | 224 | ||||||
Bankcard expenses | 156 | 136 | ||||||
Data processing expense | 138 | 132 | ||||||
Low income housing expense | 69 | 69 | ||||||
Other real estate owned expense | 36 | 188 | ||||||
Loss (gain) on sale of other real estate owned | 5 | (91 | ) | |||||
Other expense | 500 | 588 | ||||||
Total noninterest expense | 7,053 | 6,748 | ||||||
Earnings before income tax expense | 1,665 | 1,150 | ||||||
Income tax expense | 377 | 347 | ||||||
Net earnings | 1,288 | 803 | ||||||
Dividends and discount accretion on preferred stock | (186 | ) | (214 | ) | ||||
Net earnings available to common stockholders | $ | 1,102 | $ | 589 | ||||
Earnings per share data: | ||||||||
Basic | $ | 0.31 | $ | 0.17 | ||||
Diluted | $ | 0.31 | $ | 0.17 | ||||
Weighted average shares outstanding: | ||||||||
Basic | 3,510,000 | 3,508,000 | ||||||
Diluted | 3,550,000 | 3,521,000 | ||||||
See accompanying notes to consolidated financial statements.
4 |
FNB BANCORP AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF COMPREHENSIVE EARNINGS
(UNAUDITED)
(Dollar amounts in thousands) | Three months ended | |||||||
March 31, | ||||||||
2012 | 2011 | |||||||
Net earnings | $ | 1,288 | $ | 803 | ||||
Unrealized holding gain on available-for-sale securities | 17 | 297 | ||||||
Reclassification adjustment for gain on available-for-sale securities sold, net of tax | (285 | ) | (13 | ) | ||||
Total comprehensive earnings | $ | 1,020 | $ | 1,087 | ||||
See accompanying notes to consolidated financial statements.
5 |
FNB BANCORP AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
(Dollar amounts in thousands) | Three months ended | |||||||
March 31 | ||||||||
2012 | 2011 | |||||||
Cash flow from operating activities: | ||||||||
Net earnings | $ | 1,288 | $ | 803 | ||||
Adjustments to reconcile net earnings to net cash provided by operating activities: | ||||||||
Gain on sale of securities available-for-sale | (484 | ) | (22 | ) | ||||
Depreciation, amortization and accretion | 807 | 676 | ||||||
Loss (gain) on sale of other real estate owned | 5 | (91 | ) | |||||
Stock-based compensation expense | 62 | 73 | ||||||
Provision for loan losses | 400 | 450 | ||||||
Other equity securities | 28 | 155 | ||||||
Decrease (increase) in accrued interest receivable | 37 | (38 | ) | |||||
Decrease in prepaid expense | 263 | 420 | ||||||
(Increase) decrease in bank-owned life insurance | (1,970 | ) | 1,015 | |||||
Decrease in other assets | (2,464 | ) | (1,530 | ) | ||||
Increase (decrease) in accrued expenses and other liabilities | 587 | (78 | ) | |||||
Net cash (used in) provided by operating activities | (1,441 | ) | 1,833 | |||||
Cash flows from investing activities: | ||||||||
Purchase of securities available-for-sale | (32,929 | ) | (10,123 | ) | ||||
Proceeds from matured/called/sold securities available-for-sale | 14,835 | 4,642 | ||||||
Proceeds from sale of other real estate owned | 832 | 1,159 | ||||||
Net investment in other real estate owned | (10 | ) | | |||||
Net (increase) decrease in loans | (3,981 | ) | 10,633 | |||||
Purchases of bank premises, equipment, leasehold improvements | (187 | ) | (364 | ) | ||||
Net cash (used in) provided by investing activities | (21,440 | ) | 5,947 | |||||
Cash flows from financing activities: | ||||||||
Net increase (decrease) in demand and savings deposits | 30,860 | (7,314 | ) | |||||
Net decrease in time deposits | (947 | ) | (11,684 | ) | ||||
Dividends paid on common stock | (211 | ) | (167 | ) | ||||
Dividends paid on preferred stock series A and B | | (163 | ) | |||||
Dividends paid on preferred stock series C | (186 | ) | | |||||
Exercise of stock options | 9 | | ||||||
Net cash provided by (used in) provided by financing activities | 29,525 | (19,328 | ) | |||||
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS | 6,644 | (11,548 | ) | |||||
Cash and cash equivalents at beginning of period | 38,474 | 60,874 | ||||||
Cash and cash equivalents at end of period | $ | 45,118 | $ | 49,326 | ||||
Additional cash flow information | ||||||||
Interest paid | 700 | 870 | ||||||
Income taxes paid | 930 | 810 | ||||||
Non-cash investing and financing activities: | ||||||||
Accrued dividends | 210 | 167 | ||||||
Change in fair value of available for-sale securities | (268 | ) | 284 | |||||
Deemed dividends on preferred stock | | (51 | ) | |||||
See accompanying notes to consolidated financial statements.
6 |
FNB BANCORP AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2012
(UNAUDITED)
NOTE A – BASIS OF PRESENTATION
FNB Bancorp (the “Company”) is a bank holding company registered under the Bank Holding Company Act of 1956, as amended. The Company was incorporated under the laws of the State of California on February 28, 2001. The consolidated financial statements include the accounts of FNB Bancorp and its wholly-owned subsidiary, First National Bank of Northern California (the “Bank”). The Bank provides traditional banking services in San Mateo and San Francisco counties.
All intercompany transactions and balances have been eliminated in consolidation. The financial statements include all adjustments of a normal and recurring nature, which are, in the opinion of management, necessary for a fair presentation of the financial position and results of operations for the periods presented.
The accompanying unaudited consolidated financial statements have been prepared in accordance with the instructions to Form 10-Q and, therefore, do not include all information and footnotes normally included in annual financial statements prepared in conformity with accounting principles generally accepted in the United States of America. Accordingly, these consolidated financial statements should be read in conjunction with the consolidated audited financial statements and notes thereto for the year ended December 31, 2011. Results of operations for interim periods are not necessarily indicative of results for the full year.
NOTE B – STOCK OPTION PLANS
Stock option expense is recorded based on the fair value of option contracts issued. The fair value is determined by the expected contract term, the risk free interest rate, the volatility of the Company’s stock price and the level of dividends the Company is expected to pay.
The expected term of options granted is derived from historical plan behavior and represents the period of time that options granted are expected to be outstanding. The risk-free rate for periods within the contractual life of the option is based on the U. S. Treasury yield curve in effect at the time of the grant.
The amount of compensation expense for options recorded in the quarters ended March 31, 2012 and 2011 was $62,000 and $73,000, respectively. There was no income tax benefit recognized in the statements of earnings for these amounts for the quarters ended March 31, 2012 and 2011, respectively.
7 |
The intrinsic value for options exercised during the quarter ended March 31, 2012 was $3,000. The intrinsic value of options exercisable during the quarter ended March 31, 2012 was $509,000. There were no options exercised during the quarter ended March 31, 2011.
The amount of total unrecognized compensation expense related to non-vested options at March 31, 2012 was $535,000, and the weighted average period over which it will be amortized is 3.2 years.
NOTE C – EARNINGS PER SHARE CALCULATION
Earnings per common share (EPS) are computed based on the weighted average number of common shares outstanding during the period. Basic EPS excludes dilution and is computed by dividing net earnings (loss) available to common stockholders (after deducting dividends and related accretion on preferred stock) by the weighted average of common shares outstanding. Diluted EPS reflects the potential dilution that could occur if securities or other contracts to issue common stock were exercised or converted into common stock. All common stock equivalents are anti-dilutive when a net loss occurs.
Earnings per share have been computed based on the following :
(Dollar amounts in thousands) | Three months ended | |||||||
March 31, | ||||||||
2012 | 2011 | |||||||
Net earnings | $ | 1,288 | $ | 803 | ||||
Dividends and discount accretion on preferred stock | (186 | ) | (214 | ) | ||||
Net earnings available to common shareholders | $ | 1,102 | $ | 589 | ||||
Average number of shares outstanding | 3,510,000 | 3,508,000 | ||||||
Effect of dilutive options | 40,000 | 13,000 | ||||||
Average number of shares outstanding used to calculate diluted earnings per share | 3,550,000 | 3,521,000 |
Antidilutive options were excluded from the calculation totaled 418,505 and 399,033 in 2012 and 2011, respectively.
NOTE D – SECURITIES AVAILABLE FOR SALE
The amortized cost and carrying values of securities available-for-sale are as follows:
(Dollar amounts in thousands) | Amortized | Unrealized | Unrealized | Carrying | ||||||||||||
cost | gains | losses | value | |||||||||||||
March 31, 2012 | ||||||||||||||||
U.S. Treasury securities | $ | 10,306 | $ | 194 | $ | | $ | 10,500 | ||||||||
Obligations of U.S. Government agencies | 59,181 | 963 | (56 | ) | 60,088 | |||||||||||
Mortgage-backed securities | 41,423 | 1,080 | (23 | ) | 42,480 | |||||||||||
Obligations of states and political subdivisions | 72,960 | 2,933 | (78 | ) | 75,815 | |||||||||||
Corporate debt | 16,389 | 217 | (136 | ) | 16,470 | |||||||||||
$ | 200,259 | $ | 5,387 | $ | (293 | ) | $ | 205,353 | ||||||||
8 |
(Dollar amounts in thousands) | Amortized | Unrealized | Unrealized | Carrying | |||||||||||
cost | gains | losses | value | ||||||||||||
December 31, 2011: | |||||||||||||||
U.S. Treasury securities | $ | 12,371 | $ | 263 | $ | | $ | 12,634 | |||||||
Obligations of U.S. government agencies | 53,150 | 964 | (12 | ) | 54,102 | ||||||||||
Mortgage-backed securities | 32,606 | 838 | (9 | ) | 33,435 | ||||||||||
Obligations of states and political subdivisions | 73,674 | 3,592 | (15 | ) | 77,251 | ||||||||||
Corporate debt | 10,314 | 102 | (174 | ) | 10,242 | ||||||||||
$ | 182,115 | $ | 5,759 | $ | (210 | ) | $ | 187,664 |
An analysis of gross unrealized losses of the available-for-sale investment securities portfolio as of March 31, 2012 and December 31, 2011, respectively, is as follows:
(Dollar amounts in thousands) | Less than | 12 Months | ||||||||||||||||||||||
Total | 12 Months | Total | or Longer | Total | Total | |||||||||||||||||||
Fair | Unrealized | Fair | Unrealized | Fair | Unrealized | |||||||||||||||||||
Value | Losses | Value | Losses | Value | Losses | |||||||||||||||||||
March 31, 2012 | ||||||||||||||||||||||||
Obligations of U.S. Government agencies | $ | 9,436 | $ | (56 | ) | $ | | $ | | $ | 9,436 | $ | (56 | ) | ||||||||||
Mortgage-backed securities | 7,212 | (23 | ) | | | 7,212 | (23 | ) | ||||||||||||||||
Obligations of states and political subdivisions | 6,400 | (78 | ) | | | 6,400 | (78 | ) | ||||||||||||||||
Corporate debt | 7,185 | (86 | ) | 450 | (50 | ) | 7,635 | (136 | ) | |||||||||||||||
Total | $ | 30,233 | $ | (243 | ) | $ | 450 | $ | (50 | ) | $ | 30,683 | $ | (293 | ) |
(Dollar amounts in thousands) | Less than | 12 Months | ||||||||||||||||||||||
Total | 12 Months | Total | or Longer | Total | Total | |||||||||||||||||||
Fair | Unrealized | Fair | Unrealized | Fair | Unrealized | |||||||||||||||||||
Value | Losses | Value | Losses | Value | Losses | |||||||||||||||||||
December 31, 2011: | ||||||||||||||||||||||||
Obligations of U.S. government agencies | 6,293 | (12 | ) | $ | | $ | | 6,293 | (12 | ) | ||||||||||||||
Mortgage-backed securities | 6,466 | (9 | ) | | | 6,466 | (9 | ) | ||||||||||||||||
Obligations of states and political subdivisions | 2,744 | (15 | ) | | | 2,744 | (15 | ) | ||||||||||||||||
Corporate debt | 5,554 | (173 | ) | 500 | (1 | ) | 6,054 | (174 | ) | |||||||||||||||
Total | $ | 21,057 | $ | (209 | ) | $ | 500 | $ | (1 | ) | $ | 21,557 | $ | (210 | ) |
At March 31, 2012, there was one security in an unrealized loss position for greater than 12 consecutive months. Management periodically evaluates each security in an unrealized loss position to determine if the impairment is temporary or other-than-temporary. The unrealized losses are due solely to interest rate changes and the Company does not intend to sell nor expects it will be required to sell investment securities identified with impairments prior to the earliest of forecasted recovery or the maturity of the underlying investment security. Management has determined that no investment security is other-than-temporarily impaired at March 31, 2012.
9 |
The amortized cost and carrying value of available-for-sale debt securities as of March 31, 2012 by contractual maturity, are shown below. Expected maturities may differ from contractual maturities because borrowers may have the right to call or prepay obligations with or without call or prepayment penalties.
March 31, 2012:
(Dollar amounts in thousands) | Amortized | Carrying | ||||||
Cost | Value | |||||||
Available-for-sale: | ||||||||
Due in one year or less | $ | 9,940 | $ | 10,038 | ||||
Due after one through five years | 87,144 | 88,786 | ||||||
Due after five years through ten years | 60,879 | 62,686 | ||||||
Due after ten years | 42,296 | 43,843 | ||||||
$ | 200,259 | $ | 205,353 |
For the three months ended March 31, 2012 and March 31, 2011, respectively, gross realized gains amounted to $488,000 and $22,000, on securities sold or called of $11,031,000 and $2,680,000, respectively. For the three months ended March 31, 2012, gross realized losses amounted to $4,000 on securities sold of $1,037,000. For the three months ended March 31, 2011, there were no realized gross losses.
At March 31, 2012, securities with an amortized cost of $71,596,000 and fair value of $73,722,000 were pledged as collateral for public deposits and for other purposes required by law.
NOTE E - LOANS
Loans are summarized as follows at March 31, 2012 and December 31, 2011:
March 31, | December 31, | |||||||
(Dollar amounts in thousands) | 2012 | 2011 | ||||||
Commercial real estate | $ | 247,332 | $ | 257,413 | ||||
Real estate construction | 28,034 | 28,229 | ||||||
Real estate multi-family | 39,230 | 36,369 | ||||||
Real estate 1 to 4 family | 92,188 | 86,322 | ||||||
Commercial & industrial | 46,649 | 43,074 | ||||||
Consumer loans | 2,279 | 2,335 | ||||||
Gross loans | 455,712 | 453,742 | ||||||
Net deferred loan fees | (123 | ) | (124 | ) | ||||
Allowance for loan losses | (8,287 | ) | (9,897 | ) | ||||
Net loans | $ | 447,302 | $ | 443,721 | ||||
10 |
Impaired Loans | ||||||||||||||||||||
For the Quarter Ended March 31, 2012 | ||||||||||||||||||||
Unpaid | Average | |||||||||||||||||||
(Dollar amounts in thousands) | Recorded | Principal | Related | Recorded | Income | |||||||||||||||
Investment | Balance | Allowance | Investment | Recognized | ||||||||||||||||
With no related allowance recorded | ||||||||||||||||||||
Commercial & industrial | $ | 4,720 | $ | 2,464 | $ | | $ | 1,960 | $ | 16 | ||||||||||
Commercial real estate construction | 6,208 | 6,208 | | 6,220 | 24 | |||||||||||||||
Commercial real estate | 3,269 | 3,956 | | 3,390 | 26 | |||||||||||||||
Residential - 1 to 4 family | 1,544 | 3,654 | | 4,179 | 14 | |||||||||||||||
Total | 15,741 | 16,282 | | 15,749 | 80 | |||||||||||||||
With an allowance recorded | ||||||||||||||||||||
Commercial & industrial | $ | 2,725 | 6,805 | $ | 506 | $ | 6,472 | $ | 69 | |||||||||||
Commercial real estate construction | 1,581 | 1,681 | 211 | 1,584 | 15 | |||||||||||||||
Commercial real estate | 6,372 | 6,251 | 254 | 6,522 | 70 | |||||||||||||||
Real estate multi-family | 3,262 | 3,262 | 127 | 3,273 | | |||||||||||||||
Residential- 1 to 4 family | 4,816 | 2,187 | 142 | 2,187 | 15 | |||||||||||||||
Consumer | 10 | 10 | 1 | 10 | | |||||||||||||||
Total | 18,766 | 20,196 | 1,241 | 20,048 | 169 | |||||||||||||||
Total | ||||||||||||||||||||
Commercial & industrial | $ | 7,445 | $ | 9,269 | $ | 506 | $ | 8,432 | $ | 85 | ||||||||||
Commercial real estate construction | 7,789 | 7,889 | 211 | 7,804 | 39 | |||||||||||||||
Commercial real estate | 9,641 | 10,207 | 254 | 9,912 | 96 | |||||||||||||||
Real estate multi-family | 3,262 | 3,262 | 127 | 3,273 | | |||||||||||||||
Residential - 1 to 4 family | 6,360 | 5,841 | 142 | 6,366 | 29 | |||||||||||||||
Consumer | 10 | 10 | 1 | 10 | | |||||||||||||||
Grand total | $ | 34,507 | $ | 36,478 | $ | 1,241 | $ | 35,797 | $ | 249 |
11 |
Impaired Loans | |||||||||||||||||||||||
For the Year Ended December 31, 2011 | |||||||||||||||||||||||
Unpaid | Average | ||||||||||||||||||||||
(Dollar amounts in thousands) | Recorded | Principal | Related | Recorded | Income | ||||||||||||||||||
Investment | Balance | Allowance | Investment | Recognized | |||||||||||||||||||
With no related allowance recorded | |||||||||||||||||||||||
Commercial & industrial | $ | 2,926 | $ | 3,560 | $ | | $ | 4,074 | $ | 108 | |||||||||||||
Commercial real estate construction | 6,232 | 6,232 | | 6,266 | 314 | ||||||||||||||||||
Commercial real estate | 3,269 | 3,835 | | 3,546 | 130 | ||||||||||||||||||
Residential- 1 to 4 family | 1,059 | 1,145 | | 1,097 | 4 | ||||||||||||||||||
Total | 13,486 | 14,772 | | 14,983 | 556 | ||||||||||||||||||
With an allowance recorded | |||||||||||||||||||||||
Commercial & industrial | $ | 5,881 | 5,896 | $ | 428 | $ | 3,905 | $ | 40 | ||||||||||||||
Commercial real estate construction | 1,586 | 1,686 | 214 | 2,109 | 58 | ||||||||||||||||||
Commercial real estate | 11,767 | 11,767 | 727 | 11,521 | 400 | ||||||||||||||||||
Residential- 1 to 4 family | 2,254 | 2,262 | 200 | 2,009 | 89 | ||||||||||||||||||
Total | 21,488 | 21,611 | 1,569 | 19,544 | 587 | ||||||||||||||||||
Total | |||||||||||||||||||||||
Commercial & industrial | $ | 8,807 | $ | 9,456 | $ | 428 | $ | 7,979 | $ | 148 | |||||||||||||
Commercial real estate construction | 7,818 | 7,918 | 214 | 8,375 | 372 | ||||||||||||||||||
Commercial real estate | 15,036 | 15,602 | 727 | 15,067 | 530 | ||||||||||||||||||
Residential - 1 to 4 family | 3,313 | 3,407 | 200 | 3,106 | 93 | ||||||||||||||||||
Grand total | $ | 34,974 | $ | 36,383 | $ | 1,569 | $ | 34,527 | $ | 1,143 |
Nonaccrual loans totaled $19,471,000 and $19,098,000 as of March 31, 2012 and December 31, 2011. The difference between impaired loans and nonaccrual loans represents loans that are restructured and performing under modified loan agreements, and where principal and interest is considered to be collectible.
The following aggregate information is provided at March 31, 2012 and December 31, 2011, about the contractual balances of nonaccrual loans:
Loans on Nonaccrual Status | ||||||||
As of | ||||||||
(Dollar amounts in thousands) | March 31 | December 31, | ||||||
2012 | 2011 | |||||||
Commercial & industrial | $ | 3,917 | $ | 7,019 | ||||
Real estate - construction | 1,215 | 642 | ||||||
Commercial real estate | 7,479 | 10,109 | ||||||
Real estate multi family | 3,262 | | ||||||
Real estate 1 to 4 family | 3,598 | 1,328 | ||||||
Total | $ | 19,471 | $ | 19,098 |
12 |
Interest income on impaired loans of $249,000 and $1,143,000 was recognized for cash payments received during the quarter ended March 31, 2012 and the year ended December 31, 2011, respectively. The amount of interest on impaired loans not collected for the quarter ended March 31, 2012 was $413,000, and the quarter ended March 31, 2011 was $151,000. The cumulative amount of unpaid interest on impaired loans was $2,230,000 and $1,336,000 for the quarter ended March 31, 2012 and March 31, 2011, respectively. Total outstanding principal of troubled debt restructured at March 31, 2012 was $13,202,000, of which $2,925,000 was commercial loans, $994,000 was residential loans, $6,021,000 was commercial real estate loans, and $3,262,000 was multi-family real estate loans. Total outstanding principal of troubled debt restructured loans at December 31, 2011 was $16,447,000, of which $2,987,000 was commercial loans, $1,004,000 was residential loans, $9,173,000 was commercial real estate loans, and $3,283,000 was multi-family real estate loans.
Troubled Debt Restructurings
The Company adopted the amendments in Accounting Standards Update No. 2011-02 during the period ended September 30, 2011. As required, the Company reassessed all restructurings that ocurred on or after the beginning of fiscal year (January 1, 2011) for identification as troubled debt restructurings. The Company identified as troubled debt restructurings certain receivables for which the allowance for credit losses had previously been measured under a general allowance for credit losses methodology (ASC 450-20). Upon identifying the reassessed receivables as troubled debt restructurings, the Company also identified them as impaired under the guidance in ASC 310-10-35. The amendments in Accounting Standards Update No. 2011-02 require prospective application of the impairment measurement guidance in Section 310-10-35 for those receivables newly identified as impaired. At the end of the first interim period of adoption for the Company (September 30, 2011), the recorded investment in receivables for which the allowance for credit losses was previously measured under a general allowance for credit losses methodology and are now impaired under Section 310-10-35 was $8,711,000 (310-40-65-1(b)), and the allowance for credit losses associated with those receivables, on the basis of a current evaluation of loss, was $130,000 (310-40-65-1(b)).
Modification Categories
The Company offers a variety of modifications to borrowers. The modification categories offered can generally be described in the following categories.
Rate Modification – A modification in which the interest rate is changed.
Term modification – A modification in which the maturity date, timing of payments, or frequency of payments is changed.
Interest Only Modification – A modification in which the loan is converted to interest only payments for a period of time.
Payment Modification – A modification in which the dollar amount of the payment is changed, other than an interest only modification described above.
13 |
As of March 31, 2012, there were no commitments for additional funding of troubled debt restructurings.
Modifications | ||||||||||||
As of March 31, 2012 | ||||||||||||
Pre- | Post- | |||||||||||
Modification | Modification | |||||||||||
Outstanding | Outstanding | |||||||||||
Number of | Recorded | Recorded | ||||||||||
Contracts | Investment | Investment | ||||||||||
Troubled Debt Restructurings: | ||||||||||||
Commercial & industrial | 5 | $ | 2,925 | $ | 2,925 | |||||||
Real estate 1 to 4 family | 2 | 994 | 994 | |||||||||
Commercial real estate | 5 | 6,021 | 6,021 | |||||||||
Real estate multi family | 1 | 3,262 | 3,262 | |||||||||
Total | 13 | 13,202 | 13,202 |
None of these loans defaulted within twelve months following the date of restructure. All restructurings were a modification of interest rate and/or payment. There were no principal reductions granted.
Modifications | ||||||||||||
As of December 31, 2011 | ||||||||||||
Pre- | Post- | |||||||||||
Modification | Modification | |||||||||||
Outstanding | Outstanding | |||||||||||
Number of | Recorded | Recorded | ||||||||||
Contracts | Investment | Investment | ||||||||||
(Amounts in thousands) | ||||||||||||
Commercial & industrial | 5 | $ | 2,987 | $ | 2,987 | |||||||
Real estate 1 to 4 family | 2 | 1,004 | 1,004 | |||||||||
Commercial real estate | 6 | 9,173 | 9,173 | |||||||||
Real estate multi family | 1 | 3,283 | 3,283 | |||||||||
Total | 14 | 16,447 | 16,447 |
Risk rating system
Loans to borrowers graded as pass or pooled loans represent loans to borrowers of acceptable or better credit quality. They demonstrate sound financial positions, repayment capacity and credit history. They have an identifiable and stable source of repayment.
Special mention loans have potential weaknesses that deserve management’s attention. If left uncorrected these potential weaknesses may result in a deterioration of the repayment prospects for the asset or in the Bank’s credit position at some future date. These assets are “not adversely classified” and do not expose the Bank to sufficient risk to warrant adverse classification.
Substandard loans are inadequately protected by current sound net worth, paying capacity of the borrower, or pledged collateral. Loans are normally classified as Substandard when there are unsatisfactory characteristics causing more than acceptable levels of risk. A substandard loan normally has one or more well-defined weakness that could jeopardize the repayment of the debt. For example, a) cash flow deficiency, which may jeopardize future payments; b) sale of non-collateral assets has become primary source of repayment; c) the borrower is bankrupt; or d) for any other reason, future repayment is dependent on court action.
14 |
Doubtful loans represent credits with weakness inherent in the Substandard classification and where collection or liquidation in full is highly questionable. To be classified Doubtful, there must be specific pending factors which prevent the Loan Review Officer from determining the amount of loss contained in the credit. When the amount of loss can be reasonably estimated, that amount is classified as “loss” and the remainder is classified as Substandard.
Commercial Real Estate Loans
Our commercial real estate loans are made primarily to investors or small businesses where our primary source of repayment is from cash flows generated by the properties, either through rent collection or business profits. The borrower’s promissory notes are secured with recorded liens on the underlying property. The borrowers would normally also be required to personally guarantee repayment of the loan. The bank uses conservative underwriting standards in reviewing applications for credit. Generally, our borrowers have multiple sources of income, so if cash flow generated from the property declines, at least in the short term, the borrowers can normally cover these short term cash flow deficiencies from their available cash reserves. Risk of loss to the Bank is increased when there are cash flow decreases sufficiently large and for such a prolonged period of time that loan payments can no longer be made by the borrowers.
Our real estate construction loans are generally made to borrowers who are rehabilitating a building, converting a building use from one type of use to another, or developing land and building residential or commercial structures for sale or lease. The borrower’s promissory notes are secured with recorded liens on the underlying property. The borrowers would normally also be required to personally guarantee repayment of the loan. The bank uses conservative underwriting standards in reviewing applications for credit. Generally, our borrowers have sufficient resources to make the required construction loan payments during the construction and absorption or lease-up period. After construction is complete, the loans are normally paid off from proceeds from the sale of the building or through a refinance to a commercial real estate loan. Risk of loss to the Bank is increased when there are material construction cost overruns, significant delays in the time to complete the project and/or there has been a material drop in the value of the projects in the marketplace since the inception of the loan.
Commercial and Industrial Loans
Our commercial and industrial loans are generally made to small businesses to provide them with at least some of the working capital necessary to fund their daily business operations. These loans are generally either unsecured or secured by fixed assets, accounts receivable and/or inventory. The borrowers would normally also be required to personally guarantee repayment of the loan. The Bank uses conservative underwriting standards in reviewing applications for credit. Risk of loss to the Bank is increased when our small business customers experience a significant business downturn, incur significant financial losses, or file for relief from creditors through bankruptcy proceedings.
Residential Real Estate Loans
Our residential real estate loans are generally made to borrowers who are buying or refinancing their primary personal residence or a rental property of 1-4 single family residential units. The Bank uses conservative underwriting standards in reviewing applications for credit. Risk of loss to the Bank is increased when borrowers lose their primary source of income and/or property values decline significantly.
15 |
Consumer and installment Loans
Our consumer and installment loans generally consist of personal loans, credit card loans, automobile loans or other loans secured by personal property. The Bank uses conservative underwriting standards in reviewing applications for credit. Risk of loss to the Bank is increased when borrowers lose their primary source of income, or file for relief from creditors through bankruptcy proceedings.
Age Analysis of Past Due Loans | ||||||||||||||||||||||||||||
As of March 31, 2012 | ||||||||||||||||||||||||||||
(Dollar amounts in thousands) | ||||||||||||||||||||||||||||
30-59 | 60-89 | Recorded | ||||||||||||||||||||||||||
Days | Days | Over | Total | Investment > | ||||||||||||||||||||||||
Past | Past | 90 | Past | Total | 90 Days and | |||||||||||||||||||||||
Due | Due | Days | Due | Current | Loans | Accruing | ||||||||||||||||||||||
Commercial & industrial | $ | 291 | $ | 169 | $ | 1,638 | $ | 2,098 | $ | 44,551 | $ | 46,649 | $ | | ||||||||||||||
Commercial real estate | 2,650 | 697 | 5,253 | 8,600 | 238,732 | 247,332 | | |||||||||||||||||||||
Commercial real estate-construction | | | 526 | 526 | 27,508 | 28,034 | | |||||||||||||||||||||
Real estate multi family | | | 3,262 | 3,262 | 35,968 | 39,230 | | |||||||||||||||||||||
Residential | 617 | 100 | 3,178 | 3,895 | 88,293 | 92,188 | | |||||||||||||||||||||
Consumer | | | | | 2,279 | 2,279 | | |||||||||||||||||||||
Total | $ | 3,558 | $ | 966 | $ | 13,857 | $ | 18,381 | $ | 437,331 | $ | 455,712 | $ | |
Age Analysis of Past Due Loans | ||||||||||||||||||||||||||||
As of December 31, 2011 | ||||||||||||||||||||||||||||
(Dollar amounts in thousands) | ||||||||||||||||||||||||||||
30-59 | 60-89 | Recorded | ||||||||||||||||||||||||||
Days | Days | Over | Total | Investment > | ||||||||||||||||||||||||
Past | Past | 90 | Past | Total | 90 Days and | |||||||||||||||||||||||
Due | Due | Days | Due | Current | Loans | Accruing | ||||||||||||||||||||||
Commercial & industrial | $ | 247 | $ | 712 | $ | 232 | $ | 1,191 | $ | 41,883 | $ | 43,074 | $ | | ||||||||||||||
Commercial real estate | 1,618 | | 10,109 | 11,727 | 245,686 | 257,413 | | |||||||||||||||||||||
Commercial real estate-construction | 549 | | 527 | 1,076 | 27,153 | 28,229 | | |||||||||||||||||||||
Real estate multi-family | | | | | 36,369 | 36,369 | | |||||||||||||||||||||
Real estate 1 to 4 family | 71 | 2,629 | 257 | 2,957 | 83,365 | 86,322 | | |||||||||||||||||||||
Consumer | | | | | 2,335 | 2,335 | | |||||||||||||||||||||
Total | $ | 2,485 | $ | 3,341 | $ | 11,125 | $ | 16,951 | $ | 436,791 | $ | 453,742 | $ | |
16 |
Credit Quality Indicators
As of March 31, 2012
(Dollar amounts in thousands) | ||||||||||||||||||||
Special | Sub- | Total | ||||||||||||||||||
Pass | mention | standard | Doubtful | loans | ||||||||||||||||
Commercial & industrial | $ | 40,026 | $ | | $ | 6,011 | $ | 612 | $ | 46,649 | ||||||||||
Real estate construction | 25,793 | | 2,241 | | 28,034 | |||||||||||||||
Commercial real estate | 237,033 | 2,396 | 7,903 | | 247,332 | |||||||||||||||
Real estate multi-family | 35,968 | | 3,262 | | 39,230 | |||||||||||||||
Real estate 1 to 4 family | 87,967 | | 3,852 | 369 | 92,188 | |||||||||||||||
Consumer loans | 2,269 | | 10 | | 2,279 | |||||||||||||||
Totals | $ | 429,056 | $ | 2,396 | $ | 23,279 | $ | 981 | $ | 455,712 |
Credit Quality Indicators
As of December 31, 2011
(Dollar amounts in thousands) | ||||||||||||||||||||
Special | Sub- | Total | ||||||||||||||||||
Pass | mention | standard | Doubtful | loans | ||||||||||||||||
Commercial & industrial | $ | 35,089 | $ | | $ | 7,720 | $ | 265 | $ | 43,074 | ||||||||||
Real estate construction | 25,987 | | 2,242 | | 28,229 | |||||||||||||||
Commercial real estate | 247,253 | | 10,160 | | 257,413 | |||||||||||||||
Real estate multi-family | 33,085 | | 3,284 | | 36,369 | |||||||||||||||
Real estate 1 to 4 family | 82,014 | | 3,862 | 446 | 86,322 | |||||||||||||||
Consumer loans | 2,335 | | | | 2,335 | |||||||||||||||
Totals | $ | 425,763 | $ | | $ | 27,268 | $ | 711 | $ | 453,742 | ||||||||||
Allowance for Credit Losses
For the Three Months Ended March 31, 2012
(Dollar amounts in thousands) | ||||||||||||||||||||||||||||
Real Estate | ||||||||||||||||||||||||||||
Commercial & industrial | Commercial | Construction | Multi family | 1
to 4 family | Consumer | Total | ||||||||||||||||||||||
Allowance for credit losses | ||||||||||||||||||||||||||||
Beginning balance | $ | 1,618 | $ | 4,745 | $ | 1,171 | $ | 671 | $ | 1,592 | $ | 100 | $ | 9,897 | ||||||||||||||
Charge-offs | (1,175 | ) | (738 | ) | | | (109 | ) | (3 | ) | (2,025 | ) | ||||||||||||||||
Recoveries | 1 | 2 | | | 9 | 3 | 15 | |||||||||||||||||||||
Provision | 1,184 | (417 | ) | (116 | ) | (520 | ) | 306 | (37 | ) | 400 | |||||||||||||||||
Ending balance | $ | 1,628 | $ | 3,592 | $ | 1,055 | $ | 151 | $ | 1,798 | $ | 63 | 8,287 | |||||||||||||||
Ending balance: individually evaluated for impairment | $ | 506 | $ | 254 | $ | 211 | $ | 127 | $ | 142 | $ | 1 | $ | 1,241 | ||||||||||||||
Ending balance: collectively evaluated for impairment | $ | 1,122 | $ | 3,338 | $ | 844 | $ | 24 | $ | 1,656 | $ | 62 | $ | 7,046 | ||||||||||||||
17 |
Recorded Investment in Loans at March 31, 2012
(Dollar amounts in thousands) | ||||||||||||||||||||||||||||
Real Estate | ||||||||||||||||||||||||||||
Commercial & industrial |
Commercial | Construction | Multi family |
1 to 4 family |
Consumer | Total | ||||||||||||||||||||||
Loans: | ||||||||||||||||||||||||||||
Ending balance | $ | 46,649 | $ | 247,332 | $ | 28,034 | $ | 39,230 | $ | 92,188 | $ | 2,279 | 455,712 | |||||||||||||||
Ending balance: individually evaluated for impairment | $ | 7,445 | $ | 9,641 | $ | 7,789 | $ | 3,262 | $ | 6,360 | $ | 10 | 34,507 | |||||||||||||||
Ending balance: collectively evaluated for impairment | $ | 39,204 | $ | 237,691 | $ | 20,245 | $ | 35,968 | $ | 85,828 | $ | 2,269 | 421,205 | |||||||||||||||
Allowance for Credit Losses
For the Three Months Ended March 31, 2011
(Dollar amounts in thousands) | ||||||||||||||||||||||||
Commercial & industrial | Commercial Real Estate | Real estate Construction | Real estate 1 to 4 family | Consumer | Total | |||||||||||||||||||
Allowance for credit losses | ||||||||||||||||||||||||
Beginning balance | $ | 2,102 | $ | 4,103 | $ | 1,999 | $ | 1,233 | $ | 87 | $ | 9,524 | ||||||||||||
Charge-offs | (200 | ) | | | | (3 | ) | (203 | ) | |||||||||||||||
Recoveries | 4 | | 9 | | | 13 | ||||||||||||||||||
Provision | (301 | ) | 257 | 97 | 372 | 25 | 450 | |||||||||||||||||
Ending balance | $ | 1,605 | $ | 4,360 | $ | 2,105 | $ | 1,605 | $ | 109 | $ | 9,784 | ||||||||||||
Ending balance: individually evaluated for impairment | $ | 395 | $ | 492 | $ | 368 | $ | 198 | $ | 16 | $ | 1,469 | ||||||||||||
Ending balance: collectively evaluated for impairment | $ | 1,210 | $ | 3,868 | $ | 1,737 | $ | 1,407 | $ | 93 | $ | 8,315 | ||||||||||||
Recorded Investment in Loans at March 31, 2011
(Dollar amounts in thousands) | ||||||||||||||||||||||||
Commercial & industrial | Commercial Real Estate | Real estate Construction | Real estate 1 to 4 family | Consumer | Total | |||||||||||||||||||
Loans: | ||||||||||||||||||||||||
Ending balance | $ | 44,938 | $ | 317,346 | $ | 31,128 | $ | 77,688 | $ | 2,737 | 473,837 | |||||||||||||
Ending balance: individually evaluated for impairment | $ | 8,105 | $ | 8,357 | $ | 8,927 | $ | 3,308 | $ | 30 | 28,727 | |||||||||||||
Ending balance: collectively evaluated for impairment | $ | 36,833 | $ | 308,989 | $ | 22,201 | $ | 74,380 | $ | 2,707 | 445,110 | |||||||||||||
18 |
NOTE F – FAIR VALUE MEASUREMENT
The following table presents information about the Company’s assets and liabilities measured at fair value as of March 31, 2012 and December 31, 2011, and indicates the fair value techniques used by the Company to determine such fair value. In general, fair values determined by Level 1 inputs utilize quoted prices (unadjusted) in active markets for identical assets or liabilities that the Company has the ability to access. Level 2 inputs include quoted prices for similar assets and liabilities in active markets, and inputs other than quoted prices that are observable for the asset or liability, such as interest rates and yield curves that are observable at commonly quoted intervals. Level 3 inputs are unobservable inputs for the asset or liability, and include situations where there is little, if any, market activity for the asset or liability. In certain cases, the inputs used to measure fair value may fall into different levels of the fair value hierarchy. In such cases, the level in the fair value hierarchy within which the fair value measurement in its entirety falls has been determined based on the lowest level input that is significant to the fair value measurement in its entirety. The Company’s assessment of the significance of a particular input to the fair value measurement in its entirety requires judgment, and considers factors specific to the asset or liability.
The following tables present the recorded amounts of assets measured at fair value on a recurring basis:
(Dollar amounts in thousands) | at March 31, 2012, Using | |||||||||||||||
Quoted Prices | ||||||||||||||||
in Active | ||||||||||||||||
Markets | Other | Significant | ||||||||||||||
for Identical | Observable | Unobservable | ||||||||||||||
Fair Value | Assets | Inputs | Inputs | |||||||||||||
Description | 3/31/2012 | (Level 1) | (Level 2) | (Level 3) | ||||||||||||
U. S. Treasury securities | $ | 10,500 | $ | 10,500 | $ | | $ | | ||||||||
Obligations of U.S. Government agencies | 60,088 | | 60,088 | | ||||||||||||
Mortgage-backed securities | 42,480 | | 42,480 | | ||||||||||||
Obligations of states and political subdivisions | 75,816 | | 75,816 | | ||||||||||||
Corporate debt | 16,469 | | 16,469 | | ||||||||||||
Total assets measured at fair value | $ | 205,353 | $ | 10,500 | $ | 194,853 | $ | |
(Dollar amounts in thousands) | Fair Value
Measurements at December 31, 2011, Using | |||||||||||||||
Quoted Prices | ||||||||||||||||
in Active | ||||||||||||||||
Markets | Other | Significant | ||||||||||||||
for Identical | Observable | Unobservable | ||||||||||||||
Fair Value | Assets | Inputs | Inputs | |||||||||||||
Description | 12/31/2011 | (Level 1) | (Level 2) | (Level 3) | ||||||||||||
U. S. Treasury securities | $ | 12,634 | $ | 12,634 | $ | | $ | | ||||||||
Obligations of U.S. Government agencies | 54,102 | | 54,102 | | ||||||||||||
Mortgage-backed securities | 33,435 | | 33,435 | | ||||||||||||
Obligations of states and political subdivisions | 77,251 | | 77,251 | | ||||||||||||
Corporate debt | 10,242 | | 10,242 | | ||||||||||||
Total assets measured at fair value | $ | 187,664 | $ | 12,634 | $ | 175,030 | $ | | ||||||||
19 |
The following tables present the recorded amounts of assets measured at fair value on a non-recurring basis:
(Dollar amounts in thousands) | Fair Value Measurements at March 31, 2012, Using | ||||||||||||||||||||||
Quoted Prices | Losses | Losses | |||||||||||||||||||||
in Active | for three | for three | |||||||||||||||||||||
Markets | Other | Significant | months | months | |||||||||||||||||||
for Identical | Observable | Unobservable | ended | ended | |||||||||||||||||||
Fair Value | Assets | Inputs | Inputs | March 31, | March 31, | ||||||||||||||||||
Description | 3/31/2012 | (Level 1) | (Level 2) | (Level 3) | 2012 | 2011 | |||||||||||||||||
Impaired loans | $ | 8,060 | $ | | $ | | $ | 8,060 | $ | 1,241 | $ | 123 | |||||||||||
Total impaired assets measured at fair value | $ | 8,060 | $ | | $ | | $ | 8,060 | $ | 1,241 | $ | 123 | |||||||||||
Fair Value Measurements | |||||||||||||||
(Dollar amounts in thousands) | at December 31, 2011, Using | ||||||||||||||
Quoted Prices in | |||||||||||||||
Active Markets | Other | Significant | |||||||||||||
for Identical | Observable | Unobservable | |||||||||||||
Fair Value | Assets | Inputs | Inputs | ||||||||||||
Description | 12/31/11 | (Level 1) | (Level 2) | (Level 3) | |||||||||||
Impaired loans | $ | 8,383 | $ | | $ | | $ | 8,383 | |||||||
Other real estate owned | 2,746 | | | 2,747 | |||||||||||
Total impaired assets measured at fair value | $ | 11,129 | $ | | $ | | $ | 11,130 | |||||||
The Bank does not record loans at fair value. However, from time to time, if a loan is considered impaired, a specific allocation within the allowance for loan losses may be required. Loans for which it is probable that payment of interest and principal will not be made in accordance with the contractual terms of the loan agreement are considered impaired. The fair value of impaired loans is estimated using one of several methods, including collateral value, market value of similar debt, enterprise value, liquidation value and cash flows. Those impaired loans not requiring an allowance represent loans for which the value of the expected repayments or collateral exceed the recorded investments in such loans. Impaired loans where an allowance is established based on the fair value of collateral or when the impaired loan has been written down to fair value require classification in the fair value hierarchy. If the fair value of the collateral is based on an observable market price or a current appraised value, the Bank records the impaired loans as nonrecurring Level 3. When an appraised value is not available, or management determines the fair value of the collateral is further impaired below the appraised value and there is no observable market price, the Bank also records the impaired loans as nonrecurring Level 3.
20 |
Other real estate owned is carried at the lower of historical cost or fair market value less costs to sell. An appraisal (a Level 3 valuation) is obtained at the time the Bank acquires property through the foreclosure process. Any loan balance outstanding that exceeds the appraised value of the property is charged off against the allowance for loan loss at the time the property is acquired. Subsequent to acquisition, the Bank updates the property’s appraised value on at least an annual basis. If the value of the property has declined during the year, a loss due to valuation impairment charge is recorded along with a corresponding reduction in the book carrying value of the property.
Fair Values of Financial Instruments.
The following methods and assumptions were used by the Company in estimating the fair value disclosures for financial instruments.
Cash and Cash Equivalents.
The carrying amounts reported in the balance sheet for cash and short-term instruments are a reasonable estimate of fair value, which will approximate their historical cost.
Securities Available-for-Sale.
Fair values for investment securities are based on quoted market prices, where available. If quoted market prices are not available, fair values are based on quoted market prices of comparable instruments.
Loans Receivable.
For variable-rate loans that reprice frequently and with no significant change in credit risk, fair values are based on carrying values and credit risk factors. For fixed rate loans, fair values are based on discounted cash flows, credit risk factors, and liquidity factors.
Deposit liabilities.
The fair values disclosed for demand deposits (e.g., interest and non-interest checking, savings, and money market accounts) are, by definition, equal to the amount payable on demand at the reporting date (i.e., their carrying amounts). The fair values for fixed-rate certificates of deposit are based on discounted cash flows.
Federal Home Loan Bank Advances.
The fair values of Federal Home Loan Bank Advances are based on discounted cash flows. The discount rate is equal to the market rate currently offered on similar products.
Interest Receivable and Payable
The interest receivable and payable balances approximate their fair value due to the short-term nature of their settlement dates.
Undisbursed loan commitments, lines of credit, Mastercard line and standby letters of credit.
The fair value of these off-balance sheet items are based on discounted cash flows of expected fundings.
The Bank has excluded non-financial assets and non-financial liabilities defined by the Codification (ASC 820-10-15-A), such as Bank premises and equipment, deferred taxes and other liabilities. In addition, the Bank has not disclosed the fair value of financial instruments specifically excluded from disclosure requirements of the Financial Instruments Topic of the Codification (ASC 825-10-50-8), such as Bank-owned life insurance policies.
21 |
The following table provides summary information on the estimated fair value of financial instruments at March 31, 2012:
(Dollar amounts in thousands) | Carrying | Fair | Fair value measurements | |||||||||||||||||
amount | value | Level 1 | Level 2 | Level 3 | ||||||||||||||||
Financial assets: | ||||||||||||||||||||
Cash and cash equivalents | $ | 45,118 | $ | 45,118 | $ | 45,118 | ||||||||||||||
Securities available for sale | 205,353 | 205,353 | 10,500 | $ | 194,853 | |||||||||||||||
Loans | 455,712 | 462,205 | 454,145 | $ | 8,060 | |||||||||||||||
Accrued interest receivable | 3,577 | 3,577 | 3,577 | |||||||||||||||||
Financial liabilities: | ||||||||||||||||||||
Accrued interest payable | 283 | 283 | 283 | |||||||||||||||||
Deposits | 651,691 | 652,132 | 652,132 | |||||||||||||||||
Off-balance-sheet liabilities: | ||||||||||||||||||||
Undisbursed loan commitments, lines of credit, Mastercard line and standby letters of credit | | 3,435 | 3,435 |
The carrying amount of loans include $19,471,000 of nonaccrual loans (loans that are not accruing interest) as of March 31, 2012. The fair value of nonaccrual loans is based on the collateral values that secure the loans or the cash flows expected to be received.
The following table provides summary information on the estimated fair value of financial instruments at December 31, 2011:
(Dollar amounts in thousands) | Carrying | Fair | Fair value measurements | ||||||||||||||||
amount | value | Level 1 | Level 2 | Level 3 | |||||||||||||||
Financial assets: | |||||||||||||||||||
Cash and cash equivalents | $ | 38,474 | $ | 38,474 | $ | 38,474 | |||||||||||||
Securities available for sale | 187,664 | 187,664 | 12,634 | $ | 175,030 | ||||||||||||||
Loans, net | 453,742 | 454,342 | 445,959 | $ | 8,383 | ||||||||||||||
Accrued interest receivable | 3,577 | 3,577 | 3,577 | ||||||||||||||||
Financial liabilities: | |||||||||||||||||||
Accrued interest payable | 299 | 299 | 299 | ||||||||||||||||
Deposits | 621,778 | 622,291 | 622,291 | ||||||||||||||||
Off-balance-sheet liabilities: | |||||||||||||||||||
Undisbursed loan commitments, lines of credit, standby letters of credit and Mastercard lines of credit | | 945 | 945 | ||||||||||||||||
The carrying amount of loans include $19,098,000 of nonaccrual loans (loans that are not accruing interest) as of December 31, 2011. The fair value of nonaccrual loans is based on the collateral values that secure the loans or the cash flows expected to be received.
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NOTE G – PREFERRED STOCK
On September 15, 2011, Preferred Stock was issued to the U. S. Treasury as part of the Treasury’s Small Business Lending Fund (“SBLF”), as Preferred Stock – Series C – Non-Cumulative. The initial dividend rate is 5%. Depending on the volume of our small business lending, the dividend rate can be reduced to as low as one percent.. If lending does not increase in the first two years, the dividend rate will increase to seven percent. After 4.5 years, the dividend rate will increase to nine percent if the Company has not repaid the SBLF funding.
This program does not contain any of the various restrictions (including restrictions related to the payment of dividends to Common Stockholders) that the Treasury’s Capital Purchase Program TARP program required. The Series A and B Preferred Stock, which contained a blended yield of 6.83% to the expected repayment date, were paid off in full and canceled with the proceeds received from the U. S. Treasury’s SBLF investment.
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.
Forward-Looking Information and Uncertainties Regarding Future Financial Performance.
This report, including management’s discussion below, concerning earnings and financial condition, contains “forward-looking statements”. Forward-looking statements are estimates of or statements about expectations or beliefs regarding the Company’s future financial performance or anticipated future financial condition that are based on current information and that are subject to a number of risks and uncertainties that could cause actual operating results in the future to differ significantly from those expected at the current time. Those risks and uncertainties include, although they are not limited to, the following:
Increased Competition. Increased competition from other banks and financial service businesses, mutual funds and securities brokerage and investment banking firms that offer competitive loan and investment products and competitive market pricing, which could require us to reduce interest rates and loan fees to attract new loans or to increase interest rates that we offer on time deposits, either or both of which could, in turn, reduce interest income and net interest margins. These factors could reduce our ability to attract new deposits and loans and leases.
Liquidity Risk. The stability of funding sources and continued availability of borrowings; our ability to raise capital or incur debt on reasonable terms.
Possible Adverse Changes in Economic Conditions. Adverse changes in national or local economic conditions over an extended period of time could (i) reduce loan demand which could, in turn, reduce interest income and net interest margins; (ii) adversely affect the financial capability of borrowers to meet their loan obligations, which, in turn, could result in increases in loan losses and require increases in provisions for possible loan losses, thereby adversely affecting operating results; and (iii) lead to reductions in real property values that, due to the Company’s reliance on real property to secure many of its loans, could make it more difficult to prevent losses from being incurred on non-performing loans through the sale of such real properties.
Possible Adverse Changes in National Economic Conditions and Federal Reserve Board Monetary Policies. Changes in national economic policies and conditions, such as increases in inflation or declines in economic output often prompt changes in Federal Open Market Committee (“FOMC”) monetary policies that could reduce interest income or increase the cost of funds to the Company, either of which could result in reduced earnings. In addition, deterioration in economic conditions that could result in increased loan and lease losses.
Changes in Regulatory Policies. Changes in federal and national bank regulatory policies, such as increases in capital requirements or in loan loss reserve or asset/liability ratio requirements, liquidity requirements, and the risks associated with concentration in real estate related loans could adversely affect earnings by reducing yields on earning assets or increasing operating costs.
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Due to these and other possible uncertainties and risks, readers are cautioned not to place undue reliance on the forward-looking statements contained in this report, which speak only as of the date of this report, or to make predictions based solely on historical financial performance. The Company also disclaims any obligation to update forward-looking statements contained in this report.
Critical Accounting Policies And Estimates
Management’s discussion and analysis of its financial condition and results of operations are based upon the Company’s financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States of America. The preparation of these financial statements requires the Company to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses, and related disclosure of contingent assets and liabilities. On an on-going basis, the Company evaluates its estimates, including those related to its loans and allowance for loan losses. The Company bases its estimates on current market conditions, historical experience and on various other assumptions that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions. All adjustments that, in the opinion of management, are necessary for a fair presentation for the periods presented have been reflected as required by Regulation S-X, Rule 10-01. The Company believes the following critical accounting policy requires significant judgments and estimates used in the preparation of the consolidated financial statements.
Allowance for Loan Losses
The allowance for loan losses is periodically evaluated for adequacy by management. Factors considered include the Company’s loan loss experience, known and inherent risks in the portfolio, current economic conditions, known adverse situations that may affect the borrower’s ability to repay, regulatory policies, and the estimated value of underlying collateral. The evaluation of the adequacy of the allowance is based on the above factors along with prevailing and anticipated economic conditions that may impact our borrowers’ ability to repay their loans. Determination of the allowance is based upon objective and subjective judgments by management from the information currently available. Adverse changes in information could result in higher than expected charge-offs and loan loss provisions.
Goodwill
Goodwill arises when the Company’s purchase price exceeds the fair value of the net assets of an acquired business. Goodwill represents the value attributable to intangible elements acquired. The value of goodwill is supported ultimately by profit from the acquired business. A decline in earnings could lead to impairment, which would be recorded as a write-down in the Company’s consolidated statements of earnings. Events that may indicate goodwill impairment include significant or adverse changes in results of operations of the acquired business or asset, economic or political climate; an adverse action or assessment by a regulator; unanticipated competition; and a more-likely-than-not expectation that a reporting unit will be sold or disposed of at a loss.
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Other Than Temporary Impairment
Other than temporary impairment (“OTTI”) is triggered if the Company has the intent to sell the security, it is likely that it will be required to sell the security before recovery, or if the Company does not expect to recover the entire amortized cost basis of the security. If the Company intends to sell the security or it is likely it will be required to sell the security before recovering its cost basis, the entire impairment loss would be recognized in earnings as an OTTI. If the Company does not intend to sell the security and it is not likely that the Company will be required to sell the security but the Company does not expect to recover the entire amortized cost basis of the security, only the portion of the impairment loss representing credit losses would be recognized in earnings as an OTTI. The credit loss is measured as the difference between the amortized cost basis and the present value of the cash flows expected to be collected of a security. Projected cash flows are discounted by the original or current effective interest rate depending on the nature of the security being measured for potential OTTI. The remaining impairment loss related to all other factors, the difference between the present value of the cash flows expected to be collected and fair value, would be recognized as a charge to other comprehensive income (“OCI”). Impairment losses related to all other factors are to be presented as a separate category within OCI.
For investment securities held to maturity, this amount is accreted over the remaining life of the debt security prospectively based on the amount and timing of future estimated cash flows. The accretion of the OTTI amount recorded in OCI will increase the carrying value of the investment, and would not affect earnings. If there is an indication of additional credit losses the security is re-evaluated accordingly based on the procedures described above.
Provision for and Deferred Income Taxes
The Company is subject to income tax laws of the United States, its states, and the municipalities in which it operates. The Company considers its income tax provision methodology to be critical, as the determination of current and deferred taxes based on complex analyses of many factors including interpretation of federal and state laws, the difference between tax and financial reporting bases of assets and liabilities (temporary differences), estimates of amounts due or owed, the timing of reversals of temporary differences and current financial standards. Actual results could differ significantly from the estimates due to tax law interpretations used in determining the current and deferred income tax liabilities. Additionally, there can be no assurances that estimates and interpretations used in determining income tax liabilities may not be challenged by federal and state tax authorities.
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 IFRS.” The amendments in this Update result in common fair value measurement and disclosure requirements in U.S. GAAP and IFRS. Consequently, the amendments change the wording used to describe many of the requirements in U.S. GAAP for measuring fair value and for disclosing information about fair value measurements. For many of the requirements, the Board does not intend for the amendments in this Update to result in a change in the application of the requirements in Topic 820.
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Some of the amendments clarify the Board’s intent about the application of existing fair value measurements. Other amendments change a particular principle or requirement for measuring fair value or for disclosing information about fair value measurements. As this ASU is disclosure-related only, the adoption of this ASU did not impact the Bank’s financial condition or results of operations.
In June, 2011, the FASB issued ASU 2011-05, “Comprehensive Income” (Topic 220). Under the amendments to Topic 220, in this Update an entity has the option to present the total of comprehensive income, the components of net income, and the components of other comprehensive income either in a single continuous statement of comprehensive income or in two separate but consecutive statements. In both choices, an entity is required to present each component of net income along with total net income, each component of other comprehensive income along with a total for other comprehensive income, and a total amount for comprehensive income. In a single continuous statement, the entity is required to present the components of net income and total net income, the components of other comprehensive income and a total for other comprehensive income, along with the total of comprehensive income in that statement. In the two-statement approach, an entity is required to present components of net income and total net income in the statement of net income. The statement of other comprehensive income should immediately follow the statement of net income and include the components of other comprehensive income and a total of other comprehensive income, along with a total for comprehensive income.
Regardless of whether an entity chooses to present comprehensive income in a single continuous statement or in two separate but consecutive statements, the entity is required to present on the face of the financial statements reclassification adjustments for items that are reclassified from other comprehensive income to net income in the statement(s) where the components of net income and the components of other comprehensive income are presented.
The amendments in this Update do not change the items that must be reported in other comprehensive income or when an item of other comprehensive income must be reclassified to net income. The amendments do not change the option for an entity to present components of other comprehensive income either net of related tax effects or before related tax effects, with one amount shown for the aggregate income tax expense or benefit related to the total of other comprehensive income items. In both cases, the tax effect for each component must be disclosed in the notes to the financial statements or presented in the statement in which other comprehensive income is presented. The amendments do not affect how earnings per share is calculated or presented. This ASU will have no material impact on the Bank when adopted.
In September, 2011, the FASB issued ASU 2011-08, “Intangibles – Goodwill and Other” (Topic 350). Under the amendments in this update, an entity has the option to first assess qualitative factors to determine whether the existence of events or circumstances leads to a determination that it is more likely than not that the fair value of a reporting unit is less than its carrying amount, then performing the two-step impairment is unnecessary. However, if an entity concludes otherwise, then it is required to perform the first step of the two-step impairment test by calculating the fair value of the reporting unit and comparing the fair value with the carrying amount of the reporting unit, as described in paragraph 350-20-35-4 of the codified standards. If the carrying amount of a reporting unit exceeds its fair value, then the entity is required to perform the second step of the goodwill impairment test to measure the amount of the impairment loss, if any, as described in paragraph 350-20-35-9 of the codified standards.
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Under the amendments in this Update, an entity has the option to bypass the qualitative assessment for any reporting unit in any period and proceed directly to performing the first step of the two-step goodwill impairment test. An entity may resume performing the qualitative assessment in any subsequent period.
The amendments are effective for annual and interim goodwill impairment tests performed for fiscal years beginning after December 15, 2011. Early adoption is permitted, including for annual and interim impairments tests performed as of a date before September 15, 2011, if an entity’s financial statements for the most recent annual or interim period have not yet been issued, or, for nonpublic entities, have not yet been made available for issuance. The Company early adopted during the fourth quarter of 2011. There was no financial effect due to the early adoption of this amendment.
In December, 2011, the FASB issued ASU 2011-12, “Comprehensive Income” (Topic 220) “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.” In order to defer only those changes in Update 2011-05 that relate to the presentation of reclassification adjustments, the paragraphs in this Update supersede certain pending paragraphs in Update 2011-05. The amendments are being made to allow the Board time to redeliberate 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 other comprehensive income for all periods presented. While the Board is considering the operational concerns about the presentation requirements for reclassification adjustments and the needs of financial statement users for additional information about reclassification adjustments, entities should continue to report reclassifications out of accumulated other comprehensive income consistent with the presentation requirements in effect before Update 2011-05.
All other requirements in Update 2011-05 are not affected by this Update, including the requirement to report comprehensive income either in a single continuous financial statement or in two separate but consecutive financial statements.
Earnings Analysis
Net earnings for the quarter ended March 31, 2012 were $1,288,000, compared to net earnings of $803,000 for the quarter ended March 31, 2011, an increase of $485,000, or 60.4%. Earnings before income tax expense for the quarter ended March 31, 2012 were $1,665,000, compared to $1,150,000 for the quarter ended March 31, 2011, an increase of $515,000, or 44.8%. Net earnings available to common stockholders for the quarter ended March 31, 2012 were $1,102,000, compared to net earnings available to common stockholders of $589,000 for the quarter ended March 31, 2011, an increase of $513,000, or 87.1%.
Net interest income for the quarter ended March 31, 2012 was $7,198,000, compared to $7,335,000 for the quarter ended March 31, 2011, a decrease of $137,000, or 1.9%.
Basic and diluted earnings per share were $0.31 for the first quarter of 2012 compared to basic and diluted earnings per share of $0.17 for the first quarter of 2011.
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The following table presents an analysis of net interest income and average earning assets and liabilities for the three-month period ended March 31, 2012 compared to the three-month period ended March 31, 2011.
TABLE 1 | NET INTEREST INCOME AND AVERAGE BALANCES | |||||||||||||||||||||||
FNB BANCORP AND SUBSIDIARY | ||||||||||||||||||||||||
(Dollar amounts in thousands) | ||||||||||||||||||||||||
Three months ended March 31, | ||||||||||||||||||||||||
2012 | 2011 | |||||||||||||||||||||||
Average | Annualized Average | Average | Annualized Average | |||||||||||||||||||||
Balance | Interest | Yield | Balance | Interest | Yield | |||||||||||||||||||
INTEREST EARNING ASSETS | ||||||||||||||||||||||||
Loans, gross (1) (2) | $ | 452,565 | $ | 6,755 | 6.05 | % | $ | 482,136 | $ | 7,438 | 6.26 | % | ||||||||||||
Taxable securities (3) | 123,463 | 613 | 2.01 | % | 85,380 | 404 | 1.92 | % | ||||||||||||||||
Nontaxable securities(3) | 72,219 | 684 | 3.84 | % | 43,591 | 501 | 4.66 | % | ||||||||||||||||
Total interest earning assets | 648,247 | 8,052 | 5.04 | % | 611,107 | 8,343 | 5.54 | % | ||||||||||||||||
NONINTEREST EARNING ASSETS: | ||||||||||||||||||||||||
Cash and due from banks | 47,236 | 55,341 | ||||||||||||||||||||||
Premises and equipment | 13,106 | 13,490 | ||||||||||||||||||||||
Other assets | 26,849 | 30,923 | ||||||||||||||||||||||
Total noninterest earning assets | 87,191 | 99,754 | ||||||||||||||||||||||
TOTAL ASSETS | $ | 735,438 | $ | 710,861 | ||||||||||||||||||||
INTEREST BEARING LIABILITIES: | ||||||||||||||||||||||||
Demand, interest bearing | $ | 62,612 | 27 | 0.17 | % | $ | 60,689 | 34 | 0.23 | % | ||||||||||||||
Money market | 270,747 | 417 | 0.62 | % | 257,921 | 543 | 0.85 | % | ||||||||||||||||
Savings | 49,362 | 25 | 0.21 | % | 45,870 | 28 | 0.25 | % | ||||||||||||||||
Time deposits | 108,819 | 215 | 0.80 | % | 118,095 | 279 | 0.96 | % | ||||||||||||||||
Total interest bearing liabilities | 491,540 | 684 | 0.56 | % | 482,575 | 884 | 0.74 | % | ||||||||||||||||
NONINTEREST BEARING LIABILITIES: | ||||||||||||||||||||||||
Demand deposits | 145,542 | 139,638 | ||||||||||||||||||||||
Other liabilities | 10,478 | 7,280 | ||||||||||||||||||||||
Total noninterest bearing liabilities | 156,020 | 146,918 | ||||||||||||||||||||||
TOTAL LIABILITIES | 647,560 | 629,493 | ||||||||||||||||||||||
Stockholders equity | 87,878 | 81,368 | ||||||||||||||||||||||
TOTAL LIABILITIES AND STOCKHOLDERS EQUITY | $ | 735,438 | $ | 710,861 | ||||||||||||||||||||
NET INTEREST INCOME AND MARGIN ON TOTAL EARNING ASSETS (4) | $ | 7,368 | 4.61 | % | $ | 7,459 | 4.95 | % |
1) | Interest on non-accrual loans is recognized into income on a cash received basis if the loan has demonstrated performance and full collection is considered probable. |
2) | Amounts of interest earned included loan fees of $290,000 and $246,000 for the quarters ended March 31, 2012 and 2011, respectively. |
3) | Tax equivalent adjustments recorded at the statutory rate of 34% that are included in the nontaxable securities portfolio are $170,000 and $124,000 for the quarters ended March 31, 2012 and 2011, respectively, and were derived from nontaxable municipal interest income. |
4) | The annualized net interest margin is computed by dividing net interest income by total average interest earning assets and multiplied by an annualization factor. |
Table 1, above, shows the various components that contributed to changes in net interest income for the three months ended March 31, 2012 and 2011. The principal interest earning assets are loans, from a volume as well as from an earnings rate perspective. For the quarter ended March 31, 2012, average gross loans outstanding represented 69.8% of average earning assets. For the quarter ended March 31, 2011, they represented 78.9% of average earning assets.
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The taxable equivalent yield on average interest earning assets for the quarter ended March 31, 2012 compared to the quarter ended March 31, 2011 decreased from 5.54% to 5.04%, or 50 basis points. Average loans decreased by $29,571,000 and average interest on the loan portfolio decreased from 6.26% to 6.05%. Interest income on total interest earning assets decreased $291,000 or 3.49% on a tax equivalent basis.
For the three months ended March 31, 2012, compared to the three months ended March 31, 2011, the cost on total interest bearing liabilities decreased from 0.74% to 0.56%, a decrease of 18 basis points. The principal source of deposit liabilities comes from interest bearing demand and money market deposits. Average money market deposits increased from $257,921,000 in the first quarter of 2011 to $270,747,000 during this same period during 2012, an increase of $12,826,000, or 4.97%. Our average money market deposit cost decreased from 0.85% to 0.62%, and the expense on these deposits decreased $126,000 for the three months ended March 31, 2012 compared to the three months ended March 31, 2011.
TABLE 2 | FNB BANCORP AND SUBSIDIARY | |||||||||||
RATE/VOLUME VARIANCE ANALYSIS | ||||||||||||
(Dollar amounts in thousands) | Three months ended March 31, | |||||||||||
2012 compared to 2011 | ||||||||||||
Increase(decrease) (2) | ||||||||||||
Interest | Variance | |||||||||||
Income/expense | Attributable to | |||||||||||
Variance | Rate | Volume | ||||||||||
INTEREST EARNING ASSETS | ||||||||||||
Loans | $ | (683 | ) | $ | (242 | ) | $ | (441 | ) | |||
Taxable securities | 209 | 20 | 189 | |||||||||
Nontaxable securities (1) | 183 | (88 | ) | 271 | ||||||||
Total | (291 | ) | (310 | ) | 19 | |||||||
INTEREST BEARING LIABILITIES | ||||||||||||
Demand deposits | 7 | 8 | (1 | ) | ||||||||
Money market | 126 | 146 | (20 | ) | ||||||||
Savings | 3 | 5 | (2 | ) | ||||||||
Time deposits | 64 | 42 | 22 | |||||||||
Total | 200 | 201 | (1 | ) | ||||||||
NET INTEREST INCOME | $ | (91 | ) | $ | (109 | ) | $ | 18 |
(1) | Includes tax equivalent adjustments of $170,000 and $124,000 in the three months ended March 31, 2012, and March 31, 2011, respectively. |
(2) | Increases (decreases) shown are in relation to their effect on net interest income. |
For the three month periods ended March 31, 2012 and 2011, respectively, the above table shows the dollar amount of change in interest income and expense and the dollar amounts attributable to: (a) changes in volume (changes in volume at the current year rate), and (b) changes in rate (changes in rate times the prior year’s volume). In this table, the dollar change in rate/volume is prorated to volume and rate proportionately.
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Noninterest income
The following table shows the principal components of noninterest income for the periods indicated.
TABLE 3 | NONINTEREST INCOME | |||||||||||||||
(Dollar amounts in thousands) | Three months | |||||||||||||||
ended March 31, | Variance | |||||||||||||||
2012 | 2011 | Amount | Percent | |||||||||||||
Service charges | $ | 752 | $ | 697 | $ | 55 | 7.9 | % | ||||||||
Credit card fees | 153 | 150 | 3 | 2.0 | % | |||||||||||
Gain on available-for-sale securities | 484 | 22 | 462 | 2100.0 | % | |||||||||||
Bank owned life insurance policy earnings | 467 | 81 | 386 | 476.5 | % | |||||||||||
Other income | 64 | 63 | 1 | 1.6 | % | |||||||||||
Total noninterest income | $ | 1,920 | 1,013 | $ | 907 | 89.5 | % |
Noninterest income consists mainly of service charges on deposits, credit card fees, and several other miscellaneous types of income. The Bank service charges were up slightly during the first quarter of 2012 when compared to the same period during 2011 due to a small increase in our overdraft fees. During the first quarter of 2012, the Bank recorded a one-time gain on life insurance due to the passing of Mr. Mike Wyman, the former Chairman of the Board and CEO of the Company. Also, during the first quarter of 2012, the Company sold approximately $12,068,000 in investment securities at a pre-tax net gain of $484,000 or 4% of principal sold The sale proceeds were invested in a variety of investment securities during the quarter.
Noninterest expense
The following table shows the principal components of noninterest expense for the periods indicated.
TABLE 4 | NONINTEREST EXPENSE | |||||||||||||||
Three months | ||||||||||||||||
(Dollar amounts in thousands) | ended March 31, | Variance | ||||||||||||||
2012 | 2011 | Amount | Percent | |||||||||||||
Salaries and employee benefits | $ | 3,774 | $ | 3,486 | $ | 288 | 8.3 | % | ||||||||
Occupancy expense | 600 | 556 | 44 | 7.9 | % | |||||||||||
Equipment expense | 446 | 408 | 38 | 9.3 | % | |||||||||||
Professional fees | 588 | 364 | 224 | 61.5 | % | |||||||||||
FDIC assessment | 180 | 375 | (195 | ) | -52.0 | % | ||||||||||
Acquisition related expense | 175 | 0 | 175 | n/a | ||||||||||||
Telephone, postage & supplies | 278 | 313 | (35 | ) | -11.2 | % | ||||||||||
Operating losses | 108 | 224 | (116 | ) | -51.8 | % | ||||||||||
Bankcard expenses | 156 | 136 | 20 | 14.7 | % | |||||||||||
Data processing expense | 138 | 132 | 6 | 4.5 | % | |||||||||||
Low income housing expense | 69 | 69 | 0 | 0.0 | % | |||||||||||
Other real estate owned expense | 36 | 188 | (152 | ) | -80.9 | % | ||||||||||
(Gain) loss on sale of other real estate owned | 5 | (91 | ) | 96 | -105.5 | % | ||||||||||
Other expense | 500 | 588 | (88 | ) | -15.0 | % | ||||||||||
Total noninterest expense | $ | 7,053 | $ | 6,748 | $ | 305 | 4.5 | % |
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Noninterest expense consists mainly of salaries and employee benefits. During the first quarter of 2012, the Company recorded a $75,000 pre tax charge related to two employees whose positions were eliminated in conjunction with the sale of our Merchant Card business during 2011. For the three months ended March 31, 2012 compared to three months ended March 31, 2011, salaries and benefits represented 53.5% and 51.7% of total noninterest expenses. During the first quarter of 2012, the Company recorded $200,000 in legal fees related to operational issues that occurred during the first quarter of 2012, which have subsequently been resolved in April. In addition, a $100,000 one-time insurance related loss was recorded during the first quarter of 2012. During the first quarter of 2011, the Bank experienced an operational loss of approximately $200,000 related to an unauthorized foreign wire transfer. The operational loss was increased by another $300,000 during the third quarter of 2011 when our insurance company denied coverage of our insurance reimbursement claim that had been filed. The Company disagrees with our insurance carrier’s decision to not cover the claim and intends to file suit against the insurance carrier asking the courts to force the insurance company to pay our claim. Any recoveries that may be recovered as a result of our legal remedy efforts would be recorded as other income if and when any recovery actually occurs.
Provision for Loan Losses
There was a provision for loan losses of $400,000 for the three-month period ended March 31, 2012 compared to a provision for loan losses of $450,000 for the same period in 2011. The allowance for loan losses was $8,287,000 or 1.82% of total gross loans at March 31, 2012, compared to $9,897,000 or 2.18% of total gross loans at December 31, 2011. During the first quarter of 2012, over two million dollars in loan principal that was fully reserved for in previous periods was charged-off. The overall quality of the remaining portfolio did not warrant a larger provision for loan losses during the quarter. The allowance for loan losses is maintained at a level considered adequate for management to provide for probable loan losses inherent in the loan portfolio. Loans charged-off during the first quarter of 2012 were significantly lower than during the same time period during 2011, reflecting the improvement in the level of problem loans within our loan portfolio on a year over year basis.
Income Taxes
The effective tax rate for the quarter ended March 31, 2012 was a 22.6% tax expense compared to a 30.2% tax expense for the quarter ended March 31, 2011. Tax preference items which usually affect our effective tax rate are changing amounts invested in tax-advantaged securities, available Low Income Housing Credits, and amounts of interest income on qualifying loans in California Enterprise Zones. During the first quarter of 2012, the Company recognized a tax free gain on proceeds of life insurance of approximately $370,000 due to the passing of the Company’s former Chairman and CEO, Mike Wyman. Another significant reason for changes in the effective tax rate provision is the change in the relative proportion of tax advantaged income in comparison to fully taxable income period over period.
Asset and Liability Management
Ongoing management of the Company’s interest rate sensitivity limits interest rate risk through monitoring the mix and maturity of loans, investments and deposits. Management regularly reviews the Company’s position and evaluates alternative sources and uses of funds as well as changes in external factors. Various methods are used to achieve and maintain the desired interest rate sensitivity position including the sale or purchase of assets and product pricing.
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In order to ensure that sufficient funds are available for loan growth and deposit withdrawals, as well as to provide for general needs, the Company must maintain an adequate level of liquidity. Asset liquidity comes from the Company’s ability to convert short-term investments into cash and from the maturity and repayment of loans and investment securities. Liability liquidity comes from the Company’s customer base, which provides core deposit growth. The overall liquidity position of the Company is closely monitored and evaluated regularly. Management believes the Company’s liquidity sources at March 31, 2012, are adequate to meet its operating needs in 2012 and our liquidity positions are sufficient to meet our liquidity needs in the near term.
Financial Condition
Assets. Total assets increased to $746,649,000 at March 31, 2012 from $715,641,000 at December 31, 2011, an increase of $31,008,000. The principal source of this increase was an increase of $17,689,000 in securities available for sale, an $6,644,000 increase in cash and due from banks, a $3,581,000 increase in net loans, and an increase of $3,921,000 in all other assets, offset by a decrease of $827,000 in other real estate owned.
Loans. Gross loans (before net loan fees) at March 31, 2012 were $455,712,000, an increase of $1,970,000 or 0.48% from December 31, 2011. Gross commercial real estate loans decreased $10,081,000, real estate construction loans decreased $195,000, real estate multi- family loans increased $2,861,000, real estate loans secured by 1 to 4 family residences increased $5,866,000, commercial & industrial loans increased $3,575,000, and consumer loans decreased by $56,000. The loan portfolio breakdown was as follows:
TABLE 5 | LOAN PORTFOLIO | |||||||||||||||
March 31 | Percent | December 31 | Percent | |||||||||||||
(Dollar amounts in thousands) | 2012 | 2011 | ||||||||||||||
Commercial real estate | $ | 247,332 | 54 | % | $ | 257,413 | 57 | % | ||||||||
Real estate construction | 28,034 | 6 | % | 28,229 | 6 | % | ||||||||||
Real estate multi family | 39,230 | 9 | % | 36,369 | 8 | % | ||||||||||
Real estate 1 to 4 family | 92,188 | 20 | % | 86,322 | 19 | % | ||||||||||
Commercial & industrial | 46,649 | 10 | % | 43,074 | 9 | % | ||||||||||
Consumer loans | 2,279 | 1 | % | 2,335 | 1 | % | ||||||||||
Gross loans | 455,712 | 100 | % | 453,742 | 100 | % | ||||||||||
Net deferred loan fees | (123 | ) | 0 | % | (124 | ) | 0 | % | ||||||||
Total | $ | 455,589 | 100 | % | $ | 453,618 | 100 | % | ||||||||
Allowance for loan losses. Management of the Company is responsible for assessing the overall risks within the Bank’s loan portfolio, assessing the specific loss expectancy, and determining the adequacy of the allowance for loan losses. The level of the allowance is determined by internally generating credit quality ratings, reviewing economic conditions in the Company’s market area, and considering the Company’s historical loan loss experience. The Company’s management considers changes in national and local economic conditions, as well as the condition of various market segments. It also reviews any changes in the nature and volume of the portfolio. Management watches for the existence and effect of any concentrations of credit, and changes in the level of such concentrations. It also reviews the effect of external factors, such as competition and legal and regulatory requirements. Finally, the Company is committed to maintaining an adequate allowance, identifying credit weaknesses by consistent review of loans, and maintaining the ratings and changing those ratings in a timely manner as circumstances change.
32 |
A summary of transactions in the allowance for loan losses for the three months ended March 31, 2012, and March 31, 2011, respectively is as follows:
TABLE 6 | ALLOWANCE FOR LOAN LOSSES | |||||||
Three months ended | Three months ended | |||||||
(Dollar amounts in thousands) | March 31, 2012 | March 31, 2011 | ||||||
Balance, beginning of period | $ | 9,897 | $ | 9,524 | ||||
Provision for loan losses | 400 | 450 | ||||||
Recoveries | 15 | 13 | ||||||
Amounts charged off | (2,025 | ) | (203 | ) | ||||
Balance, end of period | $ | 8,287 | $ | 9,784 |
During the first quarter of 2012, there was a provision of $400,000, compared to $450,000 in the first quarter of 2011. The decrease in the provision was considered appropriate given the declining risk levels within the Bank’s loan portfolio. Loan charge-off levels have declined year over year, and remain above historic norms.
In management’s judgment, the allowance is adequate to absorb probable losses currently inherent in the loan portfolio at March 31, 2012. However, changes in prevailing economic conditions in the Company’s markets or in the financial condition of its customers could result in changes in the level of nonperforming assets and charge-offs in the future and, accordingly, changes in the allowance.
The allowance is affected by a number of factors, and does not necessarily move in tandem with the level of gross loans outstanding. Management continues to monitor the factors that affect the allowance, and is prepared to make adjustments as they become necessary.
Nonperforming assets. Nonperforming assets consist of nonaccrual loans, loans that are 90 days or more past due but are still accruing interest and other real estate owned. At March 31, 2012, there was $22,567,000 in nonperforming assets, compared to $21,845,000 at December 31, 2011. Nonaccrual loans were $19,471,000 at March 31, 2012, compared to $19,098,000 at December 31, 2011. There were no loans past due 90 days and still accruing at either date.
There was $1,920,000 in Other Real Estate Owned at March 31, 2012, and $2,747,000 at December 31, 2011. Management intends to aggressively market these properties. While management believes these properties will sell, there can be no assurance that these properties will sell quickly given the current real estate market, nor can the expected sales price be accurately predicted.
Deposits. Total deposits at March 31, 2012, were $651,691,000 compared to $621,778,000 on December 31, 2011. Of these totals, noninterest-bearing demand deposits were $150,199,000 or 23.0% of the total on March 31, 2012, and $139,382,000 or 22.4% on December 31, 2011. Time deposits were $107,904,000 on March 31, 2012, and $108,851,000 on December 31, 2011.
33 |
The following table sets forth the maturity schedule of the time certificates of deposit on March 31, 2012:
TABLE 7 | ||||||||||||
(Dollar amounts in thousands) | Under | $100,000 | ||||||||||
Maturities | $100,000 | or more | Total | |||||||||
Three months or less | $ | 11,396 | $ | 26,199 | $ | 37,595 | ||||||
Over three through six months | 9,092 | 9,568 | 18,660 | |||||||||
Over six through twelve months | 5,410 | 16,964 | 22,374 | |||||||||
Over twelve months | 14,690 | 14,585 | 29,275 | |||||||||
Total | $ | 40,588 | $ | 67,316 | $ | 107,904 |
Regulatory Capital. The following table shows the risk-based capital ratios and leverage ratios at March 31, 2012 and December 31, 2011 for the Bank:
TABLE 8 | Minimum Well | |||||||||||
March 31, | December 31, | Capitalized | ||||||||||
Regulatory Capital Ratios | 2012 | 2011 | Requirements | |||||||||
Total Regulatory Capital Ratio | 16.10% | 16.44% | ³ | 10.00% | ||||||||
Tier 1 Capital Ratio | 14.84% | 15.18% | ³ | 6.00% | ||||||||
Leverage Ratios | 11.15% | 11.15% | ³ | 5.00% | ||||||||
Liquidity. Liquidity is a measure of the Company’s ability to convert assets into cash with minimal loss. As of March 31, 2012, liquid assets were $250,471,000, or 33.6% of total assets. As of December 31, 2011, liquid assets were $226,138,000, or 31.6% of total assets. Liquidity consists of cash and due from banks, federal funds sold, and securities available-for-sale. The Company’s primary uses of funds are loans, and the primary sources of funds are deposits. The Company also has federal funds borrowing facilities totaling $30,000,000, a Federal Home Loan Bank line up to 30% of total assets, and a Federal Reserve Bank borrowing facility.
The relationship between total net loans and total deposits is a useful additional measure of liquidity. A higher loan to deposit ratio may lead to a loss of liquid assets in the future. This must be balanced against the fact that loans represent the highest interest earning assets. A lower loan to deposit ratio means lower potential income. On March 31, 2012, and December 31, 2011, respectively, net loans were at 69% and 71% of deposits.
Off-Balance Sheet Items
The Company has certain ongoing commitments under operating leases. These commitments do not significantly impact operating results. As of March 31, 2012 and December 31, 2011, commitments to extend credit and letters of credit were the only financial instruments with off-balance sheet risk. The Company has not entered into any contracts for financial derivative instruments such as futures, swaps, options or similar instruments. Loan commitments and letters of credit were $91,599,000 and $92,690,000 at March 31, 2012 and December 31, 2011, respectively. As a percentage of net loans, these off-balance sheet items represent 20.48% and 20.89% respectively. The Company does not expect all commitments are expected to be funded.
34 |
Item 3. Quantitative and Qualitative Disclosures about Market Risk.
Market risk is the risk of loss to future earnings, to fair values of assets or to future cash flows that may result from changes in the price or value of a financial instrument. The value of a financial instrument may change as a result of changes in interest rates and other market conditions. Market risk is attributed to all market risk sensitive financial instruments, including loans, investment securities, deposits and borrowings. The Company does not engage in trading activities or participate in foreign currency transactions for its own account. Accordingly, exposure to market risk is primarily a function of asset and liability management activities and of changes in market rates of interest. Changes in rates can cause or require increases in the rates paid on deposits that may take effect more rapidly or may be greater than the increases in the interest rates that the Company is able to charge on loans and the yields that it can realize on its investments. The extent of that market risk depends on a number of variables including the sensitivity to changes in market interest rates and the maturities of the Company’s interest earning assets and deposits.
Item 4T. Controls and Procedures.
(a) Disclosure Controls and Procedures: An evaluation of the Companys disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) was carried out under the supervision and with the participation of the Companys Chief Executive Officer, Chief Financial Officer and other members of the Companys senior management as of the end of the Company’s fiscal quarter ended March 31, 2012. The Companys Chief Executive Officer and Chief Financial Officer concluded that the Companys disclosure controls and procedures as currently in effect are effective in ensuring that the information required to be disclosed by the Company in the reports it files or submits under the Act is (i) accumulated and communicated to the Companys management (including the Chief Executive Officer and Chief Financial Officer) to allow timely decisions regarding required disclosure, and (ii) recorded, processed, summarized and reported within the time periods specified in the Commissions rules and forms.
(b) Internal Control Over Financial Reporting: An evaluation of any changes in the Company’s internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)), that occurred during the Company’s fiscal quarter ended March 31, 2012, was carried out under the supervision and with the participation of the Company’s Chief Executive Officer, Chief Financial Officer and other members of the Company’s senior management. The Company’s Chief Executive Officer and Chief Financial Officer concluded that no change identified in connection with such evaluation has materially affected, or is reasonably likely to materially affect, the Company’s internal control over financial reporting.
There are no material legal proceedings adverse to the Company or First National Bank to which any director, officer, affiliate of the Company, or 5% stockholder of the Company, or any associate of any such director, officer, affiliate or 5% stockholder of the Company are a party, and none of the foregoing persons has a material interest adverse to the Company or First National Bank.
35 |
From time to time, the Company and/or First National Bank are a party to claims and legal proceedings arising in the ordinary course of business. The Company’s management is not aware of any material pending legal proceedings to which either it or First National Bank may be a party or has recently been a party, which will have a material adverse effect on the financial condition or results of operations of the Company and First National Bank, taken as a whole.
During the course of normal operations, the Bank and the Company manage a variety of risks including, but not limited to, credit risk, operational risk, interest rate risk and regulatory compliance risk. For a more complete discussion of the risk factors facing the Bank and the Company, please refer to the section entitled “Item 1A – Risk Factors” in the Company’s December 31, 2011 Form 10K.
On July 21, 2010, the Dodd-Frank Wall Street Reform and Consumer Protection Act (the “Act”) was signed into law. The purpose of this legislation was to bring about regulatory changes and oversight that would help stop past abuses from recurring in the future. This legislation gives new powers to the FDIC and the Federal Reserve Bank that they may use in the execution of their duties as regulators and overseers of the banking industry. It also created a new federal consumer protection agency named the Consumer Financial Protection Bureau (“CFPB”). All existing consumer laws and regulations will be transferred to the CFPB. This Act is expected to enable regulators to issue numerous new banking regulations and requirements that have not yet been fully developed or promulgated. The ultimate effect the Act has on the Company’s operations will ultimately be determined by the significance of the new banking regulations that are issued as a result of the Act.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
c) ISSUER PURCHASES OF EQUITY SECURITIES
On August 24, 2007 the Board of Directors of the Company authorized a stock repurchase program which calls for the repurchase of up to five percent (5%) of the Company’s then outstanding 2,863,635 shares of common stock, or 143,182 shares. There were no repurchases during the quarter ended March 31, 2012. There were 10,457 shares remaining that may be repurchased under this Plan as of March 31, 2012.
Item4. | Mine Safety Disclosures |
Not Applicable.
Item 6. | Exhibits |
Exhibits
31: | Rule 13a-14(a)/15d-14(a) Certifications |
32: | Section 1350 Certifications |
36 |
Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.
FNB BANCORP | ||||
(Registrant) | ||||
Dated: | ||||
May 14, 2012. | By: | /s/ Thomas C. McGraw | ||
Thomas C. McGraw | ||||
Chief Executive Officer | ||||
(Authorized Officer) | ||||
By: | /s/ David A. Curtis | |||
David A. Curtis | ||||
Senior Vice President | ||||
Chief Financial Officer | ||||
(Principal Financial Officer) |
37
Exhibit 31.1
Rule 13a-14(a)/15d-14(a) Certifications
I, Thomas C. McGraw, certify that:
1. I have reviewed this quarterly report on Form 10-Q of FNB Bancorp;
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 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 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 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 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 the registrant’s board of directors:
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.
Date: May 14, 2012. | /s/ Thomas C. McGraw | |
Thomas C. McGraw | ||
Chief Executive Officer |
Exhibit 31.2
Rule 13a-14(a)/15d-14(a) Certifications
I, David A. Curtis, certify that:
1. I have reviewed this quarterly report on Form 10-Q of FNB Bancorp;
2. Based on my knowledge, this quarterly 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 and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and 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 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 instruments 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 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:
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.
Date: May 14, 2012. | /s/ David A Curtis | |
David A Curtis, | ||
Senior Vice President and | ||
Chief Financial Officer |
Exhibit 32
Section 1350 Certifications
Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (subsections (a) and (b) of section 1350, chapter 63 of title 18, United States Code), each of the undersigned officers of FNB Bancorp, a California corporation (the “Company”), does hereby certify that:
1. | The Company’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2011 (the “Form 10-Q”) fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended; and |
2. | Information contained in the Form 10-Q fairly presents, in all material respects, the financial condition and results of operations of the Company. |
Dated: May 14, 2012. | /s/ Thomas C. McGraw | |
Thomas C. McGraw | ||
Chief Executive Officer | ||
Dated: May 14, 2012. | /s/ David A. Curtis | |
David A. Curtis | ||
Senior Vice President and | ||
Chief Financial Officer |
A signed original of this statement required by Section 906 has been provided to FNB Bancorp and will be retained by FNB Bancorp and furnished to the Securities and Exchange Commission or its staff upon request.
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