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x
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QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
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¨
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TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
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New Jersey
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52-1273725
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(State or Other Jurisdiction of
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(IRS Employer
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Incorporation or Organization)
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Identification No.)
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Large accelerated filer ¨
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Accelerated filer x
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Non-accelerated filer ¨
(Do not check if smaller
reporting company)
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Smaller reporting company ¨
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Common Stock, no par value:
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16,290,700 shares
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(Title of Class)
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(Outstanding as of July 31, 2011)
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Page
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||
PART I – FINANCIAL INFORMATION
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1
|
|
Item 1.
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Financial Statements
|
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Consolidated Statements of Condition at June 30, 2011 and December 31, 2010 (unaudited)
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2
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Consolidated Statements of Income for the three and six months ended June 30, 2011 and 2010 (unaudited)
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3
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Consolidated Statements of Changes in Stockholders’ Equity for the six months ended June 30, 2011 and 2010 (unaudited)
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4
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Consolidated Statements of Cash Flows for the six months ended June 30, 2011 and 2010 (unaudited)
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5
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Notes to Consolidated Financial Statements
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6
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Item 2.
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Management’s Discussion and Analysis of Financial Condition and Results of Operations
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30
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Item 3.
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Qualitative and Quantitative Disclosures about Market Risks
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49
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Item 4.
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Controls and Procedures
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50
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PART II – OTHER INFORMATION
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||
Item 1.
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Legal Proceedings
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50
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Item 1A.
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Risk Factors
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51
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Item 6.
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Exhibits
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51
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SIGNATURES
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52
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June 30,
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December 31,
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|||||||
(in thousands, except for share data)
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2011
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2010
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||||||
ASSETS
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||||||||
Cash and due from banks
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$ | 109,467 | $ | 37,497 | ||||
Investment securities:
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||||||||
Available for sale
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377,214 | 378,080 | ||||||
Held to maturity (fair value of $42,122 in 2011 and $0 in 2010)
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41,804 | — | ||||||
Loans
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698,148 | 708,444 | ||||||
Less: Allowance for loan losses
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9,836 | 8,867 | ||||||
Net loans
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688,312 | 699,577 | ||||||
Restricted investment in bank stocks, at cost
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9,194 | 9,596 | ||||||
Premises and equipment, net
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12,578 | 12,937 | ||||||
Accrued interest receivable
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5,229 | 4,134 | ||||||
Bank-owned life insurance
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28,426 | 27,905 | ||||||
Goodwill and other intangible assets
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16,927 | 16,959 | ||||||
Prepaid FDIC assessments
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2,521 | 3,582 | ||||||
Other assets
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15,766 | 17,118 | ||||||
Total assets
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$ | 1,307,438 | $ | 1,207,385 | ||||
LIABILITIES
|
||||||||
Deposits:
|
||||||||
Non interest-bearing
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$ | 158,689 | $ | 144,210 | ||||
Interest-bearing:
|
||||||||
Time deposits $100 and over
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168,925 | 119,651 | ||||||
Interest-bearing transaction, savings and time deposits $100 and less
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638,062 | 596,471 | ||||||
Total deposits
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965,676 | 860,332 | ||||||
Short-term borrowings
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32,374 | 41,855 | ||||||
Long-term borrowings
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161,000 | 171,000 | ||||||
Subordinated debentures
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5,155 | 5,155 | ||||||
Accounts payable and accrued liabilities
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13,129 | 8,086 | ||||||
Total liabilities
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1,177,334 | 1,086,428 | ||||||
STOCKHOLDERS’ EQUITY
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||||||||
Preferred stock, $1,000 liquidation value per share, authorized 5,000,000 shares; issued 10,000 shares
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9,741 | 9,700 | ||||||
Common stock, no par value, authorized 25,000,000 shares; issued 18,477,412 shares; outstanding 16,290,700 shares at June 30, 2011 and 16,289,832 shares at December 31, 2010
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110,056 | 110,056 | ||||||
Additional paid-in capital
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4,960 | 4,941 | ||||||
Retained earnings
|
26,963 | 21,633 | ||||||
Treasury stock, at cost (2,186,712 common shares at June 30, 2011 and 2,187,580 common shares at December 31, 2010)
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(17,691 | ) | (17,698 | ) | ||||
Accumulated other comprehensive loss
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(3,925 | ) | (7,675 | ) | ||||
Total stockholders’ equity
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130,104 | 120,957 | ||||||
Total liabilities and stockholders’ equity
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$ | 1,307,438 | $ | 1,207,385 |
Three Months Ended
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Six Months Ended
|
|||||||||||||||
June 30,
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June 30,
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|||||||||||||||
(in thousands, except for share data)
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2011
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2010
|
2011
|
2010
|
||||||||||||
Interest income
|
||||||||||||||||
Interest and fees on loans
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$ | 8,950 | $ | 9,419 | $ | 18,167 | $ | 18,787 | ||||||||
Interest and dividends on investment securities:
|
||||||||||||||||
Taxable
|
3,428 | 2,864 | 6,806 | 5,873 | ||||||||||||
Tax-exempt
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351 | 56 | 439 | 173 | ||||||||||||
Dividends
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149 | 149 | 333 | 327 | ||||||||||||
Total interest income
|
12,878 | 12,488 | 25,745 | 25,160 | ||||||||||||
Interest expense
|
||||||||||||||||
Interest on certificates of deposit $100 or more
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348 | 340 | 613 | 754 | ||||||||||||
Interest on other deposits
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1,072 | 1,235 | 2,074 | 2,499 | ||||||||||||
Interest on borrowings
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1,665 | 2,256 | 3,320 | 4,741 | ||||||||||||
Total interest expense
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3,085 | 3,831 | 6,007 | 7,994 | ||||||||||||
Net interest income
|
9,793 | 8,657 | 19,738 | 17,166 | ||||||||||||
Provision for loan losses
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250 | 781 | 1,128 | 1,721 | ||||||||||||
Net interest income after provision for loan losses
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9,543 | 7,876 | 18,610 | 15,445 | ||||||||||||
Other income
|
||||||||||||||||
Service charges, commissions and fees
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461 | 459 | 910 | 889 | ||||||||||||
Annuities and insurance commissions
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33 | 23 | 39 | 116 | ||||||||||||
Bank-owned life insurance
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261 | 264 | 521 | 528 | ||||||||||||
Other
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176 | 79 | 292 | 187 | ||||||||||||
Other-than-temporary impairment losses on investment securities
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(142 | ) | (705 | ) | (237 | ) | (8,472 | ) | ||||||||
Portion of losses recognized in other comprehensive income, before taxes
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— | — | — | 3,377 | ||||||||||||
Net other-than-temporary impairment losses on investment securities
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(142 | ) | (705 | ) | (237 | ) | (5,095 | ) | ||||||||
Net gains on sale of investment securities
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943 | 1,362 | 1,804 | 2,408 | ||||||||||||
Net investment securities gains (losses)
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801 | 657 | 1,567 | (2,687 | ) | |||||||||||
Total other income (charges)
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1,732 | 1,482 | 3,329 | (967 | ) | |||||||||||
Other expense
|
||||||||||||||||
Salaries and employee benefits
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2,903 | 2,727 | 5,770 | 5,384 | ||||||||||||
Occupancy and equipment
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667 | 734 | 1,533 | 1,623 | ||||||||||||
FDIC insurance
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528 | 458 | 1,056 | 1,076 | ||||||||||||
Professional and consulting
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245 | 422 | 486 | 696 | ||||||||||||
Stationery and printing
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99 | 90 | 200 | 174 | ||||||||||||
Marketing and advertising
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65 | 105 | 86 | 197 | ||||||||||||
Computer expense
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350 | 340 | 689 | 680 | ||||||||||||
Other real estate owned, net
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— | 43 | (1 | ) | 43 | |||||||||||
Loss on fixed assets, net
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— | 437 | — | 427 | ||||||||||||
Repurchase agreement termination fee
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— | — | — | 594 | ||||||||||||
All other
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900 | 912 | 1,873 | 1,766 | ||||||||||||
Total other expense
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5,757 | 6,268 | 11,692 | 12,660 | ||||||||||||
Income before income tax expense (benefit)
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5,518 | 3,090 | 10,247 | 1,818 | ||||||||||||
Income tax expense (benefit)
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1,934 | 1,076 | 3,645 | (477 | ) | |||||||||||
Net Income
|
3,584 | 2,014 | 6,602 | 2,295 | ||||||||||||
Preferred stock dividends and accretion
|
145 | 146 | 291 | 291 | ||||||||||||
Net income available to common stockholders
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$ | 3,439 | $ | 1,868 | $ | 6,311 | $ | 2,004 | ||||||||
Earnings per common share
|
||||||||||||||||
Basic
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$ | 0.21 | $ | 0.13 | $ | 0.39 | $ | 0.14 | ||||||||
Diluted
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$ | 0.21 | $ | 0.13 | $ | 0.39 | $ | 0.14 | ||||||||
Weighted Average Common Shares Outstanding
|
||||||||||||||||
Basic
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16,290,700 | 14,574,832 | 16,290,547 | 14,574,832 | ||||||||||||
Diluted
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16,315,667 | 14,576,223 | 16,309,026 | 14,577,897 | ||||||||||||
Dividend paid per common share
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$ | 0.03 | $ | 0.03 | $ | 0.06 | $ | 0.06 |
Accumulated
|
||||||||||||||||||||||||||||
Additional
|
Other
|
Total
|
||||||||||||||||||||||||||
Preferred
|
Common
|
Paid In
|
Retained
|
Treasury
|
Comprehensive
|
Stockholders’
|
||||||||||||||||||||||
(in thousands, except for share data)
|
Stock
|
Stock
|
Capital
|
Earnings
|
Stock
|
Loss
|
Equity
|
|||||||||||||||||||||
Balance—December 31, 2009
|
$ | 9,619 | $ | 97,908 | $ | 5,650 | $ | 17,068 | $ | (17,720 | ) | $ | (10,776 | ) | $ | 101,749 | ||||||||||||
Comprehensive income:
|
||||||||||||||||||||||||||||
Net income
|
2,295 | 2,295 | ||||||||||||||||||||||||||
Other comprehensive income, net of tax
|
4,441 | 4,441 | ||||||||||||||||||||||||||
Total comprehensive income
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6,736 | |||||||||||||||||||||||||||
Accretion of discount on preferred stock
|
41 | (41 | ) | — | ||||||||||||||||||||||||
Issuance cost of common stock
|
(3 | ) | (3 | ) | ||||||||||||||||||||||||
Cash dividends on preferred stock
|
(250 | ) | (250 | ) | ||||||||||||||||||||||||
Cash dividends declared on common stock ($0.06 per share)
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(875 | ) | (875 | ) | ||||||||||||||||||||||||
Restricted stock awarded (2,083 shares)
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3 | 22 | 25 | |||||||||||||||||||||||||
Taxes related to stock-based compensation
|
8 | 8 | ||||||||||||||||||||||||||
Stock-based compensation expense
|
29 | 29 | ||||||||||||||||||||||||||
Balance—June 30, 2010
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$ | 9,660 | $ | 97,908 | $ | 5,690 | $ | 18,194 | $ | (17,698 | ) | $ | (6,335 | ) | $ | 107,419 | ||||||||||||
Balance—December 31, 2010
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$ | 9,700 | $ | 110,056 | $ | 4,941 | $ | 21,633 | $ | (17,698 | ) | $ | (7,675 | ) | $ | 120,957 | ||||||||||||
Comprehensive income:
|
||||||||||||||||||||||||||||
Net income
|
6,602 | 6,602 | ||||||||||||||||||||||||||
Other comprehensive income, net of tax
|
3,750 | 3,750 | ||||||||||||||||||||||||||
Total comprehensive income
|
10,352 | |||||||||||||||||||||||||||
Accretion of discount on preferred stock
|
41 | (41 | ) | — | ||||||||||||||||||||||||
Issuance cost of common stock
|
(3 | ) | (3 | ) | ||||||||||||||||||||||||
Cash dividends on preferred stock
|
(250 | ) | (250 | ) | ||||||||||||||||||||||||
Cash dividends declared on common stock ($0.06 per share)
|
(978 | ) | (978 | ) | ||||||||||||||||||||||||
Stock issued for options exercise (868 shares)
|
7 | 7 | ||||||||||||||||||||||||||
Stock-based compensation expense
|
19 | 19 | ||||||||||||||||||||||||||
Balance—June 30, 2011
|
$ | 9,741 | $ | 110,056 | $ | 4,960 | $ | 26,963 | $ | (17,691 | ) | $ | (3,925 | ) | $ | 130,104 |
Six Months Ended
|
||||||||
(in thousands)
|
June 30,
|
|||||||
2011
|
2010
|
|||||||
Cash flows from operating activities:
|
||||||||
Net income
|
$ | 6,602 | $ | 2,295 | ||||
Adjustments to reconcile net income to net cash provided by operating activities:
|
||||||||
Amortization of premiums and accretion of discounts on investment securities, net
|
2,036 | 720 | ||||||
Depreciation and amortization
|
484 | 592 | ||||||
Stock-based compensation
|
19 | 29 | ||||||
Provision for loan losses
|
1,128 | 1,721 | ||||||
Provision for deferred taxes
|
— | 193 | ||||||
Net other-than-temporary impairment losses on investment securities
|
237 | 5,095 | ||||||
Gains on sales of investment securities, net
|
(1,804 | ) | (2,408 | ) | ||||
Loans originated for resale
|
(2,827 | ) | (1,540 | ) | ||||
Proceeds from sale of loans held for sale
|
2,481 | 1,538 | ||||||
(Gains) Loss on sale of loans held for sale
|
(32 | ) | 2 | |||||
Net loss on sales and dispositions of premises and equipment
|
— | 427 | ||||||
(Increase) decrease in accrued interest receivable
|
(1,095 | ) | 195 | |||||
Decrease in prepaid FDIC insurance assessments
|
1,061 | 667 | ||||||
Increase in cash surrender value of bank-owned life insurance
|
(521 | ) | (528 | ) | ||||
Decrease in other assets
|
1,352 | 1,897 | ||||||
Decrease in other liabilities
|
(1,277 | ) | (1,046 | ) | ||||
Net cash provided by operating activities
|
7,844 | 9,849 | ||||||
Cash flows from investing activities:
|
||||||||
Investment securities available-for-sale:
|
||||||||
Purchases
|
(213,875 | ) | (347,921 | ) | ||||
Sales
|
158,201 | 362,354 | ||||||
Maturities, calls and principal repayments
|
30,180 | 25,110 | ||||||
Investment securities held-to-maturity:
|
||||||||
Purchases
|
(5,843 | ) | — | |||||
Net redemption (purchase) of restricted investment in bank stocks
|
402 | (35 | ) | |||||
Net decrease (increase) in loans
|
10,515 | (2,838 | ) | |||||
Purchases of premises and equipment
|
(93 | ) | (171 | ) | ||||
Proceeds from sale of premises and equipment
|
— | 1 | ||||||
Net cash (used in) provided by investing activities
|
(20,513 | ) | 36,500 | |||||
Cash flows from financing activities:
|
||||||||
Net increase (decrease) in deposits
|
105,344 | (11,246 | ) | |||||
Net decrease in short-term borrowings
|
(9,481 | ) | (3,447 | ) | ||||
Repayments of long-term borrowings
|
(10,000 | ) | (22,078 | ) | ||||
Cash dividends on preferred stock
|
(250 | ) | (250 | ) | ||||
Cash dividends on common stock
|
(978 | ) | (875 | ) | ||||
Issuance cost of common stock
|
(3 | ) | (3 | ) | ||||
Issuance cost of restricted stock award
|
— | 25 | ||||||
Proceeds from exercise of stock options
|
7 | — | ||||||
Taxes related to stock based awards
|
— | 8 | ||||||
Net cash provided by (used in) financing activities
|
84,639 | (37,866 | ) | |||||
Net change in cash and cash equivalents
|
71,970 | 8,483 | ||||||
Cash and cash equivalents at beginning of period
|
37,497 | 89,168 | ||||||
Cash and cash equivalents at end of period
|
$ | 109,467 | $ | 97,651 | ||||
Supplemental disclosures of cash flow information:
|
||||||||
Cash payments for:
|
||||||||
Interest paid on deposits and borrowings
|
$ | 6,037 | $ | 8,154 | ||||
Income taxes
|
2,564 | 379 | ||||||
Supplemental disclosures of non-cash investing activities:
|
||||||||
Trade date accounting settlements for investments, net
|
$ | 3,761 | $ | 31,826 | ||||
Transfer of loan to other real estate owned
|
$ | — | $ | 1,780 | ||||
Net investment in direct financing lease
|
$ | — | $ | 3,700 | ||||
Transfer from investment securities available-for-sale to investment securities
|
||||||||
Held-to-maturity
|
$ | 35,987 | $ | — |
Three Months Ended
|
Six Months Ended
|
|||||||||||||||
June 30,
|
June 30,
|
|||||||||||||||
(in thousands, except per share amounts)
|
2011
|
2010
|
2011
|
2010
|
||||||||||||
Net income
|
$ | 3,584 | $ | 2,014 | $ | 6,602 | $ | 2,295 | ||||||||
Preferred stock dividends and accretion
|
145 | 146 | 291 | 291 | ||||||||||||
Net income available to common shareholders
|
$ | 3,439 | $ | 1,868 | $ | 6,311 | $ | 2,004 | ||||||||
Basic weighted average common shares outstanding
|
16,291 | 14,575 | 16,291 | 14,575 | ||||||||||||
Plus: effect of dilutive options and warrants
|
25 | 1 | 18 | 3 | ||||||||||||
Diluted weighted average common shares outstanding
|
16,316 | 14,576 | 16,309 | 14,578 | ||||||||||||
Earning per common share:
|
||||||||||||||||
Basic
|
$ | 0.21 | $ | 0.13 | $ | 0.39 | $ | 0.14 | ||||||||
Diluted
|
$ | 0.21 | $ | 0.13 | $ | 0.39 | $ | 0.14 |
Six Months Ended
|
||||||||
June 30,
|
||||||||
2011
|
2010
|
|||||||
Weighted average fair value of grants
|
$ | 1.89 | $ | 2.16 | ||||
Risk-free interest rate
|
2.19 | % | 2.29 | % | ||||
Dividend yield
|
1.32 | % | 1.41 | % | ||||
Expected volatility
|
22.25 | % | 28.6 | % | ||||
Expected life in months
|
65 | 62 |
Weighted-
|
||||||||||||
Average
|
||||||||||||
Weighted-
|
Remaining
|
|||||||||||
Average
|
Contractual
|
Aggregate
|
||||||||||
Exercise
|
Term
|
Intrinsic
|
||||||||||
Shares
|
Price
|
(Years)
|
Value
|
|||||||||
Outstanding at December 31, 2010
|
198,946 | $ | 9.75 | |||||||||
Granted
|
30,564 | 8.28 | ||||||||||
Exercised
|
(3,648 | ) | 1.83 | |||||||||
Forfeited/cancelled/expired
|
(12,857 | ) | 11.75 | |||||||||
Outstanding at June 30, 2011
|
213,005 | $ | 9.56 |
5.31
|
$ 286,684
|
|||||||
Exercisable at June 30, 2011
|
147,015 | $ | 9.89 |
3.77
|
$ 176,266
|
June 30,
|
December 31,
|
|||||||
2011
|
2010
|
|||||||
(Dollars in Thousands)
|
||||||||
Commercial and industrial
|
$ | 126,304 | $ | 121,034 | ||||
Commercial real estate
|
371,768 | 372,001 | ||||||
Construction
|
40,402 | 49,744 | ||||||
Residential mortgage
|
159,321 | 165,154 | ||||||
Installment
|
353 | 511 | ||||||
Total loans
|
$ | 698,148 | $ | 708,444 |
Loans Receivable on Non-Accrual Status
|
||||||||
June 30, 2011
|
December 31, 2010
|
|||||||
(Dollars in Thousands)
|
||||||||
Commercial and Industrial
|
$ | 100 | $ | 456 | ||||
Commercial Real Estate
|
374 | 3,563 | ||||||
Construction
|
6,297 | 5,865 | ||||||
Residential Mortgage
|
3,366 | 1,290 | ||||||
Total loans receivable on non-accrual status
|
$ | 10,137 | $ | 11,174 |
June 30, 2011
|
||||||||||||||||||||
(Dollars in Thousands)
|
||||||||||||||||||||
Pass
|
Special Mention
|
Substandard
|
Doubtful
|
Total
|
||||||||||||||||
Commercial and industrial
|
$ | 122,427 | $ | 2,379 | $ | 1,498 | $ | — | $ | 126,304 | ||||||||||
Commercial real estate
|
331,267 | 26,472 | 14,029 | — | 371,768 | |||||||||||||||
Construction
|
34,106 | — | 6,296 | — | 40,402 | |||||||||||||||
Residential mortgage
|
153,167 | — | 6,154 | — | 159,321 | |||||||||||||||
Installment
|
353 | — | — | — | 353 | |||||||||||||||
Total loans
|
$ | 641,320 | $ | 28,851 | $ | 27,977 | $ | — | $ | 698,148 | ||||||||||
Credit Quality Indicators
|
||||||||||||||||||||
December 31, 2010
|
||||||||||||||||||||
(Dollars in Thousands)
|
||||||||||||||||||||
Pass
|
Special Mention
|
Substandard
|
Doubtful
|
Total
|
||||||||||||||||
Commercial and industrial
|
$ | 116,741 | $ | 1,929 | $ | 2,364 | $ | — | $ | 121,034 | ||||||||||
Commercial real estate
|
345,096 | 15,383 | 11,522 | — | 372,001 | |||||||||||||||
Construction
|
43,879 | — | 3,588 | 2,277 | 49,744 | |||||||||||||||
Residential mortgage
|
161,558 | — | 3,596 | — | 165,154 | |||||||||||||||
Installment
|
511 | — | — | — | 511 | |||||||||||||||
Total loans
|
$ | 667,785 | $ | 17,312 | $ | 21,070 | $ | 2,277 | $ | 708,444 |
Impaired Loans
|
||||||||||||
At or for the six months ended June 30, 2011
|
||||||||||||
(Dollars in Thousands)
|
||||||||||||
Related
|
||||||||||||
Recorded Investment
|
Unpaid Principal Balance
|
Allowance
|
||||||||||
No related allowance recorded:
|
||||||||||||
Commercial real estate
|
$ | 1,671 | $ | 1,972 | $ | — | ||||||
Construction
|
2,277 | 5,054 | — | |||||||||
Residential mortgage
|
— | — | — | |||||||||
Total
|
$ | 3,948 | $ | 7,026 | $ | — | ||||||
With An Allowance Recorded
|
||||||||||||
Commercial real estate
|
$ | 4,554 | $ | 4,554 | $ | 581 | ||||||
Construction
|
4,020 | 4,020 | 648 | |||||||||
Residential mortgage
|
3,207 | 3,207 | 61 | |||||||||
Total
|
$ | 11,781 | $ | 11,781 | $ | 1,290 | ||||||
Total
|
||||||||||||
Commercial and industrial
|
$ | — | $ | — | $ | — | ||||||
Commercial real estate
|
6,225 | 6,526 | 581 | |||||||||
Construction
|
6,297 | 9,074 | 648 | |||||||||
Residential mortgage
|
3,207 | 3,207 | 61 | |||||||||
Total (including related allowance)
|
$ | 15,729 | $ | 18,807 | $ | 1,290 | ||||||
Impaired Loans
|
||||||||||||
At or for the year ended December 31, 2010
|
||||||||||||
(Dollars in Thousands)
|
||||||||||||
Related
|
||||||||||||
Recorded Investment
|
Unpaid Principal Balance
|
Allowance
|
||||||||||
No related allowance recorded:
|
||||||||||||
Commercial and industrial
|
$ | 1,364 | $ | 1,908 | $ | — | ||||||
Commercial real estate
|
3,984 | 4,625 | — | |||||||||
Construction
|
5,865 | 8,642 | — | |||||||||
Residential mortgage
|
1,462 | 1,765 | — | |||||||||
Total
|
$ | 12,675 | $ | 16,940 | $ | — | ||||||
With An Allowance Recorded
|
||||||||||||
Commercial real estate
|
$ | 4,180 | $ | 4,180 | $ | 618 | ||||||
Residential mortgage
|
1,354 | 1,354 | 21 | |||||||||
Total
|
$ | 5,534 | $ | 5,534 | $ | 639 | ||||||
Total
|
||||||||||||
Commercial and industrial
|
$ | 1,364 | $ | 1,908 | $ | — | ||||||
Commercial real estate
|
8,164 | 8,805 | 618 | |||||||||
Construction
|
5,865 | 8,642 | — | |||||||||
Residential mortgage
|
2,816 | 3,119 | 21 | |||||||||
Total (including related allowance)
|
$ | 18,209 | $ | 22,474 | $ | 639 |
Three Months Ended
June 30, 2011
|
Six Months Ended
June 30, 2011
|
For the Year Ended
December 31, 2011
|
||||||||||||||||||||||
(Dollars in Thousands)
|
||||||||||||||||||||||||
Average
Recorded
Investment
|
Interest
Income
Recognized
|
Average
Recorded
Investment
|
Interest Income
Recognized
|
Average Recorded
Investment
|
Interest
Income
Recognized
|
|||||||||||||||||||
Impaired loans with no related allowance recorded:
|
||||||||||||||||||||||||
Commercial and industrial
|
$ | 499 | $ | — | $ | 703 | $ | 11 | $ | 1,933 | $ | 87 | ||||||||||||
Commercial real estate
|
3,622 | 79 | 3,773 | 84 | 4,274 | 78 | ||||||||||||||||||
Construction
|
2,277 | — |
2,277
|
— | 6,855 | 112 | ||||||||||||||||||
Residential mortgage
|
— | — | — | — | 1,711 | 27 | ||||||||||||||||||
Total
|
$ | 6,398 | $ | 79 | $ | 6,753 | $ | 95 | $ | 14,773 | $ | 304 | ||||||||||||
Impaired loans with an allowance recorded:
|
||||||||||||||||||||||||
Commercial and industrial
|
$ | — | $ | — | $ | — | $ | — | $ | — | $ | — | ||||||||||||
Commercial real estate
|
4,517 | 34 | 4,554 | 68 | 4,181 | 204 | ||||||||||||||||||
Construction
|
4,029 | — | 4,029 | — | — | — | ||||||||||||||||||
Residential mortgage
|
2,992 | 16 | 3,210 | 30 | 1,356 | 76 | ||||||||||||||||||
Total
|
$ | 11,538 | $ | 50 | $ | 11,793 | $ | 98 | $ | 5,537 | $ | 280 | ||||||||||||
Impaired loans:
|
||||||||||||||||||||||||
Commercial and industrial
|
$ | 499 | $ | — | $ | 703 | $ | 11 | $ | 1,933 | $ | 87 | ||||||||||||
Commercial real estate
|
8,139 | 113 | 8,327 | 152 | 8,455 | 282 | ||||||||||||||||||
Construction
|
6,306 | — | 6,306 | — | 6,855 | 112 | ||||||||||||||||||
Residential mortgage
|
2,992 | 16 | 3,210 | 30 | 3,067 | 103 | ||||||||||||||||||
Total
|
$ | 17,936 | $ | 129 | $ | 18,546 | $ | 193 | $ | 20,310 | $ | 584 |
Aging Analysis
|
||||||||||||||||||||||||||||
June 30, 2011
|
||||||||||||||||||||||||||||
(Dollars in Thousands)
|
||||||||||||||||||||||||||||
Loans
|
||||||||||||||||||||||||||||
Receivable >
|
||||||||||||||||||||||||||||
30-59 Days Past
|
60-89 Days Past
|
Greater Than
|
Total Past
|
Total Loans
|
90 Days And
|
|||||||||||||||||||||||
Due
|
Due
|
90 Days
|
Due
|
Current
|
Receivable
|
Accruing
|
||||||||||||||||||||||
Commercial and Industrial
|
$ | 1,311 | $ | 82 | $ | 350 | $ | 1,743 | $ | 124,561 | $ | 126,304 | $ | 250 | ||||||||||||||
Commercial Real Estate
|
383 | 1,396 | 826 | 2,605 | 369,163 | 371,768 | 452 | |||||||||||||||||||||
Construction
|
— | — | 6,297 | 6,297 | 34,105 | 40,402 | — | |||||||||||||||||||||
Residential Mortgage
|
387 | 105 | 3,677 | 4,169 | 155,152 | 159,321 | 311 | |||||||||||||||||||||
Installment
|
2 | — | — | 2 | 351 | 353 | — | |||||||||||||||||||||
Total
|
$ | 2,083 | $ | 1,583 | $ | 11,150 | $ | 14,816 | $ | 683,332 | $ | 698,148 | $ | 1,013 | ||||||||||||||
December 31, 2010
|
||||||||||||||||||||||||||||
(Dollars in Thousands)
|
||||||||||||||||||||||||||||
Loans
|
||||||||||||||||||||||||||||
Receivable >
|
||||||||||||||||||||||||||||
30-59 Days Past
|
60-89 Days Past
|
Greater Than
|
Total Past
|
Total Loans
|
90 Days And
|
|||||||||||||||||||||||
Due
|
Due
|
90 Days
|
Due
|
Current
|
Receivable
|
Accruing
|
||||||||||||||||||||||
Commercial and Industrial
|
$ | 1,509 | $ | 476 | $ | 456 | $ | 2,441 | $ | 118,593 | $ | 121,034 | $ | — | ||||||||||||||
Commercial Real Estate
|
4,290 | 2,229 | 3,563 | 10,082 | 361,919 | 372,001 | — | |||||||||||||||||||||
Construction
|
170 | 449 | 5,865 | 6,484 | 43,260 | 49,744 | — | |||||||||||||||||||||
Residential Mortgage
|
1,814 | 309 | 2,004 | 4,127 | 161,027 | 165,154 | 714 | |||||||||||||||||||||
Installment
|
9 | — | — | 9 | 502 | 511 | — | |||||||||||||||||||||
Total
|
$ | 7,792 | $ | 3,463 | $ | 11,888 | $ | 23,143 | $ | 685,301 | $ | 708,444 | $ | 714 |
June 30, 2011
|
||||||||||||||||||||||||||||
(Dollars in Thousands)
|
||||||||||||||||||||||||||||
C & I
|
Comm R/E
|
Construction
|
Res Mtge
|
Installment
|
Unallocated
|
Total
|
||||||||||||||||||||||
Allowance for loan and lease losses:
|
||||||||||||||||||||||||||||
Individually evaluated for impairment
|
$ | — | $ | 581 | $ | 648 | $ | 61 | $ | — | $ | — | $ | 1,290 | ||||||||||||||
Collectively evaluated for impairment
|
1,376 | 5,574 | 482 | 944 | 56 | 114 | 8,546 | |||||||||||||||||||||
Total
|
$ | 1,376 | $ | 6,155 | $ | 1,130 | $ | 1,005 | $ | 56 | $ | 114 | $ | 9,836 | ||||||||||||||
Loans Receivable
|
||||||||||||||||||||||||||||
Individually evaluated for impairment
|
$ | 1,079 | $ | 14,210 | $ | 6,296 | $ | 3,208 | $ | — | $ | — | $ | 24,793 | ||||||||||||||
Collectively evaluated for impairment
|
125,225 | 357,558 | 34,106 | 156,113 | 353 | — | 673,355 | |||||||||||||||||||||
Total
|
$ | 126,304 | $ | 371,768 | $ | 40,402 | $ | 159,321 | $ | 353 | $ | — | $ | 698,148 |
Allowance for loan and lease losses
|
||||||||||||||||||||||||||||
December 31, 2010
|
||||||||||||||||||||||||||||
(Dollars in Thousands)
|
||||||||||||||||||||||||||||
C & I
|
Comm R/E
|
Construction
|
Res Mtge
|
Installment
|
Unallocated
|
Total
|
||||||||||||||||||||||
Allowance for loan and lease losses:
|
||||||||||||||||||||||||||||
Individually evaluated for impairment
|
$ | — | $ | 618 | $ | — | $ | 21 | $ | — | $ | — | $ | 639 | ||||||||||||||
Collectively evaluated for impairment
|
1,272 | 5,097 | 551 | 1,017 | 52 | 239 | 8,228 | |||||||||||||||||||||
Total
|
$ | 1,272 | $ | 5,715 | $ | 551 | $ | 1,038 | $ | 52 | $ | 239 | $ | 8,867 | ||||||||||||||
Loans Receivable
|
||||||||||||||||||||||||||||
Individually evaluated for impairment
|
$ | 2,748 | $ | 11,960 | $ | 5,865 | $ | 1,354 | $ | — | $ | — | $ | 21,927 | ||||||||||||||
Collectively evaluated for impairment
|
118,286 | 360,041 | 43,879 | 163,800 | 511 | — | 686,517 | |||||||||||||||||||||
Total
|
$ | 121,034 | $ | 372,001 | $ | 49,744 | $ | 165,154 | $ | 511 | $ | — | $ | 708,444 |
Three Months Ended June 30, 2011
|
||||||||||||||||||||||||||||
(Dollars in Thousands)
|
||||||||||||||||||||||||||||
C & I
|
Comm R/E
|
Construction
|
Res Mtge
|
Installment
|
Unallocated
|
Total
|
||||||||||||||||||||||
Balance at April 1,
|
$ | 1,378 | $ | 6,183 | $ | 900 | $ | 952 | $ | 51 | $ | 127 | $ | 9,591 | ||||||||||||||
Charge offs
|
(20 | ) | — | — | — | (4 | ) | — | (24 | ) | ||||||||||||||||||
Recoveries
|
— | 15 | — | 2 | 2 | — | 19 | |||||||||||||||||||||
Provision
|
18 | (43 | ) | 230 | 51 | 7 | (13 | ) | 250 | |||||||||||||||||||
Balance at June 30,
|
$ | 1,376 | $ | 6,155 | $ | 1,130 | $ | 1,005 | $ | 56 | $ | 114 | $ | 9,836 | ||||||||||||||
Six Months Ended June 30, 2011
|
||||||||||||||||||||||||||||
(Dollars in thousands)
|
||||||||||||||||||||||||||||
C & I
|
Comm R/E
|
Construction
|
Res Mtge
|
Installment
|
Unallocated
|
Total
|
||||||||||||||||||||||
Balance at January 1,
|
$ | 1,272 | $ | 5,715 | $ | 551 | $ | 1,038 | $ | 52 | $ | 239 | $ | 8,867 | ||||||||||||||
Charge offs
|
(185 | ) | — | — | (23 | ) | (7 | ) | — | (215 | ) | |||||||||||||||||
Recoveries
|
35 | 15 | — | 2 | 4 | — | 56 | |||||||||||||||||||||
Provision
|
254 | 425 | 579 | (12 | ) | 7 | (125 | ) | 1,128 | |||||||||||||||||||
Balance at June 30,
|
$ | 1,376 | $ | 6,155 | $ | 1,130 | $ | 1,005 | $ | 56 | $ | 114 | $ | 9,836 |
|
Six Months Ended
June 30,
|
|||||||
|
2011
|
2010
|
||||||
(in thousands)
|
||||||||
Reclassification adjustment of OTTI losses included in income
|
$
|
237
|
$
|
5,095
|
||||
Unrealized gains on available-for-sale securities
|
7,543
|
4,661
|
||||||
Reclassification adjustment for net gains arising during this period
|
(1,804
|
)
|
(2,408
|
)
|
||||
Net unrealized gains on Available-for-sale securities
|
5,976
|
7,348
|
||||||
Unrealized holding gains on securities transferred from Available-for-sale to Held-to-maturity
|
333
|
—
|
||||||
Net unrealized gain on securities
|
6,309
|
7,348
|
||||||
Tax effect
|
(2,474
|
)
|
(2,907
|
)
|
||||
Net of tax amount
|
3,835
|
4,441
|
||||||
Change in minimum pension liability
|
(142
|
)
|
—
|
|||||
Tax effect
|
57
|
—
|
||||||
Net of tax amount
|
(85
|
)
|
—
|
|||||
Other comprehensive income, net of tax
|
$
|
3,750
|
$
|
4,441
|
June 30, 2011
|
December 31,
2010
|
|||||||
|
(in thousands)
|
|||||||
Investment securities available-for-sale, net of tax
|
$
|
(1,700
|
)
|
$
|
(5,327
|
)
|
||
Unamortized component of transfer of securities from Available-for-sale to Held-to-maturity, net of tax
|
208
|
—
|
||||||
Defined benefit pension and post-retirement plans, net of tax
|
(2,433
|
)
|
(2,348
|
)
|
||||
Total accumulated other comprehensive loss
|
$
|
(3,925
|
)
|
$
|
(7,675
|
)
|
June 30, 2011
|
||||||||||||||||
Gross
|
Gross
|
|||||||||||||||
Amortized
|
Unrealized
|
Unrealized
|
||||||||||||||
(in thousands)
|
Cost
|
Gains
|
Losses
|
Fair Value
|
||||||||||||
Investment Securities Available-for-Sale:
|
||||||||||||||||
Federal agency obligations
|
$ | 52,972 | $ | 912 | $ | (262 | ) | $ | 53,622 | |||||||
Residential mortgage pass-through securities
|
158,392 | 615 | (795 | ) | 158,212 | |||||||||||
Obligations of U.S. states and political subdivisions
|
32,662 | 310 | (138 | ) | 32,834 | |||||||||||
Trust preferred securities
|
22,279 | 67 | (1,691 | ) | 20,655 | |||||||||||
Corporate bonds and notes
|
105,115 | 321 | (805 | ) | 104,631 | |||||||||||
Collateralized mortgage obligations
|
3,471 | — | (1,112 | ) | 2,359 | |||||||||||
Equity securities
|
5,135 | 74 | (308 | ) | 4,901 | |||||||||||
Total
|
$ | 380,026 | $ | 2,299 | $ | (5,111 | ) | $ | 377,214 | |||||||
June 30, 2011
|
||||||||||||||||
Gross
|
Gross
|
|||||||||||||||
Amortized
|
Unrealized
|
Unrealized
|
||||||||||||||
(in thousands)
|
Cost
|
Gains
|
Losses
|
Fair Value
|
||||||||||||
Investment Securities Held-to-Maturity:
|
||||||||||||||||
Federal agency obligations
|
$ | 4,030 | $ | 67 | $ | — | $ | 4,097 | ||||||||
Obligations of U.S. states and political subdivisions
|
37,774 | 324 | (73 | ) | 38,025 | |||||||||||
Total
|
$ | 41,804 | $ | 391 | $ | (73 | ) | $ | 42,122 | |||||||
Total investment securities
|
$ | 421,830 | $ | 2,690 | $ | (5,184 | ) | $ | 419,336 |
December 31, 2010
|
||||||||||||||||
Gross
|
Gross
|
|||||||||||||||
Amortized
|
Unrealized
|
Unrealized
|
||||||||||||||
(in thousands)
|
Cost
|
Gains
|
Losses
|
Fair Value
|
||||||||||||
Investment Securities Available-for-Sale:
|
||||||||||||||||
U.S. Treasury and agency securities
|
$ | 7,123 | $ | — | $ | (128 | ) | $ | 6,995 | |||||||
Federal agency obligations
|
68,051 | 1,071 | (641 | ) | 68,481 | |||||||||||
Residential mortgage pass-through securities
|
180,037 | 115 | (2,419 | ) | 177,733 | |||||||||||
Obligations of U.S. states and political subdivisions
|
38,312 | 1 | (1,088 | ) | 37,225 | |||||||||||
Trust preferred securities
|
21,222 | 26 | (2,517 | ) | 18,731 | |||||||||||
Corporate bonds and notes
|
63,047 | — | (l,613 | ) | 61,434 | |||||||||||
Collateralized mortgage obligations
|
3,941 | — | (1,213 | ) | 2,728 | |||||||||||
Equity securities
|
5,135 | — | (382 | ) | 4,753 | |||||||||||
Total
|
$ | 386,868 | $ | 1,213 | $ | (10,001 | ) | $ | 378,080 |
June 30, 2011
|
||||||||
Amortized
|
||||||||
Cost
|
Fair Value
|
|||||||
Investment Securities Available-for-Sale:
|
(in thousands)
|
|||||||
Due in one year or less
|
$ | — | $ | — | ||||
Due after one year through five years
|
44,856 | 44,976 | ||||||
Due after five years through ten years
|
65,664 | 65,070 | ||||||
Due after ten years
|
105,979 | 104,055 | ||||||
Mortgage-backed securities (1)
|
158,392 | 158,212 | ||||||
Equity securities
|
5,135 | 4,901 | ||||||
Total
|
$ | 380,026 | $ | 377,214 | ||||
Investment Securities Held-to-Maturity:
|
||||||||
Due in one year or less
|
$ | — | $ | — | ||||
Due after one year through five years
|
— | — | ||||||
Due after five years through ten years
|
987 | 1,001 | ||||||
Due after ten years
|
40,817 | 41,121 | ||||||
Total
|
$ | 41,804 | $ | 42,122 | ||||
Total investment securities
|
$ | 421,830 | $ | 419,336 |
Six Months Ended
|
||||||||
June 30, 2011
|
June 30, 2010
|
|||||||
|
(in thousands)
|
|||||||
Other than temporary impairment charges
|
$
|
18
|
$
|
310
|
||||
1 Trust Preferred security
|
—
|
3,000
|
||||||
2 Pooled trust preferred securities
|
—
|
1,785
|
||||||
Principal losses on 3 variable rate CMOs
|
219
|
—
|
||||||
Total other-than-temporary impairment charges
|
$
|
237
|
$
|
5,095
|
Deferrals
|
Expected
|
||||||||||||||||||||||||||
and
|
Deferrals/Defaults
|
||||||||||||||||||||||||||
Single
|
Lowest
|
Number of
|
Defaults
|
as % of
|
|||||||||||||||||||||||
Issuer
|
Adjusted
|
Gross
|
Credit
|
Banks
|
as % of
|
Remaining
|
|||||||||||||||||||||
or
|
Class/ |
Cost
|
Fair
|
Unrealized
|
Rating
|
Currently
|
Original
|
Performing
|
|||||||||||||||||||
Deal Name
|
Pooled
|
Tranche
|
Basis
|
Value
|
Gain (Loss)
|
Assigned
|
Performing
|
Collateral
|
Collateral
|
||||||||||||||||||
(dollars in thousands)
|
|||||||||||||||||||||||||||
Countrywide Capital IV
|
Single
|
— | $ | 1,770 | $ | 1,762 | $ | (8 | ) |
BB+
|
1 |
None
|
None
|
||||||||||||||
Countrywide Capital V
|
Single
|
— | 2,747 | 2,749 | 2 |
BB+
|
1 |
None
|
None
|
||||||||||||||||||
Countrywide Capital V
|
Single
|
— | 250 | 250 | — |
BB+
|
1 |
None
|
None
|
||||||||||||||||||
NPB Capital Trust II
|
Single
|
— | 868 | 809 | (59 | ) |
NR
|
1 |
None
|
None
|
|||||||||||||||||
Citigroup Cap IX
|
Single
|
— | 991 | 994 | 3 |
BB+
|
1 |
None
|
None
|
||||||||||||||||||
Citigroup Cap IX
|
Single
|
— | 1,903 | 1,802 | (101 | ) |
BB+
|
1 |
None
|
None
|
|||||||||||||||||
Citigroup Cap XI
|
Single
|
— | 245 | 233 | (12 | ) |
BB+
|
1 |
None
|
None
|
|||||||||||||||||
BAC Capital Trust X
|
Single
|
— | 2,500 | 2,372 | (128 | ) |
BB+
|
1 |
None
|
None
|
|||||||||||||||||
NationsBank Cap Trust III
|
Single
|
— | 1,570 | 1,264 | (306 | ) |
BB+
|
1 |
None
|
None
|
|||||||||||||||||
Morgan Stanley Cap Trust IV
|
Single
|
— | 2,500 | 2,423 | (77 | ) |
BB+
|
1 |
None
|
None
|
|||||||||||||||||
Morgan Stanley Cap Trust IV
|
Single
|
— | 1,741 | 1,695 | (46 | ) |
BB+
|
1 |
None
|
None
|
|||||||||||||||||
Saturns-GS 2004-06
|
Single
|
— | 242 | 241 | (1 | ) |
BBB-
|
1 |
None
|
None
|
|||||||||||||||||
Saturns-GS 2004-06
|
Single
|
— | 312 | 311 | (1 | ) |
BBB-
|
1 |
None
|
None
|
|||||||||||||||||
Saturns-GS 2004-04
|
Single
|
— | 779 | 690 | (89 | ) |
BBB-
|
1 |
None
|
None
|
|||||||||||||||||
Saturns-GS 2004-04
|
Single
|
— | 22 | 19 | (3 | ) |
BBB-
|
1 |
None
|
None
|
|||||||||||||||||
USB Capital VII
|
Single
|
— | 1,214 | 1,259 | 45 |
BBB+
|
1 |
None
|
None
|
||||||||||||||||||
USB Capital VII
|
Single
|
— | 561 | 581 | 20 |
BBB+
|
1 |
None
|
None
|
||||||||||||||||||
Goldman Sachs
|
Single
|
— | 999 | 927 | (72 | ) |
BBB-
|
1 |
None
|
None
|
|||||||||||||||||
ALESCO Preferred Funding
|
|||||||||||||||||||||||||||
VI
|
Pooled
|
C2 | 259 | 115 | (144 | ) |
Ca
|
42 of 65 (1)
|
34.2 %
|
28.9 %
|
|||||||||||||||||
ALESCO Preferred Funding
|
|||||||||||||||||||||||||||
VII
|
Pooled
|
C1 | 806 | 222 | (584 | ) |
Ca
|
58 of 78 (1)
|
30.8 %
|
31.1 %
|
|
(1)
|
Includes banks and insurance companies.
|
Quarter
|
Year
|
|||||||
Ended
|
Ended
|
|||||||
June 30,
|
December
|
|||||||
2011
|
31, 2010 | |||||||
(in thousands)
|
||||||||
Balance of credit-related OTTI at January 1,
|
$ | 6,197 | $ | 3,621 | ||||
Addition:
|
||||||||
Credit losses on investment securities for which other-than-temporary impairment was not previously recognized
|
237 | 5,576 | ||||||
Reduction:
|
||||||||
Credit losses on investment securities sold during the period
|
— | (3,000 | ) | |||||
Balance of credit-related OTTI at period end
|
$ | 6,434 | $ | 6,197 |
June 30, 2011
|
||||||||||||||||||||||||
Total
|
Less Than 12 Months
|
12 Months or Longer
|
||||||||||||||||||||||
Fair
|
Unrealized
|
Fair
|
Unrealized
|
Fair
|
Unrealized
|
|||||||||||||||||||
Value
|
Losses
|
Value
|
Losses
|
Value
|
Losses
|
|||||||||||||||||||
Investment Securities Available-for-Sale:
|
(in thousands)
|
|||||||||||||||||||||||
Federal agency obligations
|
$ | 23,430 | $ | (262 | ) | $ | 7,902 | $ | (104 | ) | $ | 15,528 | $ | (158 | ) | |||||||||
Residential mortgage pass-through securities
|
80,183 | (795 | ) | 80,183 | (795 | ) | — | — | ||||||||||||||||
Obligations of U.S. states and political subdivisions
|
10,490 | (138 | ) | 10,490 | (138 | ) | — | — | ||||||||||||||||
Trust preferred securities
|
15,816 | (1,691 | ) | 3,122 | (69 | ) | 12,694 | (1,622 | ) | |||||||||||||||
Corporate bonds and notes
|
65,790 | (805 | ) | 63,829 | (767 | ) | 1,961 | (38 | ) | |||||||||||||||
Collateralized mortgage obligations
|
2,359 | (1,112 | ) | — | — | 2,359 | (1,112 | ) | ||||||||||||||||
Equity securities
|
3,227 | (308 | ) | 2,957 | (43 | ) | 270 | (265 | ) | |||||||||||||||
Total
|
$ | 201,295 | $ | (5,111 | ) | $ | 168,483 | $ | (1,916 | ) | $ | 32,812 | $ | (3,195 | ) | |||||||||
Investment Securities Held-to-Maturity:
|
||||||||||||||||||||||||
Obligations of U.S. states and political subdivisions
|
9,843 | (73 | ) | 9,843 | (73 | ) | — | — | ||||||||||||||||
Total
|
$ | 9,843 | $ | (73 | ) | $ | 9,843 | $ | (73 | ) | $ | — | $ | — | ||||||||||
Total temporarily impaired investment securities
|
$ | 211,138 | $ | (5,184 | ) | $ | 178,326 | $ | (1,989 | ) | $ | 32,812 | $ | (3,195 | ) |
December 31, 2010
|
||||||||||||||||||||||||
Total
|
Less Than 12 Months
|
12 Months or Longer
|
||||||||||||||||||||||
Fair
|
Unrealized
|
Fair
|
Unrealized
|
Fair
|
Unrealized
|
|||||||||||||||||||
Value
|
Losses
|
Value
|
Losses
|
Value
|
Losses
|
|||||||||||||||||||
Investment Securities Available-for-Sale:
|
(in thousands)
|
|||||||||||||||||||||||
U.S. Treasury and agency securities
|
$ | 6,995 | $ | (128 | ) | $ | 6,995 | $ | (128 | ) | $ | — | $ | — | ||||||||||
Federal agency obligations
|
35,799 | (641 | ) | 32,113 | (622 | ) | 3,686 | (19 | ) | |||||||||||||||
Residential mortgage pass-through securities
|
166,820 | (2,419 | ) | 166,820 | (2,419 | ) | — | — | ||||||||||||||||
Obligations of U.S. states and political subdivisions
|
19,699 | (1,088 | ) | 19,699 | (1,088 | ) | — | — | ||||||||||||||||
Trust preferred securities
|
16,058 | (2,517 | ) | — | — | 16,058 | (2,517 | ) | ||||||||||||||||
Corporate bonds and notes
|
61,434 | (1,613 | ) | 52,985 | (1,175 | ) | 8,449 | (438 | ) | |||||||||||||||
Collateralized mortgage obligations
|
2,728 | (1,213 | ) | — | — | 2,728 | (1,213 | ) | ||||||||||||||||
Equity securities
|
4,653 | (382 | ) | 3,427 | (73 | ) | 1,226 | (309 | ) | |||||||||||||||
Total temporarily impaired investment securities
|
$ | 314,186 | $ | (10,001 | ) | $ | 282,039 | $ | (5,505 | ) | $ | 32,147 | $ | (4,496 | ) |
|
·
|
Level 1: Unadjusted exchange quoted prices in active markets that are accessible at the measurement date for identical, unrestricted assets or liabilities.
|
|
·
|
Level 2: Quoted prices for similar assets and liabilities in active markets, and inputs that are observable for the asset or liability, either directly or indirectly, for substantially the full term of the financial instrument.
|
|
·
|
Level 3: Prices or valuation techniques that require inputs that are both significant to the fair value measurement and unobservable (for example, supported with little or no market activity).
|
Fair Value Measurements at
|
||||||||||||||||
Reporting Date Using
|
||||||||||||||||
Quoted
|
||||||||||||||||
Prices in
|
||||||||||||||||
Active
|
Significant
|
|||||||||||||||
Markets for
|
Other
|
Significant
|
||||||||||||||
Identical
|
Observable
|
Unobservable
|
||||||||||||||
Assets
|
Inputs
|
Inputs
|
||||||||||||||
Assets Measured at Fair Value on a Recurring Basis
|
June 30, 2011
|
(Level 1)
|
(Level 2)
|
(Level 3)
|
||||||||||||
(in thousands)
|
||||||||||||||||
Federal agency obligations
|
$ | 53,622 | $ | — | $ | 53,622 | $ | — | ||||||||
Residential mortgage pass-through securities
|
158,212 | — | 158,212 | — | ||||||||||||
Obligations of U.S. states and political subdivisions
|
32,834 | 4,372 | 28,462 | — | ||||||||||||
Trust preferred securities
|
20,655 | — | 20,319 | 336 | ||||||||||||
Collateralized mortgage obligations
|
2,359 | — | — | 2,359 | ||||||||||||
Corporate bonds and notes
|
104,631 | — | 104,631 | — | ||||||||||||
Equity securities
|
4,901 | 4,901 | — | — | ||||||||||||
Investment securities available-for-sale
|
$ | 377,214 | $ | 9,273 | $ | 365,246 | $ | 2,695 | ||||||||
Fair Value Measurements at
|
||||||||||||||||
Reporting Date Using
|
||||||||||||||||
Quoted
|
||||||||||||||||
Prices in
|
||||||||||||||||
Active
|
Significant
|
|||||||||||||||
Markets for
|
Other
|
Significant
|
||||||||||||||
Identical
|
Observable
|
Unobservable
|
||||||||||||||
December 31,
|
Assets
|
Inputs
|
Inputs
|
|||||||||||||
Assets Measured at Fair Value on a Recurring Basis
|
2010 |
(Level 1)
|
(Level 2)
|
(Level 3)
|
||||||||||||
(in thousands)
|
||||||||||||||||
U.S. Treasury & agency securities
|
$ | 6,995 | $ | 6,995 | $ | — | $ | — | ||||||||
Federal agency obligations
|
68,481 | — | 68,481 | — | ||||||||||||
Residential mortgage pass-through securities
|
177,733 | — | 177,733 | — | ||||||||||||
Obligations of U.S. states and political subdivisions
|
37,225 | 16,936 | 20,289 | — | ||||||||||||
Trust preferred securities
|
18,731 | — | 18,589 | 142 | ||||||||||||
Collateralized mortgage obligations
|
2,728 | — | — | 2,728 | ||||||||||||
Corporate bonds and notes
|
61,434 | — | 61,434 | — | ||||||||||||
Equity securities
|
4,753 | 4,753 | — | — | ||||||||||||
Investment securities available-for-sale
|
$ | 378,080 | $ | 28,684 | $ | 346,526 | $ | 2,870 |
Three Months Ended
|
||||||||
June 30, 2011
|
June 30, 2010
|
|||||||
(in thousands)
|
||||||||
Balance at April 1,
|
$ | 3,009 | $ | 8,431 | ||||
Transfers into Level 3
|
— | — | ||||||
Transfers out of Level 3
|
— | (5,174 | ) | |||||
Principal interest deferrals
|
30 | 28 | ||||||
Principal repayments
|
(268 | ) | (314 | ) | ||||
Total net losses included in net income
|
— | (3,000 | ) | |||||
Total net unrealized gains (loss)
|
(76 | ) | 3,304 | |||||
Balance at period end,
|
$ | 2,695 | $ | 3,275 |
Six Months Ended
|
||||||||
June 30, 2011
|
June 30, 2010
|
|||||||
(in thousands)
|
||||||||
Balance at January 1,
|
$ | 2,870 | $ | 2,349 | ||||
Transfers into Level 3
|
— | 8,197 | ||||||
Transfers out of Level 3
|
— | (5,174 | ) | |||||
Principal interest deferrals
|
59 | 56 | ||||||
Principal repayments
|
(452 | ) | (475 | ) | ||||
Total net losses included in net income
|
— | (3,000 | ) | |||||
Total net unrealized gains
|
218 | 1,322 | ||||||
Balance at period end,
|
$ | 2,695 | $ | 3,275 |
Fair Value Measurements at Reporting Date Using
|
||||||||||||||||
Quoted
|
||||||||||||||||
Prices
|
||||||||||||||||
in Active
|
Significant
|
|||||||||||||||
Markets for
|
Other
|
Significant
|
||||||||||||||
Identical
|
Observable
|
Unobservable
|
||||||||||||||
Assets
|
Inputs
|
Inputs
|
||||||||||||||
Assets Measured at Fair Value on a Non-Recurring Basis
|
June 30, 2011
|
(Level 1)
|
(Level 2)
|
(Level 3)
|
||||||||||||
(in thousands)
|
||||||||||||||||
Impaired loans
|
$ | 10,491 | $ | — | $ | — | $ | 10,491 | ||||||||
Fair Value Measurements at Reporting Date Using
|
||||||||||||||||
Quoted
|
||||||||||||||||
Prices
|
||||||||||||||||
in Active
|
Significant
|
|||||||||||||||
Markets for
|
Other
|
Significant
|
||||||||||||||
Identical
|
Observable
|
Unobservable
|
||||||||||||||
December 31,
|
Assets
|
Inputs
|
Inputs
|
|||||||||||||
Assets Measured at Fair Value on a Non-Recurring Basis
|
2010 |
(Level 1)
|
(Level 2)
|
(Level 3)
|
||||||||||||
(in thousands)
|
||||||||||||||||
Impaired loans
|
$ | 4,895 | $ | — | $ | — | $ | 4,895 |
June 30, 2011
|
December 31, 2010
|
|||||||||||||||
Carrying
|
Fair
|
Carrying
|
Fair
|
|||||||||||||
Amount
|
Value
|
Amount
|
Value
|
|||||||||||||
(in thousands)
|
||||||||||||||||
Financial assets:
|
||||||||||||||||
Cash and cash equivalents
|
$ | 109,467 | $ | 109,467 | $ | 37,497 | $ | 37,497 | ||||||||
Investment securities available-for-sale
|
377,214 | 377,214 | 378,080 | 378,080 | ||||||||||||
Investment securities held-to-maturity
|
41,804 | 42,122 | — | — | ||||||||||||
Net loans
|
688,312 | 690,060 | 699,577 | 706,309 | ||||||||||||
Restricted investment in bank stocks
|
9,194 | 9,194 | 9,596 | 9,596 | ||||||||||||
Accrued interest receivable
|
5,229 | 5,229 | 4,134 | 4,134 | ||||||||||||
Financial liabilities:
|
||||||||||||||||
Non interest-bearing deposits
|
$ | 158,689 | $ | 158,689 | $ | 144,210 | $ | 144,210 | ||||||||
Interest-bearing deposits
|
806,987 | 807,939 | 716,122 | 716,887 | ||||||||||||
Short-term borrowings
|
32,374 | 32,374 | 41,855 | 41,855 | ||||||||||||
Long-term borrowings
|
161,000 | 170,759 | 171,000 | 179,570 | ||||||||||||
Subordinated debentures
|
5,155 | 5,135 | 5,155 | 5,157 | ||||||||||||
Accrued interest payable
|
1,011 | 1,011 | 1,041 | 1,041 |
For years ending December 31,
|
(in thousands)
|
|||
2011
|
$ | 78 | ||
2012
|
166 | |||
2013
|
216 | |||
2014
|
216 | |||
2015
|
224 | |||
Thereafter
|
2,828 | |||
Total minimum future lease receipts
|
$ | 3,728 |
Three Months Ended
June 30,
|
Six Months Ended
June 30,
|
|||||||||||||||
(in thousands)
|
2011
|
2010
|
2011
|
2010
|
||||||||||||
Interest cost
|
$ | 147 | $ | 150 | $ | 294 | $ | 300 | ||||||||
Net amortization and deferral
|
(50 | ) | (71 | ) | (100 | ) | (141 | ) | ||||||||
Net periodic pension cost
|
$ | 97 | $ | 79 | $ | 194 | $ | 159 |
|
June 30, 2011
|
|||
(dollars in thousands)
|
||||
Average interest rate:
|
|
|||
At quarter end
|
0.23
|
%
|
||
For the quarter
|
0.28
|
%
|
||
Average amount outstanding during the quarter
|
$
|
36,747
|
||
Maximum amount outstanding at any month end in the quarter
|
$
|
43,799
|
||
Amount outstanding at quarter end
|
$
|
32,374
|
|
June 30, 2011
|
|||
(in thousands)
|
||||
2013
|
$
|
5,000
|
||
2015
|
10,000
|
|||
Thereafter
|
146,000
|
|||
Total
|
$
|
161,000
|
Three Months Ended June 30,
|
Six Months Ended June 30,
|
|||||||||||||||||||||||||||||||
Increase
|
Percent
|
Increase
|
Percent
|
|||||||||||||||||||||||||||||
(dollars in thousands)
|
2011
|
2010
|
(Decrease)
|
Change
|
2011
|
2010
|
(Decrease)
|
Change
|
||||||||||||||||||||||||
Interest income:
|
||||||||||||||||||||||||||||||||
Investment securities AFS
|
$ | 3,651 | $ | 2,976 | $ | 675 | 22.7 | % | $ | 7,203 | $ | 6,189 | $ | 1,014 | 16.4 | % | ||||||||||||||||
Investment securities HTM
|
349 | — | 349 | — | 349 | — | 349 | — | ||||||||||||||||||||||||
Loans, including net costs
|
8,950 | 9,419 | (469 | ) | (5.0 | ) | 18,167 | 18,787 | (620 | ) | (3.3 | ) | ||||||||||||||||||||
Restricted investment in bank stocks, at cost
|
109 | 122 | (13 | ) | (10.7 | ) | 252 | 273 | (21 | ) | (7.7 | ) | ||||||||||||||||||||
Total interest income
|
13,059 | 12,517 | 542 | 4.3 | 25,971 | 25,249 | 722 | 2.9 | ||||||||||||||||||||||||
Interest expense:
|
||||||||||||||||||||||||||||||||
Time deposits $100 or more
|
348 | 340 | 8 | 2.4 | 613 | 754 | (141 | ) | (18.7 | ) | ||||||||||||||||||||||
All other deposits
|
1,072 | 1,235 | (163 | ) | (13.2 | ) | 2,074 | 2,499 | (425 | ) | (17.0 | ) | ||||||||||||||||||||
Borrowings
|
1,665 | 2,256 | (591 | ) | (26.2 | ) | 3,320 | 4,741 | (1,421 | ) | (30.0 | ) | ||||||||||||||||||||
Total interest expense
|
3,085 | 3,831 | (746 | ) | (19.5 | ) | 6,007 | 7,994 | (1,987 | ) | (24.9 | ) | ||||||||||||||||||||
Net interest income on a fully tax-equivalent basis
|
9,974 | 8,686 | 1,288 | 14.8 | 19,964 | 17,255 | 2,709 | 15.7 | ||||||||||||||||||||||||
Tax-equivalent adjustment (1)
|
(181 | ) | (29 | ) | (152 | ) | (524.1 | ) | (226 | ) | (89 | ) | (137 | ) | (153.9 | ) | ||||||||||||||||
Net interest income
|
$ | 9,793 | $ | 8,657 | $ | 1,136 | 13.1 | % | $ | 19,738 | $ | 17,166 | $ | 2,572 | 15.0 | % |
|
Three Months Ended
June 30, 2011 and 2010
Increase (Decrease) Due to Change In:
|
Six Months Ended
June 30, 2011 and 2010
Increase (Decrease) Due to Change In:
|
||||||||||||||||||||||
(tax-equivalent basis, in thousands)
|
Average
Volume
|
Average
Rate
|
Net
Change
|
Average
Volume
|
Average
Rate
|
Net
Change
|
||||||||||||||||||
Interest-earning assets:
|
||||||||||||||||||||||||
Investment securities:
|
||||||||||||||||||||||||
Available for sale
|
||||||||||||||||||||||||
Taxable
|
$ | 731 | $ | (235 | ) | $ | 496 | $ | 1,692 | $ | (813 | ) | $ | 879 | ||||||||||
Tax-exempt
|
172 | 7 | 179 | 132 | 3 | 135 | ||||||||||||||||||
Held to maturity
|
||||||||||||||||||||||||
Taxable
|
— | 80 | 80 | — | 80 | 80 | ||||||||||||||||||
Tax-exempt
|
— | 269 | 269 | — | 269 | 269 | ||||||||||||||||||
Total investment securities
|
903 | 121 | 1,024 | 1,824 | (461 | ) | 1,363 | |||||||||||||||||
Loans
|
(220 | ) | (249 | ) | (469 | ) | (30 | ) | (590 | ) | (620 | ) | ||||||||||||
Restricted investment in bank stocks
|
(18 | ) | 5 | (13 | ) | (39 | ) | 18 | (21 | ) | ||||||||||||||
Total interest-earning assets
|
665 | (123 | ) | 542 | 1,755 | (1,033 | ) | 722 | ||||||||||||||||
Interest-bearing liabilities:
|
||||||||||||||||||||||||
Money market deposits
|
90 | (103 | ) | (13 | ) | 173 | (197 | ) | (24 | ) | ||||||||||||||
Savings deposits
|
36 | (87 | ) | (51 | ) | 58 | (190 | ) | (132 | ) | ||||||||||||||
Time deposits
|
78 | (162 | ) | (84 | ) | 9 | (411 | ) | (402 | ) | ||||||||||||||
Other interest-bearing deposits
|
72 | (79 | ) | (7 | ) | 136 | (144 | ) | (8 | ) | ||||||||||||||
Total interest-bearing deposits
|
276 | (431 | ) | (155 | ) | 376 | (942 | ) | (566 | ) | ||||||||||||||
Borrowings and subordinated debentures
|
(451 | ) | (140 | ) | (591 | ) | (915 | ) | (506 | ) | (1,421 | ) | ||||||||||||
Total interest-bearing liabilities
|
(175 | ) | (571 | ) | (746 | ) | (539 | ) | (1,448 | ) | (1,987 | ) | ||||||||||||
Change in net interest income
|
$ | 840 | $ | 448 | $ | 1,288 | $ | 2,294 | $ | 415 | $ | 2,709 |
Three Months Ended June 30,
|
||||||||||||||||||||||||
2011
|
2010
|
|||||||||||||||||||||||
(tax-equivalent basis)
|
Average
Balance
|
Interest
Income/
Expense
|
Average
Rate
|
Average
Balance
|
Interest
Income/
Expense
|
Average
Rate
|
||||||||||||||||||
(dollars in thousands)
|
||||||||||||||||||||||||
Assets
|
|
|
|
|
||||||||||||||||||||
Interest-earning assets:
|
|
|
|
|
||||||||||||||||||||
Investment securities (1):
|
|
|
|
|
||||||||||||||||||||
Available for sale
|
||||||||||||||||||||||||
Taxable
|
$ | 376,947 | $ | 3,387 | 3.59 | % | $ | 296,929 | $ | 2,891 | 3.89 | % | ||||||||||||
Tax-exempt
|
18,066 | 264 | 5.85 | 6,270 | 85 | 5.42 | ||||||||||||||||||
Held to maturity
|
||||||||||||||||||||||||
Taxable
|
6,461 | 80 | 4.95 | — | — | — | ||||||||||||||||||
Tax-exempt
|
18,711 | 269 | 5.75 | — | — | — | ||||||||||||||||||
Total investment securities
|
420,185 | 4,000 | 3.81 | 303,199 | 2,976 | 3.93 | ||||||||||||||||||
Loans (2)
|
701,056 | 8,950 | 5.11 | 718,078 | 9,419 | 5.25 | ||||||||||||||||||
Restricted investment in bank stocks
|
9,191 | 109 | 4.74 | 10,706 | 122 | 4.56 | ||||||||||||||||||
Total interest-earning assets
|
1,130,432 | 13,059 | 4.62 | 1,031,983 | 12,517 | 4.85 | ||||||||||||||||||
Non interest-earning assets:
|
||||||||||||||||||||||||
Cash and due from banks
|
102,805 | 71,335 | ||||||||||||||||||||||
Bank-owned life insurance
|
28,274 | 26,680 | ||||||||||||||||||||||
Intangible assets
|
16,936 | 17,001 | ||||||||||||||||||||||
Other assets
|
32,738 | 35,826 | ||||||||||||||||||||||
Allowance for loan losses
|
(9,601 | ) | (8,362 | ) | ||||||||||||||||||||
Total non interest-earning assets
|
171,152 | 142,480 | ||||||||||||||||||||||
Total assets
|
$ | 1,301,584 | $ | 1,174,463 | ||||||||||||||||||||
Liabilities and Stockholders’ Equity
|
||||||||||||||||||||||||
Interest-bearing liabilities:
|
||||||||||||||||||||||||
Money market deposits
|
$ | 180,468 | $ | 244 | 0.54 | % | $ | 125,851 | $ | 257 | 0.82 | % | ||||||||||||
Savings deposits
|
182,455 | 263 | 0.58 | 161,901 | 314 | 0.78 | ||||||||||||||||||
Time deposits
|
241,816 | 619 | 1.02 | 214,669 | 703 | 1.31 | ||||||||||||||||||
Other interest-bearing deposits
|
201,013 | 294 | 0.59 | 157,187 | 301 | 0.77 | ||||||||||||||||||
Total interest-bearing deposits
|
805,752 | 1,420 | 0.70 | 659,608 | 1,575 | 0.96 | ||||||||||||||||||
Short-term and long-term borrowings
|
197,747 | 1,639 | 3.32 | 251,699 | 2,216 | 3.52 | ||||||||||||||||||
Subordinated debentures
|
5,155 | 26 | 2.02 | 5,155 | 40 | 3.10 | ||||||||||||||||||
Total interest-bearing liabilities
|
1,008,654 | 3,085 | 1.22 | 916,462 | 3,831 | 1.67 | ||||||||||||||||||
Non interest-bearing liabilities:
|
||||||||||||||||||||||||
Demand deposits
|
157,002 | 139,759 | ||||||||||||||||||||||
Other liabilities
|
7,537 | 12,295 | ||||||||||||||||||||||
Total non interest-bearing liabilities
|
164,539 | 152,054 | ||||||||||||||||||||||
Stockholders’ equity
|
128,391 | 105,947 | ||||||||||||||||||||||
Total liabilities and stockholders’ equity
|
$ | 1,301,584 | $ | 1,174,463 | ||||||||||||||||||||
Net interest income (tax-equivalent basis)
|
9,974 | 8,686 | ||||||||||||||||||||||
Net interest spread
|
3.40 | % | 3.18 | % | ||||||||||||||||||||
Net interest margin (3)
|
3.53 | % | 3.37 | % | ||||||||||||||||||||
Tax-equivalent adjustment (4)
|
(181 | ) | (29 | ) | ||||||||||||||||||||
Net interest income
|
$ | 9,793 | $ | 8,657 |
(1)
|
Average balances are based on amortized cost.
|
(2)
|
Average balances include loans on non-accrual status.
|
(3)
|
Represents net interest income as a percentage of total average interest-earning assets.
|
(4)
|
Computed using a federal income tax rate of 34 percent.
|
Six Months Ended June 30,
|
||||||||||||||||||||||||
2011
|
2010
|
|||||||||||||||||||||||
(tax-equivalent basis)
|
Average
Balance
|
Interest
Income/
Expense
|
Average
Rate
|
Average
Balance
|
Interest
Income/
Expense
|
Average
Rate
|
||||||||||||||||||
(dollars in thousands)
|
||||||||||||||||||||||||
Assets
|
|
|
|
|
||||||||||||||||||||
Interest-earning assets:
|
|
|
|
|
||||||||||||||||||||
Investment securities (1):
|
|
|
|
|
||||||||||||||||||||
Available for sale
|
|
|
|
|
||||||||||||||||||||
Taxable
|
$ | 383,946 | $ | 6,806 | 3.55 | % | $ | 292,264 | $ | 5,927 | 4.06 | % | ||||||||||||
Tax-exempt
|
13,972 | 397 | 5.68 | 9,322 | 262 | 5.63 | ||||||||||||||||||
Held to maturity
|
||||||||||||||||||||||||
Taxable
|
3,249 | 80 | 4.92 | — | — | — | ||||||||||||||||||
Tax-exempt
|
9,407 | 269 | 5.72 | — | — | — | ||||||||||||||||||
Total investment securities
|
410,574 | 7,552 | 3.68 | 301,586 | 6,189 | 4.10 | ||||||||||||||||||
Loans (2)
|
708,769 | 18,167 | 5.13 | 712,914 | 18,787 | 5.27 | ||||||||||||||||||
Restricted investment in bank stocks
|
9,174 | 252 | 5.49 | 10,639 | 273 | 5.13 | ||||||||||||||||||
Total interest-earning assets
|
1,128,517 | 25,971 | 4.60 | 1,025,139 | 25,249 | 4.93 | ||||||||||||||||||
Non interest-earning assets:
|
||||||||||||||||||||||||
Cash and due from banks
|
68,629 | 75,623 | ||||||||||||||||||||||
Bank-owned life insurance
|
28,143 | 26,548 | ||||||||||||||||||||||
Intangible assets
|
16,944 | 17,010 | ||||||||||||||||||||||
Other assets
|
32,695 | 40,620 | ||||||||||||||||||||||
Allowance for loan losses
|
(9,371 | ) | (8,363 | ) | ||||||||||||||||||||
Total non interest-earning assets
|
137,040 | 151,438 | ||||||||||||||||||||||
Total assets
|
$ | 1,265,557 | $ | 1,176,577 | ||||||||||||||||||||
Liabilities and Stockholders’ Equity
|
||||||||||||||||||||||||
Interest-bearing liabilities:
|
||||||||||||||||||||||||
Money market deposits
|
$ | 173,710 | $ | 469 | 0.54 | % | $ | 121,131 | $ | 493 | 0.81 | % | ||||||||||||
Savings deposits
|
177,758 | 500 | 0.56 | 161,825 | 632 | 0.78 | ||||||||||||||||||
Time deposits
|
222,987 | 1,142 | 1.02 | 221,746 | 1,544 | 1.39 | ||||||||||||||||||
Other interest-bearing deposits
|
197,208 | 576 | 0.58 | 155,814 | 584 | 0.75 | ||||||||||||||||||
Total interest-bearing deposits
|
771,663 | 2,687 | 0.70 | 660,516 | 3,253 | 0.98 | ||||||||||||||||||
Short-term and long-term borrowings
|
203,098 | 3,268 | 3.22 | 257,626 | 4,662 | 3.62 | ||||||||||||||||||
Subordinated debentures
|
5,155 | 52 | 2.02 | 5,155 | 79 | 3.06 | ||||||||||||||||||
Total interest-bearing liabilities
|
979,916 | 6,007 | 1.23 | 923,297 | 7,994 | 1.73 | ||||||||||||||||||
Non interest-bearing liabilities:
|
||||||||||||||||||||||||
Demand deposits
|
154,552 | 137,667 | ||||||||||||||||||||||
Other liabilities
|
5,631 | 10,318 | ||||||||||||||||||||||
Total non interest-bearing liabilities
|
160,183 | 147,985 | ||||||||||||||||||||||
Stockholders’ equity
|
125,458 | 105,295 | ||||||||||||||||||||||
Total liabilities and stockholders’ equity
|
$ | 1,265,557 | $ | 1,176,577 | ||||||||||||||||||||
Net interest income (tax-equivalent basis)
|
19,964 | 17,255 | ||||||||||||||||||||||
Net interest spread
|
3.37 | % | 3.20 | % | ||||||||||||||||||||
Net interest margin (3)
|
3.54 | % | 3.37 | % | ||||||||||||||||||||
Tax-equivalent adjustment (4)
|
(226 | ) | (89 | ) | ||||||||||||||||||||
Net interest income
|
$ | 19,738 | $ | 17,166 |
(1)
|
Average balances are based on amortized cost.
|
(2)
|
Average balances include loans on non-accrual status.
|
(3)
|
Represents net interest income as a percentage of total average interest-earning assets.
|
(4)
|
Computed using a federal income tax rate of 34 percent.
|
Six Months Ended
June 30,
|
||||||||
2011
|
2010
|
|||||||
(dollars in thousands)
|
||||||||
Average loans for the period
|
$ | 708,769 | $ | 712,914 | ||||
Total loans at end of period
|
698,148 | 722,527 | ||||||
Analysis of the Allowance for Loan Losses:
|
||||||||
Balance—beginning of year
|
$ | 8,867 | $ | 8,711 | ||||
Charge-offs:
|
||||||||
Commercial and industrial loans
|
(185 | ) | (1,172 | ) | ||||
Residential mortgage loans
|
(23 | ) | (645 | ) | ||||
Installment loans
|
(7 | ) | (33 | ) | ||||
Total charge-offs
|
(215 | ) | (1,850 | ) | ||||
Recoveries:
|
||||||||
Commercial and industrial loans
|
35 | 8 | ||||||
Commercial real estate loans
|
15 | — | ||||||
Residential mortgage loans
|
2 | 1 | ||||||
Installment loans
|
4 | 4 | ||||||
Total recoveries
|
56 | 13 | ||||||
Net charge-offs
|
(159 | ) | (1,837 | ) | ||||
Provision for loan losses
|
1,128 | 1,721 | ||||||
Balance—end of period
|
$ | 9,836 | $ | 8,595 | ||||
Ratio of net charge-offs during the period to average loans during the period (1)
|
0.04 | % | 0.52 | % | ||||
Allowance for loan losses as a percentage of total loans
|
1.41 | % | 1.19 | % |
(1)
|
Annualized.
|
June 30,
2011
|
December 31,
2010
|
|||||||
(in thousands)
|
||||||||
Non-accrual loans
|
$ | 10,137 | $ | 11,174 | ||||
Accruing loans past due 90 days or more
|
1,013 | 714 | ||||||
Total non-performing loans
|
11,150 | 11,888 | ||||||
Other non-performing assets
|
327 | — | ||||||
Total non-performing assets
|
$ | 11,477 | $ | 11,888 | ||||
Troubled debt restructured loans
|
$ | 8,223 | $ | 7,035 |
Three Months Ended
June 30,
|
Six Months Ended
June 30,
|
|||||||||||||||||||||||||||||||
Increase
|
Percent
|
Increase
|
Percent
|
|||||||||||||||||||||||||||||
(dollars in thousands)
|
2011
|
2010
|
(Decrease)
|
Change
|
2011
|
2010
|
(Decrease)
|
Change
|
||||||||||||||||||||||||
Service charges, commissions and fees
|
$ | 461 | $ | 459 | $ | 2 | 0.4 | % | $ | 910 | $ | 889 | $ | 21 | 2.4 | % | ||||||||||||||||
Annuities and insurance
|
33 | 23 | 10 | 43.5 | 39 | 116 | (77 | ) | (66.4 | ) | ||||||||||||||||||||||
Bank-owned life insurance
|
261 | 264 | (3 | ) | (1.1 | ) | 521 | 528 | (7 | ) | (1.3 | ) | ||||||||||||||||||||
Net investment securities gains (losses)
|
801 | 657 | 144 | (21.9 | ) | 1,567 | (2,687 | ) | 4,254 | (158.3 | ) | |||||||||||||||||||||
All other
|
176 | 79 | 97 | 122.8 | 292 | 187 | 105 | 56.1 | ||||||||||||||||||||||||
Total other income (charges)
|
$ | 1,732 | $ | 1,482 | $ | 250 | 16.9 | % | $ | 3,329 | $ | (967 | ) | $ | 4,296 | (444.3 | )% |
Three Months Ended
June 30,
|
Six Months Ended
June 30,
|
|||||||||||||||||||||||||||||||
Increase
|
Percent
|
Increase
|
Percent
|
|||||||||||||||||||||||||||||
(dollars in thousands)
|
2011
|
2010
|
(Decrease)
|
Change
|
2011
|
2010
|
(Decrease)
|
Change
|
||||||||||||||||||||||||
Salaries and employee benefits
|
$ | 2,903 | $ | 2,727 | $ | 176 | 6.5 | % | $ | 5,770 | $ | 5,384 | $ | 386 | 7.2 | % | ||||||||||||||||
Occupancy and equipment
|
667 | 734 | (67 | ) | (9.1 | ) | 1,533 | 1,623 | (90 | ) | (5.5 | ) | ||||||||||||||||||||
FDIC insurance
|
528 | 458 | 70 | 15.3 | 1,056 | 1,076 | (20 | ) | (1.9 | ) | ||||||||||||||||||||||
Professional and consulting
|
245 | 422 | (177 | ) | (41.9 | ) | 486 | 696 | (210 | ) | (30.2 | ) | ||||||||||||||||||||
Stationery and printing
|
99 | 90 | 9 | 10 | 200 | 174 | 26 | 14.9 | ||||||||||||||||||||||||
Marketing and advertising
|
65 | 105 | (40 | ) | (38.1 | ) | 86 | 197 | (111 | ) | (56.3 | ) | ||||||||||||||||||||
Computer expense
|
350 | 340 | 10 | 2.9 | 689 | 680 | 9 | 1.3 | ||||||||||||||||||||||||
Other real estate owned expense
|
— | 43 | (43 | ) | 100.0 | (1 | ) | 43 | (44 | ) | (102.3 | ) | ||||||||||||||||||||
All other
|
900 | 1,349 | (449 | ) | (33.3 | ) | 1,873 | 2,787 | (914 | ) | (32.8 | ) | ||||||||||||||||||||
Total other expense
|
$ | 5,757 | $ | 6,268 | $ | (511 | ) | (8.2 | )% | $ | 11,692 | $ | 12,660 | $ | (968 | ) | (7.6 | )% |
June 30, 2011
|
December 31, 2010
|
Dollar
Change
|
||||||||||||||||||
Amount
|
Percentage
|
Amount
|
Percentage
|
2011 vs. 2010
|
||||||||||||||||
(dollars in thousands)
|
||||||||||||||||||||
Non interest-bearing demand
|
$ | 158,689 | 31.9 | % | $ | 144,210 | 30.4 | % | $ | 14,479 | ||||||||||
Interest-bearing demand
|
190,994 | 38.3 | 186,509 | 39.2 | 4,485 | |||||||||||||||
Regular savings
|
107,209 | 21.5 | 112,305 | 23.6 | (5,096 | ) | ||||||||||||||
Money market deposits under $100
|
41,297 | 8.3 | 32,105 | 6.8 | 9,192 | |||||||||||||||
Total core deposits
|
$ | 498,189 | 100.0 | % | $ | 475,129 | 100.0 | % | $ | 23,060 | ||||||||||
Total deposits
|
$ | 965,676 | $ | 860,332 | $ | 105,344 | ||||||||||||||
Core deposits to total deposits
|
51.6 | % | 55.2 | % |
|
June 30, 2011
|
|||
(dollars in thousands)
|
||||
Average interest rate:
|
|
|||
At quarter end
|
0.23
|
%
|
||
For the quarter
|
0.28
|
%
|
||
Average amount outstanding during the quarter
|
$
|
36,747
|
||
Maximum amount outstanding at any month end in the quarter
|
$
|
43,799
|
||
Amount outstanding at quarter end
|
$
|
32,374
|
|
June 30,
|
December 31,
|
||||||
2011
|
2010
|
|||||||
(in thousands, except for share data)
|
||||||||
Stockholders’ equity
|
$ | 130,104 | $ | 120,957 | ||||
Less: Preferred stock
|
9,741 | 9,700 | ||||||
Less: Goodwill and other intangible assets
|
16,927 | 16,959 | ||||||
Tangible common stockholders’ equity
|
$ | 103,436 | $ | 94,298 | ||||
Book value per common share
|
$ | 7.39 | $ | 6.83 | ||||
Less: Goodwill and other intangible assets
|
1.04 | 1.04 | ||||||
Tangible book value per common share
|
$ | 6.35 | $ | 5.79 |
Center Bancorp, Inc.
|
For Capital Adequacy
Purposes
|
To Be Well-Capitalized Under
Prompt Corrective Action
Provisions
|
||||||||||||||||||||||
At June 30, 2011
|
Amount
|
Ratio
|
Amount
|
Ratio
|
Amount
|
Ratio
|
||||||||||||||||||
|
(dollars in thousands)
|
|||||||||||||||||||||||
Tier 1 leverage capital
|
$
|
122,101
|
9.50
|
%
|
$
|
51,411
|
4.00
|
%
|
N/A
|
N/A
|
||||||||||||||
Tier 1 risk-based capital
|
122,101
|
13.16
|
%
|
37,113
|
4.00
|
%
|
N/A
|
N/A
|
||||||||||||||||
Total risk-based capital
|
131,937
|
14.22
|
%
|
74,226
|
8.00
|
%
|
N/A
|
N/A
|
||||||||||||||||
Union Center
National Bank
|
For Capital Adequacy
Purposes
|
To Be Well-Capitalized Under
Prompt Corrective Action
Provisions
|
||||||||||||||||||||||
At June 30, 2011
|
Amount
|
Ratio
|
Amount
|
Ratio
|
Amount
|
Ratio
|
||||||||||||||||||
|
(dollars in thousands)
|
|||||||||||||||||||||||
Tier 1 leverage capital
|
$
|
119,269
|
9.29
|
%
|
$
|
51,354
|
4.00
|
%
|
$
|
64,192
|
5.00
|
%
|
||||||||||||
Tier 1 risk-based capital
|
119,269
|
12.86
|
%
|
37,098
|
4.00
|
%
|
55,647
|
6.00
|
%
|
|||||||||||||||
Total risk-based capital
|
129,105
|
13.92
|
%
|
74,198
|
8.00
|
%
|
92,748
|
10.00
|
%
|
|
A minimum ratio of common equity to risk-weighted assets reaching 4.5%, plus an additional 2.5% as a capital conservation buffer, by 2019 after a phase-in period.
|
|
A minimum ratio of Tier 1 capital to risk-weighted assets reaching 6.0% by 2019 after a phase-in period.
|
|
A minimum ratio of total capital to risk-weighted assets, plus the additional 2.5% capital conservation buffer, reaching 10.5% by 2019 after a phase-in period.
|
|
An additional countercyclical capital buffer to be imposed by applicable national banking regulators periodically at their discretion, with advance notice.
|
|
Restrictions on capital distributions and discretionary bonuses applicable when capital ratios fall within the buffer zone.
|
|
Deduction from common equity of deferred tax assets that depend on future profitability to be realized.
|
|
Increased capital requirements for counterparty credit risk relating to OTC derivatives, repos and securities financing activities.
|
|
For capital instruments issued on or after January 13, 2013 (other than common equity), a loss-absorbency requirement such that the instrument must be written off or converted to common equity if a trigger event occurs, either pursuant to applicable law or at the direction of the banking regulator. A trigger event is an event under which the banking entity would become nonviable without the write-off or conversion, or without an injection of capital from the public sector. The issuer must maintain authorization to issue the requisite shares of common equity if conversion were required.
|
Exhibit No.
|
Description
|
||
31.1 |
Certification of the Chief Executive Officer of the Corporation Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
|
||
31.2 |
Certification of the Chief Financial Officer of the Corporation Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
|
||
32.1* |
Certification of the Chief Executive Officer of the Corporation Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
|
||
32.2* |
Certification of the Chief Financial Officer of the Corporation Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
|
||
101.INS**
|
XBRL Instance Document
|
||
101.SCH**
|
XBRL Taxonomy Extension Schema Document
|
||
101.CAL**
|
XBRL Taxonomy Extension Calculation Linkbase Document
|
||
101.DEF**
|
Definition Taxonomy Extension Linkbase Document
|
||
101.LAB**
|
XBRL Taxonomy Extension Label Linkbase Document
|
||
101.PRE**
|
XBRL Taxonomy Extension Presentation Linkbase Document
|
By:
|
/s/ Anthony C. Weagley
|
By:
|
/s/ Vincent N. Tozzi
|
|
Anthony C. Weagley
President and Chief Executive Officer
|
Vincent N. Tozzi
Vice President, Treasurer and Chief Financial Officer
|
|||
Date: August 9, 2011
|
Date: August 9, 2011
|
Date: August 9, 2011
|
/s/ Anthony C. Weagley
|
Anthony C. Weagley
President and Chief Executive Officer
|
Date: August 9, 2011
|
/s/ Vincent N. Tozzi
|
Vincent N. Tozzi
Vice President, Treasurer and Chief Financial Officer
|
Date: August 9, 2011
|
/s/ Anthony C. Weagley
|
Anthony C. Weagley
President and Chief Executive Officer
|
Date: August 09, 2011
|
/s/ Vincent N. Tozzi
|
Vincent N. Tozzi
Vice President, Treasurer and Chief Financial Officer
|
Consolidated Statements of Condition (Parenthetical) (USD $)
In Thousands, except Share data |
Jun. 30, 2011
|
Dec. 31, 2010
|
---|---|---|
Consolidated Statements of Condition | Â | Â |
Held-to-maturity Securities, Fair Value | $ 42,122 | $ 0 |
Preferred Stock, Liquidation Preference Per Share | $ 1,000 | $ 1,000 |
Preferred Stock, Shares Authorized | 5,000,000 | 5,000,000 |
Preferred Stock, Shares Issued | 10,000 | 10,000 |
Common Stock, No Par Value | ||
Common Stock, Shares Authorized | 25,000,000 | 25,000,000 |
Common Stock, Shares, Issued | 18,477,412 | 18,477,412 |
Common Stock, Shares, Outstanding | 16,290,700 | 16,289,832 |
Treasury Stock, Shares | 2,186,712 | 2,187,580 |
Document and Entity Information
|
6 Months Ended | |
---|---|---|
Jun. 30, 2011
|
Jul. 31, 2011
|
|
Document and Entity Information | Â | Â |
Document Type | 10-Q | Â |
Amendment Flag | false | Â |
Document Period End Date | Jun. 30, 2011 | |
Entity Registrant Name | CENTER BANCORP INC | Â |
Document Fiscal Period Focus | Q2 | Â |
Entity Filer Category | Accelerated Filer | Â |
Entity Central Index Key | 0000712771 | Â |
Current Fiscal Year End Date | --12-31 | Â |
Document Fiscal Year Focus | 2011 | Â |
Entity Common Stock, Shares Outstanding | Â | 16,290,700 |
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Loans and the Allowance for Loan Losses
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Loans and the Allowance for Loan Losses | Â | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Loans and the Allowance for Loan Losses | Note 5 — Loans and the Allowance for Loan Losses
Loans are stated at their principal amounts inclusive of net deferred loan origination fees. Interest income is credited as earned except when a loan becomes past due 90 days or more and doubt exists as to the ultimate collection of interest or principal; in those cases the recognition of income is discontinued. Loans that are past due 90 days or more that are both well secured and in the process of collection will remain on an accruing basis. When a loan is placed on non-accrual status, interest accruals cease and uncollected accrued interest is reversed and charged against current income.
In July 2010, the Financial Accounting Standards Board (the "FASB") issued Accounting Standards Update ("ASU") No. 2010-20, "Disclosures about the Credit Quality of Financing Receivables and the Allowance for Credit Losses," which requires that the Corporation provide a greater level of disaggregated information about the credit quality of the Corporation's loans and leases and the allowance for loan and lease losses (the "Allowance"). This ASU also requires the Corporation to disclose on a prospective basis, additional information related to credit quality indicators, non-accrual loans and leases, and past due information. The Corporation adopted the provisions of this ASU in preparing the Consolidated Financial Statements as of and for the year ended December 31, 2010. As this ASU amends only the disclosure requirements for loans and leases and the Allowance, the adoption of this ASU for the quarter and six month period ended June 30, 2011 and the year ended December 31, 2010, respectively, had no impact on the Corporation's statements of income and condition. The required disclosures are presented in the following tables and related discussion later in this Note.
Portfolio segments are defined as the level at which an entity develops and documents a systematic methodology to determine its Allowance. Management has determined that the Corporation has two portfolio segments of loans and leases (commercial and consumer) in determining the Allowance. Both quantitative and qualitative factors are used by management at the portfolio segment level in determining the adequacy of the Allowance for the Corporation. Classes of loans and leases are a disaggregation of a Corporation's portfolio segments. Classes are defined as a group of loans and leases which share similar initial measurement attributes, risk characteristics, and methods for monitoring and assessing credit risk. Management has determined that the Corporation has five classes of loans and leases (Commercial and industrial (including lease financing), Commercial – real estate, Construction, Residential mortgage (including home equity) and Installment.
Generally, all classes of commercial and consumer loans and leases are placed on non-accrual status upon becoming contractually past due 90 days or more as to principal or interest (unless loans and leases are adequately secured by collateral, are in the process of collection, and are reasonably expected to result in repayment), when terms are renegotiated below market levels, or where substantial doubt about full repayment of principal or interest is evident. For certain installment loans the entire outstanding balance on the loan is charged-off when the loan becomes 60 days past due.
Payments received on non-accrual loans are applied against principal. A loan may only be restored to an accruing basis when it again becomes well secured and in the process of collection or all past due amounts have been collected and six months of payments to demonstrate that the borrower can continue to meet the loan terms. Loan origination fees and certain direct loan origination costs are deferred and recognized over the life of the loan as an adjustment to the loan's yield using the level yield method.
Impaired Loans The Corporation accounts for impaired loans in accordance with FASB ASC 310-10-35 (previously SFAS No. 114, "Accounting by Creditors for Impairment of a Loan" as amended by SFAS No. 118, "Accounting by Creditors for Impairment of a Loan — Income Recognition and Disclosures"). The value of impaired loans is based on the present value of expected future cash flows discounted at the loan's effective interest rate or, as a practical expedient, at the loan's observable market price or at the fair value of the collateral if the loan is collateral dependent.
The Corporation has defined its population of impaired loans to include all non-accrual and troubled debt restructuring loans. As part of the evaluation of the value of impaired loans, the Corporation reviews all non-homogeneous loans in each instance above an established dollar threshold of $200,000 for impairment internally classified as substandard or below. Smaller impaired non-homogeneous loans and impaired homogeneous loans are not measured for specific reserves and are covered under the Corporation's general reserve.
A loan is considered impaired when, based on current information and events, it is probable that the Corporation will not be able to collect all amounts due from the borrower in accordance with the contractual terms of the loan, including scheduled interest payments. Impaired loans include all classes of commercial and consumer non-accruing loans and all loans modified in a troubled debt restructuring ("TDR").
When a loan has been identified as being impaired, the amount of impairment is measured based on the present value of expected future cash flows discounted at the loan's effective interest rate, the loan's observable market price, or the estimated fair value of the collateral, less any selling costs, if the loan is collateral-dependent. If the measurement of the impaired loan is less than the recorded investment in the loan (including accrued interest, net of deferred loan fees or costs and unamortized premiums or discounts), an impairment is recognized by creating or adjusting an existing allocation of the Allowance, or by recording a partial charge-off of the loan to its fair value. Interest payments made on impaired loans are typically applied to principal unless collectability of the principal amount is reasonably assured, in which case interest income may be accrued or recognized on a cash basis.
Loans Modified in a Troubled Debt Restructuring Loans are considered to have been modified in a TDR when due to a borrower's financial difficulties, the Corporation makes certain concessions to the borrower that it would not otherwise consider. Modifications may include interest rate reductions, principal or interest forgiveness, forbearance, and other actions intended to minimize economic loss and to avoid foreclosure or repossession of collateral. Generally, a non-accrual loan that has been modified in a TDR remains on non-accrual status for a period of six months to demonstrate that the borrower is able to meet the terms of the modified loan. However, performance prior to the modification, or significant events that coincide with the modification, are included in assessing whether the borrower can meet the new terms and may result in the loan being returned to accrual status at the time of loan modification or after a shorter performance period. If the borrower's ability to meet the revised payment schedule is uncertain, the loan remains on non-accrual status.
Reserve for Credit Losses The Corporation's reserve for credit losses is comprised of two components, the Allowance and the reserve for unfunded commitments (the "Unfunded Commitments").
Allowance for Loan Losses The allowance for loan losses is maintained at a level determined adequate to provide for probable loan losses. The allowance is increased by provisions charged to operations and reduced by loan charge-offs, net of recoveries. The allowance is based on management's evaluation of the loan portfolio considering economic conditions, the volume and nature of the loan portfolio, historical loan loss experience and individual credit situations.
Material estimates that are particularly susceptible to significant change in the near-term relate to the determination of the allowance for loan losses. In connection with the determination of the allowance for loan losses, management obtains independent appraisals for significant properties.
The ultimate collectability of a substantial portion of the Bank's loan portfolio is susceptible to changes in the real estate market and economic conditions in the State of New Jersey and the impact of such conditions on the creditworthiness of the borrowers.
Management believes that the allowance for loan losses is adequate. Management uses available information to recognize loan losses; however, future additions to the allowance may be necessary based on changes in economic conditions. In addition, various regulatory agencies, as an integral part of their examination process, periodically review the Bank's allowance for loan losses. Such agencies may require the Bank to recognize additions to the allowance based on their judgments about information available to them at the time of their examinations.
Reserve for Unfunded Commitments The reserve for unfunded commitments is maintained at a level believed by management to be sufficient to absorb estimated probable losses related to unfunded credit facilities and is included in other liabilities in the consolidated statements of condition. The determination of the adequacy of the reserve is based upon an evaluation of the unfunded credit facilities, including an assessment of historical commitment utilization experience, and credit risk. Net adjustments to the reserve for unfunded commitments are included in other expense.
The following table sets forth the composition of the Corporation's loan portfolio including net deferred fees and costs, at June 30, 2011 and December 31, 2010:
Included in the loan balances above are net deferred loan costs of $83,000 and $258,000 at June 30, 2011 and December 31, 2010, respectively.
At June 30, 2011 and December 31, 2010, loans to executive officers and directors aggregated approximately $2,862,000 and $5,456,000, respectively. During the period ended June 30, 2011, the Corporation made no new loans to executive officers and directors; payments by such persons during 2011 aggregated $2,594,000.
Management is of the opinion that the above loans were made on the same terms and conditions as those prevailing for comparable transactions with non-related borrowers.
At June 30, 2011 and December 31, 2010, loan balances of approximately $352.6 million and $435.9 million, respectively, were pledged to secure short term borrowings from the Federal Reserve Bank of New York and Federal Home Loan Bank Advances.
The following table presents information about loan receivables on non-accrual status at June 30, 2011 and December 31, 2010:
The Corporation continuously monitors the credit quality of its loans receivable. In addition to the internal staff, the Corporation utilizes the services of a third party loan review firm to rate the credit quality of its loans receivable. Credit quality is monitored by reviewing certain credit quality indicators. Assets classified "Pass" are deemed to possess average to superior credit quality, requiring no more than normal attention. Assets classified as "Special Mention" have generally acceptable credit quality yet possess higher risk characteristics/circumstances than satisfactory assets. Such conditions include strained liquidity, slow pay, stale financial statements, or other conditions that require more stringent attention from the lending staff. These conditions, if not corrected, may weaken the loan quality or inadequately protect the Corporation's credit position at some future date. Assets are classified "Substandard" if the asset has a well defined weakness that requires management's attention to a greater degree than for loans classified special mention. Such weakness, if left uncorrected, could possibly result in the compromised ability of the loan to perform to contractual requirements. An asset is classified as "Doubtful" if it is inadequately protected by the net worth and/or paying capacity of the obligor or of the collateral, if any, that secures the obligation. Assets classified as doubtful include assets for which there is a "distinct possibility" that a degree of loss will occur if the inadequacies are not corrected. All loans past due 90 days or more and all impaired loans are included in the appropriate category below. The following table presents information about the loan credit quality at June 30, 2011 and December 31, 2010:
Credit Quality Indicators
The following table provides an analysis of the impaired loans at June 30, 2011 and December 31, 2010:
The Corporation defines an impaired loan as a loan for which it is probable, based on information available at the determination date, that the Corporation will not collect all amounts due under the contractual terms of the loan. At June 30, 2011 impaired loans were primarily collateral dependent, and totaled $15.7 million. Specific allowance for loan loss of $1.3 million was assigned to impaired loans of $11.8 million. Loans in the amount of $3.9 million had no specific allowance allocation.
Loans are considered to have been modified in a troubled debt restructuring when due to a borrower's financial difficulties, the Corporation makes certain concessions to the borrower that it would not otherwise consider. Modifications may include interest rate reductions, principal or interest forgiveness, forbearance, and other actions intended to minimize economic loss and to avoid foreclosure or repossession of collateral. Generally, a non-accrual loan that has been modified in a troubled debt restructuring remains on non-accrual status for a period of six months to demonstrate that the borrower is able to meet the terms of the modified loan. However, performance prior to the modification, or significant events that coincide with the modification, are included in assessing whether the borrower can meet the new terms and may result in the loan being returned to accrual status at the time of loan modification or after a shorter performance period. If the borrower's ability to meet the revised payment schedule is uncertain, the loan remains on non-accrual status. Included in impaired loans at June 30, 2011 are loans that are deemed troubled debt restructurings. Of these loans, $8.2 million, 94% of which are included in the tables above, are performing under the restructured terms and are accruing interest.
The following table provides an analysis of the age of loans that are past due at June 30, 2011 and December 31, 2010:
The following table details the amount of loans receivable that are evaluated individually, and collectively, for impairment, and the related portion of the allowance for loan loss that is allocated to each loan portfolio segment:
Allowance for loan and lease losses
The Corporation's allowance for loan losses is analyzed quarterly. Many factors are considered, including growth in the portfolio, delinquencies, nonaccrual loan levels, and other factors inherent in the extension of credit. There have been no material changes to the allowance for loan loss methodology as disclosed in the Corporation's Annual Report on Form 10-K for the year ended December 31, 2010.
A summary of the activity in the allowance for loan losses is as follows:
The amount of interest income that would have been recorded on non-accrual loans during the six months ended June 30, 2011, the year ended December 31, 2010, had payments remained in accordance with the original contractual terms, was $324,000 and $598,000, respectively.
At June 30, 2011, there were no commitments to lend additional funds to borrowers whose loans were on non-accrual status or were contractually past due in excess of 90 days and still accruing interest.
The policy of the Corporation is to generally grant commercial, mortgage and installment loans to New Jersey residents and businesses within its market area. The borrowers' abilities to repay their obligations are dependent upon various factors, including the borrowers' income and net worth, cash flows generated by the borrowers' underlying collateral, value of the underlying collateral, and priority of the lender's lien on the property. Such factors are dependent upon various economic conditions and individual circumstances beyond the control of the Corporation. The Corporation is therefore subject to risk of loss. The Corporation believes its lending policies and procedures adequately minimize the potential exposure to such risks and that adequate provisions for loan losses are provided for all known and inherent risks. Collateral and/or personal guarantees are required for virtually all loans. |
Components of Net Periodic Pension Cost
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Components of Net Periodic Pension Cost | Â | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Components of Net Periodic Pension Cost | Note 10. Components of Net Periodic Pension Cost
The Corporation maintained a non-contributory pension plan for substantially all of its employees until September 30, 2007, at which time the Corporation froze its defined benefit pension plan. The following table sets forth the net periodic pension cost of the Corporation's pension plan for the periods indicated.
Contributions
The Corporation presently estimates it will contribute $467,000 to its Pension Trust in 2011.
The Preservation of Access to Care for Medical Beneficiaries and Pension Relief Act of 2010, signed into law on June 25, 2010, permits single employer and multiple employer defined benefit plan sponsors to elect to extend the plan's amortization period of a Shortfall Amortization Base over either a nine year period or a fifteen year period, rather than the seven year period required under the Pension Protection Act of 2006.
The Bank has elected to apply the Pension Relief Act Fifteen Year amortization of the Shortfall Amortization Base for its 2011 minimum funding requirement. The minimum amount to be funded is $467,000, as noted above, by December 31, 2011with the understanding that fully funding the plan earlier than this date will lower this amount and that funding the plan after this date will increase this amount. As noted, this amount is the minimum required funding amount. The Corporation does have the option of funding above this amount but has contributed the minimum historically. |
Basis of Presentation
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Basis of Presentation | Â |
Basis of Presentation | Note 1. Basis of Presentation The consolidated financial statements of Center Bancorp, Inc. (the "Parent Corporation") are prepared on the accrual basis and include the accounts of the Parent Corporation and its wholly-owned subsidiary, Union Center National Bank (the "Bank" and, collectively with the Parent Corporation and the Parent Corporation's other direct and indirect subsidiaries, the "Corporation"). All significant intercompany accounts and transactions have been eliminated from the accompanying consolidated financial statements.
In preparing the consolidated financial statements, management has made estimates and assumptions that affect the reported amounts of assets and liabilities as of the date of the consolidated statements of condition and that affect the results of operations for the periods presented. Actual results could differ significantly from those estimates. Material estimates that are particularly susceptible to change in the near term relate to the determination of the allowance for loan losses, other-than-temporary impairment evaluation of securities, the evaluation of the impairment of goodwill and the valuation of deferred tax assets.
The consolidated financial statements have been prepared in conformity with U.S. generally accepted accounting principles ("U.S. GAAP"). |
Investment Securities
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Investment Securities | Note 7. Investment Securities
The Corporation's investment securities are classified as available-for-sale and held-to-maturity at June 30, 2011 and available-for-sale at December 31, 2010. Investment securities available-for-sale are reported at fair value with unrealized gains or losses included in equity, net of tax. Accordingly, the carrying value of such securities reflects their fair value at the balance sheet date. Fair value is based upon either quoted market prices, or in certain cases where there is limited activity in the market for a particular instrument, assumptions are made to determine their fair value. See Note 8 of the Notes to Consolidated Financial Statements for a further discussion.
Transfers of debt securities from the available-for-sale category to the held-to-maturity category are made at fair value at the date of transfer. The unrealized holding gain or loss at the date of transfer remains in accumulated other comprehensive income and in the carrying value of the held-to-maturity investment security. Premiums or discounts on investment securities are amortized or accreted using the effective interest method over the life of the security as an adjustment of yield. Unrealized holding gains or losses that remain in accumulated other comprehensive income are amortized or accreted over the remaining life of the security as an adjustment of yield, offsetting the related amortization of the premium or accretion of the discount.
The following tables present information related to the Corporation's investment securities at June 30, 2011 and December 31, 2010.
During the six months ended June 30, 2011, the Corporation reclassified at fair value approximately $36.0 million in available-for-sale investment securities to the held-to-maturity category. The related after-tax gains of approximately $218,000 remained in accumulated other comprehensive income and will be amortized over the remaining life of the securities as an adjustment of yield, offsetting the related amortization of the premium or accretion of the discount on the transferred securities. No gains or losses were recognized at the time of reclassification. Management considers the held-to-maturity classification of these investment securities to be appropriate as the Corporation has the positive intent and ability to hold these securities to maturity.
The following table presents information for investment securities available-for-sale at June 30, 2011, based on scheduled maturities. Actual maturities can be expected to differ from scheduled maturities due to prepayment or early call options of the issuer.
(1) Debt securities without stated maturities.
For the six months ended June 30, 2011, available for sale investment securities sold amounted to approximately $158.2 million. Gross realized gains on investment securities sold amounted to approximately $1.9 million, while gross realized losses on investment securities sold amounted to approximately $69,000 for the period. For the six months ended June 30, 2010, investment securities sold amounted to approximately $362.4 million. Gross realized gains on investment securities sold amounted to approximately $2.6 million, while gross realized losses on investment securities sold amounted to approximately $179,000 for the period.
For the six months ended June 30, 2011, the Corporation recorded other-than temporary impairment ("OTTI") charges of approximately $18,000 and principal losses of $219,000 on a variable rate private label collateralized mortgage obligation ("CMO"). For the six months ended June 30, 2010, the Corporation recorded OTTI charges of $1,785,000 on two pooled trust preferred securities, $310,000 on one variable rate private label CMOs, and $3,000,000 on one trust preferred security.
The following summarizes OTTI charges for the periods indicated.
The Corporation performs regular analysis on all its investment securities to determine whether a decline in fair value indicates that an investment is other-than-temporarily impaired in accordance with FASB ASC 320-10. FASB
ASC 320-10 requires companies to record OTTI charges, through earnings, if they have the intent to sell, or if it is more likely than not that they will be required to sell, an impaired debt security before recovery of its amortized cost basis. If the Corporation intends to sell or it is more likely than not it will be required to sell the security before recovery of its amortized cost basis, less any current period credit loss, the OTTI is recognized in earnings equal to the entire difference between the investment's amortized cost basis and its estimated fair value at the balance sheet date. If the Corporation does not intend to sell the security and it is more likely than not that the entity will be required to sell the security before recovery of its amortized cost basis less any current period loss, and as such, it determines that a decline in fair value is other than temporary, the OTTI is separated into the amount representing the credit loss and the amount related to all other factors. The amount of the OTTI related to the credit loss is determined based on the present value of cash flows expected to be collected and is recognized in earnings. The amount of the total OTTI related to other factors is recognized in other comprehensive income, net of applicable taxes. The previous amortized cost basis less the OTTI recognized in earnings becomes the new amortized cost basis of the investment.
The Corporation's assessment of whether an impairment is other than temporary includes factors such as whether the issuer has defaulted on scheduled payments, announced a restructuring and/or filed for bankruptcy, has
disclosed severe liquidity problems that cannot be resolved, disclosed a deteriorating financial condition or sustained significant losses. The Corporation maintains a watch list for the identification and monitoring of securities experiencing problems that require a heightened level of review. This could result from credit rating downgrades.
The following table presents detailed information for each trust preferred security held by the Corporation at June 30, 2011 which has at least one rating below investment grade.
The Corporation owns two pooled trust preferred securities ("Pooled TRUPS"), which consist of securities issued by financial institutions and insurances companies. The Corporation holds the mezzanine tranche of such securities. Senior tranches generally are protected from defaults by over-collateralization and cash flow default protection provided by subordinated tranches, with senior tranches having the greatest protection and mezzanine tranches subordinated to the senior tranches. The Corporation's analysis of these Pooled TRUPS falls within the scope of EITF 99-20, ASC 320-40 and uses a discounted cash flow model to determine the total OTTI loss. The model considers the structure, and term and the financial condition of the underlying issuers. Specifically, the model details interest rates, principal balances of note classes and underlying issuers and the allocation of the payments to the note classes according to a priority of payments specified in the offering circular and indenture. The current estimate of expected cash flows is based on the most recent trustee reports and other relevant market information including announcements of interest payment deferrals or defaults of underlying trust preferred securities. Assumptions used in the model include defaults rates, default rate timing profile and recovery rates. We assume no prepayments, as these Pooled TRUPS were issued at comparatively tight spreads and as such, there is little incentive, if any, to prepay.
One of the Pooled TRUPS, ALESCO 6, has incurred its ninth interruption of cash flow payments to date. Management reviewed the expected cash flow analysis and credit support to determine if it was probable that all principal and interest would be repaid, and recorded no other-than-temporary impairment charge for the six months ended June 30, 2011 and $466,000 for the six months ended June 30, 2010. The new cost basis for this security has been written down to $259,000 and has a par amount of $3.2 million. The other Pooled TRUP, ALESCO 7, incurred its seventh interruption of cash flow payments to date. Management reviewed the expected cash flow analysis and credit support to determine if it was probable that all principal and interest would be repaid, and recorded no other-than-temporary impairment charge for the six months ended June 30, 2011, and $1,319,000 for the six months ended June 30, 2010. The new cost basis for this security has been written down to $806,000 and has a par amount of $3.1 million.
Credit Loss Portion of OTTI Recognized in Earnings on Debt Securities
The Corporation owns three variable rate private label collateralized mortgage obligations (CMOs), which were also evaluated for impairment. These CMOs were originally issued in 2006 and are 30 year Adjustable Rate Mortgage loans secured by a first lien, fully amortizing one-to-four residential mortgage loans. The tranche purchased was a Super Senior with an original credit rating of AAA/AAA. The top five states geographic concentration comprised in the deal were California 18.2 percent, Arizona 10.5 percent, Virginia 6.1 percent, Florida 6.5 percent and Nevada 6.3 percent. No one state exceeded a 25 percent concentration. These states have been heavily impacted by the financial crises and as such have sustained heavy delinquencies affecting the credit rating of the security. Management had applied aggressive default rates to identify if any credit impairment exists, as these bonds were downgraded to below investment grade. The Corporation recorded $133,000 in principal losses on these bonds for the three months and $219,000 for the six months ended June 30, 2011, and $105,000 for the three months and six months ended June 30, 2010, and expects additional losses in future periods. As such, management determined that an other-than-temporary impairment charge exists and recorded a cumulative $566,000 write down to the bonds, which represents 14.2 percent of the par amount of $4.0 million. The new cost basis for these securities has been written down to $3.5 million.
At June 30, 2011, excess subordination as a percentage of remaining performing collateral for the ALESCO Preferred Funding VI and VII investments were -44.3 percent and -36.5 percent, respectively. Excess subordination is the amount of performing collateral above the amount of outstanding collateral underlying each class of the security. The Excess Subordination as a Percent of Remaining Performing Collateral reflects the difference between the performing collateral and the collateral underlying each security divided by the performing collateral. A negative number results when the paying collateral is less than the collateral underlying each class of the security. A low or negative number decreases the likelihood of full repayment of principal and interest accordingly to original contractual terms.
The Corporation did not record other-than-temporary impairment charges relating to equity holdings in bank stocks for the six month period ended June 30, 2011 or June 30, 2010.
The Corporation's investment portfolio also includes overnight investments that were made into the Reserve Primary Fund (the "Fund"), a money market fund registered with the Securities and Exchange Commission as an investment company under the Investment Company Act of 1940. On September 22, 2008, the Fund announced that redemptions of shares of the Fund were suspended pursuant to an SEC order so that an orderly liquidation could be effected for the protection of the Fund's investors. Through December 31, 2009, the Corporation has received five distributions from the Fund, totaling approximately 92 percent of its outstanding balance, leaving a remaining outstanding balance in the Fund of $2.943 million. On January 29, 2010, as part of the court order liquidation of the Fund, the Corporation received a sixth distribution or $2.446 million, bringing total distributions to date to approximately 99 percent. During the fourth quarter of 2009, the Corporation recorded a $364,000, or approximately 1 percent, other-than-temporary impairment charge to earnings relating to a court-ordered liquidation of the Fund. The Corporation's outstanding carrying balance in the Fund as of January 31, 2010 totaled $133,000. The Corporation's outstanding carrying balance in the Fund as of December 31, 2010 was zero after recording to earnings approximately $30,000 as partial recovery of the OTTI charge. Future liquidation distributions received by the Corporation, if any, will be recorded to earnings. As of June 30, 2011 there had been no change in the status of the Fund from December 31, 2010.
Temporarily Impaired Investments For all other securities, the Corporation does not believe that the unrealized losses, which were comprised of 102 investment securities as of June 30, 2011, represent an other-than-temporary impairment. The gross unrealized losses associated with Federal agency obligations, mortgage-backed securities, corporate bonds and tax-exempt securities are not considered to be other than temporary because their unrealized losses are related to changes in interest rates and do not affect the expected cash flows of the underlying collateral or issuer.
Factors affecting the market price include credit risk, market risk, interest rates, economic cycles, and liquidity risk. The magnitude of any unrealized loss may be affected by the relative concentration of the Corporation's investment in any one issuer or industry. The Corporation has established policies to reduce exposure through diversification of concentration of the investment portfolio including limits on concentrations to any one issuer. The Corporation believes the investment portfolio is prudently diversified.
The decline in value is related to a change in interest rates and subsequent change in credit spreads required for these issues affecting market price. All issues are performing and are expected to continue to perform in accordance with their respective contractual terms and conditions. Short to intermediate average durations and in certain cases monthly principal payments should reduce further market value exposure to increases in rates.
The Corporation evaluates all securities with unrealized losses quarterly to determine whether the loss is other than temporary. Unrealized losses in the mortgage-backed securities category consist primarily of U.S. agency and private issue collateralized mortgage obligations. Unrealized losses in the corporate debt securities category consist of single issuer corporate trust preferred securities, pooled trust preferred securities and corporate debt securities issued by large financial institutions. The decline in fair value is due in large part to the lack of an active trading market for these securities, changes in market credit spreads and rating agency downgrades. For collateralized mortgage obligations, management reviewed expected cash flows and credit support to determine if it was probable that all principal and interest would be repaid. None of the corporate issuers have defaulted on interest payments. Management concluded that these securities, other than the previously mentioned two Pooled TRUPS and private label CMOs were not other-than-temporarily impaired at June 30, 2011. Future deterioration in the cash flow on collateralized mortgage obligations or the credit quality of these large financial institution issuers of TRUP debt securities could result in impairment charges in the future.
In determining that the securities giving rise to the previously mentioned unrealized losses were not other than temporary, the Corporation evaluated the factors cited above, which the Corporation considers when assessing whether a security is other-than-temporarily impaired. In making these evaluations the Corporation must exercise considerable judgment. Accordingly there can be no assurance that the actual results will not differ from the Corporation's judgments and that such differences may not require the future recognition of other-than-temporary impairment charges that could have a material affect on the Corporation's financial position and results of operations. In addition, the value of, and the realization of any loss on, an investment security is subject to numerous risks as cited above.
The following tables indicate gross unrealized losses not recognized in income and fair value, aggregated by investment category and the length of time individual securities have been in a continuous unrealized loss position at June 30, 2011 and December 31, 2010:
Investment securities having a carrying value of approximately $131.4 million and $125.6 million at June 30, 2011 and December 31, 2010, respectively, were pledged to secure public deposits, short-term borrowings, and Federal Home Loan Bank advances and for other purposes required or permitted by law. |
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Borrowed Funds | Note 12. Borrowed Funds
Short-Term Borrowings
Short-term borrowings, which consist primarily of securities sold under agreements to repurchase, Federal Home Loan Bank ("FHLB") advances and federal funds purchased, generally have maturities of less than one year. The details of these short-term borrowings are presented in the following table.
Long-Term Borrowings
Long-term borrowings, which consist primarily of FHLB advances and securities sold under agreements to repurchase, totaled $161.0 million and mature within one to eight years. The FHLB advances are secured by pledges of FHLB stock, 1-4 family mortgages and U.S. Government and Federal agency obligations.
At June 30, 2011, FHLB advances and securities sold under agreements to repurchase had weighted average interest rates of 3.46 percent and 5.31 percent, respectively.
At June 30, 2011, FHLB advances and securities sold under agreements to repurchase are contractually scheduled for repayment as follows:
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Fair Value Measurements and Fair Value of Financial Instruments
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Fair Value Measurements and Fair Value of Financial Instruments | Â | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Fair Value Measurements and Fair Value of Financial Instruments | Note 8. Fair Value Measurements and Fair Value of Financial Instruments
Fair Value Measurements
Management uses its best judgment in estimating the fair value of the Corporation's financial and non-financial instruments; however, there are inherent weaknesses in any estimation technique. Therefore, for substantially all financial and non-financial instruments, the fair value estimates herein are not necessarily indicative of the amounts the Corporation could have realized in a sale transaction on the dates indicated. The estimated fair value amounts have been measured as of the respective period-end dates indicated herein and have not been re-evaluated or updated for purposes of these financial statements subsequent to those respective dates. As such, the estimated fair values of these financial and non-financial instruments subsequent to the respective reporting dates may be different than the amounts reported at each year-end.
U.S. GAAP establishes a fair value hierarchy that prioritizes the inputs to valuation techniques used to measure fair value. The hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (Level 1 measurements) and the lowest priority to unobservable inputs (Level 3 measurements). The three levels of the fair value hierarchy are described below:
An asset's or liability's level within the fair value hierarchy is based on the lowest level of input that is significant to the fair value measurement.
The following information should not be interpreted as an estimate of the fair value of the entire Corporation since a fair value calculation is only provided for a limited portion of the Corporation's assets and liabilities. Due to a wide range of valuation techniques and the degree of subjectivity used in making the estimates, comparisons between the Corporation's disclosures and those of other companies may not be meaningful. The following methods and assumptions were used to estimate the fair values of the Corporation's assets measured at fair value on a recurring basis at June 30, 2011 and December 31, 2010.
Investment Securities Available-for-Sale
Where quoted prices are available in an active market, investment securities are classified in Level 1 of the valuation hierarchy. Level 1 inputs include investment securities that have quoted prices in active markets for identical assets. If quoted market prices are not available, then fair values are estimated by using pricing models, quoted prices of securities with similar characteristics, or discounted cash flows. Examples of instruments, which would generally be classified within Level 2 of the valuation hierarchy, include municipal bonds and certain agency collateralized mortgage obligations. In certain cases where there is limited
activity in the market for a particular instrument, assumptions must be made to determine their fair value and are classified as Level 3. Due to the inactive condition of the markets amidst the financial crisis, the Corporation treated certain investment securities as Level 3 assets in order to provide more appropriate valuations. For assets in an inactive market, the infrequent trades that do occur are not a true indication of fair value. When measuring fair value, the valuation techniques available under the market approach, income approach and/or cost approach are used. The Corporation's evaluations are based on market data and the Corporation employs combinations of these approaches for its valuation methods depending on the asset class. In certain cases where there were limited or less transparent information provided by the Corporation's third-party pricing service, fair value was estimated by the use of secondary pricing services or through the use of non-binding third-party broker quotes.
On a quarterly basis, management reviews the pricing information received from the Corporation's third-party pricing service. This review process includes a comparison to non-binding third-party broker quotes, as well as a review of market-related conditions impacting the information provided by the Corporation's third-party pricing service.
Management primarily identifies investment securities which may have traded in illiquid or inactive markets by identifying instances of a significant decrease in the volume and frequency of trades, relative to historical levels, as well as instances of a significant widening of the bid-ask spread in the brokered markets. Investment securities that are deemed to have been trading in illiquid or inactive markets may require the use of significant unobservable inputs. For example, management may use quoted prices for similar investment securities in the absence of a liquid and active market for the securities being valued. As of June 30, 2011, management made adjustments to prices provided by the third-party pricing service as a result of illiquid or inactive markets.
At June 30, 2011, the Corporation's two pooled trust preferred securities and a variable rate CMO were classified as Level 3. Market pricing for these Level 3 securities varied widely from one pricing service to another based on the lack of trading. As such, these securities were not considered to have readily observable market data that was accurate to support a fair value as prescribed by FASB ASC 820-10-05. The Corporation determined that significant adjustments using unobservable inputs are required to determine fair value at the measurement date.
The Corporation determined that an income approach valuation technique (present value technique) that maximizes the use of relevant observable inputs and minimizes the use of unobservable inputs will be equally or more representative of fair value than the market approach valuation technique used at the prior measurement dates. As a result, the Corporation used the discount rate adjustment technique to determine fair value.
The fair value as of June 30, 2011 was determined by discounting the expected cash flows over the life of the security. The discount rate was determined by deriving a discount rate when the markets were considered more active for this type of security. To this estimated discount rate, additions were made for more liquid markets and increased credit risk as well as assessing the risks in the security, such as default risk and severity risk. However, during the quarter ended June 30, 2011 the private label CMO had interruptions of its scheduled principal payments and the Corporation recorded principal loss of $133,000. For the six month ended June 30, 2011, principal loss amounted to $219,000.
Assets and Liabilities Measured at Fair Value on a Recurring Basis
For financial assets and liabilities measured at fair value on a recurring basis, the fair value measurements by level within the fair value hierarchy used at June 30, 2011 and December 31, 2010 are as follows:
The following tables present the changes in investment securities available-for-sale with significant unobservable inputs (Level 3) for the three and six months ended June 30, 2011 and 2010.
For the six months ended June 30, 2011, there were no transfers of investment securities available-for-sale into or out of Level 1, Level 2, or Level 3 assets.
Assets Measured at Fair Value on a Non-Recurring Basis
For assets measured at fair value on a non-recurring basis, the fair value measurements used at June 30, 2011 and December 31, 2010 were as follows:
The following methods and assumptions were used to estimate the fair values of the Corporation's assets measured at fair value on a non-recurring basis at June 30, 2011 and December 31, 2010.
Impaired Loans. The value of an impaired loan is measured based upon the present value of expected future cash flows discounted at the loan's effective interest rate, or the fair value of the collateral if the loan is collateral dependent. Smaller balance homogeneous loans that are collectively evaluated for impairment, such as residential mortgage loans and installment loans, are specifically excluded from the impaired loan portfolio. The Corporation's impaired loans are primarily collateral dependent. Impaired loans are individually assessed to determine that each loan's carrying value is not in excess of the fair value of the related collateral or the present value of the expected future cash flows. Impaired loans at June 30, 2011 were $11,781 with a specific reserve of $1,290 compared to $5,534 with a specific reserve of $639 at December 31, 2010.
Other Real Estate Owned. Other real estate owned ("OREO") is measured at fair value less costs to sell. The Corporation believes that the fair value component in its valuation follows the provisions of FASB ASC 820-10-05. The fair value of OREO is determined by sales agreements or appraisals by qualified licensed appraisers approved and hired by the Corporation. Costs to sell associated with OREO is based on estimation per the terms and conditions of the sales agreements or appraisals. At June 30, 2011 and December 31, 2010 the Corporation held no OREO.
Fair Value of Financial Instruments
FASB ASC 825-10 requires all entities to disclose the estimated fair value of their financial instrument assets and liabilities. For the Corporation, as for most financial institutions, the majority of its assets and liabilities are considered financial instruments as defined in FASB ASC 825-10. Many of the Corporation's financial instruments, however, lack an available trading market as characterized by a willing buyer and willing seller engaging in an exchange transaction. It is also the Corporation's general practice and intent to hold its financial instruments to maturity and to not engage in trading or sales activities except for loans held-for-sale and investment securities available-for-sale. Therefore, significant estimations and assumptions, as well as present value calculations, were used by the Corporation for the purposes of this disclosure.
Estimated fair values have been determined using the best available data and an estimation methodology suitable for each category of financial instruments. For those loans and deposits with floating interest rates, it is presumed that estimated fair values generally approximate the recorded book balances. The estimation methodologies used, the estimated fair values, and the recorded book balances at June 30, 2011 and December 31, 2010, were as follows:
Financial instruments actively traded in a secondary market have been valued using quoted available market prices. Cash and due from banks, interest-bearing time deposits in other banks, federal funds sold, loans held-for-sale and interest receivable are valued at book value, which approximates fair value. Financial liability instruments with stated maturities have been valued using a present value discounted cash flow analysis with a discount rate approximating current market for similar liabilities. Interest payable is valued at book value, which approximates fair value. Financial liability instruments with no stated maturities have an estimated fair value equal to both the amount payable on demand and the recorded book balance.
The fair value of the Corporation's investment securities held-to-maturity was primarily measured using information from a third-party pricing service. Quoted prices in active markets were used whenever available. If quoted prices were not available, fair values were measured using pricing models or other valuation techniques such as the present value of future cash flows, adjusted for credit loss assumptions.
Loans held for sale are required to be measured at the lower of cost or fair value. Under FASB ASC 820-10-05, market value is to represent fair value. Management obtains quotes or bids on all or part of these loans directly from the purchasing financial institutions. There was $378,000 in loans held for sale at June 30, 2011 and none at December 31, 2010.
The net loan portfolio has been valued using a present value discounted cash flow. The discount rate used in these calculations is the current rate at which similar loans would be made to borrowers with similar credit ratings, same remaining maturities, and assumed prepayment risk.
The fair value of commitments to originate loans is estimated using the fees currently charged to enter into similar agreements, taking into account the remaining terms of the agreements and the present creditworthiness of the counterparties. For fixed-rate loan commitments, fair value also considers the difference between current levels of interest rates and the committed rates. The fair values of letters of credit and lines of credit are based on fees currently charged for similar agreements or on the estimated cost to terminate or otherwise settle the obligations with the counterparties at the reporting date.
Changes in assumptions or estimation methodologies may have a material effect on these estimated fair values.
The Corporation's remaining assets and liabilities, which are not considered financial instruments, have not been valued differently than has been customary with historical cost accounting. No disclosure of the relationship value of the Corporation's core deposit base is required by FASB ASC 825-10.
Fair value estimates are based on existing balance sheet financial instruments, without attempting to estimate the value of anticipated future business and the value of assets and liabilities that are not considered financial instruments. Other significant assets and liabilities that are not considered financial assets or liabilities include the deferred taxes, premises and equipment and goodwill. In addition, the tax ramifications related to the realization of unrealized gains and losses can have a significant effect on fair value estimates and have not been considered in the estimates.
Management believes that reasonable comparability between financial institutions may not be likely, due to the wide range of permitted valuation techniques and numerous estimates which must be made, given the absence of active secondary markets for many of the financial instruments. This lack of uniform valuation methodologies also introduces a greater degree of subjectivity to these estimated fair values.
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