10-Q 1 nrim-20120930x10q.htm 10-Q 4b978bd91801423

UNITED STATES SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, DC  20549

FORM 10-Q

(Mark One)

þ  Quarterly report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

For the quarterly period ended September 30, 2012

o    Transition report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

For the transition period from_____to____

Commission File Number 000-33501

NORTHRIM BANCORP, INC.

(Exact name of registrant as specified in its charter)

 

 

 

Alaska

 

92-0175752

(State or other jurisdiction of incorporation or organization)

 

(I.R.S. Employer Identification No.)

 

3111 C Street

Anchorage, Alaska 99503

(Address of principal executive offices)    (Zip Code)

 

(907) 562-0062

(Registrant’s telephone number, including area code)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

Yes  þ  No  o

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).

Yes  þ  No  o

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company.  See the definitions of “large accelerated filer,”  “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act:

 

 

 

 

Large accelerated filer  o

Accelerated filer  þ

Non-accelerated filer  o

Smaller reporting company  o

 

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

Yes  o  No  þ

The number of shares of the issuer's Common Stock outstanding at November 8, 2012 was 6,476,834.

 


 

 

TABLE OF CONTENTS

 

 

 

PART  I

FINANCIAL INFORMATION

 

Item 1.

Financial Statements (unaudited)

 

 

Consolidated Balance Sheets:

September 30, 2012, December 31, 2011 and September 30, 2011

 

4

 

Consolidated Statements of Income:

Three and nine months ended September 30, 2012 and 2011

 

5

 

Consolidated Statements of Comprehensive Income:

Three and nine months ended September 30 2012 and 2011

 

6

 

Consolidated Statements of Changes in Shareholders’ Equity:

Nine months ended September 30, 2012 and 2011

 

7

 

Consolidated Statements of Cash Flows:

Nine months ended September 30, 2012 and 2011

8

 

Notes to the Consolidated Financial Statements

9

Item 2.

Management's Discussion and Analysis of Financial Condition and Results of Operations

29

Item 3.

Quantitative and Qualitative Disclosures About Market Risk

43

Item 4.

Controls and Procedures

43

 

 

 

PART II

OTHER INFORMATION

43

Item 1.

Legal Proceedings

43

Item 1A.

Risk Factors

43

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

43

Item 3.

Defaults Upon Senior Securities

44

Item 4.

Mine Safety Disclosures

44

Item 5.

Other Information

44

Item 6.

Exhibits

44

SIGNATURES 

 

45

 

 

 

 

 

2


 

PART I. FINANCIAL INFORMATION

These consolidated financial statements should be read in conjunction with the financial statements, accompanying notes and other relevant information included in Northrim BanCorp, Inc.’s Annual Report on Form 10-K for the year ended December 31, 2011.

3


 

ITEM 1. FINANCIAL STATEMENTS

 

CONSOLIDATED FINANCIAL STATEMENTS

NORTHRIM BANCORP, INC.

Consolidated Balance Sheets

September 30, 2012,  December 31, 2011 and September 30, 2011

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

September 30,

 

December 31,

 

September 30,

(In Thousands, Except Share Data)

2012

 

2011

 

2011

 

 

(Unaudited)

ASSETS

 

 

 

 

 

 

 

 

Cash and due from banks

$

34,753 

 

$

30,644 

 

$

34,365 

Interest bearing deposits in other banks

 

127,354 

 

 

60,886 

 

 

94,205 

 

 

 

 

 

 

 

 

 

Investment securities available for sale

 

172,343 

 

 

222,083 

 

 

211,819 

Investment securities held to maturity

 

2,750 

 

 

3,819 

 

 

4,385 

Total portfolio investments

 

175,093 

 

 

225,902 

 

 

216,204 

 

 

 

 

 

 

 

 

 

Investment in Federal Home Loan Bank stock

 

1,985 

 

 

2,003 

 

 

2,003 

 

 

 

 

 

 

 

 

 

Loans held for sale

 

37,291 

 

 

27,822 

 

 

 -

Loans

 

671,644 

 

 

645,562 

 

 

629,664 

Allowance for loan losses

 

(16,490)

 

 

(16,503)

 

 

(16,093)

Net loans

 

692,445 

 

 

656,881 

 

 

613,571 

Purchased receivables, net

 

23,326 

 

 

30,209 

 

 

25,536 

Accrued interest receivable

 

2,832 

 

 

2,898 

 

 

3,030 

Other real estate owned

 

5,766 

 

 

5,183 

 

 

5,838 

Premises and equipment, net

 

27,989 

 

 

27,993 

 

 

28,320 

Goodwill and intangible assets

 

8,228 

 

 

8,421 

 

 

8,486 

Other assets

 

34,027 

 

 

34,238 

 

 

34,053 

Total assets

$

1,133,798 

 

$

1,085,258 

 

$

1,065,611 

 

 

 

 

 

 

 

 

 

LIABILITIES

 

 

 

 

 

 

 

 

Deposits:

 

 

 

 

 

 

 

 

Demand

$

352,633 

 

$

324,039 

 

$

307,529 

Interest-bearing demand

 

137,333 

 

 

141,572 

 

 

133,495 

Savings

 

85,035 

 

 

79,610 

 

 

76,847 

Alaska CDs

 

98,504 

 

 

102,384 

 

 

95,481 

Money market

 

171,210 

 

 

154,987 

 

 

153,924 

Certificates of deposit less than $100,000

 

41,085 

 

 

45,468 

 

 

51,264 

Certificates of deposit greater than $100,000

 

59,144 

 

 

63,188 

 

 

75,027 

Total deposits

 

944,944 

 

 

911,248 

 

 

893,567 

Securities sold under repurchase agreements

 

22,623 

 

 

16,348 

 

 

17,034 

Borrowings

 

4,517 

 

 

4,626 

 

 

4,662 

Junior subordinated debentures

 

18,558 

 

 

18,558 

 

 

18,558 

Other liabilities

 

9,045 

 

 

9,043 

 

 

8,445 

Total liabilities

 

999,687 

 

 

959,823 

 

 

942,266 

 

 

 

 

 

 

 

 

 

SHAREHOLDERS' EQUITY

 

 

 

 

 

 

 

 

Preferred stock, $1 par value, 2,500,000 shares authorized, none issued or outstanding

 

 

 

 

 

 

 

 

Common stock, $1 par value, 10,000,000 shares authorized, 6,473,680; 6,466,763; and 6,440,241 shares issued and outstanding at September 30, 2012, December 31, 2011 and September 30, 2011, respectively

 

6,474 

 

 

6,467 

 

 

6,440 

Additional paid-in capital

 

53,536 

 

 

53,164 

 

 

53,091 

Retained earnings

 

72,567 

 

 

65,469 

 

 

63,071 

Accumulated other comprehensive income

 

1,429 

 

 

283 

 

 

680 

Total Northrim BanCorp shareholders' equity

 

134,006 

 

 

125,383 

 

 

123,282 

Noncontrolling interest

 

105 

 

 

52 

 

 

63 

Total shareholders' equity

 

134,111 

 

 

125,435 

 

 

123,345 

Total liabilities and shareholders' equity

$

1,133,798 

 

$

1,085,258 

 

$

1,065,611 

 

See notes to consolidated financial statements

4


 

 

NORTHRIM BANCORP, INC.

Consolidated Statements of Income

For the Three and Nine Months Ended September 30, 2012 and 2011

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Three Months Ended

 

Nine Months Ended

 

September 30,

 

September 30,

(In Thousands, Except Per Share Data)

2012

 

2011

 

2012

 

2011

 

 

(Unaudited)

Interest Income

 

 

 

 

 

 

 

 

 

 

 

Interest and fees on loans

$

10,416 

 

$

10,392 

 

$

30,946 

 

$

31,788 

Interest on investment securities-available for sale

 

673 

 

 

717 

 

 

2,140 

 

 

2,251 

Interest on investment securities-held to maturity

 

35 

 

 

49 

 

 

110 

 

 

169 

Interest on deposits in other banks

 

80 

 

 

72 

 

 

183 

 

 

160 

Total Interest Income

 

11,204 

 

 

11,230 

 

 

33,379 

 

 

34,368 

 

 

 

 

 

 

 

 

 

 

 

 

Interest Expense

 

 

 

 

 

 

 

 

 

 

 

Interest expense on deposits, borrowings and junior subordinated debentures

 

611 

 

 

876 

 

 

1,936 

 

 

2,757 

Net Interest Income

 

10,593 

 

 

10,354 

 

 

31,443 

 

 

31,611 

 

 

 

 

 

 

 

 

 

 

 

 

Provision (benefit) for loan losses

 

(1,437)

 

 

550 

 

 

(1,259)

 

 

1,649 

Net Interest Income After Provision (Benefit) for Loan Losses

 

12,030 

 

 

9,804 

 

 

32,702 

 

 

29,962 

 

 

 

 

 

 

 

 

 

 

 

 

Other Operating Income

 

 

 

 

 

 

 

 

 

 

 

Purchased receivable income

 

826 

 

 

695 

 

 

2,250 

 

 

1,886 

Employee benefit plan income

 

609 

 

 

536 

 

 

1,765 

 

 

1,629 

Service charges on deposit accounts

 

536 

 

 

609 

 

 

1,673 

 

 

1,727 

Electronic banking income

 

520 

 

 

508 

 

 

1,496 

 

 

1,424 

Equity in earnings from RML

 

963 

 

 

357 

 

 

1,669 

 

 

575 

Rental income

 

192 

 

 

190 

 

 

594 

 

 

577 

Gain on sale of securities

 

 -

 

 

33 

 

 

273 

 

 

296 

Other income

 

511 

 

 

434 

 

 

1,369 

 

 

1,096 

Total Other Operating Income

 

4,157 

 

 

3,362 

 

 

11,089 

 

 

9,210 

 

 

 

 

 

 

 

 

 

 

 

 

Other Operating Expense

 

 

 

 

 

 

 

 

 

 

 

Salaries and other personnel expense

 

5,484 

 

 

5,230 

 

 

16,344 

 

 

15,746 

Occupancy

 

842 

 

 

914 

 

 

2,758 

 

 

2,821 

Marketing expense

 

436 

 

 

435 

 

 

1,308 

 

 

1,315 

Professional and outside services

 

427 

 

 

370 

 

 

1,103 

 

 

1,045 

Reserve for purchased receivables

 

349 

 

 

 -

 

 

349 

 

 

 -

Software expense

 

304 

 

 

257 

 

 

825 

 

 

774 

Equipment expense

 

257 

 

 

291 

 

 

893 

 

 

887 

Insurance expense

 

236 

 

 

391 

 

 

655 

 

 

1,122 

OREO (income) expense, net rental income and gains on sale

 

249 

 

 

(14)

 

 

464 

 

 

(895)

Amortization of low income housing tax investments

 

231 

 

 

224 

 

 

693 

 

 

675 

Internet banking expense

 

171 

 

 

162 

 

 

528 

 

 

473 

Intangible asset amortization expense

 

64 

 

 

70 

 

 

193 

 

 

211 

Other operating expense

 

942 

 

 

1,099 

 

 

2,932 

 

 

3,170 

Total Other Operating Expense

 

9,992 

 

 

9,429 

 

 

29,045 

 

 

27,344 

 

 

 

 

 

 

 

 

 

 

 

 

Income Before Provision for Income Taxes

 

6,195 

 

 

3,737 

 

 

14,746 

 

 

11,828 

Provision for income taxes

 

1,991 

 

 

1,125 

 

 

4,568 

 

 

3,357 

Net Income

 

4,204 

 

 

2,612 

 

 

10,178 

 

 

8,471 

Less: Net income attributable to the noncontrolling interest

 

138 

 

 

106 

 

 

394 

 

 

328 

Net Income Attributable to Northrim BanCorp

$

4,066 

 

$

2,506 

 

$

9,784 

 

$

8,143 

 

 

 

 

 

 

 

 

 

 

 

 

Earnings Per Share, Basic

$

0.63 

 

$

0.39 

 

$

1.51 

 

$

1.27 

Earnings Per Share, Diluted

$

0.62 

 

$

0.38 

 

$

1.49 

 

$

1.24 

Weighted Average Shares Outstanding, Basic

 

6,471,572 

 

 

6,436,178 

 

 

6,469,673 

 

 

6,431,989 

Weighted Average Shares Outstanding, Diluted

 

6,570,772 

 

 

6,554,776 

 

 

6,570,287 

 

 

6,553,462 

 

See notes to consolidated financial statements

 

 

5


 

NORTHRIM BANCORP, INC.

Consolidated Statements of Comprehensive Income

For the Three and Nine Months Ended September 30, 2012 and 2011

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Three Months Ended

 

Nine Months Ended

 

September 30,

 

September 30,

(In Thousands)

2012

 

2011

 

2012

 

2011

 

(Unaudited)

Net income

$

4,204 

 

$

2,612 

 

$

10,178 

 

$

8,471 

Other comprehensive income, net of tax:

 

 

 

 

 

 

 

 

 

 

 

  Securities available for sale:

 

 

 

 

 

 

 

 

 

 

 

Net unrealized gains (losses) arising during the period

$

445 

 

$

(456)

 

$

1,419 

 

$

328 

Reclassification of net gains included in net income

 

 -

 

 

(33)

 

 

(273)

 

 

(296)

Other comprehensive income (loss)

 

445 

 

 

(489)

 

 

1,146 

 

 

32 

Comprehensive income

 

4,649 

 

 

2,123 

 

 

11,324 

 

 

8,503 

Less: comprehensive income attributable to the noncontrolling interest

 

(138)

 

 

(106)

 

 

(394)

 

 

(328)

Comprehensive income attributable to Northrim BanCorp

$

4,511 

 

$

2,017 

 

$

10,930 

 

$

8,175 

 

 

 

 

See notes to consolidated financial statements

 

6


 

 

NORTHRIM BANCORP, INC.

Consolidated Statements of Changes in Shareholders’ Equity

For the Nine Months Ended September 30, 2012 and 2011

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Accumulated

 

 

 

 

 

 

 

Common Stock

 

Additional

 

 

 

Other

 

Non-

 

 

 

 

Number

 

 

Par

 

Paid-in

 

Retained

Comprehensive

 

controlling

 

 

 

(In Thousands)

of Shares

 

 

Value

 

Capital

 

Earnings

Income

 

Interest

 

Total

 

(Unaudited)

Nine Months Ended September 30, 2011

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance as of January 1, 2011

6,427 

 

$

6,427 

 

$

52,658 

 

$

57,339 

$

648 

 

$

50 

 

$

117,122 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Cash dividend declared

 -

 

 

 -

 

 

 -

 

 

(2,411)

 

 -

 

 

 -

 

 

(2,411)

Stock based compensation expense

 -

 

 

 -

 

 

381 

 

 

 -

 

 -

 

 

 -

 

 

381 

Exercise of stock options

13 

 

 

13 

 

 

(32)

 

 

 -

 

 -

 

 

 -

 

 

(19)

Excess tax benefits from share-based payment arrangements

 -

 

 

 -

 

 

84 

 

 

 -

 

 -

 

 

 -

 

 

84 

Distributions to noncontrolling interest

 -

 

 

 -

 

 

 -

 

 

 -

 

 -

 

 

(315)

 

 

(315)

Change in unrealized holding gain on available for sale securities, net of tax

 -

 

 

 -

 

 

 -

 

 

 -

 

32 

 

 

 -

 

 

32 

Net income attributable to the noncontrolling interest

 -

 

 

 -

 

 

 -

 

 

 -

 

 -

 

 

328 

 

 

328 

Net income attributable to Northrim BanCorp

 -

 

 

 -

 

 

 -

 

 

8,143 

 

 -

 

 

 -

 

 

8,143 

Nine Months Ended September 30, 2011

6,440 

 

$

6,440 

 

$

53,091 

 

$

63,071 

$

680 

 

$

63 

 

$

123,345 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Nine Months Ended September 30, 2012

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance as of January 1, 2012

6,467 

 

$

6,467 

 

$

53,164 

 

$

65,469 

$

283 

 

$

52 

 

$

125,435 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Cash dividend declared

 -

 

 

 -

 

 

 -

 

 

(2,686)

 

 -

 

 

 -

 

 

(2,686)

Stock based compensation expense

 -

 

 

 -

 

 

339 

 

 

 -

 

 -

 

 

 -

 

 

339 

Exercise of stock options

 

 

 

 

(22)

 

 

 -

 

 -

 

 

 -

 

 

(15)

Excess tax benefits from share-based payment arrangements

 -

 

 

 -

 

 

55 

 

 

 -

 

 -

 

 

 -

 

 

55 

Distributions to noncontrolling interest

 -

 

 

 -

 

 

 -

 

 

 -

 

 -

 

 

(341)

 

 

(341)

Change in unrealized holding gain on available for sale securities, net of tax

 -

 

 

 -

 

 

 -

 

 

 -

 

1,146 

 

 

 -

 

 

1,146 

Net income attributable to the noncontrolling interest

 -

 

 

 -

 

 

 -

 

 

 -

 

 -

 

 

394 

 

 

394 

Net income attributable to Northrim BanCorp

 -

 

 

 -

 

 

 -

 

 

9,784 

 

 -

 

 

 -

 

 

9,784 

Nine Months Ended September 30, 2012

6,474 

 

$

6,474 

 

$

53,536 

 

$

72,567 

$

1,429 

 

$

105 

 

$

134,111 

 

See notes to consolidated financial statements

 

7


 

 

NORTHRIM BANCORP, INC.

Consolidated Statements of Cash Flows

For the Nine Months Ended September 30, 2012 and 2011

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Nine Months Ended

 

September 30,

(In Thousands)

2012

 

2011

 

 

(Unaudited)

Operating Activities:

 

 

 

 

 

Net income

$

10,178 

 

$

8,471 

Adjustments to Reconcile Net Income to Net Cash Provided by Operating Activities:

 

 

 

 

 

Gain on sale of securities, net

 

(273)

 

 

(296)

Depreciation and amortization of premises and equipment

 

1,242 

 

 

1,299 

Amortization of software

 

137 

 

 

155 

Intangible asset amortization

 

193 

 

 

211 

Amortization of investment security premium, net of discount accretion

 

156 

 

 

144 

Deferred tax (benefit) liability

 

(11)

 

 

(1,311)

Stock-based compensation

 

339 

 

 

381 

Excess tax benefits from share-based payment arrangements

 

(55)

 

 

(84)

Deferral of loan fees and costs, net

 

346 

 

 

(240)

Provision (benefit) for loan losses

 

(1,259)

 

 

1,649 

Reserve for purchased receivables

 

349 

 

 

 -

Purchases of loans held for sale

 

(185,673)

 

 

 -

Proceeds from the sale of loans held for sale

 

176,204 

 

 

5,558 

Gain on sale of other real estate owned

 

18 

 

 

(859)

Impairment on other real estate owned

 

173 

 

 

 -

Equity in undistributed earnings from mortgage affiliate

 

(320)

 

 

200 

Net changes in assets and liabilities:

 

 

 

 

 

(Increase) decrease in accrued interest receivable

 

66 

 

 

371 

(Increase) decrease in other assets

 

(506)

 

 

2,105 

Increase (decrease) in other liabilities

 

 

 

(208)

Net Cash Provided by Operating Activities

 

1,306 

 

 

17,546 

Investing Activities:

 

 

 

 

 

Investment in securities:

 

 

 

 

 

Purchases of investment securities-available-for-sale

 

(63,491)

 

 

(113,242)

Proceeds from sales/maturities of securities-available-for-sale

 

115,299 

 

 

115,644 

Proceeds from calls/maturities of securities-held-to-maturity

 

1,065 

 

 

1,735 

Purchases of domestic certificates of deposit

 

(11,500)

 

 

(12,000)

Proceeds from maturities of domestic certificates of deposit

 

10,000 

 

 

 -

Proceeds from redemption of FHLB stock

 

18 

 

 

 -

(Increase) decrease in purchased receivables, net

 

6,534 

 

 

(9,007)

(Increase) decrease in loans, net

 

(26,866)

 

 

40,171 

Proceeds from sale of other real estate owned

 

964 

 

 

7,912 

Investment in other real estate owned

 

(44)

 

 

(29)

Decrease in loan to Elliott Cove, net

 

110 

 

 

122 

Purchases of premises and equipment

 

(1,238)

 

 

(571)

Net Cash (Used) Provided by Investing Activities

 

30,851 

 

 

30,735 

Financing Activities:

 

 

 

 

 

(Decrease) increase in deposits

 

33,696 

 

 

1,431 

Increase in securities sold under repurchase agreements

 

6,275 

 

 

4,160 

(Decrease) in borrowings

 

(109)

 

 

(724)

Distributions to noncontrolling interest

 

(341)

 

 

(315)

Excess tax benefits from share-based payment arrangements

 

55 

 

 

84 

Cash dividends paid

 

(2,656)

 

 

(2,380)

Net Cash (Used) Provided by Financing Activities

 

36,920 

 

 

2,256 

 

 

 

 

 

 

Net Increase in Cash and Cash Equivalents

 

69,077 

 

 

50,537 

Cash and Cash Equivalents at Beginning of Period

 

79,530 

 

 

66,033 

Cash and Cash Equivalents at End of Period

$

148,607 

 

$

116,570 

Supplemental Information:

 

 

 

 

 

Income taxes paid

$

5,077 

 

$

2,880 

Interest paid

$

1,940 

 

$

3,009 

Transfer of loans to other real estate owned

$

1,684 

 

$

2,255 

Loans made to facilitate sales of other real estate owned

$

300 

 

$

1,362 

Cash dividends declared but not paid

$

30 

 

$

31 

 

See notes to consolidated financial statements

8


 

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

September 30, 2012 and 2011

1.  Basis of Presentation

The accompanying unaudited consolidated financial statements have been prepared by Northrim BanCorp, Inc. (the “Company”) in accordance with accounting principles generally accepted in the United States of America (“GAAP”) and with instructions to Form 10-Q under the Securities Exchange Act of 1934, as amended. Accordingly, they do not include all of the information and footnotes required by GAAP for complete financial statements.  In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation have been included.  Certain reclassifications have been made to prior year amounts to maintain consistency with the current year with no impact on net income or total shareholders’ equity.  The Company determined that it operates as a single operating segment.  Operating results for the interim period ended September 30, 2012, are not necessarily indicative of the results anticipated for the year ending December 31, 2012.  These consolidated financial statements should be read in conjunction with the Company’s Annual Report on Form 10-K for the year ended December 31, 2011.

2.  Significant Accounting Policies and Recent Accounting Pronouncements

The Company’s significant accounting policies are discussed in Note 1 to the audited consolidated financial statements included in the Company's Annual Report on Form 10-K for the year ended December 31, 2011.

In May 2011, the Financial Accounting Standards Board (“FASB”) issued ASU 2011-04, Amendments to Achieve Common Fair Value Measurement and Disclosure Requirements in U.S. GAAP and IFRSs (“ASU 2011-04”).  Some of the amendments contained in ASU 2011-04 clarify the FASB’s intent about the application of existing fair value measurement requirements, and other amendments change a particular principle or requirement for measuring fair value or for disclosing information about fair value measurements.  This ASU was effective for the Company’s financial statements for annual and interim periods beginning on or after December 15, 2011, and has been applied prospectively.  The adoption of this standard did not have a material impact on the Company’s consolidated financial position or results of operations.

In June 2011, the FASB issued ASU 2011-05, Presentation of Comprehensive Income (“ASU 2011-05”).  ASU 2011-05 amends Topic 220, “Comprehensive Income”, to allow an entity the option to present the total of comprehensive income, the components of net income, and the components of other comprehensive income either in a single continuous statement of comprehensive income or in two separate but consecutive statements.  ASU 2011-05 does not change the items that must be reported in other comprehensive income or when an item of other comprehensive income must be reclassified to net income, nor does it change the option for an entity to present components of other comprehensive income either net of related tax effects or before related tax effects.  In December 2011, the FASB issued ASU 2011-12, Deferral of the Effective Date for Amendments to Presentation of Reclassifications of Items Out of Accumulated Other Comprehensive Income in Accounting Standards Update 2011-05 (“ASU 2011-12”).  This ASU defers only those changes in ASU 2011-05 that relate to the presentation of reclassification adjustments.  ASU 2011-12 was issued in order to allow the FASB time to redeliberate whether to present on the face of the financial statements the effects of reclassifications out of accumulated other comprehensive income on the components of net income and other comprehensive income for all periods presented. While the FASB is considering the operational concerns about the presentation requirements for reclassification adjustments and the needs of financial statement users for additional information about reclassification adjustments, the Company will continue to report reclassifications out of accumulated other comprehensive income consistent with the presentation requirements in effect before the issuance of ASU 2011-05.  ASU 2011-12 was effective for the Company’s financial statements for annual and interim periods beginning after December 31, 2011, and has been applied prospectively.  The adoption of this standard did not have a material impact on the Company’s consolidated financial position or results of operations.

9


 

In July 2012, the FASB issued ASU 2012-02, Intangibles – Goodwill and Other (“ASU 2012-02”).  The objective of ASU 2012-02 is to reduce the cost and complexity of performing an impairment test for indefinite-lived intangible assets by simplifying how an entity tests those assets for impairment and to improve consistency in impairment testing guidance among long-lived asset categories.  The amendments permit an entity first to assess qualitative factors to determine whether it is more likely than not that an indefinite-lived intangible asset is impaired as a basis for determining whether it is necessary to perform the quantitative impairment test in accordance with Subtopic 350-30, Intangibles—Goodwill and Other—General Intangibles Other than Goodwill.  The more-likely-than-not threshold is defined as having a likelihood of more than 50 percent.  Previous guidance in Subtopic 350-30 required an entity to test indefinite-lived intangible assets for impairment, on at least an annual basis, by comparing the fair value of the asset with its carrying amount.  If the carrying amount of the intangible asset exceeds its fair value, an entity should recognize an impairment loss in the amount of that excess.  In accordance with the amendments in ASU 2012-02, an entity will have an option not to calculate annually the fair value of an indefinite-lived intangible asset if the entity determines that it is not more likely than not that the asset is not impaired.  Permitting an entity to assess qualitative factors when testing indefinite-lived intangible assets for impairment results in guidance that is similar to the goodwill impairment testing guidance in ASU 2011-08.  ASU 2012-02 is effective for the Company’s financial statements for annual and interim periods beginning on or after September 15, 2012, and must be applied prospectively.  The Company does not expect this ASU to have a material impact on the Company’s consolidated financial position or results of operations.

3.  Cash and Cash Equivalents

For purposes of reporting cash flows, cash and cash equivalents include cash on hand, amounts due from banks, interest-bearing deposits with other banks, banker’s acceptances, commercial paper, securities purchased under agreement to resell, federal funds sold, and securities with maturities of less than 90 days at acquisition.  As of September 30, 2012, the Company had two certificates of deposit totaling $13.5 million in another bank.  This is the only concentration representing more than 10% of the Company’s equity, other than cash and cash equivalent balances placed with the Federal Reserve of San Francisco.

4.  Investment Securities

The carrying values and approximate fair values of investment securities at the periods indicated are presented below:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Amortized Cost

 

Gross Unrealized Gains

 

Gross Unrealized Losses

 

Fair Value

 

 

(In Thousands)

September 30, 2012

 

 

 

 

 

 

 

 

 

 

 

Securities available for sale

 

 

 

 

 

 

 

 

 

 

 

U.S. Treasury and government sponsored entities

$

99,505 

 

$

467 

 

$

 -

 

$

99,972 

Municipal securities

 

18,199 

 

 

691 

 

 

 -

 

 

18,890 

U.S. Agency mortgage-backed securities

 

41 

 

 

 

 

 -

 

 

43 

Corporate bonds

 

48,644 

 

 

1,035 

 

 

 -

 

 

49,679 

Preferred stock

 

3,524 

 

 

257 

 

 

22 

 

 

3,759 

Total securities available for sale

$

169,913 

 

$

2,452 

 

$

22 

 

$

172,343 

Securities held to maturity

 

 

 

 

 

 

 

 

 

 

 

Municipal securities

$

2,750 

 

$

246 

 

$

 -

 

$

2,996 

Total securities held to maturity

$

2,750 

 

$

246 

 

$

 -

 

$

2,996 

 

 

 

 

 

 

 

 

 

 

 

 

December 31, 2011

 

 

 

 

 

 

 

 

 

 

 

Securities available for sale

 

 

 

 

 

 

 

 

 

 

 

U.S. Treasury and government sponsored entities

$

160,529 

 

$

625 

 

$

50 

 

$

161,104 

Municipal securities

 

16,260 

 

 

675 

 

 

 -

 

 

16,935 

U.S. Agency mortgage-backed securities

 

52 

 

 

 

 

 -

 

 

54 

Corporate bonds

 

43,767 

 

 

343 

 

 

1,119 

 

 

42,991 

Preferred stock

 

996 

 

 

 

 

 -

 

 

999 

Total securities available for sale

$

221,604 

 

$

1,648 

 

$

1,169 

 

$

222,083 

Securities held to maturity

 

 

 

 

 

 

 

 

 

 

 

Municipal securities

$

3,819 

 

$

258 

 

$

 -

 

$

4,077 

Total securities held to maturity

$

3,819 

 

$

258 

 

$

 -

 

$

4,077 

 

 

 

 

 

 

 

 

 

 

 

 

September 30, 2011

 

 

 

 

 

 

 

 

 

 

 

Securities available for sale

 

 

 

 

 

 

 

 

 

 

 

U.S. Treasury and government sponsored entities

$

153,017 

 

$

831 

 

$

22 

 

$

153,826 

Municipal securities

 

14,002 

 

 

536 

 

 

 -

 

 

14,538 

U.S. Agency mortgage-backed securities

 

56 

 

 

 

 

 -

 

 

58 

Corporate bonds

 

43,593 

 

 

439 

 

 

635 

 

 

43,397 

Total securities available for sale

$

210,668 

 

$

1,808 

 

$

657 

 

$

211,819 

Securities held to maturity

 

 

 

 

 

 

 

 

 

 

 

Municipal securities

$

4,385 

 

$

234 

 

$

 -

 

$

4,619 

Total securities held to maturity

$

4,385 

 

$

234 

 

$

 -

 

$

4,619 

 

 

 

 

 

 

 

 

 

 

 

 

10


 

 

The contractual terms of these investments do not permit the issuer to settle the securities at a price less than the amortized cost of the investment.  There were two, twelve, and ten securities with unrealized losses as of September 30, 2012, December 31, 2011, and 2011, respectively that have been in a loss position for less than twelve months.  There were no securities with unrealized losses as of September 30, 2012, December 31, 2011, or September 30, 2011 that have been in an unrealized loss position for more than twelve months.  Because the Company does not intend to sell, nor is it required to sell these investments until a market price recovery or maturity, these investments are not considered other-than-temporarily impaired.

At September 30, 2012, $38.9 million in securities, or 22%, of the investment portfolio was pledged, as compared to $32.1 million, or 14%, at December 31, 2011, and $30.3 million, or 14%, at September 30, 2011.  We held no securities of any single issuer (other than government sponsored entities) that exceeded 10% of our shareholders’ equity at September 30, 2012,  December 31, 2011 or September 30, 2011.

The amortized cost and fair values of debt securities at September 30, 2012, are distributed by contractual maturity as shown below.  Expected maturities may differ from contractual maturities because borrowers may have the right to call or prepay obligations with or without call or prepayment penalties.  Although preferred stock has no stated maturity, it is aggregated in the calculation of weighted average yields presented below in the category of investments that mature in ten years or more.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Amortized Cost

 

Fair Value

 

Weighted Average Yield

 

 

(In Thousands)

 

US Treasury and government sponsored entities

 

 

 

 

 

 

 

 

Within 1 year

$

9,998 

 

$

10,007 

 

0.63 

%

1-5 years

 

89,507 

 

 

89,965 

 

0.69 

%

Total

$

99,505 

 

$

99,972 

 

0.69 

%

 

 

 

 

 

 

 

 

 

U.S. Agency mortgage-backed securities

 

 

 

 

 

 

 

 

5-10 years

$

41 

 

$

43 

 

4.45 

%

Total

$

41 

 

$

43 

 

4.45 

%

 

 

 

 

 

 

 

 

 

Corporate bonds

 

 

 

 

 

 

 

 

Within 1 year

$

3,163 

 

$

3,181 

 

2.89 

%

1-5 years

 

45,481 

 

 

46,498 

 

2.49 

%

Total

$

48,644 

 

$

49,679 

 

2.52 

%

 

 

 

 

 

 

 

 

 

Preferred stock

 

 

 

 

 

 

 

 

Over 10 years

 

3,524 

 

 

3,759 

 

5.57 

%

Total

$

3,524 

 

$

3,759 

 

5.57 

%

 

 

 

 

 

 

 

 

 

Municipal securities

 

 

 

 

 

 

 

 

Within 1 year

$

1,493 

 

$

1,495 

 

0.95 

%

1-5 years

 

10,304 

 

 

10,619 

 

2.28 

%

5-10 years

 

6,290 

 

 

6,686 

 

4.68 

%

Over 10 years

 

2,862 

 

 

3,086 

 

4.78 

%

Total

$

20,949 

 

$

21,886 

 

3.24 

%

 

 

 

 

 

 

 

 

 

11


 

 

The proceeds and resulting gains and losses, computed using specific identification, from sales of investment securities for the nine months ending September 30, 2012 and 2011, respectively, are as follows:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Proceeds

 

Gross Gains

 

Gross Losses

 

(In Thousands)

2012

 

 

 

 

 

 

 

 

Available for sale securities

$

30,424 

 

$

273 

 

$

 -

2011

 

 

 

 

 

 

 

 

Available for sale securities

$

17,030 

 

$

296 

 

$

 -

 

 

 

 

 

 

 

 

 

 

A summary of interest income for the nine months ending September 30, 2012 and 2011 on available for sale investment securities is as follows: