UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One)
| S | Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 |
| For the period ended June 30, 2013. | |
| £ | Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 |
| For the Quarterly Transition Period From _______________ to _______________ |
Commission file number 0-10652
NORTH VALLEY BANCORP
(Exact name of registrant as specified in its charter)
| California | 94-2751350 | |
| (State or other jurisdiction of incorporation or organization) | (IRS Employer ID Number) |
| 300 Park Marina Circle, Redding, CA | 96001 | |
| (Address of principal executive offices) | (Zip code) |
Registrant's telephone number, including area code (530) 226-2900
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Exchange Act of 1934 during the preceding 12 months (or for such shorter periods that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes S No £
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 S No £
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act (Check one):
| Large accelerated filer £ | Accelerated filer S | |
| Non-accelerated filer £ | Smaller reporting company £ |
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
Yes £ No S
Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.
Common Stock – 6,835,192 shares as of August 2, 2013.
INDEX
NORTH VALLEY BANCORP AND SUBSIDIARIES
| 2 |
| 3 |
| 4 |
| NORTH VALLEY BANCORP AND SUBSIDIARIES | ||||||||
| CONDENSED CONSOLIDATED STATEMENTS OF INCOME | ||||||||
| (In thousands except per share data) (Unaudited) | ||||||||
| For the six months ended June 30, | ||||||||
| 2013 | 2012 | |||||||
| Interest income | ||||||||
| Loans, including fees | $ | 12,782 | $ | 12,794 | ||||
| Taxable securities | 2,841 | 3,910 | ||||||
| Tax exempt securities | 195 | 280 | ||||||
| Federal funds sold and repurchase agreements | 31 | 45 | ||||||
| Total interest income | 15,849 | 17,029 | ||||||
| Interest expense | ||||||||
| Deposits | 568 | 1,338 | ||||||
| Other borrowed funds | 1 | — | ||||||
| Subordinated debentures | 266 | 970 | ||||||
| Total interest expense | 835 | 2,308 | ||||||
| Net interest income | 15,014 | 14,721 | ||||||
| Provision for loan losses | — | 1,400 | ||||||
| Net interest income after provision for loan losses | 15,014 | 13,321 | ||||||
| Noninterest income | ||||||||
| Service charges on deposit accounts | 1,923 | 2,188 | ||||||
| Other fees and charges | 2,228 | 2,518 | ||||||
| Earnings on cash surrender value of life insurance policies | 782 | 683 | ||||||
| Gain on sale of loans, net | 1,845 | 1,089 | ||||||
| Gain on sales or calls of securities, net | 543 | 959 | ||||||
| Other | 659 | 509 | ||||||
| Total noninterest income | 7,980 | 7,946 | ||||||
| Noninterest expense | ||||||||
| Salaries and employee benefits | 10,239 | 10,108 | ||||||
| Occupancy expense | 1,248 | 1,260 | ||||||
| Furniture and equipment expense | 422 | 472 | ||||||
| FDIC and state assessments | 431 | 489 | ||||||
| Other real estate owned expense | 1,366 | 976 | ||||||
| Other | 6,118 | 5,579 | ||||||
| Total noninterest expenses | 19,824 | 18,884 | ||||||
| Income before provision for income taxes | 3,170 | 2,383 | ||||||
| Provision for income taxes | 1,015 | 642 | ||||||
| Net income | $ | 2,155 | $ | 1,741 | ||||
| Earnings per share | ||||||||
| Basic income per share | $ | 0.32 | $ | 0.25 | ||||
| Diluted income per share | $ | 0.31 | $ | 0.25 | ||||
| The accompanying notes are an integral part of these consolidated financial statements. | ||||||||
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NORTH VALLEY BANCORP AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
NOTE 1 - BASIS OF PRESENTATION
The accompanying unaudited condensed consolidated financial statements of North Valley Bancorp and subsidiaries (the “Company”) have been prepared in accordance with the instructions to Form 10-Q and Article 10 of Regulation S-X of the Securities and Exchange Commission. Accordingly, certain information and notes required by accounting principles generally accepted in the United States for annual financial statements are not included herein. Management believes that the disclosures are adequate to make the information not misleading. In the opinion of management, all adjustments (consisting solely of normal recurring adjustments) considered necessary for a fair presentation of the results for the interim periods presented have been included. For further information, refer to the consolidated financial statements and notes thereto included in the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 2012. Operating results for the three and six months ended June 30, 2013 are not necessarily indicative of the results that may be expected for any subsequent period or for the year ended December 31, 2013.
The condensed consolidated financial statements include the accounts of the Company and its wholly owned subsidiaries North Valley Bank, a California banking corporation (“NVB”) and North Valley Trading Company, a California corporation, which is inactive. Significant intercompany items and transactions have been eliminated in consolidation. The Company owns the common stock of three business trusts that have issued trust preferred securities fully and unconditionally guaranteed by the Company. North Valley Capital Trust II, North Valley Capital Trust III and North Valley Capital Statutory Trust IV are unconsolidated subsidiaries and have issued an aggregate of $21,651,000 in trust preferred securities, which are reflected as debt on the Company’s condensed consolidated balance sheets.
The preparation of condensed consolidated financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions. These estimates and assumptions affect the reported amounts of assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from these estimates.
Management has determined that since all of the banking products and services offered by the Company are available in each branch of NVB, all branches are located within the same economic environment and management does not allocate resources based on the performance of different lending or transaction activities, it is appropriate to aggregate NVB branches and report them as a single operating segment. No single customer accounts for more than ten percent of revenues for the Company or NVB.
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NOTE 2 – INVESTMENT SECURITIES
The amortized cost of securities and their approximate fair value were as follows (in thousands):
| Amortized Cost | Gross Unrealized Gains | Gross Unrealized Losses | Estimated Fair Value | |||||||||||||
| June 30, 2013 | ||||||||||||||||
| Available-for-Sale: | ||||||||||||||||
| Obligations of U.S. government sponsored agencies | $ | 19,669 | $ | — | $ | (1,117 | ) | $ | 18,552 | |||||||
| Obligations of state and political subdivisions | 8,262 | 229 | (60 | ) | 8,431 | |||||||||||
| Government sponsored agency mortgage-backed securities | 274,858 | 2,580 | (5,860 | ) | 271,578 | |||||||||||
| Corporate debt securities | 6,000 | — | (1,238 | ) | 4,762 | |||||||||||
| Equity securities | 3,000 | — | (23 | ) | 2,977 | |||||||||||
| $ | 311,789 | $ | 2,809 | $ | (8,298 | ) | $ | 306,300 | ||||||||
| Held-to-Maturity: | ||||||||||||||||
| Government sponsored agency mortgage-backed securities | $ | 6 | $ | — | $ | — | $ | 6 | ||||||||
| December 31, 2012 | ||||||||||||||||
| Available-for-Sale: | ||||||||||||||||
| Obligations of U.S. government sponsored agencies | $ | 21,003 | $ | 115 | $ | — | $ | 21,118 | ||||||||
| Obligations of state and political subdivisions | 10,698 | 499 | — | 11,197 | ||||||||||||
| Government sponsored agency mortgage-backed securities | 239,543 | 6,152 | (64 | ) | 245,631 | |||||||||||
| Corporate debt securities | 6,000 | — | (1,244 | ) | 4,756 | |||||||||||
| Equity securities | 3,000 | 113 | — | 3,113 | ||||||||||||
| $ | 280,244 | $ | 6,879 | $ | (1,308 | ) | $ | 285,815 | ||||||||
| Held-to-Maturity: | ||||||||||||||||
| Government sponsored agency mortgage-backed securities | $ | 6 | $ | — | $ | — | $ | 6 | ||||||||
For the three months ended June 30, 2013 there were no gross realized gains on sales or calls of available for sale securities. For the three months ended June 30, 2012 there were $968,000 gross realized gains on sales or calls of available for sale securities. For the three months ended June 30, 2013 and 2012 there were no gross realized losses on sales or calls of securities categorized as available for sale securities. For the three months ended June 30, 2013 there were no gross proceeds from sales or calls of available for sale securities. For the three months ended June 30, 2012 there were $76,989,000 in gross proceeds from sales or calls of available for sale securities. There were no sales or transfers of held to maturity securities for the three months ended June 30, 2013 and 2012. For the three months ended June 30, 2013 and 2012, there were no gross proceeds from maturities or calls of held to maturity securities.
For the six months ended June 30, 2013 and 2012 there were $543,000 and $968,000, respectively, in gross realized gains on sales or calls of available for sale securities. For the six months ended June 30, 2013 there were no gross realized losses on sales or calls of securities categorized as available for sale securities. For the six months ended June 30, 2012 there were $9,000 in gross realized losses on sales or calls of securities categorized as available for sale securities. For the six months ended June 30, 2013 and 2012 there were $17,085,000 and $78,439,000, respectively, in gross proceeds from sales or calls of available for sale securities. There were no sales or transfers of held to maturity securities for the six months ended June 30, 2013 and 2012. For the six months ended June 30, 2013 and 2012, there were no gross proceeds from maturities or calls of held to maturity securities. Expected maturities of all investment securities are consistent with those reported in the December 31, 2012 Form 10-K.
At June 30, 2013 and December 31, 2012, securities having fair value amounts of approximately $300,983,000 and $276,308,000, respectively, were pledged to secure public deposits, short-term borrowings, treasury, tax and loan balances and for other purposes required by law or contract. The Company pledges most of its securities at the Federal Home Loan Bank (“FHLB”) to provide borrowing capacity. See “Liquidity” on page 44.
Investment securities are evaluated for other-than-temporary impairment on at least a quarterly basis and more frequently when economic or market conditions warrant such an evaluation to determine whether a decline in their value below amortized cost is other-than-temporary. Management utilizes criteria such as the magnitude and duration of the decline and the intent and ability of the Company to retain its investment in the issues for a period of time sufficient to allow for an anticipated recovery in fair value, in addition to the reasons underlying the decline, to determine whether the loss in value is other-than-temporary. The term "other-than-temporary" is not intended to indicate that the decline is permanent, but indicates that the prospects for a near-term recovery of value is not necessarily favorable, or that there is a lack of evidence to support a realizable value equal to or greater than the carrying value of the investment. Once a decline in value is determined to be other-than-temporary, and management does not intend to sell the security or it is more likely than not that the Company will not be required to sell the security before recovery, only the portion of the impairment loss representing credit exposure is recognized as a charge to earnings, with the balance recognized as a charge to other comprehensive income. If management intends to sell the security or it is more likely than not that the Company will be required to sell the security before recovering its forecasted cost, the entire impairment loss is recognized as a charge to earnings. For debt securities, the credit loss is defined as the difference between the present value of the cash flows expected to be collected and the amortized cost basis. For equity securities, the entire amount of impairment is recognized through earnings.
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A summary of investments securities in an unrealized loss for less than twelve months and twelve months or longer is as follows (in thousands).
| As of June 30, 2013 | ||||||||||||||||||||||||||
| Less than 12 Months | 12 Months or Longer | Total | ||||||||||||||||||||||||
| Estimated Fair Value | Unrealized Losses | Estimated Fair Value | Unrealized Losses | Estimated Fair Value | Unrealized Losses | |||||||||||||||||||||
| Description of Securities | ||||||||||||||||||||||||||
| Obligations of U.S. government sponsored agencies | $ | 18,552 | $ | (1,117 | ) | $ | — | $ | — | 18,552 | (1,117 | ) | ||||||||||||||
| Obligations of state and political subdivisions | 1,108 | (60 | ) | — | — | 1,108 | (60 | ) | ||||||||||||||||||
| Government sponsored agency mortgage-backed securities | 175,628 | (5,860 | ) | — | — | 175,628 | (5,860 | ) | ||||||||||||||||||
| Corporate debt securities | — | — | 4,762 | (1,238 | ) | 4,762 | (1,238 | ) | ||||||||||||||||||
| Equity securities | 2,977 | (23 | ) | — | — | 2,977 | (23 | ) | ||||||||||||||||||
| Total impaired securities | $ | 198,265 | $ | (7,060 | ) | $ | 4,762 | $ | (1,238 | ) | $ | 203,027 | $ | (8,298 | ) | |||||||||||
| As of December 31, 2012 | ||||||||||||||||||||||||||
| Less than 12 Months | 12 Months or Longer | Total | ||||||||||||||||||||||||
| Estimated Fair Value | Unrealized Losses | Estimated Fair Value | Unrealized Losses | Estimated Fair Value | Unrealized Losses | |||||||||||||||||||||
| Description of Securities | ||||||||||||||||||||||||||
| Government sponsored agency mortgage-backed securities | $ | 34,878 | $ | (64 | ) | $ | — | $ | — | $ | 34,878 | $ | (64 | ) | ||||||||||||
| Corporate debt securities | — | — | 4,756 | (1,244 | ) | 4,756 | (1,244 | ) | ||||||||||||||||||
| Total impaired securities | $ | 34,878 | $ | (64 | ) | $ | 4,756 | $ | (1,244 | ) | $ | 39,634 | $ | (1,308 | ) | |||||||||||
As of June 30, 2013 and December 31, 2012, there were two corporate debt securities in a loss position for twelve months or more. There is a current active market for these securities and management believes that the unrealized losses on the Company’s investment in these corporate debt securities is due to the yield of the securities and is not attributable to changes in credit quality. The two corporate debt securities are each a $3,000,000 single-issuer trust preferred security issued by two separate large publicly-traded financial institutions. The securities are tied to the front-end of the yield curve, three-month LIBOR (a short-term interest rate) and have a spread over that. In addition, the payments on both of these securities have been made as agreed and are considered current. The Company does not intend to sell and does not believe it will be required to sell these securities and expects a full recovery of value. The Company did not consider these investments to be other-than-temporarily impaired at June 30, 2013 or December 31, 2012.
Management periodically evaluates each investment security for other-than-temporary impairment, relying primarily on industry analyst reports, observation of market conditions and interest rate fluctuations. Management has the ability and intent to hold securities with established maturity dates until recovery of fair value, which may be at maturity, and believes it will be able to collect all amounts due according to the contractual terms for all of the underlying investment securities; therefore, management does not consider these investments to be other-than-temporarily impaired.
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NOTE 3 – LOANS
The Company originates loans for business, consumer and real estate activities and for equipment purchases. Such loans are concentrated in the Company’s market areas which consist of Yolo, Placer, Sonoma, Shasta, Humboldt, Mendocino, Trinity and Del Norte Counties and neighboring communities. Major classifications of loans were as follows (in thousands):
| June 30, | December 31, | |||||||
| 2013 | 2012 | |||||||
| Commercial | $ | 49,054 | $ | 46,078 | ||||
| Real estate - commercial | 319,206 | 295,630 | ||||||
| Real estate - construction | 18,535 | 23,003 | ||||||
| Real estate - mortgage | 68,637 | 74,353 | ||||||
| Installment | 6,026 | 6,689 | ||||||
| Other | 42,547 | 45,941 | ||||||
| Gross loans | 504,005 | 491,694 | ||||||
| Deferred loan fees, net | 269 | 517 | ||||||
| Allowance for loan losses | (9,527 | ) | (10,458 | ) | ||||
| Total loans, net | $ | 494,747 | $ | 481,753 | ||||
Certain real estate loans receivable are pledged as collateral for available borrowings with the FHLB, FRB, and certain correspondent banks. Pledged loans totaled $101,239,000 and $116,929,000 at June 30, 2013 and December 31, 2012, respectively.
The following table presents impaired loans and the related allowance for loan losses as of the dates indicated (in thousands):
| As of June 30, 2013 | As of December 31, 2012 | |||||||||||||||||||||||
| Recorded Investment | Unpaid Principal Balance | Related Allowance | Recorded Investment | Unpaid Principal Balance | Related Allowance | |||||||||||||||||||
| With no allocated allowance | ||||||||||||||||||||||||
| Commercial | $ | 175 | $ | 175 | $ | — | $ | 585 | $ | 586 | $ | — | ||||||||||||
| Real estate - commercial | 5,002 | 5,309 | — | 2,778 | 2,974 | — | ||||||||||||||||||
| Real estate - construction | 860 | 870 | — | 1,210 | 1,273 | — | ||||||||||||||||||
| Real estate - mortgage | 1,173 | 1,203 | — | 684 | 736 | — | ||||||||||||||||||
| Installment | 116 | 134 | — | 122 | 138 | — | ||||||||||||||||||
| Other | 253 | 266 | — | 111 | 120 | — | ||||||||||||||||||
| Subtotal | 7,579 | 7,957 | — | 5,490 | 5,827 | — | ||||||||||||||||||
| With allocated allowance | ||||||||||||||||||||||||
| Commercial | 473 | 485 | 88 | — | — | — | ||||||||||||||||||
| Real estate - commercial | — | — | — | 184 | 217 | 171 | ||||||||||||||||||
| Real estate - construction | — | — | — | 161 | 161 | 18 | ||||||||||||||||||
| Real estate - mortgage | 164 | 164 | 164 | — | — | — | ||||||||||||||||||
| Other | 140 | 140 | 140 | — | — | — | ||||||||||||||||||
| Subtotal | 777 | 789 | 392 | 345 | 378 | 189 | ||||||||||||||||||
| Total Impaired Loans | $ | 8,356 | $ | 8,746 | $ | 392 | $ | 5,835 | $ | 6,205 | $ | 189 | ||||||||||||
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The following table presents the average balance and interest income recognized related to impaired loans for the period indicated (in thousands):
| For the three months ended June 30, | ||||||||||||||||
| 2013 | 2012 | |||||||||||||||
| Average Book Balance | Interest Income Recognized | Average Book Balance | Interest Income Recognized | |||||||||||||
| Commercial | $ | 438 | $ | — | $ | 1,143 | $ | — | ||||||||
| Real estate - commercial | 5,357 | 21 | 5,989 | — | ||||||||||||
| Real estate - construction | 874 | 6 | 8,388 | — | ||||||||||||
| Real estate - mortgage | 1,371 | 10 | 950 | — | ||||||||||||
| Installment | 144 | 1 | 140 | — | ||||||||||||
| Other | 407 | — | 124 | — | ||||||||||||
| Total | $ | 8,591 | $ | 38 | $ | 16,734 | $ | — | ||||||||
| For the six months ended June 30, | ||||||||||||||||
| 2013 | 2012 | |||||||||||||||
| Average Book Balance |
Interest Income Recognized |
Average Book Balance |
Interest Income Recognized |
|||||||||||||
| Commercial | $ | 455 | $ | — | $ | 1,173 | $ | — | ||||||||
| Real estate - commercial | 5,370 | 41 | 6,119 | — | ||||||||||||
| Real estate - construction | 877 | 13 | 8,394 | — | ||||||||||||
| Real estate - mortgage | 1,379 | 20 | 964 | — | ||||||||||||
| Installment | 145 | 2 | 144 | — | ||||||||||||
| Other | 408 | — | 138 | — | ||||||||||||
| Total | $ | 8,634 | $ | 76 | $ | 16,932 | $ | — | ||||||||
Nonperforming loans include all such loans that are either on nonaccrual status or are 90 days past due as to principal or interest but still accrue interest because such loans are well-secured and in the process of collection. Nonperforming loans are summarized as follows (in thousands):
| June 30, 2013 |
December 31, 2012 |
|||||||
| Nonaccrual loans | $ | 5,871 | $ | 5,835 | ||||
| Loans 90 days past due or more but still accruing interest | — | — | ||||||
| Total nonperforming loans | $ | 5,871 | $ | 5,835 | ||||
| Nonaccrual loans to total gross loans | 1.16 | % | 1.19 | % | ||||
| Nonperforming loans to total gross loans | 1.16 | % | 1.19 | % | ||||
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If interest on nonaccrual loans had been accrued, such income would have approximated $135,000 and $357,000 for the six months ended June 30, 2013 and 2012, respectively.
The following table shows an aging analysis of the loan portfolio by the amount of time past due (in thousands):
| As of June 30, 2013 | ||||||||||||||||||||
| Accruing Interest | ||||||||||||||||||||
| Current | 30-89 Days Past Due | Greater than 90 Days Past Due | Nonaccrual | Total | ||||||||||||||||
| Commercial | $ | 48,406 | $ | — | $ | — | $ | 648 | $ | 49,054 | ||||||||||
| Real estate - commercial | 315,464 | 73 | — | 3,669 | 319,206 | |||||||||||||||
| Real estate - construction | 18,085 | — | — | 450 | 18,535 | |||||||||||||||
| Real estate - mortgage | 67,993 | 22 | — | 622 | 68,637 | |||||||||||||||
| Installment | 5,890 | 47 | — | 89 | 6,026 | |||||||||||||||
| Other | 42,154 | — | — | 393 | 42,547 | |||||||||||||||
| Total | $ | 497,992 | $ | 142 | $ | — | $ | 5,871 | $ | 504,005 | ||||||||||
| As of December 31, 2012 | ||||||||||||||||||||
| Accruing Interest | ||||||||||||||||||||
| Current | 30-89 Days Past Due | Greater than 90 Days Past Due | Nonaccrual | Total | ||||||||||||||||
| Commercial | $ | 45,473 | $ | 20 | $ | — | $ | 585 | $ | 46,078 | ||||||||||
| Real estate - commercial | 292,505 | 163 | — | 2,962 | 295,630 | |||||||||||||||
| Real estate - construction | 21,436 | 196 | — | 1,371 | 23,003 | |||||||||||||||
| Real estate - mortgage | 72,907 | 762 | — | 684 | 74,353 | |||||||||||||||
| Installment | 6,529 | 38 | — | 122 | 6,689 | |||||||||||||||
| Other | 45,581 | 249 | — | 111 | 45,941 | |||||||||||||||
| Total | $ | 484,431 | $ | 1,428 | $ | — | $ | 5,835 | $ | 491,694 | ||||||||||
A troubled debt restructuring (“TDRs”) is a formal modification of the terms of a loan when the lender, for economic or legal reasons related to the borrower’s financial difficulties, grants a concession to the borrower. The modification of the terms of such loans included one or a combination of the following: a reduction of the stated interest rate of the loan; an extension of the maturity date at a stated rate of interest lower than the current market rate for new debt with similar risk; or a permanent reduction of the recorded investment in the loan.
At June 30, 2013, accruing TDRs were $2,485,000 and non-accrual TDRs were $1,170,000 compared to accruing TDRs of $2,414,000 and non-accrual TDRs of $1,072,000 at December 31, 2012. At June 30, 2013, there were no specific reserves allocated to customers whose loan terms were modified in troubled debt restructurings. There are no commitments to lend additional amounts at June 30, 2013 to customers with outstanding loans that are classified as troubled debt restructurings. There were no TDRs that subsequently defaulted during the twelve months following the modification of terms.
| 13 |
The following table present loans that were modified and recorded as TDRs for the three and six months ended June 30, 2013 and 2012.
| For the three months ended June 30,2013 | For the six months ended June 30, 2013 | |||||||||||||||||||||||
| Number of Contracts | Pre-Modification Outstanding Recorded Investment | Post-Modification Outstanding Recorded Investment | Number of Contracts | Pre-Modification Outstanding Recorded Investment | Post-Modification Outstanding Recorded Investment | |||||||||||||||||||
| Commercial | — | $ | — | $ | — | 1 | $ | 45 | $ | 45 | ||||||||||||||
| Real estate - commercial | — | $ | — | $ | — | 1 | $ | 290 | $ | 290 | ||||||||||||||
| Real estate-construction | — | $ | — | $ | — | 1 | $ | 77 | $ | 77 | ||||||||||||||
| Real estate - mortgage | 1 | $ | 201 | $ | 201 | 1 | $ | 201 | $ | 201 | ||||||||||||||
| Other | 1 | $ | 48 | $ | 48 | 1 | $ | 48 | $ | 48 | ||||||||||||||
| For the three months ended June 30, 2012 | For the six months ended June 30, 2012 | |||||||||||||||||||||||
| Number of Contracts | Pre-Modification Outstanding Recorded Investment | Post-Modification Outstanding Recorded Investment | Number of Contracts | Pre-Modification Outstanding Recorded Investment | Post-Modification Outstanding Recorded Investment | |||||||||||||||||||
| Commercial | 1 | $ | 1,076 | $ | 1,076 | 1 | $ | 1,076 | $ | 1,076 | ||||||||||||||
| Real estate - commercial | 2 | $ | 278 | $ | 278 | 2 | $ | 278 | $ | 278 | ||||||||||||||
| Installment | 1 | $ | 25 | $ | 25 | 2 | $ | 73 | $ | 73 | ||||||||||||||
A summary of TDRs by type of concession and by type of loan as of June 30, 2013 and December 31, 2012, is shown below:
| June 30, 2013 | ||||||||||||||||||||
| Accruing TDRs | Number of Contracts | Rate Reduction | Maturity Extension | Rate Reduction and Maturity Extension | Total | |||||||||||||||
| Real estate - commercial | 5 | $ | — | $ | 199 | $ | 1,133 | $ | 1,332 | |||||||||||
| Real estate - construction | 2 | $ | — | $ | 411 | $ | — | $ | 411 | |||||||||||
| Real estate - mortgage | 2 | $ | — | $ | 295 | $ | 420 | $ | 715 | |||||||||||
| Installment | 1 | $ | — | $ | — | $ | 27 | $ | 27 | |||||||||||
| June 30, 2013 | ||||||||||||||||||||
| Nonaccrual TDRs | Number of Contracts | Rate Reduction | MaturityExtension | Rate Reduction and Maturity Extension | Total | |||||||||||||||
| Commercial | 2 | $ | — | $ | — | $ | 518 | $ | 518 | |||||||||||
| Real estate - commercial | 1 | $ | — | $ | — | $ | 290 | $ | 290 | |||||||||||
| Real estate - mortgage | 1 | $ | — | $ | — | $ | 201 | $ | 201 | |||||||||||
| Installment | 3 | $ | — | $ | — | $ | 89 | $ | 89 | |||||||||||
| Other | 2 | $ | — | $ | — | $ | 72 | $ | 72 | |||||||||||
| December 31, 2012 | ||||||||||||||||||||
| Accruing TDRs | Number of Contracts | Rate Reduction | Maturity Extension | Rate Reduction and Maturity Extension | Total | |||||||||||||||
| Real estate - commercial | 5 | $ | 202 | $ | — | $ | 1,148 | $ | 1,350 | |||||||||||
| Real estate-construction | 1 | $ | — | $ | 343 | $ | — | $ | 343 | |||||||||||
| Real estate - mortgage | 2 | $ | — | $ | 298 | $ | 423 | $ | 721 | |||||||||||
| December 31, 2012 | ||||||||||||||||||||
| Nonaccrual TDRs | Number of Contracts | Rate Reduction | Maturity Extension | Rate Reduction and Maturity Extension | Total | |||||||||||||||
| Commercial | 1 | $ | — | $ | — | $ | 529 | $ | 529 | |||||||||||
| Real estate-construction | 2 | $ | 327 | $ | 71 | $ | — | $ | 398 | |||||||||||
| Installment | 4 | $ | — | $ | — | $ | 120 | $ | 120 | |||||||||||
| Other | 1 | $ | — | $ | — | $ | 25 | $ | 25 | |||||||||||
| 14 |
NOTE 4 – ALLOWANCE FOR LOAN LOSSES
The following table shows the changes in the allowance for loan losses (in thousands):
| For the three months ended June 30, 2013 | ||||||||||||||||||||||||||||||||
| Real Estate | Real Estate | Real Estate | ||||||||||||||||||||||||||||||
| Commercial | Commercial | Construction | Mortgage | Installment | Other | Unallocated | Total | |||||||||||||||||||||||||
| Allowance for Loan Losses | ||||||||||||||||||||||||||||||||
| Balance March 31, 2013 | $ | 1,170 | $ | 5,720 | $ | 595 | $ | 938 | $ | 87 | $ | 676 | $ | 465 | $ | 9,651 | ||||||||||||||||
| Charge-offs | (26 | ) | (3 | ) | — | (46 | ) | (17 | ) | (55 | ) | (147 | ) | |||||||||||||||||||
| Recoveries | 16 | — | 1 | 2 | 4 | — | 23 | |||||||||||||||||||||||||
| Provisions for loan losses | (313 | ) | (230 | ) | (157 | ) | 26 | 93 | 299 | 282 | — | |||||||||||||||||||||
| Balance June 30, 2013 | $ | 847 | $ | 5,487 | $ | 439 | $ | 920 | $ | 167 | $ | 920 | $ | 747 | $ | 9,527 | ||||||||||||||||
| For the three months ended June 30, 2012 | ||||||||||||||||||||||||||||||||
| Real Estate | Real Estate | Real Estate | ||||||||||||||||||||||||||||||
| Commercial | Commercial | Construction | Mortgage | Installment | Other | Unallocated | Total | |||||||||||||||||||||||||
| Allowance for Loan Losses | ||||||||||||||||||||||||||||||||
| Balance March 31, 2012 | $ | 1,376 | $ | 6,847 | $ | 1,350 | $ | 1,045 | $ | 154 | $ | 811 | $ | 691 | $ | 12,274 | ||||||||||||||||
| Charge-offs | (86 | ) | (1,178 | ) | (126 | ) | (190 | ) | (45 | ) | (47 | ) | (1,672 | ) | ||||||||||||||||||
| Recoveries | 14 | 2 | 37 | 36 | 41 | — | 130 | |||||||||||||||||||||||||
| Provisions for loan losses | (44 | ) | 915 | 126 | 34 | (9 | ) | 4 | (26 | ) | 1,000 | |||||||||||||||||||||
| Balance June 30, 2012 | $ | 1,260 | $ | 6,586 | $ | 1,387 | $ | 925 | $ | 141 | $ | 768 | $ | 665 | $ | 11,732 | ||||||||||||||||
| For the six months ended June 30, 2013 | ||||||||||||||||||||||||||||||||
| Real Estate | Real Estate | Real Estate | ||||||||||||||||||||||||||||||
| Commercial | Commercial | Construction | Mortgage | Installment | Other | Unallocated | Total | |||||||||||||||||||||||||
| Allowance for Loan Losses | ||||||||||||||||||||||||||||||||
| Balance December 31, 2012 | $ | 843 | $ | 6,295 | $ | 690 | $ | 982 | $ | 98 | $ | 721 | $ | 829 | $ | 10,458 | ||||||||||||||||
| Charge-offs | (109 | ) | (440 | ) | (369 | ) | (202 | ) | (28 | ) | (55 | ) | (1,203 | ) | ||||||||||||||||||
| Recoveries | 258 | — | 3 | 2 | 9 | — | 272 | |||||||||||||||||||||||||
| Provisions for loan losses | (145 | ) | (368 | ) | 115 | 138 | 88 | 254 | (82 | ) | — | |||||||||||||||||||||
| Balance June 30, 2013 | $ | 847 | $ | 5,487 | $ | 439 | $ | 920 | $ | 167 | $ | 920 | $ | 747 | $ | 9,527 | ||||||||||||||||
| As of June 30, 2013 | ||||||||||||||||||||||||||||||||
| Reserve to impaired loans | $ | 88 | $ | — | $ | — | $ | 164 | $ | — | $ | 140 | $ | 392 | ||||||||||||||||||
| Reserve to non-impaired loans | $ | 759 | $ | 5,487 | $ | 439 | $ | 756 | $ | 167 | $ | 780 | $ | 747 | $ | 9,135 | ||||||||||||||||
| For the six months ended June 30, 2012 | ||||||||||||||||||||||||||||||||
| Real Estate | Real Estate | Real Estate | ||||||||||||||||||||||||||||||
| Commercial | Commercial | Construction | Mortgage | Installment | Other | Unallocated | Total | |||||||||||||||||||||||||
| Allowance for Loan Losses | ||||||||||||||||||||||||||||||||
| Balance December 31, 2011 | $ | 1,333 | $ | 7,528 | $ | 1,039 | $ | 935 | $ | 185 | $ | 736 | $ | 900 | $ | 12,656 | ||||||||||||||||
| Charge-offs | (206 | ) | (1,617 | ) | (330 | ) | (190 | ) | (142 | ) | (72 | ) | (2,557 | ) | ||||||||||||||||||
| Recoveries | 26 | 63 | 37 | 36 | 65 | 6 | 233 | |||||||||||||||||||||||||
| Provisions for loan losses | 107 | 612 | 641 | 144 | 33 | 98 | (235 | ) | 1,400 | |||||||||||||||||||||||
| Balance June 30, 2012 | $ | 1,260 | $ | 6,586 | $ | 1,387 | $ | 925 | $ | 141 | $ | 768 | $ | 665 | $ | 11,732 | ||||||||||||||||
| As of June 30, 2012 | ||||||||||||||||||||||||||||||||
| Reserve to impaired loans | $ | 240 | $ | 99 | $ | 529 | $ | 35 | $ | — | $ | — | $ | 903 | ||||||||||||||||||
| Reserve to non-impaired loans | $ | 1,020 | $ | 6,487 | $ | 858 | $ | 890 | $ | 141 | $ | 768 | $ | 665 | $ | 10,829 | ||||||||||||||||
| As of December 31, 2012 | ||||||||||||||||||||||||||||||||
| Reserve to impaired loans | $ | — | $ | 171 | $ | 18 | $ | — | $ | — | $ | — | $ | 189 | ||||||||||||||||||
| Reserve to non-impaired loans | $ | 843 | $ | 6,124 | $ | 672 | $ | 982 | $ | 98 | $ | 721 | $ | 829 | $ | 10,269 | ||||||||||||||||
The following table shows the loan portfolio by segment as follows (in thousands):
| As of June 30, 2013 | ||||||||||||||||||||||||||||
| Real Estate | Real Estate | Real Estate | ||||||||||||||||||||||||||
| Commercial | Commercial | Construction | Mortgage | Installment | Other | Total | ||||||||||||||||||||||
| Total Loans | $ | 49,054 | $ | 319,206 | $ | 18,535 | $ | 68,637 | $ | 6,026 | $ | 42,547 | $ | 504,005 | ||||||||||||||
| Impaired Loans | $ | 648 | $ | 5,002 | $ | 860 | $ | 1,337 | $ | 116 | $ | 393 | $ | 8,356 | ||||||||||||||
| Non-impaired loans | $ | 48,406 | $ | 314,204 | $ | 17,675 | $ | 67,300 | $ | 5,910 | $ | 42,154 | $ | 495,649 | ||||||||||||||
| As of December 31, 2012 | ||||||||||||||||||||||||||||
| Real Estate | Real Estate | Real Estate | ||||||||||||||||||||||||||
| Commercial | Commercial | Construction | Mortgage | Installment | Other | Total | ||||||||||||||||||||||
| Total Loans | $ | 46,078 | $ | 295,630 | $ | 23,003 | $ | 74,353 | $ | 6,689 | $ | 45,941 | $ | 491,694 | ||||||||||||||
| Impaired Loans | $ | 585 | $ | 2,962 | $ | 1,371 | $ | 684 | $ | 122 | $ | 111 | $ | 5,835 | ||||||||||||||
| Non-impaired loans | $ | 45,493 | $ | 292,668 | $ | 21,632 | $ | 73,669 | $ | 6,567 | $ | 45,830 | $ | 485,859 | ||||||||||||||
The following table shows the loan portfolio allocated by management's internal risk ratings as defined in Footnote 1 in the Company’s Annual Report on Form 10-K for the year ended December 31, 2012 (in thousands):
| 15 |
| As of June 30, 2013 | ||||||||||||||||||||
| Pass | Special Mention | Substandard | Doubtful | Total | ||||||||||||||||
| Commercial | $ | 46,828 | $ | 1,035 | $ | 1,191 | $ | — | $ | 49,054 | ||||||||||
| Real estate - commercial | 304,743 | 2,780 | 11,683 | — | 319,206 | |||||||||||||||
| Real estate - construction | 18,037 | — | 498 | — | 18,535 | |||||||||||||||
| Real estate - mortgage | 67,596 | — | 1,041 | — | 68,637 | |||||||||||||||
| Installment | 5,907 | — | 119 | — | 6,026 | |||||||||||||||
| Other | 41,957 | — | 590 | — | 42,547 | |||||||||||||||
| Total | $ | 485,068 | $ | 3,815 | $ | 15,122 | $ | — | $ | 504,005 | ||||||||||
| As of December 31, 2012 | ||||||||||||||||||||
| Pass | Special Mention | Substandard | Doubtful | Total | ||||||||||||||||
| Commercial | $ | 44,486 | $ | 129 | $ | 1,463 | $ | — | $ | 46,078 | ||||||||||
| Real estate - commercial | 278,834 | — | 16,796 | — | 295,630 | |||||||||||||||
| Real estate - construction | 21,386 | — | 1,617 | — | 23,003 | |||||||||||||||
| Real estate - mortgage | 71,973 | — | 2,380 | — | 74,353 | |||||||||||||||
| Installment | 6,562 | — | 127 | — | 6,689 | |||||||||||||||
| Other | 45,658 | — | 283 | — | 45,941 | |||||||||||||||
| Total | $ | 468,899 | $ | 129 | $ | 22,666 | $ | — | $ | 491,694 | ||||||||||
The allowance for loan losses is established through a provision for loan losses based on management’s evaluation of the probable incurred losses in the loan portfolio. In determining levels of risk, management considers a variety of factors, including, but not limited to, asset classifications, economic trends, industry experience and trends, geographic concentrations, estimated collateral values, historical loan loss experience, and the Company’s underwriting policies. At June 30, 2013, there was a change in the Bank’s method of calculating the historical loss factors applied to loans identified as “homogenous segments” of the loan portfolio as follows: Losses from the past twelve quarters are applied to loan pools based on a “Migration Analysis” method. The method calculates Net Charge Offs (charge offs less corresponding recoveries) and measures them against average balances in loan pools based on the risk grade in effect on charged-off loans four quarters prior to the actual charge off date. The logic behind this four quarter “look back” is to account for management’s estimate of the typical time lapse between the recognition of the problem loan and the recognition of some or all of the loan as uncollectable. In addition, the loss ratios are calculated using “factored” logic which systematically reduces the Net Charge Off value so that charge offs occurring in older periods do not have as much weight as more recent charge offs. Previously, management utilized a methodology which also utilized the Company’s charge-off history from the previous twelve quarters but did not consider the risk grade of those loans related to the charge-off. This modification had the effect of increasing the quantitative loss component of the allowance by $1,446,000. Management of the Company believes that, given the recent trends in historical losses and the correlation of those losses with a loans identified risk grade, that incorporation of a migration analysis in the current and future analyses was a prudent refinement of the allowance methodology. In addition, management believe that the decreases in the overall level of the allowance for loan losses over the past several quarters is directionally consistent with the improving credit quality trends of the loan portfolio. The allowance for loan losses is maintained at an amount management considers adequate to cover the probable incurred losses in loans receivable. While management uses the best information available to make these estimates, future adjustments to allowances may be necessary due to economic, operating, regulatory, and other conditions that may be beyond the Company’s control. The Company also engages a third party credit review consultant to analyze the Company’s loan loss adequacy periodically. In addition, the regulatory agencies, as an integral part of their examination process, periodically review the Company’s allowance for loan losses. Such agencies may require the Company to recognize additions to the allowance based on judgments different from those of management.
The allowance for loan losses is comprised of several components including the specific, formula and unallocated allowance relating to loans in the loan portfolio. Our methodology for determining the allowance for loan losses consists of several key elements, which include:
| ● | Specific Allowances. A specific allowance is established when management has identified unique or particular risks that were related to a specific loan that demonstrated risk characteristics consistent with impairment. Specific allowances are established when management can estimate the amount of an impairment of a loan. |
| ● | Formula Allowance. The formula allowance is calculated using a “Migration Analysis” method as defined above applied to homogenous pools of loans. Changes in risk grades of both performing and nonperforming loans affect the amount of the formula allowance. Loss factors are based on our historical loss experience and such other data as management believes to be pertinent. Management, also, considers a variety of subjective factors, including regional economic and business conditions that impact important segments of our portfolio, loan growth rates, the depth and skill of lending staff, the interest rate environment, and the results of bank regulatory examinations and findings of our internal credit examiners to establish the formula allowance. |
| 16 |
| ● | Unallocated Allowance. The unallocated loan loss allowance represents an amount for imprecision or uncertainty that is inherent in estimates used to determine the allowance. |
The Company also maintains a separate allowance for off-balance-sheet commitments. A reserve for unfunded commitments is maintained at a level that, in the opinion of management, is adequate to absorb probable losses associated with commitments to lend funds under existing agreements, for example, the Bank’s commitment to fund advances under lines of credit. The reserve amount for unfunded commitments is determined based on our methodologies described above with respect to the formula allowance. The allowance for off-balance-sheet commitments is included in accrued interest payable and other liabilities on the consolidated balance sheet and was $146,000 and $143,000 for the periods ended June 30, 2013 and December 31, 2012, respectively.
NOTE 5 – OTHER REAL ESTATE OWNED
The Company had $16,324,000 and $22,423,000 in other real estate owned (“OREO”) at June 30, 2013 and December 31, 2012, respectively. Below is a table with details of the changes in OREO (in thousands):
| June 30, | December 31, | |||||||
| 2013 | 2012 | |||||||
| Beginning Balance | $ | 22,423 | $ | 20,106 | ||||
| Properties transferred in | 777 | 12,239 | ||||||
| Sales of property | (5,744 | ) | (6,889 | ) | ||||
| Loss on sale or writedown of property | (1,132 | ) | (3,033 | ) | ||||
| Total | $ | 16,324 | $ | 22,423 | ||||
The following table presents the components of OREO expense (in thousands):
| Three months ended June 30, | Six months ended June 30, | |||||||||||||||
| 2013 | 2012 | 2013 | 2012 | |||||||||||||
| Operating expenses | $ | 92 | $ | 72 | $ | 234 | $ | 227 | ||||||||
| Provision for losses | 623 | 165 | 884 | 561 | ||||||||||||
| Net, loss on disposal | 275 | 105 | 248 | 188 | ||||||||||||
| Total other real estate owned expense | $ | 990 | $ | 342 | $ | 1,366 | $ | 976 | ||||||||
NOTE 6 –OTHER BORROWED FUNDS
Other borrowed funds included FHLB advances and Federal Funds purchased. The Bank had outstanding secured overnight FHLB advances as of June 30, 2013 of $22,025,000 at an interest rate of 0.08%. The Bank did not have any other borrowed funds as of December 31, 2012.
NOTE 7 – SUBORDINATED DEBENTURES
The Company owns the common stock of three business trusts that have issued an aggregate of $21.0 million in trust preferred securities fully and unconditionally guaranteed by the Company. The entire proceeds of each respective issuance of trust preferred securities were invested by the separate business trusts into junior subordinated debentures issued by the Company, with identical maturity, repricing and payment terms as the respective issuance of trust preferred securities. The aggregate amount of junior subordinated debentures issued by the Company is $21,651,000, with the maturity dates for the respective debentures ranging from 2033 through 2036. Subject to regulatory approval, the Company may redeem the respective junior subordinated debentures earlier than the maturity date, based on their respective redemption dates. The respective junior subordinated debentures became redeemable in April 2008, July 2009 and March 2011.
The trust preferred securities issued by the trusts are currently included in Tier 1 capital in the amount of $21,000,000 for purposes of determining Leverage, Tier 1 and Total Risk-Based capital ratios for the periods ending June 30, 2013 and December 31, 2012.
The following table summarizes the terms of each subordinated debenture issuance for the periods ending June 30, 2013 and December 31, 2012 (dollars in thousands):
| 17 |
| Fixed or | ||||||||||||||||||||||||||
| Date | Variable | Current | Rate | Redemption | ||||||||||||||||||||||
| Series | Issued | Maturity | Rate | Rate | Index | Date | Amount | |||||||||||||||||||
| North Valley Capital Trust II | 4/10/03 | 4/24/33 | Variable | 3.52 | % | LIBOR + 3.25% | 4/24/08 | 6,186 | ||||||||||||||||||
| North Valley Capital Trust III | 5/5/04 | 4/24/34 | Variable | 3.08 | % | LIBOR + 2.80% | 7/23/09 | 5,155 | ||||||||||||||||||
| North Valley Capital Statutory Trust IV | 12/29/05 | 3/15/36 | Variable | 1.60 | % | LIBOR + 1.33% | 3/15/11 | 10,310 | ||||||||||||||||||
| $ | 21,651 | |||||||||||||||||||||||||
At June 30, 2013 and December 31, 2012, the Company had recorded accrued and unpaid interest payments on junior subordinated debentures of $76,000 and $79,000, respectively.
NOTE 8 – INCOME TAXES
The Company files its income taxes on a consolidated basis with NVB. The allocation of income tax expense (benefit) represents each entity's proportionate share of the consolidated provision for income taxes.
The Company applies the asset and liability method to account for income taxes. Deferred tax assets and liabilities are calculated by applying applicable tax laws to the differences between the financial statement basis and the tax basis of assets and liabilities. The effect on deferred taxes of changes in tax laws and rates is recognized in income in the period that includes the enactment date. On the consolidated balance sheet, net deferred tax assets are included in other assets.
The Company accounts for uncertainty in income taxes by recording only tax positions that met the more likely than not recognition threshold, that the tax position would be sustained in a tax examination.
When tax returns are filed, it is highly certain that some positions taken would be sustained upon examination by the taxing authorities, while others are subject to uncertainty about the merits of the position taken or the amount of the position that would be ultimately sustained. The benefit of a tax position is recognized in the financial statements in the period during which, based on all available evidence, management believes it is more likely than not that the position will be sustained upon examination, including the resolution of appeals or litigation processes, if any. Tax positions taken are not offset or aggregated with other positions. Tax positions that meet the more-likely-than-not recognition threshold are measured as the largest amount of tax benefit that is more than 50 percent likely of being realized upon settlement with the applicable taxing authority. The portion of the benefits associated with tax positions taken that exceeds the amount measured as described above is reflected as a liability for unrecognized tax benefits in the accompanying balance sheet along with any associated interest and penalties that would be payable to the taxing authorities upon examination. At June 30, 2013 and December 31, 2012, unrecognized tax benefits totaled $519,000.
Net deferred tax assets totaled $16,351,000 and $12,346,000 at June 30, 2013 and December 31, 2012, respectively.
NOTE 9 - PENSION PLAN BENEFITS
The Company has a supplemental retirement plan for key executives and a supplemental retirement plan for certain retired key executives and directors. These plans are nonqualified defined benefit plans and are unsecured. Total contributions paid were $63,000 for the three months ended June 30, 2013 and 2012. Components of net periodic benefit cost for the Company’s supplemental nonqualified defined benefit plans for the three and six months ended June 30, 2013 and 2012 are presented in the following table (in thousands):
| Three months ended June 30, | Six months ended June 30, | |||||||||||||||
| Components of net periodic benefits cost: | 2013 | 2012 | 2013 | 2012 | ||||||||||||
| Service cost | $ | 171 | $ | 151 | $ | 341 | $ | 301 | ||||||||
| Interest cost | 93 | 83 | 186 | 167 | ||||||||||||
| Prior service amortization | 24 | 24 | 49 | 49 | ||||||||||||
| Recognized net actuarial loss | 49 | 10 | 98 | 20 | ||||||||||||
| Total components of net periodic cost | $ | 337 | $ | 268 | $ | 674 | $ | 537 | ||||||||
| June 30, 2013 | December 31, 2012 | |||||||
| Total Liability of Pension Plan Benefits | $ | 8,699 | $ | 9,443 |
| 18 |
NOTE 10 – STOCK-BASED COMPENSATION
Stock Option Plans
At June 30, 2013, the Company had two shareholder approved stock-based compensation plans: the 1998 Employee Stock Incentive Plan and the 2008 Stock Incentive Plan. A total of 601,925 shares were authorized under all plans at June 30, 2013. The plans do not provide for the settlement of awards in cash and new shares are issued upon exercise of the options. The North Valley Bancorp 1998 Employee Stock Incentive Plan provides for awards in the form of options (which may constitute incentive stock options (“ISOs”) or non-statutory stock options (“NSOs”) to key employees) and also provides for the award of shares of Common Stock to outside directors. As provided in the 1998 Employee Stock Incentive Plan, the authorization to award incentive stock options terminated on February 19, 2008. Pursuant to the 1998 Employee Stock Incentive Plan there were outstanding options to purchase 51,930 shares of Common Stock at June 30, 2013. The North Valley Bancorp 2008 Stock Incentive Plan was adopted by the Company’s Board of Directors on February 27, 2008, effective that date, and was approved by the Company’s shareholders at the annual meeting, May 22, 2008. The terms of the 2008 Stock Incentive Plan are substantially the same as the North Valley Bancorp 1998 Employee Stock Incentive Plan. The 2008 Stock Incentive Plan provides for the grant to key employees of stock options, which may consist of NSOs and ISOs. Under the 2008 Stock Incentive Plan, options may not be granted at a price less than the fair market value at the date of the grant. Under all plans, options may be exercised over a ten year term. The vesting period is generally four years; however the vesting period can be modified at the discretion of the Company’s Board of Directors, and for all options granted after the fourth quarter in 2008 the vesting period is five years. The 2008 Stock Incentive Plan also provides for the grant to outside directors, and to consultants and advisers to the Company, of stock options, all of which must be NSOs. The shares of Common Stock authorized to be granted as options under the 2008 Stock Incentive Plan consist 549,995 shares of Common Stock reserved for issuance under the terms of the 2008 Stock Incentive Plan, consisting of 302,780 shares to be issued upon the exercise of options granted and still outstanding as of that date, 4,140 shares issued as stock awards and 243,075 shares reserved for future stock option grants and director stock awards at June 30, 2013. Effective January 1, 2009, and on each January 1 thereafter for the remaining term of the 2008 Stock Incentive Plan, the aggregate number of shares of Common Stock which are reserved for issuance pursuant to options granted under the terms of the 2008 Stock Incentive Plan shall be increased by a number of shares of Common Stock equal to 2% of the total number of the shares of Common Stock of the Company outstanding at the end of the most recently concluded calendar year. Any shares of Common Stock that have been reserved but not issued as options during any calendar year shall remain available for grant during any subsequent calendar year. Each outside director of the Company shall also be eligible to receive a stock award of 180 shares of Common Stock as part of his or her annual retainer paid by the Company for his or her services as a director. Each stock award shall be fully vested when granted to the outside director. The number of shares of Common Stock available as stock awards to outside directors shall equal the number of shares of Common Stock to be awarded to such outside directors. Outstanding options under the plans are exercisable until their expiration.
Stock-based Compensation
There were no options granted in the three month period ended June 30, 2013. There were 2,500 options granted for the three month period ended June 30, 2012. There were 114,234 and 77,908 options granted for the six month period ended June 30, 2013 and 2012, respectively. For the three month periods ended June 30, 2013 and 2012, the compensation cost recognized for share based compensation was $108,000 and $49,000, respectively. For the six month periods ended June 30, 2013 and 2012, the compensation cost recognized for share based compensation was $191,000 and $89,000, respectively At June 30, 2013, the total unrecognized compensation cost related to stock-based awards granted to employees under the Company’s stock option plans was $1,615,000. This cost is expected to be amortized on a straight-line basis over a weighted average period of approximately 4.1 years and will be adjusted for subsequent changes in estimated forfeitures. The following table summarizes the weighted average grant date fair value of options granted for the three and six month periods ended June 30, 2013 and 2012, based on the following assumptions used in a Black-Scholes Merton model.
| For three months ended June 30, | For six months ended June 30, | |||||||||||||||
| 2013 | 2012 | 2013 | 2012 | |||||||||||||
| Weighted average grant date fair value per share of option granted | N/A | $ | 7.08 | $ | 9.53 | $ | 6.28 | |||||||||
| Significant weighted average assumptions used in calculating fair value: | ||||||||||||||||
| Expected term | 6.61 years | 6.32 years | 6.49 years | |||||||||||||
| Expected annual volatility | 58 | % | 60 | % | 59 | % | ||||||||||
| Expected annual dividend yield | N/A | N/A | N/A | |||||||||||||
| Risk-free interest rate | 1.38 | % | 1.38 | % | 1.40 | % | ||||||||||
| 19 |
A summary of outstanding stock options follows:
| Shares | Weighted Average Exercise Price | Weighted Average Remaining Contractual Term | Exercise Price Range | Aggregate Intrinsic Value ($000) | ||||||||||||||||
| Outstanding at January 1, 2013 | 248,822 | $ | 29.40 | 7 years | $9.97-$103.10 | $ | 822 | |||||||||||||
| Granted | 114,234 | $ | 16.80 | $16.80-16.80 | ||||||||||||||||
| Exercised | — | — | — | |||||||||||||||||
| Expired or Forfeited | (8,346 | ) | $ | 63.32 | $23.95-$65.30 | |||||||||||||||
| Outstanding at June 30, 2013 | 354,710 | $ | 24.55 | 8 years | $9.97-$103.10 | $ | 822 | |||||||||||||
| Fully vested and exercisable at June 30, 2013 | 117,008 | $ | 45.62 | 5 years | $9.97-$103.10 | $ | 164 | |||||||||||||
| Options expected to vest at June 30, 2013 | 237,702 | $ | 14.17 | 9 years | $9.97-$23.95 | $ | 658 | |||||||||||||
The aggregate intrinsic value is calculated as the difference between the exercise price of the underlying awards and the quoted price of the Company’s common stock as of June 30, 2013. There were no options exercised during the three and six month periods ended June 30, 2013 and 2012.
NOTE 11 – ACCUMULATED OTHER COMPREHENSIVE INCOME (LOSS)
Changes in each component of accumulated other comprehensive income (loss) for the three and six month periods ended June 30, 2013 and June 30, 2012 were as follows (in thousands):
| Net Unrealized Gains (Losses) on Securities | Adjustments Related to Defined Benefit Pension Plan | Accumulated Other Comprehensive Income (Loss) | ||||||||||
| Balance at March 31, 2013 | $ | 2,585 | $ | (1,478 | ) | $ | 1,107 | |||||
| Net unrealized losses on securities available for sale, net of tax, $(4,047) | (5,823 | ) | — | (5,823 | ) | |||||||
| Reclassification adjustment for gains on securities, net of tax, | — | — | — | |||||||||
| Net gains arising during the period, net of tax $400 | — | 577 | 577 | |||||||||
| Reclassification adjustment for amortization of prior service cost and net gain included in salaries and employee benefits, net of tax $30 | — | 44 | 44 | |||||||||
| Balance at June 30, 2013 | $ | (3,238 | ) | $ | (857 | ) | $ | (4,095 | ) | |||
| Balance at March 31, 2012 | $ | 3,374 | $ | (899 | ) | $ | 2,475 | |||||
| Net unrealized gains on securities available for sale, net of tax, $867 | 1,247 | — | 1,247 | |||||||||
| Reclassification adjustment for losses on securities, net of tax, $(397) | (571 | ) | — | (571 | ) | |||||||
| Net gains arising during the period, net of tax $ 14 | — | 21 | 21 | |||||||||
| Reclassification adjustment for amortization of prior service cost and net gain included in salaries and employee benefits, net of tax $ 14 | — | 20 | 20 | |||||||||
| Balance at June 30, 2012 | $ | 4,050 | $ | (858 | ) | $ | 3,192 | |||||
| Net Unrealized Gains (Losses) on Securities | Adjustments Related to Defined Benefit Pension Plan | Accumulated Other Comprehensive Income (Loss) | ||||||||||
| Balance at December 31, 2012 | $ | 3,287 | $ | (1,621 | ) | $ | 1,666 | |||||
| Net unrealized losses on securities available for sale, net of tax, $(4,312) | (6,205 | ) | — | (6,205 | ) | |||||||
| Reclassification adjustment for losses on securities, net of tax, $(223) | (320 | ) | — | (320 | ) | |||||||
| Net gains arising during the period, net of tax $470 | — | 676 | 676 | |||||||||
| Reclassification adjustment for amortization of prior service cost and net gain included in salaries and employee benefits, net of tax $60 | — | 88 | 88 | |||||||||
| Balance at June 30, 2013 | $ | (3,238 | ) | $ | (857 | ) | $ | (4,095 | ) | |||
| Balance at December 31, 2011 | $ | 2,369 | $ | (899 | ) | $ | 1,470 | |||||
| Net unrealized gains on securities available for sale, net of tax, $1,561 | 2,247 | — | 2,247 | |||||||||
| Reclassification adjustment for losses on securities, net of tax, $(393) | (566 | ) | — | (566 | ) | |||||||
| Net losses arising during the period, net of tax | — | — | — | |||||||||
| Reclassification adjustment for amortization of prior service cost and net gain included in salaries and employee benefits, net of tax $ 28 | — | 41 | 41 | |||||||||
| Balance at June 30, 2012 | $ | 4,050 | $ | (858 | ) | $ | 3,192 |
| 20 |
Changes in each component of accumulated other comprehensive income were as follows (in thousands):
| Three months ended June 30, 2013 | ||||||
| Details About Accumulated Other Comprehensive Income Components | Amount Reclassified From Accumulated Other Comprehensive Income | Affected Line Item in the Statement Where Net Income is Presented | ||||
| Amortization of prior service cost and net gain included in net periodic pension cost | $ | (74 | ) | Salaries and employee benefits | ||
| (74 | ) | Total before tax | ||||
| 30 | Benefit for income tax | |||||
| $ | (44 | ) | Net of tax | |||
| Three months ended June 30, 2012 | ||||||
| Details About Accumulated Other Comprehensive Income Components | Amount Reclassified From Accumulated Other Comprehensive Income | Affected Line Item in the Statement Where Net Income is Presented | ||||
| Gain on investment securities | $ | 968 | Gain on sales or calls of securities, net | |||
| Amortization of prior service cost and net gain included in net periodic pension cost | (34 | ) | Salaries and employee benefits | |||
| 934 | Total before tax | |||||
| (383 | ) | Provision for income tax | ||||
| $ | 551 | Net of tax | ||||
| Six months ended June 30, 2013 | ||||||
| Details About Accumulated Other Comprehensive Income Components | Amount Reclassified From Accumulated Other Comprehensive Income | Affected Line Item in the Statement Where Net Income is Presented | ||||
| Gain on investment securities | $ | 543 | Gain on sales or calls of securities, net | |||
| Amortization of prior service cost and net gain included in net periodic pension cost | (148 | ) | Salaries and employee benefits | |||
| 395 | Total before tax | |||||
| (163 | ) | Provision for income tax | ||||
| $ | 232 | Net of tax | ||||
| Six months ended June 30, 2012 | ||||||
| Details About Accumulated Other Comprehensive Income Components | Amount Reclassified From Accumulated Other Comprehensive Income | Affected Line Item in the Statement Where Net Income is Presented | ||||
| Gain on investment securities | $ | 959 | Gain on sales or calls of securities, net | |||
| Amortization of prior service cost and net gain included in net periodic pension cost | (69 | ) | Salaries and employee benefits | |||
| 890 | Total before tax | |||||
| (365 | ) | Provision for income tax | ||||
| $ | 525 | Net of tax | ||||
NOTE 12 – EARNINGS PER SHARE
Basic earnings per share (“EPS”), which excludes dilution, is computed by dividing income or loss available to common shareholders by the weighted-average number of common shares outstanding for the period. Diluted EPS reflects the potential dilution that could occur if securities or other contracts to issue common stock, such as stock options, result in the issuance of common stock which shares in the earnings of the Company. The treasury stock method has been applied to determine the dilutive effect of stock options in computing diluted EPS. Stock options for 214,302 and 255,285 shares of common stock were not considered in computing diluted earnings per common share for the three months ended June 30, 2013 and 2012 respectively, because they were anti-dilutive. Stock options for 214,302 and 256,285 shares of common stock were not considered in computing diluted earnings per common share for the six months ended June 30, 2013 and 2012 respectively, because they were anti-dilutive.
| 21 |
| Three months ended June 30, | Six months ended June 30, | |||||||||||||||
| 2013 | 2012 | 2013 | 2012 | |||||||||||||
| Calculation of basic earnings per share: | ||||||||||||||||
| Numerator - net income | $ | 894 | $ | 1,261 | $ | 2,155 | $ | 1,741 | ||||||||
| Denominator - | ||||||||||||||||
| Weighted average common shares outstanding | 6,835 | 6,834 | 6,835 | 6,834 | ||||||||||||
| Basic earnings per share | $ | 0.13 | $ | 0.18 | $ | 0.32 | $ | 0.25 | ||||||||
| Calculation of diluted earnings per share: | ||||||||||||||||
| Numerator - net income | $ | 894 | $ | 1,261 | $ | 2,155 | $ | 1,741 | ||||||||
| Denominator - | ||||||||||||||||
| Weighted average common shares outstanding | 6,835 | 6,834 | 6,835 | 6,834 | ||||||||||||
| Dilutive effect of outstanding options | 18 | — | 15 | — | ||||||||||||
| Weighted average common shares outstanding and common stock equivalents | 6,853 | 6,834 | 6,850 | 6,834 | ||||||||||||
| Diluted earnings per share | $ | 0.13 | $ | 0.18 | $ | 0.31 | $ | 0.25 | ||||||||
NOTE 13 – COMMITMENTS AND CONTINGENCIES
The Company is involved in legal actions arising from normal business activities. Management, based upon the advice of legal counsel, believes that the ultimate resolution of all pending legal actions will not have a material effect on the Company's financial position, results of its operations or its cash flows.
The Company was contingently liable under letters of credit issued on behalf of its customers in the amount of $4,758,000 and $4,713,000 at June 30, 2013 and December 31, 2012, respectively. At June 30, 2013, commercial and consumer lines of credit and real estate loans of approximately $39,862,000 and $30,407,000, respectively, were undisbursed. At December 31, 2012, commercial and consumer lines of credit and real estate loans of approximately $47,350,000 and $31,925,000, respectively, were undisbursed.
Loan commitments are typically contingent upon the borrower meeting certain financial and other covenants and such commitments typically have fixed expiration dates and require payment of a fee. As many of these commitments are expected to expire without being drawn upon, the total commitments do not necessarily represent future cash requirements. The Company evaluates each potential borrower and the necessary collateral on an individual basis. Collateral varies, but may include real property, bank deposits, debt securities, equity securities or business or personal assets.
Standby letters of credit are conditional commitments written by the Company to guarantee the performance of a customer to a third party. These guarantees are issued primarily relating to real estate projects and inventory purchases by the Company’s commercial customers and such guarantees are typically short term. Credit risk is similar to that involved in extending loan commitments to customers and the Company, accordingly, uses evaluation and collateral requirements similar to those for loan commitments. Most of such commitments are collateralized. The fair value of the liability related to these standby letters of credit, which represents the fees received for issuing the guarantees, was not significant at June 30, 2013 and December 31, 2012. The Company recognizes these fees as revenues over the term of the commitment or when the commitment is used.
Loan commitments and standby letters of credit involve, to varying degrees, elements of credit and market risk in excess of the amounts recognized in the balance sheet and do not necessarily represent the actual amount subject to credit loss. At June 30, 2013 and December 31, 2012, the Company had a reserve for unfunded commitments of $146,000 and $143,000, respectively.
A large portion of the loan portfolio of the Company is collateralized by real estate. At June 30, 2013, real estate served as the principal source of collateral with respect to approximately 81% of the Company’s loan portfolio. At June 30, 2013, real estate construction loans totaled $18,535,000, or 4% of the total loan portfolio, commercial loans secured by real estate totaled $319,206,000, or 63% of the total loan portfolio, and real estate mortgage loans totaled $68,637,000, or 14% of the total loan portfolio. See the discussion under “Loan Portfolio” starting on page 35. A further decline in the state and national economy, in general, combined with further deterioration in real estate values in the Company’s primary operating market areas, would have an adverse effect on the value of real estate as well as other collateral securing loans, plus the ability of certain borrowers to repay their outstanding loans and the overall demand for new loans, and this could have a material impact on the Company’s financial position, results of operations or its cash flows.
| 22 |
NVB has established a reserve for the anticipated settlement of criticisms in conjunction with a compliance examination conducted by the Federal Reserve Bank of San Francisco in 2010. During the three month period ending June 30, 2013, NVB received the final 2010 report of examination and in accordance with an agreement reached with the Federal Reserve Bank of San Francisco, finalized the amount of this reserve at $1,260,000. This amount is included in accrued interest payable and other liabilities on the balance sheet.
NOTE 14 – FAIR VALUE MEASUREMENTS
The Company groups its assets and liabilities measured at fair value in three levels, based on the markets in which the assets and liabilities are traded and the reliability of the assumptions used to determine fair value. These levels are:
| ● | Quoted prices in active markets for identical assets (Level 1): Inputs that are quoted unadjusted prices in active markets for identical assets that the Company has the ability to access at the measurement date. An active market for the asset is a market in which transactions for the asset or liability occur with sufficient frequency and volume to provide pricing information on an ongoing basis. |
| ● | Significant other observable inputs (Level 2): Inputs that reflect the assumptions market participants would use in pricing the asset or liability developed based on market data obtained from sources independent of the reporting entity including quoted prices for similar assets or liabilities, quoted prices for securities in inactive markets and inputs derived principally from, or corroborated by, observable market data by correlation or other means. |
| ● | Significant unobservable inputs (Level 3): Inputs that reflect the reporting entity's own assumptions about the assumptions market participants would use in pricing the asset or liability developed based on the best information available in the circumstances. |
Assets Recorded at Fair Value on a Recurring Basis:
The table below presents assets measured at fair value on a recurring basis (in thousands).
| As of June 30, 2013 | ||||||||||||||||
| Fair Value | Level 1 | Level 2 | Level 3 | |||||||||||||
| Available-for-sale securities: | ||||||||||||||||
| Obligations of U.S. government sponsored agencies | $ | 18,552 | $ | — | $ | 18,552 | $ | — | ||||||||
| Obligations of state and political subdivisions | 8,431 | — | 8,431 | — | ||||||||||||
| Government sponsored agency mortgage-backed securities | 271,578 | — | 271,578 | — | ||||||||||||
| Corporate debt securities | 4,762 | — | 4,762 | — | ||||||||||||
| Equity securities | 2,977 | — | 2,977 | — | ||||||||||||
| $ | 306,300 | $ | — | $ | 306,300 | $ | — | |||||||||
| At December 31, 2012 | ||||||||||||||||
| Fair Value | Level 1 | Level 2 | Level 3 | |||||||||||||
| Available-for-sale securities: | ||||||||||||||||
| Obligations of U.S. government sponsored agencies | $ | 21,118 | $ | — | $ | 21,118 | $ | — | ||||||||
| Obligations of state and political subdivisions | 11,197 | — | 11,197 | — | ||||||||||||
| Government sponsored agency mortgage-backed securities | 245,631 | — | 245,631 | — | ||||||||||||
| Corporate debt securities | 4,756 | — | 4,756 | — | ||||||||||||
| Equity securities | 3,113 | — | 3,113 | — | ||||||||||||
| $ | 285,815 | $ | — | $ | 285,815 | $ | — | |||||||||
Fair values for available-for-sale investment securities are based on quoted market prices for similar securities at June 30, 2013 and December 31, 2012. During the three and six month period s ended June 30, 2013, there were no transfers between Levels 1 and 2.
Assets Recorded at Fair Value on a Nonrecurring Basis:
The Company may be required, from time to time, to measure certain assets at fair value on a nonrecurring basis in accordance with U.S. GAAP. These adjustments to fair value usually result from application of lower-of-cost-or-fair value accounting or write-downs of individual assets. For assets measured at fair value on a nonrecurring basis that were still held in the balance sheet at quarter end, the following table provides the level of valuation assumptions used to determine each adjustment and the carrying value of the related assets at quarter end (in thousands).
| 23 |
| Total Losses | Total Losses | |||||||||||||||||||||||||||||||
| As of June 30, 2013 | For three months ended June 30, | For six months ended June 30, | ||||||||||||||||||||||||||||||
| Fair Value | Level 1 | Level 2 | Level 3 | 2013 | 2012 | 2013 | 2012 | |||||||||||||||||||||||||
| Impaired loans: | ||||||||||||||||||||||||||||||||
| Commercial | $ | 385 | $ | — | $ | — | $ | 385 | $ | (198 | ) | $ | — | $ | 88 | $ | — | |||||||||||||||
| Real estate - commercial | 625 | — | — | 625 | — | 1,278 | 239 | 1,457 | ||||||||||||||||||||||||
| Real estate - construction | 450 | — | — | 450 | — | 9 | 357 | 25 | ||||||||||||||||||||||||
| Real estate - mortgage | 118 | — | — | 118 | 186 | 70 | 272 | 70 | ||||||||||||||||||||||||
| Other | 109 | — | — | 109 | 140 | — | 177 | — | ||||||||||||||||||||||||
| OREO: | ||||||||||||||||||||||||||||||||
| Real estate - commercial | 181 | — | — | 181 | 104 | — | 123 | — | ||||||||||||||||||||||||
| Real estate - construction | 651 | — | — | 651 | 518 | 87 | 518 | 133 | ||||||||||||||||||||||||
| Real estate - mortgage | — | — | — | — | — | 77 | — | 152 | ||||||||||||||||||||||||
| Total assets measured at fair value on a nonrecurring basis | $ | 2,519 | $ | — | $ | — | $ | 2,519 | $ | 750 | $ | 1,521 | $ | 1,774 | $ | 1,837 | ||||||||||||||||
| As of December 31, 2012 | ||||||||||||||||
| Fair Value | Level 1 | Level 2 | Level 3 | |||||||||||||
| Impaired loans: | ||||||||||||||||
| Commercial | $ | 585 | $ | — | $ | — | $ | 585 | ||||||||
| Real estate - commercial | 2,222 | — | — | 2,222 | ||||||||||||
| Real estate - construction | 143 | — | — | 143 | ||||||||||||
| Real estate - mortgage | 464 | — | — | 464 | ||||||||||||
| Installment | 75 | — | — | 75 | ||||||||||||
| Other | 25 | — | — | 25 | ||||||||||||
| OREO: | ||||||||||||||||
| Real estate - construction | 7,360 | — | — | 7,360 | ||||||||||||
| Real estate - mortgage | 184 | — | — | 184 | ||||||||||||
| Total assets measured at fair value | ||||||||||||||||
| on a nonrecurring basis | $ | 11,058 | $ | — | $ | — | $ | 11,058 | ||||||||
Impaired Loans - The fair value of impaired loans with specific allocations of the allowance for loan losses is generally based on recent real estate appraisals. These appraisals may utilize a single valuation approach or a combination of approaches including comparable sales and the income approach. Adjustments are routinely made in the appraisal process by the independent appraisers to adjust for differences between the comparable sales and income data available, and additional discounts by management for known market factors and time since the last appraisal. Such adjustments are usually significant and typically result in a Level 3 classification of the inputs for determining fair value. Impaired loans are evaluated on a quarterly basis for additional impairment and adjusted accordingly.
Other Real Estate Owned – Nonrecurring adjustments to certain commercial and residential real estate properties classified as other real estate owned (OREO) are measured at fair value, less costs to sell. Fair values are based on recent real estate appraisals. These appraisals may use a single valuation approach or a combination of approaches including comparable sales and the income approach. Adjustments are routinely made in the appraisal process by the independent appraisers to adjust for differences between the comparable sales and income data available. Such adjustments are usually significant and typically result in a Level 3 classification of the inputs for determining fair value.
The following table presents quantitative information about level 3 fair value measurements for financial instruments measured at fair value on a nonrecurring basis (in thousands): There were no adjustments for “Commercial” impaired loans.
As of June 30, 2013
| Fair Value | Valuation Techniques | Unobservable Inputs | Range (Weighted Average) | |||||||||
| Impaired loans: | ||||||||||||
| Real estate - commercial | $ | 625 | Comparable sales approach | Discount adjustment for differences between comparable sales | 6% to 11% (9%) | |||||||
| Real estate - construction | $ | 450 | Comparable sales approach | Discount adjustment for differences between comparable sales | 2% to 3% (3%) | |||||||
| Real estate - mortgage | $ | 118 | Comparable sales approach | Discount adjustment for differences between comparable sales | 6% to 11% (9%) | |||||||
| Other | $ | 109 | Comparable sales approach | Discount adjustment for differences between comparable sales | 6% to 11% (9%) | |||||||
| OREO: | ||||||||||||
| Real estate - commercial | $ | 181 | Comparable sales approach | Discount adjustment for differences between comparable sales | 6% to 11% (9%) | |||||||
| Real estate - construction | $ | 651 | Comparable sales approach | Discount adjustment for differences between comparable sales | 0% to 6% (6%) | |||||||
| 24 |
As of December 31, 2012
| Fair Value | Valuation Techniques | Unobservable Inputs | Range (Weighted Average) | |||||||||
| Impaired loans: | ||||||||||||
| Real estate - commercial | $ | 2,222 | Comparable sales approach | Discount adjustment for differences between comparable sales | 6% to 11% (9%) | |||||||
| Real estate - construction | $ | 143 | Comparable sales approach | Discount adjustment for differences between comparable sales | 2% to 3% (3%) | |||||||
| Real estate - mortgage | $ | 464 | Comparable sales approach | Discount adjustment for differences between comparable sales | 6% to 11% (9%) | |||||||
| OREO: | ||||||||||||
| Real estate - commercial | $ | 7,360 | Comparable sales approach | Discount adjustment for differences between comparable sales | 6% to 11% (9%) | |||||||
| Real estate - construction | $ | 184 | Comparable sales approach | Discount adjustment for differences between comparable sales | 0% to 6% (6%) | |||||||
Disclosures about Fair Value of Financial Instruments
The fair values presented represent the Company’s best estimate of fair value using the methodologies discussed below. The fair values of financial instruments which have a relatively short period of time between their origination and their expected realization were valued using historical cost. The values assigned do not necessarily represent amounts which ultimately may be realized. In addition, these values do not give effect to discounts to fair value which may occur when financial instruments are sold in larger quantities.
The following assumptions were used as of June 30, 2013 and December 31, 2012 to estimate the fair value of each class of financial instruments for which it is practicable to estimate that value.
| a) | Cash and Due From Banks - The carrying amounts of cash and short-term instruments approximate fair values and are classified as Level 1. |
| b) | Federal Funds Sold - The carrying amounts of cash and short-term instruments approximate fair values and are classified as Level 1. |
| c) | Time Deposits at Other Financial Institutions - The carrying amounts of cash and short-term instruments approximate fair values and are classified as Level 2. |
| d) | FHLB, FRB Stock and Other Securities - It was not practicable to determine the fair value of FHLB or FRB stock due to the restrictions placed on its transferability |
| e) | Investment Securities – The fair value of investment securities are based on quoted market prices, if available. If a quoted market price is not available, fair value is estimated using quoted market prices for similar securities. Available-for-sale securities are carried at fair value. |
| f) | Loans - Commercial loans, residential mortgages, construction loans and direct financing leases are segmented by fixed and adjustable rate interest terms, by maturity, and by performing and nonperforming categories. | |
| The fair value of performing loans are estimated as follows: For variable rate loans that reprice frequently and with no significant change in credit risk, fair values are based on carrying values resulting in a Level 3 classification. Fair values for other loans are estimated using discounted cash flow analyses, using interest rates currently being offered for loans with similar terms to borrowers of similar credit quality resulting in a Level 3 classification. Impaired loans are valued at the lower of cost or fair value as described previously. The methods utilized to estimate the fair value of loans do not necessarily represent an exit price. | ||
| The fair value of nonperforming loans is estimated by discounting estimated future cash flows using current interest rates with an additional risk adjustment reflecting the individual characteristics of the loans, or using the fair value of underlying collateral for collateral dependent loans as a practical expedient. |
| g) | Deposits – The fair values disclosed for noninterest-bearing and interest-bearing demand deposits and savings and money market accounts are, by definition, equal to the amount payable on demand at the reporting date (i.e., their carrying amount) resulting in a Level 1 classification. Fair values for certificates of deposit are estimated using a discounted cash flows calculation that applies interest rates currently being offered on certificates to a schedule of aggregated expected monthly maturities on time deposits resulting in a Level 2 classification. |
| 25 |
| h) | Subordinated Debentures - The fair values of the Company’s Subordinated Debentures are estimated using discounted cash flow analyses based on the current borrowing rates for similar types of borrowing arrangements resulting in a Level 3 classification. |
| i) | Commitments to Fund Loans/Standby Letters of Credit - The fair values of commitments are 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. The differences between the carrying value of commitments to fund loans or standby letters of credit and their fair value are not significant and therefore not included in the following table. |
| j) | Accrued Interest Receivable/Payable – The carrying amounts of accrued interest approximate fair value and therefore follow the same classification as the related asset or liability. |
The carrying amounts and estimated fair values of the Company’s financial instruments are as follows (in thousands):
| Fair Value Measurements at June 30, 2013, Using | ||||||||||||||||||||
| Carrying Amount | Level 1 | Level 2 | Level 3 | Total | ||||||||||||||||
| FINANCIAL ASSETS | ||||||||||||||||||||
| Cash and due from banks | $ | 21,431 | $ | 21,431 | $ | — | $ | — | $ | 21,431 | ||||||||||
| Federal funds sold | — | — | — | — | — | |||||||||||||||
| Time deposits at other financial institutions | 2,219 | — | 2,219 | — | 2,219 | |||||||||||||||
| FHLB, FRB and other securities | 8,402 | N/A | ||||||||||||||||||
| Securities: | ||||||||||||||||||||
| Available-for-sale | 306,300 | — | 306,300 | — | 306,300 | |||||||||||||||
| Held-to-maturity | 6 | — | 6 | — | 6 | |||||||||||||||
| Loans | 494,747 | — | — | 503,363 | 503,363 | |||||||||||||||
| Accrued interest receivable | 2,257 | — | 794 | 1,463 | 2,257 | |||||||||||||||
| FINANCIAL LIABILITIES | ||||||||||||||||||||
| Deposits: | ||||||||||||||||||||
| Nonmaturity deposits | $ | 607,135 | $ | 607,135 | $ | — | $ | — | $ | 607,135 | ||||||||||
| Time deposits | 157,920 | — | 158,090 | — | 158,090 | |||||||||||||||
| Other borrowed funds | 22,025 | 22,025 | — | — | 22,025 | |||||||||||||||
| Subordinated debentures | 21,651 | — | — | 8,081 | 8,081 | |||||||||||||||
| Accrued interest payable | 123 | 4 | 42 | 77 | 123 | |||||||||||||||
| 26 |
| Fair
Value Measurements at December 31, 2012, Using | ||||||||||||||||||||
| Carrying Amount | Level 1 | Level 2 | Level 3 | Total | ||||||||||||||||
| FINANCIAL ASSETS | ||||||||||||||||||||
| Cash and due from banks | $ | 22,654 | $ | 22,654 | $ | — | $ | — | $ | 22,654 | ||||||||||
| Federal funds sold | 15,865 | 15,865 | — | — | 15,865 | |||||||||||||||
| Time deposits at other financial institutions | 2,219 | — | 2,219 | — | 2,219 | |||||||||||||||
| FHLB, FRB and other securities | 8,313 | — | — | — | N/A | |||||||||||||||
| Securities: | ||||||||||||||||||||
| Available-for-sale | 285,815 | — | 285,815 | — | 285,815 | |||||||||||||||
| Held-to-maturity | 6 | — | 6 | — | 6 | |||||||||||||||
| Loans | 481,753 | — | — | 500,689 | 500,689 | |||||||||||||||
| Accrued interest receivable | 2,217 | — | 767 | 1,450 | 2,217 | |||||||||||||||
| FINANCIAL LIABILITIES | ||||||||||||||||||||
| Deposits: | ||||||||||||||||||||
| Nonmaturity deposits | $ | 596,204 | $ | 596,204 | $ | — | $ | — | $ | 596,204 | ||||||||||
| Time deposits | 172,376 | — | 172,805 | — | 172,805 | |||||||||||||||
| Subordinated debentures | 21,651 | — | — | 9,018 | 9,018 | |||||||||||||||
| Accrued interest payable | 136 | 2 | 54 | 80 | 136 | |||||||||||||||
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.
Certain statements in this Form 10-Q (excluding statements of fact or historical financial information) involve forward-looking information within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended, and are subject to the “safe harbor” created by those sections. These forward-looking statements involve certain risks and uncertainties that could cause actual results to differ materially from those in the forward-looking statements. Such risks and uncertainties include, but are not limited to, the following factors: competitive pressure in banking industry increases significantly; changes in the interest rate environment reduce margins; general economic conditions, either nationally or regionally, are less favorable than expected, resulting in, among other things, a deterioration in credit quality and an increase in the provision for possible loan losses; changes in the regulatory environment; changes in business conditions, particularly in the Northern California region; volatility of rate sensitive deposits; operational risks including data processing system failures or fraud; asset/liability matching risks and liquidity risks; California state budget problems; the U.S. “war on terrorism” and military action by the U.S. in the Middle East; and changes in the securities markets.
Critical Accounting Policies
General
North Valley Bancorp’s financial statements are prepared in accordance with accounting principles generally accepted in the United States of America (GAAP). The financial information contained within our financial statements is, to a significant extent, financial information that is based on measures of the financial effects of transactions and events that have already occurred. A variety of factors could affect the ultimate value that is obtained either when earning income, recognizing an expense, recovering an asset or relieving a liability. We use historical loss factors as one factor in determining the probable incurred losses that may be present in our loan portfolio. Actual losses could differ significantly from the historical factors that we use. Another estimate that we use is related to the expected useful lives of our depreciable assets. In addition, GAAP itself may change from one previously acceptable method to another method. Although the economics of our transactions would be the same, the timing of events that would impact our transactions could change.
Allowance for Loan Losses. The allowance for loan losses is an estimate of probable incurred loan losses in the Company's loan portfolio as of the balance-sheet date. The allowance is established through a provision for loan losses which is charged to expense. Additions to the allowance are expected to maintain the adequacy of the total allowance after loan losses and loan growth. Credit exposures determined to be uncollectible are charged against the allowance. Cash received on previously charged off amounts is recorded as a recovery to the allowance. The overall allowance consists of two primary components, specific reserves related to impaired loans and general reserves for inherent losses related to non-impaired loans. Non-impaired loans are evaluated collectively for impairment as a group by loan type and common risk characteristics.
| 27 |
A loan is considered impaired when, based on current information and events, it is probable that the Company will be unable to collect all amounts due, including principal and interest, according to the contractual terms of the original agreement. Loans determined to be impaired are individually evaluated for impairment. When a loan is impaired, the Company measures impairment based on the present value of expected future cash flows discounted at the loan's effective interest rate, except that as a practical expedient, it may measure impairment based on a loan's observable market price, or the fair value of the collateral if the loan is collateral dependent. A loan is collateral dependent if the repayment of the loan is expected to be provided solely by the underlying collateral. For further information on the allowance for loan losses, see Note 4 to the Notes to Condensed Consolidated Financial Statements in Item I above.
Allowance for Loan Losses on Off-Balance-Sheet Credit Exposures. The Company also maintains a separate allowance for off-balance-sheet commitments. Management estimates anticipated losses using historical data and utilization assumptions. The allowance for off-balance-sheet commitments is included in accrued interest payable and other liabilities on the consolidated balance sheet.
Other Real Estate Owned (“OREO”). OREO represents properties acquired through foreclosure or physical possession. Write-downs to fair value at the time of transfer to OREO are charged to allowance for loan losses. Subsequent to foreclosure, management periodically evaluates the value of OREO held for sale and records a valuation allowance for any subsequent declines in fair value less selling costs. Subsequent declines in value are charged to operations. The reported value of OREO is based on our assessment of information available to us at the end of a reporting period and depends upon a number of factors, including our historical experience, economic conditions, and issues specific to individual properties. Management’s evaluation of these factors involves subjective estimates and judgments that may change.
Share Based Compensation. At June 30, 2013, the Company had two stock-based compensation plans: the 1998 Employee Stock Incentive Plan and the 2008 Stock Incentive Plan, which are described more fully in Note 10 to the Notes to Condensed Consolidated Financial Statements. Compensation cost is recognized on all share-based payments over the requisite service periods of the awards based on the grant-date fair value of the options determined using the Black-Scholes-Merton based option valuation model. Critical assumptions that are assessed in computing the fair value of share-based payments include stock price volatility, expected dividend rates, the risk free interest rate and the expected lives of such options. Compensation cost recorded is net of estimated forfeitures expected to occur prior to vesting. For further information on the computation of the fair value of share-based payments, see Note 10 to the Notes to Condensed Consolidated Financial Statements on page 19 .
Impairment of Investment Securities. An investment security is impaired when its carrying value is greater than its fair value. Investment securities that are impaired are evaluated on at least a quarterly basis and more frequently when economic or market conditions warrant such an evaluation to determine whether such a decline in their fair value is other than temporary. Management utilizes criteria such as the magnitude and duration of the decline and the intent and ability of the Company to retain its investment in the securities for a period of time sufficient to allow for an anticipated recovery in fair value, in addition to the reasons underlying the decline, to determine whether the loss in value is other than temporary. The term "other than temporary" is not intended to indicate that the decline is permanent, but indicates that the prospects for a near-term recovery of value is not necessarily favorable, or that there is a lack of evidence to support a realizable value equal to or greater than the carrying value of the investment. Once a decline in value is determined to be other than temporary, and management does not intend to sell the security or it is more likely than not that the Company will not be required to sell the security before recovery, only the portion of the impairment loss representing credit exposure is recognized as a charge to earnings, with the balance recognized as a charge to other comprehensive income. If management intends to sell the security or it is more likely than not that the Company will be required to sell the security before recovering its forecasted cost, the entire impairment loss is recognized as a charge to earnings.
Accounting for Income Taxes. The Company files its income taxes on a consolidated basis with its subsidiary. The allocation of income tax expense (benefit) represents each entity's proportionate share of the consolidated provision for income taxes.
The Company applies the asset and liability method to account for income taxes. Deferred tax assets and liabilities are calculated by applying applicable tax laws to the differences between the financial statement basis and the tax basis of assets and liabilities. The effect on deferred taxes of changes in tax laws and rates is recognized in operations in the period that includes the enactment date. On the consolidated balance sheet, net deferred tax assets are included in other assets.
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The Company accounts for uncertainty in income taxes by recording only tax positions that met the more likely than not recognition threshold, that the tax position would be sustained in a tax examination with the assumption that the examination will occur.
When tax returns are filed, it is highly certain that some positions taken would be sustained upon examination by the taxing authorities, while others are subject to uncertainty about the merits of the position taken or the amount of the position that would be ultimately sustained. The benefit of a tax position is recognized in the financial statements in the period during which, based on all available evidence, management believes it is more likely than not that the position will be sustained upon examination, including the resolution of appeals or litigation processes, if any. Tax positions taken are not offset or aggregated with other positions. Tax positions that meet the more-likely-than-not recognition threshold are measured as the largest amount of tax benefit that is more than 50 percent likely of being realized upon settlement with the applicable taxing authority. The portion of the benefits associated with tax positions taken that exceeds the amount measured as described above is reflected as a liability for unrecognized tax benefits in the accompanying balance sheet along with any associated interest and penalties that would be payable to the taxing authorities upon examination.
The Company evaluates deferred income tax assets for recoverability based on all available evidence. This process involves significant management judgment about assumptions that are subject to change from period to period based on changes in tax laws, our ability to successfully implement tax planning strategies, or variances between our future projected operating performance and our actual results. The Company is required to establish a valuation allowance for deferred tax assets if we determine, based on available evidence at the time the determination is made, that it is more likely than not that some portion or all of the deferred tax assets will not be realized. In determining the more-likely-than-not criterion, we evaluate all positive and negative available evidence as of the end of each reporting period. Future adjustments to the deferred tax asset valuation allowance, if any, will be determined based upon changes in the expected realization of net deferred tax assets. The realization of deferred tax assets ultimately depends on the existence of sufficient taxable income in the carry back and carry forward periods under the tax law.
Business Organization
North Valley Bancorp (the “Company”) is a California corporation and a bank holding company for North Valley Bank, a California state-chartered, Federal Reserve member bank (“NVB”). NVB operates out of its main office located at 300 Park Marina Circle, Redding, California 96001, with twenty-two branches, including two supermarket branches in eight counties in Northern California. The Company views its service area as having four distinct markets: the Redding market, the Coastal market, the I-80 Corridor market and the Santa Rosa market.
The Company’s principal business consists of attracting deposits from the general public and using the funds to originate commercial, real estate and installment loans to customers, who are predominately small and middle market businesses and middle income individuals. The Company’s primary source of revenues is interest income from its loan and investment securities portfolios. The Company is not dependent on any single customer for more than ten percent of its revenues.
Overview
Financial Results
| (in thousands except per share amounts) | Three months ended June 30, | Six months ended June 30, | ||||||||||||||
| 2013 | 2012 | 2013 | 2012 | |||||||||||||
| Net interest income | $ | 7,578 | $ | 7,329 | $ | 15,014 | $ | 14,721 | ||||||||
| Provision for loan losses | — | 1,000 | — | 1,400 | ||||||||||||
| Noninterest income | 3,651 | 4,687 | 7,980 | 7,946 | ||||||||||||
| Noninterest expense | 9,936 | 9,228 | 19,824 | 18,884 | ||||||||||||
| Provision for income taxes | 399 | 527 | 1,015 | 642 | ||||||||||||
| Net income | $ | 894 | $ | 1,261 | $ | 2,155 | $ | 1,741 | ||||||||
| Per Share Amounts | ||||||||||||||||
| Basic Income Per Share | $ | 0.13 | $ | 0.18 | $ | 0.32 | $ | 0.25 | ||||||||
| Diluted Income Per Share | $ | 0.13 | $ | 0.18 | $ | 0.31 | $ | 0.25 | ||||||||
| Annualized Return on Average Assets | 0.40 | % | 0.56 | % | 0.48 | % | 0.38 | % | ||||||||
| Annualized Return on Average Equity | 3.69 | % | 5.47 | % | 4.49 | % | 3.81 | % | ||||||||
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The Company had net income of $894,000, or $0.13 per diluted share, and $2,155,000, or $0.31 per diluted share, for the three and six months ended June 30, 2013, respectively. This compares to net income of $1,261,000, or $0.18 per diluted share, and $1,741,000, or $0.25 per diluted share, for the three and six months ended June 30, 2012. The decrease in net income for three months ended June 30, 2013 compared to the three months ended June 30, 2012 was primarily attributed to a decrease in gains on sale of securities, an increase in other real estate owned expenses, partially offset by an increase on gain on sale of loans and a decrease in the provision for loan losses. The Company did not record a provision for loan losses for the quarter ended June 30, 2013 compared to a provision for loan losses of $1,000,000 for the quarter ended June 30, 2012. Net interest income increased $249,000 for the three months ended June 30, 2013, compared to the same period in 2012. Noninterest income decreased $1,036,000 for the three months ended June 30, 2013 compared to the same period in 2012 primarily due to the reduction in gains on sale of securities. Noninterest expense increased $708,000 for the three months ended June 30, 2013 compared to the three months ended June 30, 2012 due primarily to the increase in other real estate owned expenses.
Net interest income increased $293,000 for the six months ended June 30, 2013, compared to the same period in 2012, and noninterest income increased $34,000 for the six months ended June 30, 2013 compared to the same period in 2012. Noninterest expense increased $940,000 for the six months ended June 30, 2013 compared to the six months ended June 30, 2012 due primarily to the recording of $560,000 in additional reserves for expenses to be incurred during 2013 in connection with NVB’s settlement of a compliance exam conducted by the Federal Reserve Bank of San Francisco in 2010. At June 30, 2013, the total amount reserved for this purpose was $1,260,000.
On June 26, 2013, the Company announced that its Board of Directors has authorized the repurchase of up to 5% of the Company’s outstanding common shares, or approximately 340,000 shares. During the six month period ended June 30, 2013, there were no repurchases of common shares. Future repurchases will be made from time to time by the Company in the open market, or privately negotiated transactions, as conditions allow. All open market transactions will be structured to comply with Securities and Exchange Commission Rule 10b-18 and all shares repurchased under this program will be retired. The number, price and timing of the repurchases shall be at the Company’s sole discretion and the program will be re-evaluated from time to time depending on market conditions, liquidity needs or other factors. The Board of Directors, based on such re-evaluations, may suspend, terminate, modify or cancel the program at any time without notice.
Results of Operation
Net Interest Income and Net Interest Margin (fully taxable equivalent basis)
Net interest income is the difference between interest earned on loans and investments and interest paid on deposits and borrowings, and is the primary revenue source for the Company. Net interest margin is net interest income expressed as a percentage of average earning assets. These items have been adjusted to give effect to $45,000 and $70,000 in taxable-equivalent interest income on tax-free investments for the three month periods ended June 30, 2013 and 2012, respectively.
Net interest income for the three months ended June 30, 2013 was $7,623,000, a $224,000, or 3.0%, increase from net interest income of $7,399,000 for the same period in 2012. Interest income decreased $464,000, or 5.5%, to $8,026,000 for the three month period ended June 30, 2013 compared to the same period in 2012, due primarily to both a decrease in rates earned on loans and securities and a decrease in average securities which was partially offset by an increase in average loan balances. The Company had foregone interest income for the loans placed on nonaccrual status of $50,000 during the three months ended June 30, 2013 compared to $203,000 for the same period in 2012. Average loans outstanding during the three months ended June 30, 2013 increased $42,037,000, or 9.4%, to $491,252,000 compared to the same period in 2012. This higher loan volume increased interest income by $594,000. The average yield earned on the loan portfolio decreased 41 basis points to 5.24% for the three months ended June 30, 2013. This decrease in yield decreased interest income for the three months ended June 30, 2013 by $502,000. The total increase to interest income from the loan portfolio was $92,000 for the three months ended June 30, 2013. The average balance of the investment portfolio decreased $33,692,000, or 10.1%, which accounted for a $247,000 reduction in interest income and a decrease in average yield of the investment portfolio of 44 basis points reduced interest income by $304,000.
Interest expense for the three months ended June 30, 2013 compared to the same period in 2012, decreased $688,000, or 63.1%, to $403,000. The average rate paid on other borrowed funds decreased 381 basis points to 2.30% for the period ended June 30, 2013 compared to 6.11% for the same period in 2012, resulting in a decrease to interest expense of $221,000 along with a decrease in average other borrowed funds of $8,614,000 which reduced interest expense by $132,000. The average rates paid on time deposits decreased 44 basis points to 0.44% and reduced interest expense by $176,000 along with a decrease in average time deposits of $42,851,000 which reduced interest expense by $94,000 for the period ended June 30, 2013.
The net interest margin for the three months ended June 30, 2013 increased 10 basis points to 3.77% from 3.67% for the same period in 2012 and a 4 basis point decrease from the 3.81% net interest margin for the linked quarter ended March 31, 2013.
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The following table sets forth the Company’s consolidated condensed average daily balances and the corresponding average yields received and average rates paid of each major category of assets, liabilities, and stockholders’ equity for the periods indicated:
| Schedule of Average Daily Balance and Average Yields and Rates | ||||||||||||||||||||||||
| (Dollars in thousands) | ||||||||||||||||||||||||
| Three months ended June 30, 2013 | Three months ended June 30, 2012 | |||||||||||||||||||||||
| Average | Yield/ | Interest | Average | Yield/ | Interest | |||||||||||||||||||
| Balance | Rate | Amount | Balance | Rate | Amount | |||||||||||||||||||
| Assets | ||||||||||||||||||||||||
| Earning assets: | ||||||||||||||||||||||||
| Federal funds sold | $ | 20,786 | 0.23 | % | $ | 12 | $ | 27,049 | 0.25 | % | $ | 17 | ||||||||||||
| Investment securities: | ||||||||||||||||||||||||
| Taxable | 290,563 | 2.02 | % | 1,465 | 320,264 | 2.43 | % | 1,943 | ||||||||||||||||
| Tax exempt (1) | 8,238 | 6.48 | % | 133 | 12,229 | 6.76 | % | 206 | ||||||||||||||||
| Total investments | 298,801 | 2.15 | % | 1,598 | 332,493 | 2.59 | % | 2,149 | ||||||||||||||||
| Loans (2)(3) | 491,252 | 5.24 | % | 6,416 | 449,215 | 5.65 | % | 6,324 | ||||||||||||||||
| Total earning assets | 810,839 | 3.97 | % | 8,026 | 808,757 | 4.21 | % | 8,490 | ||||||||||||||||
| Nonearning assets | 105,675 | 111,090 | ||||||||||||||||||||||
| Allowance for loan losses | (9,591 | ) | (12,098 | ) | ||||||||||||||||||||
| Total nonearning assets | 96,084 | 98,992 | ||||||||||||||||||||||
| Total assets | $ | 906,923 | $ | 907,749 | ||||||||||||||||||||
| Liabilities and Stockholders' Equity | ||||||||||||||||||||||||
| Interest bearing liabilities: | ||||||||||||||||||||||||
| Transaction accounts | $ | 194,034 | 0.04 | % | $ | 18 | $ | 179,726 | 0.08 | % | $ | 34 | ||||||||||||
| Savings and money market | 244,943 | 0.12 | % | 76 | 222,669 | 0.23 | % | 125 | ||||||||||||||||
| Time certificates | 159,564 | 0.44 | % | 175 | 202,415 | 0.88 | % | 445 | ||||||||||||||||
| Other borrowed funds | 23,347 | 2.30 | % | 134 | 31,961 | 6.11 | % | 487 | ||||||||||||||||
| Total interest bearing liabilities | 621,888 | 0.26 | % | 403 | 636,771 | 0.69 | % | 1,091 | ||||||||||||||||
| Demand deposits | 167,757 | 157,268 | ||||||||||||||||||||||
| Other liabilities | 20,088 | 21,299 | ||||||||||||||||||||||
| Total liabilities | 809,733 | 815,338 | ||||||||||||||||||||||
| Stockholders' equity | 97,190 | 92,411 | ||||||||||||||||||||||
| Total liabilities and stockholders' equity | $ | 906,923 | $ | 907,749 | ||||||||||||||||||||
| Net interest income | $ | 7,623 | $ | 7,399 | ||||||||||||||||||||
| Net interest spread | 3.71 | % | 3.52 | % | ||||||||||||||||||||
| Net interest margin | 3.77 | % | 3.67 | % | ||||||||||||||||||||
| (1) Tax-equivalent basis; non-taxable securities are exempt from federal taxation. | ||||||||||||||||||||||||
| (2) Loans on nonaccrual status have been included in the computations of averages balances. | ||||||||||||||||||||||||
| (3) Includes loan fees of $72 and $89 for the three months ended June 30, 2013 and 2012, respectively. | ||||||||||||||||||||||||
Net interest income for the six months ended June 30, 2013 was $15,114,000, a $249,000, or 1.7%, increase from net interest income of $14,865,000 for the same period in 2012. The Company had foregone interest income for the loans placed on nonaccrual status of $135,000 during the six months ended June 30, 2013 compared to $357,000 for the same period in 2012. The average loans outstanding during the six months ended June 30, 2013 increased $37,505,000, or 8.3%, to $487,852,000. This higher loan volume increased interest income by $1,069,000. The average yield earned on the loan portfolio decreased 42 basis points to 5.28% for the six months ended June 30, 2013. This decrease in yield decreased interest income by $1,081,000. The net decrease in interest income from the loan portfolio was $12,000. The average balance of the investment portfolio decreased $39,073,000, or 11.8%, which accounted for a $557,000 decrease in interest income and a decrease in average yield of the investment portfolio of 45 basis points reduced interest income by $641,000.
Interest expense for the six months ended June 30, 2013 decreased $1,473,000, or 63.8%, to $835,000 compared to the same period in 2012. The average rate paid on other borrowed funds decreased 370 basis points to 2.39% for the six month period ended June 30, 2013 compared to 6.09% for the same period in 2012, resulting in a decrease to interest expense of $415,000 along with a decrease in average other borrowed funds of $9,457,000 which reduced interest expense by $288,000. The average rates paid on time deposits decreased 48 basis points to 0.47% and reduced interest expense by $396,000 along with a decrease in average time deposits of $44,794,000 which reduced interest expense by $213,000 for the period ended June 30, 2013.
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The net interest margin for the six months ended June 30, 2013 increased 14 basis points to 3.78% from 3.64% for the same period in 2012. The following table sets forth the Company’s consolidated condensed average daily balances and the corresponding average yields received and average rates paid of each major category of assets, liabilities, and stockholders’ equity for the periods indicated (these items have been adjusted to give effect to $100,000 and $144,000 in taxable-equivalent interest income on tax-free investments for the six month periods ended June 30, 2013 and 2012, respectively):
| Schedule of Average Daily Balance and Average Yields and Rates | ||||||||||||||||||||||||
| (Dollars in thousands) | ||||||||||||||||||||||||
| Six months ended June 30, 2013 | Six months ended June 30, 2012 | |||||||||||||||||||||||
| Average Balance | Yield/Rate | InterestAmount | Average Balance | Yield/Rate | InterestAmount | |||||||||||||||||||
| Assets | ||||||||||||||||||||||||
| Earning assets: | ||||||||||||||||||||||||
| Federal funds sold | $ | 26,916 | 0.23 | % | $ | 31 | $ | 38,000 | 0.24 | % | $ | 45 | ||||||||||||
| Investment securities: | ||||||||||||||||||||||||
| Taxable | 283,020 | 2.02 | % | 2,841 | 318,520 | 2.46 | % | 3,910 | ||||||||||||||||
| Tax exempt (1) | 9,034 | 6.59 | % | 295 | 12,607 | 6.74 | % | 424 | ||||||||||||||||
| Total investments | 292,054 | 2.17 | % | 3,136 | 331,127 | 2.62 | % | 4,334 | ||||||||||||||||
| Loans (2)(3) | 487,852 | 5.28 | % | 12,782 | 450,347 | 5.70 | % | 12,794 | ||||||||||||||||
| Total earning assets | 806,822 | 3.99 | % | 15,949 | 819,474 | 4.20 | % | 17,173 | ||||||||||||||||
| Nonearning assets | 105,291 | 104,851 | ||||||||||||||||||||||
| Allowance for loan losses | (10,036 | ) | (12,363 | ) | ||||||||||||||||||||
| Total nonearning assets | 95,255 | 92,488 | ||||||||||||||||||||||
| Total assets | $ | 902,077 | $ | 911,962 | ||||||||||||||||||||
| Liabilities and Stockholders' Equity | ||||||||||||||||||||||||
| Interest bearing liabilities: | ||||||||||||||||||||||||
| Transaction accounts | $ | 191,102 | 0.04 | % | $ | 36 | $ | 177,863 | 0.09 | % | $ | 81 | ||||||||||||
| Savings and money market | 242,690 | 0.13 | % | 154 | 221,199 | 0.24 | % | 270 | ||||||||||||||||
| Time certificates | 162,863 | 0.47 | % | 378 | 207,657 | 0.95 | % | 987 | ||||||||||||||||
| Other borrowed funds | 22,504 | 2.39 | % | 267 | 31,961 | 6.09 | % | 970 | ||||||||||||||||
| Total interest bearing liabilities | 619,159 | 0.27 | % | 835 | 638,680 | 0.72 | % | 2,308 | ||||||||||||||||
| Demand deposits | 167,606 | 157,826 | ||||||||||||||||||||||
| Other liabilities | 18,473 | 23,888 | ||||||||||||||||||||||
| Total liabilities | 805,238 | 820,394 | ||||||||||||||||||||||
| Stockholders' equity | 96,839 | 91,568 | ||||||||||||||||||||||
| Total liabilities and stockholders' equity | $ | 902,077 | $ | 911,962 | ||||||||||||||||||||
| Net interest income | $ | 15,114 | $ | 14,865 | ||||||||||||||||||||
| Net interest spread | 3.72 | % | 3.48 | % | ||||||||||||||||||||
| Net interest margin | 3.78 | % | 3.64 | % | ||||||||||||||||||||
| (1) Tax-equivalent basis; non-taxable securities are exempt from federal taxation. | ||||||||||||||||||||||||
| (2) Loans on nonaccrual status have been included in the computations of averages balances. | ||||||||||||||||||||||||
| (3) Includes loan fees of $190 and $127 for the six months ended June 30, 2013 and 2012, respectively. | ||||||||||||||||||||||||
The following table sets forth a summary of the changes in interest income and interest expense due to changes in average asset and liability balances (volume) and changes in average interest rates for the periods indicated. The change in interest due to both rate and volume has been allocated to the change in rate.
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| Changes in Volume/Rate | ||||||||||||||||||||||||
| (Dollars in thousands) | Three months ended June 30, 2013 compared with Three months ended June 30, 2012 | Six months ended June 30, 2013 compared with Six months ended June 30, 2012 | ||||||||||||||||||||||
| Average Volume | Average Yield/Rate | Total Increase (Decrease) | Average Volume | Average Yield/Rate | Total Increase (Decrease) | |||||||||||||||||||
| Interest Income | ||||||||||||||||||||||||
| Interest on Federal funds sold | $ | (4 | ) | $ | (1 | ) | $ | (5 | ) | $ | (13 | ) | $ | (1 | ) | $ | (14 | ) | ||||||
| Interest on investments: | ||||||||||||||||||||||||
| Taxable securities | (180 | ) | (298 | ) | (478 | ) | (437 | ) | (632 | ) | (1,069 | ) | ||||||||||||
| Tax exempt securities (1) | (67 | ) | (6 | ) | (73 | ) | (120 | ) | (9 | ) | (129 | ) | ||||||||||||
| Total investments | (247 | ) | (304 | ) | (551 | ) | (557 | ) | (641 | ) | (1,198 | ) | ||||||||||||
| Interest on loans | 594 | (502 | ) | 92 | 1,069 | (1,081 | ) | (12 | ) | |||||||||||||||
| Total interest income | 343 | (807 | ) | (464 | ) | 499 | (1,723 | ) | (1,224 | ) | ||||||||||||||
| Interest Expense | ||||||||||||||||||||||||
| Transaction accounts | $ | 3 | $ | (19 | ) | $ | (16 | ) | $ | 6 | $ | (51 | ) | $ | (45 | ) | ||||||||
| Savings and money market | 13 | (62 | ) | (49 | ) | 26 | (142 | ) | (116 | ) | ||||||||||||||
| Time deposits | (94 | ) | (176 | ) | (270 | ) | (213 | ) | (396 | ) | (609 | ) | ||||||||||||
| Other borrowed funds | (132 | ) | (221 | ) | (353 | ) | (288 | ) | (415 | ) | (703 | ) | ||||||||||||
| Total interest expense | (210 | ) | (478 | ) | (688 | ) | (469 | ) | (1,004 | ) | (1,473 | ) | ||||||||||||
| Total change in net interest income | $ | 553 | $ | (329 | ) | $ | 224 | $ | 968 | $ | (719 | ) | $ | 249 | ||||||||||
| (1) Taxable equivalent | ||||||||||||||||||||||||
Provision for Loan Losses
The provision for loan losses reflects changes in the credit quality of the entire loan portfolio. The provision for loan losses is recorded to bring the allowance for loan losses to a level considered appropriate by management based on factors which are discussed under “Allowance for Loan Losses” starting on page 41.
The Company did not record a provision for loan losses for the three and six months ended June 30, 2013 compared to a provision for loan losses of $1,000,000 and $1,400,000 for the same periods in 2012. The process for determining allowance adequacy and the resultant provision for loan losses includes a comprehensive analysis of the loan portfolio. Factors in the analysis include size and mix of the loan portfolio, nonperforming loan levels, charge-off/recovery activity and other qualitative factors including economic environment and activity. The decision to not record a provision for the three months ended June 30, 2013 reflects management’s assessment of the overall adequacy of the allowance for loan losses including the consideration of the level of nonperforming loans, other trends in the quality and performance of our loan portfolio, and other general economic factors. Management believes that the current level of allowance for loan losses as of June 30, 2013 of $9,527,000, or 1.89% of total loans, is adequate at this time. The allowance for loan losses was $10,458,000, or 2.12% of total loans, at December 31, 2012. For further information regarding our allowance for loan losses, see “Allowance for Loan Losses” starting on page 41.
| 33 |
Noninterest Income
The following table is a summary of the Company’s noninterest income for the periods indicated (in thousands):
| Three months ended June 30, | Six months ended June 30, | |||||||||||||||
| 2013 | 2012 | 2013 | 2012 | |||||||||||||
| Service charges on deposit accounts | $ | 971 | $ | 1,136 | $ | 1,923 | $ | 2,188 | ||||||||
| Other fees and charges | 1,108 | 1,321 | 2,228 | 2,518 | ||||||||||||
| Gain on sale of loans | 920 | 684 | 1,845 | 1,089 | ||||||||||||
| Gain on sales or calls of securities, net | — | 968 | 543 | 959 | ||||||||||||
| Increase in cash value of life insurance | 319 | 359 | 782 | 683 | ||||||||||||
| Other | 333 | 219 | 659 | 509 | ||||||||||||
| Total | $ | 3,651 | $ | 4,687 | $ | 7,980 | $ | 7,946 | ||||||||
Noninterest income for the three months ended June 30, 2013 decreased $1,036,000, or 22.1%, to $3,651,000 compared to $4,687,000 for the same period in 2012. Service charges on deposits decreased by $165,000 to $971,000 for the three months ended June 30, 2013 compared to $1,136,000 for the same period in 2012 and other fees and charges decreased $213,000 to $1,108,000 for the three months ended June 30, 2013 compared to $1,321,000 for the same period in 2012. The Company had a $920,000 gain on sale of loans for the quarter ended June 30, 2013, an increase of $236,000 compared to $684,000 for the same period in 2012. Of the $920,000 gain on sale of loans for the second quarter of 2013, the sale of mortgage loans was $700,000 and the sale of SBA loans was $220,000 compared to the sale of mortgage loans of $620,000 and the sale of SBA loans of $64,000 for the same period in 2012. The Company did not record gains on sale of securities for the three months ended June 30, 2013 compared to a $968,000 gain on sale of securities for the same period in 2012.
Noninterest income for the six months ended June 30, 2013 increased $34,000 to $7,980,000 compared to $7,946,000 for the same period in 2012. Service charges on deposits decreased by $265,000 to $1,923,000 for the six months ended June 30, 2013 compared to $2,188,000 for the same period in 2012 and other fees and charges decreased $290,000 to $2,228,000 for the six months ended June 30, 2013 compared to $2,518,000 for the same period in 2012. The Company had a $1,845,000 gain on sale of loans for the quarter ended June 30, 2013, an increase of $756,000 compared to $1,089,000 for the same period in 2012 due primarily to a gain on sale of mortgage loans. Of the $1,845,000 gain on sale of loans for the second quarter of 2013, the sale of mortgage loans was $1,457,000 and the sale of SBA loans was $388,000 compared to the sale of mortgage loans of $983,000 and the sale of SBA loans of $106,000 for the same period in 2012. The Company had a $543,000 gain on sale of securities for the six months ended June 30, 2013, as compared to a gain on sale of securities of $959,000 for the same period in 2012.
Noninterest Expense
The following table is a summary of the Company’s noninterest expense for the periods indicated (in thousands):
| Three months ended June 30, | Six months ended June 30, | |||||||||||||||
| 2013 | 2012 | 2013 | 2012 | |||||||||||||
| Salaries and employee benefits | $ | 5,077 | $ | 5,051 | $ | 10,239 | $ | 10,108 | ||||||||
| Other real estate owned expense | 990 | 342 | 1,366 | 976 | ||||||||||||
| Data processing | 666 | 632 | 1,327 | 1,249 | ||||||||||||
| Occupancy expense | 615 | 620 | 1,248 | 1,260 | ||||||||||||
| Professional services | 295 | 334 | 564 | 621 | ||||||||||||
| Loan expense | 249 | 217 | 554 | 345 | ||||||||||||
| Director expense | 227 | 160 | 420 | 298 | ||||||||||||
| FDIC and state assessments | 213 | 176 | 431 | 489 | ||||||||||||
| Furniture and equipment expense | 202 | 227 | 422 | 472 | ||||||||||||
| Marketing expense | 136 | 138 | 286 | 333 | ||||||||||||
| ATM and on-line banking | 129 | 211 | 268 | 461 | ||||||||||||
| Operations expense | 118 | 123 | 234 | 240 | ||||||||||||
| Printing and supplies | 117 | 116 | 244 | 240 | ||||||||||||
| Postage | 117 | 123 | 239 | 244 | ||||||||||||
| Messenger | 103 | 115 | 209 | 228 | ||||||||||||
| Amortization of intangibles | 37 | 37 | 73 | 73 | ||||||||||||
| Other | 645 | 606 | 1,700 | 1,247 | ||||||||||||
| Total | $ | 9,936 | $ | 9,228 | $ | 19,824 | $ | 18,884 | ||||||||
Noninterest expense increased $708,000, or 7.7%, to $9,936,000 for the second quarter of 2013 from $9,228,000 for the second quarter in 2012. OREO expense increased $648,000 to $990,000, for the second quarter of 2013 compared to $342,000 for the same period in 2012, and FDIC and state assessments increased $37,000 to $213,000 for the second quarter of 2013, compared to $176,000 for the same period in 2012. All other expenses increased $23,000 to $8,733,000 for the second quarter 2013 compared to $8,710,000 for the same period in 2012.
| 34 |
Noninterest expense increased $940,000, or 5.0%, to $19,824,000 for the six months ended June 30, 2013 from $18,884,000 for the same period in 2012. OREO expense increased $390,000 to $1,366,000, for the six months ended June 30, 2013 compared to $976,000 for the same period in 2012, and FDIC and state assessments decreased $58,000 to $431,000 for the six months ended June 30, 2013, compared to $489,000 for the same period in 2012. Increases in OREO expenses primarily related to an increase in provisioning for losses to $884,000 compared to $561,000 for the six months ended June 30, 2013 and 2012, respectively, due to deterioration in the appraised value of real estate. All other expenses increased $608,000 to $18,027,000 for the six months ended June 30, 2013 compared to $17,419,000 for the same period in 2012 due to the recording of $560,000 in additional reserves for expenses to be incurred during 2013 in connection with the settlement of a compliance exam conducted by the Federal Reserve Bank of San Francisco in 2010. The final report of examination was received by NVB during the quarter ended June 30, 2013 and the total reserve has been set at $1,260,000.
Income Taxes
The Company recorded a provision for income taxes of $399,000 and $1,015,000, resulting in an effective tax rate of 30.9% and 32.0% for the three and six months ended June 30, 2013, respectively. This compares to a provision for income taxes of $527,000 and $642,000, resulting in an effective tax rate of 29.5% and 26.9% for the three and six months ended June 30, 2012, respectively. The difference in the effective tax rate compared to the statutory tax rate is primarily the result of the Company’s investment in municipal securities and Company-owned life insurance policies whose income is exempt from Federal taxes. In addition, the Company receives certain tax benefits from the State of California Franchise Tax Board for operating and providing loans, as well as jobs, in designated “Enterprise Zones”.
Management evaluates the Company’s deferred tax assets quarterly for recoverability using a consistent approach which considers the relative impact of negative and positive evidence, including the Company’s historical profitability and projections of future taxable income. Management also considered available tax planning strategies, the scheduled reversal of deferred tax assets and liabilities, and the nature and amount of historical and projected future taxable income that provide positive evidence that some of the tax benefits will be realizable.
The deferred tax assets will continue to be analyzed quarterly for changes affecting realizability and the valuation allowance may be adjusted in future periods accordingly. At June 30, 2013 and December 31, 2012, there was no valuation allowance recorded against deferred tax assets.
Financial Condition as of June 30, 2013 As Compared to December 31, 2012
Overview
Total assets at June 30, 2013 increased $15,415,000, or 1.7%, to $917,758,000, compared to $902,343,000 at December 31, 2012. Loans, net of deferred loan fees, increased $12,063,000, or 2.5%, to $504,274,000 at June 30, 2013 from $492,211,000 at December 31, 2012. Investment securities increased $20,485,000, or 7.2%, to $306,300,000 at June 30, 2013 from $285,815,000 at December 31, 2012. The Company did not sell Fed Funds as of June 30, 2013 as compared to $15,865,000 at December 31, 2012, and had other borrowed funds of $22,025,000 at June 30, 2013 compared to zero at December 31, 2012.
Loan Portfolio
The Company originates loans for business, consumer and real estate activities for equipment purchases. Such loans are concentrated in the primary markets in which the Company operates. Substantially all loans are collateralized. Generally, real estate loans are secured by real property. Commercial and other loans are secured by bank deposits or business or personal assets and leases are generally secured by equipment. The Company’s policy for requiring collateral is through analysis of the borrower, the borrower’s industry and the economic environment in which the loan would be granted. The loans are expected to be repaid from cash flows or proceeds from the sale of selected assets of the borrower.
Loans, the Company's primary component of earning assets, increased $12,063,000 during the six months ended June 30, 2013 to $504,274,000 at June 30, 2013 from $492,211,000 at December 31, 2012. Commercial loans increased by $2,976,000 and real estate commercial loans increased by $23,576,000. These increases were partially offset by decreases in real estate construction loans of $4,468,000, real estate mortgage loans of $5,716,000, other loans, primarily home equity loans, of $3,394,000, and installment loans of $663,000.
The Company's average loan to deposit ratio was 64.11% for the six months ended June 30, 2013 compared to 62.9% for the quarter ended December 31, 2012. The increase in the Company’s average loan to deposit ratio was driven by the increase in total average loans of $9,254,000.
| 35 |
Major classifications of loans are summarized as follows (in thousands):
| June 30, 2013 | December 31, 2012 | |||||||
| Commercial | $ | 49,054 | $ | 46,078 | ||||
| Real estate - commercial | 319,206 | 295,630 | ||||||
| Real estate - construction | 18,535 | 23,003 | ||||||
| Real estate - mortgage | 68,637 | 74,353 | ||||||
| Installment | 6,026 | 6,689 | ||||||
| Other | 42,547 | 45,941 | ||||||
| Gross loans | 504,005 | 491,694 | ||||||
| Deferred loan fees, net | 269 | 517 | ||||||
| Allowance for loan losses | (9,527 | ) | (10,458 | ) | ||||
| Total loans, net | $ | 494,747 | $ | 481,753 | ||||
Impaired, Nonaccrual, Past Due and Restructured Loans and Other Nonperforming Assets
The Company considers a loan impaired if, based on current information and events, it is probable that the Company will be unable to collect the scheduled payments of principal or interest when due according to the original contractual terms of the loan agreement. The measurement of impaired loans is generally based on the present value of expected future cash flows discounted at the historical effective interest rate, except that all collateral-dependent loans are measured for impairment based on the fair value of the collateral.
The following table presents impaired loans and the related allowance for loan losses as of the dates indicated (in thousands):
| As of June 30, 2013 | As of December 31, 2012 | |||||||||||||||||||||||
| Recorded Investment | Unpaid Principal Balance | Related Allowance | Recorded Investment | Unpaid Principal Balance | Related Allowance | |||||||||||||||||||
| With no allocated allowance | ||||||||||||||||||||||||
| Commercial | $ | 175 | $ | 175 | $ | — | $ | 585 | $ | 586 | $ | — | ||||||||||||
| Real estate - commercial | 5,002 | 5,309 | — | 2,778 | 2,974 | — | ||||||||||||||||||
| Real estate - construction | 860 | 870 | — | 1,210 | 1,273 | — | ||||||||||||||||||
| Real estate - mortgage | 1,173 | 1,203 | — | 684 | 736 | — | ||||||||||||||||||
| Installment | 116 | 134 | — | 122 | 138 | — | ||||||||||||||||||
| Other | 253 | 266 | — | 111 | 120 | — | ||||||||||||||||||
| Subtotal | 7,579 | 7,957 | — | 5,490 | 5,827 | — | ||||||||||||||||||
| With allocated allowance | ||||||||||||||||||||||||
| Commercial | 473 | 485 | 88 | — | — | — | ||||||||||||||||||
| Real estate - commercial | — | — | — | 184 | 217 | 171 | ||||||||||||||||||
| Real estate - construction | — | — | — | 161 | 161 | 18 | ||||||||||||||||||
| Real estate - mortgage | 164 | 164 | 164 | — | — | — | ||||||||||||||||||
| Other | 140 | 140 | 140 | — | — | — | ||||||||||||||||||
| Subtotal | 777 | 789 | 392 | 345 | 378 | 189 | ||||||||||||||||||
| Total Impaired Loans | $ | 8,356 | $ | 8,746 | $ | 392 | $ | 5,835 | $ | 6,205 | $ | 189 | ||||||||||||
| 36 |
The following table presents the average balance related to impaired loans for the period indicated (in thousands):
| For the three months ended June 30, | ||||||||||||||||
| 2013 | 2012 | |||||||||||||||
| Average Book Balance | Interest Income Recognized | Average Book Balance | Interest Income Recognized | |||||||||||||
| Commercial | $ | 438 | $ | — | $ | 1,143 | $ | — | ||||||||
| Real estate - commercial | 5,357 | 21 | 5,989 | — | ||||||||||||
| Real estate - construction | 874 | 6 | 8,388 | — | ||||||||||||
| Real estate - mortgage | 1,371 | 10 | 950 | — | ||||||||||||
| Installment | 144 | 1 | 140 | — | ||||||||||||
| Other | 407 | — | 124 | — | ||||||||||||
| Total | $ | 8,591 | $ | 38 | $ | 16,734 | $ | — | ||||||||
| For the six months ended June 30, | ||||||||||||||||
| 2013 | 2012 | |||||||||||||||
| Average Book Balance | Interest Income Recognized | Average Book Balance | Interest Income Recognized | |||||||||||||
| Commercial | $ | 455 | $ | — | $ | 1,173 | $ | — | ||||||||
| Real estate - commercial | 5,370 | 41 | 6,119 | — | ||||||||||||
| Real estate - construction | 877 | 13 | 8,394 | — | ||||||||||||
| Real estate - mortgage | 1,379 | 20 | 964 | — | ||||||||||||
| Installment | 145 | 2 | 144 | — | ||||||||||||
| Other | 408 | — | 138 | — | ||||||||||||
| Total | $ | 8,634 | $ | 76 | $ | 16,932 | $ | — | ||||||||
Loans on which the accrual of interest has been discontinued are designated as nonaccrual loans. Accrual of interest on loans is discontinued either when reasonable doubt exists as to the full and timely collection of interest or principal, or when a loan becomes contractually past due by 90 days or more with respect to interest or principal (except that when management believes a loan is well secured and in the process of collection, interest accruals are continued on loans deemed by management to be fully collectible). When a loan is placed on nonaccrual status, all interest previously accrued but not collected is reversed against current period interest income. Income on such loans is then recognized only to the extent that cash is received and where the future collection of principal is probable. Interest accruals are resumed on such loans when, in the judgment of management, the loans are estimated to be fully collectible as to both principal and interest and borrower has made timely payments for a minimum period of six months.
Nonperforming assets are summarized as follows (in thousands):
| June 30, 2012 | December 31, 2012 | |||||||
| Nonaccrual loans | $ | 5,871 | $ | 5,835 | ||||
| Loans past due 90 days or more and still accruing interest | — | — | ||||||
| Total nonperforming loans | 5,871 | 5,835 | ||||||
| Other real estate owned | 16,324 | 22,423 | ||||||
| Total nonperforming assets | $ | 22,195 | $ | 28,258 | ||||
| Nonaccrual loans to total gross loans | 1.16 | % | 1.19 | % | ||||
| Nonperforming loans to total gross loans | 1.16 | % | 1.19 | % | ||||
| Total nonperforming assets to total assets | 2.42 | % | 3.13 | % | ||||
At June 30, 2013 and December 31, 2012, the recorded investment in nonperforming loans (defined as nonaccrual loans and loans 90 days or more past due and still accruing interest) was approximately $5,871,000 and $5,835,000, respectively. The Company had $392,000 of specific allowance for loan losses on impaired loans of $777,000 at June 30, 2013 as compared to $189,000 of specific allowance for loan losses on impaired loans of $345,000 at December 31, 2012. Nonperforming assets (nonperforming loans and OREO) totaled $22,195,000 at June 30, 2013, a decrease of $6,063,000 from the total at December 31, 2012.
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If interest on nonaccrual loans had been accrued, such income would have approximated $135,000 and $357,000, respectively for the six month periods ended June 30, 2013 and 2012.
At June 30, 2013 there were no commitments to lend additional funds to borrowers whose loans were classified as nonaccrual.
The composition of nonaccrual loans as of June 30, 2013, March 31, 2013, December 31, 2012, and September 30, 2012 was as follows (in thousands):
| June 2013 | March 2013 | December 2012 | September 2012 | |||||||||||||||||||||||||||||
| % of | % of | % of | % of | |||||||||||||||||||||||||||||
| Amount | total | Amount | total | Amount | total | Amount | total | |||||||||||||||||||||||||
| Commercial | $ | 648 | 11.0 | % | $ | 563 | 8.7 | % | $ | 585 | 10.0 | % | $ | 800 | 6.9 | % | ||||||||||||||||
| Real estate - commercial | 3,669 | 62.5 | % | 4,355 | 67.5 | % | 2,962 | 50.8 | % | 7,663 | 66.2 | % | ||||||||||||||||||||
| Real estate - construction | 450 | 7.7 | % | 770 | 11.9 | % | 1,371 | 23.5 | % | 1,760 | 15.2 | % | ||||||||||||||||||||
| Real estate - mortgage | 622 | 10.6 | % | 513 | 8.0 | % | 684 | 11.7 | % | 966 | 8.3 | % | ||||||||||||||||||||
| Installment | 89 | 1.5 | % | 93 | 1.4 | % | 122 | 2.1 | % | 109 | 0.9 | % | ||||||||||||||||||||
| Other | 393 | 6.7 | % | 155 | 2.4 | % | 111 | 1.9 | % | 275 | 2.4 | % | ||||||||||||||||||||
| Total nonaccrual loans | $ | 5,871 | 100.0 | % | $ | 6,449 | 100.0 | % | $ | 5,835 | 100.0 | % | $ | 11,573 | 100.0 | % | ||||||||||||||||
At June 30, 2013, there were eight real-estate-commercial loans totaling $3,669,000, or 62.5%, of the nonaccrual loans. The largest real estate-commercial loan is for a commercial real estate property located in Sacramento County for $1,231,000. Charge-offs of $720,000 have been taken on this loan and no specific reserve has been established for this loan. The remaining seven real estate-commercial loans total $2,438,000 (approximate average loan balance of $348,000). Charge-offs of $583,000 have been taken on these loans and no specific reserves have been established for these loans.
At June 30, 2013, nonaccrual real-estate-construction loans totaled $450,000, or 7.7%, of the nonaccrual loans. There are two loans that make up the balance. The first loan is a residential construction loan for $325,000. Charge-offs of $286,000 have been taken on this loan and no specific reserve has been established. The second loan is a commercial land loan totaling $125,000. Charge-offs of $71,000 have been taken on this loan and no specific reserve has been established.
At June 30, 2013, net carrying value of other real estate owned decreased $6,099,000 to $16,324,000 from $22,423,000 at December 31, 2012. During the six month period ending June 30, 2013, the Company transferred five properties into OREO totaling $777,000, sold eight properties totaling $5,745,000, had write-downs of OREO of $883,000, and recorded loss on sale of OREO of $248,000. As part of the financial close process, valuations of OREO are performed by management and write-downs are recorded as warranted. At June 30, 2013, OREO was comprised of twenty properties which consisted of the following: three residential construction properties totaling $3,064,000, nine residential land parcels totaling $11,141,000, one commercial land parcel for $301,000, one commercial construction property totaling $161,000, three non-farm non-residential properties totaling $181,000 and three residential properties totaling $1,476,000.
The following table shows an aging analysis of the loan portfolio by the amount of time past due (in thousands):
| 38 |
| As of June 30, 2013 | ||||||||||||||||||||
| Accruing Interest | ||||||||||||||||||||
| Current | 30-89 Days Past Due | Greater than 90 Days Past Due | Nonaccrual | Total | ||||||||||||||||
| Commercial | $ | 48,406 | $ | — | $ | — | $ | 648 | $ | 49,054 | ||||||||||
| Real estate - commercial | 315,464 | 73 | — | 3,669 | 319,206 | |||||||||||||||
| Real estate - construction | 18,085 | — | — | 450 | 18,535 | |||||||||||||||
| Real estate - mortgage | 67,993 | 22 | — | 622 | 68,637 | |||||||||||||||
| Installment | 5,890 | 47 | — | 89 | 6,026 | |||||||||||||||
| Other | 42,154 | — | — | 393 | 42,547 | |||||||||||||||
| Total | $ | 497,992 | $ | 142 | $ | — | $ | 5,871 | $ | 504,005 | ||||||||||
| As of December 31, 2012 | ||||||||||||||||||||
| Accruing Interest | ||||||||||||||||||||
| Current | 30-89 Days Past Due | Greater than 90 Days Past Due | Nonaccrual | Total | ||||||||||||||||
| Commercial | $ | 45,473 | $ | 20 | $ | — | $ | 585 | $ | 46,078 | ||||||||||
| Real estate - commercial | 292,505 | 163 | — | 2,962 | 295,630 | |||||||||||||||
| Real estate - construction | 21,436 | 196 | — | 1,371 | 23,003 | |||||||||||||||
| Real estate - mortgage | 72,907 | 762 | — | 684 | 74,353 | |||||||||||||||
| Installment | 6,529 | 38 | — | 122 | 6,689 | |||||||||||||||
| Other | 45,581 | 249 | — | 111 | 45,941 | |||||||||||||||
| Total | $ | 484,431 | $ | 1,428 | $ | — | $ | 5,835 | $ | 491,694 | ||||||||||
A troubled debt restructuring (“TDRs”) is a formal modification of the terms of a loan when the lender, for economic or legal reasons related to the borrower’s financial difficulties, grants a concession to the borrower. The modification of the terms of such loans included one or a combination of the following: a reduction of the stated interest rate of the loan; an extension of the maturity date at a stated rate of interest lower than the current market rate for new debt with similar risk; or a permanent reduction of the recorded investment in the loan.
At June 30, 2013, accruing TDRs were $2,485,000 and non-accrual TDRs were $1,170,000 compared to accruing TDRs of $2,414,000 and non-accrual TDRs of $1,072,000 at December 31, 2012. At June 30, 2013, there were no specific reserves allocated to customers whose loan terms were modified in troubled debt restructurings. There are no commitments to lend additional amounts at June 30, 2013 to customers with outstanding loans that are classified as troubled debt restructurings. There were no TDRs that subsequently defaulted during the twelve months following the modification of terms.
| 39 |
The following table present loans that were modified and recorded as TDRs for the three and six months ended June 30, 2013 and 2012.
| For the three months ended June 30, 2013 | For the six months ended June 30, 2013 | |||||||||||||||||||||||
| Number of Contracts | Pre-Modification Outstanding Recorded Investment | Post-Modification Outstanding Recorded Investment | Number of Contracts | Pre-Modification Outstanding Recorded Investment | Post-Modification Outstanding Recorded Investment | |||||||||||||||||||
| Commercial | — | $ | — | $ | — | 1 | $ | 45 | $ | 45 | ||||||||||||||
| Real estate - commercial | — | $ | — | $ | — | 1 | $ | 290 | $ | 290 | ||||||||||||||
| Real estate-construction | — | $ | — | $ | — | 1 | $ | 77 | $ | 77 | ||||||||||||||
| Real estate - mortgage | 1 | $ | 201 | $ | 201 | 1 | $ | 201 | $ | 201 | ||||||||||||||
| Other | 1 | $ | 48 | $ | 48 | 1 | $ | 48 | $ | 48 | ||||||||||||||
| For the three months ended June 30, 2012 | For the six months ended June 30, 2012 | |||||||||||||||||||||||
| Number of Contracts | Pre-Modification Outstanding Recorded Investment | Post-Modification Outstanding Recorded Investment | Number of Contracts | Pre-Modification Outstanding Recorded Investment | Post-Modification Outstanding Recorded Investment | |||||||||||||||||||
| Commercial | 1 | $ | 1,076 | $ | 1,076 | 1 | $ | 1,076 | $ | 1,076 | ||||||||||||||
| Real estate - commercial | 2 | $ | 278 | $ | 278 | 2 | $ | 278 | $ | 278 | ||||||||||||||
| Installment | 1 | $ | 25 | $ | 25 | 2 | $ | 73 | $ | 73 | ||||||||||||||
A summary of TDRs by type of concession and by type of loan as of June 30, 2013 and December 31, 2012, is shown below:
| June 30, 2013 | ||||||||||||||||||||
| Accruing TDRs | Number of Contracts | Rate Reduction | Maturity Extension | Rate Reduction and Maturity Extension | Total | |||||||||||||||
| Real estate - commercial | 5 | $ | — | $ | 199 | $ | 1,133 | $ | 1,332 | |||||||||||
| Real estate - construction | 2 | $ | — | $ | 411 | $ | — | $ | 411 | |||||||||||
| Real estate - mortgage | 2 | $ | — | $ | 295 | $ | 420 | $ | 715 | |||||||||||
| Installment | 1 | $ | — | $ | — | $ | 27 | $ | 27 | |||||||||||
| June 30, 2013 | ||||||||||||||||||||
| Nonaccrual TDRs | Number of Contracts | Rate Reduction | Maturity Extension | Rate Reduction and Maturity Extension | Total | |||||||||||||||
| Commercial | 2 | $ | — | $ | — | $ | 518 | $ | 518 | |||||||||||
| Real estate - commercial | 1 | $ | — | $ | — | $ | 290 | $ | 290 | |||||||||||
| Real estate - mortgage | 1 | $ | — | $ | — | $ | 201 | $ | 201 | |||||||||||
| Installment | 3 | $ | — | $ | — | $ | 89 | $ | 89 | |||||||||||
| Other | 2 | $ | — | $ | — | $ | 72 | $ | 72 | |||||||||||
| December 31, 2012 | ||||||||||||||||||||
| Accruing TDRs | Number of Contracts | Rate Reduction | Maturity Extension | Rate Reduction and Maturity Extension | Total | |||||||||||||||
| Real estate - commercial | 5 | $ | 202 | $ | — | $ | 1,148 | $ | 1,350 | |||||||||||
| Real estate-construction | 1 | $ | — | $ | 343 | $ | — | $ | 343 | |||||||||||
| Real estate - mortgage | 2 | $ | — | $ | 298 | $ | 423 | $ | 721 | |||||||||||
| December 31, 2012 | ||||||||||||||||||||
| Nonaccrual TDRs | Number of Contracts | Rate Reduction | Maturity Extension | Rate Reduction and Maturity Extension | Total | |||||||||||||||
| Commercial | 1 | $ | — | $ | — | $ | 529 | $ | 529 | |||||||||||
| Real estate-construction | 2 | $ | 327 | $ | 71 | $ | — | $ | 398 | |||||||||||
| Installment | 4 | $ | — | $ | — | $ | 120 | $ | 120 | |||||||||||
| Other | 1 | $ | — | $ | — | $ | 25 | $ | 25 | |||||||||||
| 40 |
Allowance for Loan Losses
The following table shows the changes in the allowance for loan losses were as follows (in thousands):
| For the three months ended June 30, 2013 | ||||||||||||||||||||||||||||||||
| Real Estate | Real Estate | Real Estate | ||||||||||||||||||||||||||||||
| Commercial | Commercial | Construction | Mortgage | Installment | Other | Unallocated | Total | |||||||||||||||||||||||||
| Allowance for Loan Losses | ||||||||||||||||||||||||||||||||
| Balance March 31, 2013 | $ | 1,170 | $ | 5,720 | $ | 595 | $ | 938 | $ | 87 | $ | 676 | $ | 465 | $ | 9,651 | ||||||||||||||||
| Charge-offs | (26 | ) | (3 | ) | — | (46 | ) | (17 | ) | (55 | ) | (147 | ) | |||||||||||||||||||
| Recoveries | 16 | — | 1 | 2 | 4 | — | 23 | |||||||||||||||||||||||||
| Provisions for loan losses | (313 | ) | (230 | ) | (157 | ) | 26 | 93 | 299 | 282 | — | |||||||||||||||||||||
| Balance June 30, 2013 | $ | 847 | $ | 5,487 | $ | 439 | $ | 920 | $ | 167 | $ | 920 | $ | 747 | $ | 9,527 | ||||||||||||||||
| For the three months ended June 30, 2012 | ||||||||||||||||||||||||||||||||
| Real Estate | Real Estate | Real Estate | ||||||||||||||||||||||||||||||
| Commercial | Commercial | Construction | Mortgage | Installment | Other | Unallocated | Total | |||||||||||||||||||||||||
| Allowance for Loan Losses | ||||||||||||||||||||||||||||||||
| Balance March 31, 2012 | $ | 1,376 | $ | 6,847 | $ | 1,350 | $ | 1,045 | $ | 154 | $ | 811 | $ | 691 | $ | 12,274 | ||||||||||||||||
| Charge-offs | (86 | ) | (1,178 | ) | (126 | ) | (190 | ) | (45 | ) | (47 | ) | (1,672 | ) | ||||||||||||||||||
| Recoveries | 14 | 2 | 37 | 36 | 41 | — | 130 | |||||||||||||||||||||||||
| Provisions for loan losses | (44 | ) | 915 | 126 | 34 | (9 | ) | 4 | (26 | ) | 1,000 | |||||||||||||||||||||
| Balance June 30, 2012 | $ | 1,260 | $ | 6,586 | $ | 1,387 | $ | 925 | $ | 141 | $ | 768 | $ | 665 | $ | 11,732 | ||||||||||||||||
| For the six months ended June 30, 2013 | ||||||||||||||||||||||||||||||||
| Real Estate | Real Estate | Real Estate | ||||||||||||||||||||||||||||||
| Commercial | Commercial | Construction | Mortgage | Installment | Other | Unallocated | Total | |||||||||||||||||||||||||
| Allowance for Loan Losses | ||||||||||||||||||||||||||||||||
| Balance December 31, 2012 | $ | 843 | $ | 6,295 | $ | 690 | $ | 982 | $ | 98 | $ | 721 | $ | 829 | $ | 10,458 | ||||||||||||||||
| Charge-offs | (109 | ) | (440 | ) | (369 | ) | (202 | ) | (28 | ) | (55 | ) | (1,203 | ) | ||||||||||||||||||
| Recoveries | 258 | — | 3 | 2 | 9 | — | 272 | |||||||||||||||||||||||||
| Provisions for loan losses | (145 | ) | (368 | ) | 115 | 138 | 88 | 254 | (82 | ) | — | |||||||||||||||||||||
| Balance June 30, 2013 | $ | 847 | $ | 5,487 | $ | 439 | $ | 920 | $ | 167 | $ | 920 | $ | 747 | $ | 9,527 | ||||||||||||||||
| As of June 30, 2013 | ||||||||||||||||||||||||||||||||
| Reserve to impaired loans | $ | 88 | $ | — | $ | — | $ | 164 | $ | — | $ | 140 | $ | 392 | ||||||||||||||||||
| Reserve to non-impaired loans | $ | 759 | $ | 5,487 | $ | 439 | $ | 756 | $ | 167 | $ | 780 | $ | 747 | $ | 9,135 | ||||||||||||||||
| For the six months ended June 30, 2012 | ||||||||||||||||||||||||||||||||
| Real Estate | Real Estate | Real Estate | ||||||||||||||||||||||||||||||
| Commercial | Commercial | Construction | Mortgage | Installment | Other | Unallocated | Total | |||||||||||||||||||||||||
| Allowance for Loan Losses | ||||||||||||||||||||||||||||||||
| Balance December 31, 2011 | $ | 1,333 | $ | 7,528 | $ | 1,039 | $ | 935 | $ | 185 | $ | 736 | $ | 900 | $ | 12,656 | ||||||||||||||||
| Charge-offs | (206 | ) | (1,617 | ) | (330 | ) | (190 | ) | (142 | ) | (72 | ) | (2,557 | ) | ||||||||||||||||||
| Recoveries | 26 | 63 | 37 | 36 | 65 | 6 | 233 | |||||||||||||||||||||||||
| Provisions for loan losses | 107 | 612 | 641 | 144 | 33 | 98 | (235 | ) | 1,400 | |||||||||||||||||||||||
| Balance June 30, 2012 | $ | 1,260 | $ | 6,586 | $ | 1,387 | $ | 925 | $ | 141 | $ | 768 | $ | 665 | $ | 11,732 | ||||||||||||||||
| As of June 30, 2012 | ||||||||||||||||||||||||||||||||
| Reserve to impaired loans | $ | 240 | $ | 99 | $ | 529 | $ | 35 | $ | — | $ | — | $ | 903 | ||||||||||||||||||
| Reserve to non-impaired loans | $ | 1,020 | $ | 6,487 | $ | 858 | $ | 890 | $ | 141 | $ | 768 | $ | 665 | $ | 10,829 | ||||||||||||||||
| As of December 31, 2012 | ||||||||||||||||||||||||||||||||
| Reserve to impaired loans | $ | — | $ | 171 | $ | 18 | $ | — | $ | — | $ | — | $ | 189 | ||||||||||||||||||
| Reserve to non-impaired loans | $ | 843 | $ | 6,124 | $ | 672 | $ | 982 | $ | 98 | $ | 721 | $ | 829 | $ | 10,269 | ||||||||||||||||
The following table shows the loan portfolio by segment was as follows (in thousands):
| As of June 30, 2013 | ||||||||||||||||||||||||||||
| Real Estate | Real Estate | Real Estate | ||||||||||||||||||||||||||
| Commercial | Commercial | Construction | Mortgage | Installment | Other | Total | ||||||||||||||||||||||
| Total Loans | $ | 49,054 | $ | 319,206 | $ | 18,535 | $ | 68,637 | $ | 6,026 | $ | 42,547 | $ | 504,005 | ||||||||||||||
| Impaired Loans | $ | 648 | $ | 5,002 | $ | 860 | $ | 1,337 | $ | 116 | $ | 393 | $ | 8,356 | ||||||||||||||
| Non-impaired loans | $ | 48,406 | $ | 314,204 | $ | 17,675 | $ | 67,300 | $ | 5,910 | $ | 42,154 | $ | 495,649 | ||||||||||||||
| As of December 31, 2012 | ||||||||||||||||||||||||||||
| Real Estate | Real Estate | Real Estate | ||||||||||||||||||||||||||
| Commercial | Commercial | Construction | Mortgage | Installment | Other | Total | ||||||||||||||||||||||
| Total Loans | $ | 46,078 | $ | 295,630 | $ | 23,003 | $ | 74,353 | $ | 6,689 | $ | 45,941 | $ | 491,694 | ||||||||||||||
| Impaired Loans | $ | 585 | $ | 2,962 | $ | 1,371 | $ | 684 | $ | 122 | $ | 111 | $ | 5,835 | ||||||||||||||
| Non-impaired loans | $ | 45,493 | $ | 292,668 | $ | 21,632 | $ | 73,669 | $ | 6,567 | $ | 45,830 | $ | 485,859 | ||||||||||||||
The following table shows the loan portfolio allocated by management's internal risk ratings (in thousands):
| 41 |
| As of June 30, 2013 | ||||||||||||||||||||
| Pass | Special Mention | Substandard | Doubtful | Total | ||||||||||||||||
| Commercial | $ | 46,828 | $ | 1,035 | $ | 1,191 | $ | — | $ | 49,054 | ||||||||||
| Real estate - commercial | 304,743 | 2,780 | 11,683 | — | 319,206 | |||||||||||||||
| Real estate - construction | 18,037 | — | 498 | — | 18,535 | |||||||||||||||
| Real estate - mortgage | 67,596 | — | 1,041 | — | 68,637 | |||||||||||||||
| Installment | 5,907 | — | 119 | — | 6,026 | |||||||||||||||
| Other | 41,957 | — | 590 | — | 42,547 | |||||||||||||||
| Total | $ | 485,068 | $ | 3,815 | $ | 15,122 | $ | — | $ | 504,005 | ||||||||||
| As of December 31, 2012 | ||||||||||||||||||||
| Pass | Special Mention | Substandard | Doubtful | Total | ||||||||||||||||
| Commercial | $ | 44,486 | $ | 129 | $ | 1,463 | $ | — | $ | 46,078 | ||||||||||
| Real estate - commercial | 278,834 | — | 16,796 | — | 295,630 | |||||||||||||||
| Real estate - construction | 21,386 | — | 1,617 | — | 23,003 | |||||||||||||||
| Real estate - mortgage | 71,973 | — | 2,380 | — | 74,353 | |||||||||||||||
| Installment | 6,562 | — | 127 | — | 6,689 | |||||||||||||||
| Other | 45,658 | — | 283 | — | 45,941 | |||||||||||||||
| Total | $ | 468,899 | $ | 129 | $ | 22,666 | $ | — | $ | 491,694 | ||||||||||
The allowance for loan losses is established through a provision for loan losses based on management’s evaluation of the probable incurred losses in the loan portfolio. In determining levels of risk, management considers a variety of factors, including, but not limited to, asset classifications, economic trends, industry experience and trends, geographic concentrations, estimated collateral values, historical loan loss experience, and the Company’s underwriting policies. At June 30, 2013, there was a change in the Bank’s method of calculating the historical loss factors applied to loans identified as “homogenous segments” of the loan portfolio as follows: Losses from the past twelve quarters are applied to loan pools based on a “Migration Analysis” method. The method calculates Net Charge Offs (charge offs less corresponding recoveries) and measures them against average balances in loan pools based on the risk grade in effect on charged-off loans four quarters prior to the actual charge off date. The logic behind this four quarter “look back” is to account for management’s estimate of the typical time lapse between the recognition of the problem loan and the recognition of some or all of the loan as uncollectable. In addition, the loss ratios are calculated using “factored” logic which systematically reduces the Net Charge Off value so that charge offs occurring in older periods do not have as much weight as more recent charge offs. Previously, management utilized a methodology which also utilized the Company’s charge-off history from the previous twelve quarters but did not consider the risk grade of those loans related to the charge-off. This modification had the effect of increasing the quantitative loss component of the allowance by $1,446,000. Management of the Company believes that, given the recent trends in historical losses and the correlation of those losses with a loans identified risk grade, that incorporation of a migration analysis in the current and future analyses was a prudent refinement of the allowance methodology. In addition, management believe that the decreases in overall level of the allowance for loan losses over the past several quarters is directionally consistent with the improving credit quality trends of the loan portfolio. The allowance for loan losses is maintained at an amount management considers adequate to cover the probable incurred losses in loans receivable. While management uses the best information available to make these estimates, future adjustments to allowances may be necessary due to economic, operating, regulatory, and other conditions that may be beyond the Company’s control. The Company also engages a third party credit review consultant to analyze the Company’s loan loss adequacy periodically. In addition, the regulatory agencies, as an integral part of their examination process, periodically review the Company’s allowance for loan losses. Such agencies may require the Company to recognize additions to the allowance based on judgments different from those of management.
The allowance for loan losses is comprised of several components including the specific, formula and unallocated allowance relating to loans in the loan portfolio. Our methodology for determining the allowance for loan losses consists of several key elements, which include:
| ● | Specific Allowances. A specific allowance is established when management has identified unique or particular risks that were related to a specific loan that demonstrated risk characteristics consistent with impairment. Specific allowances are established when management can estimate the amount of an impairment of a loan. |
| ● | Formula Allowance. The formula allowance is calculated using a “Migration Analysis” method as defined above applied to homogenous pools of loans. Changes in risk grades of both performing and nonperforming loans affect the amount of the formula allowance. Loss factors are based on our historical loss experience and such other data as management believes to be pertinent. Management, also, considers a variety of subjective factors, including regional economic and business conditions that impact important segments of our portfolio, loan growth rates, the depth and skill of lending staff, the interest rate environment, and the results of bank regulatory examinations and findings of our internal credit examiners to establish the formula allowance. |
| 42 |
| ● | Unallocated Allowance. The unallocated loan loss allowance represents an amount for imprecision or uncertainty that is inherent in estimates used to determine the allowance. |
The Company also maintains a separate allowance for off-balance-sheet commitments. A reserve for unfunded commitments is maintained at a level that, in the opinion of management, is adequate to absorb probable losses associated with commitments to lend funds under existing agreements, for example, the Bank’s commitment to fund advances under lines of credit. The reserve amount for unfunded commitments is determined based on our methodologies described above with respect to the formula allowance. The allowance for off-balance-sheet commitments is included in accrued interest payable and other liabilities on the consolidated balance sheet and was $146,000 and $143,000 for the periods ended June 30, 2013 and December 31, 2012, respectively.
Deposits
Total deposits decreased $3,525,000 to $765,055,000 at June 30, 2013 compared to $768,580,000 at December 31, 2012. During the six months ended June 30, 2013, savings and money market deposits increased $6,910,000 and interest-bearing demand deposits increased $8,757,000, while noninterest-bearing demand deposits decreased $4,736,000 and certificates of deposit decreased $14,456,000. There were no changes in the deposit products or deposit promotions offered by the Company during the six months ended June 30, 2013.
| June 30, 2013 | December 31, 2012 | |||||||
| Noninterest-bearing demand | $ | 173,119 | $ | 177,855 | ||||
| Interest-bearing demand | 194,072 | 185,315 | ||||||
| Savings and money market | 239,944 | 233,034 | ||||||
| Time certificates | 157,920 | 172,376 | ||||||
| Total deposits | $ | 765,055 | $ | 768,580 | ||||
Capital Resources
The Company maintains capital to support future growth and maintain financial strength while trying to effectively manage the capital on hand. From the depositor standpoint, a greater amount of capital on hand relative to total assets is generally viewed as positive. At the same time, from the standpoint of the shareholder, a greater amount of capital on hand may not be viewed as positive because it limits the Company’s ability to earn a high rate of return on stockholders’ equity (ROE). Stockholders' equity decreased $3,415,000 to $92,746,000 as of June 30, 2013, as compared to $96,161,000 at December 31, 2012. The decrease was the result of net income of $2,155,000, a change in accumulated other comprehensive loss of $5,761,000 and stock based compensation expense of $191,000, all during the first six months of 2013. Under current regulations, management believes that the Company meets all capital adequacy requirements.
On June 26, 2013, the Company announced that its Board of Directors has authorized the repurchase of up to 5% of the Company’s outstanding common shares, or approximately 340,000 shares. During the six month period ended June 30, 2013, there were no repurchases of common stock. Future repurchases will be made from time to time by the Company in the open market, or privately negotiated transactions, as conditions allow. All open market transactions will be structured to comply with Securities and Exchange Commission Rule 10b-18 and all shares repurchased under this program will be retired. The number, price and timing of the repurchases shall be at the Company’s sole discretion and the program will be re-evaluated from time to time depending on market conditions, liquidity needs or other factors. The Board of Directors, based on such re-evaluations, may suspend, terminate, modify or cancel the program at any time without notice.
The Company’s and NVB’s capital amounts and risk-based capital ratios are presented below (in thousands).
| 43 |
| For Capital Adequacy Purposes | To be Well Capitalized Under Prompt Corrective Action Provisions | |||||||||||||||||||||||
| Actual | Minimum | Minimum | Minimum | Minimum | ||||||||||||||||||||
| Amount | Ratio | Amount | Ratio | Amount | Ratio | |||||||||||||||||||
| Company | ||||||||||||||||||||||||
| As of June 30, 2013 | ||||||||||||||||||||||||
| Total capital (to risk weighted assets) | $ | 116,607 | 18.58 | % | $ | 50,208 | 8.00 | % | N/A | N/A | ||||||||||||||
| Tier 1 capital (to risk weighted assets) | $ | 108,740 | 17.33 | % | $ | 25,099 | 4.00 | % | N/A | N/A | ||||||||||||||
| Tier 1 capital (to average assets) | $ | 108,740 | 12.11 | % | $ | 35,917 | 4.00 | % | N/A | N/A | ||||||||||||||
| As of December 31, 2012: | ||||||||||||||||||||||||
| Total capital (to risk weighted assets) | $ | 113,028 | 18.28 | % | $ | 49,465 | 8.00 | % | N/A | N/A | ||||||||||||||
| Tier 1 capital (to risk weighted assets) | $ | 105,211 | 17.01 | % | $ | 24,741 | 4.00 | % | N/A | N/A | ||||||||||||||
| Tier 1 capital (to average assets) | $ | 105,211 | 11.77 | % | $ | 35,756 | 4.00 | % | N/A | N/A | ||||||||||||||
| North Valley Bank | ||||||||||||||||||||||||
| As of June 30, 2013: | ||||||||||||||||||||||||
| Total capital (to risk weighted assets) | $ | 115,864 | 18.48 | % | $ | 50,158 | 8.00 | % | $ | 62,697 | 10.00 | % | ||||||||||||
| Tier 1 capital (to risk weighted assets) | $ | 108,005 | 17.23 | % | $ | 25,074 | 4.00 | % | $ | 37,611 | 6.00 | % | ||||||||||||
| Tier 1 capital (to average assets) | $ | 108,005 | 12.04 | % | $ | 35,882 | 4.00 | % | $ | 44,853 | 5.00 | % | ||||||||||||
| As of December 31, 2012: | ||||||||||||||||||||||||
| Total capital (to risk weighted assets) | $ | 112,938 | 18.26 | % | $ | 49,480 | 8.00 | % | $ | 61,850 | 10.00 | % | ||||||||||||
| Tier 1 capital (to risk weighted assets) | $ | 105,122 | 17.00 | % | $ | 24,735 | 4.00 | % | $ | 37,102 | 6.00 | % | ||||||||||||
| Tier 1 capital (to average assets) | $ | 105,122 | 11.76 | % | $ | 35,756 | 4.00 | % | $ | 44,695 | 5.00 | % | ||||||||||||
Liquidity
The objective of liquidity management is to ensure the continuous availability of funds to meet the demands of depositors and borrowers. Collection of principal and interest on loans, the liquidations and maturities of investment securities, deposits with other banks, customer deposits and short term borrowings, when needed, are primary sources of funds that contribute to liquidity. As of June 30, 2013, $21,651,000 was outstanding in the form of subordinated debentures issued by the Company. Unused lines of credit with correspondent banks to provide federal funds of $10,000,000 as of June 30, 2013 were also available to provide liquidity. In addition, NVB is a member of the Federal Home Loan Bank providing additional unused borrowing capacity of $260,527,000 secured by certain loans and investment securities as of June 30, 2013. The Company also has an unused line of credit with the Federal Reserve Bank of San Francisco of $2,632,000 secured by investment securities.
The Company manages both assets and liabilities by monitoring asset and liability mixes, volumes, maturities, yields and rates in order to preserve liquidity and earnings stability. Total liquid assets (cash and due from banks, Federal funds sold and available for sale investment securities) totaled $327,731,000 and $324,334,000 (or 35.7% and 35.9% of total assets) at June 30, 2013 and December 31, 2012, respectively.
Core deposits, defined as demand deposits, interest bearing demand deposits, regular savings, money market deposit accounts and time deposits of less than $100,000, continue to provide a relatively stable and low cost source of funds. Core deposits totaled $691,109,000 and $686,544,000 at June 30, 2013 and December 31, 2012, respectively.
In assessing liquidity, historical information such as seasonal loan demand, local economic cycles and the economy in general are considered along with current ratios, management goals and unique characteristics of the Company. Management believes the Company is in compliance with its policies relating to liquidity.
Interest Rate Sensitivity
Overview. The Company constantly monitors earning asset and deposit levels, developments and trends in interest rates, liquidity, capital adequacy and marketplace opportunities with the view towards maximizing shareholder value and earnings while maintaining a high quality balance sheet without exposing the Company to undue market risk. Management responds to all of these to protect and possibly enhance net interest income while managing risks within acceptable levels as set forth in the Company’s policies. In addition, alternative business plans and contemplated transactions are also analyzed for their impact. This process, known as asset/liability management is carried out by changing the maturities and relative proportions of the various types of loans, investments, deposits and other borrowings.
| 44 |
Market Risk. Market risk results from the fact that the market values of assets or liabilities on which the interest rate is fixed will increase or decrease with changes in market interest rates. If the Company invests in a fixed-rate, long term security and then interest rates rise, the security is worth less than a comparable security just issued because the older security pays less interest than the newly issued security. If the security had to be sold before maturity, then the Company would incur a loss on the sale. Conversely, if interest rates fall after a fixed-rate security is purchased, its value increases, because it is paying at a higher rate than newly issued securities. The fixed rate liabilities of the Company, like certificates of deposit and fixed-rate borrowings, also change in value with changes in interest rates. As rates drop, they become more valuable to the depositor and hence more costly to the Company. As rates rise, they become more valuable to the Company. Therefore, while the value changes when rates move in either direction, the adverse impacts of market risk to the Company’s fixed-rate assets are due to rising rates and for the Company’s fixed-rate liabilities, they are due to falling rates. In general, the change in market value due to changes in interest rates is greater in financial instruments that have longer remaining maturities. Therefore, the exposure to market risk of assets is lessened by managing the amount of fixed-rate assets and by keeping maturities relatively short. These steps, however, must be balanced against the need for adequate interest income because variable-rate and shorter-term assets generally yield less interest than longer-term or fixed-rate assets.
Mismatch Risk. The second interest-related risk, mismatched risk, arises from the fact that when interest rates change, the changes do not occur equally in the rates of interest earned and paid because of differences in the contractual terms of the assets and liabilities held. A difference in the contractual terms, a mismatch, can cause adverse impacts on net interest income.
The Company has a certain portion of its loan portfolio tied to the national prime rate. If these rates are lowered because of general market conditions, e.g., the prime rate decreases in response to a rate decrease by the Federal Reserve Open Market Committee (“FOMC”), these loans will be repriced. If the Company were at the same time to have a large proportion of its deposits in long-term fixed-rate certificates, interest earned on loans would decline while interest paid on the certificates would remain at higher levels for a period of time until they mature. Therefore, net interest income would decrease immediately. A decrease in net interest income could also occur with rising interest rates if the Company had a large portfolio of fixed-rate loans and securities that was funded by deposit accounts on which the rate is steadily rising.
This exposure to mismatch risk is managed by attempting to match the maturities and repricing opportunities of assets and liabilities. This may be done by varying the terms and conditions of the products that are offered to depositors and borrowers. For example, if many depositors want shorter-term certificates while most borrowers are requesting longer-term fixed rate loans, the Company will adjust the interest rates on the certificates and loans to try to match up demand for similar maturities. The Company can then partially fill in mismatches by purchasing securities or borrowing funds from the Federal Home Loan Bank with the appropriate maturity or repricing characteristics.
Basis Risk. The third interest-related risk, basis risk, arises from the fact that interest rates rarely change in a parallel or equal manner. The interest rates associated with the various assets and liabilities differ in how often they change, the extent to which they change, and whether they change sooner or later than other interest rates. For example, while the repricing of a specific asset and a specific liability may occur at roughly the same time, the interest rate on the liability may rise one percent in response to rising market rates while the asset increases only one-half percent. While the Company would appear to be evenly matched with respect to mismatch risk, it would suffer a decrease in net interest income. This exposure to basis risk is the type of interest risk least able to be managed, but is also the least dramatic. Avoiding concentrations in only a few types of assets or liabilities is the best means of increasing the chance that the average interest received and paid will move in tandem. The wider diversification means that many different rates, each with their own volatility characteristics, will come into play.
Net Interest Income and Net Economic Value Simulations. The tool used to manage and analyze the interest rate sensitivity of a financial institution is known as a simulation model and is performed with specialized software built for this specific purpose for financial institutions. This model allows management to analyze the three specific types of risks; market risk, mismatch risk, and basis risk.
To quantify the extent of all of these risks both in its current position and in transactions it might make in the future, the Company uses computer modeling to simulate the impact of different interest rate scenarios on net interest income and on net economic value. Net economic value or the market value of portfolio equity is defined as the difference between the market value of financial assets and liabilities. These hypothetical scenarios include both sudden and gradual interest rate changes, and interest rate changes in both directions. This modeling is the primary means the Company uses for interest rate risk management decisions.
The hypothetical impact of sudden interest rate shocks applied to the Company’s asset and liability balances are modeled quarterly. The results of this modeling indicate how much of the Company’s net interest income and net economic value are “at risk” (deviation from the base level) from various sudden rate changes. This exercise is valuable in identifying risk exposures. The results for the Company’s most recent simulation analysis indicate that the Company’s net interest income at risk over a one-year period and net economic value at risk from 2% shocks are within normal expectations for sudden changes and do not materially differ from those of June 30, 2013.
| 45 |
For this simulation analysis, the Company has made certain assumptions about the duration of its non-maturity deposits that are important to determining net economic value at risk.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
In management’s opinion, there has not been a material change in the Company’s market risk profile for the six months ended June 30, 2013 compared to December 31, 2012. Please see discussion under the caption “Interest Rate Sensitivity” on page 44.
ITEM 4. CONTROLS AND PROCEDURES
Disclosure Controls and Procedures
Disclosure controls and procedures are designed with the objective of ensuring that information required to be disclosed in reports filed by the Company under the Exchange Act, such as this Quarterly Report, is recorded, processed, summarized and reported within the time periods specified in the rules and forms of the Securities and Exchange Commission. Disclosure controls and procedures are also designed with the objective of ensuring that such information is accumulated and communicated to management, including the Chief Executive Officer and the Chief Financial Officer, as appropriate to allow timely decisions regarding required disclosure.
Evaluation of Disclosure Controls and Procedures
The Company's management, including the Chief Executive Officer and the Chief Financial Officer, evaluated the Company's disclosure controls and procedures (as defined in Rule 13a-15(e) under the Exchange Act) as of June 30, 2013. Based on this evaluation, the Chief Executive Officer and the Chief Financial Officer concluded that the Company's disclosure controls and procedures are effective.
Internal Control over Financial Reporting
Management of the Company is responsible for establishing and maintaining adequate internal control over financial reporting for the Company. There was no change in the Company’s internal control over financial reporting that occurred during the quarter ended June 30, 2013 that has materially affected or is reasonable likely to materially affect, the Company’s internal control over financial reporting.
There are no material legal proceedings pending against the Company or against any of its property. The Company, because of the nature of its business, is generally subject to various legal actions, threatened or filed, which involve ordinary, routine litigation incidental to its business. Although the amount of the ultimate exposure, if any, cannot be determined at this time, the Company does not expect that the final outcome of threatened or filed suits will have a materially adverse effect on its consolidated financial position.
There have been no material changes from risk factors as previously disclosed by the Company in its response to Item 1A of Part 1 of Form 10-K for the fiscal year ended December 31, 2012.
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
Not applicable
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
Not applicable
ITEM 4. MINE SAFETY DISCLOSURES
Not applicable
| 46 |
None
| 31 | Rule 13a-14(a) / 15d-14(a) Certifications |
| 32 | Section 1350 Certifications |
| 101.INS | XBRL Instance Document (furnished herewith)* |
| 101.SCH | XBRL Taxonomy Extension Schema Document (furnished herewith)* |
| 101.CAL | XBRL Taxonomy Extension Calculation Linkbase Document (furnished herewith)* |
| 101.DEF | XBRL Taxonomy Extension Definition Linkbase Document (furnished herewith)* |
| 101.LAB | XBRL Taxonomy Extension Label Linkbase Document (furnished herewith)* |
| 101.PRE | XBRL Taxonomy Extension Presentation Linkbase Document (furnished herewith)* |
*The interactive data files listed above shall not be deemed filed for purposes of Section 11 or 12 of the Securities Act of 1933, as amended, or Section 18 of the Securities Exchange Act of 1934, as amended, or otherwise subject to liability under those sections.
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
NORTH VALLEY BANCORP
(Registrant)
| Date August 5, 2013 | |
| By: | |
| /s/ Michael J. Cushman | |
| Michael J. Cushman | |
| President & Chief Executive Officer | |
| (Principal Executive Officer) | |
| /s/ Kevin R. Watson | |
| Kevin R. Watson | |
| Executive Vice President & Chief Financial Officer | |
| (Principal Financial Officer & Principal Accounting Officer) |
47
Exhibit 31.1
Rule 13a-14(a)/15d-14(a) Certifications
I, Michael J. Cushman, certify that:
| 1. | I have reviewed this quarterly report on Form 10-Q of North Valley Bancorp; |
| 2. | Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; |
| 3. | Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; |
| 4. | The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f))for the registrant and have |
(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
(b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
(c) Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
(d) Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and | |
| 5. | The registrant's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors: |
| (a)
All significant deficiencies and material weaknesses
in the design or operation of internal control over
financial reporting which are reasonably likely
to adversely affect the registrant's ability to
record, process, summarize and report financial
information; and (b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting. |
| Date: | August 5, 2013 | /s/ Michael J. Cushman |
| Michael J. Cushman, President and Chief Executive Officer (Principal Executive Officer) |
Exhibit 31.2
Rule 13a-14(a)/15d-14(a) Certifications
I, Kevin R. Watson, certify that:
| 1. | I have reviewed this quarterly report on Form 10-Q of North Valley Bancorp; |
| 2. | Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; |
| 3. | Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; |
| 4. | The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f))for the registrant and have |
(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
(b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
(c) Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
(d) Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and | |
| 5. | The registrant's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors: |
(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and
(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting. |
| Date: | August 5, 2013 | /s/ Kevin R. Watson |
| Kevin R. Watson, Executive Vice President & Chief Financial Officer (Principal Financial Officer & Principal Accounting Officer) |
Exhibit 32
Section 1350 Certifications
Certification Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
with Respect to the North Valley Bancorp Quarterly Report on Form 10-Q
For the Quarter ended June 30, 2013
Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (subsections (a) and (b) of section 1350, chapter 63 of title 18, United States Code), each of the undersigned officers of North Valley Bancorp, a California corporation (the “Company”), does hereby certify that:
| 1. | The Company’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2013 (the “Form 10-Q”) fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended; and | |
| 2. | Information contained in the Form 10-Q fairly presents, in all material respects, the financial condition and results of operations of the Company. |
| Dated: | August 5, 2013 | /s/ Michael J. Cushman |
| Michael J. Cushman | ||
| President and Chief Executive Officer | ||
| (Principal Executive Officer) |
| Dated: | August 5, 2013 | /s/ Kevin R. Watson |
| Kevin R. Watson | ||
| Executive Vice President & Chief Financial Officer | ||
| (Principal Financial Officer & Principal Accounting Officer) |
A signed original of this written statement required by Section 906 has been provided to North Valley Bancorp and will be retained by North Valley Bancorp and furnished to the Securities and Exchange Commission or its staff upon request.
|
NOTE 11 - ACCUMULATED OTHER COMPREHENSIVE INCOME (LOSS)
|
6 Months Ended | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Jun. 30, 2013
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| Other Comprehensive Income (Loss), Net Of Tax [Abstract] | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| ACCUMULATED OTHER COMPREHENSIVE INCOME (LOSS) | NOTE 11 – ACCUMULATED OTHER COMPREHENSIVE INCOME (LOSS)
Changes in each component of accumulated other comprehensive income (loss) for the three and six month periods ended June 30, 2013 and June 30, 2012 were as follows (in thousands):
Changes in each component of accumulated other comprehensive income were as follows (in thousands):
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NOTE 8 - INCOME TAXES (Detail) (USD $)
|
Jun. 30, 2013
|
Dec. 31, 2012
|
|---|---|---|
| Income Tax Disclosure [Abstract] | ||
| Deferred Tax Assets, Gross | $ 16,351,000 | $ 12,346,000 |
| Unrecognized tax benefits | $ 519,000 | $ 519,000 |
|
NOTE 4 - ALLOWANCE FOR LOAN LOSSES
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6 Months Ended | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Jun. 30, 2013
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| Loans and Leases Receivable, Allowance [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| ALLOWANCE FOR LOAN LOSSES | NOTE 4 – ALLOWANCE FOR LOAN LOSSES
The following table shows the changes in the allowance for loan losses (in thousands):
The following table shows the loan portfolio by segment as follows (in thousands):
The following table shows the loan portfolio allocated by management's internal risk ratings as defined in Footnote 1 in the Company’s Annual Report on Form 10-K for the year ended December 31, 2012 (in thousands):
The allowance for loan losses is established through a provision for loan losses based on management’s evaluation of the probable incurred losses in the loan portfolio. In determining levels of risk, management considers a variety of factors, including, but not limited to, asset classifications, economic trends, industry experience and trends, geographic concentrations, estimated collateral values, historical loan loss experience, and the Company’s underwriting policies. At June 30, 2013, there was a change in the Bank’s method of calculating the historical loss factors applied to loans identified as “homogenous segments” of the loan portfolio as follows: Losses from the past twelve quarters are applied to loan pools based on a “Migration Analysis” method. The method calculates Net Charge Offs (charge offs less corresponding recoveries) and measures them against average balances in loan pools based on the risk grade in effect on charged-off loans four quarters prior to the actual charge off date. The logic behind this four quarter “look back” is to account for management’s estimate of the typical time lapse between the recognition of the problem loan and the recognition of some or all of the loan as uncollectable. In addition, the loss ratios are calculated using “factored” logic which systematically reduces the Net Charge Off value so that charge offs occurring in older periods do not have as much weight as more recent charge offs. Previously, management utilized a methodology which also utilized the Company’s charge-off history from the previous twelve quarters but did not consider the risk grade of those loans related to the charge-off. This modification had the effect of increasing the quantitative loss component of the allowance by $1,446,000. Management of the Company believes that, given the recent trends in historical losses and the correlation of those losses with a loans identified risk grade, that incorporation of a migration analysis in the current and future analyses was a prudent refinement of the allowance methodology. In addition, management believe that the decreases in the overall level of the allowance for loan losses over the past several quarters is directionally consistent with the improving credit quality trends of the loan portfolio. The allowance for loan losses is maintained at an amount management considers adequate to cover the probable incurred losses in loans receivable. While management uses the best information available to make these estimates, future adjustments to allowances may be necessary due to economic, operating, regulatory, and other conditions that may be beyond the Company’s control. The Company also engages a third party credit review consultant to analyze the Company’s loan loss adequacy periodically. In addition, the regulatory agencies, as an integral part of their examination process, periodically review the Company’s allowance for loan losses. Such agencies may require the Company to recognize additions to the allowance based on judgments different from those of management.
The allowance for loan losses is comprised of several components including the specific, formula and unallocated allowance relating to loans in the loan portfolio. Our methodology for determining the allowance for loan losses consists of several key elements, which include:
The Company also maintains a separate allowance for off-balance-sheet commitments. A reserve for unfunded commitments is maintained at a level that, in the opinion of management, is adequate to absorb probable losses associated with commitments to lend funds under existing agreements, for example, the Bank’s commitment to fund advances under lines of credit. The reserve amount for unfunded commitments is determined based on our methodologies described above with respect to the formula allowance. The allowance for off-balance-sheet commitments is included in accrued interest payable and other liabilities on the consolidated balance sheet and was $146,000 and $143,000 for the periods ended June 30, 2013 and December 31, 2012, respectively. |
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|
NOTE 5 - OTHER REAL ESTATE OWNED (Tables)
|
6 Months Ended | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
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Jun. 30, 2013
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| Other Real Estate [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Schedule of changes in other real estate owned |
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| Schedule of components of other real estate owned |
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NOTE 14 - FAIR VALUE MEASUREMENTS - (Table 2) (Detail) (USD $)
In Thousands, unless otherwise specified |
6 Months Ended | 12 Months Ended | 6 Months Ended | 12 Months Ended | 6 Months Ended | 12 Months Ended | 6 Months Ended | 12 Months Ended | 3 Months Ended | 6 Months Ended | 3 Months Ended | 6 Months Ended | 3 Months Ended | 6 Months Ended | 3 Months Ended | 6 Months Ended | 12 Months Ended | 6 Months Ended | 12 Months Ended | 3 Months Ended | 6 Months Ended | 12 Months Ended | 6 Months Ended | 12 Months Ended | 3 Months Ended | 6 Months Ended | 12 Months Ended | 6 Months Ended | 12 Months Ended | 3 Months Ended | 6 Months Ended | 12 Months Ended | 6 Months Ended | 12 Months Ended | 3 Months Ended | 6 Months Ended | 12 Months Ended | 6 Months Ended | 12 Months Ended | 3 Months Ended | 6 Months Ended | 12 Months Ended | ||||||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
|
Jun. 30, 2013
Estimate Of Fair Value, Fair Value Disclosure
|
Dec. 31, 2012
Estimate Of Fair Value, Fair Value Disclosure
|
Jun. 30, 2013
Estimate Of Fair Value, Fair Value Disclosure
Real estate - commercial
|
Jun. 30, 2013
Estimate Of Fair Value, Fair Value Disclosure
Real estate - construction
|
Dec. 31, 2012
Estimate Of Fair Value, Fair Value Disclosure
Real estate - construction
|
Dec. 31, 2012
Estimate Of Fair Value, Fair Value Disclosure
Real estate - mortgage
|
Jun. 30, 2013
Level 3
|
Dec. 31, 2012
Level 3
|
Jun. 30, 2013
Level 3
Real estate - commercial
|
Jun. 30, 2013
Level 3
Real estate - construction
|
Dec. 31, 2012
Level 3
Real estate - construction
|
Dec. 31, 2012
Level 3
Real estate - mortgage
|
Jun. 30, 2013
Total Losses/Gains
|
Jun. 30, 2012
Total Losses/Gains
|
Jun. 30, 2013
Total Losses/Gains
|
Jun. 30, 2012
Total Losses/Gains
|
Jun. 30, 2013
Total Losses/Gains
Real estate - commercial
|
Jun. 30, 2013
Total Losses/Gains
Real estate - commercial
|
Jun. 30, 2013
Total Losses/Gains
Real estate - construction
|
Jun. 30, 2012
Total Losses/Gains
Real estate - construction
|
Jun. 30, 2013
Total Losses/Gains
Real estate - construction
|
Jun. 30, 2012
Total Losses/Gains
Real estate - construction
|
Jun. 30, 2012
Total Losses/Gains
Real estate - mortgage
|
Jun. 30, 2012
Total Losses/Gains
Real estate - mortgage
|
Jun. 30, 2013
Commercial
Estimate Of Fair Value, Fair Value Disclosure
|
Dec. 31, 2012
Commercial
Estimate Of Fair Value, Fair Value Disclosure
|
Jun. 30, 2013
Commercial
Level 3
|
Dec. 31, 2012
Commercial
Level 3
|
Jun. 30, 2013
Commercial
Total Losses/Gains
|
Jun. 30, 2013
Commercial
Total Losses/Gains
|
Jun. 30, 2013
Real estate - commercial
Estimate Of Fair Value, Fair Value Disclosure
|
Dec. 31, 2012
Real estate - commercial
Estimate Of Fair Value, Fair Value Disclosure
|
Jun. 30, 2013
Real estate - commercial
Level 3
|
Dec. 31, 2012
Real estate - commercial
Level 3
|
Jun. 30, 2012
Real estate - commercial
Total Losses/Gains
|
Jun. 30, 2013
Real estate - commercial
Total Losses/Gains
|
Jun. 30, 2012
Real estate - commercial
Total Losses/Gains
|
Jun. 30, 2013
Real estate - construction
Estimate Of Fair Value, Fair Value Disclosure
|
Dec. 31, 2012
Real estate - construction
Estimate Of Fair Value, Fair Value Disclosure
|
Jun. 30, 2013
Real estate - construction
Level 3
|
Dec. 31, 2012
Real estate - construction
Level 3
|
Jun. 30, 2012
Real estate - construction
Total Losses/Gains
|
Jun. 30, 2013
Real estate - construction
Total Losses/Gains
|
Jun. 30, 2012
Real estate - construction
Total Losses/Gains
|
Jun. 30, 2013
Real estate - mortgage
Estimate Of Fair Value, Fair Value Disclosure
|
Dec. 31, 2012
Real estate - mortgage
Estimate Of Fair Value, Fair Value Disclosure
|
Jun. 30, 2013
Real estate - mortgage
Level 3
|
Dec. 31, 2012
Real estate - mortgage
Level 3
|
Jun. 30, 2013
Real estate - mortgage
Total Losses/Gains
|
Jun. 30, 2012
Real estate - mortgage
Total Losses/Gains
|
Jun. 30, 2013
Real estate - mortgage
Total Losses/Gains
|
Jun. 30, 2012
Real estate - mortgage
Total Losses/Gains
|
Jun. 30, 2013
Real estate - other
Estimate Of Fair Value, Fair Value Disclosure
|
Dec. 31, 2012
Real estate - other
Estimate Of Fair Value, Fair Value Disclosure
|
Jun. 30, 2013
Real estate - other
Level 3
|
Dec. 31, 2012
Real estate - other
Level 3
|
Jun. 30, 2013
Real estate - other
Total Losses/Gains
|
Jun. 30, 2013
Real estate - other
Total Losses/Gains
|
Dec. 31, 2012
Installment
Estimate Of Fair Value, Fair Value Disclosure
|
Dec. 31, 2012
Installment
Level 3
|
|
| Impaired loans: | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Total assets measured at fair value on a nonrecurring basis | $ 2,519 | $ 11,058 | $ 181 | $ 651 | $ 7,360 | $ 184 | $ 2,519 | $ 11,058 | $ 181 | $ 651 | $ 7,360 | $ 184 | $ 750 | $ 1,521 | $ 1,774 | $ 1,837 | $ 104 | $ 123 | $ 518 | $ 87 | $ 518 | $ 133 | $ 77 | $ 152 | $ 385 | $ 585 | $ 385 | $ 585 | $ (198) | $ 88 | $ 625 | $ 2,222 | $ 625 | $ 2,222 | $ 1,278 | $ 239 | $ 1,457 | $ 450 | $ 143 | $ 450 | $ 143 | $ 9 | $ 357 | $ 25 | $ 118 | $ 464 | $ 118 | $ 464 | $ 186 | $ 70 | $ 272 | $ 70 | $ 109 | $ 25 | $ 109 | $ 25 | $ 140 | $ 177 | $ 75 | $ 75 |
|
NOTE 9 - PENSION PLAN BENEFITS (Detail) (USD $)
|
3 Months Ended | |
|---|---|---|
|
Jun. 30, 2013
|
Jun. 30, 2012
|
|
| Compensation and Retirement Disclosure [Abstract] | ||
| Pension paid to retired employees | $ 63,000 | $ 63,000 |
|
NOTE 12 - EARNINGS PER SHARE
|
6 Months Ended | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
|
Jun. 30, 2013
|
||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Earnings Per Share [Abstract] | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| EARNINGS PER SHARE | NOTE 12 – EARNINGS PER SHARE
Basic earnings per share (“EPS”), which excludes dilution, is computed by dividing income or loss available to common shareholders by the weighted-average number of common shares outstanding for the period. Diluted EPS reflects the potential dilution that could occur if securities or other contracts to issue common stock, such as stock options, result in the issuance of common stock which shares in the earnings of the Company. The treasury stock method has been applied to determine the dilutive effect of stock options in computing diluted EPS. Stock options for 214,302 and 255,285 shares of common stock were not considered in computing diluted earnings per common share for the three months ended June 30, 2013 and 2012 respectively, because they were anti-dilutive. Stock options for 214,302 and 256,285 shares of common stock were not considered in computing diluted earnings per common share for the six months ended June 30, 2013 and 2012 respectively, because they were anti-dilutive.
|
|||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
|
NOTE 5 - OTHER REAL ESTATE OWNED - (Table 2) (Detail) (USD $)
In Thousands, unless otherwise specified |
3 Months Ended | 6 Months Ended | ||
|---|---|---|---|---|
|
Jun. 30, 2013
|
Jun. 30, 2012
|
Jun. 30, 2013
|
Jun. 30, 2012
|
|
| Other Real Estate [Abstract] | ||||
| Operating expenses | $ 92 | $ 72 | $ 234 | $ 227 |
| Provision for losses | 623 | 165 | 884 | 561 |
| Net, loss on disposal | 275 | 105 | 248 | 188 |
| Total other real estate owned expense | $ 990 | $ 342 | $ 1,366 | $ 976 |
|
NOTE 10 - STOCK-BASED COMPENSATION - (Table 1) (Detail) (USD $)
|
3 Months Ended | 6 Months Ended | |
|---|---|---|---|
|
Jun. 30, 2012
|
Jun. 30, 2013
|
Jun. 30, 2012
|
|
| Disclosure Of Compensation Related Costs, Share-Based Payments [Abstract] | |||
| Weighted average grant date fair value per share of option granted (in dollars per share) | $ 7.08 | $ 9.53 | $ 6.28 |
| Significant weighted average assumptions used in calculating fair value: | |||
| Expected term | 6 years 7 months 10 days | 6 years 3 months 25 days | 6 years 5 months 26 days |
| Expected annual volatility | 58.00% | 60.00% | 59.00% |
| Risk-free interest rate | 1.38% | 1.38% | 1.40% |
|
NOTE 3 - LOANS - (Table 4) (Detail) (USD $)
In Thousands, unless otherwise specified |
Jun. 30, 2013
|
Dec. 31, 2012
|
|---|---|---|
|
Nonaccrual Loans
|
||
| Nonaccrual loans | $ 5,871 | $ 5,835 |
| Nonaccrual loans to total gross loans | 1.16% | 1.19% |
|
Nonperforming Loans Accruing Interest
|
||
| Nonperforming loans to total gross loans | 1.16% | 1.19% |
|
Total
|
||
| Total nonperforming loans | $ 5,871 | $ 5,835 |
|
NOTE 10 - STOCK-BASED COMPENSATION (Tables)
|
6 Months Ended | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
|
Jun. 30, 2013
|
||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Disclosure Of Compensation Related Costs, Share-Based Payments [Abstract] | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Schedule of weighted average grant date fair value of options granted |
|
|||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Schedule of outstanding stock options |
|
|||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
|
NOTE 9 - PENSION PLAN BENEFITS (Tables)
|
6 Months Ended | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
|
Jun. 30, 2013
|
||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Compensation and Retirement Disclosure [Abstract] | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Schedule of components of net periodic benefit cost for supplemental nonqualified defined benefit plans |
|
|||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Schedule of total liability of pension plan benefit |
|
|||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
|
NOTE 4 - ALLOWANCE FOR LOAN LOSSES (Detail) (USD $)
|
6 Months Ended | |
|---|---|---|
|
Jun. 30, 2013
|
Dec. 31, 2012
|
|
| Disclosure Of Compensation Related Costs, Share-Based Payments [Abstract] | ||
| Increasing quantitative loss component of allowance | $ 1,446,000 | |
| Allowance for off-Balance Sheet Commitments | $ 146,000 | $ 143,000 |
|
NOTE 2 - INVESTMENT SECURITIES (Detail) (USD $)
|
3 Months Ended | 6 Months Ended | ||
|---|---|---|---|---|
|
Jun. 30, 2012
|
Jun. 30, 2013
|
Jun. 30, 2012
|
Dec. 31, 2012
|
|
| Available-for-sale Securities, Gross Realized Gains | $ 968,000 | $ 543,000 | $ 968,000 | |
| Proceeds from Sale of Available-for-sale Securities | 76,989,000 | 17,085,000 | 78,439,000 | |
| Available-for-sale Securities, Gross Realized Losses | 9,000 | |||
| Financial Instruments, Owned and Pledged as Collateral, at Fair Value | 300,983,000 | 276,308,000 | ||
| Financial Instruments, Owned, Corporate Debt, at Fair Value | $ 3,000,000 | |||
|
Corporate debt securities | Investment Securities more than twelve months
|
||||
| Number of corporate debt securities | 2 | 2 | ||
|
NOTE 3 - LOANS - (Table 6) (Detail) (USD $)
In Thousands, unless otherwise specified |
3 Months Ended | 6 Months Ended | 3 Months Ended | 6 Months Ended | 3 Months Ended | 6 Months Ended | 3 Months Ended | 6 Months Ended | 3 Months Ended | 6 Months Ended | |||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
|
Jun. 30, 2012
Commercial
Contract
|
Jun. 30, 2013
Commercial
Contract
|
Jun. 30, 2012
Commercial
Contract
|
Jun. 30, 2012
Real estate - commercial
Contract
|
Jun. 30, 2013
Real estate - commercial
Contract
|
Jun. 30, 2012
Real estate - commercial
Contract
|
Jun. 30, 2013
Real estate construction
Contract
|
Jun. 30, 2013
Real estate-mortgage
Contract
|
Jun. 30, 2013
Real estate-mortgage
Contract
|
Jun. 30, 2013
Other
Contract
|
Jun. 30, 2013
Other
Contract
|
Jun. 30, 2012
Installment
Contract
|
Jun. 30, 2012
Installment
Contract
|
|
| Number of contracts | 1 | 1 | 1 | 2 | 1 | 2 | 1 | 1 | 1 | 1 | 1 | 1 | 2 |
| Pre-Modification Outstanding Recorded Investment | $ 1,076 | $ 45 | $ 1,076 | $ 278 | $ 290 | $ 278 | $ 77 | $ 201 | $ 201 | $ 48 | $ 48 | $ 25 | $ 73 |
| Post-Modification Outstanding Recorded Investment | $ 1,076 | $ 45 | $ 1,076 | $ 278 | $ 290 | $ 278 | $ 77 | $ 201 | $ 201 | $ 48 | $ 48 | $ 25 | $ 73 |
|
NOTE 5 - OTHER REAL ESTATE OWNED (Detail) (USD $)
In Thousands, unless otherwise specified |
Jun. 30, 2013
|
Dec. 31, 2012
|
Dec. 31, 2011
|
|---|---|---|---|
| Other Real Estate [Abstract] | |||
| Other real estate owned ("OREO") | $ 16,324 | $ 22,423 | $ 20,106 |
|
NOTE 1 - BASIS OF PRESENTATION (Detail) (USD $)
In Thousands, unless otherwise specified |
Jun. 30, 2013
|
Dec. 31, 2012
|
|---|---|---|
| Organization, Consolidation and Presentation Of Financial Statements [Abstract] | ||
| Subordinated Debt | $ 21,651 | $ 21,651 |
|
NOTE 12 - EARNINGS PER SHARE (Detail)
|
3 Months Ended | 6 Months Ended | ||
|---|---|---|---|---|
|
Jun. 30, 2013
|
Jun. 30, 2012
|
Jun. 30, 2013
|
Jun. 30, 2012
|
|
| Earnings Per Share [Abstract] | ||||
| Antidilutive securities excluded from computation of earnings per share, amount | 214,302 | 255,285 | 214,302 | 256,285 |
|
NOTE 12 - EARNINGS PER SHARE - (Table 1) (Detail) (USD $)
In Thousands, except Share data, unless otherwise specified |
3 Months Ended | 6 Months Ended | ||
|---|---|---|---|---|
|
Jun. 30, 2013
|
Jun. 30, 2012
|
Jun. 30, 2013
|
Jun. 30, 2012
|
|
| Calculation of basic earnings per share: | ||||
| Numerator - net income (in dollars) | $ 894 | $ 1,261 | $ 2,155 | $ 1,741 |
| Denominator - | ||||
| Weighted average common shares outstanding (in shares) | 6,835 | 6,834 | 6,835 | 6,834 |
| Basic income per share (in dollars per share) | $ 0.13 | $ 0.18 | $ 0.32 | $ 0.25 |
| Calculation of diluted earnings per share: | ||||
| Numerator - net income (in dollars) | 894 | 1,261 | 2,155 | 1,741 |
| Denominator - | ||||
| Weighted average common shares outstanding (in shares) | 6,835 | 6,834 | 6,835 | 6,834 |
| Dilutive effect of outstanding options | $ 18 | $ 15 | ||
| Weighted average common shares outstanding (in shares) | 6,853 | 6,834 | 6,850 | 6,834 |
| Diluted earnings per share (in dollars per share) | $ 0.13 | $ 0.18 | $ 0.31 | $ 0.25 |
|
NOTE 14 - FAIR VALUE MEASUREMENTS - (Table 4) (Detail) (USD $)
In Thousands, unless otherwise specified |
6 Months Ended | 12 Months Ended |
|---|---|---|
|
Jun. 30, 2013
|
Dec. 31, 2012
|
|
|
Real estate - commercial
|
||
| Impaired loans: | ||
| Fair Value | $ 625 | $ 2,222 |
| Valuation Techniques | Comparable sale approach | Comparable sales apporach |
| Unobservable Inputs | Discount adjustment for differences between comparable sales | Discount adjustment for differences between comparable sales |
|
Real estate - construction
|
||
| Impaired loans: | ||
| Fair Value | 450 | 143 |
| Valuation Techniques | Comparable sale approach | Comparable sales approach |
| Unobservable Inputs | Discount adjustment for differences between comparable sales | Discount adjustment for differences between comparable sales |
|
Real estate - mortgage
|
||
| Impaired loans: | ||
| Fair Value | 118 | 464 |
| Valuation Techniques | Comparable sale approach | Comparable sales approach |
| Unobservable Inputs | Discount adjustment for differences between comparable sales | Discount adjustment for differences between comparable sales |
|
Weighted Average | Real estate - commercial
|
||
| Impaired loans: | ||
| Range (Weighted Average) | 6% to 11% (9%) | 6% to 11% (9%) |
|
Weighted Average | Real estate - construction
|
||
| Impaired loans: | ||
| Range (Weighted Average) | 2% to 3% (3%) | 2% to 3% (3%) |
|
Weighted Average | Real estate - mortgage
|
||
| Impaired loans: | ||
| Range (Weighted Average) | 6% to 11% (9%) | 6% to 11% (9%) |
|
Impaired Loans | Real estate - other
|
||
| Impaired loans: | ||
| Fair Value | 109 | |
| Valuation Techniques | Comparable sales approach | |
| Unobservable Inputs | Discount adjustment for differences between comparable sales | |
|
Impaired Loans | Weighted Average | Real estate - other
|
||
| Impaired loans: | ||
| Range (Weighted Average) | 6% to 11% (9%) | |
|
OREO | Real estate - commercial
|
||
| Impaired loans: | ||
| Fair Value | 181 | 7,360 |
| Valuation Techniques | Comparable sales approach | Comparable sales approach |
| Unobservable Inputs | Discount adjustment for differences between comparable sales | Discount adjustment for differences between comparable sales |
|
OREO | Real estate - construction
|
||
| Impaired loans: | ||
| Fair Value | $ 651 | $ 184 |
| Valuation Techniques | Comparable sales approach | Comparable sales approach |
| Unobservable Inputs | Discount adjustment for differences between comparable sales | Discount adjustment for differences between comparable sales |
|
OREO | Weighted Average | Real estate - commercial
|
||
| Impaired loans: | ||
| Range (Weighted Average) | 6% to 11% (9%) | 6% to 11% (9%) |
|
OREO | Weighted Average | Real estate - construction
|
||
| Impaired loans: | ||
| Range (Weighted Average) | 0% to 6% (6%) | 0% to 6% (6%) |
|
NOTE 7 - SUBORDINATED DEBENTURES (Tables)
|
6 Months Ended | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
|
Jun. 30, 2013
|
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| Subordinated Debt [Abstract] | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Schedule of subordinated debenture |
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NOTE 2 - INVESTMENT SECURITIES
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6 Months Ended | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Jun. 30, 2013
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| Investments, Debt and Equity Securities [Abstract] | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| INVESTMENT SECURITIES | NOTE 2 – INVESTMENT SECURITIES
The amortized cost of securities and their approximate fair value were as follows (in thousands):
For the three months ended June 30, 2013 there were no gross realized gains on sales or calls of available for sale securities. For the three months ended June 30, 2012 there were $968,000 gross realized gains on sales or calls of available for sale securities. For the three months ended June 30, 2013 and 2012 there were no gross realized losses on sales or calls of securities categorized as available for sale securities. For the three months ended June 30, 2013 there were no gross proceeds from sales or calls of available for sale securities. For the three months ended June 30, 2012 there were $76,989,000 in gross proceeds from sales or calls of available for sale securities. There were no sales or transfers of held to maturity securities for the three months ended June 30, 2013 and 2012. For the three months ended June 30, 2013 and 2012, there were no gross proceeds from maturities or calls of held to maturity securities.
For the six months ended June 30, 2013 and 2012 there were $543,000 and $968,000, respectively, in gross realized gains on sales or calls of available for sale securities. For the six months ended June 30, 2013 there were no gross realized losses on sales or calls of securities categorized as available for sale securities. For the six months ended June 30, 2012 there were $9,000 in gross realized losses on sales or calls of securities categorized as available for sale securities. For the six months ended June 30, 2013 and 2012 there were $17,085,000 and $78,439,000, respectively, in gross proceeds from sales or calls of available for sale securities. There were no sales or transfers of held to maturity securities for the six months ended June 30, 2013 and 2012. For the six months ended June 30, 2013 and 2012, there were no gross proceeds from maturities or calls of held to maturity securities. Expected maturities of all investment securities are consistent with those reported in the December 31, 2012 Form 10-K.
At June 30, 2013 and December 31, 2012, securities having fair value amounts of approximately $300,983,000 and $276,308,000, respectively, were pledged to secure public deposits, short-term borrowings, treasury, tax and loan balances and for other purposes required by law or contract. The Company pledges most of its securities at the Federal Home Loan Bank (“FHLB”) to provide borrowing capacity. See “Liquidity” on page 44.
Investment securities are evaluated for other-than-temporary impairment on at least a quarterly basis and more frequently when economic or market conditions warrant such an evaluation to determine whether a decline in their value below amortized cost is other-than-temporary. Management utilizes criteria such as the magnitude and duration of the decline and the intent and ability of the Company to retain its investment in the issues for a period of time sufficient to allow for an anticipated recovery in fair value, in addition to the reasons underlying the decline, to determine whether the loss in value is other-than-temporary. The term "other-than-temporary" is not intended to indicate that the decline is permanent, but indicates that the prospects for a near-term recovery of value is not necessarily favorable, or that there is a lack of evidence to support a realizable value equal to or greater than the carrying value of the investment. Once a decline in value is determined to be other-than-temporary, and management does not intend to sell the security or it is more likely than not that the Company will not be required to sell the security before recovery, only the portion of the impairment loss representing credit exposure is recognized as a charge to earnings, with the balance recognized as a charge to other comprehensive income. If management intends to sell the security or it is more likely than not that the Company will be required to sell the security before recovering its forecasted cost, the entire impairment loss is recognized as a charge to earnings. For debt securities, the credit loss is defined as the difference between the present value of the cash flows expected to be collected and the amortized cost basis. For equity securities, the entire amount of impairment is recognized through earnings.
A summary of investments securities in an unrealized loss for less than twelve months and twelve months or longer is as follows (in thousands).
As of June 30, 2013 and December 31, 2012, there were two corporate debt securities in a loss position for twelve months or more. There is a current active market for these securities and management believes that the unrealized losses on the Company’s investment in these corporate debt securities is due to the yield of the securities and is not attributable to changes in credit quality. The two corporate debt securities are each a $3,000,000 single-issuer trust preferred security issued by two separate large publicly-traded financial institutions. The securities are tied to the front-end of the yield curve, three-month LIBOR (a short-term interest rate) and have a spread over that. In addition, the payments on both of these securities have been made as agreed and are considered current. The Company does not intend to sell and does not believe it will be required to sell these securities and expects a full recovery of value. The Company did not consider these investments to be other-than-temporarily impaired at June 30, 2013 or December 31, 2012.
Management periodically evaluates each investment security for other-than-temporary impairment, relying primarily on industry analyst reports, observation of market conditions and interest rate fluctuations. Management has the ability and intent to hold securities with established maturity dates until recovery of fair value, which may be at maturity, and believes it will be able to collect all amounts due according to the contractual terms for all of the underlying investment securities; therefore, management does not consider these investments to be other-than-temporarily impaired. |
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NOTE 5 - OTHER REAL ESTATE OWNED
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Jun. 30, 2013
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| Other Real Estate [Abstract] | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| OTHER REAL ESTATE OWNED | NOTE 5 – OTHER REAL ESTATE OWNED
The Company had $16,324,000 and $22,423,000 in other real estate owned (“OREO”) at June 30, 2013 and December 31, 2012, respectively. Below is a table with details of the changes in OREO (in thousands):
The following table presents the components of OREO expense (in thousands):
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NOTE 3 - LOANS
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Jun. 30, 2013
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| Loans Receivable, Net [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| LOANS | NOTE 3 – LOANS
The Company originates loans for business, consumer and real estate activities and for equipment purchases. Such loans are concentrated in the Company’s market areas which consist of Yolo, Placer, Sonoma, Shasta, Humboldt, Mendocino, Trinity and Del Norte Counties and neighboring communities. Major classifications of loans were as follows (in thousands):
Certain real estate loans receivable are pledged as collateral for available borrowings with the FHLB, FRB, and certain correspondent banks. Pledged loans totaled $101,239,000 and $116,929,000 at June 30, 2013 and December 31, 2012, respectively.
The following table presents impaired loans and the related allowance for loan losses as of the dates indicated (in thousands):
The following table presents the average balance and interest income recognized related to impaired loans for the period indicated (in thousands):
Nonperforming loans include all such loans that are either on nonaccrual status or are 90 days past due as to principal or interest but still accrue interest because such loans are well-secured and in the process of collection. Nonperforming loans are summarized as follows (in thousands):
The following table shows an aging analysis of the loan portfolio by the amount of time past due (in thousands):
A troubled debt restructuring (“TDRs”) is a formal modification of the terms of a loan when the lender, for economic or legal reasons related to the borrower’s financial difficulties, grants a concession to the borrower. The modification of the terms of such loans included one or a combination of the following: a reduction of the stated interest rate of the loan; an extension of the maturity date at a stated rate of interest lower than the current market rate for new debt with similar risk; or a permanent reduction of the recorded investment in the loan.
At June 30, 2013, accruing TDRs were $2,485,000 and non-accrual TDRs were $1,170,000 compared to accruing TDRs of $2,414,000 and non-accrual TDRs of $1,072,000 at December 31, 2012. At June 30, 2013, there were no specific reserves allocated to customers whose loan terms were modified in troubled debt restructurings. There are no commitments to lend additional amounts at June 30, 2013 to customers with outstanding loans that are classified as troubled debt restructurings. There were no TDRs that subsequently defaulted during the twelve months following the modification of terms. The following table present loans that were modified and recorded as TDRs for the three and six months ended June 30, 2013 and 2012.
A summary of TDRs by type of concession and by type of loan as of June 30, 2013 and December 31, 2012, is shown below:
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NOTE 11 - ACCUMULATED OTHER COMPREHENSIVE INCOME (LOSS) (Tables)
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Jun. 30, 2013
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| Other Comprehensive Income (Loss), Net Of Tax [Abstract] | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Schedule of accumulated other comprehensive income (loss) |
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| Shedules of changes in each component of accumulated other comprehensive income (loss) |
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NOTE 3 - LOANS - (Table 3) (Detail) (USD $)
In Thousands, unless otherwise specified |
3 Months Ended | 6 Months Ended | ||
|---|---|---|---|---|
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Jun. 30, 2013
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Jun. 30, 2012
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Jun. 30, 2013
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Jun. 30, 2012
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Commercial
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| Average Recorded Investment Impaired Loans | $ 438 | $ 1,143 | $ 455 | $ 1,173 |
| Interest Income Recognized | ||||
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Real estate - commercial
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| Average Recorded Investment Impaired Loans | 5,357 | 5,989 | 5,370 | 6,119 |
| Interest Income Recognized | 21 | 41 | ||
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Real estate - construction
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| Average Recorded Investment Impaired Loans | 874 | 8,388 | 877 | 8,394 |
| Interest Income Recognized | 6 | 13 | ||
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Real estate - mortgage
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| Average Recorded Investment Impaired Loans | 1,371 | 950 | 1,379 | 964 |
| Interest Income Recognized | 10 | 20 | ||
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Installment
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| Average Recorded Investment Impaired Loans | 144 | 140 | 145 | 144 |
| Interest Income Recognized | 1 | 2 | ||
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Other
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| Average Recorded Investment Impaired Loans | 407 | 124 | 408 | 138 |
| Interest Income Recognized | ||||
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Total
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| Average Recorded Investment Impaired Loans | 8,591 | 16,734 | 8,634 | 16,932 |
| Interest Income Recognized | $ 38 | $ 76 | ||
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NOTE 9- PENSION PLAN BENEFITS - (Table 2) (Detail) (USD $)
In Thousands, unless otherwise specified |
Jun. 30, 2013
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Dec. 31, 2012
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|---|---|---|
| Compensation and Retirement Disclosure [Abstract] | ||
| Total Liability of Pension Plan Benefits | $ 8,699 | $ 9,443 |