Results of Operations
Net Interest Income
The management of interest income and interest expense is fundamental to the performance of the Company. Net interest income, which is the difference between interest income on interest earning assets, such as loans and investment securities, and interest expense on interest bearing liabilities, such as deposits and other borrowings, is the largest component of the Company’s total revenue. Management closely monitors both net interest income and net interest margin (net interest income divided by average earning assets).
Net interest income and net interest margin are affected by several factors including (1) the level of, and the relationship between the dollar amount of interest earning assets and interest bearing liabilities; and (2) the relationship between repricing or maturity of our variable-rate and fixed-rate loans, securities, deposits and borrowings.
The majority of the Company’s loans are indexed to the national prime rate. Movements in the national prime rate have a direct impact on the Company’s loan yield and interest income. The national prime rate, which generally follows the targeted federal funds rate, was 3.25% at December 31, 2012 and 2011. There was no change in the targeted federal funds rate during the years ended December 31, 2012 and 2011, remaining at 0.00%-0.25%.
The Company, through its asset and liability management policies and practices, seeks to maximize net interest income without exposing the Company to a level of interest rate risk deemed excessive by management. Interest rate risk is managed by monitoring the pricing, maturity and re-pricing characteristics of all classes of interest bearing assets and liabilities. This is discussed in more detail in Part II,
Item 7- “Management’s Discussion and Analysis of Financial Condition and Results of Operation - Liquidity and Asset/Liability Management.”
For the year ended December 31, 2012, net interest income was $14.1 million compared to $11.3 million for the same period last year. This increase is primarily related to increases of $1.9 million and $950,000 in interest earned in connection with our loan portfolio and our investment securities, respectively. The increase in the interest earned on our loan portfolio was primarily related to a $43.0 million increase in the average balance of loans, partially offset by a 9 basis point decline in our loan yield. The increase in interest earned on our investment portfolio was primarily due to increases of $52.4 million and $23.5 million in the average balance of residential mortgage-backed securities and corporate notes, respectively, partially offset by a decline of 87 basis points in the yield earned on our residential mortgage-backed securities.
The Company’s net interest spread was 2.95% for the year ended December 31, 2012 compared to 3.02% for the same period last year.
The Company’s net interest margin was 3.12% for the year ended December 31, 2012, compared to 3.21% for the same period last year. This 9 basis point decline in net interest margin is primarily due to a decrease in the yield on earning assets, partially offset by a decline in the cost of interest bearing deposits and borrowings. The decrease in yield on earning assets is primarily attributable to a decline in interest rates earned on these assets during the year ended December 31, 2012, as compared to the same period last year, and was caused by a general decline in interest rates, as well as competitive loan pricing conditions in our market, which have continued to compress loan yields. In addition, the decline in our cost of interest bearing deposits and borrowings is primarily attributable to a decrease in interest rates paid on these accounts. The average cost of interest bearing deposits and borrowings was 0.38% during the year ended December 31, 2012 compared to 0.46% for the same period last year.
The following table sets forth our average balances, average yields on earning assets, average rates paid on interest bearing liabilities, net interest margins and net interest income/spread for the years ended December 31, 2012, 2011 and 2010.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(dollars in thousands)
|
|
|
|
|
|
|
|
Yield
|
|
|
|
|
|
|
|
|
Yield
|
|
|
|
|
|
|
|
|
Yield
|
|
Assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest earning deposits at other financial institutions
|
|
$
|
52,026
|
|
|
$
|
132
|
|
|
|
0.25
|
%
|
|
$
|
71,119
|
|
|
$
|
180
|
|
|
|
0.25
|
%
|
|
$
|
54,896
|
|
|
$
|
140
|
|
|
|
0.25
|
%
|
U.S. Gov’t and Federal agency securities
|
|
|
2,179
|
|
|
|
36
|
|
|
|
1.65
|
%
|
|
|
1,227
|
|
|
|
14
|
|
|
|
1.09
|
%
|
|
|
456
|
|
|
|
8
|
|
|
|
1.92
|
%
|
Debt securities issued by the States of the United States
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
%
|
|
|
981
|
|
|
|
17
|
|
|
|
1.76
|
%
|
|
|
215
|
|
|
|
4
|
|
|
|
1.72
|
%
|
Corporate notes
|
|
|
26,084
|
|
|
|
556
|
|
|
|
2.13
|
%
|
|
|
2,545
|
|
|
|
30
|
|
|
|
1.19
|
%
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
%
|
Residential mortgage backed securities and CMOs
|
|
|
132,762
|
|
|
|
2,837
|
|
|
|
2.14
|
%
|
|
|
80,333
|
|
|
|
2,418
|
|
|
|
3.01
|
%
|
|
|
42,122
|
|
|
|
1,732
|
|
|
|
4.11
|
%
|
Federal Reserve Bank stock
|
|
|
1,307
|
|
|
|
78
|
|
|
|
6.00
|
%
|
|
|
1,258
|
|
|
|
75
|
|
|
|
6.00
|
%
|
|
|
1,376
|
|
|
|
83
|
|
|
|
6.01
|
%
|
Federal Home Loan Bank stock
|
|
|
2,176
|
|
|
|
22
|
|
|
|
1.01
|
%
|
|
|
1,869
|
|
|
|
6
|
|
|
|
0.30
|
%
|
|
|
2,182
|
|
|
|
7
|
|
|
|
0.35
|
%
|
Loans (1) (2)
|
|
|
234,875
|
|
|
|
11,378
|
|
|
|
4.84
|
%
|
|
|
191,874
|
|
|
|
9,467
|
|
|
|
4.93
|
%
|
|
|
172,177
|
|
|
|
8,891
|
|
|
|
5.16
|
%
|
Earning assets
|
|
|
451,409
|
|
|
|
15,039
|
|
|
|
3.33
|
%
|
|
|
351,206
|
|
|
|
12,207
|
|
|
|
3.48
|
%
|
|
|
273,424
|
|
|
|
10,865
|
|
|
|
3.97
|
%
|
Other assets
|
|
|
9,145
|
|
|
|
|
|
|
|
|
|
|
|
8,324
|
|
|
|
|
|
|
|
|
|
|
|
8,643
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
$
|
460,554
|
|
|
|
|
|
|
|
|
|
|
$
|
359,530
|
|
|
|
|
|
|
|
|
|
|
$
|
282,067
|
|
|
|
|
|
|
|
|
|
Liabilities & Equity
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest checking (NOW)
|
|
$
|
22,730
|
|
|
|
40
|
|
|
|
0.17
|
%
|
|
$
|
28,823
|
|
|
|
80
|
|
|
|
0.28
|
%
|
|
$
|
26,409
|
|
|
|
62
|
|
|
|
0.23
|
%
|
Money market deposits and savings
|
|
|
159,043
|
|
|
|
491
|
|
|
|
0.31
|
%
|
|
|
114,778
|
|
|
|
570
|
|
|
|
0.50
|
%
|
|
|
58,281
|
|
|
|
378
|
|
|
|
0.65
|
%
|
CDs
|
|
|
45,939
|
|
|
|
134
|
|
|
|
0.29
|
%
|
|
|
50,624
|
|
|
|
181
|
|
|
|
0.36
|
%
|
|
|
61,185
|
|
|
|
320
|
|
|
|
0.52
|
%
|
Borrowings
|
|
|
25,013
|
|
|
|
301
|
|
|
|
1.21
|
%
|
|
|
6,790
|
|
|
|
95
|
|
|
|
1.40
|
%
|
|
|
8,387
|
|
|
|
212
|
|
|
|
2.53
|
%
|
Total interest bearing deposits and borrowings
|
|
|
252,725
|
|
|
|
966
|
|
|
|
0.38
|
%
|
|
|
201,015
|
|
|
|
926
|
|
|
|
0.46
|
%
|
|
|
154,262
|
|
|
|
972
|
|
|
|
0.63
|
%
|
Demand deposits
|
|
|
157,525
|
|
|
|
|
|
|
|
|
|
|
|
111,328
|
|
|
|
|
|
|
|
|
|
|
|
78,858
|
|
|
|
|
|
|
|
|
|
Other liabilities
|
|
|
3,297
|
|
|
|
|
|
|
|
|
|
|
|
2,435
|
|
|
|
|
|
|
|
|
|
|
|
2,050
|
|
|
|
|
|
|
|
|
|
Total liabilities
|
|
|
413,547
|
|
|
|
|
|
|
|
|
|
|
|
314,778
|
|
|
|
|
|
|
|
|
|
|
|
235,170
|
|
|
|
|
|
|
|
|
|
Equity
|
|
|
47,007
|
|
|
|
|
|
|
|
|
|
|
|
44,752
|
|
|
|
|
|
|
|
|
|
|
|
46,897
|
|
|
|
|
|
|
|
|
|
Total liabilities & equity
|
|
$
|
460,554
|
|
|
|
|
|
|
|
|
|
|
$
|
359,530
|
|
|
|
|
|
|
|
|
|
|
$
|
282,067
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net interest income / spread
|
|
|
|
|
|
$
|
14,073
|
|
|
|
2.95
|
%
|
|
|
|
|
|
$
|
11,281
|
|
|
|
3.02
|
%
|
|
|
|
|
|
$
|
9,893
|
|
|
|
3.34
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net interest margin
|
|
|
|
|
|
|
|
|
|
|
3.12
|
%
|
|
|
|
|
|
|
|
|
|
|
3.21
|
%
|
|
|
|
|
|
|
|
|
|
|
3.62
|
%
|
(1) Before allowance for loan losses and net deferred loan fees and costs. Included in net interest income was net loan origination fee accretion and (cost amortization) of $78,000, ($74,000) and ($95,000) for the years ended December 31, 2012, 2011 and 2010, respectively.
(2)
Includes average non-accrual loans of $6.4 million, $6.8 million and $8.4 million for the years ended December 31, 2012, 2011 and 2010, respectively.
The Volume and Rate Variances table below sets forth the dollar difference in interest earned and paid for each major category of interest earning assets and interest bearing liabilities for the noted periods, and the amount of such change attributable to changes in average balances (volume) or changes in average interest rates. Volume variances are equal to the increase or decrease in the average balance times the prior period rate and rate variances are equal to the increase or decrease in the average rate times the prior period average balance. Variances attributable to both rate and volume changes are equal to the change in rate times the change in average balance and are included below in the average volume column.
|
|
Years ended December 31, 2012 Compared to 2011
Increase (Decrease) Due to Changes in:
|
|
(in thousands)
|
|
Volume
|
|
|
Rate
|
|
|
Total
|
|
Interest income:
|
|
|
|
|
|
|
|
|
|
Interest earning deposits at other financial institutions
|
|
$
|
(48
|
)
|
|
$
|
—
|
|
|
$
|
(48
|
)
|
U.S. Gov’t and Federal agency securities
|
|
|
14
|
|
|
|
8
|
|
|
|
22
|
|
Debt securities issued by the States of the United States
|
|
|
(17
|
)
|
|
|
—
|
|
|
|
(17
|
)
|
Corporate notes
|
|
|
484
|
|
|
|
42
|
|
|
|
526
|
|
Residential mortgage backed securities and CMOs
|
|
|
1,261
|
|
|
|
(842
|
)
|
|
|
419
|
|
Federal Reserve Bank stock
|
|
|
3
|
|
|
|
—
|
|
|
|
3
|
|
Federal Home Loan Bank stock
|
|
|
1
|
|
|
|
15
|
|
|
|
16
|
|
Loans
|
|
|
2,086
|
|
|
|
(175
|
)
|
|
|
1,911
|
|
Total increase (decrease) in interest income
|
|
|
3,784
|
|
|
|
(952
|
)
|
|
|
2,832
|
|
Interest expense:
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest checking (NOW)
|
|
|
(14
|
)
|
|
|
(26
|
)
|
|
|
(40
|
)
|
Money market deposits and savings
|
|
|
178
|
|
|
|
(257
|
)
|
|
|
(79
|
)
|
CDs
|
|
|
(16
|
)
|
|
|
(31
|
)
|
|
|
(47
|
)
|
Borrowings
|
|
|
221
|
|
|
|
(15
|
)
|
|
|
206
|
|
Total increase (decrease) in interest expense
|
|
|
369
|
|
|
|
(329
|
)
|
|
|
40
|
|
Net increase (decrease) in net interest income
|
|
$
|
3,415
|
|
|
$
|
(623
|
)
|
|
$
|
2,792
|
|
|
|
|
|
|
|
Years ended December 31, 2011 Compared to 2010
Increase (Decrease) Due to Changes in:
|
|
(in thousands)
|
|
Volume
|
|
|
Rate
|
|
|
Total
|
|
Interest income:
|
|
|
|
|
|
|
|
|
|
Interest earning deposits at other financial institutions
|
|
$
|
41
|
|
|
$
|
(1
|
)
|
|
$
|
40
|
|
U.S. Gov’t and Federal agency securities
|
|
|
11
|
|
|
|
(5
|
)
|
|
|
6
|
|
Debt securities issued by the States of the United States
|
|
|
13
|
|
|
|
—
|
|
|
|
13
|
|
Corporate notes
|
|
|
30
|
|
|
|
—
|
|
|
|
30
|
|
Residential mortgage backed securities and CMOs
|
|
|
1,245
|
|
|
|
(559
|
)
|
|
|
686
|
|
Federal Reserve Bank stock
|
|
|
(8
|
)
|
|
|
—
|
|
|
|
(8
|
)
|
Federal Home Loan Bank stock
|
|
|
(1
|
)
|
|
|
—
|
|
|
|
(1
|
)
|
Loans
|
|
|
984
|
|
|
|
(408
|
)
|
|
|
576
|
|
Total increase (decrease) in interest income
|
|
|
2,315
|
|
|
|
(973
|
)
|
|
|
1,342
|
|
Interest expense:
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest checking (NOW)
|
|
|
6
|
|
|
|
12
|
|
|
|
18
|
|
Money market deposits and savings
|
|
|
298
|
|
|
|
(106
|
)
|
|
|
192
|
|
CDs
|
|
|
(49
|
)
|
|
|
(90
|
)
|
|
|
(139
|
)
|
Borrowings
|
|
|
(35
|
)
|
|
|
(82
|
)
|
|
|
(117
|
)
|
Total increase (decrease) in interest expense
|
|
|
220
|
|
|
|
(266
|
)
|
|
|
(46
|
)
|
Net increase (decrease) in net interest income
|
|
$
|
2,095
|
|
|
$
|
(707
|
)
|
|
$
|
1,388
|
|
Provision for Loan Losses
There was no provision for loan losses for the year ended December 31, 2012. The provision for loan losses was $275,000 for the year ended December 31, 2011. The decline in provision for loan losses recorded during the year ended December 31, 2012, compared to the same period last year, is primarily due to the improvement in the level of our criticized and classified loans, as well as an increase in our ALL during the current year resulting from net recoveries recognized on previously charged-off loans. These declines were partially offset by the need to provide for the $33.7 million increase in our loan portfolio during the current year as compared to the same period last year. Criticized and classified loans generally consist of special mention, substandard and doubtful loans. Special mention, substandard and doubtful loans were $6.6 million, $3.5 million and none, respectively, at December 31, 2012, compared to $3.7 million, $11.0 million, and none, respectively, at December 31, 2011. We had net recoveries of $731,000 during the year ended December 31, 2012, compared to net charge-offs of $274,000 during the year ended December 31, 2011. The provision for loan losses was recorded based on an analysis of the factors discussed in Part II, Item 7.
Management’s Discussion and Analysis of Financial Condition and Results of Operation – Financial Condition – Allowance for Loan Losses
. See Note 21 “
Subsequent Events
” in Part II, Item 8.
“Financial Statements and Supplementary Data”
for information regarding the pay-off of a substandard non-accrual loan in February 2013.
As a percentage of our total loan portfolio, the amount of non-performing loans was 0.70% and 3.26%, respectively, at December 31, 2012 and 2011. As a percentage of our total assets, the amount of non-performing assets was 0.39% and 1.88%, respectively, at December 31, 2012 and 2011.
Non-Interest Income
Non-interest income was $2.0 million for the year ended December 31, 2012, compared to $934,000 for the same period last year. The increase in non-interest income during the year ended December 31, 2012, compared to the same period last year was primarily attributable to an increase in loan arrangement fees earned in connection with our college loan funding program, as well as, other income recognized on interest rate swap transactions entered into during the year. Other income recognized during the year ended December 31, 2012 related to the Company’s interest rate swap transactions was $151,000. The Company did not enter into any interest rate swap transactions during the year ended December 31, 2011. During the first quarter of 2013, the Company terminated its college loan funding program. During the year ended December 31, 2012, net earnings in connection with this program was approximately $550,000, consisting of non-interest income and non-interest expense of $1.5 million and $911,000, respectively. See Note 21 “
Subsequent Events
” in Part II, Item 8. “
Financial Statements and Supplementary Data
” for more information regarding the termination of the college loan funding program.
Non-interest income primarily consists of loan arrangement fees, service charges and fees on deposit accounts, as well as other operating income, which mainly consists of wire transfer and other consumer related fees. Loan arrangement fees are related to a college loan funding program the Company established with a student loan provider. The Company initially funds student loans originated by the student loan provider in exchange for non-interest income. All purchase commitments are supported by collateralized deposit accounts. See Note 14 “
Non-Interest Income
” in Part II, Item 8.
“Financial Statements and Supplementary Data”
for more information regarding non-interest income for the years ended December 31, 2012 and 2011.
Non-Interest Expense
Non-interest expense was $13.0 million for the year ended December 31, 2012, compared to $10.8 million for the same period last year. Compensation and benefits was $6.9 million for the year ended December 31, 2012, compared to $5.8 million for the same period last year. Occupancy expense was $1.3 million for the year ended December 31, 2012, compared to $1.1 million for the year ended December 31, 2011. The increase in non-interest expense during the year ended December 31, 2012, is primarily due to the additional costs incurred related to expanding the Bank’s business development team, increased costs associated with our college loan funding program, as well as the opening of our Santa Monica relationship office in the middle of 2011. See Note 21 “
Subsequent Events
” in Part II, Item 8.
“Financial Statements and Supplementary Data”
for more information regarding the termination of the college loan funding program. See Note 15 “
Other Operating Expenses
” in Part II, Item 8.
“Financial Statements and Supplementary Data”
for more information regarding other operating expenses for the years ended December 31, 2012 and 2011.
Income Tax Provision
During the years ended December 31, 2012 and 2011, we recorded a tax expense of approximately $111,000 and $71,000, respectively. The Company does not anticipate owing any substantial taxes for Federal or State purposes until the Company’s net operating losses (“NOL”) are fully utilized. As of December 31, 2012, the Company had federal and state NOL carryforwards of approximately $4.1 million and $6.8 million, respectively. As of December 31, 2011, the Company had federal and state NOL carryforwards of approximately $8.1 million and $10.6 million, respectively. For federal and California tax purposes, the Company’s NOL carryforwards expire beginning in 2029.
See discussion of management’s evaluation regarding the valuation allowance for the deferred tax assets in Part II, Item 7.
Management’s Discussion and Analysis of Financial Condition and Results of Operations — Financial Condition — Deferred Tax Asset
.
Financial Condition
Assets
Total assets at December 31, 2012 were $499.2 million, representing an increase of approximately $93.9 million, or 23.2%, from $405.3 million at December 31, 2011. The increase in total assets is primarily attributable to growth in our deposit portfolio. Cash and cash equivalents at December 31, 2012 were $50.6 million, representing an increase of $8.6 million, or 20.6%, from $41.9 million at December 31, 2011. Investment securities were $181.2 million at December 31, 2012, compared to $129.9 million at December 31, 2011. The weighted average life of our investment securities were 2.80 years and 3.50 years at December 31, 2012 and 2011, respectively. Loans were $266.7 million and $233.0 million at December 31, 2012 and 2011, respectively. The majority of growth within our loan portfolio primarily related to an increase in our commercial real estate loans. Commercial real estate loans were $110.0 million at December 31, 2012, compared to $70.3 million at December 31, 2011.
Cash and Cash Equivalents
Cash and cash equivalents totaled $50.6 million and $41.9 million at December 31, 2012 and 2011, respectively. Cash and cash equivalents are managed based upon liquidity needs by investing excess liquidity in higher yielding assets such as loans and investment securities. See the section “
Liquidity and Asset/Liability Management”
below.
Investment Securities
The investment securities portfolio is generally the second largest component of the Company’s interest earning assets, and the structure and composition of this portfolio is important to any analysis of the financial condition of the Company. The investment portfolio serves the following purposes: (i) it can be readily reduced in size to provide liquidity for loan balance increases or deposit balance decreases; (ii) it provides a source of pledged assets for securing certain deposits and borrowed funds, as may be required by law or by specific agreement with a depositor or lender; (iii) it can be used as an interest rate risk management tool, since it provides a large base of assets, the maturity and interest rate characteristics of which can be changed more readily than the loan portfolio to better match changes in the deposit base and other funding sources of the Company; and (iv) it is an alternative interest earning use of funds when loan demand is weak or when deposits grow more rapidly than loans.
At December 31, 2012, investment securities totaled $181.2 million compared to $129.9 million at December 31, 2011. The Company’s investment portfolio is primarily composed of residential mortgage-backed securities issued by the Federal National Mortgage Association and the Federal Home Loan Mortgage Corporation. The underlying loans for these securities are residential mortgages that were primarily originated beginning in 2003 through the current period. These loans are geographically dispersed throughout the United States. At December 31, 2012 and 2011, the weighted average rate and weighed average life of these residential-mortgage backed securities were 1.95% and 2.60%, respectively, and 2.92 years and 3.57 years, respectively. In addition, the Company’s investment portfolio consisted of $35.3 million and $6.3 million of investment grade corporate notes at December 31, 2012 and 2011, respectively. At December 31, 2012 and 2011, the weighted average rate and weighed average life of these corporate notes were 2.19% and 1.56%, respectively, and 2.26 years and 2.21 years, respectively. We will continue to evaluate the Company’s investments and liquidity needs and will adjust the amount of investment securities accordingly.
See Note 2 “
Investment Securities
” in Part II, Item 8.
“Financial Statements and Supplementary Data”
for more information regarding investment securities at December 31, 2012 and 2011.
The following is a summary of the investments categorized as Available for Sale at December 31, 2010:
|
|
December 31, 2010
|
|
(in thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
Investments–Available for Sale
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. Gov’t Treasuries
|
|
$
|
150
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
150
|
|
Debt issued by the states of the United States
|
|
|
2,012
|
|
|
|
3
|
|
|
|
—
|
|
|
|
2,015
|
|
Residential Mortgage-Backed Securities
|
|
|
53,105
|
|
|
|
1,588
|
|
|
|
(174
|
)
|
|
|
54,519
|
|
Residential CMOs
|
|
|
1,783
|
|
|
|
7
|
|
|
|
—
|
|
|
|
1,790
|
|
Total
|
|
$
|
57,050
|
|
|
$
|
1,598
|
|
|
$
|
(174
|
)
|
|
$
|
58,474
|
|
The Company did not have any investment securities categorized as “Held to Maturity” or “Trading” at December 31, 2012, 2011 or 2010.
Loans
Loans, net of the allowance for loan losses and deferred loan origination costs/unearned fees, increased 14.5%, or $32.9 million, from $227.7 million at December 31, 2011 to $260.7 million at December 31, 2012. As of December 31, 2012 and 2011, total loans outstanding totaled $266.7 million and $233.0 million, respectively. The majority of growth within our loan portfolio primarily related to an increase in our commercial real estate loans, partially offset by elevated prepayment speeds during the current year. Commercial real estate loans were $110.0 million at December 31, 2012, compared to $70.3 million at December 31, 2011. Prepayment speeds for the year ended December 31, 2012 were 23.2%, compared to 20.7% for the same period last year. Loan originations were $123.1 million during the year ended December 31, 2012, compared to $117.1 million during the same period last year. The following table sets forth the comparison of our loan portfolio by major categories as of the dates indicated:
|
|
December 31,
|
|
|
|
2012
|
|
|
2011
|
|
|
2010
|
|
|
2009
|
|
|
2008
|
|
(dollars in thousands)
|
|
Amount Outstanding
|
|
|
Percent of Total
|
|
|
Amount Outstanding
|
|
|
Percent of Total
|
|
|
Amount Outstanding
|
|
|
Percent of Total
|
|
|
Amount Outstanding
|
|
|
Percent of Total
|
|
|
Amount Outstanding
|
|
|
Percent of Total
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial (1)
|
|
$
|
58,769
|
|
|
|
22.0
|
%
|
|
$
|
70,945
|
|
|
|
30.4
|
%
|
|
$
|
67,411
|
|
|
|
37.6
|
%
|
|
$
|
84,721
|
|
|
|
46.6
|
%
|
|
$
|
104,990
|
|
|
|
52.5
|
%
|
Commercial real estate
|
|
|
110,031
|
|
|
|
41.3
|
%
|
|
|
70,269
|
|
|
|
30.2
|
%
|
|
|
54,456
|
|
|
|
30.4
|
%
|
|
|
59,403
|
|
|
|
32.7
|
%
|
|
|
56,682
|
|
|
|
28.3
|
%
|
Residential
|
|
|
53,162
|
|
|
|
19.9
|
%
|
|
|
54,944
|
|
|
|
23.6
|
%
|
|
|
21,707
|
|
|
|
12.1
|
%
|
|
|
1,880
|
|
|
|
1.0
|
%
|
|
|
1,983
|
|
|
|
1.0
|
%
|
Land and construction
|
|
|
19,080
|
|
|
|
7.2
|
%
|
|
|
16,670
|
|
|
|
7.2
|
%
|
|
|
15,462
|
|
|
|
8.6
|
%
|
|
|
16,777
|
|
|
|
9.3
|
%
|
|
|
17,371
|
|
|
|
8.7
|
%
|
Consumer and other (2)
|
|
|
25,584
|
|
|
|
9.6
|
%
|
|
|
20,140
|
|
|
|
8.6
|
%
|
|
|
20,235
|
|
|
|
11.3
|
%
|
|
|
18,927
|
|
|
|
10.4
|
%
|
|
|
18,957
|
|
|
|
9.5
|
%
|
Loans, gross
|
|
|
266,626
|
|
|
|
100.0
|
%
|
|
|
232,968
|
|
|
|
100.0
|
%
|
|
|
179,271
|
|
|
|
100.0
|
%
|
|
|
181,708
|
|
|
|
100.0
|
%
|
|
|
199,983
|
|
|
|
100.0
|
%
|
Plus (Less) — net deferred costs (unearned fee income)
|
|
|
45
|
|
|
|
|
|
|
|
37
|
|
|
|
|
|
|
|
22
|
|
|
|
|
|
|
|
99
|
|
|
|
|
|
|
|
(27
|
)
|
|
|
|
|
Less — allowance for loan losses
|
|
|
(6,015
|
)
|
|
|
|
|
|
|
(5,284
|
)
|
|
|
|
|
|
|
(5,283
|
)
|
|
|
|
|
|
|
(5,478
|
)
|
|
|
|
|
|
|
(5,171
|
)
|
|
|
|
|
Loans, net
|
|
$
|
260,656
|
|
|
|
|
|
|
$
|
227,721
|
|
|
|
|
|
|
$
|
174,010
|
|
|
|
|
|
|
$
|
176,329
|
|
|
|
|
|
|
$
|
194,785
|
|
|
|
|
|
|
(1)
|
Unsecured commercial loan balances were $10.0 million, $11.5 million, $11.0 million, $17.5 million, and $23.9 million at December 31, 2012, 2011, 2010, 2009, and 2008, respectively.
|
|
(2)
|
Unsecured consumer and other loan balances were $901,000, $2.8 million, $1.9 million, $1.8 million, and $4.1 million at December 31, 2012, 2011, 2010, 2009, and 2008, respectively.
|
As of December 31, 2012, substantially all of the Company’s loan customers are located in Southern California. Additionally, the Company does not have any subprime mortgages.
The table below reflects the maturity distribution for the loans (except for the consumer and other loans) in our loan portfolio at December 31, 2012:
|
|
December 31, 2012
|
|
(in thousands)
|
|
|
|
|
Greater than
one year
through
five years
|
|
|
|
|
|
Total
|
|
Commercial Loans
|
|
|
|
|
|
|
|
|
|
|
|
|
Floating rate
|
|
$
|
16,262
|
|
|
$
|
22,525
|
|
|
$
|
1,812
|
|
|
$
|
40,599
|
|
Fixed rate
|
|
|
6,725
|
|
|
|
10,449
|
|
|
|
996
|
|
|
|
18,170
|
|
Real Estate Loans
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Floating rate
|
|
|
13,827
|
|
|
|
17,444
|
|
|
|
34,553
|
|
|
|
65,824
|
|
Fixed rate
|
|
|
21,767
|
|
|
|
47,103
|
|
|
|
47,579
|
|
|
|
116,449
|
|
|
|
$
|
58,581
|
|
|
$
|
97,521
|
|
|
$
|
84,940
|
|
|
$
|
241,042
|
|
As of December 31, 2012, $4.0 million of our floating rate loans were at or below their floor rates. The weighted average minimum interest rate on these loans was 4.47% at December 31, 2012.
Non-Performing Assets
The following table sets forth non-accrual loans and other real estate owned (“OREO”) at December 31, 2012, 2011, 2010, 2009 and 2008:
|
|
December 31,
|
|
(dollars in thousands)
|
|
2012
|
|
|
2011
|
|
|
2010
|
|
|
2009
|
|
|
2008
|
|
Non-accrual loans:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial
|
|
$
|
1,509
|
|
|
$
|
2,175
|
|
|
$
|
1,693
|
|
|
$
|
3,032
|
|
|
$
|
—
|
|
Commercial real estate
|
|
|
—
|
|
|
|
3,756
|
|
|
|
5,080
|
|
|
|
5,923
|
|
|
|
3,435
|
|
Residential
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
845
|
|
|
|
607
|
|
Land and Construction
|
|
|
—
|
|
|
|
1,330
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
Consumer and other
|
|
|
345
|
|
|
|
345
|
|
|
|
345
|
|
|
|
10
|
|
|
|
1,650
|
|
Total non-accrual loans
|
|
|
1,854
|
|
|
|
7,606
|
|
|
|
7,118
|
|
|
|
9,810
|
|
|
|
5,692
|
|
OREO
|
|
|
90
|
|
|
|
—
|
|
|
|
845
|
|
|
|
—
|
|
|
|
162
|
|
Total non-performing assets
|
|
$
|
1,944
|
|
|
$
|
7,606
|
|
|
$
|
7,963
|
|
|
$
|
9,810
|
|
|
$
|
5,854
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-performing assets to total loans and OREO
|
|
|
0.73
|
%
|
|
|
3.26
|
%
|
|
|
4.42
|
%
|
|
|
5.40
|
%
|
|
|
2.92
|
%
|
Non-performing assets to total assets
|
|
|
0.39
|
%
|
|
|
1.88
|
%
|
|
|
2.58
|
%
|
|
|
3.60
|
%
|
|
|
2.26
|
%
|
Non-accrual loans totaled $1.9 million and $7.6 million at December 31, 2012 and 2011, respectively. At December 31, 2012, there was one loan with a balance of $2.3 million that was over 90 days past due and accruing interest. This loan continued to accrue interest because it was well secured and in the process of collection. There were no accruing loans past due 90 days or more at December 31, 2011. Gross interest income that would have been recorded on non-accrual loans had they been current in accordance with their original terms was $178,000 and $263,000 for the years ended December 31, 2012 and 2011, respectively. As a percentage of total assets, the amount of non-performing assets was 0.39% and 1.88% at December 31, 2012 and 2011, respectively.
At December 31, 2012, non-accrual loans consisted of three commercial loans totaling $1.5 million and one consumer and other loan totaling $345,000. At December 31, 2011, non-accrual loans consisted of four commercial loans totaling $2.2 million, two commercial real estate loans totaling $3.8 million, one commercial land loan totaling $1.3 million and one consumer and other loan totaling $345,000.
At December 31, 2012, OREO consisted of one undeveloped land property totaling $90,000. This property is located in Southern California. There was no OREO outstanding at December 31, 2011.
At December 31, 2012 and 2011, the recorded investment in impaired loans was $2.1 million and $7.6 million, respectively. At December 31, 2012, the Company had a $500,000 specific allowance for loan losses on $811,000 of impaired loans. At December 31, 2011, the Company had a $700,000 specific allowance for loan losses on $1.1 million of impaired loans. There were $1.3 million and $6.5 million, respectively, of impaired loans with no specific allowance for loan losses at December 31, 2012 and 2011, respectively. The average outstanding balance of impaired loans for the year ended December 31, 2012 was $6.8 million, compared to $6.8 million for the same period last year. As of December 31, 2012 and 2011, there was $1.9 million and $7.6 million, respectively, of impaired loans on non-accrual status. During the years ended December 31, 2012 and 2011, interest income recognized on impaired loans subsequent to their classification as impaired was $12,000 and none, respectively. The Company stops accruing interest on these loans on the date they are classified as non-accrual and reverses any uncollected interest that had been previously accrued as income. The Company may begin recognizing interest income on these loans as cash interest payments are received, if collection of principal is reasonably assured. See Note 21 “
Subsequent Events
” in Part II, Item 8.
“Financial Statements and Supplementary Data”
for information regarding the pay-off of a substandard non-accrual loan in February 2013.
Allowance for Loan Losses
The allowance for loan losses (the “ALL”) is established through a provision for loan losses charged to operations and represents an estimate of credit losses inherent in the Company’s loan portfolio that have been incurred as of the balance sheet date. Loan losses are charged against the ALL when management believes that principal is uncollectible. Subsequent repayments or recoveries, if any, are credited to the ALL. Management periodically assesses the adequacy of the ALL by reference to many quantitative and qualitative factors that may be weighted differently at various times depending on prevailing conditions. These factors include, among other elements:
|
|
the risk characteristics of various classifications of loans;
|
|
|
general portfolio trends relative to asset and portfolio size;
|
|
|
potential credit concentrations;
|
|
|
delinquency trends within the loan portfolio;
|
|
|
changes in the volume and severity of past due and other classified loans;
|
|
|
historical loss experience and risks associated with changes in economic, social and business conditions; and
|
|
|
the underwriting standards in effect when the loan was made.
|
Accordingly, the calculation of the adequacy of the ALL is not based solely on the level of non-performing assets. The quantitative factors, included above, are utilized by our management to identify two different risk groups (1) individual loans (loans with specifically identifiable risks); and (2) homogeneous loans (groups of loan with similar characteristics). We base the allocation for individual loans on the results of our impairment analysis, which is typically based on the present value of the expected future cash flows discounted at the loan’s effective interest rate or by using the loan’s most recent market value or the fair value of the collateral, if the loan is collateral dependent. Homogenous groups of loans are allocated reserves based on the loss ratio assigned to the pool based on its risk grade. The loss ratio is determined based primarily on the historical loss experience of our loan portfolio. These loss ratios are then adjusted, if determined necessary, based on other factors including, but not limited to, historical peer group loan loss data and the loss experience of other financial institutions. Loss ratios for all categories of loans are evaluated on a quarterly basis. Historical loss experience is determined based on a rolling migration analysis of each loan category within our portfolio. This migration analysis estimates loss factors based on the performance of each loan category over a four and a half year time period. These quantitative calculations are based on estimates and actual losses may vary materially and adversely from the estimates.
The qualitative factors, included above, are also utilized to identify other risks inherent in the portfolio and to determine whether the estimated credit losses associated with the current portfolio might differ from historical loss trends or the loss ratios discussed above. We estimate a range of exposure for each applicable qualitative factor and evaluate the current condition and trend of each factor. Because of the subjective nature of these factors, the actual losses incurred may vary materially and adversely from the estimated amounts.
In addition, regulatory agencies, as a part of their examination process, periodically review the Bank’s ALL, and may require the Bank to take additional provisions to increase the ALL based on their judgment about information available to them at the time of their examinations. No assurance can be given that adverse future economic conditions or other factors will not lead to increased delinquent loans, further provisions for loan losses and/or charge-offs. Management believes that the ALL as of December 31, 2012 and 2011 was adequate to absorb probable incurred credit losses inherent in the loan portfolio.
The following is a summary of the activity for the ALL for the years ended December 31, 2012 and 2011:
(in thousands)
|
|
Commercial
|
|
|
Commercial Real Estate
|
|
|
Residential
|
|
|
Land and Construction
|
|
|
Consumer and Other
|
|
|
Total
|
|
Year Ended December 31, 2012:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Allowance for loan losses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Beginning balance
|
|
$
|
2,584
|
|
|
$
|
1,252
|
|
|
$
|
583
|
|
|
$
|
516
|
|
|
$
|
349
|
|
|
$
|
5,284
|
|
Provision for loan losses
|
|
|
(305
|
)
|
|
|
485
|
|
|
|
(75
|
)
|
|
|
(100
|
)
|
|
|
(5
|
)
|
|
|
—
|
|
Charge-offs
|
|
|
(26
|
)
|
|
|
(400
|
)
|
|
|
—
|
|
|
|
(5
|
)
|
|
|
—
|
|
|
|
(431
|
)
|
Recoveries
|
|
|
24
|
|
|
|
1,113
|
|
|
|
—
|
|
|
|
—
|
|
|
|
25
|
|
|
|
1,162
|
|
Ending balance
|
|
$
|
2,277
|
|
|
$
|
2,450
|
|
|
$
|
508
|
|
|
$
|
411
|
|
|
$
|
369
|
|
|
$
|
6,015
|
|
Year Ended December 31, 2011:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Allowance for loan losses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Beginning balance
|
|
$
|
2,812
|
|
|
$
|
888
|
|
|
$
|
213
|
|
|
$
|
995
|
|
|
$
|
375
|
|
|
$
|
5,283
|
|
Provision for loan losses
|
|
|
(724
|
)
|
|
|
894
|
|
|
|
370
|
|
|
|
(209
|
)
|
|
|
(56
|
)
|
|
|
275
|
|
Charge-offs
|
|
|
(223
|
)
|
|
|
(530
|
)
|
|
|
—
|
|
|
|
(270
|
)
|
|
|
—
|
|
|
|
(1,023
|
)
|
Recoveries
|
|
|
719
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
30
|
|
|
|
749
|
|
Ending balance
|
|
$
|
2,584
|
|
|
$
|
1,252
|
|
|
$
|
583
|
|
|
$
|
516
|
|
|
$
|
349
|
|
|
$
|
5,284
|
|
The following is a summary of activity for the ALL for the years ended December 31, 2010, 2009 and 2008:
|
|
December 31,
|
|
(in thousands)
|
|
2010
|
|
|
2009
|
|
|
2008
|
|
Beginning balance
|
|
$
|
5,478
|
|
|
$
|
5,171
|
|
|
$
|
2,369
|
|
Provision for loan losses
|
|
|
2,775
|
|
|
|
6,154
|
|
|
|
4,342
|
|
Charge-offs:
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial
|
|
|
(2,321
|
)
|
|
|
(1,528
|
)
|
|
|
(972
|
)
|
Commercial real estate
|
|
|
(900
|
)
|
|
|
(2,674
|
)
|
|
|
(189
|
)
|
Residential
|
|
|
—
|
|
|
|
(125
|
)
|
|
|
(368
|
)
|
Consumer and other
|
|
|
(190
|
)
|
|
|
(1,642
|
)
|
|
|
(12
|
)
|
Total Charge-offs
|
|
|
(3,411
|
)
|
|
|
(5,969
|
)
|
|
|
(1,541
|
)
|
Recoveries:
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial
|
|
|
386
|
|
|
|
92
|
|
|
|
—
|
|
Commercial real estate
|
|
|
20
|
|
|
|
—
|
|
|
|
—
|
|
Consumer and other
|
|
|
35
|
|
|
|
30
|
|
|
|
1
|
|
Total Recoveries
|
|
|
441
|
|
|
|
122
|
|
|
|
1
|
|
Ending balance
|
|
$
|
5,283
|
|
|
$
|
5,478
|
|
|
$
|
5,171
|
|
There were no loans acquired with deteriorated credit quality during the years ended December 31, 2012 and 2011.
The ALL was $6.0 million, or 2.26% of our total loan portfolio, at December 31, 2012, compared to $5.3 million, or 2.27%, at December 31, 2011. During the year ended December 31, 2012, our non-performing loans decreased to $1.9 million from $7.6 million at December 31, 2011. The ratio of our ALL to non-performing loans was 324.36% at December 31, 2012 compared to 69.47% at December 31, 2011. In addition, our ratio of non-performing loans to total loans was 0.70% and 3.26% at December 31, 2012 and 2011, respectively. The ALL is impacted by inherent risk in the loan portfolio, including the level of our non-performing loans, as well as specific reserves and charge-off activities. The remaining portion of our ALL is allocated to our performing loans based on the quantitative and qualitative factors discussed above. See Note 21 “
Subsequent Events
” in Part II, Item 8.
“Financial Statements and Supplementary Data”
for information regarding the pay-off of a substandard non-accrual loan in February 2013.
Allocation of the Allowance for Loan Losses
|
|
December 31,
|
|
|
|
2012
|
|
|
2011
|
|
|
2010
|
|
|
2009
|
|
|
2008
|
|
(dollars in thousands)
|
Balance of Allowance
for Loan Losses
|
|
|
Percentage of Loans in
Each
Category
|
|
|
Balance of Allowance
for Loan Losses
|
|
|
Percentage
of Loans in Each
Category
|
|
|
Balance of Allowance
for Loan Losses
|
|
|
Percentage of Loans
in Each Category
|
|
|
Balance of Allowance
for Loan Losses
|
|
|
Percentage
of Loans in Each
Category
|
|
|
Balance of Allowance
for Loan Losses
|
|
|
Percentage of Loans in
Each
Category
|
|
Commercial and real estate loans
|
|
$
|
5,646
|
|
|
|
90.4
|
%
|
|
$
|
4,935
|
|
|
|
91.4
|
%
|
|
$
|
4,994
|
|
|
|
88.7
|
%
|
|
$
|
5,237
|
|
|
|
89.6
|
%
|
|
$
|
4,962
|
|
|
|
90.5
|
%
|
Consumer and other loans
|
|
|
369
|
|
|
|
9.6
|
|
|
|
349
|
|
|
|
8.6
|
|
|
|
289
|
|
|
|
11.3
|
|
|
|
241
|
|
|
|
10.4
|
|
|
|
209
|
|
|
|
9.5
|
|
Total
|
|
$
|
6,015
|
|
|
|
100.0
|
%
|
|
$
|
5,284
|
|
|
|
100.0
|
%
|
|
$
|
5,283
|
|
|
|
100.0
|
%
|
|
$
|
5,478
|
|
|
|
100.0
|
%
|
|
$
|
5,171
|
|
|
|
100.0
|
%
|
Deferred Tax Asset
A valuation allowance is required if it is “more likely than not” that a deferred tax asset will not be realized. The determination of the realizability of the deferred tax assets is highly subjective and dependent upon judgment concerning management’s evaluation of both positive and negative evidence, including historic financial performance, the forecasts of future income, existence of feasible tax planning strategies, length of statutory carryforward periods, and assessments of the current and future economic and business conditions. Management evaluates the positive and negative evidence and determines the realizability of the deferred tax asset on a quarterly basis.
During the year ended December 31, 2009, we established a full valuation allowance against the Company’s deferred tax assets after we determined that it was more likely than not” that the Company would not be able to realize the benefit of the deferred tax asset. Management reassessed the continuing need for this valuation allowance and determined that as of December 31, 2012 and 2011, it was appropriate to maintain a full valuation allowance against the Company’s deferred tax assets. Management reached this conclusion as a result of the Company’s cumulative losses since inception, and the near term economic climate in which the Company operates. Management will continue to evaluate the potential realizability of the deferred tax assets and will continue to maintain a valuation allowance to the extent it is determined that it is more likely than not that these assets will not be realized.
At December 31, 2012 and 2011, the Company maintained a deferred tax liability of $1.7 million and $1.1 million, respectively, in connection with net unrealized gains on investment securities, which is included in Accrued Interest and Other Liabilities within the accompanying Consolidated Balance Sheets. We did not utilize this deferred tax liability to reduce our tax valuation allowance due to the fact that we do not currently intend to dispose of these investments and realize the associated gains.
See Note 17 “
Income Taxes
” in Part II, Item 8.
“Financial Statements and Supplementary Data”
for more information regarding the Company’s income taxes and deferred tax assets at December 31, 2012 and 2011.
Deposits
The Company’s activities are largely based in the Los Angeles metropolitan area. The Company’s deposit base is also primarily generated from this area.
At December 31, 2012, total deposits were $416.7 million compared to $332.5 million at December 31, 2011, representing an increase of 25.3%, or $84.2 million. This increase is primarily due to growth within our non-interest bearing deposits and money market deposits and savings of $73.2 million and $10.0 million, respectively, due to continued core deposit gathering efforts. Total core deposits, which include non-interest bearing demand deposits, interest bearing demand deposits and money market deposits and savings, were $371.4 million and $285.6 million at December 31, 2012 and 2011, respectively, representing an increase of $85.7 million, or 30.0%.
The following table reflects a summary of deposit categories by dollar and percentage at December 31, 2012 and 2011:
|
|
December 31, 2012
|
|
|
December 31, 2011
|
|
(dollars in thousands)
|
|
Amount
|
|
|
Percent of
Total
|
|
|
Amount
|
|
|
Percent of
Total
|
|
Non-interest bearing demand deposits
|
|
$
|
196,026
|
|
|
|
47.0
|
%
|
|
$
|
122,843
|
|
|
|
37.0
|
%
|
Interest bearing checking
|
|
|
23,233
|
|
|
|
5.6
|
%
|
|
|
20,739
|
|
|
|
6.2
|
%
|
Money market deposits and savings
|
|
|
152,094
|
|
|
|
36.5
|
%
|
|
|
142,061
|
|
|
|
42.7
|
%
|
Certificates of deposit
|
|
|
45,328
|
|
|
|
10.9
|
%
|
|
|
46,811
|
|
|
|
14.1
|
%
|
Total
|
|
$
|
416,681
|
|
|
|
100.0
|
%
|
|
$
|
332,454
|
|
|
|
100.0
|
%
|
At December 31, 2012 and 2011, the Company had three certificates of deposit with the State of California Treasurer’s Office for a total of $34.0 million, which represented 8.2% and 10.2%, respectively, of total deposits. The Company was required to pledge $37.4 million of agency mortgage backed securities at December 31, 2012 and 2011 in connection with these certificates of deposit. Each of these deposits outstanding at December 31, 2012 is scheduled to mature in the first quarter of 2013. The Company intends to renew each of these deposits at maturity. However, there can be no assurance that the State of California Treasurer’s Office will continue to maintain deposit accounts with the Company. For further information on the Company’s certificates of deposit with the State of California Treasurer’s Office, see Part I, Item 1
. Financial Statements
- Note 8 “
Deposits
.”
At December 31, 2012 and 2011, the Company had $5.2 million and $3.4 million, respectively, of Certificate of Deposit Accounts Registry Service (“CDARS”) reciprocal deposits, which represented 1.3% and 1.0%, respectively, of total deposits.
The aggregate amount of certificates of deposit of $100,000 or more at December 31, 2012 and 2011, was $44.0 million and $44.9 million, respectively.
Scheduled maturities of certificates of deposit in amounts of $100,000 or more at December 31, 2012, including deposit accounts with the State of California Treasurer’s Office and CDARS were as follows:
(in thousands)
|
|
Due within 3 months or less
|
|
$
|
36,982
|
|
Due after 3 months and within 6 months
|
|
3,810
|
|
Due after 6 months and within 12 months
|
|
2,967
|
|
Due after 12 months
|
|
228
|
|
Total
|
|
$
|
43,987
|
|
Liquidity and Asset/Liability Management
Liquidity, as it relates to banking, is the ability to meet loan commitments and to honor deposit withdrawals through either the sale or maturity of existing assets or the acquisition of additional funds through deposits or borrowing. The Company’s main sources of funds to provide liquidity are its cash and cash equivalents, paydowns and maturities of investments, loan repayments, and increases in deposits and borrowings. The Company also maintains lines of credit with the Federal Home Loan Bank, or FHLB, and other correspondent financial institutions.
The liquidity ratio (the sum of cash and cash equivalents and available for sale investments, excluding amounts required to be pledged for operating requirements, divided by total assets) was 37.1% at December 31, 2012 and 30.9% at December 31, 2011.
At December 31, 2012 and December 31, 2011, the Company had a borrowing/credit facility secured by a blanket lien on eligible loans at the FHLB of $105.1 million and $53.7 million, respectively. The Company had $25.0 million of long-term borrowings outstanding under this borrowing/credit facility with the FHLB at December 31, 2012 and December 31, 2011. The Company had no overnight borrowings outstanding under this borrowing/credit facility at December 31, 2012 and 2011.
The following table summarizes the outstanding long-term borrowings under the borrowing/credit facility secured by a blanket lien on eligible loans at the FHLB at December 31, 2012 and 2011 (dollars in thousands):
|
|
|
|
December 31,
|
|
Maturity Date
|
|
Interest Rate
|
|
2012
|
|
|
2011
|
|
May 23, 2013
|
|
|
0.63
|
%
|
|
$
|
2,500
|
|
|
$
|
2,500
|
|
May 23, 2014
|
|
|
1.14
|
%
|
|
|
2,500
|
|
|
|
2,500
|
|
December 29, 2014
|
|
|
0.83
|
%
|
|
|
5,000
|
|
|
|
5,000
|
|
December 30, 2014
|
|
|
0.74
|
%
|
|
|
2,500
|
|
|
|
2,500
|
|
May 26, 2015
|
|
|
1.65
|
%
|
|
|
2,500
|
|
|
|
2,500
|
|
May 23, 2016
|
|
|
2.07
|
%
|
|
|
2,500
|
|
|
|
2,500
|
|
December 29, 2016
|
|
|
1.38
|
%
|
|
|
5,000
|
|
|
|
5,000
|
|
December 30, 2016
|
|
|
1.25
|
%
|
|
|
2,500
|
|
|
|
2,500
|
|
|
|
Total
|
|
|
$
|
25,000
|
|
|
$
|
25,000
|
|
At December 31, 2012, the Company also had $27.0 million in Federal fund lines of credit available with other correspondent banks that could be used to disburse loan commitments and to satisfy demands for deposit withdrawals. Each of these lines of credit is subject to conditions that the Company may not be able to meet at the time when additional liquidity is needed. At December 31, 2012, there was a $4.5 million short-term overnight borrowing outstanding under these credit facilities at an interest rate of 1.09%. This borrowing was repaid on January 2, 2013. The Company did not incur any material interest expense charges in connection with this borrowing and there were no further borrowings under these facilities during the year ended December 31, 2012. The Company did not have any borrowings outstanding under these lines of credit at December 31, 2011. As of December 31, 2012 and 2011, the Company had pledged $6.2 million of corporate notes related to these lines of credit.
Management believes the level of liquid assets and available credit facilities are sufficient to meet current and anticipated funding needs. In addition, the Bank’s Asset/Liability Management Committee oversees the Company’s liquidity position by reviewing a monthly liquidity report. Management is not aware of any trends, demands, commitments, events or uncertainties that will result or are reasonably likely to result in a material change in the Company’s liquidity.
Capital Expenditures
As of December 31, 2012, the Company was not subject to any material commitments for capital expenditures. For capital adequacy, see Part I, Item 1.
Business — “Capital Standards.”
Capital Resources
At December 31, 2012, the Company had total stockholders’ equity of $49.2 million, which included $110,000 in common stock, $65.0 million in additional paid-in capital, $10.9 million in accumulated deficit, $2.4 million in accumulated other comprehensive income, and $7.5 million in treasury stock. During the year ended December 31, 2012, the Company purchased 43,847 shares of its common stock under its stock repurchase program, at an average price per share of $3.78, effectively reducing total stockholders’ equity by $166,000 during the year.
See discussion of the Company’s stock repurchase program in Part II - Item 5.
Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities — “Purchases of Equity Securities”
, and Item 8.
Financial Statements and Supplementary Data —
Note 11
“Stock Repurchase Program
.”
Off-Balance Sheet Arrangements
In the normal course of business, the Company is a party to financial instruments with off-balance sheet risk. These financial instruments include commitments to extend credit and letters of credit. To varying degrees, these instruments involve elements of credit and interest rate risk in excess of the amount recognized in the statement of financial position.
(in thousands)
|
|
December 31, 2012
|
|
|
December 31, 2011
|
|
Commitments to extend credit
|
|
$
|
74,230
|
|
|
$
|
56,964
|
|
Commitments to extend credit to directors and officers (undisbursed amount)
|
|
$
|
561
|
|
|
$
|
367
|
|
Standby/commercial letters of credit
|
|
$
|
1,900
|
|
|
$
|
2,533
|
|
Guarantees on revolving credit card limits
|
|
$
|
217
|
|
|
$
|
219
|
|
Outstanding credit card balances
|
|
$
|
67
|
|
|
$
|
54
|
|
The Company maintains an allowance for unfunded commitments, based on the level and quality of the Company’s undisbursed loan funds, which comprises the majority of the Company’s off-balance sheet risk. As of December 31, 2012 and 2011, the allowance for unfunded commitments was unchanged at $203,000, which represented 0.26% and 0.35%, respectively, of the undisbursed commitments and letters of credit, respectively.
Management is not aware of any other off-balance sheet arrangements that have or are reasonably likely to have a current or future effect on the Company’s financial condition, changes in financial condition, and results of operations, liquidity, capital expenditures or capital resources that is material to investors.
For further information on commitments and contingencies, see Part II, Item 8
. Financial Statements and Supplementary Data
- Note 6 “
Related Party Transactions
” and Note 10 “
Commitments and Contingencies
.”