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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington D.C. 20549
FORM 10-K
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Annual Report Pursuant to Section 13 or 15(d) of
the Securities Exchange Act of 1934 |
For the fiscal year ended December 31, 2010
Commission File Number 0-10661
TriCo Bancshares
(Exact name of Registrant as specified in its charter)
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California
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94-2792841 |
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(State or other jurisdiction of incorporation or organization)
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(I.R.S. Employer Identification No.) |
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63 Constitution Drive, Chico, California
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95973 |
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(Address of principal executive offices)
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(Zip Code) |
Registrants telephone number, including area code:(530) 898-0300
Securities registered pursuant to Section 12(b) of the Act:
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Common Stock, without par value
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Nasdaq Stock Market LLC |
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(Title of Class)
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(Name of each exchange on which registered) |
Securities registered pursuant to Section 12(g) of the Act: None.
Indicate by check mark whether the Registrant is a well-known seasoned issuer, as defined in Rule
405 of the Securities Act.
YES o NO þ
Indicate by check mark whether the Registrant is not required to file reports pursuant to Section
13 or Section 15(d) of the Act.
YES o NO þ
Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by
Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for
such shorter 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 þ NO o
Indicate by check mark whether the registrant has submitted electronically and posted on its
corporate Web site, if any, every Interactive Data File required to be submitted and posted
pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months
(or for such shorter period that the registrant was required to submit and post such files).
YES o NO o
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is
not contained herein, and will not be contained, to the best of the Registrants knowledge, in
definitive proxy or information statements incorporated by reference in Part III of the Form 10-K
or any amendment to this Form 10-K. o
Indicate by check mark whether the Registrant is a large accelerated filer, an accelerated filer, a
non-accelerated filer or a smaller reporting company. See the definitions of large accelerated
filer, accelerated filer and smaller reporting company in Rule 12b-2 of the Act (check one).
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Large accelerated filer o
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Accelerated filer þ
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Non-accelerated filer o
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Smaller reporting company o |
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(Do not check if a smaller reporting company) |
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Indicate by check mark whether the Registrant is a shell company (as defined in Rule 12b-2 of the
Exchange Act).
YES o NO þ
The aggregate market value of the voting common stock held by non-affiliates of the Registrant, as
of June 30, 2010, was approximately $197,007,000 (based on the closing sales price of the
Registrants common stock on the date). This computation excludes a total of 4,223,599 shares that
are beneficially owned by the officers and directors of Registrant who may be deemed to be the
affiliates of Registrant under applicable rules of the Securities and Exchange Commission.
The number of shares outstanding of Registrants common stock, as of March 4, 2011, was
15,860,138 shares of common stock, without par value.
DOCUMENTS INCORPORATED BY REFERENCE
The information required to be disclosed pursuant to Part III of this report either shall be (i)
deemed to be incorporated by reference from selected portions of TriCo Bancshares definitive proxy
statement for the 2011 annual meeting of stockholders, if such proxy statement is filed with the
Securities and Exchange Commission pursuant to Regulation 14A not later than 120 days after the end
of the Companys most recently completed fiscal year, or (ii) included in an amendment to this
report filed with the Commission on Form 10-K/A not later than the end of such 120 day period.
FORWARD-LOOKING STATEMENTS
In addition to historical information, this Annual Report on Form 10-K contains forward-looking
statements about TriCo Bancshares (the Company) for which it claims the protection of the safe
harbor provisions contained in the Private Securities Litigation Reform Act of 1995. These
forward-looking statements are based on Managements current knowledge and belief and include
information concerning the Companys possible or assumed future financial condition and results of
operations. When you see any of the words believes, expects, anticipates, estimates, or
similar expressions, these generally indicate that we are making forward-looking statements. A
number of factors, some of which are beyond the Companys ability to predict or control, could
cause future results to differ materially from those contemplated. These factors include those
listed at Item 1A Risk Factors, in this report.
PART I
ITEM 1. BUSINESS
Information About TriCo Bancshares Business
TriCo Bancshares (the Company, TriCo, we or our) was incorporated in California on October
13, 1981. It was organized at the direction of the board of directors of Tri Counties Bank (the
Bank) for the purpose of forming a bank holding company. On September 7, 1982, the shareholders
of Tri Counties Bank became the shareholders of TriCo and Tri Counties Bank became a wholly owned
subsidiary of TriCo. At that time, TriCo became a bank holding company subject to the supervision
of the Board of Governors of the Federal Reserve System (FRB) under the Bank Holding Company Act
of 1956, as amended. Tri Counties Bank remains subject to the supervision of the California
Department of Financial Institutions (DFI) and the Federal Deposit Insurance Corporation
(FDIC). On July 31, 2003, the Company formed a subsidiary business trust, TriCo Capital Trust I,
to issue trust preferred securities. On June 22, 2004, the Company formed a subsidiary business
trust, TriCo Capital Trust II, to issue additional trust preferred securities. See Note 8 in the
financial statements at Item 8 of this report for a discussion about the Companys issuance of
trust preferred securities. Tri Counties Bank, TriCo Capital Trust I and TriCo Capital Trust II
currently are the only subsidiaries of TriCo and TriCo is not conducting any business operations
independent of Tri Counties Bank, TriCo Capital Trust I and TriCo Capital Trust II.
For financial reporting purposes, the financial statements of the Bank are consolidated into the
financial statements of the Company. Historically, issuer trusts, such as TriCo Capital Trust I
and TriCo Capital Trust II, that issued trust preferred securities have been consolidated by their
parent companies and trust preferred securities have been treated as eligible for Tier 1 capital
treatment by bank holding companies under FRB rules and regulations relating to minority interests
in equity accounts of consolidated subsidiaries. Applying the provisions of the Financial
Accounting Standards Boards (FASB) Accounting Standards Codification (ASC) 810 Consolidation,
the Company is no longer permitted to consolidate such issuer trusts beginning on December 31,
2003. The FRB permits trust preferred securities to be treated as Tier 1 up to a limit of 25% of
Tier 1 capital.
Additional information concerning the Company can be found on our website at www.tcbk.com. Copies
of our annual reports on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K and
amendments to these reports are available free of charge through our website, www.tcbk.com, at
Investor RelationsSEC Filings and Annual Reports as soon as reasonably practicable after the
Company files these reports to the Securities and Exchange Commission. The information on our
website is not incorporated into this annual report.
Business of Tri Counties Bank
Tri Counties Bank was incorporated as a California banking corporation on June 26, 1974, and
received its certificate of authority to begin banking operations on March 11, 1975. Tri Counties
Bank engages in the general commercial banking business in the California counties of Butte, Contra
Costa, Del Norte, Fresno, Glenn, Kern, Lake, Lassen, Madera, Mendocino, Merced, Napa, Nevada,
Placer, Sacramento, Shasta, Siskiyou, Stanislaus, Sutter, Tehama, Tulare, Yolo and Yuba. Tri
Counties Bank currently operates from 34 traditional branches and 27 in-store branches.
General Banking Services
The Bank conducts a commercial banking business including accepting demand, savings and time
deposits and making commercial, real estate, and consumer loans. It also offers installment note
collection, issues cashiers checks, sells travelers checks and provides safe deposit boxes and
other customary banking services. Brokerage services are provided at the Banks offices by the
Banks association with Raymond James Financial Services, Inc., an independent financial services
provider and broker-dealer. The Bank does not offer trust services or international banking
services.
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The Bank has emphasized retail banking since it opened. Most of the Banks customers are retail
customers and small to medium-sized businesses. The Bank emphasizes serving the needs of local
businesses, farmers and ranchers, retired individuals and wage earners. The majority of the Banks
loans are direct loans made to individuals and businesses in northern and central California where
its branches are located. At December 31, 2010, the total of the Banks consumer loans net of
deferred fees outstanding was $395,771,000 (27.9%), the total of commercial loans outstanding was
$143,413,000 (10.1%), and the total of real estate loans including construction loans of
$44,916,000 was $880,387,000 (62.0%). The Bank takes real estate, listed and unlisted securities,
savings and time deposits, automobiles, machinery, equipment, inventory, accounts receivable and
notes receivable secured by property as collateral for loans.
Most of the Banks deposits are attracted from individuals and business-related sources. No single
person or group of persons provides a material portion of the Banks deposits, the loss of any one
or more of which would have a materially adverse effect on the business of the Bank, nor is a
material portion of the Banks loans concentrated within a single industry or group of related
industries.
In order to attract loan and deposit business from individuals and small to medium-sized
businesses, branches of the Bank set lobby hours to accommodate local demands. In general, lobby
hours are from 9:00 a.m. to 5:00 p.m. Monday through Thursday, and from 9:00 a.m. to 6:00 p.m. on
Friday. Some Bank offices also utilize drive-up facilities operating from 9:00 a.m. to 6:00 p.m.
The supermarket branches are open from 9:00 a.m. to 7:00 p.m. Monday through Saturday and 11:00
a.m. to 5:00 p.m. on Sunday.
The Bank offers 24-hour ATMs at almost all branch locations. The 69 ATMs are linked to several
national and regional networks such as CIRRUS and STAR. In addition, banking by telephone on a
24-hour toll-free number is available to all customers. This service allows a customer to obtain
account balances and most recent transactions, transfer moneys between accounts, make loan
payments, and obtain interest rate information.
In February 1998, the Bank became the first bank in the Northern Sacramento Valley to offer banking
services on the Internet. This banking service provides customers one more tool for access to
their accounts.
Purchase and Assumption of Certain Assets and Liabilities of Granite Bank
On May 28, 2010, the Bank acquired certain of the assets and assumed substantially all of the
liabilities of Granite Community Bank, N.A., Granite Bay, California (Granite Bank), including
substantially all the deposits from the FDIC, as receiver for Granite Bank. The acquisition was
made pursuant to the terms of a purchase and assumption agreement entered into by the Bank and the
FDIC. Based upon a preliminary closing with the FDIC as of May 28, 2010, the Bank acquired $77.0
million in loans, $3.8 million in investment securities, and $22.2 million in cash and other
assets, and assumed an estimated $94.8 million in deposits, $5.0 million in borrowings, and $0.1
million in other liabilities. The Bank paid no cash or other consideration to acquire Granite Bank.
In connection with the Acquisition, the Bank entered into a loss-sharing agreement with the FDIC
that covered approximately $89.3 million of Granite Banks assets. The Bank will share in the
losses on the asset pools (loans, foreclosed loan collateral, and certain investment securities)
covered under the loss-sharing agreement. Pursuant to the terms of the loss sharing agreement, the
FDIC is obligated to reimburse the Bank for 80% of losses with respect to covered assets. The Bank
will reimburse the FDIC for 80% of recoveries with respect to losses for which the FDIC paid the
Bank under the loss sharing agreement. See Note 2 in the financial statements at Item 8 of this
report for a discussion about this transaction.
Other Activities
The Bank may in the future engage in other businesses either directly or indirectly through
subsidiaries acquired or formed by the Bank subject to regulatory constraints. See Regulation and
Supervision.
Employees
At December 31, 2010, the Company and the Bank employed 749 persons, including seven executive
officers. Full time equivalent employees were 680. No employees of the Company or the Bank are
presently represented by a union or covered under a collective bargaining agreement. Management
believes that its employee relations are excellent.
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Competition
The banking business in California generally, and in the Banks primary service area of Northern
and Central California specifically, is highly competitive with respect to both loans and deposits.
It is dominated by a relatively small number of national and regional banks with many offices
operating over a wide geographic area. Among the advantages such major banks have over the Bank is
their ability to finance wide ranging advertising campaigns and to allocate their investment assets
to regions of high yield and demand. By virtue of their greater total capitalization such
institutions have substantially higher lending limits than does the Bank.
In addition to competing with savings institutions, commercial banks compete with other financial
markets for funds as a result of the deregulation of the financial services industry. Yields on
corporate and government debt securities and other commercial paper may be higher than on deposits,
and therefore affect the ability of commercial banks to attract and hold deposits. Commercial
banks also compete for available funds with money market instruments and mutual funds. During past
periods of high interest rates, money market funds have provided substantial competition to banks
for deposits and they may continue to do so in the future. Mutual funds are also a major source of
competition for savings dollars.
The Bank relies substantially on local promotional activity, personal contacts by its officers,
directors, employees and shareholders, extended hours, personalized service and its reputation in
the communities it services to compete effectively.
Regulation and Supervision
General
The Company and the Bank are subject to extensive regulation under both federal and state law. This
regulation is intended primarily for the protection of depositors, the deposit insurance fund, and
the banking system as a whole, and not for the protection of shareholders of the Company. Set forth
below is a summary description of the significant laws and regulations applicable to the Company
and the Bank. The description is qualified in its entirety by reference to the applicable laws and
regulations.
Dodd-Frank Wall Street Reform and Consumer Protection Act
On July 21, 2010, the Dodd-Frank Wall Street Reform and Consumer Protection Act (the Dodd-Frank
Act) was signed into law. The Dodd-Frank Act is intended to effect a fundamental restructuring of
federal banking regulation. Among other things, the Dodd-Frank Act creates a new Financial
Stability Oversight Council to identify systemic risks in the financial system and gives federal
regulators new authority to take control of and liquidate financial firms. The Dodd-Frank Act also
creates a new independent federal regulator to administer federal consumer protection laws. The
Dodd-Frank Act is expected to have a significant impact on our business operations as its
provisions take effect. Among the provisions that are likely to affect us are the following:
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Holding Company Capital Requirements. The Dodd-Frank Act requires the FRB to apply
consolidated capital requirements to depository institution holding companies that are no
less stringent than those currently applied to depository institutions. Under these
standards, trust preferred securities will be excluded from Tier 1 capital unless such
securities were issued prior to May 19, 2010 by a bank holding company with less than $15
billion in assets. The Dodd-Frank Act also requires capital requirements to be
countercyclical so that the required amount of capital increases in times of economic
expansion and decreases in times of economic contraction, consistent with safety and
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Deposit Insurance. The Dodd-Frank Act permanently increases the maximum deposit insurance
amount for banks, savings institutions and credit unions to $250,000 per depositor, and
extends unlimited deposit insurance to non-interest bearing transaction accounts through
December 31, 2012. The Dodd-Frank Act also broadens the base for FDIC insurance assessments.
Assessments will now be based on the average consolidated total assets less tangible equity
capital of a financial institution. The Dodd-Frank Act requires the FDIC to increase the
reserve ratio of the Deposit Insurance Fund from 1.15% to 1.35% of insured deposits by 2020
and eliminates the requirement that the FDIC pay dividends to insured depository
institutions when the reserve ratio exceeds certain thresholds. Effective one year from the
date of enactment, the Dodd-Frank Act eliminates the federal statutory prohibition against
the payment of interest on business checking accounts. |
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Corporate Governance. The Dodd-Frank Act will require publicly traded companies to give
shareholders a non-binding vote on executive compensation at their first annual meeting
taking place six months after the date of enactment and at least every three years
thereafter and on so-called golden parachute payments in connection with approvals of
mergers and acquisitions unless previously voted on by shareholders. The new legislation
also authorizes the SEC to promulgate rules that would allow shareholders to nominate their
own candidates using a companys proxy materials. The Dodd-Frank Act directs the federal
banking regulators to promulgate rules prohibiting excessive compensation paid to executives
of depository institutions and their holding companies with assets in excess of $1.0
billion, regardless of whether the company is publicly traded or not. It also gives the SEC
authority to prohibit broker discretionary voting on elections of directors and executive
compensation matters. |
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Prohibition Against Charter Conversions of Troubled Institutions. Effective one year after
enactment, the Dodd-Frank Act prohibits a depository institution from converting from a
state to federal charter or vice versa while it is the subject of a cease and desist order
or other formal enforcement action or a memorandum of understanding with respect to a
significant supervisory matter unless the appropriate federal banking agency gives notice
of the conversion to the federal or state authority that issued the enforcement action and
that agency does not object within 30 days. |
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Interstate Branching. The Dodd-Frank Act authorizes national and state banks to establish
branches in other states to the same extent as a bank chartered by that state would be
permitted to branch. Previously, banks could only establish branches in other states if the
host state expressly permitted out-of-state banks to establish branches in that state.
Accordingly, banks will be able to enter new markets more freely. |
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Limits on Derivatives. Effective 18 months after enactment, the Dodd-Frank Act prohibits
state-chartered banks from engaging in derivatives transactions unless the loans to one
borrower limits of the state in which the bank is chartered take into consideration credit
exposure to derivatives transactions. For this purpose, derivative transaction includes any
contract, agreement, swap, warrant, note or option that is based in whole or in part on the
value of, any interest in, or any quantitative measure or the occurrence of any event
relating to, one or more commodities securities, currencies, interest or other rates,
indices or other assets. |
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Transactions with Affiliates and Insiders. Effective one year from the date of enactment,
the Dodd-Frank Act expands the definition of affiliate for purposes of quantitative and
qualitative limitations of Section 23A of the Federal Reserve Act to include mutual funds
advised by a depository institution or its affiliates. The Dodd-Frank Act will apply Section
23A and Section 22(h) of the Federal Reserve Act (governing transactions with insiders) to
derivative transactions, repurchase agreements and securities lending and borrowing
transactions that create credit exposure to an affiliate or an insider. Any such
transactions with affiliates must be fully secured. The current exemption from Section 23A
for transactions with financial subsidiaries will be eliminated. |
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Consumer Financial Protection Bureau. The Dodd-Frank Act creates a new, independent federal
agency called the Consumer Financial Protection Bureau (CFPB), which is granted broad
rulemaking, supervisory and enforcement powers under various federal consumer financial
protection laws, including the Equal Credit Opportunity Act, Truth in Lending Act, Real
Estate Settlement Procedures Act, Fair Credit Reporting Act, Fair Debt Collection Act, the
Consumer Financial Privacy provisions of the Gramm-Leach-Bliley Act and certain other
statutes. The CFPB will have examination and primary enforcement authority with respect to
depository institutions with $10 billion or more in assets. Smaller institutions will be
subject to rules promulgated by the CFPB but will continue to be examined and supervised by
federal banking regulators for consumer compliance purposes. The CFPB will have authority to
prevent unfair, deceptive or abusive practices in connection with the offering of consumer
financial products. The Dodd-Frank Act authorizes the CFPB to establish certain minimum
standards for the origination of residential mortgages including a determination of the
borrowers ability to repay. In addition, the Dodd-Frank Act will allow borrowers to raise
certain defenses to foreclosure if they receive any loan other than a qualified mortgage
as defined by the CFPB. The Dodd-Frank Act permits states to adopt consumer protection laws
and standards that are more stringent than those adopted at the federal level and, in
certain circumstances, permits state attorneys general to enforce compliance with both the
state and federal laws and regulations. |
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Regulatory Agencies
The Company is a legal entity separate and distinct from the Bank and its other subsidiaries. As a
bank holding company, the Company is regulated under the Bank Holding Company Act of 1956 (the BHC
Act), and is subject to supervision, regulation and inspection by the FRB. The Company is also
under the jurisdiction of the Securities and Exchange Commission (SEC) and is subject to the
disclosure and regulatory requirements of the Securities Act of 1933 and the Securities Exchange
Act of 1934, each administered by the SEC. The Company is listed on the Nasdaq Global Select market
(Nasdaq) under the trading symbol TCBK and is subject to the rules of Nasdaq for listed
companies.
The Bank, as a state chartered bank, is subject to broad federal regulation and oversight extending
to all its operations by the FDIC and to state regulation by the DFI.
The Company
The Company is a bank holding company. In general, the BHC Act limits the business of bank holding
companies to banking, managing or controlling banks and other activities that the Federal Reserve
has determined to be so closely related to banking as to be a proper incident thereto. As a result
of the Gramm-Bliley Act, which amended the BHC Act, bank holding companies that are financial
holding companies may engage in any activity, or acquire and retain the shares of a company engaged
in any activity, that is either (i) financial in nature or incidental to such financial activity
(as determined by the FRB in consultation with the Office of the Comptroller of the Currency (the
OCC)) or (ii) complementary to a financial activity, and that does not pose a substantial risk to
the safety and soundness of depository institutions or the financial system generally (as
determined solely by the FRB). Activities that are financial in nature include securities
underwriting and dealing, insurance underwriting and agency, and making merchant banking
investments.
If a bank holding company seeks to engage in the broader range of activities that are permitted
under the BHC Act for financial holding companies, (i) all of its depository institution
subsidiaries must be well capitalized and well managed and (ii) it must file a declaration with
the FRB that it elects to be a financial holding company. A depository institution subsidiary is
considered to be well capitalized if it satisfies the requirements for this status discussed in
the section captioned Capital Adequacy and Prompt Corrective Action, included elsewhere in this
item. A depository institution subsidiary is considered well managed if it received a composite
rating and management rating of at least satisfactory in its most recent examination. In
addition, the subsidiary depository institution must have received a rating of at least
satisfactory in its most recent examination under the Community Reinvestment Act. (See the
section captioned Consumer Protection Laws and Regulations included elsewhere in this item.) The
Company has not elected to become a financial holding company.
The BHC Act, the Federal Bank Merger Act, and other federal and state statutes regulate
acquisitions of commercial banks. The BHC Act requires the prior approval of the FRB for the direct
or indirect acquisition of more than 5 percent of the voting shares of a commercial bank or its
parent holding company. Under the Federal Bank Merger Act, the prior approval of an acquiring
banks primary federal regulator is required before it may merge with another bank or purchase the
assets or assume the deposits of another bank. In reviewing applications seeking approval of merger
and acquisition transactions, the bank regulatory authorities will consider, among other things,
the competitive effect and public benefits of the transactions, the capital position of the
combined organization, the applicants performance record under the Community Reinvestment Act,
fair housing laws and the effectiveness of the subject organizations in combating money laundering
activities.
Safety and Soundness Standards
The Federal Deposit Insurance Corporation Improvement Act of 1991 (FDICIA) implemented certain
specific restrictions on transactions and required the regulators to adopt overall safety and
soundness standards for depository institutions related to internal control, loan underwriting and
documentation, and asset growth. Among other things, FDICIA limits the interest rates paid on
deposits by undercapitalized institutions, the use of brokered deposits and the aggregate extension
of credit by a depository institution to an executive officer, director, principal stockholder or
related interest, and reduces deposit insurance coverage for deposits offered by undercapitalized
institutions for deposits by certain employee benefits accounts.
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Section 39 to the Federal Deposit Insurance Act requires the agencies to establish safety and
soundness standards for insured financial institutions covering:
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internal controls, information systems and internal audit systems; |
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loan documentation; |
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credit underwriting; |
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interest rate exposure; |
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asset growth; |
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compensation, fees and benefits; |
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asset quality, earnings and stock valuation; and |
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excessive compensation for executive officers, directors or principal
shareholders which could lead to material financial loss. |
If an agency determines that an institution fails to meet any standard established by the
guidelines, the agency may require the financial institution to submit to the agency an acceptable
plan to achieve compliance with the standard. If the agency requires submission of a compliance
plan and the institution fails to timely submit an acceptable plan or to implement an accepted
plan, the agency must require the institution to correct the deficiency. An institution must file
a compliance plan within 30 days of a request to do so from the institutions primary federal
regulatory agency. The agencies may elect to initiate enforcement action in certain cases rather
than rely on an existing plan particularly where failure to meet one or more of the standards could
threaten the safe and sound operation of the institution.
Restrictions on Dividends and Distributions
A California corporation such as TriCo may make a distribution to its shareholders if the
corporations retained earnings equal at least the amount of the proposed distribution. In the
event sufficient retained earnings are not available for the proposed distribution, a California
corporation may nevertheless make a distribution to its shareholders if, after giving effect to the
distribution, the corporations assets equal at least 125 percent of its liabilities and certain
other conditions are met. Since the 125 percent ratio is equivalent to a minimum capital ratio of
20 percent, most bank holding companies are unable to meet this last test and so must have
sufficient retained earnings to fund a proposed distribution.
The primary source of funds for payment of dividends by TriCo to its shareholders will be the
receipt of dividends and management fees from the Bank. TriCos ability to receive dividends from
the Bank is limited by applicable state and federal law. Under Section 642 of the California
Financial Code, funds available for cash dividend payments by a bank are restricted to the lesser
of: (i) retained earnings; or (ii) the banks net income for its last three fiscal years (less any
distributions to shareholders made during such period). However, under Section 643 of the
California Financial Code, with the prior approval of the Commissioner of the DFI, a bank may pay
cash dividends in an amount not to exceed the greatest of the: (1) retained earnings of the bank;
(2) net income of the bank for its last fiscal year; or (3) net income of the bank for its current
fiscal year. However, if the DFI finds that the shareholders equity of the bank is not adequate
or that the payment of a dividend would be unsafe or unsound, the Commissioner may order such bank
not to pay a dividend to shareholders.
Additionally, under FDICIA, a bank may not make any capital distribution, including the payment of
dividends, if after making such distribution the bank would be in any of the undercapitalized
categories under the FDICs Prompt Corrective Action regulations. A bank is undercapitalized for
this purpose if its leverage ratios, Tier 1 risk-based capital level and total risk-based capital
ratio are not at least four percent, four percent and eight percent, respectively.
The FRB, FDIC and the DFI have authority to prohibit a bank holding company or a bank from engaging
in practices which are considered to be unsafe and unsound. Depending on the financial condition
of the Bank and upon other factors, the FRB, FDIC or the DFI could determine that payment of
dividends or other payments by TriCo or the Bank might constitute an unsafe or unsound practice.
Finally, any dividend that would cause a bank to fall below required capital levels could also be
prohibited.
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Source of Strength Doctrine
The Dodd-Frank Act requires a bank holding company to serve as a source of financial strength to
its subsidiary banks. Under this source of strength doctrine, a bank holding company is expected
to stand ready to use its available resources to provide adequate capital funds to its subsidiary
banks during periods of financial stress or adversity, and to maintain resources and the capacity
to raise capital that it can commit to its subsidiary banks. Any capital loans by a bank holding
company to any of its subsidiary banks are subordinate in right of payment of deposits and to
certain other indebtedness of such subsidiary banks. The BHC Act provides that, in the event of a
bank holding companys bankruptcy, any commitment by the bank holding company to a federal bank
regulatory agency to maintain the capital of a subsidiary bank will be assumed by the bankruptcy
trustee and entitled to priority of payment. Furthermore, the FRB has the right to order a bank
holding company to terminate any activity that the FRB believes is a serious risk to the financial
safety, soundness or stability of any subsidiary bank.
Consumer Protection Laws and Regulations
The Company is subject to many federal consumer protection statues and regulations, some of which
are discussed below.
The Community Reinvestment Act of 1977 is intended to encourage insured depository institutions,
while operating safely and soundly, to help meet the credit needs of their communities. This act
specifically directs the federal regulatory agencies to assess a banks record of helping meet the
credit needs of its entire community, including low- and moderate-income neighborhoods, consistent
with safe and sound practices. This act further requires the agencies to take a financial
institutions record of meeting its community credit needs into account when evaluating
applications for, among other things, domestic branches, mergers or acquisitions, or holding
company formations. The agencies use the Community Reinvestment Act assessment factors in order to
provide a rating to the financial institution. The ratings range from a high of outstanding to a
low of substantial noncompliance.
The Equal Credit Opportunity Act generally prohibits discrimination in any credit transaction,
whether for consumer or business purposes, on the basis of race, color, religion, national origin,
sex, marital status, age (except in limited circumstances), receipt of income from public
assistance programs, or good faith exercise of any rights under the Consumer Credit Protection Act.
The Truth-in-Lending Act is designed to ensure that credit terms are disclosed in a meaningful way
so that consumers may compare credit terms more readily and knowledgeably.
The Fair Housing Act regulates many practices, including making it unlawful for any lender to
discriminate in its housing-related lending activities against any person because of race, color,
religion, national origin, sex, handicap or familial status. The Home Mortgage Disclosure Act grew
out of public concern over credit shortages in certain urban neighborhoods and provides public
information that will help show whether financial institutions are serving the housing credit needs
of the neighborhoods and communities in which they are located. This act also includes a fair
lending aspect that requires the collection and disclosure of data about applicant and borrower
characteristics as a way of identifying possible discriminatory lending patterns and enforcing
anti-discrimination statutes.
The Real Estate Settlement Procedures Act requires lenders to provide borrowers with disclosures
regarding the nature and cost of real estate settlements. Also, this act prohibits certain abusive
practices, such as kickbacks, and places limitations on the amount of escrow accounts.
Penalties under the above laws may include fines, reimbursements, injunctive relief and other
penalties.
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USA Patriot Act of 2001
The USA Patriot Act was enacted in 2001 to combat money laundering and terrorist financing. The
impact of the Patriot Act on financial institutions is significant and wide ranging. The Patriot
Act contains sweeping anti-money laundering and financial transparency laws and requires various
regulations, including:
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due diligence requirements for financial institutions that administer,
maintain, or manage private bank accounts or correspondent accounts for non-U.S.
persons, |
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standards for verifying customer identification at account opening, |
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rules to promote cooperation among financial institutions, regulators, and
law enforcement entities to assist in the identification of parties that may be
involved in terrorism or money laundering, |
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reports to be filed by non-financial trades and business with the Treasury
Departments Financial Crimes Enforcement Network for transactions exceeding $10,000,
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the filing of suspicious activities reports by securities brokers and
dealers if they believe a customer may be violating U.S. laws and regulations. |
Capital Requirements
Federal regulation imposes upon all financial institutions a variable system of risk-based capital
guidelines designed to make capital requirements sensitive to differences in risk profiles among
banking organizations, to take into account off-balance sheet exposures and to promote uniformity
in the definition of bank capital uniform nationally.
The Bank and the Company are subject to the minimum capital requirements of the FDIC and the FRB,
respectively. As a result of these requirements, the growth in assets is limited by the amount of
its capital as defined by the respective regulatory agency. Capital requirements may have an
effect on profitability and the payment of dividends on the common stock of the Bank and the
Company. If an entity is unable to increase its assets without violating the minimum capital
requirements or is forced to reduce assets, its ability to generate earnings would be reduced.
The FRB and the FDIC have adopted guidelines utilizing a risk-based capital structure. Qualifying
capital is divided into two tiers. Tier 1 capital consists generally of common stockholders
equity, qualifying noncumulative perpetual preferred stock, qualifying cumulative perpetual
preferred stock (up to 25% of total Tier 1 capital) and minority interests in the equity accounts
of consolidated subsidiaries, less goodwill and certain other intangible assets. Tier 2 capital
consists of, among other things, allowance for loan and lease losses up to 1.25% of weighted risk
assets, other perpetual preferred stock, hybrid capital instruments, perpetual debt, mandatory
convertible debt securities, subordinated debt and intermediate-term preferred stock. Tier 2
capital qualifies as part of total capital up to a maximum of 100% of Tier 1 capital. Amounts in
excess of these limits may be issued but are not included in the calculation of risk-based capital
ratios. Under these risk-based capital guidelines, the Bank and the Company are required to
maintain capital equal to at least 8% of its assets, of which at least 4% must be in the form of
Tier 1 capital.
The guidelines also require the Company and the Bank to maintain a minimum leverage ratio of 4% of
Tier 1 capital to total assets (the leverage ratio). The leverage ratio is determined by
dividing an institutions Tier 1 capital by its quarterly average total assets, less goodwill and
certain other intangible assets. The leverage ratio constitutes a minimum requirement for the most
well-run banking organizations. See Note 19 in the financial statements at Item 8 of this report
for a discussion about the Companys risk-based capital and leverage ratios.
Prompt Corrective Action
Prompt Corrective Action Regulations of the federal bank regulatory agencies establish five capital
categories in descending order (well capitalized, adequately capitalized, undercapitalized,
significantly undercapitalized and critically undercapitalized), assignment to which depends upon
the institutions total risk-based capital ratio, Tier 1 risk-based capital ratio, and leverage
ratio. Institutions classified in one of the three undercapitalized categories are subject to
certain mandatory and discretionary supervisory actions, which include increased monitoring and
review, implementation of capital restoration plans, asset growth restrictions, limitations upon
expansion and new business activities, requirements to augment capital, restrictions upon deposit
gathering and interest rates, replacement of senior executive officers and directors, and requiring
divestiture or sale of the institution. The Bank has been classified as well-capitalized since
adoption of these regulations.
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Impact of Monetary Policies
Banking is a business that depends on interest rate differentials. In general, the difference
between the interest paid by a bank on its deposits and other borrowings, and the interest rate
earned by banks on loans, securities and other interest-earning assets comprises the major source
of banks earnings. Thus, the earnings and growth of banks are subject to the influence of
economic conditions generally, both domestic and foreign, and also to the monetary and fiscal
policies of the United States and its agencies, particularly the FRB. The FRB implements national
monetary policy, such as seeking to curb inflation and combat recession, by its open-market
dealings in United States government securities, by adjusting the required level of reserves for
financial institutions subject to reserve requirements and through adjustments to the discount rate
applicable to borrowings by banks which are members of the FRB. The actions of the FRB in these
areas influence the growth of bank loans, investments and deposits and also affect interest rates.
The nature and timing of any future changes in such policies and their impact on the Company cannot
be predicted. In addition, adverse economic conditions could make a higher provision for loan
losses a prudent course and could cause higher loan loss charge-offs, thus adversely affecting the
Companys net earnings.
Premiums for Deposit Insurance
Deposit accounts in the Bank are insured by the FDIC, generally up to a maximum of $250,000 per
separately insured depositor. The Banks deposits are subject to FDIC deposit insurance
assessments. In February of 2009, the FDIC revised its risk-based system for determining deposit
insurance assessments. This assessment is based on the risk category of the institution. To
determine the total base assessment rate, the FDIC first establishes an institutions initial base
assessment rate. This initial base assessment rate ranges, depending on the risk category of the
institution, from 12 to 45 basis points. The FDIC then adjusts the initial base assessment based
upon an institutions levels of unsecured debt, secured liabilities, and brokered deposits. The
total base assessment rate ranges from 7 to 77.5 basis points of the institutions deposits.
In May of 2009, the FDIC adopted a final rule imposing a five basis point special assessment on
each insured depository institutions assets minus Tier 1 capital as of June 30, 2009. As a result,
the Banks expense for deposit insurance for the fiscal year ended December 31, 2009 includes
approximately $933,000 for this emergency assessment which was levied as of June 30, 2009 and paid
on September 30, 2009.
In November of 2009, the FDIC adopted an amendment to its assessment regulations to require insured
institutions to prepay, on December 30, 2009, their estimated quarterly risk-based assessments for
the fourth quarter of calendar 2009 and for all of the calendar years 2010, 2011 and 2012. The
amount of the prepayment was generally determined based upon an institutions assessment rate in
effect on September 30, 2009, adjusted to reflect a 5% growth and as an assessment rate increase of
three cents per $100 of deposits effective January 1, 2011. The Banks prepayment amount was
$10,544,000.
The Dodd-Frank Act broadens the base for FDIC insurance assessments and requires the FDIC to revise
its regulations so that deposit insurance assessments will be based on the average consolidated
total assets less tangible equity capital of a financial institution. Assessment rates on this
larger assessment base will initially range from 5 to 35 basis points. After potential adjustment
for certain risk elements, the range will be 2.5 to 45 basis points.
On November 21, 2008, the Board of Directors of the FDIC adopted a final rule relating to the
Temporary Liquidity Guarantee Program (TLG Program). The TLG Program was intended to counter the
system-wide crisis in the nations financial sector. Under the TLG Program the FDIC (i) guaranteed,
through the earlier of maturity or June 30, 2012, certain newly issued senior unsecured debt issued
by participating institutions on or after October 14, 2008, and before June 30, 2009 and (ii)
provided unlimited FDIC deposit insurance coverage for non-interest bearing transaction deposit
accounts, Negotiable Order of Withdrawal (NOW) accounts paying not more than 0.25% interest per
annum and Interest on Lawyers Trust Accounts (IOLTA) accounts held at participating FDIC- insured
institutions through December 31, 2010. The Dodd-Frank Act extends unlimited deposit insurance to
non-interest bearing transaction accounts through December 31, 2012. Coverage under the TLG Program
was available for the first 30 days without charge. The fee assessment for coverage of senior
unsecured debt ranges from 50 basis points to 100 basis points per annum, depending on the initial
maturity of the debt. The fee assessment for deposit insurance coverage is 10 basis points per
quarter on amounts in covered accounts exceeding $250,000. On December 5, 2008, the Company elected
to participate in both guarantee programs. As of December 31, 2010, the Company had issued no debt
under the TLG Program.
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Securities Laws
The Company is subject to the periodic reporting requirements of the Securities and Exchange Act of
1934, as amended, which include filing annual, quarterly and other current reports with the
Securities and Exchange Commission. The Sarbanes-Oxley Act was enacted in 2002 to protect
investors by improving the accuracy and reliability of corporate disclosures made pursuant to
securities laws. Among other things, this act:
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prohibits a registered public accounting firm from performing specified
nonaudit services contemporaneously with a mandatory audit, |
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requires the chief executive officer and chief financial officer of an
issuer to certify each annual or quarterly report filed with the Securities and
Exchange Commission, |
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requires an issuer to disclose all material off-balance sheet transactions
that may have a material effect on an issuers financial status, and |
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prohibits insider transactions in an issuers stock during lock-out
periods of an issuers pension plans. |
The Company is also required to comply with the rules and regulations of The NASDAQ Stock Market,
Inc., on which its common stock is listed.
Emergency Economic Stabilization Act
On October 3, 2008, Congress adopted the Emergency Economic Stabilization Act (EESA), including a
Troubled Asset Relief Program (TARP). TARP gave the United States Treasury Department
(Treasury) authority to deploy up to $700 billion into the financial system for the purpose of
improving liquidity in capital markets. On October 14, 2008, Treasury announced plans to direct
$250 billion of this authority into preferred stock investments in banks and bank holding companies
through a Capital Purchase Program.
The terms of Capital Purchase Program have potential advantages and disadvantages. The Board of
Directors of the Company determined that it had adequate capital and that the Capital Purchase
Program would not be in the Companys best interests and therefore elected not to seek any capital
investment from the Treasury.
ITEM 1A. RISK FACTORS
In analyzing whether to make or continue an investment in the Company, investors should consider,
among other factors, the following:
Risks Related to the Nature and Geographic Area of Our Business
The economic downturn in the United States and in California in particular could hurt our profits.
The economies of the United States and California are experiencing an economic slowdown marked by
increase unemployment and slower economic growth. Business activity across a wide range of
industries and regions is greatly reduced and local governments and many businesses are in serious
difficulty due to the lack of consumer spending, declines in the value of real estate and the lack
of liquidity in the credit markets. Unemployment has increased significantly.
Since mid-2007, and through 2010, the financial services industry and the securities markets
generally were materially and adversely affected by significant declines in the values of nearly
all asset classes and by a serious lack of liquidity. This was initially triggered by declines in
home prices and the values of subprime mortgages, but spread to all mortgage and real estate asset
classes, to leveraged bank loans and to nearly all asset classes, including equities. The global
markets have been characterized by substantially increased volatility and short-selling and an
overall loss of investor confidence, initially in financial institutions, but more recently in
companies in a number of other industries and in the broader markets.
Overall, during 2010, the business environment has been adverse for many households and businesses
in California and the United States. There can be no assurance that these conditions will improve
in the near term. Such conditions could adversely affect the credit quality of the Companys loans,
results of operations and financial condition.
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Our business may be adversely affected by business conditions in Northern and Central California.
We conduct most of our business in Northern and Central California. As a result of this geographic
concentration, our results are impacted by the difficult economic conditions in California. The
current and on-going deterioration in the economic conditions in California could result in the
following consequences, any of which could have a material adverse effect on our business,
financial condition, results of operations and cash flows:
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problem assets and foreclosures may increase, |
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demand for our products and services may decline, |
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low cost or non-interest bearing deposits may decrease, and |
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collateral for loans made by us, especially real estate, may decline in value, in
turn reducing customers borrowing power, and reducing the value of assets and
collateral associated with our existing loans. |
In view of the concentration of our operations and the collateral securing our loan portfolio in
both northern and central California, we may be particularly susceptible to the adverse effects of
any of these consequences, any of which could have a material adverse effect on our business,
financial condition, results of operations and cash flows.
We are exposed to risks in connection with the loans we make.
A significant source of risk for us arises from the possibility that losses will be sustained
because borrowers, guarantors and related parties may fail to perform in accordance with the terms
of their loans. Our earnings are significantly affected by our ability to properly originate,
underwrite and service loans. We have underwriting and credit monitoring procedures and credit
policies, including the establishment and review of the allowance for loan losses, that we believe
to be appropriate to minimize this risk by assessing the likelihood of nonperformance, tracking
loan performance and diversifying our respective loan portfolios. Such policies and procedures,
however, may not prevent unexpected losses that could adversely affect our results of operations.
We could sustain losses if we incorrectly assess the creditworthiness of our borrowers or fail to
detect or respond to deterioration in asset quality in a timely manner.
Our allowance for loan losses may not be adequate to cover actual losses.
Like all financial institutions, we maintain an allowance for loan losses to provide for loan
defaults and non-performance. Our allowance for loan losses may not be adequate to cover actual
loan losses, and future provisions for loan losses could materially and adversely affect our
business, financial condition, results of operations and cash flows. The allowance for loan losses
reflects our estimate of the probable losses in our loan portfolio at the relevant balance sheet
date. Our allowance for loan losses is based on prior experience, as well as an evaluation of the
known risks in the current portfolio, composition and growth of the loan portfolio and economic
factors. The determination of an appropriate level of loan loss allowance is an inherently
difficult process and is based on numerous assumptions. The amount of future losses is susceptible
to changes in economic, operating and other conditions, including changes in interest rates, that
may be beyond our control and these losses may exceed current estimates. Federal and state
regulatory agencies, as an integral part of their examination process, review our loans and
allowance for loan losses. While we believe that our allowance for loan losses is adequate to
cover current losses, we cannot assure you that we will not increase the allowance for loan losses
further or that the allowance will be adequate to absorb loan losses we actually incur. Either of
these occurrences could have a material adverse affect on our business, financial condition and
results of operations.
A significant majority of the loans in our portfolio are secured by real estate and the downturn in
our real estate markets could hurt our business.
The downturn in our real estate markets could hurt our business because many of our loans are
secured by real estate. Real estate values and real estate markets are generally affected by
changes in national, regional or local economic conditions, fluctuations in interest rates and the
availability of loans to potential purchasers, changes in tax laws and other governmental statutes,
regulations and policies and acts of nature. As real estate prices decline, the value of real
estate collateral securing our loans is reduced. As a result, our ability to recover on defaulted
loans by foreclosing and selling the real estate collateral could then be diminished and we would
be more likely to
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suffer losses on defaulted loans. As of December 31, 2010, approximately 87.1% of the book value of
our loan portfolio consisted of loans collateralized by various types of real estate. Substantially
all of our real estate collateral is located in California. So if there is a significant further
decline in real estate values in California, the collateral for our loans will provide less
security. Real estate values could also be affected by, among other things, earthquakes and
national disasters particular to California in particular. Any such downturn could have a material
adverse effect on our business, financial condition, results of operations and cash flows.
We depend on key personnel and the loss of one or more of those key personnel may materially and
adversely affect our prospects.
Competition for qualified employees and personnel in the banking industry is intense and there are
a limited number of qualified persons with knowledge of, and experience in, the California
community banking industry. The process of recruiting personnel with the combination of skills and
attributes required to carry out our strategies is often lengthy. Our success depends to a
significant degree upon our ability to attract and retain qualified management, loan origination,
finance, administrative, marketing and technical personnel and upon the continued contributions of
our management and personnel. In particular, our success has been and continues to be highly
dependent upon the abilities of our senior management team of Messrs. Smith, OSullivan, Bailey,
Reddish, Carney, Miller and Rios, who have expertise in banking and experience in the California
markets we serve and have targeted for future expansion. We also depend upon a number of other key
executives who are California natives or are long-time residents and who are integral to
implementing our business plan. The loss of the services of any one of our senior executive
management team or other key executives could have a material adverse effect on our business,
financial condition, results of operations and cash flows.
We are exposed to risk of environmental liabilities with respect to properties to which we take
title.
In the course of our business, we may foreclose and take title to real estate and could be subject
to environmental liabilities with respect to these properties. We may be held liable to a
governmental entity or to third parties for property damage, personal injury, investigation and
clean-up costs incurred by these parties in connection with environmental contamination, or may be
required to investigate or clean-up hazardous or toxic substances, or chemical releases at a
property. The costs associated with investigation or remediation activities could be substantial.
In addition, if we are the owner or former owner of a contaminated site, we may be subject to
common law claims by third parties based on damages and costs resulting from environmental
contamination emanating from the property. If we become subject to significant environmental
liabilities, our business, financial condition, results of operations and cash flows could be
materially adversely affected.
Strong competition in California could hurt our profits.
Competition in the banking and financial services industry is intense. Our profitability depends
upon our continued ability to successfully compete. We compete exclusively in northern and central
California for loans, deposits and customers with commercial banks, savings and loan associations,
credit unions, finance companies, mutual funds, insurance companies, and brokerage and investment
banking firms. In particular, our competitors include several major financial companies whose
greater resources may afford them a marketplace advantage by enabling them to maintain numerous
locations and mount extensive promotional and advertising campaigns. Additionally, banks and other
financial institutions with larger capitalization and financial intermediaries not subject to bank
regulatory restrictions may have larger lending limits which would allow them to serve the credit
needs of larger customers. Areas of competition include interest rates for loans and deposits,
efforts to obtain loan and deposit customers and a range in quality of products and services
provided, including new technology-driven products and services. Technological innovation continues
to contribute to greater competition in domestic and international financial services markets as
technological advances enable more companies to provide financial services. We also face
competition from out-of-state financial intermediaries that have opened loan production offices or
that solicit deposits in our market areas. If we are unable to attract and retain banking
customers, we may be unable to continue our loan growth and level of deposits and our business,
financial condition, results of operations and cash flows may be adversely affected.
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Our previous results may not be indicative of our future results.
We may not be able to sustain our historical rate of growth and level of profitability or may not
even be able to grow our business or continue to be profitable at all. Various factors, such as
economic conditions, regulatory and legislative considerations and competition, may also impede or
prohibit our ability to expand our market presence and financial performance. If we experience a
significant decrease in our historical rate of growth, our results of operations and financial
condition may be adversely affected due to a high percentage of our operating costs being fixed
expenses.
We may be adversely affected by the soundness of other financial institutions.
Financial services institutions are interrelated as a result of clearing, counterparty, or other
relationships. We have exposure to many different industries and counterparties, and routinely
executes transactions with counterparties in the financial services industry, including commercial
banks, brokers and dealers, and other institutional clients. Many of these transactions expose us
to credit risk in the event of a default by a counterparty or client. In addition, our credit risk
may be exacerbated when the collateral that we hold cannot be realized upon or is liquidated at
prices not sufficient to recover the full amount of the credit or derivative exposure due to us.
Any such losses could have a material adverse affect on our financial condition and results of
operations.
Recent health care legislation could increase our expenses or require us to pass further costs on
to our employees, which could adversely affect our operations, financial condition and earnings.
Legislation enacted in 2010 requires companies to provide expanded health care coverage to their
employees, such as affordable coverage to part-time employees and coverage to dependent adult
children of employees. Companies will also be required to enroll new employees automatically into
their health plans. Compliance with these and other new requirements of the health care legislation
will increase our employee benefits expense, and may require us to pass these costs on to our
employees, which could give us a competitive disadvantage in hiring and retaining qualified
employees.
Market and Interest Rate Risk
Decreasing interest rates could hurt our profits.
Our ability to earn a profit, like that of most financial institutions, depends on our net interest
income, which is the difference between the interest income we earn on our interest-earning assets,
such as mortgage loans and investments, and the interest expense we pay on our interest-bearing
liabilities, such as deposits. Our profitability depends on our ability to manage our assets and
liabilities during periods of changing market interest rates. Recently, the FRB has lowered the
targeted federal funds rate at record low levels. A sustained decrease in market interest rates
could adversely affect our earnings. When interest rates decline, borrowers tend to refinance
higher-rate, fixed-rate loans at lower rates. Under those circumstances, we would not be able to
reinvest those prepayments in assets earning interest rates as high as the rates on the prepaid
loans on investment securities. In addition, our commercial real estate and commercial loans, which
carry interest rates that adjust in accordance with changes in the prime rate, will adjust to lower
rates.
Our business is subject to interest rate risk and variations in interest rates may negatively
affect our financial performance.
Because of the differences in the maturities and repricing characteristics of our interest-earning
assets and interest-bearing liabilities, changes in interest rates do not produce equivalent
changes in interest income earned on interest-earning assets and interest paid on interest-bearing
liabilities. Accordingly, fluctuations in interest rates could adversely affect our interest rate
spread and, in turn, our profitability. In addition, loan origination volumes are affected by
market interest rates. Rising interest rates, generally, are associated with a lower volume of loan
originations while lower interest rates are usually associated with higher loan originations.
Conversely, in rising interest rate environments, loan repayment rates may decline and in falling
interest rate environments, loan repayment rates may increase. Although we have been successful in
generating new loans during 2010, the continuation of historically low long-term interest rate
levels may cause additional refinancing of commercial real
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estate and 1-4 family residence loans, which may depress our loan volumes or cause rates on loans
to decline. In addition, an increase in the general level of short-term interest rates on variable
rate loans may adversely affect the ability of certain borrowers to pay the interest on and
principal of their obligations or reduce the amount they wish to borrow. Additionally, if
short-term market rates rise, in order to retain existing deposit customers and attract new deposit
customers we may need to increase rates we pay on deposit accounts. Accordingly, changes in levels
of market interest rates could materially and adversely affect our net interest spread, asset
quality, loan origination volume, business, financial condition, results of operations and cash
flows.
Regulatory Risks
Recently enacted financial reform legislation will, among other things, create a new Consumer
Financial Protection Bureau, tighten capital standards and result in new laws and regulations that
are expected to increase our costs of operations.
On July 21, 2010, the President signed the Dodd-Frank Act. This new law will significantly change
the current bank regulatory structure and affect the lending, deposit, investment, trading and
operating activities of financial institutions and their holding companies. The Dodd-Frank Act
requires various federal agencies to adopt a broad range of new implementing rules and regulations,
and to prepare numerous studies and reports for Congress. The federal agencies are given
significant discretion in drafting the implementing rules and regulations, and consequently, many
of the details and much of the impact of the Dodd-Frank Act may not be known for many months or
years.
Effective one year after the date of enactment is a provision for the Dodd-Frank Act that
eliminates the federal prohibitions on paying interest on demand deposits, thus allowing businesses
to have interest bearing checking accounts. Depending on competitive responses, this significant
change to existing law could have an adverse impact on our interest expense.
The Dodd-Frank Act will require publicly traded companies to give shareholders a non-binding vote
on executive compensation and so-called golden parachute payments, and authorizes the SEC to
promulgate rules that would allow shareholders to nominate their own candidates using a companys
proxy materials. It also provides that the listing standards of the national securities exchanges
shall require listed companies to implement and disclose clawback policies mandating the recovery
of incentive compensation paid to executive officers in connection with accounting restatements.
The legislation also directs the FRB to promulgate rules prohibiting excessive compensation paid to
bank holding company executives, regardless of whether the company is publicly traded or not.
The Dodd-Frank Act creates a new Consumer Financial Protection Bureau with broad powers to
supervise and enforce consumer protection laws. The Consumer Financial Protection Bureau has broad
rule-making authority for a wide range of consumer protection laws that apply to all banks and
savings institutions, including the authority to prohibit unfair, deceptive or abusive acts and
practices. The Consumer Financial Protection Bureau has examination and enforcement authority over
all banks and savings institutions with more than $10 billion in assets. Banks such as the Bank
with $10 billion or less in assets will continue to be examined for compliance with the consumer
laws by their primary bank regulators. The Dodd-Frank Act also weakens the federal preemption rules
that have been applicable for national banks and federal savings associations, and gives state
attorneys general the ability to enforce federal consumer protection laws.
The Dodd-Frank Act requires minimum leverage (Tier 1) and risk based capital requirements for bank
and savings and loan holding companies that are no less than those applicable to banks, which will
exclude certain instruments that previously have been eligible for inclusion by bank holding
companies as Tier 1 capital, such as trust preferred securities (unless such securities were issued
prior to May 19, 2010 by a bank holding company with less than $15 billion in assets).
It is difficult to predict at this time what specific impact the Dodd-Frank Act and the yet to be
written implementing rules and regulations will have on community banks. However, it is expected
that at a minimum they will increase our operating and compliance costs and could increase our
interest expense.
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We operate in a highly regulated environment and we may be adversely affected by changes in laws
and regulations. Regulations may prevent or impair our ability to pay dividends, engage in
acquisitions or operate in other ways.
We are subject to extensive regulation, supervision and examination by the DFI, FDIC, and the FRB.
See Item 1 Regulation and Supervision of this report for information on the regulation and
supervision which governs our activities. Regulatory authorities have extensive discretion in
their supervisory and enforcement activities, including the imposition of restrictions on our
operations, the classification of our assets and determination of the level of our allowance for
loan losses. Banking regulations, designed primarily for the protection of depositors, may limit
our growth and the return to you, our investors, by restricting certain of our activities, such as:
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the payment of dividends to our shareholders, |
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possible mergers with or acquisitions of or by other institutions, |
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desired investments, |
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loans and interest rates on loans, |
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interest rates paid on deposits, |
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the possible expansion of branch offices, and |
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the ability to provide securities or trust services. |
We also are subject to capitalization guidelines set forth in federal legislation and could be
subject to enforcement actions to the extent that we are found by regulatory examiners to be
undercapitalized. We cannot predict what changes, if any, will be made to existing federal and
state legislation and regulations or the effect that such changes may have on our future business
and earnings prospects. Any change in such regulation and oversight, whether in the form of
regulatory policy, regulations, legislation or supervisory action, may have a material impact on
our operations.
Compliance with changing regulation of corporate governance and public disclosure may result in
additional risks and expenses.
Changing laws, regulations and standards relating to corporate governance and public disclosure,
including the Sarbanes-Oxley Act of 2002 and new SEC regulations, are creating additional expense
for publicly-traded companies such as TriCo. The application of these laws, regulations and
standard may evolve over time as new guidance is provided by regulatory and governing bodies, which
could result in continuing uncertainty regarding compliance matters and higher costs necessitated
by ongoing revisions to disclosure and governance practices. We are committed to maintaining high
standards of corporate governance and public disclosure. As a result, our efforts to comply with
evolving laws, regulations and standards have resulted in, and are likely to continue to result in,
increased expenses and a diversion of management time and attention. In particular, our efforts to
comply with Section 404 of the Sarbanes-Oxley Act of 2002 and the related regulations regarding
managements required assessment of its internal control over financial reporting and its external
auditors audit of that assessment has required the commitment of significant financial and
managerial resources. We expect these efforts to require the continued commitment of significant
resources. Further, the members of our board of directors, members of our audit or compensation
and management succession committees, our chief executive officer, our chief financial officer and
certain other executive officers could face an increased risk of personal liability in connection
with the performance of their duties. It may also become more difficult and more expensive to
obtain director and officer liability insurance. As a result, our ability to attract and retain
executive officers and qualified board and committee members could be more difficult.
We could be aversely affected by new regulations.
Federal and state governments and regulators could pass legislation and adopt policies responsive
to current credit conditions that would have an adverse affect on the Company and its financial
performance. For example, the Company could experience higher credit losses because of federal or
state legislation or regulatory action that limits the Banks ability to foreclose on property or
other collateral or makes foreclosure less economically feasible.
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We could face increased deposit insurance costs.
The FDIC insures deposits at FDIC insured financial institutions up to certain limits. The FDIC
charges insured financial institutions premiums to maintain the Deposit Insurance Fund. In
February of 2009, the FDIC adopted regulations increasing insurance deposit assessments for all
insured depository institutions and to change the deposit insurance assessment system to require
riskier institutions to pay a larger share of assessments. In addition, the FDIC required insured
depository institutions, including the Bank, to pay a special assessment to the FDICs Deposit
Insurance Fund. If the Deposit Insurance Fund suffers further losses, the FDIC could further
increase assessments rates or impose additional special assessments on the banking industry to
replenish the Deposit Insurance Fund. The Companys profitability could be reduced by any increase
in assessment rates or special assessments.
Risks Related to Growth and Expansion
If we cannot attract deposits, our growth may be inhibited.
We plan to increase the level of our assets, including our loan portfolio. Our ability to increase
our assets depends in large part on our ability to attract additional deposits at favorable rates.
We intend to seek additional deposits by offering deposit products that are competitive with those
offered by other financial institutions in our markets and by establishing personal relationships
with our customers. We cannot assure you that these efforts will be successful. Our inability to
attract additional deposits at competitive rates could have a material adverse effect on our
business, financial condition, results of operations and cash flows.
There are potential risks associated with future acquisitions and expansions.
We intend to continue to explore expanding our branch system through opening new bank branches and
in-store branches in existing or new markets in northern and central California. In the ordinary
course of business, we evaluate potential branch locations that would bolster our ability to cater
to the small business, individual and residential lending markets in California. Any given new
branch, if and when opened, will have expenses in excess of revenues for varying periods after
opening that may adversely affect our results of operations or overall financial condition.
In addition, to the extent that we acquire other banks in the future, our business may be
negatively impacted by certain risks inherent with such acquisitions. These risks include:
|
|
|
incurring substantial expenses in pursuing potential acquisitions without completing
such acquisitions, |
|
|
|
|
losing key clients as a result of the change of ownership, |
|
|
|
|
the acquired business not performing in accordance with our expectations, |
|
|
|
|
difficulties arising in connection with the integration of the operations of the
acquired business with our operations, |
|
|
|
|
needing to make significant investments and infrastructure, controls, staff,
emergency backup facilities or other critical business functions that become strained
by our growth, |
|
|
|
|
management needing to divert attention from other aspects of our business, |
|
|
|
|
potentially losing key employees of the acquired business, |
|
|
|
|
incurring unanticipated costs which could reduce our earnings per share, |
|
|
|
|
assuming potential liabilities of the acquired company as a result of the
acquisition, and |
|
|
|
|
an acquisition may dilute our earnings per share, in both the short and long term,
or it may reduce our tangible capital ratios. |
As result of these risks, any given acquisition, if and when consummated, may adversely affect our
results of operations or financial condition. In addition, because the consideration for an
acquisition may involve cash, debt or the issuance of shares of our stock and may involve the
payment of a premium over book and market values, existing shareholders may experience dilution in
connection with any acquisition.
17
Our growth and expansion may strain our ability to manage our operations and our financial
resources.
Our financial performance and profitability depend on our ability to execute our corporate growth
strategy. In addition to seeking deposit and loan and lease growth in our existing markets, we may
pursue expansion opportunities in new markets. Continued growth, however, may present operating
and other problems that could adversely affect our business, financial condition, results of
operations and cash flows. Accordingly, there can be no assurance that we will be able to execute
our growth strategy or maintain the level of profitability that we have recently experienced.
Our growth may place a strain on our administrative, operational and financial resources and
increase demands on our systems and controls. This business growth may require continued
enhancements to and expansion of our operating and financial systems and controls and may strain or
significantly challenge them. In addition, our existing operating and financial control systems
and infrastructure may not be adequate to maintain and effectively monitor future growth. Our
continued growth may also increase our need for qualified personnel. We cannot assure you that we
will be successful in attracting, integrating and retaining such personnel.
Our decisions regarding the fair value of assets acquired from Granite, including the FDIC loss
sharing assets, could be inaccurate which could materially and adversely affect our business,
financial condition, results of operations, and future prospects.
Management makes various assumptions and judgments about the collectability of the acquired loans,
including the creditworthiness of borrowers and the value of the real estate and other assets
serving as collateral for the repayment of secured loans. In FDIC-assisted acquisitions that
include loss sharing agreements, we may record a loss sharing asset that we consider adequate to
absorb future losses which may occur in the acquired loan portfolio. In determining the size of the
loss sharing asset, we analyze the loan portfolio based on historical loss experience, volume and
classification of loans, volume and trends in delinquencies and nonaccruals, local economic
conditions, and other pertinent information.
If our assumptions are incorrect, the balance of the FDIC indemnification asset may at any time be
insufficient to cover future loan losses, and credit loss provisions may be needed to respond to
different economic conditions or adverse developments in the acquired loan portfolio. Any increase
in future loan losses could have a negative effect on our operating results.
Our ability to obtain reimbursement under the loss sharing agreement on covered assets purchased
from the FDIC depends on our compliance with the terms of the loss sharing agreement.
We must certify to the FDIC on a quarterly basis our compliance with the terms of the FDIC loss
sharing agreement as a prerequisite to obtaining reimbursement from the FDIC for realized losses on
covered assets. The required terms of the agreements are extensive and failure to comply with any
of the guidelines could result in a specific asset or group of assets permanently losing their loss
sharing coverage. Additionally, Management may decide to forgo loss share coverage on certain
assets to allow greater flexibility over the management of certain assets. As of December 31, 2010,
$60,148,000, or 2.8%, of the Companys assets were covered by the aforementioned FDIC loss sharing
agreements.
Risks Relating to Dividends and Our Common Stock
Our future ability to pay dividends is subject to restrictions.
Since we are a holding company with no significant assets other than the Bank, we currently depend
upon dividends from the Bank for a substantial portion of our revenues. Our ability to continue to
pay dividends in the future will continue to depend in large part upon our receipt of dividends or
other capital distributions from the Bank. The ability of the Bank to pay dividends or make other
capital distributions to us is subject to the restrictions in the California Financial Code and the
regulatory authority of the DFI. As of December 31, 2010, the Bank could have paid $7,859,000 in
dividends without the prior approval of the DFI. The amount that the Bank may pay in dividends is
further restricted due to the fact that the Bank must maintain a certain minimum amount of capital
to be considered a well capitalized institution as further described under Item 1 Capital
Requirements in this report.
18
From time to time, we may become a party to financing agreements or other contractual arrangements
that have the effect of limiting or prohibiting us or the Bank from declaring or paying dividends.
Our holding company expenses and obligations with respect to our trust preferred securities and
corresponding junior subordinated deferrable interest debentures issued by us may limit or impair
our ability to declare or pay dividends. Finally, our ability to pay dividends is also subject to
the restrictions of the California Corporations Code. See Regulation and Supervision
Restrictions on Dividends and Distributions.
Only a limited trading market exists for our common stock, which could lead to price volatility.
Our common stock is quoted on the NASDAQ Global Select Market and trading volumes have been modest.
The limited trading market for our common stock may cause fluctuations in the market value of our
common stock to be exaggerated, leading to price volatility in excess of that which would occur in
a more active trading market of our common stock. In addition, even if a more active market in our
common stock develops, we cannot assure you that such a market will continue or that shareholders
will be able to sell their shares.
Anti-takeover provisions and federal law may limit the ability of another party to acquire us,
which could cause our stock price to decline.
Various provisions of our articles of incorporation and bylaws could delay or prevent a third party
from acquiring us, even if doing so might be beneficial to our shareholders. These provisions
provide for, among other things:
|
|
|
specified actions that the Board of Directors shall or may take when an offer to
merge, an offer to acquire all assets or a tender offer is received, |
|
|
|
|
a shareholder rights plan which could deter a tender offer by requiring a potential
acquiror to pay a substantial premium over the market price of our common stock, |
|
|
|
|
advance notice requirements for proposals that can be acted upon at shareholder
meetings, and |
|
|
|
|
the authorization to issue preferred stock by action of the board of directors
acting alone, thus without obtaining shareholder approval. |
The Bank Holding Company Act of 1956, as amended, and the Change in Bank Control Act of 1978, as
amended, together with federal regulations, require that, depending on the particular
circumstances, either FRB approval must be obtained or notice must be furnished to the FRB and not
disapproved prior to any person or entity acquiring control of a bank holding company such as
TriCo. These provisions may prevent a merger or acquisition that would be attractive to
shareholders and could limit the price investors would be willing to pay in the future for our
common stock.
The amount of common stock owned by, and other compensation arrangements with, our officers and
directors may make it more difficult to obtain shareholder approval of potential takeovers that
they oppose.
As of March 4, 2011, directors and executive officers beneficially owned approximately 18.0% of our
common stock and our ESOP owned approximately 8.1%. Agreements with our senior management also
provide for significant payments under certain circumstances following a change in control. These
compensation arrangements, together with the common stock and option ownership of our board of
directors and management, could make it difficult or expensive to obtain majority support for
shareholder proposals or potential acquisition proposals of us that our directors and officers
oppose.
We may issue additional common stock or other equity securities in the future which could dilute
the ownership interest of existing shareholders.
In order to maintain our capital at desired or regulatorily-required levels, or to fund future
growth, our board of directors may decide from time to time to issue additional shares of common
stock, or securities convertible into, exchangeable for or representing rights to acquire shares of
our common stock. The sale of these shares may significantly dilute your ownership interest as a
shareholder. New investors in the future may also have rights, preferences and privileges senior
to our current shareholders which may adversely impact our current shareholders.
19
Holders of our junior subordinated debentures have rights that are senior to those of our common
stockholders.
We have supported our continued growth through the issuance of trust preferred securities from
special purpose trusts and accompanying junior subordinated debentures. At December 31, 2010, we
had outstanding trust preferred securities and accompanying junior subordinated debentures totaling
$41,238,000. Payments of the principal and interest on the trust preferred securities are
conditionally guaranteed by us. Further, the accompanying junior subordinated debentures we issued
to the trusts are senior to our shares of common stock. As a result, we must make payments on the
junior subordinated debentures before any dividends can be paid on our common stock and, in the
event of our bankruptcy, dissolution or liquidation, the holders of the junior subordinated
debentures must be satisfied before any distributions can be made on our common stock.
Risks Relating to Systems, Accounting and Internal Controls
If we fail to maintain an effective system of internal and disclosure controls, we may not be able
to accurately report our financial results or prevent fraud. As a result, current and potential
shareholders could lose confidence in our financial reporting, which would harm our business and
the trading price of our securities.
Effective internal control over financial reporting and disclosure controls and procedures are
necessary for us to provide reliable financial reports and effectively prevent fraud and to operate
successfully as a public company. If we cannot provide reliable financial reports or prevent
fraud, our reputation and operating results would be harmed. We continually review and analyze our
internal control over financial reporting for Sarbanes-Oxley Section 404 compliance. As part of
that process we may discover material weaknesses or significant deficiencies in our internal
control as defined under standards adopted by the Public Company Accounting Oversight Board that
require remediation. Material weakness is a deficiency, or combination of deficiencies, in
internal control over financial reporting, such that there is a reasonable possibility that a
material misstatement of the companys annual or interim financial statements will not be prevented
or detected in a timely basis. Significant deficiency is a deficiency or combination of
deficiencies, in internal control over financial reporting that is less severe than material
weakness, yet important enough to merit attention by those responsible for the oversight of the
Companys financial reporting.
As a result of weaknesses that may be identified in our internal control, we may also identify
certain deficiencies in some of our disclosure controls and procedures that we believe require
remediation. If we discover weaknesses, we will make efforts to improve our internal and disclosure
control. However, there is no assurance that we will be successful. Any failure to maintain
effective controls or timely effect any necessary improvement of our internal and disclosure
controls could harm operating results or cause us to fail to meet our reporting obligations, which
could affect our ability to remain listed with The NASDAQ Global Select Market. Ineffective
internal and disclosure controls could also cause investors to lose confidence in our reported
financial information, which would likely have a negative effect on the trading price of our
securities.
We rely on communications, information, operating and financial control systems technology from
third-party service providers, and we may suffer an interruption in those systems that may result
in lost business. We may not be able to obtain substitute providers on terms that are as favorable
if our relationships with our existing service providers are interrupted.
We rely heavily on third-party service providers for much of our communications, information,
operating and financial control systems technology. Any failure or interruption or breach in
security of these systems could result in failures or interruptions in our customer relationship
management, general ledger, deposit, servicing and loan origination systems. We cannot assure you
that such failures or interruptions will not occur or, if they do occur, that they will be
adequately addressed by us or the third parties on which we rely. The occurrence of any failures
or interruptions could have a material adverse effect on our business, financial condition, results
of operations and cash flows. If any of our third-party service providers experience financial,
operational or technological difficulties, or if there is any other disruption in our relationships
with them, we may be required to locate alternative sources of such services, and we cannot assure
you that we could negotiate terms that are as favorable to us, or could obtain services with
similar functionality as found in our existing systems without the need to expend substantial
resources, if at all. Any of these circumstances could have a material adverse effect on our
business, financial condition, results of operations and cash flows.
20
A failure to implement technological advances could negatively impact our business.
The banking industry is undergoing technological changes with frequent introductions of new
technology-driven products and services. In addition to improving customer services, the effective
use of technology increases efficiency and enables financial institutions to reduce costs. Our
future success will depend, in part, on our ability to address the needs of our customers by using
technology to provide products and services that will satisfy customer demands for convenience as
well as to create additional efficiencies in our operations. Many of our competitors have
substantially greater resources than we do to invest in technological improvements. We may not be
able to effectively implement new technology-driven products and services or successfully market
such products and services to our customers.
ITEM 1B. UNRESOLVED STAFF COMMENTS
None.
ITEM 2. PROPERTIES
The Company is engaged in the banking business through 61 offices in 23 counties in Northern and
Central California including ten offices in Shasta County, nine in Butte County, seven in
Sacramento County, five in Placer County, four in Stanislaus County, three each in Siskiyou, Sutter
and Kern Counties, two each in Glenn and Yolo Counties, and one each in Contra Costa, Del Norte,
Fresno, Lake, Lassen, Madera, Mendocino, Merced, Napa, Nevada, Tehama, Tulare, and Yuba Counties.
All offices are constructed and equipped to meet prescribed security requirements.
The Company owns eighteen branch office locations and three administrative buildings and leases
forty-three branch office locations and one administrative facility. Most of the leases contain
multiple renewal options and provisions for rental increases, principally for changes in the cost
of living index, property taxes and maintenance. The Company also owns one building and leases one
building that it leases and sub-leases, respectively.
ITEM 3. LEGAL PROCEEDINGS
Neither the Company nor its subsidiaries, are party to any material pending legal proceeding, nor
is their property the subject of any material pending legal proceeding, except routine legal
proceedings arising in the ordinary course of their business. None of these proceedings is
expected to have a material adverse impact upon the Companys business, consolidated financial
position or results of operations.
ITEM 4. RESERVED
21
PART II
ITEM 5. MARKET FOR REGISTRANTS COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF
EQUITY SECURITIES
Common Stock Market Prices and Dividends
The Companys common stock is traded on the NASDAQ Global Select Market System (NASDAQ) under the
symbol TCBK. The following table shows the high and the low closing sale prices for the common
stock for each quarter in the past two years, as reported by NASDAQ:
|
|
|
|
|
|
|
|
|
|
|
High |
|
|
Low |
|
|
|
|
2010: |
|
|
|
|
|
|
|
|
Fourth quarter |
|
$ |
16.59 |
|
|
$ |
14.21 |
|
Third quarter |
|
$ |
18.99 |
|
|
$ |
13.46 |
|
Second quarter |
|
$ |
22.99 |
|
|
$ |
16.93 |
|
First quarter |
|
$ |
20.73 |
|
|
$ |
16.65 |
|
|
|
|
|
|
|
|
|
|
2009: |
|
|
|
|
|
|
|
|
Fourth quarter |
|
$ |
17.42 |
|
|
$ |
14.62 |
|
Third quarter |
|
$ |
17.69 |
|
|
$ |
13.00 |
|
Second quarter |
|
$ |
17.74 |
|
|
$ |
13.77 |
|
First quarter |
|
$ |
24.97 |
|
|
$ |
10.71 |
|
|
|
|
As of March 4, 2011 there were approximately 1,573 shareholders of record of the Companys
common stock. On March 4, 2011, the closing sales price was $15.73.
The Company has paid cash dividends on its common stock in every quarter since March 1990, and it
is currently the intention of the Board of Directors of the Company to continue payment of cash
dividends on a quarterly basis. There is no assurance, however, that any dividends will be paid
since they are dependent upon earnings, financial condition and capital requirements of the Company
and the Bank. As of December 31, 2010, $7,859,000 was available for payment of dividends by the
Company to its shareholders, under applicable laws and regulations. The Company paid cash
dividends of $0.09 per common share in each of the quarters ended December 31, 2010, September 30,
2010 and June 30, 2010 and $0.13 per common share in each of the quarters ended March 31, 2010,
December 31, 2009, September 30, 2009, June 30, 2009, and March 31, 2009.
Stock Repurchase Plan
The Company adopted a stock repurchase plan on August 21, 2007 for the repurchase of up to 500,000
shares of the Companys common stock from time to time as market conditions allow. The 500,000
shares authorized for repurchase under this plan represented approximately 3.2% of the Companys
approximately 15,815,000 common shares outstanding as of August 21, 2007. This plan has no stated
expiration date for the repurchases. As of December 31, 2010, the Company had purchased 166,600
shares under this plan. The following table shows the repurchases made by the Company or any
affiliated purchaser (as defined in Rule 10b-18(a)(3) under the Exchange Act) during the fourth
quarter of 2010:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(c) Total number of |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
shares purchased as |
|
|
(d) Maximum number |
|
|
|
|
|
|
|
|
|
|
|
part of publicly |
|
|
of shares that may yet |
|
|
|
(a) Total number |
|
|
(b) Average price |
|
|
announced plans or |
|
|
be purchased under the |
|
Period |
|
of shares purchased |
|
|
paid per share |
|
|
programs |
|
|
plans or programs |
|
|
Oct. 1-31, 2010 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
333,400 |
|
Nov. 1-30, 2010 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
333,400 |
|
Dec. 1-31, 2010 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
333,400 |
|
|
|
|
Total |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
333,400 |
|
22
The following graph presents the cumulative total yearly shareholder return from investing $100 on
December 31, 2005, in each of TriCo common stock, the Russell 3000 Index, and the SNL Western Bank
Index. The SNL Western Bank Index compiled by SNL Financial includes banks located in California,
Oregon, Washington, Montana, Hawaii and Alaska with market capitalization similar to that of
TriCos. The amounts shown assume that any dividends were reinvested.
TriCo
Bancshares
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Period Ending |
Index |
|
12/31/05 |
|
|
12/31/06 |
|
|
12/31/07 |
|
|
12/31/08 |
|
|
12/31/09 |
|
|
12/31/10 |
|
|
TriCo Bancshares |
|
|
100.00 |
|
|
|
118.48 |
|
|
|
86.00 |
|
|
|
114.50 |
|
|
|
78.89 |
|
|
|
78.39 |
|
Russell 3000 |
|
|
100.00 |
|
|
|
115.71 |
|
|
|
121.66 |
|
|
|
76.27 |
|
|
|
97.89 |
|
|
|
114.46 |
|
SNL Western Bank |
|
|
100.00 |
|
|
|
112.83 |
|
|
|
94.25 |
|
|
|
91.76 |
|
|
|
84.27 |
|
|
|
95.48 |
|
Equity Compensation Plans
The following table shows shares reserved for issuance for outstanding options, stock appreciation
rights and warrants granted under our equity compensation plans as of December 31, 2010. All of
our equity compensation plans have been approved by shareholders.
|
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|
|
|
|
|
|
|
|
|
|
|
(a) |
|
|
|
|
|
|
(c) Number of securities |
|
|
|
Number of securities |
|
|
(b) |
|
|
remaining available for |
|
|
|
to be issued upon |
|
|
Weighted average |
|
|
issuance under equity |
|
|
|
exercise of |
|
|
exercise price of |
|
|
compensation plans |
|
|
|
outstanding options, |
|
|
outstanding options, |
|
|
(excluding securities |
|
Plan category |
|
warrants and rights |
|
|
warrants and rights |
|
|
reflected in column (a)) |
|
|
Equity compensation plans
not approved by shareholders |
|
|
|
|
|
|
|
|
|
|
|
|
Equity compensation plans
approved by shareholders |
|
|
1,425,185 |
|
|
$ |
15.78 |
|
|
|
396,000 |
|
|
|
|
Total |
|
|
1,425,185 |
|
|
$ |
15.78 |
|
|
|
396,000 |
|
23
ITEM 6. SELECTED FINANCIAL DATA
The following selected consolidated financial data are derived from our consolidated financial
statements. This data should be read in connection with our consolidated financial statements and
the related notes located at Item 8 of this report.
TRICO BANCSHARES
Financial Summary
(in thousands, except per share amounts)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year ended December 31, |
|
2010 |
|
|
2009 |
|
|
2008 |
|
|
2007 |
|
|
2006 |
|
|
Interest income |
|
$ |
104,572 |
|
|
$ |
112,333 |
|
|
$ |
121,112 |
|
|
$ |
127,268 |
|
|
$ |
120,323 |
|
Interest expense |
|
|
14,133 |
|
|
|
20,615 |
|
|
|
31,552 |
|
|
|
40,582 |
|
|
|
34,445 |
|
|
|
|
Net interest income |
|
|
90,439 |
|
|
|
91,718 |
|
|
|
89,560 |
|
|
|
86,686 |
|
|
|
85,878 |
|
Provision for loan losses |
|
|
37,458 |
|
|
|
31,450 |
|
|
|
20,950 |
|
|
|
3,032 |
|
|
|
1,289 |
|
Noninterest income |
|
|
32,695 |
|
|
|
30,329 |
|
|
|
27,087 |
|
|
|
27,590 |
|
|
|
26,255 |
|
Noninterest expense |
|
|
77,205 |
|
|
|
75,450 |
|
|
|
68,738 |
|
|
|
68,906 |
|
|
|
66,726 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income before income taxes |
|
|
8,471 |
|
|
|
15,147 |
|
|
|
26,959 |
|
|
|
42,338 |
|
|
|
44,118 |
|
Provision for income taxes |
|
|
2,466 |
|
|
|
5,185 |
|
|
|
10,161 |
|
|
|
16,645 |
|
|
|
17,288 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income |
|
$ |
6,005 |
|
|
$ |
9,962 |
|
|
$ |
16,798 |
|
|
$ |
25,693 |
|
|
$ |
26,830 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings per share: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic |
|
$ |
0.38 |
|
|
$ |
0.63 |
|
|
$ |
1.07 |
|
|
$ |
1.62 |
|
|
$ |
1.70 |
|
Diluted |
|
$ |
0.37 |
|
|
$ |
0.62 |
|
|
$ |
1.05 |
|
|
$ |
1.57 |
|
|
$ |
1.64 |
|
Per share: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Dividends paid |
|
$ |
0.40 |
|
|
$ |
0.52 |
|
|
$ |
0.52 |
|
|
$ |
0.52 |
|
|
$ |
0.48 |
|
Book value at December 31 |
|
$ |
12.64 |
|
|
$ |
12.71 |
|
|
$ |
12.56 |
|
|
$ |
11.87 |
|
|
$ |
10.69 |
|
Tangible book value at December 31 |
|
$ |
11.62 |
|
|
$ |
11.71 |
|
|
$ |
11.54 |
|
|
$ |
10.82 |
|
|
$ |
9.60 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Average common shares outstanding |
|
|
15,860 |
|
|
|
15,783 |
|
|
|
15,771 |
|
|
|
15,898 |
|
|
|
15,812 |
|
Average diluted common shares outstanding |
|
|
16,010 |
|
|
|
16,011 |
|
|
|
16,050 |
|
|
|
16,364 |
|
|
|
16,383 |
|
Shares outstanding at December 31 |
|
|
15,860 |
|
|
|
15,787 |
|
|
|
15,756 |
|
|
|
15,912 |
|
|
|
15,857 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
At December 31: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loans, net |
|
$ |
1,377,000 |
|
|
$ |
1,460,097 |
|
|
$ |
1,563,259 |
|
|
$ |
1,534,635 |
|
|
$ |
1,492,965 |
|
Total assets |
|
|
2,189,789 |
|
|
|
2,170,520 |
|
|
|
2,043,190 |
|
|
|
1,980,621 |
|
|
|
1,919,966 |
|
Total deposits |
|
|
1,852,173 |
|
|
|
1,828,512 |
|
|
|
1,669,270 |
|
|
|
1,545,223 |
|
|
|
1,599,149 |
|
Debt financing and notes payable |
|
|
62,020 |
|
|
|
66,753 |
|
|
|
102,005 |
|
|
|
116,126 |
|
|
|
39,911 |
|
Junior subordinated debt |
|
|
41,238 |
|
|
|
41,238 |
|
|
|
41,238 |
|
|
|
41,238 |
|
|
|
41,238 |
|
Shareholders equity |
|
|
200,397 |
|
|
|
200,649 |
|
|
|
197,932 |
|
|
|
188,878 |
|
|
|
169,436 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Financial Ratios: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the year: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Return on assets |
|
|
0.27 |
% |
|
|
0.48 |
% |
|
|
0.85 |
% |
|
|
1.36 |
% |
|
|
1.44 |
% |
Return on equity |
|
|
2.94 |
% |
|
|
4.89 |
% |
|
|
8.70 |
% |
|
|
14.20 |
% |
|
|
16.61 |
% |
Net interest margin1 |
|
|
4.45 |
% |
|
|
4.77 |
% |
|
|
4.96 |
% |
|
|
5.07 |
% |
|
|
5.14 |
% |
Net loan losses to average loans |
|
|
2.07 |
% |
|
|
1.53 |
% |
|
|
0.69 |
% |
|
|
0.17 |
% |
|
|
0.04 |
% |
Efficiency ratio1 |
|
|
62.49 |
% |
|
|
61.53 |
% |
|
|
58.59 |
% |
|
|
59.86 |
% |
|
|
58.99 |
% |
Average equity to average assets |
|
|
9.25 |
% |
|
|
9.73 |
% |
|
|
9.72 |
% |
|
|
9.55 |
% |
|
|
8.68 |
% |
At December 31: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity to assets |
|
|
9.15 |
% |
|
|
9.24 |
% |
|
|
9.69 |
% |
|
|
9.54 |
% |
|
|
8.82 |
% |
Total capital to risk-adjusted assets |
|
|
14.20 |
% |
|
|
13.36 |
% |
|
|
12.42 |
% |
|
|
11.90 |
% |
|
|
11.44 |
% |
Allowance for loan losses to loans |
|
|
3.00 |
% |
|
|
2.37 |
% |
|
|
1.73 |
% |
|
|
1.12 |
% |
|
|
1.12 |
% |
|
|
|
1 |
|
Fully taxable equivalent |
24
ITEM 7. MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The Companys discussion and analysis of its financial condition and results of operations is
intended to provide a better understanding of the significant changes and trends relating to
the Companys financial condition, results of operations, liquidity, interest rate sensitivity,
off balance sheet arrangements and certain contractual obligations. The following discussion is
based on the Companys consolidated financial statements which have been prepared in accordance
with accounting principles generally accepted in the United States of America. Please read the
Companys audited consolidated financial statements and the related notes included as Item 8
of this report.
Critical Accounting Policies and Estimates
The Companys discussion and analysis of its financial condition and results of operations are
based upon the Companys consolidated financial statements, which have been prepared in accordance
with accounting principles generally accepted in the United States of America. The preparation of
these financial statements requires the Company to make estimates and judgments that affect the
reported amounts of assets, liabilities, revenues and expenses, and related disclosure of contingent
assets and liabilities. On an on-going basis, the Company evaluates its estimates, including those that
materially affect the financial statements and are related to the adequacy of the allowance for loan losses,
investments, mortgage servicing rights, fair value measurements, retirement plans and intangible assets.
The Company bases its estimates on historical experience and on various other assumptions that are believed
to be reasonable under the circumstances, the results of which form the basis for making judgments about the
carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may
differ from these estimates under different assumptions or conditions. The Companys policies related to estimates
on the allowance for loan losses, other than temporary impairment of investments and impairment of intangible assets,
can be found in Note 1 to the Companys audited consolidated financial statements and the related notes included as Item
8 of this report.
As the Company has not commenced any business operations independent of the Bank, the following discussion
pertains primarily to the Bank. Average balances, including balances used in calculating certain financial
ratios, are generally comprised of average daily balances for the Company. Within Managements Discussion
and Analysis of Financial Condition and Results of Operations, certain performance measures including interest
income, net interest income, net interest yield, and efficiency ratio are generally presented on a fully
tax-equivalent (FTE) basis. The Company believes the use of these non-generally accepted accounting principles
(non-GAAP) measures provides additional clarity in assessing its results.
On May 28, 2010, the Office of the Comptroller of the Currency closed Granite Community Bank (Granite), Granite
Bay, California and appointed the FDIC as receiver. That same date, the Bank assumed the banking operations of
Granite from the FDIC under a whole bank purchase and assumption agreement with loss sharing. Under the terms of
the loss sharing agreement, the FDIC will cover a substantial portion of any future losses on loans, related unfunded
loan commitments, other real estate owned (OREO)/foreclosed assets and accrued interest on loans for up to 90 days.
The FDIC will absorb 80% of losses and share in 80% of loss recoveries on the covered assets acquired from Granite.
The loss sharing arrangements for non-single family residential and single family residential loans are in effect
for 5 years and 10 years, respectively, and the loss recovery provisions are in effect for 8 years and 10 years, respectively,
from the acquisition date. With this agreement, the Bank added one traditional bank branch in each of Granite Bay and Auburn,
California. This acquisition is consistent with the Banks community banking expansion strategy and provides further opportunity
to fill in the Banks market presence in the greater Sacramento, California market. The Company refers to loans and foreclosed
assets that are covered by loss share agreements as covered loans and covered foreclosed assets, respectively. In addition,
the Company refers to loans purchased or obtained in a business combination as purchased credit impaired (PCI) loans,
or purchased non-credit impaired (PNCI) loans. The Company refers to loans that it originates as originated loans.
As of December 31, 2010, the Company has no loans that it classifies as PNCI loans.
Geographical Descriptions
For the purpose of describing the geographical location of the Companys loans, the Company has defined northern California as
that area of California north of, and including, Stockton; central California as that area of the State south of Stockton,
to and including, Bakersfield; and southern California as that area of the State south of Bakersfield.
25
Results of Operations
Overview
The following discussion and analysis is designed to provide a better understanding of the
significant changes and trends related to the Company and the Banks financial condition, operating
results, asset and liability management, liquidity and capital resources and should be read in
conjunction with the consolidated financial statements of the Company and the related notes at Item
8 of this report.
Following is a summary of the components of fully taxable equivalent (FTE) net income for the
periods indicated (dollars in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year ended December 31, |
|
|
|
2010 |
|
|
2009 |
|
|
2008 |
|
|
|
|
Components of Net Income |
|
|
|
|
|
|
|
|
|
|
|
|
Net interest income (FTE) |
|
$ |
90,852 |
|
|
$ |
92,290 |
|
|
$ |
90,237 |
|
Provision for loan losses |
|
|
(37,458 |
) |
|
|
(31,450 |
) |
|
|
(20,950 |
) |
Noninterest income |
|
|
32,695 |
|
|
|
30,329 |
|
|
|
27,087 |
|
Noninterest expense |
|
|
(77,205 |
) |
|
|
(75,450 |
) |
|
|
(68,738 |
) |
Taxes (FTE) |
|
|
(2,879 |
) |
|
|
(5,757 |
) |
|
|
(10,838 |
) |
|
|
|
Net income |
|
$ |
6,005 |
|
|
$ |
9,962 |
|
|
$ |
16,798 |
|
|
|
|
Net income per average fully-diluted share |
|
$ |
0.37 |
|
|
$ |
0.62 |
|
|
$ |
1.05 |
|
Net income as a percentage of average shareholders equity |
|
|
2.94 |
% |
|
|
4.89 |
% |
|
|
8.70 |
% |
Net income as a percentage of average total assets |
|
|
0.27 |
% |
|
|
0.48 |
% |
|
|
0.85 |
% |
Net Interest Income
The Companys primary source of revenue is net interest income, which is the difference between
interest income on earning assets and interest expense on interest-bearing liabilities.
Following is a summary of the Companys net interest income for the periods indicated (dollars in
thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year ended December 31, |
|
|
|
2010 |
|
|
2009 |
|
|
2008 |
|
|
|
|
Components of Net Interest Income |
|
|
|
|
|
|
|
|
|
|
|
|
Interest income |
|
$ |
104,572 |
|
|
$ |
112,333 |
|
|
$ |
121,112 |
|
Interest expense |
|
|
(14,133 |
) |
|
|
(20,615 |
) |
|
|
(31,552 |
) |
FTE adjustment |
|
|
413 |
|
|
|
572 |
|
|
|
677 |
|
|
|
|
Net interest income (FTE) |
|
$ |
90,852 |
|
|
$ |
92,290 |
|
|
$ |
90,237 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net interest margin (FTE) |
|
|
4.45 |
% |
|
|
4.77 |
% |
|
|
4.96 |
% |
Net interest income (FTE) for the year ended December 31, 2010 was $90,852,000, a decrease of
$1,438,000 or 1.6% compared to the year ended December 31, 2009. This decrease in net interest
income was attributable to a change in the mix of interest-earning assets, with average loan
balances decreasing and other categories of lower yielding assets increasing. The decrease in
average loan balances was due to decreased loan demand and unfavorable credit risks associated with
loans in the economic environment that persisted throughout 2010. While the Company was able to
continue to lower interest-bearing liability rates, and thus interest expense, sufficiently to
overcome the decrease in interest income due to decreases in the average yield on interest-earning
assets during 2010, it was not sufficient to overcome the decrease in average loan balances during
2010. The Yield and Volume/Rate tables shown below are useful in illustrating and quantifying
the developments that affected net interest income during 2010 and 2009.
Net interest income (FTE) for the year ended December 31, 2009 was $92,290,000, an increase of
$2,053,000 or 2.3% compared to the year ended December 31, 2008. During 2009, the Company was able
to decrease rates paid on deposits and other sources of funds, and at the same time significantly
grow deposit balances. On the other hand, during 2009, it was difficult for the Company to deploy
these increased low-cost deposit balances into relatively high-yielding loans and securities. The
difficulty in deploying these increased funding sources was primarily due to decreased loan demand
and unfavorable credit, liquidity, and interest rate risks associated with loans and securities in
the economic environment that persisted throughout 2009. As such, much of the increase in deposit
balances during 2009 was deployed into lower yielding short-term interest-earning balances at the
Federal Reserve Bank. In the final analysis, the Company was able to lower interest-bearing
liability rates, and thus interest expense, sufficiently to overcome the decrease in interest
income that was due primarily to a decrease in the average yield on loans during 2009.
26
Summary of Average Balances, Yields/Rates and Interest Differential Yield Tables
The following tables present, for the periods indicated, information regarding the Companys
consolidated average assets, liabilities and shareholders equity, the amounts of interest income
from average earning assets and resulting yields, and the amount of interest expense paid on
interest-bearing liabilities. Average loan balances include nonperforming loans. Interest income
includes proceeds from loans on nonaccrual loans only to the extent cash payments have been
received and applied to interest income. Yields on securities and certain loans have been adjusted
upward to reflect the effect of income thereon exempt from federal income taxation at the current
statutory tax rate (dollars in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year ended December 31, 2010 |
|
|
|
Average |
|
|
Interest |
|
|
Rates |
|
|
|
balance |
|
|
income/expense |
|
|
earned/paid |
|
|
|
|
Assets |
|
|
|
|
|
|
|
|
|
|
|
|
Loans |
|
$ |
1,464,606 |
|
|
$ |
93,073 |
|
|
|
6.35 |
% |
Investment securities taxable |
|
|
263,059 |
|
|
|
10,039 |
|
|
|
3.82 |
% |
Investment securities nontaxable |
|
|
14,717 |
|
|
|
1,113 |
|
|
|
7.56 |
% |
Cash at Federal Reserve and other banks |
|
|
296,970 |
|
|
|
760 |
|
|
|
0.26 |
% |
|
|
|
|
|
|
|
|
|
|
|
Total earning assets |
|
|
2,039,352 |
|
|
|
104,985 |
|
|
|
5.15 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
Other assets |
|
|
169,290 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets |
|
$ |
2,208,642 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities and shareholders equity |
|
|
|
|
|
|
|
|
|
|
|
|
Interest-bearing demand deposits |
|
$ |
384,077 |
|
|
|
2,242 |
|
|
|
0.58 |
% |
Savings deposits |
|
|
552,104 |
|
|
|
2,277 |
|
|
|
0.41 |
% |
Time deposits |
|
|
544,018 |
|
|
|
5,928 |
|
|
|
1.09 |
% |
Other borrowings |
|
|
62,110 |
|
|
|
2,412 |
|
|
|
3.88 |
% |
Junior subordinated debt |
|
|
41,238 |
|
|
|
1,274 |
|
|
|
3.09 |
% |
|
|
|
|
|
|
|
|
|
|
|
Total interest-bearing liabilities |
|
|
1,583,547 |
|
|
|
14,133 |
|
|
|
0.89 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
Noninterest-bearing demand |
|
|
385,704 |
|
|
|
|
|
|
|
|
|
Other liabilities |
|
|
35,196 |
|
|
|
|
|
|
|
|
|
Shareholders equity |
|
|
204,195 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities and shareholders equity |
|
$ |
2,208,642 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net interest spread (1) |
|
|
|
|
|
|
|
|
|
|
4.26 |
% |
Net interest income and interest margin (2) |
|
|
|
|
|
$ |
90,852 |
|
|
|
4.45 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year ended December 31, 2009 |
|
|
|
Average |
|
|
Interest |
|
|
Rates |
|
|
|
balance |
|
|
income/expense |
|
|
earned/paid |
|
|
|
|
Assets |
|
|
|
|
|
|
|
|
|
|
|
|
Loans |
|
$ |
1,542,147 |
|
|
$ |
99,996 |
|
|
|
6.48 |
% |
Investment securities taxable |
|
|
232,636 |
|
|
|
11,019 |
|
|
|
4.74 |
% |
Investment securities nontaxable |
|
|
20,782 |
|
|
|
1,558 |
|
|
|
7.50 |
% |
Cash at Federal Reserve and other banks |
|
|
141,172 |
|
|
|
332 |
|
|
|
0.24 |
% |
|
|
|
|
|
|
|
|
|
|
|
Total earning assets |
|
|
1,936,717 |
|
|
|
112,905 |
|
|
|
5.83 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
Other assets |
|
|
156,551 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets |
|
$ |
2,093,268 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities and shareholders equity |
|
|
|
|
|
|
|
|
|
|
|
|
Interest-bearing demand deposits |
|
$ |
296,997 |
|
|
|
2,060 |
|
|
|
0.69 |
% |
Savings deposits |
|
|
444,105 |
|
|
|
3,166 |
|
|
|
0.71 |
% |
Time deposits |
|
|
637,480 |
|
|
|
12,665 |
|
|
|
1.99 |
% |
Other borrowings |
|
|
73,121 |
|
|
|
1,221 |
|
|
|
1.67 |
% |
Junior subordinated debt |
|
|
41,238 |
|
|
|
1,503 |
|
|
|
3.64 |
% |
|
|
|
|
|
|
|
|
|
|
|
Total interest-bearing liabilities |
|
|
1,492,941 |
|
|
|
20,615 |
|
|
|
1.38 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
Noninterest-bearing demand |
|
|
359,693 |
|
|
|
|
|
|
|
|
|
Other liabilities |
|
|
37,025 |
|
|
|
|
|
|
|
|
|
Shareholders equity |
|
|
203,609 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities and shareholders equity |
|
$ |
2,093,268 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net interest spread (1) |
|
|
|
|
|
|
|
|
|
|
4.45 |
% |
Net interest income and interest margin (2) |
|
|
|
|
|
$ |
92,290 |
|
|
|
4.77 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
Net interest spread represents the average yield earned on
interest-earning assets less the average rate paid on interest-bearing liabilities. |
|
(2) |
|
Net interest margin is computed by dividing net interest income by total
average earning assets. |
27
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year ended December 31, 2008 |
|
|
|
Average |
|
|
Interest |
|
|
Rates |
|
|
|
balance |
|
|
income/expense |
|
|
earned/paid |
|
|
|
|
Assets |
|
|
|
|
|
|
|
|
|
|
|
|
Loans |
|
$ |
1,549,014 |
|
|
$ |
107,896 |
|
|
|
6.97 |
% |
Investment securities taxable |
|
|
242,901 |
|
|
|
11,996 |
|
|
|
4.94 |
% |
Investment securities nontaxable |
|
|
24,983 |
|
|
|
1,863 |
|
|
|
7.46 |
% |
Cash at Federal Reserve and other banks |
|
|
2,751 |
|
|
|
31 |
|
|
|
1.11 |
% |
Federal funds sold |
|
|
144 |
|
|
|
3 |
|
|
|
2.08 |
% |
|
|
|
|
|
|
|
|
|
|
|
Total earning assets |
|
|
1,819,793 |
|
|
|
121,789 |
|
|
|
6.69 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
Other assets |
|
|
166,413 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets |
|
$ |
1,986,206 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities and shareholders equity |
|
|
|
|
|
|
|
|
|
|
|
|
Interest-bearing demand deposits |
|
$ |
225,872 |
|
|
|
771 |
|
|
|
0.34 |
% |
Savings deposits |
|
|
384,261 |
|
|
|
4,759 |
|
|
|
1.24 |
% |
Time deposits |
|
|
574,910 |
|
|
|
18,931 |
|
|
|
3.29 |
% |
Federal funds purchased |
|
|
83,792 |
|
|
|
1,999 |
|
|
|
2.39 |
% |
Other borrowings |
|
|
88,879 |
|
|
|
2,512 |
|
|
|
2.83 |
% |
Junior subordinated debt |
|
|
41,238 |
|
|
|
2,580 |
|
|
|
6.26 |
% |
|
|
|
|
|
|
|
|
|
|
|
Total interest-bearing liabilities |
|
|
1,398,952 |
|
|
|
31,552 |
|
|
|
2.26 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
Noninterest-bearing demand |
|
|
362,522 |
|
|
|
|
|
|
|
|
|
Other liabilities |
|
|
31,613 |
|
|
|
|
|
|
|
|
|
Shareholders equity |
|
|
193,119 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities and shareholders equity |
|
$ |
1,986,206 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net interest spread (1) |
|
|
|
|
|
|
|
|
|
|
4.43 |
% |
Net interest income and interest margin (2) |
|
|
|
|
|
$ |
90,237 |
|
|
|
4.96 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
Net interest spread represents the average yield earned on
interest-earning assets less the average rate paid on interest-bearing liabilities. |
|
(2) |
|
Net interest margin is computed by dividing net interest income by total
average earning assets. |
Summary of Changes in Interest Income and Expense due to Changes in Average Asset and
Liability Balances and Yields Earned and Rates Paid Volume/Rate Tables
The following table sets forth a summary of the changes in the Companys interest income and
interest expense from changes in average asset and liability balances (volume) and changes in
average interest rates for the periods indicated. The rate/volume variance has been included in
the rate variance. Amounts are calculated on a fully taxable equivalent basis:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2010 over 2009 |
|
|
|
|
|
|
|
|
|
|
2009 over 2008 |
|
|
|
|
|
|
|
|
|
|
|
Yield/ |
|
|
|
|
|
|
|
|
|
|
Yield/ |
|
|
|
|
|
|
Volume |
|
|
Rate |
|
|
Total |
|
|
Volume |
|
|
Rate |
|
|
Total |
|
|
|
(dollars in thousands) |
|
Increase (decrease) in
interest income: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loans |
|
$ |
(5,028 |
) |
|
$ |
(1,895 |
) |
|
$ |
(6,923 |
) |
|
$ |
(478 |
) |
|
$ |
(7,422 |
) |
|
$ |
(7,900 |
) |
Investment securities |
|
|
1,210 |
|
|
|
(2,635 |
) |
|
|
(1,425 |
) |
|
|
(749 |
) |
|
|
(534 |
) |
|
|
(1,283 |
) |
Cash at Federal Reserve and other banks |
|
|
31 |
|
|
|
397 |
|
|
|
428 |
|
|
|
31 |
|
|
|
270 |
|
|
|
301 |
|
Federal funds sold |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(3 |
) |
|
|
|
|
|
|
(3 |
) |
|
|
|
|
Total |
|
|
(3,787 |
) |
|
|
(4,133 |
) |
|
|
(7,920 |
) |
|
|
(1,199 |
) |
|
|
(7,685 |
) |
|
|
(8,884 |
) |
|
|
|
Increase
(decrease) in interest expense: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Demand deposits (interest-bearing) |
|
|
604 |
|
|
|
(422 |
) |
|
|
182 |
|
|
|
243 |
|
|
|
1,046 |
|
|
|
1,289 |
|
Savings deposits |
|
|
770 |
|
|
|
(1,659 |
) |
|
|
(889 |
) |
|
|
741 |
|
|
|
(2,334 |
) |
|
|
(1,593 |
) |
Time deposits |
|
|
(1,857 |
) |
|
|
(4,880 |
) |
|
|
(6,737 |
) |
|
|
2,060 |
|
|
|
(8,326 |
) |
|
|
(6,266 |
) |
Federal funds purchased |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1,999 |
) |
|
|
|
|
|
|
(1,999 |
) |
Junior subordinated debt |
|
|
|
|
|
|
(229 |
) |
|
|
(229 |
) |
|
|
|
|
|
|
(1,077 |
) |
|
|
(1,077 |
) |
Other borrowings |
|
|
(184 |
) |
|
|
1,375 |
|
|
|
1,191 |
|
|
|
(445 |
) |
|
|
(846 |
) |
|
|
(1,291 |
) |
|
|
|
Total |
|
|
(667 |
) |
|
|
(5,815 |
) |
|
|
(6,482 |
) |
|
|
600 |
|
|
|
(11,537 |
) |
|
|
(10,937 |
) |
|
|
|
Increase (decrease) in
net interest income |
|
$ |
(3,120 |
) |
|
$ |
1,682 |
|
|
$ |
(1,438 |
) |
|
$ |
(1,799 |
) |
|
$ |
3,852 |
|
|
$ |
2,053 |
|
|
|
|
28
Provision for Loan Losses
The provision for loan losses was $37,458,000 and $31,450,000 for the years ended December 31,
2010, and 2009, respectively. The increases in the provision for loan losses for the year ended
December 31, 2010 as compared to the year ended December 31, 2009 was primarily the result of
changes in the make-up of the originated loan portfolio and the Banks loss factors related to the
originated loan portfolio in reaction to increased losses in the construction, commercial real
estate, commercial & industrial (C&I), home equity and auto indirect loan portfolios, and decreases
in expected cash flows of certain PCI loan pools. Included in the provision for loan losses for
the year ended December 31, 2010 is $1,608,000 related to PCI loans acquired in the Granite
acquisition on May 28, 2010. Prior to May 28, 2010, the Company had no PCI loans.
In 2009, the Company provided $31,450,000 for loan losses compared to $20,950,000 in 2008. The
increase in the provision for loan losses during 2009 was primarily the result of changes in the
make-up of the loan portfolio and the Companys loss factors in reaction to increased losses in the
construction, commercial & industrial (C&I), home equity and auto indirect loan portfolios.
Management re-evaluates its loss ratios and assumptions quarterly and makes changes as appropriate
based upon, among other things, changes in loss rates experienced, collateral support for
underlying loans, changes and trends in the economy, and changes in the loan mix.
Management re-evaluates its originated loan portfolio loss ratios and assumptions quarterly
and makes changes as appropriate based upon, among other things, changes in loss rates experienced,
collateral support for underlying loans, changes and trends in the economy, and changes in the loan
mix. Management also re-evaluates expected cash flows for its PCI loan portfolio quarterly and
makes changes as appropriate based upon, among other things, changes in loan repayment experience,
changes in loss rates experienced, and collateral support for underlying loans.
The provision for loan losses related to originated loans is based on managements evaluation of
inherent risks in the originated loan portfolio and a corresponding analysis of the allowance for
loan losses. The provision for loan losses related to PCI loans is based changes in estimated
cash flows expected to be collected on PCI loans. Additional discussion on loan quality, our
procedures to measure loan impairment, and the allowance for loan losses is provided under the
heading Asset Quality and Non-Performing Assets below.
Noninterest Income
The following table summarizes the Companys noninterest income for the periods indicated (dollars
in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year ended December 31, |
|
|
|
2010 |
|
|
2009 |
|
|
2008 |
|
Components of Noninterest Income |
|
|
|
|
|
|
|
|
|
|
|
|
Service charges on deposit accounts |
|
$ |
15,296 |
|
|
$ |
16,080 |
|
|
$ |
15,744 |
|
ATM fees and interchange |
|
|
6,078 |
|
|
|
4,925 |
|
|
|
4,515 |
|
Other service fees |
|
|
1,452 |
|
|
|
1,229 |
|
|
|
1,120 |
|
Mortgage banking service fees |
|
|
1,303 |
|
|
|
1,140 |
|
|
|
1,036 |
|
Change in value of mortgage servicing rights |
|
|
(1,029 |
) |
|
|
(552 |
) |
|
|
(1,860 |
) |
Gain on sale of loans |
|
|
3,647 |
|
|
|
3,466 |
|
|
|
1,127 |
|
Commissions on sale of
nondeposit investment products |
|
|
1,209 |
|
|
|
1,632 |
|
|
|
2,069 |
|
Increase in cash value of life insurance |
|
|
1,847 |
|
|
|
1,879 |
|
|
|
1,834 |
|
Change in indemnification asset |
|
|
1,274 |
|
|
|
|
|
|
|
|
|
Gain (loss) on disposition of foreclosed assets |
|
|
562 |
|
|
|
168 |
|
|
|
51 |
|
Legal settlement |
|
|
400 |
|
|
|
|
|
|
|
|
|
Bargain purchase gain |
|
|
232 |
|
|
|
|
|
|
|
|
|
Other noninterest income |
|
|
424 |
|
|
|
362 |
|
|
|
1,451 |
|
|
|
|
Total noninterest income |
|
$ |
32,695 |
|
|
$ |
30,329 |
|
|
$ |
27,087 |
|
|
|
|
Noninterest income increased $2,366,000 (7.8%) to $32,695,000 in 2010. Service charges on
deposit accounts were down $784,000 (4.9%) due to new overdraft regulations that became effective
on July 1, 2010 and caused a decrease in non-sufficient funds fees. ATM fees and interchange
income was up $1,153,000 (23.4%) due to increased customer point-of -sale transactions that are the
result of incentives for such usage. Overall, mortgage banking activities, which includes mortgage
banking servicing fees, change in value of mortgage servicing rights, and gain on sale of loans,
accounted for $3,921,000 of noninterest income in the 2010 compared to $4,054,000 in
29
2009. Commissions on sale of nondeposit investment products decreased $423,000 (25.9%) in 2010 due
to lower demand for investment products. The change in indemnification asset of $1,274,000
recorded in 2010 is primarily due to an increase in estimated loan losses from the loan portfolio
and foreclosed assets acquired in the Granite acquisition on May 28, 2010, and the fact that such
losses are generally covered at the rate of 80% by the FDIC. The actual increase in estimated
losses is reflected in decreased interest income, increased provision for loan losses and/or
increased provision for foreclosed asset losses. The May 28, 2010 acquisition of Granite added
noninterest income totaling $1,586,000 through December 31, 2010 including change in
indemnification asset of $1,274,000.
Noninterest income increased $3,242,000 (12.0%) to $30,329,000 in 2009. Service charges on deposit
accounts were up $336,000 (2.1%) due primarily to increases in per item overdraft fees implemented
during 2009. ATM fees and interchange, and other service fees were up $410,000 (9.1%) due to
expansion of the Companys ATM network and customer base. Overall, mortgage banking activities,
which includes amortization of mortgage servicing rights, mortgage servicing fees, change in value
of mortgage servicing rights, and gain on sale of loans, accounted for $4,054,000 of noninterest
income in the 2009 compared to $303,000 in 2008. The increased contribution from mortgage banking
activities was due to increased loan sales during 2009 and a significant decrease in the value of
mortgage rights at the end of 2008. Commissions on sale of nondeposit investment products
decreased $437,000 (21.1%) in 2009 due to decreased resources focused in that area and lesser
demand for these products. Increase in cash value of life insurance increased $45,000 (2.5%) due
to essentially unchanged earning rates on the related life insurance policies. Other noninterest
income decreased $1,089,000 (75.1%) due primarily to decreases in deposit sweep income, official
check float commission rebate, and lease brokerage income, and increased loss of disposal of fixed
assets.
Noninterest Expense
The following table summarizes the Companys other noninterest expense for the periods indicated
(dollars in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year ended December 31, |
|
|
|
2010 |
|
|
2009 |
|
|
2008 |
|
Components of Noninterest Expense |
|
|
|
|
|
|
|
|
|
|
|
|
Salaries and related benefits: |
|
|
|
|
|
|
|
|
|
|
|
|
Base salaries, net of
deferred loan origination costs |
|
$ |
28,255 |
|
|
$ |
27,110 |
|
|
$ |
25,374 |
|
Incentive compensation |
|
|
1,844 |
|
|
|
2,792 |
|
|
|
2,860 |
|
Benefits and other compensation costs |
|
|
10,006 |
|
|
|
9,908 |
|
|
|
9,878 |
|
|
|
|
Total salaries and related benefits |
|
|
40,105 |
|
|
|
39,810 |
|
|
|
38,112 |
|
|
|
|
Other noninterest expense: |
|
|
|
|
|
|
|
|
|
|
|
|
Equipment and data processing |
|
|
6,652 |
|
|
|
6,516 |
|
|
|
6,405 |
|
Occupancy |
|
|
5,717 |
|
|
|
5,096 |
|
|
|
4,929 |
|
Assessments |
|
|
3,253 |
|
|
|
3,750 |
|
|
|
570 |
|
ATM network charges |
|
|
1,851 |
|
|
|
2,433 |
|
|
|
2,081 |
|
Advertising |
|
|
2,340 |
|
|
|
2,175 |
|
|
|
1,751 |
|
Professional fees |
|
|
2,478 |
|
|
|
1,783 |
|
|
|
1,853 |
|
Telecommunications |
|
|
1,817 |
|
|
|
1,689 |
|
|
|
1,914 |
|
Postage |
|
|
1,037 |
|
|
|
991 |
|
|
|
930 |
|
Courier service |
|
|
826 |
|
|
|
796 |
|
|
|
1,069 |
|
Foreclosed asset expense |
|
|
625 |
|
|
|
491 |
|
|
|
158 |
|
Intangible amortization |
|
|
307 |
|
|
|
328 |
|
|
|
523 |
|
Operational losses |
|
|
394 |
|
|
|
314 |
|
|
|
577 |
|
Provision for foreclosed asset losses |
|
|
1,522 |
|
|
|
220 |
|
|
|
|
|
Change in reserve for unfunded commitments |
|
|
(1,000 |
) |
|
|
1,075 |
|
|
|
475 |
|
Other |
|
|
9,281 |
|
|
|
7,983 |
|
|
|
7,391 |
|
|
|
|
Total other noninterest expenses |
|
|
37,100 |
|
|
|
35,640 |
|
|
|
30,626 |
|
|
|
|
Total noninterest expense |
|
$ |
77,205 |
|
|
$ |
75,450 |
|
|
$ |
68,738 |
|
|
|
|
Average full time equivalent staff |
|
|
667 |
|
|
|
641 |
|
|
|
636 |
|
Noninterest expense to revenue (FTE) |
|
|
62.49 |
% |
|
|
61.53 |
% |
|
|
58.59 |
% |
Salary and benefit expenses increased $295,000 (0.7%) to $40,105,000 in 2010 compared to 2009.
Base salaries increased $1,145,000 (4.2%) to $28,255,000 in 2010. The increase in base salaries
was mainly due to 4.1% increase in average full time equivalent staff. Incentive and commission
related salary expenses decreased $948,000 (34.0%) to $1,844,000 in 2010 due primarily to decreases
in management bonuses and other incentives tied to net income. Benefits expense, including
retirement, medical and workers compensation insurance, and
30
taxes, increased $98,000 (1.0%) to
$10,006,000 during 2010. Included in benefits expense in 2010 was $550,000 for expensing of
employee stock options compared to $402,000 in 2009.
Salary and benefit expenses increased $1,698,000 (4.5%) to $39,810,000 in 2009 compared to 2008.
Base salaries net of deferred loan origination costs increased $1,736,000 (6.8%) to $27,110,000 in
2009. The increase in base salaries was mainly due to an increase in average full time equivalent
employees from 636 during 2008 to 641 during 2009, and annual salary increases. Incentive and
commission related salary expenses decreased $68,000 (2.4%) to $2,792,000 in 2009. The decrease in
incentive and commission expenses was due primarily to decreases in expenses related to performance
based incentive programs. Benefits expense, including retirement, medical and workers
compensation insurance, and taxes, increased $30,000 (0.3%) to $9,908,000 during 2009. Included in
benefits expense in 2009 was $402,000 for expensing of employee stock options compared to $450,000
in 2008.
Other noninterest expenses increased $1,460,000 (4.1%) to $37,100,000 in 2010. Changes in the
various categories of other noninterest expense are reflected in the table above. The changes are
indicative of the economic environment which has lead to increases in professional loan collection
expenses, provision for foreclosed asset losses, and foreclosed asset expenses. Occupancy and
equipment expenses increased primarily due to four new branch openings, one each in the third and
fourth quarters of 2009 and one each in the first and second quarters of 2010, and three branches
and one admin facility acquired in the Granite acquisition on May 28, 2010. The May 28, 2010
acquisition of Granite added noninterest expenses totaling $2,078,000 through December 31, 2010
including salaries and benefits expense of $521,000 and provision for foreclosed asset losses of
$625,000. Partially offsetting these increases was a $2,075,000 decrease in change in reserve for
unfunded commitments due to a reduction in estimated usage of such commitments.
Other noninterest expenses increased $5,014,000 (16.4%) to $35,640,000 in 2009. Changes in the
various categories of other noninterest expense are reflected in the table above. The changes are
indicative of the Companys efforts to use technology to become more efficient, the economic
environment and increased regulatory assessments during 2009.
Income Taxes
The effective tax rate on income was 29.1%, 34.2%, and 37.7% in 2010, 2009, and 2008, respectively.
The effective tax rate was greater than the federal statutory tax rate due to state tax expense of
$543,000, $1,273,000, and $2,594,000, respectively, in these years. Tax-exempt income of $700,000,
$986,000, and $1,187,000, respectively, from investment securities, and $1,847,000, $1,879,000, and
$1,834,000, respectively, from increase in cash value of life insurance in these years helped to
reduce the effective tax rate.
Financial Condition
Investment Securities
During 2010 the Company did not sell any investment securities. During 2010 the Company received
proceeds from maturities of securities totaling $92,427,000, and used $156,348,000 to purchase
securities. During 2009 the Company did not sell any investment securities. During 2009 the
Company received proceeds from maturities of securities totaling $85,834,000, and used $29,396,000
to purchase securities. The following table shows the Companys investment securities balances for
the periods indicated:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year ended December 31, |
|
|
|
2010 |
|
|
2009 |
|
|
2008 |
|
|
2007 |
|
|
2006 |
|
|
|
|
(dollars in thousands) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Securities Available-for-sale: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Obligations of US government
corporations and agencies |
|
$ |
264,181 |
|
|
$ |
193,130 |
|
|
$ |
242,977 |
|
|
$ |
203,774 |
|
|
$ |
164,128 |
|
Obligations of states and
political subdivisions |
|
|
12,541 |
|
|
|
17,953 |
|
|
|
22,665 |
|
|
|
27,648 |
|
|
|
33,233 |
|
Corporate bonds |
|
|
549 |
|
|
|
539 |
|
|
|
919 |
|
|
|
1,005 |
|
|
|
1,000 |
|
|
|
|
Total investment securities |
|
$ |
277,271 |
|
|
$ |
211,622 |
|
|
$ |
266,561 |
|
|
$ |
232,427 |
|
|
$ |
198,361 |
|
|
|
|
31
Restricted Equity Securities
Restricted equity securities were $9,133,000 at December 31, 2010 and $9,274,000 at December 31,
2009. The entire balance of restricted equity securities at December 31, 2010 and December 31,
2009 represent the Banks investment in the Federal Home Loan Bank of San Francisco (FHLB). The
decrease of $141,000 is attributable to the redemption of $735,000 and $102,000 of FHLB and Federal
Reserve Bank stock, respectively, offset in part by the purchase of $594,000 and $102,000 of FHLB
stock and Federal Reserve Bank stock, respectively, via the FDIC-assisted acquisition of Granite.
FHLB stock is carried at par and does not have a readily determinable fair value. While
technically these are considered equity securities, there is no market for the FHLB stock.
Therefore, the shares are considered as restricted investment securities. Management periodically
evaluates FHLB stock for other-than-temporary impairment. Managements determination of whether
these investments are impaired is based on its assessment of the ultimate recoverability of cost
rather than by recognizing temporary declines in value. The determination of whether a decline
affects the ultimate recoverability of cost is influenced by criteria such as (1) the significance
of any decline in net assets of the FHLB as compared to the capital stock amount for the FHLB and
the length of time this situation has persisted, (2) commitments by the FHLB to make payments
required by law or regulation and the level of such payments in relation to the operating
performance of the FHLB, (3) the impact of legislative and regulatory changes on institutions and,
accordingly, the customer base of the FHLB, and (4) the liquidity position of the FHLB.
As a member of the FHLB system, the Company is required to maintain a minimum level of investment
in FHLB stock based on specific percentages of its outstanding mortgages, total assets, or FHLB
advances. The Company may request redemption at par value of any stock in excess of the minimum
required investment. Stock redemptions are at the discretion of the FHLB.
Loans
The Bank concentrates its lending activities in four principal areas: real estate mortgage loans
(residential and commercial loans), consumer loans, commercial loans (including agricultural
loans), and real estate construction loans. At December 31, 2010, these four categories accounted
for approximately 59%, 28%, 10%, and 3% of the Banks loan portfolio, respectively, as compared to
56%, 29%, 11%, and 4%, at December 31, 2009. The interest rates charged for the loans made by the
Bank vary with the degree of risk, the size and maturity of the loans, the borrowers relationship
with the Bank and prevailing money market rates indicative of the Banks cost of funds.
The majority of the Banks loans are direct loans made to individuals, farmers and local
businesses. The Bank relies substantially on local promotional activity and personal contacts by
bank officers, directors and employees to compete with other financial institutions. The Bank
makes loans to borrowers whose applications include a sound purpose, a viable repayment source and
a plan of repayment established at inception and generally backed by a secondary source of
repayment.
In connection with the FDIC-assisted acquisition of certain of the assets and liability of Granite,
the Bank entered into a loss-sharing agreement with the FDIC that covered approximately $85 million
of Granites assets. The Bank shares in the losses on the asset pools (loans, and foreclosed loan
collateral) covered under the loss-sharing agreement. Pursuant to the terms of the loss sharing
agreement, the FDIC is obligated to reimburse the Bank for 80% of losses with respect to covered
assets. The Bank will reimburse the FDIC for 80% of recoveries with respect to losses for which the
FDIC paid the Bank under the loss sharing agreement. We refer to the loans covered by the loss
sharing agreement as covered loans. We referred to our loans that are not covered by the
loss-sharing agreement as noncovered loans. In addition, we refer to loans purchased or obtained
in a business combination as purchased credit impaired (PCI) loans, or purchased non-credit
impaired (PNCI) loans. The Company refers to loans that it originates as originated loans.
As of December 31, 2010, the Company has no loans that it classifies as PNCI loans.
At December 31, 2010 loans, including net deferred loan costs, totaled $1,419,571,000 which was a
5.1% ($75,999,000) decrease over the balances at the end of 2009. Demand for commercial real
estate (real estate mortgage) loans was weak during 2010. Demand for home equity loans and lines
of credit was weak to modest during 2010. Real estate construction loans declined during 2010 as
did auto dealer loans.
32
At December 31, 2009 loans, including net deferred loan costs, totaled $1,495,570,000 which
was a 6.0% ($95,279,000) decrease over the balances at the end of 2008. Demand for commercial real
estate (real estate mortgage) loans was relatively strong during 2009. Demand for home equity
loans and lines of credit was modest during 2009. Real estate construction loans declined during
2009 as did auto dealer loans. The average loan-to-deposit ratio in 2009 was 88.7% compared to
100.1% in 2008.
Loan Portfolio Composite
The following table shows the Companys loan balances, including net deferred loan costs, for the
periods indicated:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year ended December 31, |
(dollars in thousands) |
|
2010 |
|
|
2009 |
|
|
2008 |
|
|
2007 |
|
|
2006 |
|
|
|
|
Real estate mortgage |
|
$ |
835,471 |
|
|
$ |
844,053 |
|
|
$ |
839,687 |
|
|
$ |
761,331 |
|
|
$ |
747,172 |
|
Consumer |
|
|
395,771 |
|
|
|
428,722 |
|
|
|
477,435 |
|
|
|
489,982 |
|
|
|
474,650 |
|
Commercial |
|
|
143,413 |
|
|
|
164,094 |
|
|
|
190,295 |
|
|
|
165,334 |
|
|
|
152,470 |
|
Real estate construction |
|
|
44,916 |
|
|
|
58,701 |
|
|
|
83,432 |
|
|
|
135,319 |
|
|
|
135,587 |
|
|
|
|
Total loans |
|
$ |
1,419,571 |
|
|
$ |
1,495,570 |
|
|
$ |
1,590,849 |
|
|
$ |
1,551,966 |
|
|
$ |
1,509,879 |
|
|
|
|
The following table shows the Companys loan balances, including net deferred loan costs, as a
percentage of total loans for the periods indicated:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year ended December 31, |
(dollars in thousands) |
|
2010 |
|
|
2009 |
|
|
2008 |
|
|
2007 |
|
|
2006 |
|
|
|
|
Real estate mortgage |
|
|
58.8 |
% |
|
|
56.4 |
% |
|
|
52.8 |
% |
|
|
49.1 |
% |
|
|
49.5 |
% |
Consumer |
|
|
27.9 |
% |
|
|
28.7 |
% |
|
|
30.0 |
% |
|
|
31.6 |
% |
|
|
31.4 |
% |
Commercial |
|
|
10.1 |
% |
|
|
11.0 |
% |
|
|
12.0 |
% |
|
|
10.7 |
% |
|
|
10.1 |
% |
Real estate construction |
|
|
3.2 |
% |
|
|
3.9 |
% |
|
|
5.2 |
% |
|
|
8.7 |
% |
|
|
9.0 |
% |
|
|
|
Total loans |
|
|
100.0 |
% |
|
|
100.0 |
% |
|
|
100.0 |
% |
|
|
100.0 |
% |
|
|
100.0 |
% |
|
|
|
Asset Quality and Nonperforming Assets
Nonperforming Assets
Loans originated by the Company, i.e., not purchased or acquired in a business combination, are
reported at the principal amount outstanding, net of deferred loan fees and costs. Loan origination
and commitment fees and certain direct loan origination costs are deferred, and the net amount is
amortized as an adjustment of the related loans yield over the actual life of the loan.
Originated loans on which the accrual of interest has been discontinued are designated as
nonaccrual loans.
Originated loans are placed in nonaccrual status when reasonable doubt exists as to the full,
timely collection of interest or principal, or a loan becomes contractually past due by 90 days or
more with respect to interest or principal and is not well secured and in the process of
collection. When an originated loan is placed on nonaccrual status, all interest previously
accrued but not collected is reversed. 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 only when they are brought fully current with respect to interest and
principal and when, in the judgment of Management, the loan is estimated to be fully collectible as
to both principal and interest.
An allowance for loan losses for originated loans is established through a provision for loan
losses charged to expense. Originated loans and deposit related overdrafts are charged against the
allowance for loan losses when Management believes that the collectability of the principal is
unlikely or, with respect to consumer installment loans, according to an established delinquency
schedule. The allowance is an amount that Management believes will be adequate to absorb probable
losses inherent in existing loans and leases, based on evaluations of the collectability,
impairment and prior loss experience of loans and leases. The evaluations take into consideration
such factors as changes in the nature and size of the portfolio, overall portfolio quality, loan
concentrations, specific problem loans, and current economic conditions that may affect the
borrowers ability to pay. The Company defines an originated loan as impaired when it is probable
the Company will be unable to collect all amounts due according to the contractual terms of the
loan agreement. Impaired originated loans are measured based on the present value of expected
future cash flows discounted at the loans original effective interest rate. As a practical
expedient, impairment may be measured based on the loans observable market price or the fair
33
value of the collateral if the loan is collateral dependent. When the measure of the impaired loan
is less than the recorded investment in the loan, the impairment is recorded through a valuation
allowance.
In situations related to originated loans where, for economic or legal reasons related to a
borrowers financial difficulties, the Company grants a concession for other than an insignificant
period of time to the borrower that the Company would not otherwise consider, the related loan is
classified as a troubled debt restructuring (TDR). The Company strives to identify borrowers in
financial difficulty early and work with them to modify to more affordable terms before their loan
reaches nonaccrual status. These modified terms may include rate reductions, principal forgiveness,
payment forbearance and other actions intended to minimize the economic loss and to avoid
foreclosure or repossession of the collateral. In cases where the Company grants the borrower new
terms that provide for a reduction of either interest or principal, the Company measures any
impairment on the restructuring as noted above for impaired loans. TDR loans are classified as
impaired until they are fully paid off or charged off. Loans that are in nonaccrual status at the
time they become TDR loans, remain in nonaccrual status until the borrower demonstrates a sustained
period of performance which the Company generally believes to be six consecutive months of
payments, or equivalent. Otherwise, TDR loans are subject to the same nonaccrual and charge-off
policies as noted above with respect to their restructured principal balance.
Credit risk is inherent in the business of lending. As a result, the Company maintains an
allowance for loan losses to absorb losses inherent in the Companys originated loan portfolio.
This is maintained through periodic charges to earnings. These charges are included in the
Consolidated Income Statements as provision for loan losses. All specifically identifiable and
quantifiable losses are immediately charged off against the allowance. However, for a variety of
reasons, not all losses are immediately known to the Company and, of those that are known, the full
extent of the loss may not be quantifiable at that point in time. The balance of the Companys
allowance for originated loan losses is meant to be an estimate of these unknown but probable
losses inherent in the portfolio.
The Company formally assesses the adequacy of the allowance for originated loan losses on a
quarterly basis. Determination of the adequacy is based on ongoing assessments of the probable
risk in the outstanding originated loan portfolio, and to a lesser extent the Companys originated
loan commitments. These assessments include the periodic re-grading of credits based on changes in
their individual credit characteristics including delinquency, seasoning, recent financial
performance of the borrower, economic factors, changes in the interest rate environment, growth of
the portfolio as a whole or by segment, and other factors as warranted. Loans are initially graded
when originated. They are re-graded as they are renewed, when there is a new loan to the same
borrower, when identified facts demonstrate heightened risk of nonpayment, or if they become
delinquent. Re-grading of larger problem loans occurs at least quarterly. Confirmation of the
quality of the grading process is obtained by independent credit reviews conducted by consultants
specifically hired for this purpose and by various bank regulatory agencies.
The Companys method for assessing the appropriateness of the allowance for originated loan losses
includes specific allowances for impaired originated loans and leases, formula allowance factors
for pools of credits, and allowances for changing environmental factors (e.g., interest rates,
growth, economic conditions, etc.). Allowance factors for loan pools are based on historical loss
experience by product type. Allowances for impaired loans are based on analysis of individual
credits. Allowances for changing environmental factors are Managements best estimate of the
probable impact these changes have had on the originated loan portfolio as a whole. The allowance
for originated loans is included in the allowance for loan losses.
Acquired loans are valued as of acquisition date in accordance with Financial Accounting Standards
Board Accounting Standards Codification (FASB ASC) Topic 805, Business Combinations. Loans
purchased with evidence of credit deterioration since origination for which it is probable that all
contractually required payments will not be collected are referred to as purchased credit impaired
(PCI) loans. PCI loans are accounted for under FASB ASC Topic 310-30, Loans and Debt Securities
Acquired with Deteriorated Credit Quality. In addition, because of the significant credit discounts
associated with the loans acquired in the Granite acquisition, the Company elected to account for
all loans acquired in the Granite acquisition under FASB ASC Topic 310-30, and classify them all as
PCI loans. Under FASB ASC Topic 805 and FASB ASC Topic 310-30, PCI loans are recorded at fair value
at acquisition date, factoring in credit losses expected to be incurred over the life of the loan.
Accordingly, an allowance for loan losses is not carried over or recorded as of the acquisition
date. Fair value is defined as the present value of the future estimated principal and interest
payments of the loan, with the discount rate used in the present value calculation representing the
estimated effective yield of the loan. The difference
34
between contractual future payments and estimated future payments is referred to as the
nonaccretable difference. The difference between estimated future payments and the present value
of the estimated future payments is referred to as the accretable yield. The accretable yield
represents the amount that is expected to be recorded as interest income over the remaining life of
the loan. If after acquisition, the Company determines that the future cash flows of a PCI loan
are expected to be more than the originally estimated, an increase in the discount rate (effective
yield) would be made such that the newly increased accretable yield would be recognized, on a level
yield basis, over the remaining estimated life of the loan. If after acquisition, the Company
determines that the future cash flows of a PCI loan are expected to be less than the previously
estimated, the discount rate would first be reduced until the present value of the reduced cash
flow estimate equals the previous present value however, the discount rate may not be lowered below
its original level. If the discount rate has been lowered to its original level and the present
value has not been sufficiently lowered, an allowance for loan loss would be established through a
provision for loan losses charged to expense to decrease the present value to the required level.
If the estimated cash flows improve after an allowance has been established for a loan, the
allowance may be partially or fully reversed depending on the improvement in the estimated cash
flows. Only after the allowance has been fully reversed may the discount rate be increased. PCI
loans are put on nonaccrual status when cash flows cannot be reasonably estimated. PCI loans are
charged off when evidence suggests cash flows are not recoverable. Foreclosed assets from PCI
loans are recorded in foreclosed assets at fair value with the fair value at time of foreclosure
representing cash flow from the loan. ASC 310-30 allows PCI loans with similar risk
characteristics and acquisition time frame to be pooled and have their cash flows aggregated as
if they were one loan.
Loans are also categorized as covered or noncovered. Covered loans refer to loans covered by a
Federal Deposit Insurance Corporation (FDIC) loss sharing agreement. Noncovered loans refer to
loans not covered by a Federal Deposit Insurance Corporation (FDIC) loss sharing agreement.
Originated loans are reviewed on an individual basis for reclassification to nonaccrual status when
any one of the following occurs: the loan becomes 90 days past due as to interest or principal,
the full and timely collection of additional interest or principal becomes uncertain, the loan is
classified as doubtful by internal credit review or bank regulatory agencies, a portion of the
principal balance has been charged off, or the Company takes possession of the collateral. Loans
that are placed on nonaccrual even though the borrowers continue to repay the loans as scheduled
are classified as performing nonaccrual and are included in total nonperforming loans. The
reclassification of loans as nonaccrual does not necessarily reflect Managements judgment as to
whether they are collectible.
Interest income on originated nonaccrual loans that would have been recognized during the years
ended December 31, 2010 and 2009, if all such loans had been current in accordance with their
original terms, totaled $5,169,000 and $4,725,000, respectively. Interest income actually
recognized on these originated loans during the years ended December 31, 2010 and 2009 was
$1,956,000 and $1,770,000, respectively.
The Companys policy is to place originated loans 90 days or more past due on nonaccrual status.
In some instances when an originated loan is 90 days past due Management does not place it on
nonaccrual status because the loan is well secured and in the process of collection. A loan is
considered to be in the process of collection if, based on a probable specific event, it is
expected that the loan will be repaid or brought current. Generally, this collection period would
not exceed 30 days. Loans where the collateral has been repossessed are classified as foreclosed
assets.
Management considers both the adequacy of the collateral and the other resources of the borrower in
determining the steps to be taken to collect nonaccrual loans. Alternatives that are considered
are foreclosure, collecting on guarantees, restructuring the loan or collection lawsuits.
35
The following tables set forth the amount of the Banks nonperforming assets as of the dates
indicated. For purposes of the following table, PCI loans that are ninety days past and still
accruing are not considered nonperforming loans:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year ended December 31, |
(dollars in thousands) |
|
2010 |
|
|
2009 |
|
|
2008 |
|
|
2007 |
|
|
2006 |
|
|
|
|
Performing nonaccrual loans |
|
$ |
36,518 |
|
|
$ |
22,870 |
|
|
$ |
22,600 |
|
|
$ |
9,098 |
|
|
$ |
10,255 |
|
Nonperforming nonaccrual loans |
|
|
39,224 |
|
|
|
26,301 |
|
|
|
9,994 |
|
|
|
4,227 |
|
|
|
561 |
|
|
|
|
Total nonaccrual loans |
|
|
75,742 |
|
|
|
49,171 |
|
|
|
32,594 |
|
|
|
13,325 |
|
|
|
10,816 |
|
Originated loans 90 days
past due and still accruing |
|
|
245 |
|
|
|
700 |
|
|
|
187 |
|
|
|
|
|
|
|
68 |
|
|
|
|
Total nonperforming loans |
|
|
75,987 |
|
|
|
49,871 |
|
|
|
32,781 |
|
|
|
13,325 |
|
|
|
10,884 |
|
Noncovered foreclosed assets |
|
|
5,000 |
|
|
|
3,726 |
|
|
|
1,185 |
|
|
|
187 |
|
|
|
|
|
Covered foreclosed assets |
|
|
4,913 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total nonperforming assets |
|
$ |
85,900 |
|
|
$ |
53,597 |
|
|
$ |
33,966 |
|
|
$ |
13,512 |
|
|
$ |
10,884 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. government, including its agencies
and its government-sponsored agencies,
guaranteed portion of nonperforming loans |
|
$ |
3,937 |
|
|
$ |
4,975 |
|
|
$ |
5,256 |
|
|
$ |
5,814 |
|
|
$ |
6,372 |
|
Indemnified portion of
covered foreclosed assets |
|
$ |
3,930 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
PCI loans 90 days past due and still accruing |
|
$ |
3,553 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nonperforming assets to total assets |
|
|
3.92 |
% |
|
|
2.24 |
% |
|
|
1.41 |
% |
|
|
0.39 |
% |
|
|
0.24 |
% |
Nonperforming loans to total loans |
|
|
5.35 |
% |
|
|
2.99 |
% |
|
|
1.73 |
% |
|
|
0.48 |
% |
|
|
0.30 |
% |
Allowance for loan losses to nonperforming loans |
|
|
56 |
% |
|
|
79 |
% |
|
|
100 |
% |
|
|
231 |
% |
|
|
375 |
% |
The following table shows the activity in the balance of nonperforming assets for the year
ended December 31, 2010:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at |
|
|
|
|
|
|
Advances/ |
|
|
Pay- |
|
|
|
|
|
|
Transfers to |
|
|
|
|
|
|
Balance at |
|
|
|
December 31, |
|
|
New |
|
|
Capitalized |
|
|
downs |
|
|
Charge-offs/ |
|
|
Foreclosed |
|
|
Category |
|
|
December 31, |
|
(dollars in thousands): |
|
2010 |
|
|
NPA |
|
|
Costs |
|
|
/Sales |
|
|
Write-downs |
|
|
Assets |
|
|
Changes |
|
|
2009 |
|
Real estate
mortgage: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Residential |
|
$ |
11,771 |
|
|
$ |
10,077 |
|
|
$ |
11 |
|
|
$ |
(519 |
) |
|
$ |
(1,498 |
) |
|
$ |
(1,495 |
) |
|
$ |
(30 |
) |
|
$ |
5,225 |
|
Commercial |
|
|
38,925 |
|
|
|
35,112 |
|
|
|
223 |
|
|
|
(10,398 |
) |
|
|
(8,281 |
) |
|
|
(847 |
) |
|
|
3,971 |
|
|
|
19,145 |
|
Consumer |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Home equity lines |
|
|
10,604 |
|
|
|
16,536 |
|
|
|
172 |
|
|
|
(1,625 |
) |
|
|
(11,221 |
) |
|
|
(554 |
) |
|
|
|
|
|
|
7,296 |
|
Home equity loans |
|
|
701 |
|
|
|
1,420 |
|
|
|
9 |
|
|
|
(48 |
) |
|
|
(1,339 |
) |
|
|
|
|
|
|
|
|
|
|
659 |
|
Auto indirect |
|
|
1,296 |
|
|
|
2,209 |
|
|
|
16 |
|
|
|
(1,502 |
) |
|
|
(1,403 |
) |
|
|
|
|
|
|
(11 |
) |
|
|
1,987 |
|
Other consumer |
|
|
83 |
|
|
|
1,651 |
|
|
|
18 |
|
|
|
(114 |
) |
|
|
(1,687 |
) |
|
|
|
|
|
|
|
|
|
|
215 |
|
Commercial |
|
|
4,618 |
|
|
|
8,084 |
|
|
|
34 |
|
|
|
(2,286 |
) |
|
|
(3,539 |
) |
|
|
(636 |
) |
|
|
(235 |
) |
|
|
3,196 |
|
Construction: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Residential |
|
|
7,117 |
|
|
|
11,714 |
|
|
|
145 |
|
|
|
(5,163 |
) |
|
|
(4,666 |
) |
|
|
(2,336 |
) |
|
|
(3,117 |
) |
|
|
10,540 |
|
Commercial |
|
|
872 |
|
|
|
643 |
|
|
|
|
|
|
|
(238 |
) |
|
|
(94 |
) |
|
|
(469 |
) |
|
|
(578 |
) |
|
|
1,608 |
|
|
|
|
Total nonperforming
loans |
|
|
75,987 |
|
|
|
87,446 |
|
|
|
628 |
|
|
|
(21,893 |
) |
|
|
(33,728 |
) |
|
|
(6,337 |
) |
|
|
|
|
|
|
49,871 |
|
Noncovered
foreclosed assets |
|
|
5,000 |
|
|
|
|
|
|
|
139 |
|
|
|
(4,305 |
) |
|
|
(897 |
) |
|
|
6,337 |
|
|
|
|
|
|
|
3,726 |
|
Covered foreclosed
assets |
|
|
4,913 |
|
|
|
4,629 |
|
|
|
|
|
|
|
(305 |
) |
|
|
(625 |
) |
|
|
1,214 |
|
|
|
|
|
|
|
|
|
|
|
|
Total nonperforming
assets |
|
$ |
85,900 |
|
|
$ |
92,075 |
|
|
$ |
767 |
|
|
$ |
(26,503 |
) |
|
$ |
(35,250 |
) |
|
$ |
1,214 |
|
|
$ |
|
|
|
$ |
53,597 |
|
|
|
|
36
The following tables and narratives describe the activity in the balance of nonperforming
assets during each of the three-month periods ending March 31, June 30, September 30, and December
31, 2010. These tables and narratives are presented in chronological order:
Changes in nonperforming assets during the three months ended March 31, 2010
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at |
|
|
|
|
|
|
Advances/ |
|
|
Pay- |
|
|
|
|
|
|
Transfers to |
|
|
|
|
|
|
Balance at |
|
|
|
March 31, |
|
|
New |
|
|
Capitalized |
|
|
downs |
|
|
Charge-offs/ |
|
|
Foreclosed |
|
|
Category |
|
|
December 31, |
|
(dollars in thousands): |
|
2010 |
|
|
NPA |
|
|
Costs |
|
|
/Sales |
|
|
Write-downs |
|
|
Assets |
|
|
Changes |
|
|
2009 |
|
Real estate mortgage: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Residential |
|
$ |
5,563 |
|
|
$ |
1,483 |
|
|
$ |
7 |
|
|
$ |
|
|
|
$ |
(455 |
) |
|
$ |
(697 |
) |
|
$ |
|
|
|
$ |
5,225 |
|
Commercial |
|
|
35,808 |
|
|
|
20,533 |
|
|
|
|
|
|
|
(1,303 |
) |
|
|
(2,567 |
) |
|
|
|
|
|
|
|
|
|
|
19,145 |
|
Consumer |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Home equity lines |
|
|
10,329 |
|
|
|
5,636 |
|
|
|
111 |
|
|
|
(472 |
) |
|
|
(2,242 |
) |
|
|
|
|
|
|
|
|
|
|
7,296 |
|
Home equity loans |
|
|
457 |
|
|
|
214 |
|
|
|
|
|
|
|
(8 |
) |
|
|
(408 |
) |
|
|
|
|
|
|
|
|
|
|
659 |
|
Auto indirect |
|
|
1,742 |
|
|
|
776 |
|
|
|
4 |
|
|
|
(499 |
) |
|
|
(526 |
) |
|
|
|
|
|
|
|
|
|
|
1,987 |
|
Other consumer |
|
|
211 |
|
|
|
348 |
|
|
|
3 |
|
|
|
(15 |
) |
|
|
(340 |
) |
|
|
|
|
|
|
|
|
|
|
215 |
|
Commercial |
|
|
3,260 |
|
|
|
968 |
|
|
|
|
|
|
|
(378 |
) |
|
|
(526 |
) |
|
|
|
|
|
|
|
|
|
|
3,196 |
|
Construction: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Residential |
|
|
11,160 |
|
|
|
4,198 |
|
|
|
23 |
|
|
|
(1,515 |
) |
|
|
(1,037 |
) |
|
|
(1,049 |
) |
|
|
|
|
|
|
10,540 |
|
Commercial |
|
|
1,755 |
|
|
|
443 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(296 |
) |
|
|
|
|
|
|
1,608 |
|
|
|
|
Total nonperforming loans |
|
|
70,285 |
|
|
|
34,599 |
|
|
|
148 |
|
|
|
(4,190 |
) |
|
|
(8,101 |
) |
|
|
(2,042 |
) |
|
|
|
|
|
|
49,871 |
|
Noncovered foreclosed assets |
|
|
5,579 |
|
|
|
|
|
|
|
4 |
|
|
|
(193 |
) |
|
|
|
|
|
|
2,042 |
|
|
|
|
|
|
|
3,726 |
|
Covered foreclosed assets |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total nonperforming assets |
|
$ |
75,864 |
|
|
$ |
34,599 |
|
|
$ |
152 |
|
|
$ |
(4,383 |
) |
|
$ |
(8,101 |
) |
|
$ |
|
|
|
$ |
|
|
|
$ |
53,597 |
|
|
|
|
Nonperforming assets increased during the first quarter of 2010 by $22,267,000 (41.6%) to
$75,864,000 at March 31, 2010 compared to $53,597,000 at December 31, 2009. The increase in
nonperforming assets during the first quarter of 2010 was primarily the result of new nonperforming
loans of $34,599,000, advances on existing nonperforming loans and capitalized costs on foreclosed
assets of $152,000, less pay-downs or upgrades of nonperforming loans to performing status totaling
$4,190,000, less dispositions of foreclosed assets totaling $193,000, and less loan charge-offs of
$8,101,000.
The primary causes of the $34,599,000 in new nonperforming loans during the first quarter of 2010
were increases of $1,483,000 on seven residential real estate loans, $20,533,000 on 18 commercial
real estate loans, $5,636,000 on 67 home equity lines and loans, $776,000 on 68 indirect auto
loans, $968,000 on 30 C&I loans, $4,641,000 on six construction loans.
The $20,533,000 in new nonperforming commercial real estate loans was primarily made up of five
loans totaling $8,727,000 secured by commercial warehouse properties in central California, three
commercial office building loans in northern California totaling $4,171,000, a commercial office
building loan in central California in the amount of $1,830,000, a commercial retail building loan
in northern California for $2,868,000, and a $2,692,000 multifamily residential property loan in
northern California. Related charge-offs are discussed below.
The $4,641,000 in new nonperforming construction loans consisted primarily two loans in the amount
of $2,460,000 secured by commercial warehouse property in central California, a $180,000 loan
secured by commercial land development property in central California, and a $435,000 SFR
construction loan in northern California. Related charge-offs are discussed below.
The $968,000 in new nonperforming C&I loans was primarily made up of a two asset-based loans
secured by accounts receivable and inventory in central California for a total of $319,000.
Related charge-offs are discussed below.
Loan charge-offs during the three months ended March 31, 2010
In the first quarter of 2010, the Company recorded $8,101,000 in loan charge-offs less $468,000 in
recoveries resulting in $7,633,000 of net loan charge-offs. Primary causes of the charges taken in
the first quarter of 2010 were gross charge-offs of $455,000 on five residential real estate loans,
$2,567,000 on eight commercial real estate loans, $2,650,000 on 42 home equity lines and loans,
$526,000 on 91 auto indirect loans, $340,000 on other consumer loans and overdrafts, $526,000 on 20
C&I loans, and $1,037,000 on six residential construction loans.
37
The $2,567,000 in charge-offs in commercial real estate loans was primarily the result of a
$1,262,000 charge taken on a loan secured by an office building in northern California, a $284,000
charge on a loan secured by a retail building in northern California and $966,000 in charges taken
on four loans secured by commercial warehouses in central California. The remaining $55,000 was
spread over two loans spread throughout the Companys footprint. The $1,037,000 in charge-offs in
residential construction loans was comprised of $435,000 taken on two land acquisition loans in
northern California, $425,000 in charges on one land development loan in northern California, and
$177,000 in charges on three single family residence (SFR) construction loans in northern
California. The $526,000 in charge-offs the bank took in its C&I portfolio was primarily the
result of $78,000 on an agriculture equipment loan in northern California. The remaining $447,000
was spread over 19 loans spread throughout the Companys footprint.
Differences between the amounts explained in this section and the total charge-offs listed for a
particular category are generally made up of individual charges of less than $250,000 each.
Generally losses are triggered by non-performance by the borrower and calculated based on any
difference between the current loan amount and the current value of the underlying collateral less
any estimated costs associated with the disposition of the collateral.
Changes in nonperforming assets during the three months ended June 30, 2010
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at |
|
|
|
|
|
|
Advances/ |
|
|
Pay- |
|
|
|
|
|
|
Transfers to |
|
|
|
|
|
|
Balance at |
|
|
|
June 30, |
|
|
New |
|
|
Capitalized |
|
|
downs |
|
|
Charge-offs/ |
|
|
Foreclosed |
|
|
Category |
|
|
March 31, |
|
(dollars in thousands): |
|
2010 |
|
|
NPA |
|
|
Costs |
|
|
/Sales |
|
|
Write-downs |
|
|
Assets |
|
|
Changes |
|
|
2010 |
|
Real estate mortgage: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Residential |
|
$ |
7,087 |
|
|
$ |
2,079 |
|
|
$ |
|
|
|
$ |
(33 |
) |
|
$ |
(293 |
) |
|
$ |
(229 |
) |
|
$ |
|
|
|
$ |
5,563 |
|
Commercial |
|
|
35,370 |
|
|
|
3,361 |
|
|
|
1 |
|
|
|
(2,223 |
) |
|
|
(1,497 |
) |
|
|
(80 |
) |
|
|
|
|
|
|
35,808 |
|
Consumer |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Home equity lines |
|
|
9,874 |
|
|
|
3,007 |
|
|
|
34 |
|
|
|
(401 |
) |
|
|
(3,095 |
) |
|
|
|
|
|
|
|
|
|
|
10,329 |
|
Home equity loans |
|
|
959 |
|
|
|
817 |
|
|
|
|
|
|
|
(12 |
) |
|
|
(303 |
) |
|
|
|
|
|
|
|
|
|
|
457 |
|
Auto indirect |
|
|
1,693 |
|
|
|
740 |
|
|
|
2 |
|
|
|
(454 |
) |
|
|
(337 |
) |
|
|
|
|
|
|
|
|
|
|
1,742 |
|
Other consumer |
|
|
190 |
|
|
|
556 |
|
|
|
2 |
|
|
|
(36 |
) |
|
|
(543 |
) |
|
|
|
|
|
|
|
|
|
|
211 |
|
Commercial |
|
|
3,168 |
|
|
|
922 |
|
|
|
|
|
|
|
(479 |
) |
|
|
(535 |
) |
|
|
|
|
|
|
|
|
|
|
3,260 |
|
Construction: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Residential |
|
|
12,631 |
|
|
|
4,627 |
|
|
|
122 |
|
|
|
(371 |
) |
|
|
(1,782 |
) |
|
|
(1,125 |
) |
|
|
|
|
|
|
11,160 |
|
Commercial |
|
|
1,737 |
|
|
|
200 |
|
|
|
|
|
|
|
(6 |
) |
|
|
(39 |
) |
|
|
(173 |
) |
|
|
|
|
|
|
1,755 |
|
|
|
|
Total nonperforming loans |
|
|
72,709 |
|
|
|
16,309 |
|
|
|
161 |
|
|
|
(4,105 |
) |
|
|
(8,424 |
) |
|
|
(1,607 |
) |
|
|
|
|
|
|
70,285 |
|
Noncovered foreclosed assets |
|
|
5,621 |
|
|
|
|
|
|
|
134 |
|
|
|
(1,644 |
) |
|
|
(55 |
) |
|
|
1607 |
|
|
|
|
|
|
|
5,579 |
|
Covered foreclosed assets |
|
|
4,324 |
|
|
|
4,629 |
|
|
|
|
|
|
|
(305 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total nonperforming assets |
|
$ |
82,654 |
|
|
$ |
20,938 |
|
|
$ |
295 |
|
|
$ |
(5,964 |
) |
|
$ |
(8,479 |
) |
|
|
|
|
|
$ |
|
|
|
$ |
75,864 |
|
|
|
|
Nonperforming assets increased during the second quarter of 2010 by $6,790,000 (9.0%) to
$82,654,000 at June 30, 2010 compared to $75,864,000 at March 31, 2010. The increase in
nonperforming assets during the second quarter of 2010 was primarily the result of new
nonperforming loans of $16,309,000, foreclosed assets of $4,629,000 acquired via the Granite
acquisition on May 28, 2010, advances on existing nonperforming loans and capitalized costs on
foreclosed assets of $295,000, less pay-downs and upgrades of nonperforming loans to performing
status totaling $4,105,000, less disposition of foreclosed assets totaling $1,949,000, less loan
charge-offs of $8,424,000, and less foreclosed asset write-downs off $55,000.
The primary causes of the $16,309,000 in new nonperforming loans during the second quarter of 2010
were increases of $2,079,000 on 12 residential real estate loans, $3,361,000 on 6 commercial real
estate loans, $3,824,000 on 51 home equity lines and loans, $740,000 on 56 indirect auto loans,
$556,000 on 31 other consumer loans, $922,000 on 18 C&I loans, $4,627,000 on 5 residential
construction loans, and $200,000 on 1 commercial construction loan.
The $3,361,000 in new nonperforming commercial real estate loans was primarily made up of 2 loans
totaling $2,717,000 secured by commercial office buildings in central California, 1 commercial
warehouse loan in northern California totaling $307,000, and a condo loan in northern California in
the amount of $243,000. These increases were offset by pay-downs or upgrades of $2,223,000 in
commercial real estate loans. These pay-downs or upgrades were primarily made up of 2 Multi-family
loans on the same property in northern California totaling $1,419,000, and $350,000 on 1 loan
secured by agricultural land. Related charge-offs are discussed below.
38
The $200,000 in new nonperforming commercial construction loans was comprised entirely of one loan
secured by a finished lot in central California. The $4,627,000 in new nonperforming residential
construction loans was primarily made up of 4 land acquisition loans in northern California totaling $4,547,000. This was
partially offset by pay-downs and upgrades totaling $371,000, and the foreclosure and sale of one
property with a cost basis of $1,080,000. Related charge-offs are discussed below.
The $922,000 in new nonperforming C&I loans was spread over 18 loans throughout the companys
footprint and secured by personal property assets. In addition, 44 loans totaling $479,000 spread
throughout the Banks footprint were either upgraded or paid-off during the same period Related
charge-offs are discussed below.
Loan charge-offs during the three months ended June 30, 2010
In the second quarter of 2010, the Company recorded $8,424,000 in loan charge-offs less $514,000 in
recoveries resulting in $7,910,000 of net loan charge-offs. Primary causes of the charges taken in
the second quarter of 2010 were gross charge-offs of $293,000 on 5 residential real estate loans,
$1,497,000 on 4 commercial real estate loans, $3,398,000 on 67 home equity lines and loans,
$337,000 on 73 auto indirect loans, $543,000 on other consumer loans and overdrafts, $535,000 on 20
C&I loans, and $1,782,000 on 7 residential construction loans.
The $1,497,000 in charge-offs in commercial real estate loans was primarily the result of a
$1,097,000 charge taken on a loan secured by a retail building in northern California and $191,000
taken on a commercial office building in central California. The remaining $209,000 was spread
over 2 loans spread throughout the Companys footprint. The $1,782,000 in charge-offs in
residential construction loans were comprised primarily of $1,607,000 in charges taken on 4 land
acquisition loans in northern California. The remaining $175,000 was spread over 3 loans spread
throughout the Companys footprint. The $535,000 in charge-offs the Bank took in its C&I portfolio
was spread over 20 loans spread throughout the Companys footprint.
Changes in nonperforming assets during the three months ended September 30, 2010
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at |
|
|
|
|
|
|
Advances/ |
|
|
Pay- |
|
|
|
|
|
|
Transfers to |
|
|
|
|
|
|
Balance at |
|
|
|
September 30, |
|
|
New |
|
|
Capitalized |
|
|
downs |
|
|
Charge-offs/ |
|
|
Foreclosed |
|
|
Category |
|
|
June 30, |
|
(dollars in thousands): |
|
2010 |
|
|
NPA |
|
|
Costs |
|
|
/Sales |
|
|
Write-downs |
|
|
Assets |
|
|
Changes |
|
|
2010 |
|
Real estate mortgage: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Residential |
|
$ |
12,139 |
|
|
$ |
5,800 |
|
|
$ |
3 |
|
|
$ |
(159 |
) |
|
$ |
(199 |
) |
|
$ |
(363 |
) |
|
$ |
(30 |
) |
|
$ |
7,087 |
|
Commercial |
|
|
43,999 |
|
|
|
10,157 |
|
|
|
12 |
|
|
|
(845 |
) |
|
|
(3,899 |
) |
|
|
(767 |
) |
|
|
3,971 |
|
|
|
35,370 |
|
Consumer |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Home equity lines |
|
|
11,493 |
|
|
|
5,046 |
|
|
|
20 |
|
|
|
(534 |
) |
|
|
(2,642 |
) |
|
|
(271 |
) |
|
|
|
|
|
|
9,874 |
|
Home equity loans |
|
|
876 |
|
|
|
301 |
|
|
|
8 |
|
|
|
(24 |
) |
|
|
(368 |
) |
|
|
|
|
|
|
|
|
|
|
959 |
|
Auto indirect |
|
|
1,461 |
|
|
|
363 |
|
|
|
7 |
|
|
|
(293 |
) |
|
|
(298 |
) |
|
|
|
|
|
|
(11 |
) |
|
|
1,693 |
|
Other consumer |
|
|
159 |
|
|
|
432 |
|
|
|
13 |
|
|
|
(22 |
) |
|
|
(454 |
) |
|
|
|
|
|
|
|
|
|
|
190 |
|
Commercial |
|
|
5,703 |
|
|
|
5,582 |
|
|
|
34 |
|
|
|
(451 |
) |
|
|
(1,759 |
) |
|
|
(636 |
) |
|
|
(235 |
) |
|
|
3,168 |
|
Construction: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Residential |
|
|
8,265 |
|
|
|
2,467 |
|
|
|
|
|
|
|
(2,227 |
) |
|
|
(1,489 |
) |
|
|
|
|
|
|
(3,117 |
) |
|
|
12,631 |
|
Commercial |
|
|
888 |
|
|
|
|
|
|
|
|
|
|
|
(216 |
) |
|
|
(55 |
) |
|
|
|
|
|
|
(578 |
) |
|
|
1,737 |
|
|
|
|
Total nonperforming loans |
|
|
84,983 |
|
|
|
30,148 |
|
|
|
97 |
|
|
|
(4,771 |
) |
|
|
(11,163 |
) |
|
|
(2,037 |
) |
|
|
|
|
|
|
72,709 |
|
Noncovered foreclosed assets |
|
|
6,853 |
|
|
|
|
|
|
|
|
|
|
|
(300 |
) |
|
|
(505 |
) |
|
|
2,037 |
|
|
|
|
|
|
|
5,621 |
|
Covered foreclosed assets |
|
|
4,319 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(625 |
) |
|
|
620 |
|
|
|
|
|
|
|
4,324 |
|
|
|
|
Total nonperforming assets |
|
$ |
96,155 |
|
|
$ |
30,148 |
|
|
$ |
97 |
|
|
$ |
(5,071 |
) |
|
$ |
(12,293 |
) |
|
$ |
620 |
|
|
$ |
|
|
|
$ |
82,654 |
|
|
|
|
Nonperforming assets increased during the third quarter of 2010 by $13,501,000 (16.3%) to
$96,155,000 compared to $82,654,000 at June 30, 2010. The increase in nonperforming assets during
the third quarter of 2010 was primarily the result of new nonperforming loans of $30,148,000,
advances on existing nonperforming loans and capitalized costs on foreclosed assets of $97,000,
transfers of PCI loans totaling $620,000 to covered foreclosed assets, less pay-downs and upgrades
of nonperforming loans to performing status totaling $4,771,000, less disposition of foreclosed
assets totaling $300,000, less loan charge-offs of $11,163,000, less foreclosed asset write-downs
of $1,130,000.
The primary causes of the $30,148,000 in new nonperforming loans during the third quarter of 2010
were increases of $5,800,000 on 23 residential real estate loans, $10,157,000 on 15 commercial
mortgage loans, $5,347,000 on 53 home equity lines and loans, $363,000 on 41 indirect auto loans,
$96,000 on 26 other consumer loans, $5,582,000 on 29 C&I loans, and $2,467,000 on 5 residential
construction loans.
39
The $10,157,000 in new nonperforming commercial mortgage loans was primarily made up of a loan
totaling $299,000 secured by a single family residence in northern California, a $401,000 loan
secured by an office building in central California, a $3,151,000 loan secured by a commercial retail building in
northern California, a $2,170,000 commercial warehouse loan in northern California, a $319,000 loan
secured by a restaurant in northern California, and three loans secured by both a car wash and
commercial land in northern California in the amount of $3,091,000. These increases were offset by
pay-downs or upgrades of $591,000 in commercial mortgage loans spread across 31 loans throughout
the companys footprint as well as the transfer to foreclosed assets of $602,000 for two loans
secured by single family residences in central California. Related charge-offs are discussed
below.
The $5,582,000 in new nonperforming C&I loans was primarily made up of a $331,000 loan secured by
restaurant equipment in northern California and two loans totaling $4,063,000 secured by accounts
receivable and inventory in northern California. These increases were offset by a foreclosure and
transfer of assets in the amount of $636,000 for a loan that was partially collateralized by single
family residences in central California and pay-downs or upgrades of $167,000 among 24 loans spread
throughout the companys footprint. Related charge-offs are discussed below.
The $2,467,000 in new nonperforming commercial construction loans was comprised mostly of a single
loan in the amount of $1,939,000 secured by single family residence development land in northern
California. These increases were offset by pay-downs or upgrades of $2,227,000 in commercial
construction estate loans. These pay-downs or upgrades were primarily comprised of 3 single family
land development loans in northern California in the amount of $1,468,000, and a loan secured by a
single family residence in northern California in the amount of $438,000. Related charge-offs are
discussed below.
Loan charge-offs during the three months ended September 30, 2010
In the third quarter of 2010, the Company recorded $11,163,000 in loan charge-offs less $689,000 in
recoveries resulting in $10,474,000 of net loan charge-offs. Primary causes of the charges taken
in the third quarter of 2010 were gross charge-offs of $199,000 on 4 residential real estate loans,
$3,899,000 on 13 commercial mortgage loans, $3,010,000 on 51 home equity lines and loans, $298,000
on 49 auto indirect loans, $454,000 on other consumer loans and overdrafts, $1,759,000 on 19 C&I
loans, $1,489,000 on 6 residential construction loans, and $55,000 on 2 commercial construction
loans.
The $3,899,000 in charge-offs in commercial mortgage loans was primarily the result of $1,748,000
in charges taken on two loans secured by retail buildings in northern California, $889,000 in
charges taken on two loans secured by office buildings in northern California, $672,000 in charges
on two loans secured by single family residences in northern California and $172,000 taken on a
loan secured by other commercial property in northern California. The remaining $417,000 was
spread over six loans spread throughout the Companys footprint. The $1,489,000 in charge-offs in
residential construction loans was comprised primarily of $1,352,000 in charges taken on 3 land
acquisition loans in northern California. The remaining $137,000 was spread over 3 loans spread
throughout the Companys footprint. The $1,759,000 in charge-offs the Bank took in its C&I
portfolio was primarily comprised of $475,000 in charges taken on two loans secured by accounts
receivable and inventory in northern California and $275,000 in charges taken on a loan secured by
restaurant equipment in northern California. The remaining $536,000 was spread over 16 loans
spread throughout the Companys footprint. The $55,000 in charge-offs in commercial construction
loans was taken on two loans spread throughout the Companys footprint.
40
Changes in nonperforming assets during the three months ended December 31, 2010
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at |
|
|
|
|
|
|
Advances/ |
|
|
Pay- |
|
|
|
|
|
|
Transfers to |
|
|
|
|
|
|
Balance at |
|
|
|
December 31, |
|
|
New |
|
|
Capitalized |
|
|
downs |
|
|
Charge-offs/ |
|
|
Foreclosed |
|
|
Category |
|
|
September 30, |
|
(dollars in thousands): |
|
2010 |
|
|
NPA |
|
|
Costs |
|
|
/Sales |
|
|
Write-downs |
|
|
Assets |
|
|
Changes |
|
|
2010 |
|
Real estate mortgage: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Residential |
|
$ |
11,771 |
|
|
$ |
715 |
|
|
$ |
1 |
|
|
$ |
(327 |
) |
|
$ |
(551 |
) |
|
$ |
(206 |
) |
|
|
|
|
|
$ |
12,139 |
|
Commercial |
|
|
38,925 |
|
|
|
1,061 |
|
|
|
210 |
|
|
|
(6,027 |
) |
|
|
(318 |
) |
|
|
|
|
|
|
|
|
|
|
43,999 |
|
Consumer |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Home equity lines |
|
|
10,604 |
|
|
|
2,847 |
|
|
|
7 |
|
|
|
(218 |
) |
|
|
(3,242 |
) |
|
|
(283 |
) |
|
|
|
|
|
|
11,493 |
|
Home equity loans |
|
|
701 |
|
|
|
88 |
|
|
|
1 |
|
|
|
(4 |
) |
|
|
(260 |
) |
|
|
|
|
|
|
|
|
|
|
876 |
|
Auto indirect |
|
|
1,296 |
|
|
|
330 |
|
|
|
3 |
|
|
|
(256 |
) |
|
|
(242 |
) |
|
|
|
|
|
|
|
|
|
|
1,461 |
|
Other consumer |
|
|
83 |
|
|
|
315 |
|
|
|
|
|
|
|
(41 |
) |
|
|
(350 |
) |
|
|
|
|
|
|
|
|
|
|
159 |
|
Commercial |
|
|
4,618 |
|
|
|
612 |
|
|
|
|
|
|
|
(978 |
) |
|
|
(719 |
) |
|
|
|
|
|
|
|
|
|
|
5,703 |
|
Construction: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Residential |
|
|
7,117 |
|
|
|
422 |
|
|
|
|
|
|
|
(1,050 |
) |
|
|
(358 |
) |
|
|
(162 |
) |
|
|
|
|
|
|
8,265 |
|
Commercial |
|
|
872 |
|
|
|
|
|
|
|
|
|
|
|
(16 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
888 |
|
|
|
|
Total nonperforming loans |
|
|
75,987 |
|
|
|
6,390 |
|
|
|
222 |
|
|
|
(8,917 |
) |
|
|
(6,040 |
) |
|
|
(651 |
) |
|
|
|
|
|
|
84,983 |
|
Noncovered foreclosed assets |
|
|
5,000 |
|
|
|
|
|
|
|
1 |
|
|
|
(2,168 |
) |
|
|
(337 |
) |
|
|
651 |
|
|
|
|
|
|
|
6,853 |
|
Covered foreclosed assets |
|
|
4,913 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
594 |
|
|
|
|
|
|
|
4,319 |
|
|
|
|
Total nonperforming assets |
|
$ |
85,900 |
|
|
$ |
6,390 |
|
|
$ |
223 |
|
|
$ |
(11,085 |
) |
|
$ |
(6,377 |
) |
|
$ |
594 |
|
|
|
|
|
|
$ |
96,155 |
|
|
|
|
Nonperforming assets decreased during the fourth quarter of 2010 by $10,255,000 (10.7%) to
$85,900,000 compared to $96,155,000 at September 30, 2010. The decrease in nonperforming assets
during the fourth quarter of 2010 was primarily the result of new nonperforming loans of
$6,390,000, advances on existing nonperforming loans and capitalized costs on foreclosed assets of
$223,000, transfers of PCI loans totaling $594,000 to covered foreclosed assets, less pay-downs and
upgrades of nonperforming loans to performing status totaling $8,917,000, less disposition of
foreclosed assets totaling $2,168,000, less loan charge-offs of $6,040,000, less foreclosed asset
write-downs of $337,000.
The primary causes of the $6,390,000 in new nonperforming loans during the fourth quarter of 2010
were increases of $715,000 on 5 residential real estate loans, $1,061,000 on 7 commercial mortgage
loans, $2,935,000 on 48 home equity lines and loans, $330,000 on 46 indirect auto loans, $92,000 on
23 other consumer loans, $612,000 on 25 C&I loans, and $422,000 on 2 residential construction
loans.
The $715,000 in new nonperforming commercial mortgage loans was primarily made up of a loan
totaling $344,000 secured by a commercial land in northern California, and a $313,000 loan secured
by a commercial warehouse in central California. These increases were offset primarily by
pay-downs of three loans secured by single family residences in northern California totaling
$267,000, two paydowns totaling $731,000 on loans secured by commercial retail buildings in
northern California, two paydowns totaling $1,593,000 on loans secured by commercial office
buildings in northern California and a $2,591,000 paydown on an apartment loan in northern
California. Related charge-offs are discussed below.
The $612,000 in new nonperforming C&I loans was primarily made up of a $126,000 loan secured by
accounts receivable and inventory in northern California with the balance comprised of twenty-four
loans spread throughout the Companys geographic footprint. These increases were primarily offset
by paydowns totaling $780,000 on five loans secured by accounts receivable, inventory and equipment
in northern California. Related charge-offs are discussed below.
The $422,000 in new nonperforming residential construction loans was comprised mostly of a single
loan in the amount of $323,000 secured by single family residence development land in northern
California. These increases were primarily offset by pay-downs of $1,162,000 on two loans secured
by single family residence development land in northern California. Related charge-offs are
discussed below.
Loan Charge-Offs During the Fourth Quarter of 2010
In the fourth quarter of 2010, the Company recorded $6,040,000 in loan charge-offs less $1,697,000
in recoveries resulting in $4,343,000 of net loan charge-offs. Primary causes of the charges taken
in the fourth quarter of 2010 were gross charge-offs of $551,000 on 9 residential real estate
loans, $318,000 on 5 commercial mortgage loans, $3,502,000 on 68 home equity lines and loans,
$242,000 on 56 auto indirect loans, $350,000 on other consumer loans and overdrafts, $719,000 on 21
C&I loans, and $358,000 on 3 residential construction loans.
41
The $318,000 in charge-offs in commercial mortgage loans were spread throughout the Companys
footprint. The $358,000 in charge-offs in residential construction loans was comprised primarily
of a $285,000 charge taken on land acquisition loans for single family development in northern
California. The remaining $73,000 was spread over 2 loans spread throughout the Companys
footprint. The $673,000 in charge-offs the Bank took in its C&I portfolio was primarily comprised
of $361,000 in charges taken on two unsecured loans to borrowers in northern California. The
remaining $312,000 was spread over 19 loans spread throughout the Companys footprint.
Allowance for Loan Losses
The Companys allowance for loan losses is comprised of an allowance for originated loan losses and
an allowance for PCI loan losses. Both the allowance for originated loan losses and the allowance
for PCI loan losses are established through a provision for loan losses charged to expense.
Originated loans and deposit related overdrafts are charged against the allowance for originated
loan losses when Management believes that the collectability of the principal is unlikely or, with
respect to consumer installment loans, according to an established delinquency schedule. The
allowance for originated loan losses is an amount that Management believes will be adequate to
absorb probable losses inherent in existing originated loans and leases, based on evaluations of
the collectability, impairment and prior loss experience of those loans and leases. The
evaluations take into consideration such factors as changes in the nature and size of the
portfolio, overall portfolio quality, loan concentrations, specific problem loans, and current
economic conditions that may affect the borrowers ability to pay. The Company defines an
originated loan as impaired when it is probable the Company will be unable to collect all amounts
due according to the contractual terms of the loan agreement. Impaired originated loans are
measured based on the present value of expected future cash flows discounted at the loans original
effective interest rate. As a practical expedient, impairment may be measured based on the loans
observable market price or the fair value of the collateral if the loan is collateral dependent.
When the measure of the impaired loan is less than the recorded investment in the loan, the
impairment is recorded through a valuation allowance.
In situations related to originated loans where, for economic or legal reasons related to a
borrowers financial difficulties, the Company grants a concession for other than an insignificant
period of time to the borrower that the Company would not otherwise consider, the related loan is
classified as a troubled debt restructuring (TDR). The Company strives to identify borrowers in
financial difficulty early and work with them to modify to more affordable terms before their loan
reaches nonaccrual status. These modified terms may include rate reductions, principal forgiveness,
payment forbearance and other actions intended to minimize the economic loss and to avoid
foreclosure or repossession of the collateral. In cases where the Company grants the borrower new
terms that provide for a reduction of either interest or principal, the Company measures any
impairment on the restructuring as noted above for impaired loans. TDR loans are classified as
impaired until they are fully paid off or charged off. Loans that are in nonaccrual status at the
time they become TDR loans, remain in nonaccrual status until the borrower demonstrates a sustained
period of performance which the Company generally believes to be six consecutive months of
payments, or equivalent. Otherwise, TDR loans are subject to the same nonaccrual and charge-off
policies as noted above with respect to their restructured principal balance.
Credit risk is inherent in the business of lending. As a result, the Company maintains an
allowance for loan losses to absorb losses inherent in the Companys originated loan portfolio.
This is maintained through periodic charges to earnings. These charges are included in the
Consolidated Income Statements as provision for loan losses. All specifically identifiable and
quantifiable losses are immediately charged off against the allowance. However, for a variety of
reasons, not all losses are immediately known to the Company and, of those that are known, the full
extent of the loss may not be quantifiable at that point in time. The balance of the Companys
allowance for originated loan losses is meant to be an estimate of these unknown but probable
losses inherent in the portfolio.
The Company formally assesses the adequacy of the allowance for originated loan losses on a
quarterly basis. Determination of the adequacy is based on ongoing assessments of the probable
risk in the outstanding originated loan portfolio, and to a lesser extent the Companys originated
loan commitments. These assessments include the periodic re-grading of credits based on changes in
their individual credit characteristics including delinquency, seasoning, recent financial
performance of the borrower, economic factors, changes in the interest rate environment, growth of
the portfolio as a whole or by segment, and other factors as warranted. Loans are initially graded
when originated. They are re-graded as they are renewed, when there is a new loan to the same
borrower,
42
when identified facts demonstrate heightened risk of nonpayment, or if they become delinquent.
Re-grading of larger problem loans occurs at least quarterly. Confirmation of the quality of the
grading process is obtained by independent credit reviews conducted by consultants specifically
hired for this purpose and by various bank regulatory agencies.
The Companys method for assessing the appropriateness of the allowance for originated loan losses
includes specific allowances for impaired originated loans and leases, formula allowance factors
for pools of credits, and allowances for changing environmental factors (e.g., interest rates,
growth, economic conditions, etc.). Allowance factors for loan pools are based on historical loss
experience by product type. Allowances for impaired loans are based on analysis of individual
credits. Allowances for changing environmental factors are Managements best estimate of the
probable impact these changes have had on the originated loan portfolio as a whole. The allowance
for originated loans is included in the allowance for loan losses.
As noted above, the allowance for originated loan losses consists of a specific allowance, a
formula allowance, and an allowance for environmental factors. The first component, the specific
allowance, results from the analysis of identified credits that meet managements criteria for
specific evaluation. These loans are reviewed individually to determine if such loans are
considered impaired. Impaired loans are those where management has concluded that it is probable
that the borrower will be unable to pay all amounts due under the contractual terms. Loans
specifically reviewed, including those considered impaired, are evaluated individually by
management for loss potential by evaluating sources of repayment, including collateral as
applicable, and a specified allowance for loan losses is established where necessary.
The second component of the allowance for originated loan losses, the formula allowance, is an
estimate of the probable losses that have occurred across the major loan categories in the
Companys originated loan portfolio. This analysis is based on loan grades by pool and the loss
history of these pools. This analysis covers the Companys entire originated loan portfolio
including unused commitments but excludes any loans, that were analyzed individually and assigned a
specific allowance as discussed above. The total amount allocated for this component is determined
by applying loss estimation factors to outstanding loans and loan commitments. The loss factors
are based primarily on the Companys historical loss experience tracked over a five-year period and
adjusted as appropriate for the input of current trends and events. Because historical loss
experience varies for the different categories of originated loans, the loss factors applied to
each category also differ. In addition, there is a greater chance that the Company has suffered a
loss from a loan that was graded less than satisfactory than if the loan was last graded
satisfactory. Therefore, for any given category, a larger loss estimation factor is applied to less
than satisfactory loans than to those that the Company last graded as satisfactory. The resulting
formula allowance is the sum of the allocations determined in this manner.
The third component of the allowance for originated loan losses, the environmental factor
allowance, is a component that is not allocated to specific loans or groups of loans, but rather is
intended to absorb losses that may not be provided for by the other components.
There are several primary reasons that the other components discussed above might not be sufficient
to absorb the losses present in the originated loan portfolio, and the environmental factor
allowance is used to provide for the losses that have occurred because of them.
The first reason is that there are limitations to any credit risk grading process. The volume of
originated loans makes it impractical to re-grade every loan every quarter. Therefore, it is
possible that some currently performing originated loans not recently graded will not be as strong
as their last grading and an insufficient portion of the allowance will have been allocated to
them. Grading and loan review often must be done without knowing whether all relevant facts are at
hand. Troubled borrowers may deliberately or inadvertently omit important information from reports
or conversations with lending officers regarding their financial condition and the diminished
strength of repayment sources.
The second reason is that the loss estimation factors are based primarily on historical loss
totals. As such, the factors may not give sufficient weight to such considerations as the current
general economic and business conditions that affect the Companys borrowers and specific industry
conditions that affect borrowers in that industry. The factors might also not give sufficient
weight to other environmental factors such as changing
43
economic conditions and interest rates, portfolio growth, entrance into new markets or products,
and other characteristics as may be determined by Management.
Specifically, in assessing how much environmental factor allowance needed to be provided at
December 31, 2010, management considered the following:
|
|
|
with respect to the economy, management considered the effects of changes in GDP,
unemployment, CPI, debt statistics, housing starts, housing sales, auto sales, agricultural
prices, and other economic factors which serve as indicators of economic health and trends
and which may have an impact on the performance of our borrowers, and |
|
|
|
|
with respect to changes in the interest rate environment, management considered the
recent changes in interest rates and the resultant economic impact it may have had on
borrowers with high leverage and/or low profitability; and |
|
|
|
|
with respect to changes in energy prices, management considered the effect that
increases, decreases or volatility may have on the performance of our borrowers, and |
|
|
|
|
with respect to loans to borrowers in new markets and growth in general, management
considered the relatively short seasoning of such loans and the lack of experience with
such borrowers. |
Each of these considerations was assigned a factor and applied to a portion or the entire
originated loan portfolio. Since these factors are not derived from experience and are applied to
large non-homogeneous groups of loans, they are available for use across the portfolio as a whole.
Although the weakening economy and resultant recession called for an increase in the factor related
to economic conditions, the reductions in interest rates and energy prices coupled with very little
loan growth resulted in a decrease in these factors causing the overall Environmental Factors
Allowance to decrease. Also, in prior years, the Bank maintained a separate factor for Real Estate
Risk due to the fact that the Bank had little or no losses in this loan category but anticipated
that such losses would be experienced at some time. During the course of 2008 the Bank eliminated
this environmental factor and instead provided for this risk in the Formula Allowance based on
actual and expected loss ratios. This not only resulted in a reduction of the Environmental
Factors Allowance but also resulted in an increase in the Formula Allowance. The Formula Allowance
was further increased due to increases in losses over the course of 2008 which in turn resulted in
increases in the reserve factors for certain loan types accordingly. These increased factors
primarily affected construction loans, HELOCs, and indirect auto loans.
Acquired loans are valued as of acquisition date in accordance with Financial Accounting Standards
Board Accounting Standards Codification (FASB ASC) Topic 805, Business Combinations. Loans
purchased with evidence of credit deterioration since origination for which it is probable that all
contractually required payments will not be collected are referred to as purchased credit impaired
(PCI) loans. PCI loans are accounted for under FASB ASC Topic 310-30, Loans and Debt Securities
Acquired with Deteriorated Credit Quality. In addition, because of the significant credit discounts
associated with the loans acquired in the Granite acquisition, the Company elected to account for
all loans acquired in the Granite acquisition under FASB ASC Topic 310-30, and classify them all as
PCI loans. Under FASB ASC Topic 805 and FASB ASC Topic 310-30, PCI loans are recorded at fair value
at acquisition date, factoring in credit losses expected to be incurred over the life of the loan.
Accordingly, an allowance for loan losses is not carried over or recorded as of the acquisition
date. Fair value is defined as the present value of the future estimated principal and interest
payments of the loan, with the discount rate used in the present value calculation representing the
estimated effective yield of the loan. The difference between contractual future payments and
estimated future payments is referred to as the nonaccretable difference. The difference between
estimated future payments and the present value of the estimated future payments is referred to as
the accretable yield. The accretable yield represents the amount that is expected to be recorded
as interest income over the remaining life of the loan. If after acquisition, the Company
determines that the future cash flows of a PCI loan are expected to be more than the originally
estimated, an increase in the discount rate (effective yield) would be made such that the newly
increased accretable yield would be recognized, on a level yield basis, over the remaining
estimated life of the loan. If after acquisition, the Company determines that the future cash
flows of a PCI loan are expected to be less than the previously estimated, the discount rate would
first be reduced until the present value of the reduced cash flow estimate equals the previous
present value however, the discount rate may not be lowered below its original level. If the
discount rate has been lowered to its original level and the present value has not been
sufficiently lowered, an allowance for loan loss would be established
44
through a provision for loan losses charged to expense to decrease the present value to the
required level. If the estimated cash flows improve after an allowance has been established for a
loan, the allowance may be partially or fully reversed depending on the improvement in the
estimated cash flows. Only after the allowance has been fully reversed may the discount rate be
increased. PCI loans are put on nonaccrual status when cash flows cannot be reasonably estimated.
PCI loans are charged off when evidence suggests cash flows are not recoverable. Foreclosed
assets from PCI loans are recorded in foreclosed assets at fair value with the fair value at time
of foreclosure representing cash flow from the loan. ASC 310-30 allows PCI loans with similar risk
characteristics and acquisition time frame to be pooled and have their cash flows aggregated as
if they were one loan.
The Components of the Allowance for Loan Losses
The following table sets forth the Banks allowance for loan losses as of the dates indicated
(dollars in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, |
|
|
2010 |
|
|
2009 |
|
|
2008 |
|
|
2007 |
|
|
2006 |
|
|
|
|
Allowance for originated loan losses: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Specific allowance |
|
$ |
6,945 |
|
|
$ |
8,627 |
|
|
$ |
5,850 |
|
|
$ |
1,791 |
|
|
$ |
894 |
|
Formula allowance |
|
|
31,070 |
|
|
|
23,361 |
|
|
|
17,989 |
|
|
|
9,888 |
|
|
|
8,957 |
|
Environmental factors allowance |
|
|
2,948 |
|
|
|
3,485 |
|
|
|
3,751 |
|
|
|
5,652 |
|
|
|
7,063 |
|
|
|
|
Allowance for originated loan losses |
|
|
40,963 |
|
|
|
35,473 |
|
|
|
27,590 |
|
|
|
17,331 |
|
|
|
16,914 |
|
Allowance for PCI loan losses |
|
|
1,608 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Allowance for loan losses |
|
$ |
42,571 |
|
|
$ |
35,473 |
|
|
$ |
27,590 |
|
|
$ |
17,331 |
|
|
$ |
16,914 |
|
|
|
|
Allowance for loan losses to loans |
|
|
3.00 |
% |
|
|
2.37 |
% |
|
|
1.73 |
% |
|
|
1.12 |
% |
|
|
1.12 |
% |
Based on the current conditions of the loan portfolio, management believes that the
$42,571,000 allowance for loan losses at December 31, 2010 is adequate to absorb probable losses
inherent in the Banks loan portfolio. No assurance can be given, however, that adverse economic
conditions or other circumstances will not result in increased losses in the portfolio.
The following table summarizes the allocation of the allowance for loan losses between loan types:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year ended December 31, |
(dollars in thousands) |
|
2010 |
|
|
2009 |
|
|
2008 |
|
|
2007 |
|
|
2006 |
|
|
|
|
Real estate mortgage |
|
$ |
15,707 |
|
|
$ |
7,689 |
|
|
$ |
10,967 |
|
|
$ |
7,170 |
|
|
$ |
7,222 |
|
Consumer |
|
|
17,779 |
|
|
|
17,026 |
|
|
|
8,470 |
|
|
|
6,796 |
|
|
|
6,278 |
|
Commercial |
|
|
5,991 |
|
|
|
6,958 |
|
|
|
7,002 |
|
|
|
2,010 |
|
|
|
1,806 |
|
Real estate construction |
|
|
3,094 |
|
|
|
3,800 |
|
|
|
1,151 |
|
|
|
1,355 |
|
|
|
1,608 |
|
|
|
|
Total allowance for loan losses |
|
$ |
42,571 |
|
|
$ |
35,473 |
|
|
$ |
27,590 |
|
|
$ |
17,331 |
|
|
$ |
16,914 |
|
|
|
|
The following table summarizes the allocation of the allowance for loan losses between loan
types as a percentage of the total allowance for loan losses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year ended December 31, |
|
|
2010 |
|
|
2009 |
|
|
2008 |
|
|
2007 |
|
|
2006 |
|
|
|
|
Real estate mortgage |
|
|
36.9 |
% |
|
|
21.7 |
% |
|
|
50.5 |
% |
|
|
46.1 |
% |
|
|
45.0 |
% |
Consumer |
|
|
41.8 |
% |
|
|
48.0 |
% |
|
|
32.3 |
% |
|
|
34.5 |
% |
|
|
34.8 |
% |
Commercial |
|
|
14.1 |
% |
|
|
19.6 |
% |
|
|
11.9 |
% |
|
|
10.6 |
% |
|
|
10.2 |
% |
Real estate construction |
|
|
7.2 |
% |
|
|
10.7 |
% |
|
|
5.3 |
% |
|
|
8.8 |
% |
|
|
10.0 |
% |
|
|
|
Total allowance for loan losses |
|
|
100.0 |
% |
|
|
100.0 |
% |
|
|
100.0 |
% |
|
|
100.0 |
% |
|
|
100.0 |
% |
|
|
|
45
The following tables summarize the activity in the allowance for loan losses, reserve for
unfunded commitments, and allowance for losses (which is comprised of the allowance for loan losses
and the reserve for unfunded commitments) for the years indicated (dollars in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, |
|
|
2010 |
|
|
2009 |
|
|
2008 |
|
|
2007 |
|
|
2006 |
|
|
|
|
Allowance for loan losses: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at beginning of period |
|
$ |
35,473 |
|
|
$ |
27,590 |
|
|
$ |
17,331 |
|
|
$ |
16,914 |
|
|
$ |
16,226 |
|
Provision for loan losses |
|
|
37,458 |
|
|
|
31,450 |
|
|
|
20,950 |
|
|
|
3,032 |
|
|
|
1,289 |
|
Loans charged off: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Real estate mortgage: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Residential |
|
|
(1,498 |
) |
|
|
(583 |
) |
|
|
(691 |
) |
|
|
|
|
|
|
|
|
Commercial |
|
|
(8,281 |
) |
|
|
(1,223 |
) |
|
|
(18 |
) |
|
|
|
|
|
|
|
|
Consumer: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Home equity lines |
|
|
(11,221 |
) |
|
|
(7,487 |
) |
|
|
(2,942 |
) |
|
|
(678 |
) |
|
|
(39 |
) |
Home equity loans |
|
|
(1,339 |
) |
|
|
(656 |
) |
|
|
(409 |
) |
|
|
|
|
|
|
|
|
Auto indirect |
|
|
(1,403 |
) |
|
|
(2,806 |
) |
|
|
(2,710 |
) |
|
|
(1,581 |
) |
|
|
(690 |
) |
Other consumer |
|
|
(1,687 |
) |
|
|
(1,238 |
) |
|
|
(1,237 |
) |
|
|
(1,062 |
) |
|
|
(896 |
) |
Commercial |
|
|
(3,539 |
) |
|
|
(3,219 |
) |
|
|
(709 |
) |
|
|
(437 |
) |
|
|
(162 |
) |
Construction: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Residential |
|
|
(4,666 |
) |
|
|
(7,737 |
) |
|
|
(3,203 |
) |
|
|
|
|
|
|
|
|
Commercial |
|
|
(94 |
) |
|
|
(89 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total loans charged off |
|
|
(33,728 |
) |
|
|
(25,038 |
) |
|
|
(11,919 |
) |
|
|
(3,758 |
) |
|
|
(1,787 |
) |
Recoveries of previously
charged-off loans: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Real estate mortgage: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Residential |
|
|
2 |
|
|
|
40 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial |
|
|
1,456 |
|
|
|
71 |
|
|
|
58 |
|
|
|
57 |
|
|
|
45 |
|
Consumer: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Home equity lines |
|
|
138 |
|
|
|
98 |
|
|
|
13 |
|
|
|
1 |
|
|
|
39 |
|
Home equity loans |
|
|
15 |
|
|
|
|
|
|
|
|
|
|
|
5 |
|
|
|
3 |
|
Auto indirect |
|
|
505 |
|
|
|
484 |
|
|
|
441 |
|
|
|
261 |
|
|
|
203 |
|
Other consumer |
|
|
816 |
|
|
|
677 |
|
|
|
685 |
|
|
|
640 |
|
|
|
627 |
|
Commercial |
|
|
205 |
|
|
|
71 |
|
|
|
31 |
|
|
|
179 |
|
|
|
269 |
|
Construction: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Residential |
|
|
231 |
|
|
|
30 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total recoveries of |
|
|
3,368 |
|
|
|
1,471 |
|
|
|
1,228 |
|
|
|
1,143 |
|
|
|
1,186 |
|
previously charged off loans |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net charge-offs |
|
|
(30,360 |
) |
|
|
(23,567 |
) |
|
|
(10,691 |
) |
|
|
(2,615 |
) |
|
|
(601 |
) |
|
|
|
Balance at end of period |
|
$ |
42,571 |
|
|
$ |
35,473 |
|
|
$ |
27,590 |
|
|
$ |
17,331 |
|
|
$ |
16,914 |
|
|
|
|
|
Reserve for unfunded commitments: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at beginning of period |
|
$ |
3,640 |
|
|
$ |
2,565 |
|
|
$ |
2,090 |
|
|
$ |
1,849 |
|
|
$ |
1,813 |
|
Provision for losses
unfunded commitments |
|
|
(1,000 |
) |
|
|
1,075 |
|
|
|
475 |
|
|
|
241 |
|
|
|
36 |
|
|
|
|
Balance at end of period |
|
$ |
2,640 |
|
|
$ |
3,640 |
|
|
$ |
2,565 |
|
|
$ |
2,090 |
|
|
$ |
1,849 |
|
|
|
|
|
Balance at end of period: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Allowance for loan losses |
|
$ |
42,571 |
|
|
$ |
35,473 |
|
|
$ |
27,590 |
|
|
$ |
17,331 |
|
|
$ |
16,914 |
|
Reserve for unfunded commitments |
|
|
2,640 |
|
|
|
3,640 |
|
|
|
2,565 |
|
|
|
2,090 |
|
|
|
1,849 |
|
|
|
|
Allowance for loan losses and
Reserve for unfunded commitments |
|
$ |
45,211 |
|
|
$ |
39,113 |
|
|
$ |
30,155 |
|
|
$ |
19,421 |
|
|
$ |
18,763 |
|
|
|
|
|
As a percentage of total loans at end of period: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Allowance for loan losses |
|
|
3.00 |
% |
|
|
2.37 |
% |
|
|
1.73 |
% |
|
|
1.12 |
% |
|
|
1.12 |
% |
Reserve for unfunded commitments |
|
|
0.18 |
% |
|
|
0.24 |
% |
|
|
0.16 |
% |
|
|
0.13 |
% |
|
|
0.12 |
% |
|
|
|
Allowance for loan losses and
Reserve for unfunded commitments |
|
|
3.18 |
% |
|
|
2.61 |
% |
|
|
1.89 |
% |
|
|
1.25 |
% |
|
|
1.24 |
% |
|
|
|
Average total loans |
|
$ |
1,464,606 |
|
|
$ |
1,542,147 |
|
|
$ |
1,549,014 |
|
|
$ |
1,511,331 |
|
|
$ |
1,447,163 |
|
|
Ratios: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net charge-offs during period to average
loans outstanding during period |
|
|
2.07 |
% |
|
|
1.53 |
% |
|
|
0.69 |
% |
|
|
0.17 |
% |
|
|
0.04 |
% |
Provision for loan losses to
average loans outstanding |
|
|
2.56 |
% |
|
|
2.04 |
% |
|
|
1.35 |
% |
|
|
0.20 |
% |
|
|
0.09 |
% |
Allowance for loan losses to loans at year end |
|
|
3.00 |
% |
|
|
2.37 |
% |
|
|
1.73 |
% |
|
|
1.12 |
% |
|
|
1.12 |
% |
46
Foreclosed Assets, Net of Allowance for Losses
The following tables detail the components and summarize the activity in foreclosed assets, net of
allowances for losses for the years indicated (dollars in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at |
|
|
|
|
|
|
Advances/ |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at |
|
|
|
December 31, |
|
|
New |
|
|
Capitalized |
|
|
|
|
|
|
Valuation |
|
|
Transfers |
|
|
Category |
|
|
December 31, |
|
(dollars in thousands): |
|
2010 |
|
|
NPA |
|
|
Costs |
|
|
Sales |
|
|
Adjustments |
|
|
from Loans |
|
|
Changes |
|
|
2009 |
|
Noncovered: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Land & Construction |
|
$ |
2,211 |
|
|
|
|
|
|
$ |
139 |
|
|
$ |
(1,540 |
) |
|
$ |
(504 |
) |
|
$ |
2,971 |
|
|
|
|
|
|
$ |
1,145 |
|
Residential real estate |
|
|
2,449 |
|
|
|
|
|
|
|
|
|
|
|
(2,040 |
) |
|
|
(174 |
) |
|
|
3,286 |
|
|
|
|
|
|
|
1,377 |
|
Commercial real estate |
|
|
340 |
|
|
|
|
|
|
|
|
|
|
|
(725 |
) |
|
|
(219 |
) |
|
|
80 |
|
|
|
|
|
|
|
1,204 |
|
|
|
|
Total noncovered |
|
|
5,000 |
|
|
|
|
|
|
|
139 |
|
|
|
(4,305 |
) |
|
|
(897 |
) |
|
|
6,337 |
|
|
|
|
|
|
|
3,726 |
|
|
|
|
Covered: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Land & Construction |
|
|
3,016 |
|
|
|
2,467 |
|
|
|
|
|
|
|
(305 |
) |
|
|
(174 |
) |
|
|
1,028 |
|
|
|
|
|
|
|
|
|
Residential real estate |
|
|
186 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
186 |
|
|
|
|
|
|
|
|
|
Commercial real estate |
|
|
1,711 |
|
|
|
2,162 |
|
|
|
|
|
|
|
|
|
|
|
(451 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total covered |
|
|
4,913 |
|
|
|
4,629 |
|
|
|
|
|
|
|
(305 |
) |
|
|
(625 |
) |
|
|
1,214 |
|
|
|
|
|
|
|
|
|
|
|
|
Total foreclosed assets |
|
$ |
9,913 |
|
|
$ |
4,629 |
|
|
$ |
139 |
|
|
$ |
(4,610 |
) |
|
$ |
(1,522 |
) |
|
$ |
7,551 |
|
|
|
|
|
|
$ |
3,726 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at |
|
|
|
|
|
|
Advances/ |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at |
|
|
|
December 31, |
|
|
New |
|
|
Capitalized |
|
|
|
|
|
|
Valuation |
|
|
Transfers |
|
|
Category |
|
|
December 31, |
|
(dollars in thousands): |
|
2009 |
|
|
NPA |
|
|
Costs |
|
|
Sales |
|
|
Adjustments |
|
|
from Loans |
|
|
Changes |
|
|
2008 |
|
Noncovered: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Land & Construction |
|
$ |
1,145 |
|
|
|
|
|
|
|
|
|
|
$ |
(277 |
) |
|
$ |
(48 |
) |
|
$ |
1,470 |
|
|
|
|
|
|
|
|
|
Residential real estate |
|
|
1,377 |
|
|
|
|
|
|
|
|
|
|
|
(1,369 |
) |
|
|
(166 |
) |
|
|
1,727 |
|
|
|
|
|
|
$ |
1,185 |
|
Commercial real estate |
|
|
1,204 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(6 |
) |
|
|
1,210 |
|
|
|
|
|
|
|
|
|
|
|
|
Total noncovered |
|
|
3,726 |
|
|
|
|
|
|
|
|
|
|
|
(1,646 |
) |
|
|
(220 |
) |
|
|
4,407 |
|
|
|
|
|
|
|
1,185 |
|
|
|
|
Covered: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Land & Construction |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Residential real estate |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial real estate |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total covered |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total foreclosed assets |
|
$ |
3,726 |
|
|
|
|
|
|
|
|
|
|
$ |
(1,646 |
) |
|
$ |
(220 |
) |
|
$ |
4,407 |
|
|
|
|
|
|
$ |
1,185 |
|
|
|
|
Intangible Assets
Intangible assets at December 31, 2010 and 2009 were comprised of the following:
|
|
|
|
|
|
|
|
|
|
|
December 31, |
|
|
|
2010 |
|
|
2009 |
|
|
|
(dollars in thousands) |
|
Core-deposit intangible |
|
$ |
580 |
|
|
$ |
325 |
|
Goodwill |
|
|
15,519 |
|
|
|
15,519 |
|
Total intangible assets |
|
$ |
16,099 |
|
|
$ |
15,844 |
|
The core-deposit intangible assets resulted from the Banks 2010 acquisition of Granite and
the 2003 acquisition of North State National Bank. The goodwill intangible asset resulted from the
North State National Bank acquisition. Amortization of core deposit intangible assets amounting to
$307,000, $328,000, and $523,000 was recorded in 2010, 2009, and 2008, respectively.
Deposits
Deposits at December 31, 2010 increased $23,661,000 (1.3%) over the 2009 year-end balances to
$1,852,173,000. All categories of deposits were up in 2010 except time certificates. Included in
the December 31, 2010 certificate of deposit balances is $5,000,000 from the State of California.
The Bank participates in a deposit program offered by the State of California whereby the State may
make deposits at the Banks request subject to collateral and creditworthiness constraints. The
negotiated rates on these State deposits are generally favorable to other wholesale funding sources
available to the Bank.
Deposits at December 31, 2009 increased $159,242,000 (9.5%) over the 2008 year-end balances to
$1,828,512,000. All categories of deposits were up in 2009 except noninterest-bearing demand and
time certificates. Included in the December 31, 2009 certificate of deposit balances is
$79,000,000 from the State of California.
47
Long-Term Debt
See Note 16 to the consolidated financial statements at Item 8 of this report for information about
the Companys other borrowings, including long-term debt.
Junior Subordinated Debt
See Note 17 to the consolidated financial statements at Item 8 of this report for information about
the Companys junior subordinated debt.
Equity
See Note 19 and Note 29 in the consolidated financial statements at Item 8 of this report for a
discussion of shareholders equity and regulatory capital, respectively. Management believes that
the Companys capital is adequate to support anticipated growth, meet the cash dividend
requirements of the Company and meet the future risk-based capital requirements of the Bank and the
Company.
Market Risk Management
Overview. The goal for managing the assets and liabilities of the Bank is to maximize shareholder
value and earnings while maintaining a high quality balance sheet without exposing the Bank to
undue interest rate risk. The Board of Directors has overall responsibility for the Companys
interest rate risk management policies. The Bank has an Asset and Liability Management Committee
(ALCO) which establishes and monitors guidelines to control the sensitivity of earnings to changes
in interest rates.
Asset/Liability Management. Activities involved in asset/liability management include but are not
limited to lending, accepting and placing deposits, investing in securities and issuing debt.
Interest rate risk is the primary market risk associated with asset/liability management.
Sensitivity of earnings to interest rate changes arises when yields on assets change in a different
time period or in a different amount from that of interest costs on liabilities. To mitigate
interest rate risk, the structure of the balance sheet is managed with the goal that movements of
interest rates on assets and liabilities are correlated and contribute to earnings even in periods
of volatile interest rates. The asset/liability management policy sets limits on the acceptable
amount of variance in net interest margin and market value of equity under changing interest
environments. Market value of equity is the net present value of estimated cash flows from the
Banks assets, liabilities and off-balance sheet items. The Bank uses simulation models to forecast
net interest margin and market value of equity.
Simulation of net interest margin and market value of equity under various interest rate scenarios
is the primary tool used to measure interest rate risk. Using computer-modeling techniques, the
Bank is able to estimate the potential impact of changing interest rates on net interest margin and
market value of equity. A balance sheet forecast is prepared using inputs of actual loan,
securities and interest-bearing liability (i.e. deposits/borrowings) positions as the beginning
base.
In the simulation of net interest income, the forecast balance sheet is processed against various
interest rate scenarios. These various interest rate scenarios include a flat rate scenario, which
assumes interest rates are unchanged in the future, and rate ramp scenarios including -100, +100,
and +200 basis points around the flat scenario. These ramp scenarios assume that interest rates
increase or decrease evenly (in a ramp fashion) over a twelve-month period and remain at the new
levels beyond twelve months.
48
The following table summarizes the projected effect on net interest income and net income due
to changing interest rates as measured against a flat rate (no interest rate change) scenario over
the succeeding twelve month period. The simulation results shown below assume no changes in the
structure of the Companys balance sheet over the twelve months being measured (a flat balance
sheet scenario), and that deposit rates will track general interest rate changes by approximately
50%:
Interest Rate Risk Simulation of Net Interest Income and Net Income as of December 31, 2010
|
|
|
|
|
|
|
Estimated Change in |
Change in Interest |
|
Net Interest Income (NII) |
Rates (Basis Points) |
|
(as % of flat NII) |
+200 (ramp)
|
|
|
(0.44 |
%) |
+100 (ramp)
|
|
|
(0.40 |
%) |
+ 0 (flat)
|
|
|
|
|
-100 (ramp)
|
|
|
0.57 |
% |
In the simulation of market value of equity, the forecast balance sheet is processed against
various interest rate scenarios. These various interest rate scenarios include a flat rate
scenario, which assumes interest rates are unchanged in the future, and rate shock scenarios
including -100, +100, and +200 basis points around the flat scenario. These rate shock scenarios
assume that interest rates increase or decrease immediately (in a shock fashion) and remain at
the new level in the future.
The following table summarizes the effect on market value of equity due to changing interest rates
as measured against a flat rate (no change) scenario:
Interest Rate Risk Simulation of Market Value of Equity as of December 31, 2010
|
|
|
|
|
|
|
Estimated Change in |
Change in Interest |
|
Market Value of Equity (MVE) |
Rates (Basis Points) |
|
(as % of flat MVE) |
+200 (shock)
|
|
|
(0.63 |
%) |
+100 (shock)
|
|
|
0.04 |
% |
+ 0 (flat)
|
|
|
|
|
-100 (shock)
|
|
|
(8.36 |
%) |
These results indicate that given a flat balance sheet scenario, and if deposit rates track
general interest rate changes by approximately 50%, the Companys balance sheet is neutral to
slightly liability sensitive over a twelve month time horizon. Neutral sensitivity implies that
net interest income does not change when interest rates change. Liability sensitive implies that
net interest income decreases when interest rates rise, and increase when interest rates decrease.
The magnitude of all the simulation results noted above is within the Banks policy guidelines.
The asset liability management policy limits aggregate market risk, as measured in this fashion, to
an acceptable level within the context of risk-return trade-offs.
The simulation results noted above do not incorporate any management actions that might moderate
the negative consequences of interest rate deviations. In addition, the simulation results noted
above contain various assumptions such as a flat balance sheet, and the rate that deposit interest
rates change as general interest rates change. Therefore, they do not reflect likely actual
results, but serve as estimates of interest rate risk.
As with any method of measuring interest rate risk, certain shortcomings are inherent in the method
of analysis presented in the preceding tables. For example, although certain of the Banks assets
and liabilities may have similar maturities or repricing time frames, they may react in different
degrees to changes in market interest rates. In addition, the interest rates on certain of the
Banks asset and liability categories may precede, or lag behind, changes in market interest rates.
Also, the actual rates of prepayments on loans and investments could vary significantly from the
assumptions utilized in deriving the results as presented in the preceding tables. Further, a
change in U.S. Treasury rates accompanied by a change in the shape of the treasury yield curve
could result in different estimations from those presented herein. Accordingly, the results in the
preceding tables should not be
49
relied upon as indicative of actual results in the event of changing market interest rates.
Additionally, the resulting estimates of changes in market value of equity are not intended to
represent, and should not be construed to represent, estimates of changes in the underlying value
of the Bank.
Interest rate sensitivity is a function of the repricing characteristics of the Banks portfolio of
assets and liabilities. One aspect of these repricing characteristics is the time frame within
which the interest-bearing assets and liabilities are subject to change in interest rates either at
replacement, repricing or maturity. An analysis of the repricing time frames of interest-bearing
assets and liabilities is sometimes called a gap analysis because it shows the gap between assets
and liabilities repricing or maturing in each of a number of periods. Another aspect of these
repricing characteristics is the relative magnitude of the repricing for each category of interest
earning asset and interest-bearing liability given various changes in market interest rates. Gap
analysis gives no indication of the relative magnitude of repricing given various changes in
interest rates. Interest rate sensitivity management focuses on the maturity of assets and
liabilities and their repricing during periods of changes in market interest rates. Interest rate
sensitivity gaps are measured as the difference between the volumes of assets and liabilities in
the Banks current portfolio that are subject to repricing at various time horizons.
The following interest rate sensitivity table shows the Banks repricing gaps as of December 31,
2010. In this table transaction deposits, which may be repriced at will by the Bank, have been
included in the less than 3-month category. The inclusion of all of the transaction deposits in
the less than 3-month repricing category causes the Bank to appear liability sensitive. Because the
Bank may reprice its transaction deposits at will, transaction deposits may or may not reprice
immediately with changes in interest rates.
Due to the limitations of gap analysis, as described above, the Bank does not actively use gap
analysis in managing interest rate risk. Instead, the Bank relies on the more sophisticated
interest rate risk simulation model described above as its primary tool in measuring and managing
interest rate risk.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Repricing within: |
|
Interest Rate Sensitivity December 31, 2010 |
|
Less than 3 |
|
|
3 6 |
|
|
6 12 |
|
|
1 5 |
|
|
Over |
|
(dollars in thousands) |
|
months |
|
|
months |
|
|
months |
|
|
years |
|
|
5 years |
|
|
|
|
Interest-earning assets: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash at Federal Reserve and other banks |
|
$ |
313,812 |
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
Securities |
|
|
20,671 |
|
|
|
16,509 |
|
|
|
28,764 |
|
|
|
141,406 |
|
|
|
69,921 |
|
Loans |
|
|
509,172 |
|
|
|
68,237 |
|
|
|
112,706 |
|
|
|
592,493 |
|
|
|
136,963 |
|
|
|
|
Total interest-earning assets |
|
$ |
843,655 |
|
|
|
84,746 |
|
|
|
141,470 |
|
|
|
733,899 |
|
|
|
206,884 |
|
|
|
|
Interest-bearing liabilities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Transaction deposits |
|
$ |
981,263 |
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
Time |
|
|
156,870 |
|
|
|
99,640 |
|
|
|
108,289 |
|
|
|
82,041 |
|
|
|
|
|
Other borrowings |
|
|
62,020 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Junior subordinated debt |
|
|
41,238 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total interest-bearing liabilities |
|
$ |
1,241,391 |
|
|
$ |
99,640 |
|
|
$ |
108,289 |
|
|
$ |
82,041 |
|
|
|
|
|
|
|
|
Interest sensitivity gap |
|
$ |
(397,736 |
) |
|
$ |
(14,894 |
) |
|
$ |
33,181 |
|
|
|
651,858 |
|
|
|
206,884 |
|
Cumulative sensitivity gap |
|
$ |
(397,736 |
) |
|
$ |
(412,630 |
) |
|
$ |
(379,449 |
) |
|
|
272,409 |
|
|
|
479,293 |
|
As a percentage of earning assets: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest sensitivity gap |
|
|
(19.78 |
%) |
|
|
(0.74 |
%) |
|
|
1.65 |
% |
|
|
32.42 |
% |
|
|
10.29 |
% |
Cumulative sensitivity gap |
|
|
(19.78 |
%) |
|
|
(20.52 |
%) |
|
|
(18.87 |
%) |
|
|
13.55 |
% |
|
|
23.84 |
% |
Liquidity
Liquidity refers to the Banks ability to provide funds at an acceptable cost to meet loan demand
and deposit withdrawals, as well as contingency plans to meet unanticipated funding needs or loss
of funding sources. These objectives can be met from either the asset or liability side of the
balance sheet. Asset liquidity sources consist of the repayments and maturities of loans, selling
of loans, short-term money market investments, maturities of securities and sales of securities
from the available-for-sale portfolio. These activities are generally summarized as investing
activities in the Consolidated Statement of Cash Flows. Net cash provided by investing activities
totaled approximately $60,453,000 in 2010. Decreased loan balances were responsible for the major
source of funds in this category.
50
Liquidity may also be generated from liabilities through deposit growth and borrowings. These
activities are included under financing activities in the Consolidated Statement of Cash Flows. In
2010, financing activities used funds totaling $87,162,000. During 2010, the Banks decision to
return $70,000,000 of time deposits to the State of California resulted in a net decrease in
deposit balances that used funds amounting to $71,340,000. Dividends paid and a decrease in
short-term other borrowings used $6,344,000 and $9,733,000 of funds, respectively. The Bank also
had available correspondent banking lines of credit totaling $5,000,000 at year-end 2010. In
addition, at December 31, 2010, the Company had loans and securities available to pledge towards
future borrowings from the Federal Home Loan Bank and the Federal Reserve Bank of up to
$434,534,000 and $83,294,000, respectively. As of December 31, 2010, the Company had $62,020,000
of long-term debt and other borrowings as described in Note 16 of the consolidated financial
statements of the Company and the related notes at Item 8 of this report. While these sources are
expected to continue to provide significant amounts of funds in the future, their mix, as well as
the possible use of other sources, will depend on future economic and market conditions. Liquidity
is also provided or used through the results of operating activities. In 2010, operating
activities provided cash of $51,186,000.
The Bank classifies its entire investment portfolio as available for sale (AFS). The AFS securities
plus cash and cash equivalents in excess of reserve requirements totaled $634,986,000 at December
31, 2010, which was 29.0% of total assets at that time. This was up from $546,408,000 and
25.2% at the end of 2009.
It is anticipated that loan demand will be weak during 2011, although such demand will be dictated
by economic and competitive conditions. The Company aggressively solicits non-interest bearing
demand deposits and money market checking deposits, which are the least sensitive to interest
rates. The growth of deposit balances is subject to heightened competition, the success of the
Companys sales efforts, delivery of superior customer service and market conditions. The reduction
in the federal funds rate to its current low level resulted in declining short-term interest rates,
which could impact deposit volumes in the future. Depending on economic conditions, interest rate
levels, and a variety of other conditions, deposit growth may be used to fund loans, to reduce
short-term borrowings or purchase investment securities. However, due to concerns such as
uncertainty in the general economic environment, competition and political uncertainty, loan demand
and levels of customer deposits are not certain.
The principal cash requirements of the Company are dividends on common stock when declared. The
Company is dependent upon the payment of cash dividends by the Bank to service its commitments.
Shareholder dividends are expected to continue subject to the Boards discretion and continuing
evaluation of capital levels, earnings, asset quality and other factors. The Company expects that
the cash dividends paid by the Bank to the Company will be sufficient to meet this payment
schedule. Dividends from the Bank are subject to certain regulatory restrictions.
The maturity distribution of certificates of deposit in denominations of $100,000 or more is set
forth in the following table. These deposits are generally more rate sensitive than other deposits
and, therefore, are more likely to be withdrawn to obtain higher yields elsewhere if available.
The Bank participates in a program wherein the State of California places time deposits with the
Bank at the Banks option. At December 31, 2010, 2009 and 2008, the Bank had $5,000,000,
$79,000,000 and $80,000,000, respectively, of these State deposits.
Certificates of Deposit in Denominations of $100,000 or More
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amounts as of December 31, |
|
(dollars in thousands) |
|
2010 |
|
|
2009 |
|
|
2008 |
|
|
|
|
Time remaining until maturity: |
|
|
|
|
|
|
|
|
|
|
|
|
Less than 3 months |
|
$ |
91,208 |
|
|
$ |
183,592 |
|
|
$ |
174,715 |
|
3 months to 6 months |
|
|
49,976 |
|
|
|
62,925 |
|
|
|
62,051 |
|
6 months to 12 months |
|
|
54,316 |
|
|
|
50,106 |
|
|
|
55,105 |
|
More than 12 months |
|
|
40,491 |
|
|
|
25,453 |
|
|
|
18,319 |
|
|
|
|
Total |
|
$ |
235,991 |
|
|
$ |
322,076 |
|
|
$ |
310,190 |
|
|
|
|
51
Loan demand also affects the Banks liquidity position. The following table presents the
maturities of loans, net of deferred loan costs, at December 31, 2010:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
After One |
|
|
|
|
|
|
|
|
|
Within |
|
|
But Within |
|
|
After 5 |
|
|
|
|
|
|
One Year |
|
|
5 Years |
|
|
Years |
|
|
Total |
|
|
|
|
|
|
|
(dollars in thousands) |
|
|
|
|
|
Loans with predetermined interest rates: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Real estate mortgage |
|
$ |
72,828 |
|
|
$ |
120,352 |
|
|
$ |
80,127 |
|
|
$ |
273,307 |
|
Consumer |
|
|
32,147 |
|
|
|
29,521 |
|
|
|
32,346 |
|
|
|
94,014 |
|
Commercial |
|
|
25,990 |
|
|
|
23,651 |
|
|
|
3,385 |
|
|
|
53,026 |
|
Real estate construction |
|
|
23,648 |
|
|
|
5,373 |
|
|
|
141 |
|
|
|
29,162 |
|
|
|
|
|
|
$ |
154,613 |
|
|
$ |
178,897 |
|
|
$ |
115,999 |
|
|
$ |
449,509 |
|
|
|
|
Loans with floating interest rates: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Real estate mortgage |
|
$ |
31,180 |
|
|
$ |
159,973 |
|
|
$ |
371,011 |
|
|
$ |
560,164 |
|
Consumer |
|
|
301,757 |
|
|
|
|
|
|
|
|
|
|
|
301,757 |
|
Commercial |
|
|
75,130 |
|
|
|
13,638 |
|
|
|
1,619 |
|
|
|
90,387 |
|
Real estate construction |
|
|
4,927 |
|
|
|
4,963 |
|
|
|
5,864 |
|
|
|
15,754 |
|
|
|
|
|
|
$ |
412,994 |
|
|
$ |
178,574 |
|
|
$ |
378,494 |
|
|
$ |
970,062 |
|
|
|
|
Total loans |
|
$ |
567,607 |
|
|
$ |
357,471 |
|
|
$ |
494,493 |
|
|
$ |
1,419,571 |
|
|
|
|
The maturity distribution and yields of the investment portfolio at December 31, 2010 is
presented in the following table. The timing of the maturities indicated in the table below is
based on final contractual maturities. Most mortgage-backed securities return principal throughout
their contractual lives. As such, the weighted average life of mortgage-backed securities based on
outstanding principal balance is usually significantly shorter than the final contractual maturity
indicated below. Yields on tax exempt securities are shown on a tax equivalent basis. At December
31, 2010, the Bank had no held-to-maturity securities.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
After One Year |
|
|
After Five Years |
|
|
|
|
|
|
|
|
|
Within |
|
|
but Through |
|
|
but Through |
|
|
After Ten |
|
|
|
|
|
|
One Year |
|
|
Five Years |
|
|
Ten Years |
|
|
Years |
|
|
Total |
|
|
|
Amount |
|
|
Yield |
|
|
|
Amount |
|
|
Yield |
|
|
Amount |
|
|
Yield |
|
|
Amount |
|
|
Yield |
|
|
Amount |
|
|
Yield |
|
Securities Available-for-Sale |
|
(dollars in thousands) |
|
Obligations of US government
corporations and agencies |
|
|
|
|
|
|
|
|
|
$ |
31,459 |
|
|
|
4.00 |
% |
|
$ |
51,695 |
|
|
|
2.59 |
% |
|
$ |
181,027 |
|
|
|
4.41 |
% |
|
$ |
264,181 |
|
|
|
3.99 |
% |
Obligations of states and
political subdivisions |
|
|
|
|
|
|
|
|
|
|
3,301 |
|
|
|
7.59 |
% |
|
|
4,243 |
|
|
|
7.87 |
% |
|
|
4,997 |
|
|
|
6.49 |
% |
|
|
12,541 |
|
|
|
7.24 |
% |
Corporate bonds |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
549 |
|
|
|
1.79 |
% |
|
|
549 |
|
|
|
1.79 |
% |
|
|
|
Total securities available-for-sale |
|
|
|
|
|
|
|
|
|
$ |
34,760 |
|
|
|
4.35 |
% |
|
$ |
55,938 |
|
|
|
2.99 |
% |
|
$ |
186,573 |
|
|
|
4.45 |
% |
|
$ |
277,271 |
|
|
|
4.14 |
% |
|
|
|
Off-Balance Sheet Items
The Bank has certain ongoing commitments under operating and capital leases. See Note 18 of the
financial statements at Item 8 of this report for the terms. These commitments do not
significantly impact operating results. As of December 31, 2010 commitments to extend credit and
commitments related to the Banks deposit overdraft privilege product were the Banks only
financial instruments with off-balance sheet risk. The Bank has not entered into any material
contracts for financial derivative instruments such as futures, swaps, options, etc. Commitments
to extend credit were $523,617,000 and $565,938,000 at December 31, 2010 and 2009, respectively,
and represent 36.9% of the total loans outstanding at year-end 2010 versus 37.7% at December 31,
2009. Commitments related to the Banks deposit overdraft privilege product totaled $38,600,000
and $36,489,000 at December 31, 2010 and 2009, respectively.
52
Certain Contractual Obligations
The following chart summarizes certain contractual obligations of the Company as of December 31,
2010:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Less than |
|
|
1-3 |
|
|
3-5 |
|
|
More than |
|
(dollars in thousands) |
|
Total |
|
|
one year |
|
|
years |
|
|
years |
|
|
5 years |
|
|
|
|
Other collateralized borrowings, fixed
rate of 0.15% payable on January 3, 2011 |
|
$ |
16,753 |
|
|
$ |
16,753 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Repurchase Agreement(2) |
|
|
50,000 |
|
|
|
|
|
|
|
50,000 |
|
|
|
|
|
|
|
|
|
Junior subordinated debt(3) |
|
|
20,619 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
20,619 |
|
Junior subordinated debt(4) |
|
|
20,619 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
20,619 |
|
Operating lease obligations |
|
|
8,105 |
|
|
|
2,431 |
|
|
|
3,485 |
|
|
|
1,402 |
|
|
|
787 |
|
Deferred compensation(1) |
|
|
5,699 |
|
|
|
661 |
|
|
|
1,105 |
|
|
|
1,037 |
|
|
|
2,896 |
|
Supplemental retirement plans(1) |
|
|
4,885 |
|
|
|
687 |
|
|
|
1,273 |
|
|
|
1,273 |
|
|
|
1,652 |
|
|
|
|
Total contractual obligations |
|
$ |
126,680 |
|
|
$ |
20,532 |
|
|
$ |
55,863 |
|
|
$ |
3,712 |
|
|
$ |
46,573 |
|
|
|
|
|
|
|
(1) |
|
These amounts represent known certain payments to participants under the Companys deferred
compensation and supplemental retirement plans. See Note 25 in the financial statements
at Item 8 of this report for additional information related to the Companys deferred
compensation and supplemental retirement plan liabilities. |
|
(2) |
|
Repurchase agreement, rate is fixed at 4.72% and is callable in its entirety by counterparty on a quarterly basis, matures on August 30,
2012. |
|
(3) |
|
Junior subordinated debt, adjustable rate of three-month LIBOR plus 3.05%, callable in whole or in part by the
Company on a quarterly basis beginning October 7, 2008, matures October 7, 2033. |
|
(4) |
|
Junior subordinated debt, adjustable rate of three-month LIBOR plus 2.55%, callable in whole or in part by the
Company on a quarterly basis beginning July 23, 2009, matures July 23, 2034. |
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
See Market Risk Management under Item 7 of this report which is incorporated herein.
53
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
INDEX TO FINANCIAL STATEMENTS
|
|
|
|
|
|
|
Page |
|
|
|
|
55 |
|
|
|
|
56 |
|
|
|
|
57 |
|
|
|
|
58 |
|
|
|
|
59 |
|
|
|
|
96 |
|
|
|
|
97 |
|
54
TRICO BANCSHARES
CONSOLIDATED BALANCE SHEETS
|
|
|
|
|
|
|
|
|
|
|
At December 31, |
|
|
|
2010 |
|
|
2009 |
|
|
|
(in thousands, except share data) |
|
Assets: |
|
|
|
|
|
|
|
|
Cash and due from banks |
|
$ |
57,254 |
|
|
$ |
61,033 |
|
Cash at Federal Reserve and other banks |
|
|
313,812 |
|
|
|
285,556 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents |
|
|
371,066 |
|
|
|
346,589 |
|
Securities available-for-sale |
|
|
277,271 |
|
|
|
211,622 |
|
Restricted equity securities |
|
|
9,133 |
|
|
|
9,274 |
|
Loans held for sale |
|
|
4,988 |
|
|
|
4,641 |
|
Loans |
|
|
1,419,571 |
|
|
|
1,495,570 |
|
Allowance for loan losses |
|
|
(42,571 |
) |
|
|
(35,473 |
) |
|
|
|
Total loans, net |
|
|
1,377,000 |
|
|
|
1,460,097 |
|
Foreclosed assets, net |
|
|
9,913 |
|
|
|
3,726 |
|
Premises and equipment, net |
|
|
19,120 |
|
|
|
18,742 |
|
Cash value of life insurance |
|
|
50,541 |
|
|
|
48,694 |
|
Accrued interest receivable |
|
|
7,131 |
|
|
|
7,763 |
|
Goodwill |
|
|
15,519 |
|
|
|
15,519 |
|
Other intangible assets, net |
|
|
580 |
|
|
|
325 |
|
Mortgage servicing rights |
|
|
4,605 |
|
|
|
4,089 |
|
Indemnification asset |
|
|
5,640 |
|
|
|
|
|
Other assets |
|
|
37,282 |
|
|
|
39,439 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets |
|
$ |
2,189,789 |
|
|
$ |
2,170,520 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities and Shareholders Equity: |
|
|
|
|
|
|
|
|
Liabilities: |
|
|
|
|
|
|
|
|
Deposits: |
|
|
|
|
|
|
|
|
Noninterest-bearing demand |
|
$ |
424,070 |
|
|
$ |
377,334 |
|
Interest-bearing |
|
|
1,428,103 |
|
|
|
1,451,178 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Total deposits |
|
|
1,852,173 |
|
|
|
1,828,512 |
|
Accrued interest payable |
|
|
2,151 |
|
|
|
3,614 |
|
Reserve for unfunded commitments |
|
|
2,640 |
|
|
|
3,640 |
|
Other liabilities |
|
|
29,170 |
|
|
|
26,114 |
|
Other borrowings |
|
|
62,020 |
|
|
|
66,753 |
|
Junior subordinated debt |
|
|
41,238 |
|
|
|
41,238 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities |
|
|
1,989,392 |
|
|
|
1,969,871 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Commitments and contingencies (Note 18) |
|
|
|
|
|
|
|
|
Shareholders equity: |
|
|
|
|
|
|
|
|
Common stock, no par value: 50,000,000 shares authorized;
issued and outstanding: |
|
|
|
|
|
|
|
|
15,860,138 at December 31, 2010 |
|
|
81,554 |
|
|
|
|
|
15,787,753 at December 31, 2009 |
|
|
|
|
|
|
79,508 |
|
|
|
|
|
|
|
|
|
|
Retained earnings |
|
|
117,533 |
|
|
|
118,863 |
|
Accumulated other comprehensive income, net of tax |
|
|
1,310 |
|
|
|
2,278 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Total shareholders equity |
|
|
200,397 |
|
|
|
200,649 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities and shareholders equity |
|
$ |
2,189,789 |
|
|
$ |
2,170,520 |
|
|
|
|
The accompanying notes are an integral part of these consolidated financial statements.
55
TRICO BANCSHARES
CONSOLIDATED STATEMENTS OF INCOME
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years ended December 31, |
|
|
2010 |
|
|
2009 |
|
|
2008 |
|
|
|
(in thousands, except per share data) |
|
Interest and dividend income: |
|
|
|
|
|
|
|
|
|
|
|
|
Loans, including fees |
|
$ |
93,073 |
|
|
$ |
99,996 |
|
|
$ |
107,896 |
|
Debt securities: |
|
|
|
|
|
|
|
|
|
|
|
|
Taxable |
|
|
10,007 |
|
|
|
11,000 |
|
|
|
11,526 |
|
Tax exempt |
|
|
700 |
|
|
|
986 |
|
|
|
1,187 |
|
Dividends |
|
|
32 |
|
|
|
19 |
|
|
|
469 |
|
Interest
bearing cash at Federal Reserve and other banks |
|
|
760 |
|
|
|
332 |
|
|
|
31 |
|
Federal funds sold |
|
|
|
|
|
|
|
|
|
|
3 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total interest and dividend income |
|
|
104,572 |
|
|
|
112,333 |
|
|
|
121,112 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense: |
|
|
|
|
|
|
|
|
|
|
|
|
Deposits |
|
|
10,447 |
|
|
|
17,891 |
|
|
|
24,461 |
|
Federal funds purchased |
|
|
|
|
|
|
|
|
|
|
1,999 |
|
Other borrowings |
|
|
2,412 |
|
|
|
1,221 |
|
|
|
2,512 |
|
Junior subordinated debt |
|
|
1,274 |
|
|
|
1,503 |
|
|
|
2,580 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total interest expense |
|
|
14,133 |
|
|
|
20,615 |
|
|
|
31,552 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net interest income |
|
|
90,439 |
|
|
|
91,718 |
|
|
|
89,560 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Provision for loan losses |
|
|
37,458 |
|
|
|
31,450 |
|
|
|
20,950 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net interest income after provision for loan losses |
|
|
52,981 |
|
|
|
60,268 |
|
|
|
68,610 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Noninterest income: |
|
|
|
|
|
|
|
|
|
|
|
|
Service charges and fees |
|
|
23,100 |
|
|
|
22,822 |
|
|
|
20,555 |
|
Gain on sale of loans |
|
|
3,647 |
|
|
|
3,466 |
|
|
|
1,127 |
|
Commissions on sale of non-deposit investment products |
|
|
1,209 |
|
|
|
1,632 |
|
|
|
2,069 |
|
Increase in cash value of life insurance |
|
|
1,847 |
|
|
|
1,879 |
|
|
|
1,834 |
|
Other |
|
|
2,892 |
|
|
|
530 |
|
|
|
1,502 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total noninterest income |
|
|
32,695 |
|
|
|
30,329 |
|
|
|
27,087 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Noninterest expense: |
|
|
|
|
|
|
|
|
|
|
|
|
Salaries and related benefits |
|
|
40,105 |
|
|
|
39,810 |
|
|
|
38,112 |
|
Other |
|
|
37,100 |
|
|
|
35,640 |
|
|
|
30,626 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total noninterest expense |
|
|
77,205 |
|
|
|
75,450 |
|
|
|
68,738 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income before income taxes |
|
|
8,471 |
|
|
|
15,147 |
|
|
|
26,959 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Provision for income taxes |
|
|
2,466 |
|
|
|
5,185 |
|
|
|
10,161 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income |
|
$ |
6,005 |
|
|
$ |
9,962 |
|
|
$ |
16,798 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings per share: |
|
|
|
|
|
|
|
|
|
|
|
|
Basic |
|
$ |
0.38 |
|
|
$ |
0.63 |
|
|
$ |
1.07 |
|
Diluted |
|
$ |
0.37 |
|
|
$ |
0.62 |
|
|
$ |
1.05 |
|
The accompanying notes are an integral part of these consolidated financial statements.
56
TRICO BANCSHARES
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS EQUITY
Years Ended December 31, 2010, 2009 and 2008
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated |
|
|
|
|
|
|
Shares of |
|
|
|
|
|
|
|
|
|
|
Other |
|
|
|
|
|
|
Common |
|
|
Common |
|
|
Retained |
|
|
Comprehensive |
|
|
|
|
|
|
Stock |
|
|
Stock |
|
|
Earnings |
|
|
(Loss) Income |
|
|
Total |
|
|
|
(in thousands, except share data) |
|
|
|
|
Balance at December 31, 2007 |
|
|
15,911,550 |
|
|
$ |
78,775 |
|
|
$ |
111,655 |
|
|
$ |
(1,552 |
) |
|
$ |
188,878 |
|
Comprehensive income: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income |
|
|
|
|
|
|
|
|
|
|
16,798 |
|
|
|
|
|
|
|
16,798 |
|
Change in
net unrealized gain on Securities available for sale, net |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,804 |
|
|
|
2,804 |
|
Change in joint beneficiary agreement
liability, net |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
54 |
|
|
|
54 |
|
Change in minimum pension liability, net |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
750 |
|
|
|
750 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total comprehensive income |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
20,406 |
|
Cummulative effect of change in accounting
principle, net of tax |
|
|
|
|
|
|
|
|
|
|
(522 |
) |
|
|
|
|
|
|
(522 |
) |
Stock option vesting |
|
|
|
|
|
|
629 |
|
|
|
|
|
|
|
|
|
|
|
629 |
|
Stock options exercised |
|
|
17,620 |
|
|
|
142 |
|
|
|
|
|
|
|
|
|
|
|
142 |
|
Reversal of tax benefit of stock options exercised |
|
|
|
|
|
|
(444 |
) |
|
|
|
|
|
|
|
|
|
|
(444 |
) |
Repurchase of common stock |
|
|
(173,069 |
) |
|
|
(856 |
) |
|
|
(2,108 |
) |
|
|
|
|
|
|
(2,964 |
) |
Dividends paid ($0.52 per share) |
|
|
|
|
|
|
|
|
|
|
(8,193 |
) |
|
|
|
|
|
|
(8,193 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at December 31, 2008 |
|
|
15,756,101 |
|
|
$ |
78,246 |
|
|
$ |
117,630 |
|
|
$ |
2,056 |
|
|
$ |
197,932 |
|
Comprehensive income: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income |
|
|
|
|
|
|
|
|
|
|
9,962 |
|
|
|
|
|
|
|
9,962 |
|
Change in net unrealized gain on
Securities available for sale, net |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,070 |
|
|
|
1,070 |
|
Change in joint beneficiary agreement
liability, net |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2 |
|
|
|
2 |
|
Change in minimum pension liability, net |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(850 |
) |
|
|
(850 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total comprehensive income |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
10,184 |
|
Stock option vesting |
|
|
|
|
|
|
477 |
|
|
|
|
|
|
|
|
|
|
|
477 |
|
Stock options exercised |
|
|
58,213 |
|
|
|
887 |
|
|
|
|
|
|
|
|
|
|
|
887 |
|
Tax benefit of stock options exercised |
|
|
|
|
|
|
30 |
|
|
|
|
|
|
|
|
|
|
|
30 |
|
Repurchase of common stock |
|
|
(26,561 |
) |
|
|
(132 |
) |
|
|
(520 |
) |
|
|
|
|
|
|
(652 |
) |
Dividends paid ($0.52 per share) |
|
|
|
|
|
|
|
|
|
|
(8,209 |
) |
|
|
|
|
|
|
(8,209 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at December 31, 2009 |
|
|
15,787,753 |
|
|
$ |
79,508 |
|
|
$ |
118,863 |
|
|
$ |
2,278 |
|
|
$ |
200,649 |
|
Comprehensive income: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income |
|
|
|
|
|
|
|
|
|
|
6,005 |
|
|
|
|
|
|
|
6,005 |
|
Change in
net unrealized gain on Securities available for sale, net |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(24 |
) |
|
|
(24 |
) |
Change in joint beneficiary agreement
liability, net |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1 |
) |
|
|
(1 |
) |
Change in minimum pension liability, net |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(943 |
) |
|
|
(943 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total comprehensive income |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
5,037 |
|
Stock option vesting |
|
|
|
|
|
|
800 |
|
|
|
|
|
|
|
|
|
|
|
800 |
|
Stock options exercised |
|
|
146,403 |
|
|
|
1,229 |
|
|
|
|
|
|
|
|
|
|
|
1,229 |
|
Tax benefit of stock options exercised |
|
|
|
|
|
|
390 |
|
|
|
|
|
|
|
|
|
|
|
390 |
|
Repurchase of common stock |
|
|
(74,018 |
) |
|
|
(373 |
) |
|
|
(991 |
) |
|
|
|
|
|
|
(1,364 |
) |
Dividends paid ($0.40 per share) |
|
|
|
|
|
|
|
|
|
|
(6,344 |
) |
|
|
|
|
|
|
(6,344 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at December 31, 2010 |
|
|
15,860,138 |
|
|
$ |
81,554 |
|
|
$ |
117,533 |
|
|
$ |
1,310 |
|
|
$ |
200,397 |
|
|
|
|
The accompanying notes are an integral part of these consolidated financial statements.
57
TRICO BANCSHARES
CONSOLIDATED STATEMENTS OF CASH FLOWS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended December 31, |
|
|
|
2010 |
|
|
2009 |
|
|
2008 |
|
|
|
|
|
|
|
(in thousands) |
|
|
|
|
|
Operating activities: |
|
|
|
|
|
|
|
|
|
|
|
|
Net income |
|
$ |
6,005 |
|
|
$ |
9,962 |
|
|
$ |
16,798 |
|
Adjustments to reconcile net income to net cash provided
by operating activities: |
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation of premises and equipment, and amortization |
|
|
3,492 |
|
|
|
3,425 |
|
|
|
3,433 |
|
Amortization of intangible assets |
|
|
307 |
|
|
|
328 |
|
|
|
523 |
|
Provision for loan losses |
|
|
37,458 |
|
|
|
31,450 |
|
|
|
20,950 |
|
Amortization of investment securities premium, net |
|
|
1,185 |
|
|
|
348 |
|
|
|
303 |
|
Originations of loans for resale |
|
|
(179,504 |
) |
|
|
(119,290 |
) |
|
|
(74,956 |
) |
Proceeds from sale of loans originated for resale |
|
|
181,259 |
|
|
|
121,088 |
|
|
|
75,338 |
|
Gain on sale of loans |
|
|
(3,647 |
) |
|
|
(3,466 |
) |
|
|
(1,127 |
) |
Change in market value of mortgage servicing rights |
|
|
1,029 |
|
|
|
551 |
|
|
|
1,860 |
|
Provision for losses on foreclosed assets |
|
|
1,522 |
|
|
|
220 |
|
|
|
50 |
|
Gain on sale of foreclosed assets |
|
|
(562 |
) |
|
|
(168 |
) |
|
|
(50 |
) |
Loss on disposal of fixed assets |
|
|
58 |
|
|
|
138 |
|
|
|
2 |
|
Increase in cash value of life insurance |
|
|
(1,847 |
) |
|
|
(1,879 |
) |
|
|
(1,834 |
) |
Stock option vesting expense |
|
|
800 |
|
|
|
477 |
|
|
|
629 |
|
Stock option excess tax benefits |
|
|
(390 |
) |
|
|
(30 |
) |
|
|
444 |
|
Bargain purchase gain |
|
|
(232 |
) |
|
|
|
|
|
|
|
|
Deferred income tax benefit |
|
|
(4,867 |
) |
|
|
(3,515 |
) |
|
|
(5,698 |
) |
Change in: |
|
|
|
|
|
|
|
|
|
|
|
|
Reserve for unfunded commitments |
|
|
(1,000 |
) |
|
|
1,075 |
|
|
|
475 |
|
Interest receivable |
|
|
632 |
|
|
|
172 |
|
|
|
619 |
|
Interest payable |
|
|
(1,463 |
) |
|
|
(2,532 |
) |
|
|
(1,725 |
) |
Other assets and liabilities, net |
|
|
10,951 |
|
|
|
(12,411 |
) |
|
|
753 |
|
|
|
|
|
|
|
|
|
|
|
Net cash from operating activities |
|
|
51,186 |
|
|
|
25,943 |
|
|
|
36,787 |
|
|
|
|
|
|
|
|
|
|
|
Investing activities: |
|
|
|
|
|
|
|
|
|
|
|
|
Proceeds from maturities of securities available-for-sale |
|
|
92,427 |
|
|
|
85,833 |
|
|
|
50,414 |
|
Purchases of securities available-for-sale |
|
|
(156,348 |
) |
|
|
(29,396 |
) |
|
|
(80,012 |
) |
Redemption (purchase) of restricted equity securities, net |
|
|
837 |
|
|
|
(39 |
) |
|
|
(469 |
) |
Loan principal (increases) decreases, net |
|
|
102,890 |
|
|
|
62,663 |
|
|
|
(51,000 |
) |
Proceeds from sale of
premises and equipment |
|
|
6 |
|
|
|
2 |
|
|
|
2 |
|
Improvement of foreclosed assets |
|
|
(139 |
) |
|
|
|
|
|
|
|
|
Proceeds from sale of other real estate owned |
|
|
5,172 |
|
|
|
1,815 |
|
|
|
428 |
|
Purchases of premises and equipment |
|
|
(3,156 |
) |
|
|
(2,633 |
) |
|
|
(1,060 |
) |
Cash received from acquisitions |
|
|
18,764 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash from investing activities |
|
|
60,453 |
|
|
|
118,245 |
|
|
|
(81,697 |
) |
|
|
|
|
|
|
|
|
|
|
Financing activities: |
|
|
|
|
|
|
|
|
|
|
|
|
Net (decrease) increase in deposits |
|
|
(71,340 |
) |
|
|
159,242 |
|
|
|
124,047 |
|
Net change in federal funds purchased |
|
|
|
|
|
|
|
|
|
|
(56,000 |
) |
Payments of principal on long-term other borrowings |
|
|
|
|
|
|
(90 |
) |
|
|
(21,578 |
) |
Net change in short-term other borrowings |
|
|
(9,733 |
) |
|
|
(35,162 |
) |
|
|
7,457 |
|
Stock option excess tax benefits |
|
|
390 |
|
|
|
30 |
|
|
|
(444 |
) |
Repurchase of common stock |
|
|
(338 |
) |
|
|
|
|
|
|
(2,822 |
) |
Dividends paid |
|
|
(6,344 |
) |
|
|
(8,209 |
) |
|
|
(8,193 |
) |
Exercise of stock options |
|
|
203 |
|
|
|
235 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash from financing activities |
|
|
(87,162 |
) |
|
|
116,046 |
|
|
|
42,467 |
|
|
|
|
|
|
|
|
|
|
|
Net change in cash and cash equivalents |
|
|
24,477 |
|
|
|
260,234 |
|
|
|
(2,443 |
) |
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents and beginning of year |
|
|
346,589 |
|
|
|
86,355 |
|
|
|
88,798 |
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents at end of year |
|
$ |
371,066 |
|
|
$ |
346,589 |
|
|
$ |
86,355 |
|
|
|
|
|
|
|
|
|
|
|
|
Supplemental disclosure of noncash activities: |
|
|
|
|
|
|
|
|
|
|
|
|
Unrealized gain (loss) on securities available for sale |
|
$ |
(41 |
) |
|
$ |
1,846 |
|
|
$ |
4,839 |
|
Loans transferred to foreclosed assets |
|
|
7,690 |
|
|
|
4,408 |
|
|
|
1,426 |
|
Market value of shares tendered by employees in-lieu of
cash to pay for exercise of options and/or related taxes |
|
|
1,364 |
|
|
|
652 |
|
|
|
142 |
|
Supplemental disclosure of cash flow activity: |
|
|
|
|
|
|
|
|
|
|
|
|
Cash paid for interest expense |
|
|
15,596 |
|
|
|
23,147 |
|
|
|
32,277 |
|
Cash paid for income taxes |
|
|
2,825 |
|
|
|
10,292 |
|
|
|
14,850 |
|
Assets acquired in acquisition |
|
$ |
100,282 |
|
|
|
|
|
|
|
|
|
Liabilities assumed in acquisition |
|
$ |
100,050 |
|
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of these consolidated financial statements.
58
TRICO BANCSHARES
NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS
Years Ended December 31, 2010, 2009 and 2008
Note 1 Summary of Significant Accounting Policies
Principles of Consolidation
The consolidated financial statements include the accounts of the Company, and its wholly-owned
subsidiary, Tri Counties Bank (the Bank). All significant intercompany accounts and transactions
have been eliminated in consolidation.
Use of Estimates in the Preparation of Financial Statements
The preparation of financial statements in conformity with accounting principles generally accepted
in the United States of America requires Management to make estimates and assumptions that affect
the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities
at the date of the financial statements and the reported amounts of revenues and expenses during
the reporting period. On an on-going basis, the Company evaluates its estimates, including those
related to the adequacy of the allowance for loan losses, investments, intangible assets, income
taxes and contingencies. The Company bases its estimates on historical experience and on various
other assumptions that are believed to be reasonable under the circumstances, the results of which
form the basis for making judgments about the carrying values of assets and liabilities that are
not readily apparent from other sources. Actual results may differ from these estimates under
different assumptions or conditions. The allowance for loan losses, goodwill and other intangible
assets, income taxes, and the valuation of mortgage servicing rights are the only accounting
estimates that materially affect the Companys consolidated financial statements.
Significant Group Concentration of Credit Risk
The Company grants agribusiness, commercial, consumer, and residential loans to customers located
throughout the northern San Joaquin Valley, the Sacramento Valley and northern mountain regions of
California. The Company has a diversified loan portfolio within the business segments located in
this geographical area. The Company currently classifies all its operation into one business
segment that it denotes as community banking.
Cash and Cash Equivalents
For purposes of the consolidated statements of cash flows, cash and cash equivalents include cash
on hand, amounts due from banks and federal funds sold.
Investment Securities
The Company classifies its debt and marketable equity securities into one of three categories:
trading, available-for-sale or held-to-maturity. Trading securities are bought and held
principally for the purpose of selling in the near term. Held-to-maturity securities are those
securities which the Company has the ability and intent to hold until maturity. All other
securities not included in trading or held-to-maturity are classified as available-for-sale.
During the years ended December 31, 2010 and 2009, the Company did not have any securities
classified as either held-to-maturity or trading.
Available-for-sale securities are recorded at fair value. Unrealized gains and losses, net of the
related tax effect, on available-for-sale securities are reported as a separate component of other
accumulated comprehensive income (loss) in shareholders equity until realized.
Premiums and discounts are amortized or accreted over the life of the related investment security
as an adjustment to yield using the effective interest method. Dividend and interest income are
recognized when earned. Realized gains and losses are derived from the amortized cost of the
security sold.
Prior to the second quarter of 2009, the Company would assess an other-than-temporary impairment
(OTTI) or permanent impairment based on the nature of the decline and whether the Company has the
ability and intent to hold the investments until a market price recovery. If the Company
determined a security to be other-than-temporarily or permanently impaired, the full amount of
impairment would be recognized through earnings in its entirety. New guidance related to the
recognition and presentation of OTTI of debt securities became effective in the second quarter of
2009. Rather than asserting whether a Company has the ability and intent to hold an investment
until a market price recovery, a Company must consider whether it intends to sell a security or if
it is likely that they would be required to sell the security before recovery of the amortized cost
basis of the investment, which may be maturity. For debt securities, if we intend to sell the
security or it is likely that we will be required to sell the security before recovering its cost
basis, the entire impairment loss would be recognized in earnings as an OTTI. If we do not intend
to sell the security and it is not likely that we will be required to sell the security but we do
not expect to recover the entire amortized cost basis of the security, only the portion of the
impairment loss representing credit losses would be recognized in earnings. The credit loss on a
security is measured as the difference between the amortized cost basis and the present value of
the cash flows expected to be collected. Projected cash flows are discounted by the original or
current effective interest rate depending on the nature of the security being measured for
potential OTTI. The remaining impairment related to all other factors, the difference between the
present value of the cash flows expected to be collected and fair value, is recognized as a charge
to other comprehensive income (OCI). Impairment losses related to all other factors are presented
as separate categories within OCI. For investment securities held to maturity, this amount is
accreted
59
over the remaining life of the debt security prospectively based on the amount and timing
of future estimated cash flows. The accretion of the amount recorded in OCI increases the carrying
value of the investment and does not affect earnings. If there is an
indication of additional credit losses the security is re-evaluated according to the procedures
described above. No OTTI losses were recognized in the years ended December 31, 2010, 2009 or 2008.
Restricted Equity Securities
Restricted equity securities represent the Companys investment in the stock of the Federal Home
Loan Bank of San Francisco (FHLB) and are carried at par value, which reasonably approximates its
fair value. While technically these are considered equity securities, there is no market for the
FHLB stock. Therefore, the shares are considered as restricted investment securities. Management
periodically evaluates FHLB stock for other-than-temporary impairment. Managements determination
of whether these investments are impaired is based on its assessment of the ultimate recoverability
of cost rather than by recognizing temporary declines in value. The determination of whether a
decline affects the ultimate recoverability of cost is influenced by criteria such as (1) the
significance of any decline in net assets of the FHLB as compared to the capital stock amount for
the FHLB and the length of time this situation has persisted, (2) commitments by the FHLB to make
payments required by law or regulation and the level of such payments in relation to the operating
performance of the FHLB, (3) the impact of legislative and regulatory changes on institutions and,
accordingly, the customer base of the FHLB, and (4) the liquidity position of the FHLB.
As a member of the FHLB system, the Company is required to maintain a minimum level of investment
in FHLB stock based on specific percentages of its outstanding mortgages, total assets, or FHLB
advances. The Company may request redemption at par value of any stock in excess of the minimum
required investment. Stock redemptions are at the discretion of the FHLB.
Loans Held for Sale
Loans originated and intended for sale in the secondary market are carried at the lower of
aggregate cost or fair value, as determined by aggregate outstanding commitments from investors of
current investor yield requirements. Net unrealized losses are recognized through a valuation
allowance by charges to noninterest income.
Mortgage loans held for sale are generally sold with the mortgage servicing rights retained by the
Company. The carrying value of mortgage loans sold is reduced by the cost allocated to the
associated mortgage servicing rights. Gains or losses on the sale of loans that are held for sale
are recognized at the time of the sale and determined by the difference between net sale proceeds
and the net book value of the loans less the estimated fair value of any retained mortgage
servicing rights.
Loans and Allowance for Loan Losses
Loans originated by the Company, i.e., not purchased or acquired in a business combination, are
reported at the principal amount outstanding, net of deferred loan fees and costs. Loan
origination and commitment fees and certain direct loan origination costs are deferred, and the net
amount is amortized as an adjustment of the related loans yield over the actual life of the loan.
Originated loans on which the accrual of interest has been discontinued are designated as
nonaccrual loans.
Originated loans are placed in nonaccrual status when reasonable doubt exists as to the full,
timely collection of interest or principal, or a loan becomes contractually past due by 90 days or
more with respect to interest or principal and is not well secured and in the process of
collection. When an originated loan is placed on nonaccrual status, all interest previously
accrued but not collected is reversed. 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 only when they are brought fully current with respect to interest and
principal and when, in the judgment of Management, the loan is estimated to be fully collectible as
to both principal and interest.
An allowance for loan losses for originated loans is established through a provision for loan
losses charged to expense. Originated loans and deposit related overdrafts are charged against the
allowance for loan losses when Management believes that the collectability of the principal is
unlikely or, with respect to consumer installment loans, according to an established delinquency
schedule. The allowance is an amount that Management believes will be adequate to absorb probable
losses inherent in existing loans and leases, based on evaluations of the collectability,
impairment and prior loss experience of loans and leases. The evaluations take into consideration
such factors as changes in the nature and size of the portfolio, overall portfolio quality, loan
concentrations, specific problem loans, and current economic conditions that may affect the
borrowers ability to pay. The Company defines an originated loan as impaired when it is probable
the Company will be unable to collect all amounts due according to the contractual terms of the
loan agreement. Impaired originated loans are measured based on the present value of expected
future cash flows discounted at the loans original effective interest rate. As a practical
expedient, impairment may be measured based on the loans observable market price or the fair value
of the collateral if the loan is collateral dependent. When the measure of the impaired loan is
less than the recorded investment in the loan, the impairment is recorded through a valuation
allowance.
In situations related to originated loans where, for economic or legal reasons related to a
borrowers financial difficulties, the Company grants a concession for other than an insignificant
period of time to the borrower that the Company would not otherwise consider, the related loan is
classified as a troubled debt restructuring (TDR). The Company strives to identify borrowers in
financial difficulty early and work with them to modify to more affordable terms before their loan
reaches nonaccrual status. These modified terms may include rate reductions, principal forgiveness,
payment forbearance and other actions intended to minimize the economic loss and to avoid
foreclosure or repossession of the collateral. In cases where the Company grants the borrower new
terms that provide for a reduction of either interest or principal, the Company measures any
impairment on the restructuring as noted above for
60
impaired loans. TDR loans are classified as
impaired until they are fully paid off or charged off. Loans that are in nonaccrual status at the
time they become TDR loans, remain in nonaccrual status until the borrower demonstrates a sustained
period of performance which the Company generally believes to be six consecutive months of
payments, or equivalent. Otherwise, TDR loans are subject to the same nonaccrual and charge-off
policies as noted above with respect to their restructured principal balance.
Credit risk is inherent in the business of lending. As a result, the Company maintains an
allowance for loan losses to absorb losses inherent in the Companys originated loan portfolio.
This is maintained through periodic charges to earnings. These charges are included in the
Consolidated Income Statements as provision for loan losses. All specifically identifiable and
quantifiable losses are immediately charged off against the allowance. However, for a variety of
reasons, not all losses are immediately known to the Company and, of those that are known, the full
extent of the loss may not be quantifiable at that point in time. The balance of the Companys
allowance for originated loan losses is meant to be an estimate of these unknown but probable
losses inherent in the portfolio.
The Company formally assesses the adequacy of the allowance for originated loan losses on a
quarterly basis. Determination of the adequacy is based on ongoing assessments of the probable
risk in the outstanding originated loan portfolio, and to a lesser extent the Companys originated
loan commitments. These assessments include the periodic re-grading of credits based on changes in
their individual credit characteristics including delinquency, seasoning, recent financial
performance of the borrower, economic factors, changes in the interest rate environment, growth of
the portfolio as a whole or by segment, and other factors as warranted. Loans are initially graded
when originated. They are re-graded as they are renewed, when there is a new loan to the same
borrower, when identified facts demonstrate heightened risk of nonpayment, or if they become
delinquent. Re-grading of larger problem loans occurs at least quarterly. Confirmation of the
quality of the grading process is obtained by independent credit reviews conducted by consultants
specifically hired for this purpose and by various bank regulatory agencies.
The Companys method for assessing the appropriateness of the allowance for originated loan losses
includes specific allowances for impaired originated loans and leases, formula allowance factors
for pools of credits, and allowances for changing environmental factors (e.g., interest rates,
growth, economic conditions, etc.). Allowance factors for loan pools are based on historical loss
experience by product type. Allowances for impaired loans are based on analysis of individual
credits. Allowances for changing environmental factors are Managements best estimate of the
probable impact these changes have had on the originated loan portfolio as a whole. The allowance
for originated loans is included in the allowance for loan losses.
Acquired loans are valued as of acquisition date in accordance with Financial Accounting Standards
Board Accounting Standards Codification (FASB ASC) Topic 805, Business Combinations. Loans
purchased with evidence of credit deterioration since origination for which it is probable that all
contractually required payments will not be collected are referred to as purchased credit impaired
(PCI) loans. PCI loans are accounted for under FASB ASC Topic 310-30, Loans and Debt Securities
Acquired with Deteriorated Credit Quality. In addition, because of the significant credit discounts
associated with the loans acquired in the Granite acquisition, the Company elected to account for
all loans acquired in the Granite acquisition under FASB ASC Topic 310-30, and classify them all as
PCI loans. Under FASB ASC Topic 805 and FASB ASC Topic 310-30, PCI loans are recorded at fair value
at acquisition date, factoring in credit losses expected to be incurred over the life of the loan.
Accordingly, an allowance for loan losses is not carried over or recorded as of the acquisition
date. Fair value is defined as the present value of the future estimated principal and interest
payments of the loan, with the discount rate used in the present value calculation representing the
estimated effective yield of the loan. The difference between contractual future payments and
estimated future payments is referred to as the nonaccretable difference. The difference between
estimated future payments and the present value of the estimated future payments is referred to as
the accretable yield. The accretable yield represents the amount that is expected to be recorded
as interest income over the remaining life of the loan. If after acquisition, the Company
determines that the estimated future cash flows of a PCI loan are expected to be more than the
originally estimated, an increase in the discount rate (effective yield) would be made such that
the newly increased accretable yield would be recognized, on a level yield basis, over the
remaining estimated life of the loan. If after acquisition, the Company determines that the
estimated future cash flows of a PCI loan are expected to be less than the previously estimated,
the discount rate would first be reduced until the present value of the reduced cash flow estimate
equals the previous present value however, the discount rate may not be lowered below its original
level at acquisition. If the discount rate has been lowered to its original level and the present
value has not been sufficiently lowered, an allowance for loan loss would be established through a
provision for loan losses charged to expense to decrease the present value to the required level.
If the estimated cash flows improve after an allowance has been established for a loan, the
allowance may be partially or fully reversed depending on the improvement in the estimated cash
flows. Only after the allowance has been fully reversed may the discount rate be increased. PCI
loans are put on nonaccrual status when cash flows cannot be reasonably estimated. PCI loans are
charged off when evidence suggests cash flows are not recoverable. Foreclosed assets from PCI
loans are recorded in foreclosed assets at fair value with the fair value at time of foreclosure
representing cash flow from the loan. ASC 310-30 allows PCI loans with similar risk
characteristics and acquisition time frame to be pooled and have their cash flows aggregated as
if they were one loan.
Loans are also categorized as covered or noncovered. Covered loans refer to loans covered by a
Federal Deposit Insurance Corporation (FDIC) loss sharing agreement. Noncovered loans refer to
loans not covered by a Federal Deposit Insurance Corporation (FDIC) loss sharing agreement.
61
Foreclosed Assets
Foreclosed assets include assets acquired through, or in lieu of, loan foreclosure. Foreclosed
assets are held for sale and are initially recorded at fair value at the date of foreclosure,
establishing a new cost basis. Subsequent to foreclosure, management periodically performs
valuations and the assets are carried at the lower of carrying amount or fair value less cost to
sell. Revenue and expenses from operations and changes in the valuation allowance are included in
other noninterest expense. Foreclosed assets that are not subject to a FDIC loss-share agreement
are referred to as noncovered foreclosed assets.
Foreclosed assets acquired through FDIC-assisted acquisitions that are subject to a FDIC loss-share
agreement, and all assets acquired via foreclosure of covered loans are referred to as covered
foreclosed assets. Covered foreclosed assets are reported exclusive of expected reimbursement cash
flows from the FDIC. Foreclosed covered loan collateral is transferred into covered foreclosed
assets at the loans carrying value, inclusive of the acquisition date fair value discount.
Covered foreclosed assets are initially recorded at estimated fair value on the acquisition date
based on similar market comparable valuations less estimated selling costs. Any subsequent
valuation adjustments due to declines in fair value will be charged to noninterest expense, and
will be mostly offset by noninterest income representing the corresponding increase to the FDIC
indemnification asset for the offsetting loss reimbursement amount. Any recoveries of previous
valuation adjustments will be credited to noninterest expense with a corresponding charge to
noninterest income for the portion of the recovery that is due to the FDIC.
Premises and Equipment
Land is carried at cost. Buildings and equipment, including those acquired under capital lease,
are stated at cost less accumulated depreciation and amortization. Depreciation and amortization
expenses are computed using the straight-line method over the estimated useful lives of the related
assets or lease terms. Asset lives range from 3-10 years for furniture and equipment and 15-40
years for land improvements and buildings.
Goodwill and Other Intangible Assets
Goodwill represents the excess of costs over fair value of net assets of businesses acquired.
Goodwill and other intangible assets acquired in a purchase business combination and determined to
have an indefinite useful life are not amortized, but instead tested for impairment at least
annually. Intangible assets with estimable useful lives are amortized over their respective
estimated useful lives to their estimated residual values, and reviewed for impairment.
The Company has identifiable intangible assets consisting of core deposit intangibles (CDI) and
minimum pension liability. CDI are amortized using an accelerated method over a period of ten
years. Intangible assets related to minimum pension liability are adjusted annually based upon
actuarial estimates.
Impairment of Long-Lived Assets and Goodwill
Long-lived assets, such as premises and equipment, and purchased intangibles subject to
amortization, are reviewed for impairment whenever events or changes in circumstances indicate that
the carrying amount of an asset may not be recoverable. Recoverability of assets to be held and
used is measured by a comparison of the carrying amount of an asset to estimated undiscounted
future cash flows expected to be generated by the asset. If the carrying amount of an asset exceeds
its estimated future cash flows, an impairment charge is recognized by the amount by which the
carrying amount of the asset exceeds the fair value of the asset. Assets to be disposed of would be
separately presented in the balance sheet and reported at the lower of the carrying amount or fair
value less costs to sell, and are no longer depreciated. The assets and liabilities of a disposed
group classified as held for sale would be presented separately in the appropriate asset and
liability sections of the balance sheet.
On December 31 of each year, goodwill is tested for impairment, and is tested for impairment more
frequently if events and circumstances indicate that the asset might be impaired. An impairment
loss is recognized to the extent that the carrying amount exceeds the assets fair value. This
determination is made at the reporting unit level and consists of two steps. First, the Company
determines the fair value of a reporting unit and compares it to its carrying amount. Second, if
the carrying amount of a reporting unit exceeds its fair value, an impairment loss is recognized
for any excess of the carrying amount of the reporting units goodwill over the implied fair value
of that goodwill. The implied fair value of goodwill is determined by allocating the fair value of
the reporting unit in a manner similar to a purchase price allocation. The residual fair value
after this allocation is the implied fair value of the reporting unit goodwill. Currently, and
historically, the Company is comprised of only one reporting unit that operates within the business
segment it has identified as community banking.
Mortgage Servicing Rights
Mortgage servicing rights (MSR) represent the Companys right to a future stream of cash flows
based upon the contractual servicing fee associated with servicing mortgage loans. Our MSR arise
from residential mortgage loans that we originate and sell, but retain the right to service the
loans. For sales of residential mortgage loans, a portion of the cost of originating the loan is
allocated to the servicing right based on the fair values of the loan and the servicing right. The
net gain from the retention of the servicing right is included in gain on sale of loans in
noninterest income when the loan is sold. Fair value is based on market prices for comparable
mortgage servicing contracts, when available, or alternatively, is based on a valuation model that
calculates the present value of estimated future net servicing income. The valuation model
incorporates assumptions that market participants would use in estimating future net servicing
income, such as the cost to service, the discount rate, the custodial earnings rate, an inflation
rate, ancillary
62
income, prepayment speeds and default rates and losses. MSR are included in other
assets. Servicing fees are recorded in noninterest income when earned.
The determination of fair value of our MSR requires management judgment because they are not
actively traded. The determination of fair value for MSR requires valuation processes which combine
the use of discounted cash flow models and extensive analysis of current market data to arrive at
an estimate of fair value. The cash flow and prepayment assumptions used in our discounted cash
flow model are based on empirical data drawn from the historical performance of our MSR, which we
believe are consistent with assumptions used by market participants valuing similar MSR, and from
data obtained on the performance of similar MSR. The key assumptions used in the valuation of MSR
include mortgage prepayment speeds and the discount rate. These variables can, and generally will,
change from quarter to quarter as market conditions and projected interest rates change. The key
risks inherent with MSR are prepayment speed and changes in interest rates. The Company uses an
independent third party to determine fair value of MSR.
Indemnification Asset
The Company has elected to account for amounts receivable under loss-share agreements with the FDIC
as indemnification assets in accordance with FASB ASC Topic 805, Business Combinations. FDIC
indemnification assets are initially recorded at fair value, based on the discounted value of
expected future cash flows under the loss-share agreements. The difference between the fair value
and the undiscounted cash flows the Company expects to collect from the FDIC will be accreted into
noninterest income over the life of the FDIC indemnification asset.
FDIC indemnification assets are reviewed quarterly and adjusted for any changes in expected cash
flows based on recent performance and expectations for future performance of the covered
portfolios. These adjustments are measured on the same basis as the related covered loans and
covered other real estate owned. Any increases in cash flow of the covered assets over those
expected will reduce the FDIC indemnification asset and any decreases in cash flow of the covered
assets under those expected will increase the FDIC indemnification asset. Increases and decreases
to the FDIC indemnification asset are recorded as adjustments to noninterest income.
Reserve for Unfunded Commitments
The reserve for unfunded commitments is established through a provision for losses unfunded
commitments charged to noninterest expense. The reserve for unfunded commitments is an amount that
Management believes will be adequate to absorb probable losses inherent in existing commitments,
including unused portions of revolving lines of credits and other loans, standby letters of
credits, and unused deposit account overdraft privilege. The reserve for unfunded commitments is
based on evaluations of the collectability, and prior loss experience of unfunded commitments. The
evaluations take into consideration such factors as changes in the nature and size of the loan
portfolio, overall loan portfolio quality, loan concentrations, specific problem loans and related
unfunded commitments, and current economic conditions that may affect the borrowers or depositors
ability to pay.
Income Taxes
The Companys accounting for income taxes is based on an asset and liability approach. The Company
recognizes the amount of taxes payable or refundable for the current year, and deferred tax assets
and liabilities for the future tax consequences that have been recognized in its financial
statements or tax returns. The measurement of tax assets and liabilities is based on the
provisions of enacted tax laws.
Off-Balance Sheet Credit Related Financial Instruments
In the ordinary course of business, the Company has entered into commitments to extend credit,
including commitments under credit card arrangements, commercial letters of credit, and standby
letters of credit. Such financial instruments are recorded when they are funded.
Geographical Descriptions
For the purpose of describing the geographical location of the Companys loans, the Company has
defined northern California as that area of California north of, and including, Stockton; central
California as that area of the State south of Stockton, to and including, Bakersfield; and southern
California as that area of the State south of Bakersfield.
Reclassifications
Certain amounts reported in previous financial statements have been reclassified to conform to the
presentation in this report. These reclassifications did not affect previously reported net income
or total shareholders equity.
Recent Accounting Pronouncements
The Financial Accounting Standards Boards (FASB) Accounting Standards Codification (ASC) Topic
805, Business Combinations. On January 1, 2009, new authoritative accounting guidance under ASC
Topic 805, Business Combinations, became applicable to the Companys accounting for business
combinations closing on or after January 1, 2009. ASC Topic 805 applies to all transactions and
other events in which one entity obtains control over one or more other businesses. ASC Topic 805
requires an acquirer, upon initially obtaining control of another entity, to recognize the assets,
liabilities and any non-controlling interest in the acquiree at fair value as of the acquisition
date. Contingent consideration is required to be recognized and measured at fair value on the date
of acquisition rather than at a later date when the amount of that consideration may be
determinable beyond a reasonable doubt. This fair value approach replaces the cost-allocation
process required under previous accounting guidance whereby the cost of
63
an acquisition was
allocated to the individual assets acquired and liabilities assumed based on their estimated fair
value. ASC Topic 805 requires acquirers to expense acquisition-related costs as incurred rather
than allocating such costs to the assets acquired and liabilities assumed, as was previously the
case under prior accounting guidance. Assets acquired and liabilities assumed in a business
combination that arise from contingencies are to be recognized at fair value if fair value can be
reasonably estimated. If fair value of such an asset or liability cannot be reasonably estimated,
the asset or liability would generally be recognized in accordance with ASC
Topic 450, Contingencies. Under ASC Topic 805, the requirements of ASC Topic 420, Exit or
Disposal Cost Obligations, would have to be met in order to accrue for a restructuring plan in
purchase accounting. Pre-acquisition contingencies are to be recognized at fair value, unless it is
a non-contractual contingency that is not likely to materialize, in which case, nothing should be
recognized in purchase accounting and, instead, that contingency would be subject to the probable
and estimable recognition criteria of ASC Topic 450, Contingencies.
Further new authoritative accounting guidance under ASC Topic 810 Consolidation amends prior
guidance to change how a company determines when an entity that is insufficiently capitalized or is
not controlled through voting (or similar rights) should be consolidated. The determination of
whether a company is required to consolidate an entity is based on, among other things, an entitys
purpose and design and a companys ability to direct the activities of the entity that most
significantly impact the entitys economic performance. The new authoritative accounting guidance
requires additional disclosures about the reporting entitys involvement with variable-interest
entities and any significant changes in risk exposure due to that involvement as well as its affect
on the entitys financial statements. The new authoritative accounting guidance under ASC Topic 810
was effective January 1, 2010 and did not have a significant impact on the Companys financial
statements.
Further new authoritative accounting guidance (Accounting Standards Update No. 2010-6) under ASC
Topic 820 requires new disclosures for transfers in and out of Levels 1 and 2, including separate
disclosure of significant amounts and a description of the reasons for the transfers and separate
presentation of information about purchases, sales, issuances, and settlements (on a gross basis
rather than net) in the reconciliation for fair value measurements using significant unobservable
inputs (Level 3). The Update clarifies existing disclosure requirements for level of
disaggregation, which provides measurement disclosures for each class of assets and liabilities.
Emphasizing that judgment should be used in determining the appropriate classes of assets and
liabilities, and inputs and valuation techniques for both recurring and nonrecurring Level 2 and
Level 3 fair value measurements. This new authoritative accounting guidance also includes
conforming amendments to the guidance on employers disclosures about postretirement benefit plan
assets changing the terminology of major categories of assets to classes of assets and providing a
cross reference to the guidance in Subtopic 820-10 on how to determine appropriate classes to
present fair value disclosures. The forgoing new authoritative accounting guidance under ASC Topic
820 became effective for the Companys financial statements beginning January 1, 2010 and had no
significant impact on the Companys financial statements.
FASB ASC Topic 860, Transfers and Servicing. New authoritative accounting guidance under ASC
Topic 860, Transfers and Servicing, amends prior accounting guidance to enhance reporting about
transfers of financial assets, including securitizations, and where companies have continuing
exposure to the risks related to transferred financial assets. The new authoritative accounting
guidance eliminates the concept of a qualifying special-purpose entity and changes the
requirements for derecognizing financial assets. The new authoritative accounting guidance also
requires additional disclosures about all continuing involvements with transferred financial assets
including information about gains and losses resulting from transfers during the period. The new
authoritative accounting guidance under ASC Topic 860 became effective January 1, 2010 and did not
have a significant impact on the Companys financial statements.
FASB issued Accounting Standards Update (ASU) No. 2011-01, Receivables (Topic 310): Deferral of the
Effective Date of Disclosures about Troubled Debt Restructurings in Update No. 2010-20. The
amendments in this Update temporarily delay the effective date of the disclosures about troubled
debt restructurings in ASU No. 2010-20, Receivables (Topic 310): Disclosures about the Credit
Quality of Financing Receivables and the Allowance for Credit Losses for public entities. The delay
is intended to allow the Board time to complete its deliberations on what constitutes a troubled
debt restructuring. The effective date of the new disclosures about troubled debt restructurings
for public entities and the guidance for determining what constitutes a troubled debt restructuring
will then be coordinated. Currently, the guidance is anticipated to be effective for interim and
annual periods ending after June 15, 2011. The amendments in this Update apply to all
public-entity creditors that modify financing receivables within the scope of the disclosure
requirements about troubled debt restructurings in Update 2010-20. The amendments in this Update
do not affect nonpublic entities. As this ASU is disclosure-related only, our adoption of this ASU
in 2011 will not impact the Companys financial condition or results of operations.
FASB issued ASU No. 2010-20, Receivables (Topic 310): Disclosures about the Credit Quality of
Financing Receivables and the Allowance for Credit Losses. This Update amends Topic 310 to improve
the disclosures that an entity provides about the credit quality of its financing receivables and
the related allowance for credit losses. As a result of these amendments, an entity is required to
disaggregate by portfolio segment or class certain existing disclosures and provide certain new
disclosures about its financing receivables and related allowance for credit losses. The
amendments in this Update apply to all entities, both public and nonpublic. The amendments in this
Update affect all entities with financing receivables, excluding short-term trade accounts
receivable or receivables measured at fair value or lower of cost or fair value. For public
entities, the disclosures required by this Update as of the end of a reporting period are effective
for interim and annual reporting periods ending on or after December 15, 2010. The disclosures
about activity that occurs during a reporting period are effective for interim and annual reporting
periods beginning on or after December 15, 2010. For nonpublic entities, the disclosures are
effective for annual reporting periods ending on or after December 15,
64
2011. The amendments in this
Update encourage, but do not require, comparative disclosures for earlier reporting periods that
ended before initial adoption. However, an entity should provide comparative disclosures for those
reporting periods ending after initial adoption. As this ASU is disclosure-related only, the
adoption of this ASU did not impact the Banks financial condition or results of operations.
FASB issued ASU No. 2010-18, Receivables (Topic 310): Effect of a Loan Modification When the Loan
is Part of a Pool That Is Accounted for as a Single Asset. This Update clarifies that
modifications of loans that are accounted for within a pool under Subtopic
310-30, which provides guidance on accounting for acquired loans that have evidence of credit
deterioration upon acquisition, do not result in the removal of those loans from the pool even if
the modification would otherwise be considered a troubled debt restructuring. An entity will
continue to be required to consider whether the pool of assets in which the loan is included is
impaired if expected cash flows for the pool change. The amendments do not affect the accounting
for loans under the scope of Subtopic 310-30 that are not accounted for within pools. Loans
accounted for individually under Subtopic 310-30 continue to be subject to the troubled debt
restructuring accounting provisions within Subtopic 310-40. The amendments in this Update affect
any entity that acquires loans subject to Subtopic 310-30, that accounts for some or all of those
loans within pools, and that subsequently modifies one or more of those loans after acquisition.
The amendments in this Update are effective for modifications of loans accounted for within pools
under Subtopic 310-30 occurring in the first interim or annual period ending on or after July 15,
2010. The amendments are to be applied prospectively. Early application is permitted. Upon initial
adoption of the guidance in this Update, an entity may make a onetime election to terminate
accounting for loans as a pool under Subtopic 310-30. This election may be applied on a
pool-by-pool basis and does not preclude an entity from applying pool accounting to subsequent
acquisitions of loans with credit deterioration. Adoption of this ASU did not have a significant
impact on the Companys financial statements.
FASB issued ASU No. 2010-06, Fair Value Measurements and Disclosures (Topic 820): Improving
Disclosures about Fair Value Measurements. This Update requires: (1) disclosure of the amounts of
significant transfers in and out of Level 1 and Level 2 fair value measurement categories and the
reasons for the transfers; and (2) separate presentation of purchases, sales, issuances, and
settlements in the reconciliation for fair value measurements using significant unobservable inputs
(Level 3). In addition, this Update clarifies the requirements of the following existing
disclosures set forth in the Codification
Subtopic 820-10: (1) For purposes of reporting fair value measurement for each class of assets and
liabilities, a reporting entity needs to use judgment in determining the appropriate classes of
assets and liabilities; and (2) a reporting entity should provide disclosures about the valuation
techniques and inputs used to measure fair value for both recurring and non-recurring fair value
measurements. This Update is effective for interim and annual reporting periods beginning January
1, 2010, except for the disclosures about purchases, sales, issuances, and settlements in the roll
forward of activity in Level 3 fair value measurements, which are effective for fiscal years
beginning January 1, 2011, and for interim periods within those fiscal years. As this ASU is
disclosure-related only, the adoption of this ASU did not impact the Companys financial condition
or results of operations.
FASB issued ASU No. 2010-28, Intangibles Goodwill and Other (Topic 350): When to Perform Step 2
of the Goodwill Impairment Test for Reporting Units with Zero or Negative Carrying Amounts. This
update modifies Step 1 of the goodwill impairment test for reporting units with zero or negative
carrying amounts. For those reporting units, an entity is required to perform Step 2 of the
goodwill impairment test if it is more likely than not that a goodwill impairment exists. In
determining whether it is more likely than not that a goodwill impairment exists, an entity should
consider whether there are any adverse qualitative factors indicating that an impairment may exist
such as if an event occurs or circumstances change that would more likely than not reduce the fair
value of a reporting unit below its carrying amount. This update will be effective for the Company
on January 1, 2011 and is not expected have a significant impact on the Companys financial
statements.
FASB issued ASU No. 2010-29, Business Combinations (Topic 805): Disclosure of Supplementary Pro
Forma Information for Business Combinations. This update provides clarification regarding the
acquisition date that should be used for reporting the pro forma financial information disclosures
required by Topic 805 when comparative financial statements are presented. This update also
requires entities to provide a description of the nature and amount of material, nonrecurring pro
forma adjustments that are directly attributable to the business combination. This update is
effective for the Company prospectively for business combinations occurring after December 31,
2010.
Note 2 Business Combinations
On May 28, 2010, the Office of the Comptroller of the Currency closed Granite Community Bank
(Granite), Granite Bay, California and appointed the FDIC as receiver. That same date, the Bank
assumed the banking operations of Granite from the FDIC under a whole bank purchase and assumption
agreement with loss sharing. Under the terms of the loss sharing agreement, the FDIC will cover a
substantial portion of any future losses on loans, related unfunded loan commitments, other real
estate owned (OREO)/foreclosed assets and accrued interest on loans for up to 90 days. The FDIC
will absorb 80% of losses and share in 80% of loss recoveries on the covered assets acquired from
Granite. The loss sharing arrangements for non-single family residential and single family
residential loans are in effect for 5 years and 10 years, respectively, and the loss recovery
provisions are in effect for 8 years and 10 years, respectively, from the acquisition date. With
this agreement, the Bank added one traditional bank branch in each of Granite Bay, Roseville and
Auburn, California. This acquisition is consistent with the Banks community banking expansion
strategy and provides further opportunity to fill in the Banks market presence in the greater
Sacramento, California market.
65
The operations of Granite are included in the Companys operating results from May 28, 2010, and
through December 31, 2010 added revenue of $4,967,000, including a bargain purchase gain of
$232,000, noninterest expense of $2,078,000 and a provision for loan losses of $1,608,000, that
resulted in a contribution to net income after-tax of approximately $743,000. Such operating
results are not necessarily indicative of future operating results. Granites results of operations
prior to the acquisition are not included in the Companys operating results. During the quarter
ended September 30, 2010, the Company completed the conversion of Granites information and product
delivery systems. As of December 31, 2010, nonrecurring expenses related to the Granite
acquisition and systems conversion were approximately $250,000.
The assets acquired and liabilities assumed for the Granite acquisition have been accounted for
under the acquisition method of accounting (formerly the purchase method). The assets and
liabilities, both tangible and intangible, were recorded at their estimated fair values as of the
acquisition dates. The fair values of the assets acquired and liabilities assumed were determined
based on the requirements of the Fair Value Measurements and Disclosures topic of the FASB ASC. The
foregoing fair value amounts are subject to change for up to one year after the closing date of
each acquisition as additional information relating to closing date fair values becomes available.
The amounts are also subject to adjustments based upon final settlement with the FDIC. In addition,
the tax treatment of FDIC assisted acquisitions is complex and subject to interpretations that may
result in future adjustments of deferred taxes as of the acquisition date. The terms of the
agreements provide for the FDIC to indemnify the Bank against claims with respect to liabilities of
Granite not assumed by the Bank and certain other types of claims identified in the agreement. The
application of the acquisition method of accounting resulted in the recognition of a bargain
purchase gain of $232,000 in the Granite acquisition. A summary of the net assets received in the
Granite acquisition, at their estimated fair values, is presented below:
|
|
|
|
|
|
|
Granite |
|
(in thousands) |
|
May 28, 2010 |
|
Asset acquired: |
|
|
|
|
Cash and cash equivalents |
|
$ |
18,764 |
|
Securities available-for-sale |
|
|
2,954 |
|
Restricted equity securities |
|
|
696 |
|
Covered loans |
|
|
64,802 |
|
Premises and equipment |
|
|
17 |
|
Core deposit intangible |
|
|
562 |
|
Covered foreclosed assets |
|
|
4,629 |
|
FDIC indemnification asset |
|
|
7,466 |
|
Other assets |
|
|
392 |
|
|
|
|
|
Total assets acquired |
|
$ |
100,282 |
|
|
|
|
|
Liabilities assumed: |
|
|
|
|
Deposits |
|
$ |
95,001 |
|
Other borrowings |
|
|
5,000 |
|
Other liabilities |
|
|
49 |
|
|
|
|
|
Total liabilities assumed |
|
|
100,050 |
|
|
|
|
|
Net assets acquired/bargain purchase gain |
|
$ |
232 |
|
|
|
|
|
The acquired loan portfolio and foreclosed assets are referred to as covered loans and covered
foreclosed assets, respectively, and these are recorded in Loans and Foreclosed assets,
respectively, in the Companys consolidated balance sheet. Collectively these balances are referred
to as covered assets.
In FDIC-assisted transactions, only certain assets and liabilities are transferred to the acquirer
and, depending on the nature and amount of the acquirers bid, the FDIC may be required to make a
cash payment to the acquirer. In the Granite acquisition, net assets with a cost basis of
$4,345,000 were transferred to the Bank. In the Granite acquisition, the Company recorded a
bargain purchase gain of $232,000 representing the excess of the estimated fair value of the assets
acquired over the estimated fair value of the liabilities assumed.
The Bank did not immediately acquire all the real estate, banking facilities, furniture or
equipment of Granite as part of the purchase and assumption agreement. However, the Bank had the
option to purchase or lease the real estate and furniture and equipment from the FDIC. During the
quarter ended September 30, 2010, the Bank elected to close the Roseville branch and assume the
leases for the Granite Bay and Auburn branches. The Bank purchased the existing furniture and
equipment in the Granite Bay and Auburn branches from the FDIC for approximately $100,000.
66
A summary of the estimated fair value adjustments resulting in the bargain purchase gain in the
Granite acquisition are presented below:
|
|
|
|
|
|
|
Granite |
|
(in thousands) |
|
May 28, 2010 |
|
Cost basis net assets acquired |
|
$ |
4,345 |
|
Cash payment received from FDIC |
|
|
3,940 |
|
Fair value adjustments: |
|
|
|
|
Securities available-for-sale |
|
|
(118 |
) |
Loans |
|
|
(13,189 |
) |
Foreclosed assets |
|
|
(2,616 |
) |
Core deposit intangible |
|
|
562 |
|
FDIC indemnification asset |
|
|
7,466 |
|
Deposits |
|
|
(209 |
) |
Other |
|
|
51 |
|
|
|
|
|
Bargain purchase gain |
|
$ |
232 |
|
|
|
|
|
The following table reflects the estimated fair value of the acquired loans at the acquisition date:
|
|
|
|
|
|
|
Granite |
|
(in thousands) |
|
May 28, 2010 |
|
Principal balance loans acquired |
|
$ |
77,991 |
|
Discount |
|
|
(13,189 |
) |
|
|
|
|
Covered loans, net |
|
$ |
64,802 |
|
|
|
|
|
In estimating the fair value of the covered loans at the acquisition date, we (a) calculated the
contractual amount and timing of undiscounted principal and interest payments and (b) estimated the
amount and timing of undiscounted expected principal and interest payments. The difference between
these two amounts represents the nonaccretable difference.
On the acquisition date, the amount by which the undiscounted expected cash flows exceed the
estimated fair value of the acquired loans is the accretable yield. The accretable yield is then
measured at each financial reporting date and represents the difference between the remaining
undiscounted expected cash flows and the current carrying value of the loans.
The following table presents a reconciliation of the undiscounted contractual cash flows,
nonaccretable difference, accretable yield, and fair value of covered loans for each respective
acquired loan portfolio at the acquisition dates:
|
|
|
|
|
|
|
Granite |
|
(in thousands) |
|
May 28, 2010 |
|
Undiscounted contractual cash flows |
|
$ |
99,179 |
|
Undiscounted cash flows not expected
to be collected (nonaccretable difference) |
|
|
(11,226 |
) |
|
|
|
|
Undiscounted cash flows
expected to be collected |
|
|
87,953 |
|
Accretable yield at acquisition |
|
|
(23,151 |
) |
|
|
|
|
Estimated fair value of
Loans acquired at acquisition |
|
$ |
64,802 |
|
|
|
|
|
67
Note 3 Investment Securities
The amortized cost and estimated fair values of investments in debt and equity securities are summarized in the following tables:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2010 |
|
|
|
|
|
|
|
Gross |
|
|
Gross |
|
|
Estimated |
|
|
|
Amortized |
|
|
Unrealized |
|
|
Unrealized |
|
|
Fair |
|
|
|
Cost |
|
|
Gains |
|
|
Losses |
|
|
Value |
|
Securities Available-for-Sale |
|
(in thousands) |
|
|
|
|
Obligations of U.S. government corporations and agencies |
|
$ |
255,884 |
|
|
$ |
8,623 |
|
|
$ |
(326 |
) |
|
$ |
264,181 |
|
Obligations of states and political subdivisions |
|
|
12,452 |
|
|
|
141 |
|
|
|
(52 |
) |
|
|
12,541 |
|
Corporate debt securities |
|
|
1,000 |
|
|
|
|
|
|
|
(451 |
) |
|
|
549 |
|
|
|
|
Total securities available-for-sale |
|
$ |
269,336 |
|
|
$ |
8,764 |
|
|
$ |
(829 |
) |
|
$ |
277,271 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2009 |
|
|
|
|
|
|
|
Gross |
|
|
Gross |
|
|
Estimated |
|
|
|
Amortized |
|
|
Unrealized |
|
|
Unrealized |
|
|
Fair |
|
|
|
Cost |
|
|
Gains |
|
|
Losses |
|
|
Value |
|
Securities Available-for-Sale |
|
(in thousands) |
|
|
|
|
Obligations of U.S. government corporations and agencies |
|
$ |
184,962 |
|
|
$ |
8,168 |
|
|
|
|
|
|
$ |
193,130 |
|
Obligations of states and political subdivision |
|
|
17,683 |
|
|
|
341 |
|
|
|
(71 |
) |
|
|
17,953 |
|
Corporate debt securities |
|
|
1,000 |
|
|
|
|
|
|
|
(461 |
) |
|
|
539 |
|
|
|
|
Total securities available-for-sale |
|
$ |
203,645 |
|
|
$ |
8,509 |
|
|
$ |
(532 |
) |
|
$ |
211,622 |
|
|
|
|
No investment securities were sold in 2010 or 2009. Investment securities with an aggregate
carrying value of $140,100,000 and $201,388,000 at December 31, 2010 and 2009, respectively, were
pledged as collateral for specific borrowings, lines of credit and local agency deposits.
The amortized cost and estimated fair value of debt securities at December 31, 2010 by contractual
maturity are shown below. Actual maturities may differ from contractual maturities because
borrowers may have the right to call or prepay obligations with or without call or prepayment
penalties. At December 31, 2010, obligations of U.S. government corporations and agencies with a
cost basis totaling $255,884,000 consist almost entirely of mortgage-backed securities whose
contractual maturity, or principal repayment, will follow the repayment of the underlying
mortgages. For purposes of the following table, the entire outstanding balance of these
mortgage-backed securities issued by U.S. government corporations and agencies is categorized based
on final maturity date. At December 31, 2010, the Company estimates the average remaining life of
these mortgage-backed securities issued by U.S. government corporations and agencies to be
approximately 4.5 years. Average remaining life is defined as the time span after which the
principal balance has been reduced by half.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Estimated |
|
|
|
Amortized Cost |
|
|
Fair Value |
|
Investment Securities |
|
(in thousands) |
|
Due in one year |
|
|
|
|
|
|
|
|
Due after one year through five years |
|
$ |
33,466 |
|
|
$ |
34,760 |
|
Due after five years through ten years |
|
|
55,453 |
|
|
|
55,938 |
|
Due after ten years |
|
|
180,417 |
|
|
|
186,573 |
|
|
|
|
Totals |
|
$ |
269,336 |
|
|
$ |
277,271 |
|
|
|
|
68
Gross unrealized losses on investment securities and the fair value of the related
securities, aggregated by investment category and length of time that individual securities have
been in a continuous unrealized loss position, were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Less than 12 months |
|
|
12 months or more |
|
|
Total |
|
|
|
Fair |
|
|
Unrealized |
|
|
Fair |
|
|
Unrealized |
|
|
Fair |
|
|
Unrealized |
|
December 31, 2010 |
|
Value |
|
|
Loss |
|
|
Value |
|
|
Loss |
|
|
Value |
|
|
Loss |
|
|
|
|
|
|
|
|
|
|
|
(in thousands) |
|
|
|
|
|
|
|
|
|
Securities Available-for-Sale: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Obligations of U.S. government
corporations and agencies |
|
$ |
54,760 |
|
|
$ |
(326 |
) |
|
|
|
|
|
|
|
|
|
$ |
54,760 |
|
|
$ |
(326 |
) |
Obligations of states and political subdivisions |
|
|
1,345 |
|
|
|
(22 |
) |
|
|
513 |
|
|
|
(30 |
) |
|
|
1,858 |
|
|
|
(52 |
) |
Corporate debt securities |
|
|
|
|
|
|
|
|
|
|
549 |
|
|
|
(451 |
) |
|
|
549 |
|
|
|
(451 |
) |
|
|
|
Total securities available-for-sale |
|
$ |
56,105 |
|
|
$ |
(348 |
) |
|
$ |
1,062 |
|
|
$ |
(481 |
) |
|
$ |
57,167 |
|
|
$ |
(829 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Less than 12 months |
|
|
12 months or more |
|
|
Total |
|
|
|
Fair |
|
|
Unrealized |
|
|
Fair |
|
|
Unrealized |
|
|
Fair |
|
|
Unrealized |
|
December 31, 2009 |
|
Value |
|
|
Loss |
|
|
Value |
|
|
Loss |
|
|
Value |
|
|
Loss |
|
|
|
|
|
|
|
|
|
|
|
(in thousands) |
|
|
|
|
|
|
|
|
|
Securities Available-for-Sale: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Obligations of U.S. government
corporations and agencies |
|
$ |
15 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
15 |
|
|
|
|
|
Obligations of states and political subdivisions |
|
|
898 |
|
|
|
(13 |
) |
|
|
1,011 |
|
|
|
(58 |
) |
|
|
1,909 |
|
|
|
(71 |
) |
Corporate debt securities |
|
|
|
|
|
|
|
|
|
|
539 |
|
|
|
(461 |
) |
|
|
539 |
|
|
|
(461 |
) |
|
|
|
Total securities available-for-sale |
|
$ |
913 |
|
|
$ |
(13 |
) |
|
$ |
1,550 |
|
|
$ |
(519 |
) |
|
$ |
2,463 |
|
|
$ |
(532 |
) |
|
|
|
Obligations of U.S. government corporations and agencies: Unrealized losses on investments in
obligations of U.S. government corporations and agencies are caused by interest rate increases. The
contractual cash flows of these securities are guaranteed by U.S. Government Sponsored Entities
(principally Fannie Mae and Freddie Mac). It is expected that the securities would not be settled
at a price less than the amortized cost of the investment. Because the decline in fair value is
attributable to changes in interest rates and not credit quality, and because the Company does not
intend to sell and more likely than not will not be required to sell, these investments are not
considered other-than-temporarily impaired. At December 31, 2010, four debt security representing
obligations of U.S. government corporations and agencies had an unrealized loss with aggregate
depreciation of 0.59% from the Companys amortized cost basis.
Obligations of states and political subdivisions: The unrealized losses on investments in
obligations of states and political subdivisions were caused by increases in required yields by
investors in these types of securities. It is expected that the securities would not be settled at
a price less than the amortized cost of the investment. Because the decline in fair value is
attributable to changes in interest rates and not credit quality, and because the Company does not
intend to sell and more likely than not will not be required to sell, these investments are not
considered other-than-temporarily impaired. At December 31, 2010, three debt securities
representing obligations of states and political subdivisions had unrealized losses with aggregate
depreciation of 2.70% from the Companys amortized cost basis.
Corporate debt securities: The unrealized losses on investments in corporate debt securities were
caused by increases in required yields by investors in similar types of securities. It is expected
that the securities would not be settled at a price less than the amortized cost of the investment.
Because the decline in fair value is attributable to changes in interest rates and not credit
quality, and because the Company does not intend to sell and more likely than not will not be
required to sell, these investments are not considered other-than-temporarily impaired. At
December 31, 2010, one corporate debt security had an unrealized loss with aggregate depreciation
of 45.06% from the Companys amortized cost basis.
69
Note 4 Loans
A summary of the balances of loans follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2010 |
|
|
December 31, 2009 |
|
|
|
Originated |
|
|
PCI |
|
|
Total |
|
|
Originated |
|
|
PCI |
|
|
Total |
|
Mortgage loans on real estate: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Residential 1-4 family |
|
$ |
123,623 |
|
|
$ |
7,597 |
|
|
$ |
131,220 |
|
|
$ |
141,914 |
|
|
|
|
|
|
$ |
141,914 |
|
Commercial |
|
|
682,103 |
|
|
|
25,739 |
|
|
|
707,842 |
|
|
|
705,956 |
|
|
|
|
|
|
|
705,956 |
|
|
|
|
|
|
Total mortgage loan on real estate |
|
|
805,726 |
|
|
|
33,336 |
|
|
|
839,062 |
|
|
|
847,870 |
|
|
|
|
|
|
|
847,870 |
|
Consumer: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Home equity lines of credit |
|
|
329,080 |
|
|
|
7,072 |
|
|
|
336,152 |
|
|
|
343,107 |
|
|
|
|
|
|
|
343,107 |
|
Home equity loans |
|
|
17,588 |
|
|
|
|
|
|
|
17,588 |
|
|
|
22,999 |
|
|
|
|
|
|
|
22,999 |
|
Auto Indirect |
|
|
24,577 |
|
|
|
|
|
|
|
24,577 |
|
|
|
46,488 |
|
|
|
|
|
|
|
46,488 |
|
Other |
|
|
15,622 |
|
|
|
|
|
|
|
15,622 |
|
|
|
13,807 |
|
|
|
|
|
|
|
13,807 |
|
|
|
|
|
|
Total consumer loans |
|
|
386,867 |
|
|
|
7,072 |
|
|
|
393,939 |
|
|
|
426,401 |
|
|
|
|
|
|
|
426,401 |
|
Commercial |
|
|
133,032 |
|
|
|
10,364 |
|
|
|
143,396 |
|
|
|
164,043 |
|
|
|
|
|
|
|
164,043 |
|
Construction: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Residential |
|
|
19,459 |
|
|
|
4,463 |
|
|
|
23,922 |
|
|
|
39,136 |
|
|
|
|
|
|
|
39,136 |
|
Commercial |
|
|
21,029 |
|
|
|
|
|
|
|
21,029 |
|
|
|
19,752 |
|
|
|
|
|
|
|
19,752 |
|
|
|
|
|
|
Total construction |
|
|
40,488 |
|
|
|
4,463 |
|
|
|
44,951 |
|
|
|
58,888 |
|
|
|
|
|
|
|
58,888 |
|
|
|
|
|
|
Total loans |
|
|
1,366,113 |
|
|
|
55,235 |
|
|
|
1,421,348 |
|
|
|
1,497,202 |
|
|
|
|
|
|
|
1,497,202 |
|
Net deferred loan (fees) costs |
|
|
(1,777 |
) |
|
|
|
|
|
|
(1,777 |
) |
|
|
(1,632 |
) |
|
|
|
|
|
|
(1,632 |
) |
|
|
|
|
|
Total loans, net of deferred loan fees |
|
$ |
1,364,336 |
|
|
$ |
55,235 |
|
|
$ |
1,419,571 |
|
|
$ |
1,495,570 |
|
|
|
|
|
|
$ |
1,495,570 |
|
|
|
|
|
|
Noncovered loans |
|
$ |
1,364,336 |
|
|
|
|
|
|
$ |
1,364,336 |
|
|
$ |
1,495,570 |
|
|
|
|
|
|
$ |
1,495,570 |
|
Covered loans |
|
|
|
|
|
$ |
55,235 |
|
|
|
55,235 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total loans |
|
$ |
1,364,336 |
|
|
$ |
55,235 |
|
|
$ |
1,419,571 |
|
|
$ |
1,495,570 |
|
|
|
|
|
|
$ |
1,495,570 |
|
|
|
|
|
|
Change in accretable yield for the year ended: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at beginning of period |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Acquisitions |
|
|
|
|
|
$ |
23,151 |
|
|
$ |
23,151 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Accretion to interest income |
|
|
|
|
|
|
(3,548 |
) |
|
|
(3,548 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
Reclassification (to) from Nonaccretable difference |
|
|
|
|
|
|
(1,886 |
) |
|
|
(1,886 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at end of period |
|
|
|
|
|
$ |
17,717 |
|
|
$ |
17,717 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Allowance for loan loss |
|
$ |
(40,963 |
) |
|
$ |
(1,608 |
) |
|
$ |
(42,571 |
) |
|
$ |
(35,473 |
) |
|
|
|
|
|
$ |
(35,473 |
) |
|
|
|
|
|
Throughout these financial statements, and in particular in this Note 4 and Note 5, when we refer
to Loans or Allowance for loan losses we mean all categories of loans, including originated and
PCI. When we are not referring to all categories of loans, we will indicate which we are referring
to originated or PCI.
70
Note 5 Allowance for Loan Losses
The following tables summarize the activity in the allowance for loan losses, and ending balance of
loans, net of unearned fees for the periods indicated.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Allowance for Loan Losses - Year Ended December 31, 2010 |
|
|
RE Mortgage |
|
|
Home Equity |
|
|
Auto |
|
|
Other |
|
|
|
|
|
|
Construction |
|
|
|
|
(in thousands) |
|
Resid. |
|
|
Comm. |
|
|
Lines |
|
|
Loans |
|
|
Indirect |
|
|
Consum. |
|
|
C&I |
|
|
Resid. |
|
|
Comm. |
|
|
Total |
|
Beginning balance |
|
$ |
2,618 |
|
|
$ |
5,071 |
|
|
$ |
13,483 |
|
|
$ |
940 |
|
|
$ |
1,986 |
|
|
$ |
616 |
|
|
$ |
6,958 |
|
|
$ |
2,067 |
|
|
$ |
1,734 |
|
|
$ |
35,473 |
|
Charge-offs |
|
|
(1,498 |
) |
|
|
(8,281 |
) |
|
|
(11,221 |
) |
|
|
(1,339 |
) |
|
|
(1,403 |
) |
|
|
(1,687 |
) |
|
|
(3,539 |
) |
|
|
(4,666 |
) |
|
|
(94 |
) |
|
|
(33,728 |
) |
Recoveries |
|
|
2 |
|
|
|
1,456 |
|
|
|
138 |
|
|
|
15 |
|
|
|
505 |
|
|
|
816 |
|
|
|
205 |
|
|
|
231 |
|
|
|
|
|
|
|
3,368 |
|
Provision |
|
|
1,885 |
|
|
|
14,454 |
|
|
|
12,654 |
|
|
|
1,179 |
|
|
|
141 |
|
|
|
956 |
|
|
|
2,367 |
|
|
|
4,192 |
|
|
|
(370 |
) |
|
|
37,458 |
|
|
|
|
Ending balance |
|
$ |
3,007 |
|
|
$ |
12,700 |
|
|
$ |
15,054 |
|
|
$ |
795 |
|
|
$ |
1,229 |
|
|
$ |
701 |
|
|
$ |
5,991 |
|
|
$ |
1,824 |
|
|
$ |
1,270 |
|
|
$ |
42,571 |
|
|
|
|
Ending balance: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Individ. evaluated
for impairment |
|
$ |
1,654 |
|
|
$ |
1,042 |
|
|
$ |
2,933 |
|
|
$ |
78 |
|
|
$ |
239 |
|
|
$ |
14 |
|
|
$ |
590 |
|
|
$ |
116 |
|
|
$ |
279 |
|
|
$ |
6,945 |
|
|
|
|
Loans pooled for
evaluation |
|
$ |
1,348 |
|
|
$ |
11,658 |
|
|
$ |
12,097 |
|
|
$ |
717 |
|
|
$ |
991 |
|
|
$ |
687 |
|
|
$ |
4,334 |
|
|
$ |
1,196 |
|
|
$ |
990 |
|
|
$ |
34,018 |
|
|
|
|
Loans acquired with
deteriorated
credit quality |
|
$ |
5 |
|
|
|
|
|
|
$ |
24 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
1,067 |
|
|
$ |
512 |
|
|
|
|
|
|
$ |
1,608 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loans, net of unearned fees As of December 31, 2010 |
|
|
RE Mortgage |
|
|
Home Equity |
|
|
Auto |
|
|
Other |
|
|
|
|
|
|
Construction |
|
|
|
|
(in thousands) |
|
Resid. |
|
|
Comm. |
|
|
Lines |
|
|
Loans |
|
|
Indirect |
|
|
Consum. |
|
|
C&I |
|
|
Resid. |
|
|
Comm. |
|
|
Total |
|
Ending balance: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total loans |
|
$ |
130,487 |
|
|
$ |
704,984 |
|
|
$ |
337,809 |
|
|
$ |
17,676 |
|
|
$ |
24,657 |
|
|
$ |
15,629 |
|
|
$ |
143,413 |
|
|
$ |
23,905 |
|
|
$ |
21,011 |
|
|
$ |
1,419,571 |
|
|
|
|
Individ. evaluated
for impairment |
|
$ |
12,193 |
|
|
$ |
54,808 |
|
|
$ |
10,741 |
|
|
$ |
770 |
|
|
$ |
1,386 |
|
|
$ |
83 |
|
|
$ |
5,978 |
|
|
$ |
6,923 |
|
|
$ |
7,424 |
|
|
$ |
100,306 |
|
|
|
|
Loans pooled for
evaluation |
|
$ |
110,697 |
|
|
$ |
624,437 |
|
|
$ |
319,996 |
|
|
$ |
16,906 |
|
|
$ |
23,271 |
|
|
$ |
15,546 |
|
|
$ |
127,071 |
|
|
$ |
12,519 |
|
|
$ |
13,587 |
|
|
$ |
1,264,030 |
|
|
|
|
Loans acquired with
deteriorated
credit quality |
|
$ |
7,597 |
|
|
$ |
25,739 |
|
|
$ |
7,072 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
10,364 |
|
|
$ |
4,463 |
|
|
|
|
|
|
$ |
55,235 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Allowance for Loan Losses - Year Ended December 31, 2009 |
|
|
|
RE Mortgage |
|
|
Home Equity |
|
|
Auto |
|
|
Other |
|
|
|
|
|
|
Construction |
|
|
|
|
(in thousands) |
|
Resid. |
|
|
Comm. |
|
|
Lines |
|
|
Loans |
|
|
Indirect |
|
|
Consum. |
|
|
C&I |
|
|
Resid. |
|
|
Comm. |
|
|
Total |
|
Beginning balance |
|
$ |
1,929 |
|
|
$ |
3,401 |
|
|
$ |
7,450 |
|
|
$ |
1,468 |
|
|
$ |
3,737 |
|
|
$ |
361 |
|
|
$ |
4,453 |
|
|
$ |
3,018 |
|
|
$ |
1,773 |
|
|
$ |
27,590 |
|
Charge-offs |
|
|
(583 |
) |
|
|
(1,223 |
) |
|
|
(7,487 |
) |
|
|
(656 |
) |
|
|
(2,806 |
) |
|
|
(1,238 |
) |
|
|
(3,219 |
) |
|
|
(7,737 |
) |
|
|
(89 |
) |
|
|
(25,038 |
) |
Recoveries |
|
|
40 |
|
|
|
71 |
|
|
|
98 |
|
|
|
|
|
|
|
484 |
|
|
|
677 |
|
|
|
71 |
|
|
|
30 |
|
|
|
|
|
|
|
1,471 |
|
Provision |
|
|
1,232 |
|
|
|
2,822 |
|
|
|
13,423 |
|
|
|
128 |
|
|
|
571 |
|
|
|
816 |
|
|
|
5,653 |
|
|
|
6,756 |
|
|
|
49 |
|
|
|
31,450 |
|
|
|
|
Ending balance |
|
$ |
2,618 |
|
|
$ |
5,071 |
|
|
$ |
13,484 |
|
|
$ |
940 |
|
|
$ |
1,986 |
|
|
$ |
616 |
|
|
$ |
6,958 |
|
|
$ |
2,067 |
|
|
$ |
1,733 |
|
|
$ |
35,473 |
|
|
|
|
Ending balance: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Individ. evaluated
for impairment |
|
$ |
607 |
|
|
$ |
226 |
|
|
$ |
2,577 |
|
|
$ |
173 |
|
|
$ |
621 |
|
|
$ |
93 |
|
|
$ |
915 |
|
|
$ |
31 |
|
|
$ |
484 |
|
|
$ |
5,727 |
|
|
|
|
Loans pooled for
evaluation |
|
$ |
2,011 |
|
|
$ |
4,846 |
|
|
$ |
10,906 |
|
|
$ |
767 |
|
|
$ |
1,365 |
|
|
$ |
523 |
|
|
$ |
6,042 |
|
|
$ |
2,036 |
|
|
$ |
1,250 |
|
|
$ |
29,746 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loans, net of unearned fees - As of December 31, 2009 |
|
|
RE Mortgage |
|
|
Home Equity |
|
|
Auto |
|
|
Other |
|
|
|
|
|
|
Construction |
|
|
|
|
(in thousands) |
|
Resid. |
|
|
Comm. |
|
|
Lines |
|
|
Loans |
|
|
Indirect |
|
|
Consum. |
|
|
C&I |
|
|
Resid. |
|
|
Comm. |
|
|
Total |
|
Ending balance: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total loans |
|
$ |
141,272 |
|
|
$ |
702,781 |
|
|
$ |
345,025 |
|
|
$ |
23,128 |
|
|
$ |
46,755 |
|
|
$ |
13,815 |
|
|
$ |
164,093 |
|
|
$ |
39,118 |
|
|
$ |
19,583 |
|
|
$ |
1,495,570 |
|
|
|
|
Individ. evaluated
for impairment |
|
$ |
4,633 |
|
|
$ |
14,545 |
|
|
$ |
7,996 |
|
|
$ |
536 |
|
|
$ |
1,998 |
|
|
$ |
216 |
|
|
$ |
2,755 |
|
|
$ |
1,380 |
|
|
$ |
10,074 |
|
|
$ |
44,133 |
|
|
|
|
Loans pooled for
evaluation |
|
$ |
136,639 |
|
|
$ |
688,236 |
|
|
$ |
337,029 |
|
|
$ |
22,592 |
|
|
$ |
44,757 |
|
|
$ |
13,599 |
|
|
$ |
161,338 |
|
|
$ |
37,738 |
|
|
$ |
9,509 |
|
|
$ |
1,451,437 |
|
|
|
|
At December 31, 2009, the Company had no loans classified as acquired with deteriorated credit
quality.
71
As part of the on-going monitoring of the credit quality of the Companys loan portfolio,
management tracks certain credit quality indicators including, but not limited to, trends relating
to (i) the level of criticized and classified loans, (ii) net charge-offs, (iii) non-performing
loans, and (iv) delinquency within the portfolio.
The Company utilizes a risk grading system to assign a risk grade to each of its loans. Loans are
graded on a scale ranging from Pass to Loss. A description of the general characteristics of the
risk grades is as follows:
|
|
|
Pass This grade represents loans ranging from acceptable to very little or no credit
risk. These loans typically meet most if not all policy standards in regard to: loan amount
as a percentage of collateral value, debt service coverage, profitability, leverage, and
working capital. |
|
|
|
Special Mention This grade represents Other Assets Especially Mentioned in accordance
with regulatory guidelines and includes loans that display some potential weaknesses which,
if left unaddressed, may result in deterioration of the repayment prospects for the asset or
may inadequately protect the Companys position in the future. These loans warrant more than
normal supervision and attention. |
|
|
|
Substandard This grade represents Substandard loans in accordance with regulatory
guidelines. Loans within this rating typically exhibit weaknesses that are well defined to
the point that repayment is jeopardized. Loss potential is, however, not necessarily
evident. The underlying collateral supporting the credit appears to have sufficient value to
protect the Company from loss of principal and accrued interest, or the loan has been written
down to the point where this is true. There is a definite need for a well defined
workout/rehabilitation program. |
|
|
|
Doubtful This grade represents Doubtful loans in accordance with regulatory
guidelines. An asset classified as Doubtful has all the weaknesses inherent in a loan
classified Substandard with the added characteristic that the weaknesses make collection or
liquidation in full, on the basis of currently existing facts, conditions and values, highly
questionable and improbable. Pending factors include proposed merger, acquisition, or
liquidation procedures, capital injection, perfecting liens on additional collateral, and
financing plans. |
|
|
|
Loss This grade represents Loss loans in accordance with regulatory guidelines. A
loan classified as Loss is considered uncollectible and of such little value that its
continuance as a bankable asset is not warranted. This classification does not mean that the
loan has absolutely no recovery or salvage value, but rather that it is not practical or
desirable to defer writing off the loan, even though some recovery may be affected in the
future. The portion of the loan that is graded loss should be charged off no later than the
end of the quarter in which the loss is identified. |
The following tables present ending loan balances by loan category and risk grade for the periods
indicated:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Credit Quality Indicators As of December 31, 2010 |
|
|
|
RE Mortgage |
|
|
Home Equity |
|
|
Auto |
|
|
Other |
|
|
|
|
|
|
Construction |
|
|
|
|
(in thousands) |
|
Resid. |
|
|
Comm. |
|
|
Lines |
|
|
Loans |
|
|
Indirect |
|
|
Consum. |
|
|
C&I |
|
|
Resid. |
|
|
Comm. |
|
|
Total |
|
|
|
|
Originated
loan balances: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pass |
|
$ |
106,967 |
|
|
$ |
543,492 |
|
|
$ |
312,315 |
|
|
$ |
16,740 |
|
|
$ |
22,405 |
|
|
$ |
15,363 |
|
|
$ |
108,511 |
|
|
$ |
8,190 |
|
|
$ |
8,940 |
|
|
$ |
1,142,923 |
|
Special mention |
|
|
1,259 |
|
|
|
60,171 |
|
|
|
1,884 |
|
|
|
23 |
|
|
|
45 |
|
|
|
11 |
|
|
|
14,518 |
|
|
|
3,395 |
|
|
|
4,397 |
|
|
|
85,703 |
|
Substandard |
|
|
14,664 |
|
|
|
75,582 |
|
|
|
16,538 |
|
|
|
913 |
|
|
|
2,207 |
|
|
|
255 |
|
|
|
10,020 |
|
|
|
7,857 |
|
|
|
7,674 |
|
|
|
135,710 |
|
|
|
|
Total |
|
$ |
122,890 |
|
|
$ |
679,245 |
|
|
$ |
330,737 |
|
|
$ |
17,676 |
|
|
$ |
24,657 |
|
|
|
15,629 |
|
|
$ |
133,049 |
|
|
$ |
19,442 |
|
|
$ |
21,011 |
|
|
$ |
1,364,336 |
|
|
|
|
PCI loans |
|
$ |
7,597 |
|
|
$ |
25,739 |
|
|
$ |
7,072 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
10,364 |
|
|
$ |
4,463 |
|
|
|
|
|
|
$ |
55,235 |
|
|
|
|
Total loans |
|
$ |
130,487 |
|
|
$ |
704,984 |
|
|
$ |
337,809 |
|
|
$ |
17,676 |
|
|
$ |
24,657 |
|
|
$ |
15,629 |
|
|
$ |
143,413 |
|
|
$ |
23,905 |
|
|
$ |
21,011 |
|
|
$ |
1,419,571 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Credit Quality Indicators As of December 31, 2009 |
|
|
|
RE Mortgage |
|
|
Home Equity |
|
|
Auto |
|
|
Other |
|
|
|
|
|
|
Construction |
|
|
|
|
(in thousands) |
|
Resid. |
|
|
Comm. |
|
|
Lines |
|
|
Loans |
|
|
Indirect |
|
|
Consum. |
|
|
C&I |
|
|
Resid. |
|
|
Comm. |
|
|
Total |
|
|
|
|
Originated
loan balances: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pass |
|
$ |
131,589 |
|
|
$ |
570,190 |
|
|
$ |
332,105 |
|
|
$ |
21,662 |
|
|
$ |
43,126 |
|
|
$ |
13,278 |
|
|
$ |
127,154 |
|
|
$ |
15,143 |
|
|
$ |
14,221 |
|
|
$ |
1,268,468 |
|
Special mention |
|
|
2,394 |
|
|
|
87,195 |
|
|
|
1,579 |
|
|
|
585 |
|
|
|
228 |
|
|
|
144 |
|
|
|
28,175 |
|
|
|
8,482 |
|
|
|
2,583 |
|
|
|
131,365 |
|
Substandard |
|
|
7,289 |
|
|
|
45,396 |
|
|
|
11,338 |
|
|
|
881 |
|
|
|
3,401 |
|
|
|
393 |
|
|
|
8,764 |
|
|
|
15,493 |
|
|
|
2,779 |
|
|
|
95,734 |
|
Loss |
|
|
|
|
|
|
|
|
|
|
3 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3 |
|
|
|
|
Total loans |
|
$ |
141,272 |
|
|
$ |
702,781 |
|
|
$ |
345,025 |
|
|
$ |
23,128 |
|
|
$ |
46,755 |
|
|
$ |
13,815 |
|
|
$ |
164,093 |
|
|
$ |
39,118 |
|
|
$ |
19,583 |
|
|
$ |
1,495,570 |
|
|
|
|
Consumer loans, whether unsecured or secured by real estate, automobiles, or other personal
property, are primarily susceptible to three primary risks; non-payment due to income loss,
over-extension of credit and, when the borrower is unable to pay, shortfall in collateral value.
Typically non-payment is due to loss of job and will follow general economic trends in the
marketplace driven primarily by rises in the unemployment rate. Loss of collateral value can be
due to market demand shifts, damage to collateral itself or a combination of the two.
72
Problem consumer loans are generally identified by payment history of the borrower (delinquency).
The Bank manages its consumer loan portfolios by monitoring delinquency and contacting borrowers to
encourage repayment, suggest modifications if appropriate, and, when continued scheduled payments
become unrealistic, initiate repossession or foreclosure through appropriate channels. Collateral
values may be determined by appraisals obtained through Bank approved, licensed appraisers,
qualified independent third parties, public value information (blue book values for autos), sales
invoices, or other appropriate means. Appropriate valuations are obtained at initiation of the
credit and periodically (every 3-12 months depending on collateral type) once repayment is
questionable and the loan has been classified.
Commercial real estate loans generally fall into two categories, owner-occupied and non-owner
occupied. Loans secured by owner occupied real estate are primarily susceptible to changes in the
business conditions of the related business. This may be driven by, among other things, industry
changes, geographic business changes, changes in the individual fortunes of the business owner, and
general economic conditions and changes in business cycles. These same risks apply to commercial
loans whether secured by equipment or other personal property or unsecured. Losses on loans
secured by owner occupied real estate, equipment, or other personal property generally are dictated
by the value of underlying collateral at the time of default and liquidation of the collateral.
When default is driven by issues related specifically to the business owner, collateral values tend
to provide better repayment support and may result in little or no loss. Alternatively, when
default is driven by more general economic conditions, underlying collateral generally has devalued
more and results in larger losses due to default. Loans secured by non-owner occupied real estate
are primarily susceptible to risks associated with swings in occupancy or vacancy and related
shifts in lease rates, rental rates or room rates. Most often these shifts are a result of changes
in general economic or market conditions or overbuilding and resultant over-supply. Losses are
dependent on value of underlying collateral at the time of default. Values are generally driven by
these same factors and influenced by interest rates and required rates of return as well as changes
in occupancy costs.
Construction loans, whether owner occupied or non-owner occupied commercial real estate loans or
residential development loans, are not only susceptible to the related risks described above but
the added risks of construction itself including cost over-runs, mismanagement of the project, or
lack of demand or market changes experienced at time of completion. Again, losses are primarily
related to underlying collateral value and changes therein as described above.
Problem commercial loans are generally identified by periodic review of financial information which
may include financial statements, tax returns, rent rolls and payment history of the borrower
(delinquency). Based on this information the Bank may decide to take any of several courses of
action including demand for repayment, additional collateral or guarantors, and, when repayment
becomes unlikely through Borrowers income and cash flow, repossession or foreclosure of the
underlying collateral.
Collateral values may be determined by appraisals obtained through Bank approved, licensed
appraisers, qualified independent third parties, public value information (blue book values for
autos), sales invoices, or other appropriate means. Appropriate valuations are obtained at
initiation of the credit and periodically (every 3-12 months depending on collateral type) once
repayment is questionable and the loan has been classified.
Once a loan becomes delinquent and repayment becomes questionable, a Bank collection officer will
address collateral shortfalls with the borrower and attempt to obtain additional collateral. If
this is not forthcoming and payment in full is unlikely, the Bank will estimate its probable loss,
using a recent valuation as appropriate to the underlying collateral less estimated costs of sale,
and charge the loan down to the estimated net realizable amount. Depending on the length of time
until ultimate collection, the Bank may revalue the underlying collateral and take additional
charge-offs as warranted. Revaluations may occur as often as every 3-12 months depending on the
underlying collateral and volatility of values. Final charge-offs or recoveries are taken when
collateral is liquidated and actual loss is known. Unpaid balances on loans after or during
collection and liquidation may also be pursued through lawsuit and attachment of wages or judgment
liens on borrowers other assets.
The following table shows the ending balance of current, past due, and nonaccrual originated loans
by loan category as of December 31, 2010:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Analysis of Past Due and Nonaccrual Originated Loans As of December 31, 2010 |
|
|
|
RE Mortgage |
|
|
Home Equity |
|
|
Auto |
|
|
Other |
|
|
|
|
|
|
Construction |
|
|
|
|
(in thousands) |
|
Resid. |
|
|
Comm. |
|
|
Lines |
|
|
Loans |
|
|
Indirect |
|
|
Consum. |
|
|
C&I |
|
|
Resid. |
|
|
Comm. |
|
|
Total |
|
|
|
|
Originated Loan balance: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Past due: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
30-59 Days |
|
$ |
2,822 |
|
|
$ |
11,191 |
|
|
$ |
3,546 |
|
|
$ |
158 |
|
|
$ |
604 |
|
|
$ |
68 |
|
|
$ |
1,405 |
|
|
$ |
270 |
|
|
|
|
|
|
$ |
20,064 |
|
60-89 Days |
|
|
1,139 |
|
|
|
1,864 |
|
|
|
2,209 |
|
|
|
|
|
|
|
401 |
|
|
|
33 |
|
|
|
893 |
|
|
|
|
|
|
|
275 |
|
|
|
6,814 |
|
> 90 Days |
|
|
7,980 |
|
|
|
20,748 |
|
|
|
6,843 |
|
|
|
694 |
|
|
|
403 |
|
|
|
7 |
|
|
|
401 |
|
|
|
1,781 |
|
|
|
612 |
|
|
|
39,469 |
|
|
|
|
Total past due |
|
|
11,941 |
|
|
|
33,803 |
|
|
|
12,598 |
|
|
|
852 |
|
|
|
1,408 |
|
|
|
108 |
|
|
|
2,699 |
|
|
|
2,051 |
|
|
|
887 |
|
|
|
66,347 |
|
Current |
|
|
110,949 |
|
|
|
645,442 |
|
|
|
318,139 |
|
|
|
16,824 |
|
|
|
23,249 |
|
|
|
15,521 |
|
|
|
130,350 |
|
|
|
17,391 |
|
|
|
20,124 |
|
|
|
1,297,989 |
|
|
|
|
Total loans |
|
$ |
122,890 |
|
|
$ |
679,245 |
|
|
$ |
330,737 |
|
|
$ |
17,676 |
|
|
$ |
24,657 |
|
|
$ |
15,629 |
|
|
$ |
133,049 |
|
|
$ |
19,442 |
|
|
|
21,011 |
|
|
$ |
1,364,336 |
|
|
|
|
> 90 Days and
still accruing |
|
|
|
|
|
$ |
147 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
98 |
|
|
|
|
|
|
$ |
245 |
|
|
|
|
Nonaccrual loans |
|
$ |
11,771 |
|
|
$ |
38,778 |
|
|
$ |
10,604 |
|
|
$ |
701 |
|
|
$ |
1,296 |
|
|
$ |
83 |
|
|
$ |
4,618 |
|
|
$ |
7,019 |
|
|
$ |
872 |
|
|
$ |
75,742 |
|
|
|
|
73
The
following table shows the contractual ending balance of current, past due, and nonaccrual PCI loans, by loan category as of December 31, 2010 (this table is prepared
on an individual loan basis):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Analysis of Past Due and Nonaccrual PCI Loans As of December 31, 2010 |
|
|
|
RE Mortgage |
|
|
Home Equity |
|
|
Auto |
|
|
Other |
|
|
|
|
|
|
Construction |
|
|
|
|
(in thousands) |
|
Resid. |
|
|
Comm. |
|
|
Lines |
|
|
Loans |
|
|
Indirect |
|
|
Consum. |
|
|
C&I |
|
|
Resid. |
|
|
Comm. |
|
|
Total |
|
|
|
|
PCI Loan balance: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Past due: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
30-59 Days |
|
|
|
|
|
$ |
1,749 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
241 |
|
|
|
|
|
|
|
|
|
|
$ |
1,990 |
|
60-89 Days |
|
|
|
|
|
|
353 |
|
|
|
505 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
79 |
|
|
|
|
|
|
|
|
|
|
|
937 |
|
> 90 Days |
|
|
562 |
|
|
|
300 |
|
|
|
34 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,299 |
|
|
|
358 |
|
|
|
|
|
|
|
3,553 |
|
|
|
|
Total past due |
|
|
562 |
|
|
|
2,402 |
|
|
|
539 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,619 |
|
|
|
358 |
|
|
|
|
|
|
|
6,480 |
|
Current |
|
|
7,689 |
|
|
|
28,197 |
|
|
|
8,331 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
8,797 |
|
|
|
4,855 |
|
|
|
|
|
|
|
57,869 |
|
|
|
|
Total PCI loans |
|
$ |
8,251 |
|
|
$ |
30,599 |
|
|
$ |
8,870 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
11,416 |
|
|
$ |
5,213 |
|
|
|
|
|
|
$ |
64,349 |
|
|
|
|
At December 31, 2010, the Company had no nonaccruing PCI loans.
Impaired originated loans are those where management has concluded that it is probable that the
borrower will be unable to pay all amounts due under the contractual terms. The following tables
show the recorded investment (financial statement balance), unpaid principal balance, average
recorded investment, and interest income recognized for impaired originated loans, segregated by
those with no related allowance recorded and those with an allowance recorded for the periods
indicated.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Impaired Originated Loans As of December 31, 2010 |
|
|
|
RE Mortgage |
|
|
Home Equity |
|
|
Auto |
|
|
Other |
|
|
|
|
|
|
Construction |
|
|
|
|
(in thousands) |
|
Resid. |
|
|
Comm. |
|
|
Lines |
|
|
Loans |
|
|
Indirect |
|
|
Consum. |
|
|
C&I |
|
|
Resid. |
|
|
Comm. |
|
|
Total |
|
|
|
|
With no related
allowance recorded: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Recorded investment |
|
$ |
6,192 |
|
|
$ |
45,487 |
|
|
$ |
5,354 |
|
|
$ |
691 |
|
|
$ |
714 |
|
|
$ |
49 |
|
|
$ |
4,900 |
|
|
$ |
6,075 |
|
|
$ |
6,609 |
|
|
$ |
76,071 |
|
|
|
|
Unpaid principal |
|
$ |
7,521 |
|
|
$ |
52,962 |
|
|
$ |
8,755 |
|
|
$ |
1,002 |
|
|
$ |
1,349 |
|
|
$ |
52 |
|
|
$ |
5,571 |
|
|
$ |
10,854 |
|
|
$ |
6,797 |
|
|
$ |
94,863 |
|
|
|
|
Average recorded
Investment |
|
$ |
4,599 |
|
|
$ |
32,575 |
|
|
$ |
4,688 |
|
|
$ |
425 |
|
|
$ |
607 |
|
|
$ |
66 |
|
|
$ |
3,330 |
|
|
$ |
8,137 |
|
|
$ |
3,962 |
|
|
$ |
58,389 |
|
|
|
|
|