x
|
QUARTERLY
REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934
|
|
OR
|
o
|
TRANSITION
REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934
|
Washington
(State
or other jurisdiction of
incorporation
or organization)
|
91-1815009
(IRS
Employer Identification No.)
|
||
1101
S. Boone Street
Aberdeen,
Washington 98520-5244
(360)
533-8870
(Address,
including zip code, and telephone number,
including
area code, of Registrant's principal executive offices)
|
FINANCIAL
INFORMATION
|
3
|
|
ITEM
1.
|
FINANCIAL
STATEMENTS
|
3
|
CONDENSED
CONSOLIDATED BALANCE SHEETS SEPTEMBER 30, 2009 AND DECEMBER 31,
2008
|
3
|
|
CONDENSED
CONSOLIDATED STATEMENTS OF INCOME THREE AND NINE MONTHS ENDED SEPTEMBER
30, 2009 AND 2008
|
4
|
|
CONDENSED
CONSOLIDATED STATEMENTS OF CASH FLOWS NINE MONTHS ENDED SEPTEMBER 30, 2009
AND 2008
|
5
|
|
CONDENSED
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY NINE MONTHS ENDED
SEPTEMBER 30, 2009 AND 2008
|
6
|
|
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
|
7
|
|
ITEM
2.
|
MANAGEMENT'S
DISCUSSION AND ANALYSIS OF FINANCIAL
|
|
CONDITION
AND RESULTS OF OPERATIONS
|
18
|
|
ITEM
3.
|
QUANTITATIVE
AND QUALITATIVE DISCLOSURES ABOUT
|
|
MARKET
RISK
|
29
|
|
|
||
ITEM
4.
|
CONTROLS
AND PROCEDURES
|
30
|
PART
II
|
OTHER
INFORMATION
|
30
|
ITEM
1.
|
LEGAL
PROCEEDINGS
|
30
|
ITEM
1A.
|
RISK
FACTORS
|
30
|
ITEM
2.
|
UNREGISTERED
SALES OF EQUITY SECURITIES AND
|
|
USE
OF PROCEEDS
|
31
|
|
ITEM
3.
|
DEFAULTS
UPON SENIOR SECURITIES
|
31
|
ITEM
4.
|
SUBMISSION
OF MATTERS TO A VOTE OF SECURITY HOLDERS
|
31
|
ITEM
5.
|
OTHER
INFORMATION
|
31
|
ITEM
6.
|
EXHIBITS
|
31
|
SIGNATURES
|
31
|
September
30, 2009
|
December
31, 2008
|
|||||||
Assets
|
||||||||
Cash
and due from banks
|
$ | 13,529 | $ | 16,182 | ||||
Interest
bearing deposits in banks
|
49,967 | 582 | ||||||
Federal
funds sold
|
5,000 | 775 | ||||||
Investment
securities available-for-sale (amortized cost of
|
||||||||
$55,396
and $52,930)
|
54,425 | 49,493 | ||||||
Investment
securities held-to-maturity (fair value of $7,724
|
||||||||
and
$6,418)
|
7,558 | 6,386 | ||||||
Federal
Home Loan Bank stock, at cost
|
3,183 | 2,170 | ||||||
Loans
held for sale
|
9,075 | 11,486 | ||||||
Loans
|
485,351 | 486,318 | ||||||
Allowance
for credit losses
|
11,580 | 7,623 | ||||||
Loans,
net
|
473,771 | 478,695 | ||||||
Premises
and equipment
|
16,141 | 16,631 | ||||||
Foreclosed
real estate
|
10,193 | 6,810 | ||||||
Accrued
interest receivable
|
2,713 | 2,772 | ||||||
Cash
surrender value of life insurance
|
16,082 | 15,718 | ||||||
Goodwill
|
11,282 | 11,282 | ||||||
Other
intangible assets
|
1,480 | 1,587 | ||||||
Other
assets
|
7,759 | 5,266 | ||||||
Total
assets
|
$ | 682,158 | $ | 625,835 | ||||
Liabilities
and Shareholders' Equity
|
||||||||
Deposits:
|
||||||||
Demand,
non-interest bearing
|
$ | 85,774 | $ | 80,066 | ||||
Savings
and interest-bearing demand
|
223,878 | 213,277 | ||||||
Time,
interest-bearing
|
269,153 | 217,964 | ||||||
Total
deposits
|
578,805 | 511,307 | ||||||
Accrued
interest payable
|
1,079 | 1,002 | ||||||
Secured
borrowings
|
989 | 1,354 | ||||||
Short-term
borrowings
|
4,500 | 23,500 | ||||||
Long-term
borrowings
|
21,000 | 22,500 | ||||||
Junior
subordinated debentures
|
13,403 | 13,403 | ||||||
Other
liabilities
|
2,601 | 2,695 | ||||||
Total
liabilities
|
622,377 | 575,761 | ||||||
Commitments
and Contingencies (Note 6)
|
||||||||
Shareholders'
Equity
|
||||||||
Common
Stock (par value $1); 25,000,000 shares authorized; 10,121,853 shares
issued and outstanding at September 30, 2009 and 7,317,430 at
December 31, 2008
|
10,122 | 7,318 | ||||||
Additional
paid-in capital
|
41,255 | 31,626 | ||||||
Retained
earnings
|
9,599 | 13,937 | ||||||
Accumulated
other comprehensive loss
|
(1,195 | ) | (2,807 | ) | ||||
Total
shareholders' equity
|
59,781 | 50,074 | ||||||
Total
liabilities and shareholders' equity
|
$ | 682,158 | $ | 625,835 |
Three
Months Ended
September
30,
|
Nine Months
Ended
September
30,
|
|||||||||||||||
2009
|
2008
|
2009
|
2008
|
|||||||||||||
Interest
and dividend income
|
||||||||||||||||
Loans
|
7,508 | $ | 7,842 | $ | 22,485 | $ | 23,875 | |||||||||
Investment
securities and FHLB dividends
|
751 | 608 | 2,224 | 1,777 | ||||||||||||
Deposits
with banks and federal funds sold
|
43 | 10 | 71 | 24 | ||||||||||||
Total
interest and dividend income
|
8,302 | 8,460 | 24,780 | 25,676 | ||||||||||||
Interest
Expense
|
||||||||||||||||
Deposits
|
2,355 | 2,242 | 7,196 | 7,450 | ||||||||||||
Other
borrowings
|
407 | 542 | 1,426 | 1,603 | ||||||||||||
Total
interest expense
|
2,762 | 2,784 | 8,622 | 9,053 | ||||||||||||
Net
Interest Income
|
5,540 | 5,676 | 16,158 | 16,623 | ||||||||||||
Provision
for credit losses
|
3,170 | 600 | 8,544 | 2,954 | ||||||||||||
Net
interest income after provision for credit
losses
|
2,370 | 5,076 | 7,614 | 13,669 | ||||||||||||
Non-interest
Income
|
||||||||||||||||
Service
charges on deposits
|
427 | 389 | 1,249 | 1,164 | ||||||||||||
Gain
on sales of loans
|
1,028 | 304 | 3,605 | 1,197 | ||||||||||||
Gain
(loss) on sale of investments available-for-sale
|
116 | (165 | ) | 419 | (165 | ) | ||||||||||
Other
operating income
|
417 | 368 | 1,244 | 1,202 | ||||||||||||
Total
non-interest income
|
1,988 | 896 | 6,517 | 3,398 | ||||||||||||
Non-interest
Expense
|
||||||||||||||||
Salaries
and employee benefits
|
3,366 | 3,008 | 10,315 | 9,419 | ||||||||||||
Occupancy
and equipment
|
687 | 726 | 2,013 | 2,113 | ||||||||||||
Write-down
of foreclosed real estate
|
22 | — | 2,539 | — | ||||||||||||
Professional
services
|
182 | 281 | 587 | 646 | ||||||||||||
FDIC
and State assessments
|
950 | 84 | 1,573 | 141 | ||||||||||||
Data
processing
|
245 | 176 | 793 | 341 | ||||||||||||
Other
|
1,617 | 1,096 | 4,001 | 3,373 | ||||||||||||
Total
non-interest expense
|
7,069 | 5,371 | 21,821 | 16,033 | ||||||||||||
Income
(loss) before income taxes
|
(2,711 | ) | 601 | (7,690 | ) | 1,034 | ||||||||||
Provision
(benefit) for income taxes
|
(952 | ) | 14 | (3,352 | ) | 72 | ||||||||||
Net
Income (Loss)
|
$ | (1,759 | ) | $ | 587 | $ | ( 4,338 | ) | $ | 962 | ||||||
Earnings
(loss) per common share:
|
||||||||||||||||
Basic
|
$ | (0.19 | ) | $ | 0.08 | $ | (0.54 | ) | $ | 0.13 | ||||||
Diluted
|
(0.19 | ) | 0.08 | (0.54 | ) | 0.13 | ||||||||||
Weighted
Average shares outstanding:
|
||||||||||||||||
Basic
|
9,424,229 | 7,317,830 | 8,005,901 | 7,309,522 | ||||||||||||
Diluted
|
9,424,229 | 7,322,801 | 8,005,901 | 7,331,503 |
2009
|
2008
|
|||||||
OPERATING
ACTIVITIES
|
||||||||
Net
income (loss)
|
$ | (4,338 | ) | $ | 962 | |||
Adjustments
to reconcile net income to net cash provided by operating
activities:
|
||||||||
Provision
for credit losses
|
8,544 | 2,954 | ||||||
Depreciation
and amortization
|
1,167 | 1,199 | ||||||
Deferred
income taxes
|
(1 | ) | — | |||||
Origination
of loans held for sale
|
(219,572 | ) | (72,585 | ) | ||||
Proceeds
of loans held for sale
|
225,678 | 77,513 | ||||||
Gain
on sales of loans
|
(3,605 | ) | (1,197 | ) | ||||
(Gain)
loss on sale of investments available for sale
|
(419 | ) | 165 | |||||
Decrease
in accrued interest receivable
|
59 | 266 | ||||||
Increase
(decrease) in accrued interest payable
|
77 | (549 | ) | |||||
Write-down
of foreclosed real estate
|
3,226 | 72 | ||||||
Other,
net
|
(3,554 | ) | (1,103 | ) | ||||
Net
cash provided by operating activities
|
7,262 | 7,697 | ||||||
INVESTING
ACTIVITIES
|
||||||||
Net
increase in federal funds sold
|
(4,225 | ) | (4,675 | ) | ||||
Net
(increase) decrease in interest bearing balances with
banks
|
(49,385 | ) | 129 | |||||
Purchase
of securities held-to-maturity
|
(1,312 | ) | (867 | ) | ||||
Purchase
of securities available-for-sale
|
(19,304 | ) | (6,823 | ) | ||||
Proceeds
from maturities of investments held-to-maturity
|
138 | 104 | ||||||
Proceeds
from sales of securities available-for-sale
|
9,991 | 4,263 | ||||||
Proceeds
from maturities of securities available-for-sale
|
6,308 | 5,208 | ||||||
Net
increase in loans
|
(11,560 | ) | (30,482 | ) | ||||
Additions
to premises and equipment
|
(479 | ) | (2,509 | ) | ||||
Proceeds
from sales of foreclosed real estate
|
1,219 | — | ||||||
Net
cash used in investing activities
|
(68,609 | ) | (35,652 | ) | ||||
FINANCING
ACTIVITIES
|
||||||||
Net
increase in deposits
|
67,498 | 1,583 | ||||||
Net
increase (decrease) in short-term borrowings
|
(23,500 | ) | 16,875 | |||||
Net
decrease in secured borrowings
|
(365 | ) | (47 | ) | ||||
Proceeds
from issuance of long-term borrowings
|
3,000 | 18,500 | ||||||
Repayments
of long-term borrowings
|
— | (7,000 | ) | |||||
Issuance
of common stock, net of issuance costs
|
12,394 | 624 | ||||||
Repurchase
and retirement of common stock
|
— | (26 | ) | |||||
Payment
of cash dividends
|
(333 | ) | (4,955 | ) | ||||
Net
cash provided by financing activities
|
58,694 | 25,554 | ||||||
Net
decrease in cash and due from banks
|
(2,653 | ) | (2,401 | ) | ||||
Cash
and due from Banks
|
||||||||
Beginning
of period
|
16,182 | 15,044 | ||||||
End
of period
|
$ | 13,529 | $ | 12,643 | ||||
SUPPLEMENTAL
DISCLOSURES OF CASH FLOW INFORMATION
|
||||||||
Cash
payments for:
|
||||||||
Interest
|
$ | 8,545 | $ | 9,602 | ||||
Income
taxes
|
90 | 1,073 | ||||||
SUPPLEMENTAL
SCHEDULE OF NONCASH INVESTING AND FINANCING ACTIVITIES
|
||||||||
Change
in fair value of securities available-for-sale, net of tax
|
$ | 1,628 | $ | (624 | ) | |||
Foreclosed
real estate acquired in settlement of loans
|
(7,828 | ) | (3,430 | ) | ||||
Reclass
of long-term borrowings to short-term borrowings
|
4,500 | 6,500 |
Shares
of
Common
Stock
|
Common
Stock
|
Additional
Paid-in
Capital
|
Retained
Earnings
|
Accumulated
Other
Comprehensive
Loss
|
Total
|
|||||||||||||||||||
Balance
January 1, 2008
|
6,606,545 | $ | 6,607 | $ | 27,163 | $ | 17,807 | $ | (878 | ) | $ | 50,699 | ||||||||||||
Other
comprehensive income (loss):
|
||||||||||||||||||||||||
Net
income
|
962 | 962 | ||||||||||||||||||||||
Unrealized
holding loss on securities of
$733 (net of tax of $484) less
reclassification adjustment for
net losses included in net income
of $109 (net of tax of $56)
|
(624 | ) | (624 | ) | ||||||||||||||||||||
Amortization
of unrecognized prior service
costs and net (gains)/losses
|
54 | 54 | ||||||||||||||||||||||
Comprehensive
income (loss)
|
392 | |||||||||||||||||||||||
Stock
options exercised
|
6,656 | 6 | 52 | 58 | ||||||||||||||||||||
Issuance
of common stock
|
41,672 | 42 | 524 | 566 | ||||||||||||||||||||
Common
stock repurchased and retired
|
(2,300 | ) | (2 | ) | (24 | ) | (26 | ) | ||||||||||||||||
Stock
compensation expense
|
65 | 65 | ||||||||||||||||||||||
Tax
benefit from exercise of stock options
|
1 | 1 | ||||||||||||||||||||||
Balance
September 30, 2008
|
6,652,573 | $ | 6,653 | $ | 27,781 | $ | 18,769 | $ | (1,448 | ) | $ | 51,755 | ||||||||||||
Other
comprehensive income:
|
||||||||||||||||||||||||
Net
loss
|
(4,338 | ) | (4,338 | ) | ||||||||||||||||||||
Unrealized
holding gain on securities of
$1,905 (net of tax of $1,257) less
reclassification adjustment for
net gains included in net income
of $277 (net of tax of $142)
|
1,628 | 1,628 | ||||||||||||||||||||||
Amortization
of unrecognized prior service
costs and net (gains)/losses
|
(16 | ) | (16 | ) | ||||||||||||||||||||
Comprehensive
loss
|
(2,726 | ) | ||||||||||||||||||||||
Issuance
of common stock
|
2,804,423 | 2,804 | 9,590 | 12,394 | ||||||||||||||||||||
Stock
compensation expense
|
39 | 39 | ||||||||||||||||||||||
Balance
September 30, 2009
|
10,121,853 | $ | 10,122 | $ | 41,255 | $ | 9,599 | $ | (1,195 | ) | $ | 59,781 |
Three
Months Ended
September
30,
|
Nine
Months Ended
September
30,
|
|||||||||||||||
2009
|
2008
|
2009
|
2008
|
|||||||||||||
Basic:
|
||||||||||||||||
Net
income (loss)
|
$ | (1,759 | ) | $ | 587 | $ | (4,338 | ) | $ | 962 | ||||||
Weighted
average shares outstanding
|
9,424,229 | 7,317,830 | 8,005,901 | 7,309,522 | ||||||||||||
Basic
earnings (loss) per share
|
$ | (0.19 | ) | $ | 0.08 | $ | (0.54 | ) | $ | 0.13 | ||||||
Diluted:
|
||||||||||||||||
Net
income (loss)
|
$ | (1,759 | ) | $ | 587 | $ | (4,338 | ) | $ | 962 | ||||||
Weighted
average shares outstanding
|
9,424,229 | 7,317,830 | 8,005,901 | 7,309,522 | ||||||||||||
Effect
of dilutive stock options
|
— | 4,971 | — | 21,981 | ||||||||||||
Weighted
average shares outstanding assuming
dilution
|
9,424,229 | 7,322,801 | 8,005,901 | 7,331,503 | ||||||||||||
Diluted
earnings (loss) per share
|
$ | (0.19 | ) | $ | 0.08 | $ | (0.54 | ) | $ | 0.13 |
Securities
Held-to-Maturity
|
Amortized
Cost
|
Unrealized
Gains
|
Unrealized
Losses
|
Fair
Value
|
||||||||||||
September
30, 2009
|
||||||||||||||||
State
and municipal securities
|
$ | 7,039 | $ | 143 | $ | — | $ | 7,182 | ||||||||
Mortgage-backed
securities
|
519 | 23 | — | 542 | ||||||||||||
Total
|
$ | 7,558 | $ | 166 | $ | — | $ | 7,724 | ||||||||
December
31, 2008
|
||||||||||||||||
State
and municipal securities
|
$ | 5,750 | $ | 40 | $ | 12 | $ | 5,778 | ||||||||
Mortgage-backed
securities
|
636 | 5 | 1 | 640 | ||||||||||||
Total
|
$ | 6,386 | $ | 45 | $ | 13 | $ | 6,418 |
Securities
Available-for-Sale
|
Amortized
Cost
|
Unrealized
Gains
|
Unrealized
Losses
|
Fair
Value
|
||||||||||||
September
30, 2009
|
||||||||||||||||
U.S.
Government securities
|
$ | 1,937 | $ | 61 | $ | — | $ | 1,998 | ||||||||
State
and municipal securities
|
20,708 | 935 | 37 | 21,606 | ||||||||||||
Mortgage-backed
securities
|
26,234 | 353 | 2,336 | 24,251 | ||||||||||||
Corporate
securities
|
1,517 | 54 | 1 | 1,570 | ||||||||||||
Mutual
funds
|
5,000 | — | — | 5,000 | ||||||||||||
Total
|
$ | 55,396 | $ | 1,403 | $ | 2,374 | $ | 54,425 | ||||||||
December
31, 2008
|
||||||||||||||||
U.S.
Government securities
|
$ | 1,671 | $ | 88 | $ | — | $ | 1,759 | ||||||||
State
and municipal securities
|
19,876 | 158 | 450 | 19,584 | ||||||||||||
Mortgage-backed
securities
|
30,370 | 330 | 3,495 | 27,205 | ||||||||||||
Corporate
securities
|
1,013 | — | 68 | 945 | ||||||||||||
Total
|
$ | 52,930 | $ | 576 | $ | 4,013 | $ | 49,493 |
Less than 12 Months
|
12 months or More
|
Total
|
||||||||||||||||||||||
Held-to-Maturity
|
Fair
Value
|
Unrealized
Losses
|
Fair
Value
|
Unrealized
Losses
|
Fair
Value
|
Unrealized
Losses
|
||||||||||||||||||
September
30 2009
|
||||||||||||||||||||||||
State
and municipal securities
|
$ | — | $ | — | $ | — | $ | — | $ | — | $ | — | ||||||||||||
Mortgage-backed
securities
|
— | — | — | — | — | — | ||||||||||||||||||
Total
|
$ | — | $ | — | $ | — | $ | — | $ | — | $ | — | ||||||||||||
December
31, 2008
|
||||||||||||||||||||||||
State
and municipal securities
|
$ | 378 | $ | 12 | $ | — | $ | — | $ | 378 | $ | 12 | ||||||||||||
Mortgage-backed
securities
|
160 | 1 | — | — | 160 | 1 | ||||||||||||||||||
Total
|
$ | 538 | $ | 13 | $ | — | $ | — | $ | 538 | $ | 13 | ||||||||||||
Available-for-Sale
|
||||||||||||||||||||||||
September
30, 2009
|
||||||||||||||||||||||||
State
and municipal securities
|
$ | 1,043 | $ | 9 | $ | 2,645 | $ | 28 | $ | 3,688 | $ | 37 | ||||||||||||
Mortgage-backed
securities
|
3,190 | 286 | 8,959 | 2,050 | 12,149 | 2,336 | ||||||||||||||||||
Corporate
securities
|
— | — | 499 | 1 | 499 | 1 | ||||||||||||||||||
Total
|
$ | 4,233 | $ | 295 | $ | 12,103 | $ | 2,079 | $ | 16,336 | $ | 2,374 | ||||||||||||
December
31, 2008
|
||||||||||||||||||||||||
State
and municipal securities
|
$ | 8,756 | $ | 349 | $ | 889 | $ | 101 | $ | 9,645 | $ | 450 | ||||||||||||
Mortgage-backed
securities
|
10,522 | 3,006 | 4,302 | 489 | 14,824 | 3,495 | ||||||||||||||||||
Corporate
securities
|
945 | 68 | — | — | 945 | 68 | ||||||||||||||||||
Total
|
$ | 20,223 | $ | 3,423 | $ | 5,191 | $ | 590 | $ | 25,414 | $ | 4,013 |
Three
Months
Ended
September
30,
|
Nine
Months
Ended
September
30,
|
Twelve
Months
Ended
Ended
December 31,
|
||||||||||||||||||
2009
|
2008
|
2009
|
2008
|
2008
|
||||||||||||||||
Balance
at beginning of period
|
$ | 10,203 | $ | 6,654 | $ | 7,623 | $ | 5,007 | $ | 5,007 | ||||||||||
Provision
for credit losses
|
3,170 | 600 | 8,544 | 2,954 | 4,791 | |||||||||||||||
Charge-offs
|
(1,808 | ) | (721 | ) | (4,616 | ) | (1,448 | ) | (2,226 | ) | ||||||||||
Recoveries
|
15 | 26 | 29 | 46 | 51 | |||||||||||||||
Net
charge-offs
|
(1,793 | ) | (695 | ) | (4,587 | ) | (1,402 | ) | (2,175 | ) | ||||||||||
Balance
at end of period
|
$ | 11,580 | $ | 6,559 | $ | 11,580 | $ | 6,559 | $ | 7,623 |
Grant
period ended
|
Expected
Life
|
Risk
Free
Interest
Rate
|
Expected
Volatility
|
Dividend
Yield
|
Average
Fair
Value
|
||||||||||||
September
30, 2008
|
6.5
years
|
3.75 | % | 16.19 | % | 6.05 | % | $ | 0.83 |
Shares
|
Weighted
Average
Exercise
Price
|
Weighted
Average
Remaining
Contractual
Term
( Years)
|
Aggregate
Intrinsic
Value
|
|||||||||||||
September
30, 2009
|
||||||||||||||||
Outstanding
beginning of period
|
684,527 | $ | 12.58 | |||||||||||||
Granted
|
— | — | ||||||||||||||
Exercised
|
— | — |
|
|||||||||||||
Forfeited
|
(42,130 | ) | 13.76 | |||||||||||||
Outstanding
end of period
|
642,397 | $ | 12.50 | 3.8 | $ | — | ||||||||||
Exercisable
end of period
|
560,832 | $ | 12.35 | 3.3 | $ | — |
Shares
|
Weighted
Average
Exercise Price
|
Weighted
Average
Remaining
Contractual
Term ( Years)
|
Aggregate
Intrinsic
Value
|
|||||||||||||
September
30, 2008
|
||||||||||||||||
Outstanding
beginning of period
|
689,868 | $ | 12.55 | |||||||||||||
Granted
|
8,250 | 11.27 | ||||||||||||||
Exercised
|
(7,322 | ) | 7.93 | |||||||||||||
Forfeited
|
(4,070 | ) | 13.32 | |||||||||||||
Outstanding
end of period
|
686,726 | $ | 12.57 | 5.0 | $ | — | ||||||||||
Exercisable
end of period
|
555,387 | $ | 12.31 | 4.2 | $ | — |
2009
|
2008
|
|||||||||||||||
Shares
|
Weighted
Average Fair
Value
|
Shares
|
Weighted
Average Fair
Value
|
|||||||||||||
Non-vested
beginning of period
|
126,940 | $ | 1.62 | 193,884 | $ | 1.80 | ||||||||||
Granted
|
— | — | 8,250 | 0.83 | ||||||||||||
Vested
|
(26,235 | ) | 1.87 | (69,584 | ) | 2.08 | ||||||||||
Forfeited
|
(19,140 | ) | 1.50 | (1,210 | ) | 1.85 | ||||||||||
Non-vested
end of period
|
81,565 | $ | 1.56 | 131,340 | $ | 1.63 |
·
|
Interim
Disclosures about the Fair Value of Financial Instruments which require an
entity to provide disclosures about fair values of financial instruments
in interim financial statements. The guidance is effective for
interim periods ending after June 15, 2009 with early adoption permitted
for periods ending after March 15, 2009. The Company adopted
the guidance as of June 30, 2009 and it did not have a material impact on
the Company’s consolidated financial
statements.
|
·
|
Recognition
and Presentation of Other-Than-Temporary Impairments which applies to
investments in debt securities for which other-than-temporary impairments
may be recorded. If any entity’s management asserts that it
does not have the intent to sell a debt security and it is more likely
than not that it will not have to sell the security before recovery of its
cost basis, then an entity may separate other-than-temporary impairments
into two components: 1) the amount related to credit losses recorded in
earnings, and 2) all other amounts recorded in other comprehensive
income. The guidance is effective for interim periods ending
after June 15, 2009 with early adoption permitted. The Company
adopted the guidance as of June 30, 2009 and it did not have a material
impact on the Company’s consolidated financial
statements.
|
·
|
Determining
Fair Value When the Volume and Level of Activity for the Asset or
Liability Have Significantly Decreased and Identifying Transactions That
Are Not Orderly which provides additional guidance for estimating fair
values and on identifying circumstances that indicate a transaction is not
orderly. The guidance is effective for interim periods ending
after June 15, 2009 with early adoption permitted. The Company
adopted the guidance as of June 30, 2009 and it did not have a material
impact on the Company’s consolidated financial
statements.
|
Three months ended
September 30,
|
Nine months ended
September 30,
|
|||||||||||||||
2009
|
2008
|
2009
|
2008
|
|||||||||||||
Net
periodic pension cost:
|
||||||||||||||||
Service
cost
|
$ | 30 | $ | 23 | $ | 89 | $ | 70 | ||||||||
Interest
cost
|
18 | 12 | 55 | 36 | ||||||||||||
Amortization
of prior service cost and
net (gains)/losses
|
20 | 18 | (16 | ) | 54 | |||||||||||
Net
periodic pension cost
|
$ | 68 | $ | 53 | $ | 128 | $ | 160 |
Readily Available
Market Prices
Level 1
|
Observable
Market Prices
Level 2
|
Significant
Unobservable
Inputs
Level 3
|
Total
|
|||||||||||||
September
30, 2009
|
||||||||||||||||
Securities
available-for-sale
|
||||||||||||||||
U.S.
Government securities
|
$ | — | $ | 1,998 | $ | — | $ | 1,998 | ||||||||
State
and municipal securities
|
— | 21,606 | — | 21,606 | ||||||||||||
Mortgage-backed
securities
|
— | 24,251 | — | 24,251 | ||||||||||||
Corporate
securities
|
499 | 1,071 | — | 1,570 | ||||||||||||
Mutual
funds
|
5,000 | — | — | 5,000 | ||||||||||||
Total
|
$ | 5,499 | $ | 48,926 | $ | — | $ | 54,425 | ||||||||
December
31, 2008
|
||||||||||||||||
Securities
available-for-sale
|
||||||||||||||||
U.S.
Government securities
|
$ | — | $ | 1,759 | $ | — | $ | 1,759 | ||||||||
State
and municipal securities
|
— | 19,584 | — | 19,584 | ||||||||||||
Mortgage-backed
securities
|
— | 27,205 | — | 27,205 | ||||||||||||
Corporate
securities
|
— | 945 | — | 945 | ||||||||||||
Total
|
$ | — | $ | 49,493 | $ | — | $ | 49,493 |
Readily Available
Market Prices
Level 1
|
Observable
Market Prices
Level 2
|
Significant
Unobservable
Inputs
Level 3
|
Total
|
|||||||||||||
September
30, 2009
|
||||||||||||||||
Impaired
loans
|
$ | — | $ | — | $ | 6,322 | $ | 6,322 | ||||||||
OREO
|
$ | — | $ | — | $ | 10,735 | $ | 10,735 | ||||||||
December
31, 2008
|
||||||||||||||||
Impaired
loans
|
$ | — | $ | — | $ | 9,532 | $ | 9,532 | ||||||||
OREO
|
$ | — | $ | — | $ | 6,810 | $ | 6,810 |
2009
|
2008
|
|||||||||||||||
Carrying
|
Fair
|
Carrying
|
Fair
|
|||||||||||||
Amount
|
Value
|
Amount
|
Value
|
|||||||||||||
Financial
Assets
|
||||||||||||||||
Cash
and due from banks, interest-bearing
|
||||||||||||||||
deposits
in banks, and federal funds sold
|
$ | 68,496 | $ | 68,496 | $ | 17,539 | $ | 17,539 | ||||||||
Securities
available for sale
|
54,425 | 54,425 | 49,493 | 49,493 | ||||||||||||
Securities
held to maturity
|
7,558 | 7,724 | 6,386 | 6,418 | ||||||||||||
Loans
held for sale
|
9,075 | 9,617 | 11,486 | 11,752 | ||||||||||||
Loans,
net
|
473,771 | 357,282 | 478,695 | 440,597 | ||||||||||||
Financial
Liabilities
|
||||||||||||||||
Deposits
|
$ | 578,805 | $ | 581,117 | $ | 511,307 | $ | 512,926 | ||||||||
Short-term
borrowings
|
4,500 | 4,616 | 23,500 | 23,779 | ||||||||||||
Long-term
borrowings
|
21,000 | 21,646 | 22,500 | 23,033 | ||||||||||||
Secured
borrowings
|
989 | 989 | 1,354 | 1,354 | ||||||||||||
Junior
subordinated debentures
|
13,403 | 6,661 | 13,403 | 7,113 |
|
·
|
Total
assets were $682,158,000 at September 30, 2009, an increase of
$56,323,000, or 9.00%, over year-end 2008. Growth in interest
bearing deposits in banks, federal funds sold and investments
available-for-sale were the primary contributors to overall asset
growth.
|
|
·
|
The
Bank remains well capitalized with a total risk-based capital ratio of
13.26% at September 30, 2009, compared to 11.65% at December 31,
2008. During the second and third quarter, the Company raised
capital by issuing common shares and warrants in connection with its
private offering, with proceeds to the Company of $12,356,000, further
strengthening its capital ratios. See Footnote 10 to the
condensed consolidated financial statements for further
information.
|
|
·
|
Non-performing
assets decreased during the quarter by $2,926,000, or 9.8%, to $27,008,000
at September 30, 2009, due primarily to a slight reduction in non-accrual
loans and disposition of two OREO properties. Non-performing
assets increased compared to December 31, 2008 by $3,248,000, or 13.7%,
mainly due to non-performing construction and land development loans and
related OREO, which represented $21,283,000, or 78.8%, of non-performing
assets.
|
|
·
|
The
Company continues to be successful in reducing overall exposure to
construction, land acquisition and other land loans, which declined $17.7
million during the nine months ended September 30, 2009. This
segment of the portfolio, totaling $83.0 million at September 30, 2009,
accounts for approximately 16.8% of the total loan
portfolio.
|
|
·
|
Total
deposits increased $67,498,000, or 13.2%, for the nine months ended
September 30, 2009, compared to December 31, 2008, which reflects
management’s continued focus on a strong deposit base and seasonal
trends.
|
|
·
|
As
a result of deposit growth, lower borrowings and increased borrowing
capacity with the Federal Reserve, the Company’s liquidity ratio of
approximately 37% at September 30, 2009 translates into over $255 million
in available funding for general operations and to meet loan and deposit
needs.
|
|
·
|
Return
on average assets and return on average equity were (0.88%) and (11.0%),
respectively, for the nine months ended September 30, 2009, due to
increases in the provision for credit losses and OREO write-downs, which
is reflective of the deterioration in credit
quality.
|
2009
|
2008
|
|||||||||||||||||||||||
Interest
|
Interest
|
|||||||||||||||||||||||
(dollars in thousands)
|
Average
|
Income
|
Avg
|
Average
|
Income
|
Avg
|
||||||||||||||||||
Balance
|
(Expense)
|
Rate
|
Balance
|
(Expense)
|
Rate
|
|||||||||||||||||||
Interest
Earning Assets
|
||||||||||||||||||||||||
Loans
(1)
|
$ | 502,193 | $ | 22,677 | * | 6.02 | % | $ | 466,979 | $ | 24,004 | * | 6.85 | % | ||||||||||
Taxable
securities
|
34,217 | 1,448 | 5.64 | 30,653 | 1,201 | 5.22 | ||||||||||||||||||
Tax-exempt
securities
|
24,700 | 1,176 | * | 6.35 | 18,470 | 844 | * | 6.09 | ||||||||||||||||
Federal
Home Loan Bank Stock
|
3,119 | — | — | 1,973 | 19 | 1.28 | ||||||||||||||||||
Interest
earning balances with banks
|
34,241 | 71 | 0.28 | 1,361 | 24 | 2.35 | ||||||||||||||||||
Total
interest earning assets
|
$ | 598,470 | $ | 25,372 | 5.65 | % | $ | 519,436 | $ | 26,092 | 6.70 | % | ||||||||||||
Cash
and due from banks
|
10,455 | 11,632 | ||||||||||||||||||||||
Bank
premises and equipment (net)
|
16,520 | 16,424 | ||||||||||||||||||||||
Other
real estate owned
|
8,476 | — | ||||||||||||||||||||||
Other
assets
|
31,459 | 33,748 | ||||||||||||||||||||||
Allowance
for credit losses
|
(8,898 | ) | (5,628 | ) | ||||||||||||||||||||
Total
assets
|
$ | 656,482 | $ | 575,612 | ||||||||||||||||||||
Interest
Bearing Liabilities
|
||||||||||||||||||||||||
Savings
and interest bearing demand
|
$ | 205,413 | $ | (1,356 | ) | 0.88 | % | $ | 202,998 | $ | (2,255 | ) | 1.48 | % | ||||||||||
Time
deposits
|
269,330 | (5,840 | ) | 2.89 | 178,019 | (5,195 | ) | 3.89 | ||||||||||||||||
Total
deposits
|
474,743 | (7,196 | ) | 2.02 | 381,017 | (7,450 | ) | 2.61 | ||||||||||||||||
Short-term
borrowings
|
4,154 | (26 | ) | 0.83 | 16,762 | (342 | ) | 2.72 | ||||||||||||||||
Long-term
borrowings
|
33,736 | (928 | ) | 3.67 | 22,161 | (637 | ) | 3.83 | ||||||||||||||||
Secured
borrowings
|
1,325 | (59 | ) | 5.94 | 1,395 | (72 | ) | 6.88 | ||||||||||||||||
Junior
subordinated debentures
|
13,403 | (413 | ) | 4.11 | 13,403 | (552 | ) | 5.49 | ||||||||||||||||
Total
borrowings
|
52,618 | (1,426 | ) | 3.61 | 53,721 | (1,603 | ) | 3.98 | ||||||||||||||||
Total
interest-bearing liabilities
|
$ | 527,361 | $ | (8,622 | ) | 2.18 | % | $ | 434,738 | $ | (9,053 | ) | 2.78 | % | ||||||||||
Demand
deposits
|
74,795 | 84,083 | ||||||||||||||||||||||
Other
liabilities
|
1,695 | 4,794 | ||||||||||||||||||||||
Shareholders’
equity
|
52,631 | 51,997 | ||||||||||||||||||||||
Total
liabilities and shareholders’ equity
|
$ | 656,482 | $ | 575,612 | ||||||||||||||||||||
Net
interest income
|
$ | 16,750 | * | $ | 17,039 | * | ||||||||||||||||||
Net
interest spread
|
3.73 | % | 4.37 | % | ||||||||||||||||||||
Net
interest margin
|
3.60 | % | 4.27 | % | ||||||||||||||||||||
Tax
equivalent adjustment
|
$ | 592 | * | $ | 416 | * |
SUMMARY OF NON-PERFORMING ASSETS
(in thousands)
|
September 30,
2009
|
December 31,
2008
|
September 30,
2008
|
|||||||||
Accruing
loans past due 90 days or more
|
$ | 793 | $ | 2,274 | $ | — | ||||||
Non-accrual
loans:
|
||||||||||||
Construction,
land development and other land loans
|
11,090 | 11,787 | 6,621 | |||||||||
Real
estate residential
|
1,140 | 615 | 636 | |||||||||
Real
estate commercial
|
2,156 | 1,477 | 249 | |||||||||
Commercial
and industrial
|
1,636 | 797 | 97 | |||||||||
Installment
|
— | — | 15 | |||||||||
Total
non-accrual loans
|
16,022 | 14,676 | 7,618 | |||||||||
Foreclosed
real estate
|
10,193 | 6,810 | 3,358 | |||||||||
TOTAL
|
$ | 27,008 | $ | 23,760 | $ | 10,976 |
September
30,
2009
|
December
31,
2008
|
|||||||
Commercial
and industrial
|
$ | 91,043 | $ | 91,888 | ||||
Construction,
land development and other land loans
|
83,008 | 100,725 | ||||||
Real
estate residential
|
95,554 | 90,328 | ||||||
Real
estate commercial – owner occupied
|
94,301 | 88,056 | ||||||
Real
estate commercial – non owner occupied
|
98,195 | 100,388 | ||||||
Farmland
|
23,359 | 18,092 | ||||||
Installment
|
7,351 | 7,293 | ||||||
Credit
cards and overdrafts
|
2,528 | 1,959 | ||||||
Less
unearned income
|
(913 | ) | (925 | ) | ||||
Total
Loans
|
494,426 | 497,804 | ||||||
Allowance
for credit losses
|
(11,580 | ) | (7,623 | ) | ||||
Net
Loans
|
$ | 482,846 | $ | 490,181 |
September
30,
2009
|
December
31,
2008
|
|||||||
Non-interest
bearing demand
|
$ | 85,774 | $ | 80,066 | ||||
Interest
bearing demand
|
84,696 | 68,113 | ||||||
Money
market deposits
|
88,117 | 93,216 | ||||||
Savings
deposits
|
51,065 | 51,948 | ||||||
Time
deposits
|
269,153 | 217,964 | ||||||
Total
deposits
|
$ | 578,805 | $ | 511,307 |
Company
|
Bank
|
Requirements
|
||||||||||||||||||||||
9/30/09
|
12/31/08
|
9/30/09
|
12/31/08
|
Adequately
Capitalized
|
Well
Capitalized
|
|||||||||||||||||||
Tier
1 leverage ratio
|
9.34 | % | 8.87 | % | 9.28 | % | 8.75 | % | 4 | % | 5 | % | ||||||||||||
Tier
1 risk-based capital ratio
|
12.08 | % | 10.54 | % | 12.00 | % | 10.40 | % | 4 | % | 6 | % | ||||||||||||
Total
risk-based capital ratio
|
13.35 | % | 11.79 | % | 13.26 | % | 11.65 | % | 8 | % | 10 | % |
PACIFIC
FINANCIAL CORPORATION
|
||
DATED: November
9, 2009
|
By:
|
/s/
Dennis A. Long
|
Dennis
A. Long
|
||
Chief
Executive Officer
|
||
By:
|
/s/
Denise Portmann
|
|
Denise
Portmann
|
||
Chief
Financial Officer
|
EXHIBIT NO.
|
EXHIBIT
|
|
4.1
|
Form
of Warrant to Purchase Shares of Common Stock. Incorporated by
reference to Exhibit 4.1 to the Company’s Current Report on Form 8-K dated
August 25, 2009 (the “August 2009 8-K”).
|
|
10.1
|
Securities
Purchase Agreement, dated August 25, 2009. Incorporated by
reference to Exhibit 10.1 to the August 2009 8-K.
|
|
10.2
|
Registration
Rights Agreement, dated August 25, 2009. Incorporated by
reference to Exhibit 10.2 to the August 2009 8-K.
|
|
31.1
|
Certification
of CEO under Rule 13a – 14(a) of the Exchange Act.
|
|
31.2
|
Certification
of CFO under Rule 13a – 14(a) of the Exchange Act.
|
|
32
|
Certification
of CEO and CFO under 18 U.S.C. Section
1350.
|