Attached files
file | filename |
---|---|
EX-31.1 - EX-31.1 - BANK HOLDINGS | a09-30965_1ex31d1.htm |
EX-32.2 - EX-32.2 - BANK HOLDINGS | a09-30965_1ex32d2.htm |
EX-32.1 - EX-32.1 - BANK HOLDINGS | a09-30965_1ex32d1.htm |
EX-31.2 - EX-31.2 - BANK HOLDINGS | a09-30965_1ex31d2.htm |
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
x QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 2009
o TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the Transition Period From To
Commission file number 000-50645
THE BANK HOLDINGS
(Exact name of Registrant as specified in its charter)
NEVADA |
|
90-0071778 |
(State of Incorporation) |
|
(IRS Employer Identification No) |
|
|
|
9990 Double R Boulevard, Reno, Nevada |
|
89521 |
(Address of principal executive offices) |
|
(Zip Code) |
775-853-8600
(Registrants telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports) and (2) has been subject to such filing requirements for the past 90 days. YES x NO o
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer a non-accelerated filer or a smaller reporting company.
Large accelerated filer o |
|
Accelerated Filer o |
|
|
|
Non-accelerated filer o |
|
Smaller Reporting Company x |
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 whether the registrant is a Shell Company (as defined in Rule 12b-2 of the Act) YES o NO x
Indicate the number of shares outstanding of each of the issuers classes of common stock, as of the latest practicable date.
Common stock, $0.01 par value, 5,794,179 shares outstanding as of November 16, 2009
3 |
|
3 |
|
3 |
|
4 |
|
CONSOLIDATED STATEMENTS OF STOCKHOLDERS EQUITY AND COMPREHENSIVE INCOME |
5 |
6 |
|
ITEM 2: MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS |
26 |
27 |
|
29 |
|
31 |
|
31 |
|
33 |
|
33 |
|
34 |
|
36 |
|
36 |
|
37 |
|
38 |
|
39 |
|
42 |
|
43 |
|
44 |
|
44 |
|
45 |
|
45 |
|
45 |
|
46 |
|
46 |
|
47 |
|
ITEM 3: QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK |
49 |
49 |
|
50 |
|
50 |
|
50 |
|
ITEM 2: Unregistered Sales of Equity Securities and Use of Proceeds |
52 |
52 |
|
52 |
|
52 |
|
52 |
|
EXHIBITS |
57 |
2
PART I FINANCIAL INFORMATION
ITEM 1: FINANCIAL STATEMENTS (unaudited)
THE BANK HOLDINGS AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CONDITION
(Dollars in thousands)
|
|
September 30, |
|
December 31, |
|
||
|
|
2009 (1) |
|
2008 (2) |
|
||
ASSETS |
|
|
|
|
|
||
Cash and due from banks |
|
$ |
49,630 |
|
$ |
21,260 |
|
Liquid money market funds and other short term investments |
|
461 |
|
883 |
|
||
Federal funds sold |
|
100 |
|
965 |
|
||
Cash and cash equivalents |
|
50,191 |
|
23,108 |
|
||
Securities, available for sale |
|
83,799 |
|
1,766 |
|
||
Securities, held to maturity (fair value of $58,228) |
|
|
|
58,755 |
|
||
Securities, trading |
|
|
|
83 |
|
||
Other equity securities, at cost |
|
3,818 |
|
4,306 |
|
||
|
|
|
|
|
|
||
USDA loans (at fair value, unpaid principal $893) |
|
|
|
858 |
|
||
Loans, gross |
|
385,647 |
|
440,363 |
|
||
Allowance for loan losses |
|
(14,900 |
) |
(8,061 |
) |
||
Deferred loan fees, net |
|
(831 |
) |
(934 |
) |
||
Loans, net |
|
369,916 |
|
432,226 |
|
||
|
|
|
|
|
|
||
Premises and equipment, net |
|
6,850 |
|
7,396 |
|
||
Other real estate owned |
|
18,400 |
|
2,156 |
|
||
Bank owned life insurance |
|
|
|
9,833 |
|
||
Intangible asset |
|
1,406 |
|
1,451 |
|
||
Goodwill |
|
|
|
2,653 |
|
||
Other assets |
|
4,774 |
|
12,312 |
|
||
TOTAL ASSETS |
|
$ |
539,154 |
|
$ |
556,045 |
|
|
|
|
|
|
|
||
LIABILITIES AND STOCKHOLDERS EQUITY |
|
|
|
|
|
||
Deposits: |
|
|
|
|
|
||
Noninterest bearing demand |
|
$ |
43,445 |
|
$ |
52,107 |
|
Interest bearing demand |
|
8,868 |
|
10,775 |
|
||
Savings |
|
3,264 |
|
15,453 |
|
||
Money Market |
|
119,043 |
|
61,499 |
|
||
IRAs |
|
12,339 |
|
6,183 |
|
||
Time deposits < $100,000 |
|
155,880 |
|
236,784 |
|
||
Time deposits > $100,000 |
|
142,040 |
|
83,211 |
|
||
Total deposits |
|
484,879 |
|
466,012 |
|
||
Short term borrowed funds |
|
25,060 |
|
22,000 |
|
||
Long Term borrowed funds |
|
|
|
5,000 |
|
||
Junior subordinated debt |
|
20,619 |
|
20,619 |
|
||
Accrued expenses and other liabilities |
|
1,121 |
|
5,170 |
|
||
Total Liabilities |
|
531,679 |
|
518,801 |
|
||
|
|
|
|
|
|
||
Stockholders equity: |
|
|
|
|
|
||
Preferred stock, $.01 par value, 20,000,000 shares authorized; no shares issued or outstanding |
|
|
|
|
|
||
Common stock, $.01 par value, 10,000,000 authorized; 5,794,179 issued and outstanding as of September 30, 2009 and December 31, 2008 |
|
58 |
|
58 |
|
||
Additional paid-in capital |
|
73,859 |
|
73,993 |
|
||
Accumulated Deficit |
|
(65,937 |
) |
(36,316 |
) |
||
Accumulated other comprehensive loss |
|
(505 |
) |
(491 |
) |
||
Total stockholders equity |
|
7,475 |
|
37,244 |
|
||
TOTAL LIABILITIES AND STOCKHOLDERS EQUITY |
|
$ |
539,154 |
|
$ |
556,045 |
|
(1) September 30, 2009 information is unaudited.
(2) The condensed balance sheet as of December 31, 2008 has been derived from audited financial statements.
The accompanying notes are an integral part of these unaudited consolidated financial statements.
3
THE BANK HOLDINGS AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(Dollars in thousands)
|
|
For the Three - Month Period |
|
For the Nine Month Period |
|
||||||||
|
|
Ended September 30, (1) |
|
Ended September 30, (1) |
|
||||||||
|
|
2009 |
|
2008 |
|
2009 |
|
2008 |
|
||||
Interest and dividend income: |
|
|
|
|
|
|
|
|
|
||||
Federal funds sold and other |
|
$ |
54 |
|
$ |
10 |
|
$ |
94 |
|
$ |
47 |
|
Debt securities, taxable |
|
798 |
|
823 |
|
1,939 |
|
2,932 |
|
||||
Debt securities, non-taxable |
|
155 |
|
322 |
|
515 |
|
955 |
|
||||
Dividends |
|
6 |
|
82 |
|
21 |
|
214 |
|
||||
Loans, including fees |
|
5,480 |
|
7,734 |
|
18,714 |
|
24,542 |
|
||||
Total interest and dividend income |
|
6,493 |
|
8,971 |
|
21,283 |
|
28,690 |
|
||||
|
|
|
|
|
|
|
|
|
|
||||
Interest expense: |
|
|
|
|
|
|
|
|
|
||||
Deposits |
|
3,824 |
|
3,327 |
|
11,029 |
|
10,740 |
|
||||
Other borrowed funds |
|
261 |
|
735 |
|
1,263 |
|
2,475 |
|
||||
Total interest expense |
|
4,085 |
|
4,062 |
|
12,292 |
|
13,215 |
|
||||
|
|
|
|
|
|
|
|
|
|
||||
Net interest income |
|
2,408 |
|
4,909 |
|
8,991 |
|
15,475 |
|
||||
|
|
|
|
|
|
|
|
|
|
||||
Provision for loan losses |
|
7,315 |
|
150 |
|
17,259 |
|
1,440 |
|
||||
|
|
(4,907 |
) |
4,759 |
|
(8,268 |
) |
14,035 |
|
||||
|
|
|
|
|
|
|
|
|
|
||||
Noninterest income: |
|
|
|
|
|
|
|
|
|
||||
Service charges on deposit accounts |
|
168 |
|
178 |
|
488 |
|
459 |
|
||||
Other service charges, commissions and fees |
|
12 |
|
14 |
|
29 |
|
35 |
|
||||
Loan & ORE charges and fees |
|
488 |
|
47 |
|
454 |
|
179 |
|
||||
Income on bank owned life insurance |
|
|
|
91 |
|
27 |
|
276 |
|
||||
Exchange fee income |
|
|
|
15 |
|
11 |
|
73 |
|
||||
Unrealized loss on trading securities |
|
|
|
(802 |
) |
|
|
(987 |
) |
||||
Realized gain on Fair Value Loans |
|
|
|
|
|
1 |
|
1 |
|
||||
Gain on surrender of deferred compensation plans |
|
|
|
|
|
2,750 |
|
|
|
||||
Net gain/(loss) on sale of assets |
|
|
|
(14 |
) |
(104 |
) |
(55 |
) |
||||
Net loss on sale of AFS securities |
|
(47 |
) |
(13,613 |
) |
(531 |
) |
(13,996 |
) |
||||
Total noninterest income |
|
621 |
|
(14,084 |
) |
3,125 |
|
(14,015 |
) |
||||
|
|
|
|
|
|
|
|
|
|
||||
Noninterest expense: |
|
|
|
|
|
|
|
|
|
||||
Salaries and employee benefits |
|
1,706 |
|
2,243 |
|
5,679 |
|
7,272 |
|
||||
Occupancy and equipment |
|
421 |
|
682 |
|
1,699 |
|
1,988 |
|
||||
Marketing |
|
101 |
|
127 |
|
357 |
|
402 |
|
||||
Data processing |
|
102 |
|
132 |
|
390 |
|
390 |
|
||||
Deposit and loan servicing costs |
|
277 |
|
346 |
|
610 |
|
941 |
|
||||
Accounting, and legal |
|
192 |
|
101 |
|
661 |
|
801 |
|
||||
Goodwill Impariment |
|
|
|
26,911 |
|
2,653 |
|
26,911 |
|
||||
OREO Expenses |
|
581 |
|
43 |
|
3,227 |
|
106 |
|
||||
Other professional services |
|
357 |
|
41 |
|
683 |
|
174 |
|
||||
Regulatory assessments |
|
223 |
|
90 |
|
1,003 |
|
266 |
|
||||
Telephone and postage |
|
95 |
|
6 |
|
296 |
|
251 |
|
||||
Other Expenses |
|
445 |
|
72 |
|
483 |
|
413 |
|
||||
Total noninterest expense |
|
4,500 |
|
30,794 |
|
17,741 |
|
39,915 |
|
||||
|
|
|
|
|
|
|
|
|
|
||||
Net loss before income taxes |
|
(8,786 |
) |
(40,119 |
) |
(22,884 |
) |
(39,895 |
) |
||||
|
|
|
|
|
|
|
|
|
|
||||
Income tax provision (benefit) |
|
1 |
|
(5,073 |
) |
8,249 |
|
(5,383 |
) |
||||
|
|
|
|
|
|
|
|
|
|
||||
NET LOSS |
|
$ |
(8,787 |
) |
$ |
(35,046 |
) |
$ |
(31,133 |
) |
$ |
(34,512 |
) |
|
|
|
|
|
|
|
|
|
|
||||
Net loss per share: |
|
|
|
|
|
|
|
|
|
||||
Basic |
|
(1.52 |
) |
(6.01 |
) |
(5.37 |
) |
(5.92 |
) |
||||
Diluted |
|
(1.52 |
) |
(6.01 |
) |
(5.37 |
) |
(5.92 |
) |
(1) The period ending data for September 30, 2009 and 2008 are unaudited.
The accompanying notes are an integral part of these unaudited consolidated financial statements.
4
THE BANK HOLDINGS AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS EQUITY AND COMPREHENSIVE INCOME
For the nine month periods ending September 30, 2009, and September 30, 2008 (1) (2)
|
|
Comprehensive Income/Loss |
|
Shares
of |
|
Common |
|
Additional |
|
Retained |
|
Accumulated
Other |
|
Treasury |
|
Total |
|
|||||||
|
|
(in thousands, except per share data) |
|
|||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||
Balance at December 31, 2007 |
|
|
|
5,831,099 |
|
$ |
58 |
|
$ |
73,766 |
|
$ |
2,139 |
|
$ |
(1,126 |
) |
$ |
|
|
$ |
74,837 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||
Adoption of EITF 06-04 |
|
|
|
|
|
|
|
|
|
(1,071 |
) |
|
|
|
|
(1,071 |
) |
|||||||
Purchase of Treasury Stock |
|
|
|
(1,000 |
) |
|
|
|
|
|
|
|
|
(9 |
) |
(9 |
) |
|||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||
Net loss |
|
$ |
(34,512 |
) |
|
|
|
|
|
|
(34,512 |
) |
|
|
|
|
(34,512 |
) |
||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||
Compensation expense related to stock options |
|
|
|
|
|
|
|
211 |
|
|
|
|
|
|
|
211 |
|
|||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||
Amortization of unrealized minimum projected benefit obligation of defined benefit plan |
|
|
|
|
|
|
|
|
|
|
|
49 |
|
|
|
49 |
|
|||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||
Other comprehensive loss: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||
Unrealized holding loss on securities available for sale arising during the year |
|
(13,870 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||
Less reclassification adjustment for gains included in net Income |
|
13,996 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||
Net unrealized holding losses |
|
126 |
|
|
|
|
|
|
|
|
|
126 |
|
|
|
126 |
|
|||||||
Comprehensive Loss |
|
$ |
(34,386 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||
Balance at September 30, 2008 |
|
|
|
5,830,099 |
|
$ |
58 |
|
$ |
73,977 |
|
$ |
(33,444 |
) |
$ |
(951 |
) |
$ |
(9 |
) |
$ |
39,631 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||
Balance at December 31, 2008 |
|
|
|
5,794,179 |
|
$ |
58 |
|
$ |
73,993 |
|
$ |
(36,316 |
) |
$ |
(491 |
) |
$ |
|
|
$ |
37,244 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||
Net loss |
|
$ |
(31,133 |
) |
|
|
|
|
|
|
(31,133 |
) |
|
|
|
|
(31,133 |
) |
||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||
Additional capital contributions to subsidiaries |
|
|
|
|
|
|
|
(304 |
) |
|
|
|
|
|
|
(304 |
) |
|||||||
Compensation expense related to stock options |
|
|
|
|
|
|
|
170 |
|
|
|
|
|
|
|
170 |
|
|||||||
Effect of Forfieture of BOLI and SERP Agreements |
|
|
|
|
|
|
|
|
|
1,512 |
|
|
|
|
|
1,512 |
|
|||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||
Other comprehensive loss: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||
Unrealized holding loss on securities available for sale arising during the year |
|
(526 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||
Less reclassification adjustment for gains included in net income |
|
512 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||
Net unrealized holding losses |
|
(14 |
) |
|
|
|
|
|
|
|
|
|
|
(14 |
) |
(14 |
) |
|||||||
Comprehensive Loss |
|
$ |
(31,147 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
Balance at September 30, 2009 |
|
|
|
5,794,179 |
|
$ |
58 |
|
$ |
73,859 |
|
$ |
(65,937 |
) |
$ |
(505 |
) |
$ |
|
|
$ |
7,475 |
|
(1) The periods September 30, 2009 and 2008 are unaudited.
(2) The periods as of December 31, 2008 and 2007 has been derived from audited financial statements.
The accompanying notes are an integral part of these unaudited consolidated financial statements.
5
THE BANK HOLDINGS AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollars in thousands)
|
|
For the Nine Months Ended |
|
||
|
|
September 30, (1) |
|
||
|
|
2009 |
|
2008 |
|
CASH FLOWS FROM OPERATING ACTIVITIES: |
|
|
|
|
|
Net loss |
|
(31,133 |
) |
(34,512 |
) |
Adjustments to reconcile net earnings to cash provided by operating activities |
|
|
|
|
|
Depreciation |
|
429 |
|
647 |
|
Provision for deferred tax asset |
|
8,248 |
|
|
|
Provision for loan losses |
|
17,259 |
|
1,440 |
|
Provision for OREO allowance |
|
2,368 |
|
|
|
Impairment of Goodwill |
|
2,653 |
|
26,911 |
|
Net losses on AFS securities |
|
531 |
|
13,966 |
|
Net amortization of securities |
|
88 |
|
201 |
|
Stock option compensation expense |
|
170 |
|
211 |
|
Amortization of prior service costs |
|
11 |
|
|
|
Amortization of intangible |
|
43 |
|
105 |
|
Gain on forfeiture of deferred compensation plans |
|
2,750 |
|
|
|
Activity in exchange assets net |
|
(200 |
) |
(3,201 |
) |
Activity of trading securities, net |
|
(83 |
) |
(4,645 |
) |
Unrealized loss/(gain) on trading securities |
|
|
|
987 |
|
Other |
|
(9,689 |
) |
(1,373 |
) |
NET CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES |
|
(6,755 |
) |
737 |
|
|
|
|
|
|
|
CASH FLOWS FROM INVESTING ACTIVITIES |
|
|
|
|
|
Purchases of securities AFS |
|
(76,437 |
) |
(16,679 |
) |
Purchases of securities HTM |
|
|
|
(32,912 |
) |
Proceeds of sales of securities AFS |
|
38,071 |
|
19,989 |
|
Proceeds from maturities and calls AFS |
|
2,160 |
|
|
|
Proceeds of sales of securities HTM |
|
3,185 |
|
32,409 |
|
Proceeds from maturities and calls HTM |
|
254 |
|
|
|
Activities in non-marketable securities, net |
|
282 |
|
(1,515 |
) |
Net (increase)/decrease in loans |
|
54,716 |
|
18,808 |
|
Proceeds from sale of foreclosed real estate |
|
299 |
|
|
|
Proceeds from forfeiture of BOLI |
|
9,281 |
|
|
|
Net addition of ORE owned |
|
(16,244 |
) |
(2,110 |
) |
Other |
|
1,344 |
|
921 |
|
NET CASH PROVIDED BY (USED IN) INVESTING ACTIVITIES |
|
16,911 |
|
18,911 |
|
|
|
|
|
|
|
CASH FLOWS FROM FINANCING ACTIVITIES |
|
|
|
|
|
Net (decrease)/increase in demand & savings |
|
34,786 |
|
(27,429 |
) |
Net increase/(decrease) in time deposits |
|
(15,919 |
) |
37,128 |
|
Net increase/(decrease) in borrowings |
|
(1,940 |
) |
(36,110 |
) |
NET CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES |
|
16,927 |
|
(26,411 |
) |
|
|
|
|
|
|
Net change in cash and equivalents |
|
27,083 |
|
(6,763 |
) |
|
|
|
|
|
|
Cash & equivalents @ beginning of year |
|
23,108 |
|
14,180 |
|
|
|
|
|
|
|
CASH AT END OF PERIOD |
|
50,191 |
|
7,417 |
|
(1) The periods ending September 30, 2009 and 2008 are unaudited.
The accompanying notes are an integral part of these unaudited consolidated financial statements.
6
THE BANK HOLDINGS AND SUBSIDIARIES
Notes to Consolidated Financial Statements (Unaudited)
September 30, 2009
NOTE 1 THE BUSINESS OF THE BANK HOLDINGS
Nature of Banking Activities
The Bank Holdings is a bank holding company, which provides a full range of banking services to commercial and consumer customers through its wholly owned subsidiary, Nevada Security Bank (the Bank). The Bank has four banking offices in northern Nevada. There is one office in northern California, separately branded as Silverado Bank.
The Company, during the first quarter of 2006 acquired two qualified intermediary companies; Rocky Mountain Exchange and Granite Exchange, Inc., which facilitate tax-deferred real estate transactions under Section 1031 of the Internal Revenue Code. The Company closed the Rocky Mountain Exchange office located in Bozeman Montana effective July 31, 2008 and sold Granite Exchange on June 30, 2009 resulting in a realized loss of $47,000. Qualified intermediaries select the financial institution to hold the depositor accounts created as part of the exchange transactions. As of September 30, 2009 only the Rocky Mountain Exchange subsidiary is consolidated.
The Companys other direct subsidiaries are The Bank Holdings Statutory Trust I, a Connecticut statutory trust which was formed in November 2005, to solely facilitate the issuance of variable rate capital trust pass through securities and NNB Holdings Statutory Trust I which was formed in June 2005 as a subsidiary of NNB Holdings, Inc., and was acquired by the Company in the merger with NNB Holdings, Inc. NNB Holdings Statutory Trust I is a Delaware Statutory Trust also formed to facilitate the issuance of capital trust pass through securities. As required by the Consolidation of Variable Interest Entities (ASC 810-10-25 or 810-10-50-12 and 50-13 ) topic of the FASB accounting standards codification, The Bank Holdings Statutory Trust I and NNB Holdings Statutory Trust I are not reflected on a consolidated basis in the financial statements of the Company.
These entities are collectively referred to herein as the Company. The accounting and reporting policies of the Company conform to accounting principles generally accepted in the United States of America and general practices within the banking industry.
NOTE 2 GOING CONCERN AND REGULATORY ACTIONS
Going Concern
Our Company has been significantly and adversely impacted by the continued decline in economic conditions in the U.S., the western states, and more specifically, northern California and northern Nevada. The Company faces unprecedented challenges with the increasing level of non-performing loans, the steep declines in the underlying value of real estate collateral and the greater loan loss provisions required. Stockholders equity has decreased from $37 million at December 31, 2008 to $7 million at September 30, 2009 or from 6.7% of total assets at December 31, 2008 to 1.4% currently as a result of year-to-date loan loss provisions of $17 million, a valuation allowance for deferred taxes of $8 million, OREO write-downs of $3 million, a goodwill impairment of $2 million, and an increase in non-performing assets and steep increases in deposit insurance premiums. As a result of these items, our Company is deemed to be under capitalized as of September 30, 2009. These conditions create a substantial doubt about our Companys ability to continue as a going concern. The accompanying consolidated financial statements have been prepared on a going concern basis, which contemplates the
7
realization of assets and the reduction of liabilities in the normal course of business for the foreseeable future, and do not include any adjustments to reflect the possible future effects on the recoverability and classification of assets, or the amounts and classification of liabilities that may result from the outcome of our Companys inability to repay the outstanding principal balance of its debt or from any extraordinary regulatory action, either of which could affect its ability to continue as a going concern.
The Company has taken certain steps in an effort to continue with safe and sound banking practices and has engaged Sandler ONeill, and Partners, LP to assist in seeking additional capital. Further, the Company has exercised its contractual right to defer the interest (accrued and deferred interest at September 30, 2009 totaled $369,000) on junior subordinated debt (Trust Preferred Securities), and has taken a number of actions to reduce costs and reduce commercial real estate loan concentrations, to maintain a safe and sound institution.
Regulatory Actions
As we reported in our Form 8-K filed with the SEC on June 29, 2009, our Bank entered into a stipulation and consent to the Issuance of an Order to Cease and Desist with the Federal Deposit Insurance Corporation (FDIC) and the Nevada Financial Institutions Division (NFID).
The Order is a formal corrective action pursuant to which our Bank has agreed to address specific areas through the adoption and implementation of certain procedures and policies designed to enhance the safety and soundness of our Bank. These actions include, among other things, an enhanced methodology for determining the adequacy of the allowance for loan and lease losses, an updated plan for reducing brokered deposits and commercial real estate loans, and the development of a capital plan to increase and subsequently maintain specified capital levels by certain dates. The Order specifies that we will prepare and submit progress reports to the FDIC and NFID regarding our compliance with the Order. The Order will remain in effect until modified or terminated by the FDIC and NFID.
As a result of being deemed under capitalized under the prompt corrective action rules, our Bank is subject to certain regulatory restrictions. These include, among others, that our Bank may not make any capital distributions, must submit an acceptable capital restoration plan to the FDIC and may not increase the average total assets during a calendar quarter to exceed 5% of its average total assets during the preceding calendar quarter, may not acquire a business, establish or acquire a branch office, or engage in a new line of business and may not increase the level of brokered deposits.
Further, in a letter dated August 6, 2009, the Federal Reserve Bank of San Francisco designated the Company to be in a troubled condition and that the Reserve Bank will be pursuing an enforcement action to ensure that the holding company acts as a source of strength to its subsidiary bank. Details of this supervisory action are to be delivered under separate correspondence at a later date, which has not been received.
Compliance Efforts
As previously disclosed by the Company, many of the corrective actions requested by regulators were initiated in prior periods by management and the Board of Directors. These activities included reducing loan concentrations, maintaining an adequate allowance for loan and lease losses, reducing brokered deposits held by the Bank and preserving capital and enhancing operations.
8
NOTE 3 BASIS OF PRESENTATION
Principles of Consolidation and Basis of Presentation
On July 9, 2003, the stockholders of Nevada Security Bank approved the exchange of their common stock in Nevada Security Bank for common stock in the newly formed holding company, The Bank Holdings. This transaction was consummated on August 29, 2003 and was accounted for at historical cost. Nevada Security Bank was organized on February 26, 2001 and opened for business on December 27, 2001. The consolidated financial statements include the accounts of The Bank Holdings and its wholly-owned subsidiaries, Nevada Security Bank and Rocky Mountain Exchange. Former subsidiary Granite Exchange Inc. was sold on June 30, 2009 and no related accounts are included herein. All significant inter-company balances and transactions have been eliminated in consolidation.
Use of Estimates
The accompanying unaudited consolidated financial statements of the Company and its subsidiaries have been prepared in a condensed format, and therefore do not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. The information furnished in these interim statements reflects all adjustments which are, in the opinion of management, necessary for a fair statement of the results for each respective period presented. Such adjustments are of a normal recurring nature, unless otherwise disclosed in this Form 10-Q.
Operating results for the nine month period ended September 30, 2009, are not necessarily indicative of the results that may be expected in future periods. The balance sheet at December 31, 2008 is derived from the audited financial statements at that date, but this Form 10-Q document does not include all of the information and footnotes required by generally accepted accounting principles for complete annual financial statements. The interim financial information should be read in conjunction with the Companys 2008 Annual Report on Form 10-K.
Analysis of certain interim financial information has been presented for both end-of-period and reporting period average balances. It is anticipated that for historical review, average balances may be more pertinent to eliminate seasonality, quarter-end growth anomalies, and computational rounding.
In preparing consolidated financial statements in conformity with accounting principles generally accepted in the United States of America and general practices within the banking industry, management is required to make estimates and assumptions that affect the reported amount of assets and liabilities as of the date of the balance sheet and reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. Material estimates that are particularly susceptible to significant change in the near term relate to the determination of the allowance for loan losses, OREO valuations, loan origination costs, equity-based compensation, goodwill and income taxes.
Operating Segment Information
We manage our operations and prepare management reports and other information with a primary focus on lines of business. As of September 30, 2009, we operated one bank located in two distinctive regional markets in two states, and we had one inactive qualified intermediary company. The operating segments are separated into parent, bank, and non-bank financial services. Such segment reporting eliminates transactions between noted operating areas, and the accounting policies of the individual segments are the same as those of the Company. Transactions between operating segments are conducted at fair value, resulting in profits that are eliminated for reporting consolidated results of operations.
9
Table 8 presents selected operating segment information for the three and nine month periods ended September 30, 2009 and 2008.
Loans
The Company grants real estate, commercial, and consumer loans to customers. A substantial portion of the loan portfolio is represented by real estate related loans throughout northern Nevada and northern California. The ability of the Companys borrowers to honor their contracts is dependent upon the real estate market and general economic conditions in these areas. Both of these areas have been severely impacted by the substantial downturn in national, regional and state economic conditions, the continued effects of which management believes have not yet been made fully apparent. Such an economic cycle may last for more than one year, and bring about further deterioration in loan quality as exhibited in Table 5.
As required by the Fair Value Option of Financial Assets and Financial Liabilities (ASC 825-10-25 or 825-10-50-3), and Fair Value Measurement (ASC 820-10-35 or 820-10-50-1 ) topics of the FASB accounting standards codification, loans are reported at their outstanding unpaid principal balances reduced by the allowance for loan losses, and any deferred fees or costs on originated loans. Interest income is accrued on the unpaid principal balance. The Company purchased SBA/USDA loans during 2003 and 2004, when the loan portfolio was smaller than the investment portfolio, and sold the last of these fair value USDA loans during April, 2009.
We manage asset quality and control credit risk through the application of policies, practices and procedures designed to promote sound underwriting and loan monitoring, and the diversification of the loan portfolio. The loan administration function is charged with monitoring asset quality and establishing credit policies, practices and procedures which are thorough and consistently enforced.
Income Taxes
According to the Accounting for Uncertainty in Income Taxes (ASC 740-10-25), and Accounting for Income Taxes (ASC 740-10-30) topics of the FASB accounting standards codification, clarifies criteria that an individual tax position would have to meet for some or all of the income tax benefit to be recognized in a taxable entitys financial statements. Under these guidelines an entity should recognize the financial statement benefit of a tax position it determines is more likely than not that the position will be sustained on examination.
The Company files its income taxes on a consolidated basis with its subsidiaries. The allocation of income tax expense represents each entitys proportionate share of the consolidated provision for taxes. Deferred income tax assets and liabilities are determined using the liability (or balance sheet) method. Under this method, the net deferred tax asset or liability is determined based on the tax effects of the temporary differences between the book and tax bases of the various balance sheet assets and liabilities and gives current recognition to changes in tax rates and laws. Therefore, deferred taxes are recognized for the tax consequences of temporary differences by applying enacted statutory tax rates applicable to future years to differences between the financial statement carrying amounts and the tax basis of existing assets and liabilities. The effect on deferred taxes of a change in tax rates would be recognized in income in the period that includes the enactment date. The Company uses an estimate of future earnings to support its position that the benefit of its deferred tax assets will be realized. If future income should prove non-existent or not sufficient to recover the amount of the deferred tax assets within the tax years to which they may be applied, the assets may not be realized and the Companys net income could be reduced. As of June 30, 2009, the Company provided a valuation allowance of $8 million for the deferred tax asset due to going concern issues previously noted.
10
The Company has previously set aside a provision for income taxes on a monthly basis. The amount of the tax provision was determined by applying the Companys statutory income tax rates to pre-tax book income, adjusted for permanent differences between pre-tax book income and actual taxable income. Such permanent differences include but are not limited to tax-exempt interest income; previously taken increases in the cash surrender value of bank-owned life insurance, certain expenses that are not allowed as tax deductions, and tax credits. As of September 30, 2009 no such expense has been provided; rather, a valuation allowance of $8 million against all outstanding deferred tax assets was previously established to reflect the likelihood of collection of the Companys deferred tax asset. At September 30, 2009 no deferred tax assets were outstanding.
Reclassification
Various reclassifications may have been made in prior periods in order to be consistent with the presentation as of September 30, 2009. Further, certain captions may have minor revisions to more accurately reflect current activities of the Company. There were no changes to previously reported stockholders equity, net loss or earnings per share.
NOTE 4 SECURITIES
The amortized cost and fair value of securities with gross unrealized gains and losses are as follows:
|
|
As of September 30, 2009 |
|
||||||||
|
|
Amortized |
|
Gross |
|
Gross |
|
Fair |
|
||
Securities available for sale |
|
|
|
|
|
|
|
|
|
||
|
|
|
|
|
|
|
|
|
|
||
Treasuries |
|
$ |
|
|
|
|
|
|
$ |
|
|
US Govt agencies |
|
5,960 |
|
50 |
|
|
|
6,010 |
|
||
Mortgage-backed |
|
67,339 |
|
1,027 |
|
(199 |
) |
68,167 |
|
||
Corporate bonds |
|
1,221 |
|
|
|
(1,076 |
) |
145 |
|
||
State & municipal |
|
9,785 |
|
37 |
|
(345 |
) |
9,477 |
|
||
|
|
|
|
|
|
|
|
|
|
||
Total securities available for sale |
|
84,305 |
|
1,114 |
|
(1,620 |
) |
83,799 |
|
||
11
|
|
As of December 31, 2008 |
|
||||||||||
|
|
Amortized |
|
Gross |
|
Gross |
|
Fair |
|
||||
|
|
(Dollars in thousands) |
|
||||||||||
Securities available for sale |
|
|
|
|
|
|
|
|
|
||||
Corporate |
|
$ |
1,316 |
|
$ |
15 |
|
$ |
|
|
$ |
1,331 |
|
Preferred securities |
|
503 |
|
|
|
(68 |
) |
435 |
|
||||
Total securities available for sale |
|
1,819 |
|
15 |
|
(68 |
) |
1,766 |
|
||||
|
|
|
|
|
|
|
|
|
|
||||
Securities held to maturity |
|
|
|
|
|
|
|
|
|
||||
U.S. Government and federal agencies |
|
6,033 |
|
165 |
|
|
|
6,198 |
|
||||
State and municipal |
|
16,227 |
|
20 |
|
(992 |
) |
15,255 |
|
||||
Corporate |
|
250 |
|
|
|
(10 |
) |
240 |
|
||||
Mortgage-backed |
|
36,245 |
|
428 |
|
(138 |
) |
36,535 |
|
||||
Total securities held to maturity |
|
58,755 |
|
613 |
|
(1,140 |
) |
58,228 |
|
||||
Total investment securities |
|
$ |
60,574 |
|
$ |
628 |
|
$ |
(1,208 |
) |
$ |
59,994 |
|
|
|
|
|
|
|
|
|
|
|
||||
Trading equity securities |
|
$ |
102 |
|
$ |
|
|
$ |
(19 |
) |
$ |
83 |
|
Information pertaining to securities with gross unrealized losses at September 30, 2009, aggregated by investment category and length of time that individual securities have been in a continuous loss position, are as follows:
|
|
As of September 30, 2009 |
|
||||||||||
|
|
Less than 12 Months |
|
Over 12 Months |
|
Total |
|
||||||
|
|
Fair Value |
|
Gross |
|
Fair Value |
|
Gross |
|
Fair Value |
|
Gross |
|
Securities Available for Sale |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Treasuries |
|
|
|
|
|
|
|
|
|
|
|
|
|
US Govt agencies |
|
|
|
|
|
|
|
|
|
|
|
|
|
Mortgage-backed |
|
18,639 |
|
(198 |
) |
203 |
|
(1 |
) |
18,842 |
|
(199 |
) |
Corporate bonds |
|
145 |
|
(1,076 |
) |
|
|
|
|
145 |
|
(1,076 |
) |
State & Municipal |
|
258 |
|
(28 |
) |
7,990 |
|
(317 |
) |
8,248 |
|
(345 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Investment Securities |
|
19,042 |
|
(1,302 |
) |
8,193 |
|
(318 |
) |
27,235 |
|
(1,620 |
) |
During the third quarter of 2009, the Company transferred mortgage-backed securities with a carrying and fair value of approximately $1.2 million from its held-to-maturity investment portfolio to its available-for-sale investment portfolio. This transfer was made in light of the Companys determination of substantial doubt impacting its ability to continue as a going concern, and correspondingly, its ability to hold its investment securities to maturity. The estimated fair value of the transferred mortgage-backed securities approximated the carrying amount. Accordingly, no realized gain or loss was recorded upon the transfer.
12
|
|
As of December 31, 2008 |
|
||||||||||||||||
|
|
Less Than |
|
Over |
|
Total |
|
||||||||||||
|
|
Fair |
|
Gross |
|
Fair |
|
Gross |
|
Fair |
|
Gross |
|
||||||
|
|
(Dollars in thousands) |
|
||||||||||||||||
Securities available-for-sale |
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
Preferred securities |
|
$ |
435 |
|
$ |
(68 |
) |
$ |
|
|
$ |
|
|
$ |
435 |
|
$ |
(68 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
Securities held-to-maturity |
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
State and municipal |
|
13,762 |
|
(914 |
) |
1,059 |
|
(78 |
) |
14,821 |
|
(992 |
) |
||||||
Corporate |
|
240 |
|
(10 |
) |
|
|
|
|
240 |
|
(10 |
) |
||||||
Mortgage-backed securities |
|
8,223 |
|
(94 |
) |
2,904 |
|
(44 |
) |
11,127 |
|
(138 |
) |
||||||
|
|
$ |
22,225 |
|
$ |
(1,018 |
) |
$ |
3,963 |
|
$ |
(122 |
) |
$ |
26,188 |
|
$ |
(1,140 |
) |
Impairment Analysis
Market prices are affected by general market conditions which reflect prospects for the economy as a whole and by industry specific information as well as information specific to an obligor. Such declines are investigated by management. Acting upon the premise that a write-down may be required, the Company considers all available evidence in its evaluation of whether the decline is other-than-temporary.
The Company begins by evaluating whether an event or change in circumstances has occurred in the quarter that may have a significant adverse effect on the fair value of the investment (an impairment indicator). Impairment indicators include, but are not limited to:
· A significant deterioration in the earnings performance, credit rating, asset quality, or business prospects of the issuer.
· A significant adverse change in the regulatory, economic, or technological environment of the issuer.
· A significant adverse change in the general market condition of either the geographic area or the industry in which the issuer operates.
· A bona fide offer to purchase (whether solicited or unsolicited), an offer by the issuer to sell, or a completed auction process for the same or similar security for an amount less than the cost of the investment.
· Factors that raise significant concerns about the issuers ability to continue as a going concern, such as negative cash flows from operations, working capital deficiencies, or noncompliance with statutory capital requirements or debt covenants.
Numerous factors are considered in such an evaluation and their relative significance varies from case to case. The Company believes that the following factors may, individually or in combination, indicate that a security should be evaluated further to determine if a decline may be other-than-temporary and that a write-down of the carrying value may be required:
· The length of the time and the amount of price severity in which the market value has been less than cost.
· External credit rating declines.
· The financial condition and near-term prospects of the issuer, including any specific events which may influence the operations of the issuer such as changes in market conditions, technology that
13
may impair the earnings potential of the investment or the discontinuance of a segment of the business that may affect the future earnings potential.
· The intent and ability of the Company to retain its investment in the issuer for a period of time sufficient to allow for any anticipated recovery in fair value.
The Companys OTTI evaluation process is performed in a consistent, systematic, and rational manner and includes a disciplined evaluation of all available evidence. This process is applied at the individual security level and considers the causes, severity, length of time and anticipated recovery period of the impairment. Consideration is also given to managements intent and ability to hold the security over the anticipated recovery period and the likelihood that the Company will be required to sell the securities before recovery of the amortized cost.
An investment security is considered impaired if the fair value of the security is less than its cost basis. Once the security is considered impaired, a determination must be made to see if the impairment is other-than-temporary. If the security is considered other-than-temporarily impaired, an impairment loss is recorded to non-interest income. As required by the Impairment of Individual Available-for-Sale and Held-to-Maturity Securities (ASC 320-10-35 or 320-10-50-5) topic of the FASB accounting standards codification, the OTTI assessment segment is based on the performance of the issuer for corporate or municipal bonds or the collateral in the case of structured securities. The financial performance is evaluated to determine if it will adversely affect the contractual cash flows of the related security. The evaluation for OTTI utilizes the best estimate of cash flows from a market participants perspective to determine fair value incorporating the risk of defaults.
Fair values obtained from an independent third party or from third party pricing in combination with the internal pricing models are used as part of the evaluation of OTTI. If current pricing indicates a price decline, the Company considers securities with significant price declines or deterioration in fair value in conjunction with the duration of such to determine whether an OTTI evaluation is required.
Once the evaluation has been completed a determination is made whether an individual security is considered OTTI. The OTTI amount is recorded as impairment on investment securities in the period in which it occurs. Once the security is written down, it may not be written up unless the write-up is through yield accretion for the securities as permitted by the appropriate accounting guidance. Furthermore, securities may continue to incur further OTTI after an initial write-down. These further write-downs shall be analyzed with respect to the new basis of the security that was established from any previous write-down(s). The written down value of the security then becomes the new cost basis of the security.
The unrealized losses associated with AAA rated U.S. Government and federal agencies and agency MBS securities are caused by changes in interest rates and are not considered credit related since the contractual cash flows of these investments are backed by the full faith and credit of the U.S. government. Unrealized losses that are related to the prevailing interest rate environment will decline over time and recover as these securities approach maturity.
The unrealized losses in the state and municipal securities portfolio are due to widening credit spreads caused by concerns about the bond insurers associated with these securities. With the exception of four securities, each security has a credit rating of at least BBB. The other four securities are not rated. The Company believes that all contractual cash flows will be received on this portfolio.
The non-agency MBS securities portfolio has experienced various levels of price declines over the past twelve months due to the current securities market environment and the currently limited secondary
14
market for such securities. Management monitors the actual mortgage delinquencies, foreclosures and losses for each security, as well as future expected losses in the underlying mortgage collateral to determine if there is a high probability for expected losses and contractual shortfalls of interest or principal, which could warrant recognition of impairment. At September 30, 2009, these securities held an AAA credit rating and the Company believes that all contractual cash flows will be received on this portfolio.
The unrealized losses in the corporate securities portfolio are associated with the widening spreads in the financial sector of the corporate bond market.
At September 30, 2009, many investment securities have unrealized losses that are considered temporary in nature because the decline in fair value was caused by the interest rate environment, widening spreads and a market liquidity crisis brought about by a lack of investor confidence; such unrealized losses are not caused by cash flow impairment. The Company has the intent and ability to hold these securities until recovery, which may be to their normal maturity and it is unlikely that the Company will be required to sell the securities before recovery of their amortized cost. The Company has evaluated its liquidity position in light of the Cease and Desist Order and believes it is not more likely than not that the Company will be required to sell the securities in unrealized loss positions before recovery of the amortized cost.
At September 30, 2009 and December 31, 2008, securities in the investment portfolio with a carrying value of $51 million and $40 million, respectively, were pledged as collateral for other purposes as required or permitted by law. Of the amounts pledged, $50 million was pledged for FHLB borrowing as of September 30, 2009, and $1 million was pledged to support public deposits.
The amortized cost and fair value of debt securities by contractual maturity at September 30, 2009 is shown below. Over certain interest rate environments, some or all of these securities may be called for redemption by their issuers prior to the scheduled maturities. Further, maturities within the mortgage-backed securities portfolio may differ from scheduled and contractual maturities because the mortgages underlying the securities may be called for redemption or repaid without penalties. Therefore, these securities are not reflected in any of the maturity categories in the following maturity summary.
|
|
Available for Sale |
|
||||
|
|
Amortized |
|
Fair Value |
|
||
Within one year |
|
$ |
1,006 |
|
$ |
1,022 |
|
After 1 year through 5 years |
|
131 |
|
153 |
|
||
After 5 years through 10 years |
|
4,954 |
|
4,987 |
|
||
After 10 years |
|
10,875 |
|
9,470 |
|
||
|
|
$ |
16,966 |
|
$ |
15,632 |
|
NOTE 5 FAIR VALUE MEASUREMENT
As required by the Fair Value Measurements (ASC 820-10-35 or 820-10-50-1 through 50-3; 820-10-50-8) and Fair Value Option (ASC 825-10-25) topics of the FASB accounting standards the Company utilizes defined methods available to appropriately measure fair value in accordance with generally accepted accounting principles whenever other accounting pronouncements require or permit fair value measurements.
15
Pursuant to the fair value accounting standards, the inputs to valuation techniques are prioritized to measure fair value in three broad levels (Levels 1, 2 and 3). Level 1 inputs are unadjusted quoted prices in active markets for identical assets or liabilities that the reporting entity has the ability to access at the measurement date. Level 2 inputs are inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly or indirectly. Level 3 inputs are unobservable inputs for the asset or liability and reflect the reporting entitys own evaluation about the assumptions that market participants would use in pricing the asset or liability.
Available for sale securities are valued based upon open-market quotes obtained from reputable third-party brokers. Market pricing is based upon specific CUSIP identification for each individual security. Changes in fair value are recorded in other comprehensive income. Trading securities are valued based on open market quotes obtained from reputable third party brokers and pricing is based upon specific identification for each individual security. Changes in fair value are reported in the statement of operations.
As required by the Loan Impairment (ASC 310-40-35) topic of the FASB accounting standards codification, the fair value measurements for impaired loans are based upon either collateral values supported by appraisals, or discounted cash flow assumptions. Approximately $39.6 million or 90.4% of the impaired loans at September 30, 2009 have collateral to support their fair values. Adjustments for fair value of impaired loans are a component in determining the overall adequacy of the loan loss reserve. Consequently, adjustments to the estimated fair value of impaired loans may result in increases or decreases to the provision for loan losses recorded in current earnings.
Fair value measurements for other real estate owned (OREO) are based upon collateral values supported by appraisals. Changes in the estimated fair value of OREO are recorded in the statement of operations. Disclosures for impaired loans require that the practical expedient (observable market price or the fair value of collateral if the loan is collateral dependent) is a fair value measurement and, therefore, is included in the scope of the non-recurring disclosure requirements.
As required by the Fair Value Measurements (ASC 820-10-35 or 820-10-50-2) topic of the FASB accounting standards codification, the Company performs fair value measurements on certain assets as the result of the application of accounting guidelines and pronouncements that were relevant prior to the adoption of these standards. Some fair value measurements, such as for available-for-sale and trading securities and fair value USDA loans are performed on a recurring basis, while others, such as impairment of loans and goodwill, are performed on a non-recurring basis.
The following table summarizes the Companys financial instruments that were measured at fair value on a recurring basis as of September 30, 2009. At this date there were no trading account assets, nor fair value USDA loans.
Description |
|
September 30, |
|
Quoted Prices in |
|
Significant Other |
|
Significant |
|
||||
|
|
(Dollars in thousands) |
|
||||||||||
Securities Available for Sale |
|
$ |
82,603 |
|
$ |
|
|
$ |
82,603 |
|
$ |
|
|
Total |
|
$ |
82,603 |
|
$ |
|
|
$ |
82,603 |
|
$ |
|
|
16
The following table summarizes the Companys assets and liabilities measured at fair value on a non-recurring basis, as of September 30, 2009.
|
|
September 30, |
|
Quoted Prices in |
|
Significant Other |
|
Significant |
|
||||
Intangible Assets |
|
$ |
1,406 |
|
$ |
|
|
|
|
$ |
1,406 |
|
|
Impaired Loans |
|
43,753 |
|
|
|
|
|
43,753 |
|
||||
OREO |
|
18,400 |
|
|
|
|
|
18,400 |
|
||||
Other Assets DPC |
|
1,804 |
|
|
|
|
|
1,804 |
|
||||
Total |
|
$ |
65,363 |
|
$ |
|
|
$ |
|
|
$ |
65,363 |
|
NOTE 6 SHARE BASED COMPENSATION
Stock Option Plan
The Company has a stock based employee compensation plan, which is more fully described in Note 14 of the Companys 2008 annual report on Form 10-K. The Company accounts for stock based compensation as required by the Accounting for Share Based Payments (ASC 718-10-30) topic of the FASB accounting standards codification. The Company requires all share-based payments to employees, including grants of employee stock options to be recognized in the financial statements based on the grant-date fair value of the award. The fair value is amortized over the implied service period (generally the vesting period).
Included in salaries and benefits for the nine months ending September 30, 2009 and 2008, was $170,000 and $211,000 of share-based compensation, respectively. The related tax benefit on share-based compensation was not material to either quarter. There were no stock options granted during the nine month period ending September 30, 2009 or 2008, and the stock option plan was terminated by Board action during May, 2009. The termination of the Plan did not affect options granted prior to the termination.
NOTE 7 DEFERRED COMPENSATION
As required by the Accounting for Deferred Compensation and Postretirement Benefit Aspect of Endorsement Split-Dollar Life Insurance Arrangements (ASC 715-60-55) topic which was effective for fiscal years beginning after December 17, 2007, the Company recorded an initial liability of $1.6 million with an offsetting adjustment to retained earnings of $1.1 million and deferred taxes of $0.5 million, on January 1, 2008. On March 11, 2009 the senior officers of the Company entered into an Agreement to terminate executive supplemental compensation and split dollar agreements in exchange for $10,000 per senior officer. The Company recorded a reduction in the liability and reversed earlier related adjustments during the first quarter of 2009. Further, we recorded non-interest income related to the gain on settlement of the deferred compensation plans equal to $2.8 million during the first quarter of 2009, and reduced this to $2.7 million during the second quarter as a result of payment adjustments. As a result of these forfeitures, total capital was enhanced by approximately $4 million during the first quarter of 2009.
17
NOTE 9 LOSS PER SHARE
Income (loss) per share for all periods presented in the unaudited Consolidated Statements of Operations are computed based on the weighted average number of shares outstanding during each period. Options outstanding as of September 30, 2009 totaled 621,664. The computation of basic and diluted earnings (loss) per weighted average share outstanding is as follows:
|
|
Quarter Ending |
|
Nine Months Ending |
|
||||||||
|
|
September 30, |
|
September 30, |
|
||||||||
|
|
2009 |
|
2008 |
|
2009 |
|
2008 |
|
||||
|
|
|
|
|
|
|
|
|
|
||||
Average number of common shares outstanding |
|
5,794,179 |
|
5,830,099 |
|
5,794,179 |
|
5,830,437 |
|
||||
Effect of dilutive options (1) |
|
|
|
|
|
|
|
2,736 |
|
||||
Average number of common shares outstanding used to calculate diluted earnings per common share |
|
5,794,179 |
|
5,830,099 |
|
5,794,179 |
|
5,833,173 |
|
||||
|
|
|
|
|
|
|
|
|
|
||||
Net loss |
|
$ |
(8,787 |
) |
$ |
(35,046 |
) |
$ |
(31,133 |
) |
$ |
(34,512 |
) |
Basic net loss per share |
|
(1.52 |
) |
(6.01 |
) |
(5.37 |
) |
(5.92 |
) |
||||
Diluted net loss per share |
|
(1.52 |
) |
(6.01 |
) |
(5.37 |
) |
(5.92 |
) |
||||
(1) There were 659,886 anti-dilutive weighted shares which have been excluded from the diluted weighted shares outstanding at September 30, 2009 and 711,529 at September 30, 2008. All common stock equivalents are anti-dilutive when a net loss is incurred.
NOTE 10 OTHER BORROWED FUNDS
The Company has an agreement with the Federal Home Loan Bank of San Francisco (FHLB) to borrow funds. Advances are collateralized by qualifying assets pursuant to collateral agreements with the FHLB. There were no balances outstanding under the overnight advance agreements as of September 30, 2009, and December 31, 2008, respectively; however, there were short term advances in the amount of $25 million outstanding as of September 30, 2009 and $27 million outstanding as of December 31, 2008. There was $26 million available under this borrowing arrangement as of September 30, 2009, as compared to $116 million available as of December 31, 2008 when the borrowing lines were collateralized with real estate loans. Since that time, the real estate loan collateral has been withdrawn by the Bank, and pledged securities are the only form of collateral held at the FHLB.
Other borrowed funds include $20.6 million of subordinated debentures. The Company originally issued $15.5 million of these debentures and the additional $5.1 million in debentures were acquired in the merger with NNB Holdings, Inc.
The Company has elected to defer regularly scheduled interest payment on the Companys outstanding $20.6 million of junior subordinated debentures relating to its outstanding trust preferred securities (the Securities). The terms of the Securities and the trust documents allow the Company to defer payments of interest for up to 20 consecutive quarterly periods without default. During the deferral period, the respective trusts will likewise suspend the declaration and payment of dividends on the trust preferred securities. The decision to defer payments is based upon the current challenging economic conditions allowing the Company to temporarily retain these funds. This deferral will allow the company to preserve liquidity, and the ability to exercise such an option was an important factor in the Companys original decision to issue this type of securities.
The deferral election began with respect to regularly scheduled quarterly interest payments that would otherwise have been made June 15 of this year. The Company sent appropriate notices to the trustees under each of the respective indentures. The Company has the ability under the Securities to continue to defer interest payments through ongoing, appropriate notices to each of the trustees.
18
NOTE 11 - GOODWILL
As defined by the Goodwill and Other Intangible Assets (ASC 350-20-35) topic of the FASB accounting standards codification, goodwill represents the excess of purchase price over the fair value of net assets acquired because of various business acquisitions. Goodwill must be evaluated at the reporting unit level, which is defined as an operating segment. The standards prohibit the amortization of goodwill, but require that it be tested for impairment at least annually, or more frequently if events or circumstances change, such as adverse changes in the business climate, that would more likely than not reduce the reporting units fair value below its carrying amount. Like most publicly traded financial institutions, the Company experienced a significant decline in its stock price and market capitalization during 2008. In conjunction with these declines and the ongoing turmoil in the financial markets, the Company reduced the carrying value of its goodwill resulting from the 2006 acquisitions of Northern Nevada Bank, Granite Exchange and Rocky Mountain Exchange during the third quarter of 2008. The Company has seen a further decline during 2009, and performed the analysis during the second quarter of this year. In the past the analysis of goodwill occurred during the fourth quarter, however, given the volatile trading patterns and values seen in NYSE and NASDAQ activities, it is believed that the goodwill evaluation would best be performed before year end.
The Company contracted with an independent valuation firm to assist in the valuation of the Companys goodwill: they utilized three general approaches in its evaluation: 1) the asset-based approach, 2) the market approach and 3) the income approach. The Company used one method within the market approach and one method within the income approach. The method within the income approach was the discounted cash flow method, which relies upon the perception of a future stream of benefits, the present value of which represents the indication of value of the Company. The method within the market approach was the merger and acquisition method. After analysis the various indications of value were then weighted to derive a conclusion as to the fair value of the reporting units.
The Company recorded a $27 million non-recurring, non-cash goodwill impairment charge during the third quarter of 2008 for the goodwill resulting from the NNB, Granite and Rocky Mountain acquisitions. The Company recorded a $3 million non-recurring non-cash goodwill impairment charge during the second quarter of 2009 for the residual goodwill resulting from the NNB acquisition which occurred during November, 2006. This goodwill write down more closely aligned the Companys book value and tangible equity. This non-cash impairment charge is a non-taxable event that did not affect the Banks liquidity, operations, or regulatory capital.
NOTE 12 INCOME TAXES
As required by the Initial Measurement of Income Taxes(ASC 740-10-30) topic of the FASB accounting standard codification, the Company recognizes the financial statement impact of a tax position when it is more likely than not that the position will be sustained upon examination. If the tax position meets the more-likely-than-not recognition threshold, the tax effect is recognized at the largest amount of the benefit that is greater than fifty percent likely of being realized upon ultimate settlement. The standard requires that a liability created for unrecognized tax benefits shall be presented as a liability and not combined with deferred tax liabilities or assets. The application of this standard may also affect the tax basis of assets and liabilities and therefore may change or create deferred tax liabilities or assets.
19
The Company has not previously been examined by any income tax authority. Management believes that in the event of an examination by the taxing authority that it is more likely than not that the reported tax positions will be upheld. Accordingly, because management expects the taxing authority to allow the reported positions when and if examined, the more-likely-than-not recognition threshold has been met.
At June 30, 2009, the Company recorded a full valuation allowance against all deferred tax assets outstanding.
NOTE 13 RECENT ACCOUNTING PRONOUNCEMENTS
In the recent codification of accounting standards, the Interim Disclosures about Fair Value of Financial Instruments (ASC 825-10-65 and ASC 270-10-45 or 270-10-50), require an entity to provide quantitative and qualitative disclosures about fair value of any financial instruments for interim reporting periods as well as in annual financial statements. Prior to issuing this guidance, fair values for these assets and liabilities were only disclosed annually. The Company adopted this guidance in the second quarter of 2009 and has included the required disclosures in Note 17.
In the recent codification of accounting standards, the Recognition and Presentation of Other-Than-Temporary Impairments (ASC 320-10-65 or 320-10-50 or 320-45-8A or -9a) topic is intended to bring greater consistency to the timing of impairment recognition, and provide greater clarity to investors about the credit and non-credit components of impaired debt securities that are not expected to be sold. Further, it replaces the existing requirement that the entitys management assert it has both the intent and ability to hold an impaired security until recovery with a requirement that management assert: (a) it does not have the intent to sell the security; and (b) it is more likely than not it will not have to sell the security before recovery of its cost basis. The standard also requires increased and timelier disclosures sought by investors regarding expected cash flows, credit losses, and an aging of securities with unrealized losses. When adopting these standards, an entity is required to record a cumulative-effect adjustment as of the beginning of the period of adoption to reclassify the non-credit component of a previously recognized other-than-temporary impairment from retained earnings to accumulated other comprehensive income if the entity does not intend to sell the security and it is more likely than not that the entity will not be required to sell the security before recovery. These standards were effective for us during the second quarter of 2009. The adoption of this standard did not have a significant impact on our financial condition or results of operations.
In the recent codification of accounting standards, the 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 (ASC 820-10-65) topic, reaffirms the objective of fair value measurement previously stated to reflect how much an asset would be sold for in an orderly transaction (as opposed to a distressed or forced transaction) at the date of the financial statements under current market conditions. Specifically, it reaffirms the need to use judgment to ascertain if a formerly active market has become inactive and in determining fair values when markets have become inactive. It also requires an entity to base its conclusion about whether a transaction was not orderly on the weight of the evidence. This standard is effective for interim and annual periods after June 30, 2009. The adoption of this guidance has not had a significant impact on our financial condition or results of operations.
In the recent codification of accounting standards, the Disclosures About Derivative Instruments and Hedging Activities, (ASC 815-10-65) topic amends and expands the disclosure requirements of previous standards to provide greater transparency about (i) how and why an entity uses derivative instruments, (ii) how derivative instruments and related hedge items are accounted for, and (iii) how derivative instruments and related hedged items affect an entitys financial position, results of operations and cash flows. To meet those objectives, the standard requires qualitative disclosures about objectives and strategies for using derivatives, quantitative disclosures about fair value amounts of gains and losses on derivative instruments and disclosures about credit-risk-related contingent features in derivative agreements. This standard was effective for the Company on January 1, 2009 and has not had a significant impact on the Companys financial statements.
20
In the recent codification of accounting standards, the Subsequent Events (ASC 855-10-50) topic establishes general statements of accounting for and disclosure of events that occur after the balance sheet date but before financial statements are issued or are available to be issued. In particular, this statement sets forth a) the period after the balance sheet during which management of a reporting entity should evaluate events or transactions that may occur for potential recognition or disclosure in the financial statements, b) the circumstances under which an entity should recognize such events or transactions, and c) the disclosures that should be made. This standard was effective for interim or annual financial periods ending after June 15, 2009 and has not had a significant impact on the Companys financial statements.
In the recent codification of accounting standards, the Recognition and Presentation for Other-Than-Temporary Impairments (ASC 320-10-65 or 320-10-50 or 320-45-8A or -9a) topic, amended a previous bulletin to maintain the Division of Corporation Finances position that equity securities available for sale which experience an other-than-temporary loss should be written down and a realized loss recognized, while removing debt securities from this classification. This codification did not have a significant impact on the Companys financial Statements.
Summary
The list of recent accounting pronouncements and Accounting Standards Codification rules noted above, while not an exhaustive list, includes those which we believe will, or may, have the greatest likelihood of application to the Companys consolidated balance sheets and/or consolidated statements of operations. We believe that adoption of these standards will not have a material impact on our financial condition or results of operations, loss per share or cash flow unless otherwise noted; however, no absolute assurance can be given that this in fact, will occur.
NOTE 14 SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
During the nine months ended September 30, 2009 and 2008, cash paid for interest expense on interest bearing liabilities was $11.8 million and $12.5 million, respectively. There was $9 million of real estate acquired in the settlement of loans for the three month period ending September 30, 2009, $18 million for the YTD period ending September 30, 2009 and $3.5 million for the YTD period ending September 30, 2008. During the nine month periods ended September 30, 2009 no cash was paid for income taxes, however, $864,000 was paid during the same period in 2008.
The Company transferred all held-to-maturity securities, with the exception of proprietary mortgage-backed securities, to the available for sale portfolio during the first quarter of 2009, and transferred the proprietary mortgage-backed securities to AFS during the third quarter of 2009. This was in response to the stress tests performed under Treasury Department guidelines, which indicated that increased capital may be required for all supervised financial institutions and motivated management to utilize this provision of the Recognition and Presentation of Other-Than-Temporary Impairments (ASC 320-10-35 or 320-10-50-8A) topic of the FASB accounting standards codification to meet projected capital and liquidity needs.
NOTE 15 COMMON STOCK REPURCHASE PLAN
During December 2007, the Companys Board of Directors approved a plan to repurchase, as conditions warranted, up to $3.0 million of the Companys common stock on the open market or in privately negotiated transactions. The duration of the program was open ended and the timing of the purchases
21
were to depend upon market conditions. One thousand shares of common stock were repurchased during the quarter ended June 30, 2008 at a total cost of nine thousand dollars, and there have been no subsequent purchases, given the current operating environment and the Companys need to conserve capital.
NOTE 16 SUBSEQUENT EVENTS
The date through which the Company has evaluated subsequent events is as of November 16, 2009. This date represents the date the financial statements are available to be issued.
NOTE 17 FAIR VALUE OF FINANCIAL INSTRUMENTS
Management uses its best judgment in estimating the fair value of the Companys financial instruments; however, there are inherent weaknesses in any estimation technique. Therefore, for substantially all financial instruments, the fair value estimates presented herein are not necessarily indicative of the amounts the Company could realize in a sales transaction at September 30, 2009 or December 31, 2008. The estimated fair value amounts have been updated for purposes of these financial statements and the estimated fair values of these financial instruments subsequent to the reporting dates may be different than the amounts reported at the periods noted.
The information should not be interpreted as an estimate of the fair value of the entire Company since a fair value calculation is only required for a limited portion of the Companys assets, and due to the wide range of valuation techniques and the degree of subjectivity used in making the estimate, comparisons between the Companys disclosures and those of other companies or banks may not be meaningful. The following methods and assumptions were used by the Company in estimating fair value disclosures for financial instruments.
Cash and cash equivalents
The carrying amounts of cash, due from banks, liquid money market funds, and federal funds sold approximate fair value.
Securities held to maturity and available for sale
Fair values for securities are based on quoted market prices, where available. If quoted market prices are not available, fair values are based on quoted market prices of comparable instruments.
Trading Securities
Fair values for trading equity securities are based on quoted market prices.
Non-marketable Securities (Other Equity Securities)
The reported amount of Federal Home Loan Bank (FHLB) stock equals its fair value due to the fact that the shares can only be redeemed by the FHLB at the $100 per share value. No ready market exists for the Pacific Coast Bankers Bancshares stock and it has no quoted market value. The Companys other debt and equity investments including Carson River Community Bank are reported at book value which equals its fair value due to the fact that these items have no quoted market value.
Loans
For variable-rate loans that reprice frequently and with no significant change in credit risk, fair values are based on carrying values. The fair values for all other loans are estimated using discounted cash flow analyses, using interest rates currently being offered for loans with similar terms to borrowers with similar credit quality.
22
Deposit liabilities
The fair values disclosed for deposits with no defined maturities are equal to their carrying amounts which represent the amount payable on demand. The carrying amounts for variable-rate, fixed-term money market accounts and certificates of deposit approximate their fair value at the reporting date. Fair values for fixed-rate certificates of deposit are estimated using a discounted cash flow calculation that applies interest rates currently being offered on certificates to a schedule of aggregated expected monthly maturities on time deposits.
Other borrowed funds
The carrying amount of FHLB advances and Federal Funds purchased approximate fair value due to the next day maturity. The FHLB short term advances are estimated using discounted cash flow analyses, using interest rates currently being offered for advances with similar terms to borrowers with similar credit quality.
Junior Subordinated Debt
The carrying amount of the variable junior subordinated debt approximates fair value due to the fact that interest rates reprice on $15 million quarterly. The fair value on the $5 million fixed rate junior subordinated debt is estimated using discounted cash flow analyses, using interest rates currently being offered with similar terms to companies with similar credit quality.
Accrued interest receivable and payable
The carrying amounts of accrued interest receivable and payable approximate fair value.
Off-balance sheet instruments
Fair values for the Companys off-balance sheet lending commitments (commitments to extend credit) are based on fees currently charged to enter into similar agreements, taking into account the remaining terms of the agreements and the counterparties credit standing. As of September 30, 2009 and December 31, 2008, loan commitments on which the committed fixed interest rate is less than the current market rate are insignificant.
The estimated fair values, and related carrying amounts, of the Companys financial instruments are as follows:
|
|
September 30, 2009 |
|
December 31, 2008 |
|
||||
|
|
Carrying |
|
Fair |
|
Carrying |
|
Fair |
|
Financial Assets: |
|
|
|
|
|
|
|
|
|
Cash and due from banks |
|
49,630 |
|
49,630 |
|
21,260 |
|
21,260 |
|
Liquid money market funds |
|
461 |
|
461 |
|
883 |
|
883 |
|
Federal funds sold |
|
100 |
|
100 |
|
965 |
|
965 |
|
Securities available-for-sale |
|
82,603 |
|
82,603 |
|
1,766 |
|
1,766 |
|
Securities held-to-maturity |
|
1,196 |
|
1,186 |
|
58,755 |
|
58,228 |
|
Trading Securities |
|
|
|
|
|
83 |
|
83 |
|
Other equity securities |
|
3,818 |
|
3,818 |
|
4,306 |
|
4,306 |
|
USDA loans, net |
|
|
|
|
|
858 |
|
858 |
|
Loans, gross |
|
385,647 |
|
374,370 |
|
440,363 |
|
468,461 |
|
Accrued interest receivable |
|
1,975 |
|
1,975 |
|
2,385 |
|
2,385 |
|
Total |
|
525,430 |
|
514,143 |
|
531,624 |
|
559,195 |
|
|
|
|
|
|
|
|
|
|
|
Financial Liabilities: |
|
|
|
|
|
|
|
|
|
Deposits |
|
484,879 |
|
488,725 |
|
466,012 |
|
471,012 |
|
Other borrowed funds |
|
25,060 |
|
25,041 |
|
27,000 |
|
27,521 |
|
Junior Subordinated debt |
|
20,619 |
|
19,151 |
|
20,619 |
|
19,157 |
|
Accrued interest payable |
|
837 |
|
837 |
|
1,360 |
|
1,360 |
|
Total |
|
531,395 |
|
533,754 |
|
514,991 |
|
519,050 |
|
23
NOTE 18 DISCONTINUED OPERATIONS
The continuing operations of Granite Exchange Inc., a 1031 exchange company, were sold on June 30, 2009. The financial statements of March 31, 2009 contained within the sales agreement noted the following:
Cash |
|
$ |
13 |
|
FF&E |
|
4 |
|
|
Exchanges |
|
2,980 |
|
|
Total Assets |
|
$ |
2,997 |
|
|
|
|
|
|
Exchange Liabilities |
|
$ |
2,980 |
|
Other Liabilities |
|
4 |
|
|
Shareholders Equity |
|
13 |
|
|
Total Liabilites & Shareholders Equity |
|
$ |
2,997 |
|
The year-to-date statement of operations noted:
Interest income |
|
$ |
37 |
|
Exchange fees |
|
7 |
|
|
Total income |
|
$ |
44 |
|
|
|
|
|
|
Salaries& Benefits |
|
$ |
61 |
|
Occupancy |
|
70 |
|
|
Other |
|
19 |
|
|
Total expense |
|
$ |
150 |
|
|
|
|
|
|
Net loss |
|
$ |
106 |
|
No continuing cash flows are expected from the sale, and there are no continuing activities between the ongoing entity and the disposed component of the Company. Any anticipated tax benefits from the sale have been eliminated in the allowance for the deferred tax asset of the Company for the prior period. The Company was sold due to the substantial reduction in 1031 activity during the current economic recession and the continuing losses of the unit.
24
Selected Financial Data
|
|
YTD Period Ending |
|
Year Ended |
|
||
|
|
Sept 30, 2009 |
|
Sept 30, 2008 |
|
Dec 31, 2008 |
|
|
|
(Dollars in thousands, except per share data) |
|
||||
Condensed Income Statement |
|
|
|
|
|
|
|
Interest Income |
|
21,283 |
|
28,690 |
|
36,826 |
|
Interest Expense |
|
12,292 |
|
13,215 |
|
17,490 |
|
Net Interest Income |
|
8,991 |
|
15,475 |
|
19,336 |
|
Provision for Loan Losses |
|
17,259 |
|
1,440 |
|
4,025 |
|
Non-interest income |
|
3,125 |
|
(14,015 |
) |
(15,313 |
) |
Non-interest expense |
|
17,741 |
|
39,915 |
|
44,410 |
|
Provision for income taxes |
|
8,249 |
|
(5,383 |
) |
(7,028 |
) |
Net Loss |
|
(31,133 |
) |
(34,512 |
) |
(37,384 |
) |
|
|
|
|
|
|
|
|
Period End Data |
|
|
|
|
|
|
|
Assets |
|
539,154 |
|
558,216 |
|
556,045 |
|
Loans, gross |
|
385,647 |
|
454,506 |
|
441,222 |
|
Securities |
|
89,799 |
|
65,560 |
|
64,910 |
|
Deposits |
|
484,879 |
|
461,034 |
|
466,012 |
|
Other borrowed funds |
|
45,679 |
|
55,119 |
|
47,619 |
|
Shareholders Equity |
|
7,475 |
|
39,630 |
|
37,244 |
|
|
|
|
|
|
|
|
|
Average Balance Sheet |
|
|
|
|
|
|
|
Assets |
|
579,630 |
|
632,795 |
|
617,671 |
|
Loans, gross |
|
421,134 |
|
462,527 |
|
458,710 |
|
Securities |
|
76,761 |
|
108,375 |
|
89,293 |
|
Deposits |
|
498,207 |
|
450,901 |
|
459,396 |
|
Shareholders Equity |
|
30,081 |
|
74,872 |
|
63,022 |
|
|
|
|
|
|
|
|
|
Asset Quality |
|
|
|
|
|
|
|
Non-performing assets (1) |
|
63,892 |
|
27,369 |
|
29,433 |
|
Allowance for loan loss |
|
14,900 |
|
7,198 |
|
8,061 |
|
Net Charge-offs |
|
10,420 |
|
1,518 |
|
3,239 |
|
Non-performing assets to total assets |
|
11.85 |
% |
4.90 |
% |
5.34 |
% |
Allowance for loan loss to loans |
|
3.86 |
% |
1.58 |
% |
1.83 |
% |
Net Charge-offs to average loans |
|
2.47 |
% |
0.33 |
% |
0.70 |
% |
|
|
|
|
|
|
|
|
Per Common Share (2) |
|
|
|
|
|
|
|
Basic income (loss) per share |
|
(5.37 |
) |
(5.92 |
) |
(6.41 |
) |
Diluted income (loss) per share |
|
(5.37 |
) |
(5.92 |
) |
(6.41 |
) |
Book value per share |
|
1.29 |
|
6.80 |
|
6.43 |
|
Period end common shares outstanding |
|
5,794,179 |
|
5,830,099 |
|
5,794,179 |
|
Average shares outstanding - basic |
|
5,794,179 |
|
5,830,437 |
|
5,828,697 |
|
Average shares outstanding - diluted |
|
5,794,179 |
|
5,833,173 |
|
5,830,590 |
|
|
|
|
|
|
|
|
|
Financial Ratios |
|
|
|
|
|
|
|
Return on average assets |
|
(5.37 |
)% |
(7.29 |
)% |
(6.05 |
)% |
Return on average equity |
|
(56.10 |
)% |
(61.57 |
)% |
(59.32 |
)% |
Net interest margin (3) |
|
2.18 |
% |
3.62 |
% |
3.43 |
% |
Tier 1 leverage capital ratio |
|
0.52 |
% |
6.94 |
% |
8.89 |
% |
(1) Non-performing assets consists of loans 90 days or more delinquent and still accruing interest, investments or loans placed on non-accrual status, and other real estate owned.
(2) Adjusted for stock dividend of February 15, 2007.
(3) Net interest income is divided by average interest-earning assets.
25
THE BANK HOLDINGS AND SUBSIDIARIES
ITEM 2: MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
FORWARD LOOKING STATEMENTS
Certain statements contained herein are not based on historical facts and are forward-looking statements within the meaning of Section 21A of the Securities Exchange Act of 1934. Forward-looking statements, which are based on various assumptions, may be identified by reference to a future period or periods, or by the use of forward-looking terminology, such as may, will, believe, expect, estimate, anticipate, continue or similar terms or variations on those terms or the negative of those terms. Forward-looking statements are subject to various factors (some of which are beyond our control), which could cause actual results to differ materially from these estimates. These factors include, but are not limited to, changes in general economic conditions, interest rates, deposit flows, loan demand, competition, legislation or regulation and accounting principles, policies or guidelines, as well as other economic, competitive, governmental, regulatory and technological factors affecting the Companys operations. We do not undertake, and specifically disclaim any obligation, to publicly release the result of any revisions which may be made to any forward-looking statements to reflect the occurrence of events or circumstances after the date of such statements.
CRITICAL ACCOUNTING POLICIES
The Companys financial statements are prepared in accordance with accounting principles generally accepted in the United States. The financial information contained within these statements is, to a significant extent, based on approximate measures of the financial effects of transactions and events that have already occurred. Critical accounting policies are those that involve the most complex and subjective decision and assessments, and have the greatest potential impact on the Companys stated results of operations. At present we consider the allowance for loan losses to be the most critical accounting policy due to current economic conditions and their potential impact on our results of operations and the carrying value of certain of our assets. Economic uncertainties most definitely could precipitate potential major changes in judgments and assumptions required to be made by us in the application of this policy. The Company has made no substantive changes in its critical accounting policies and assumptions compared to the disclosures made in The Bank Holdings Annual Report on Form 10-K for the year ended December 31, 2008. However, our assumptions about the length, breadth and depth of the current economic downturn and its effects on economic output and real estate valuations have certainly changed over the past year.
Other accounting policies are also noteworthy, and could be considered critical, since they require us to make significant estimates and assumptions which may have a material effect on the carrying values of certain assets and liabilities. Such estimates and assumptions are based on historical experiences and other factors, which are believed to be reasonable. These other accounting policies include deferred loan fees and costs, other real estate owned, goodwill, and deferred tax assets. These are considered consequential due to the assumptions that are contained in their calculation as well as external factors that may affect their value. Through regular review and analysis, valuations and calculations are tested for reasonableness.
Allowance for Loan Losses
We maintain an allowance for loan losses at a level which we believe is sufficient to cover probable losses on loans deemed to be uncollectible based on our continuous review of a variety of factors. These factors consist of the character and size of the loan portfolio, business and economic conditions, loan growth, delinquency trends, nonperforming loan trends, portfolio migration data (when appropriate),
26
historical charge-offs, peer data, and other asset quality factors. The primary means of adjusting the level of this allowance is through the provision for loan losses, which is established and charged to income on a monthly basis. Although we use available information to establish the appropriate level of the allowance for loan losses, future additions to the allowance may be necessary because our estimates of the probable losses in our loan portfolio are susceptible to change as a result of changes in the factors noted above. Any such increase would adversely affect our results of operations. Our allowance for loan losses was $15 million and $8 million at September 30, 2009 and 2008, respectively. The provision for loan losses was $7 million for the quarter ended September 30, 2009 and $150,000 for the quarter ended September 30, 2008.
The Company grants real estate, commercial, and consumer loans to customers. A substantial portion of the loan portfolio is represented by real estate loans throughout northern Nevada and northern California. The ability of the Companys borrowers to honor their contracts is dependent upon the real estate market and general economic conditions in these areas. Both of these areas have been severely impacted by the substantial downturn in national, regional and state economic conditions, the continued effects of which management believes have not yet been made fully apparent. Such an economic cycle may last for more than one year, and bring about further deterioration in the loan portfolio as exhibited in Table 5.
For the commercial and real estate loan portfolios, we evaluate specific loan status reports on all watch and classified loans, including certain loans which may have been classified as impaired. On an ongoing basis an independent loan review function reviews a sample of new loans as well as watch and any classified loans to ensure the accuracy of the loan classifications. Estimated reserves for classified loans are determined by reviewing current collateral value, financial information, cash flow, payment history and trends and other relevant facts surrounding the particular credit. Provisions for losses on any remaining loans are based on pools of similar loans using statistical data compiled from the Bank and its peers. Table 5 sets forth the allocation of the allowance for loan losses as of September 30, 2009, and September 30, 2008.
OVERVIEW
The Company earns income from two primary sources; net interest income generated by the successful employment of earning assets less the costs of interest-bearing liabilities, and net non-interest income, which is generated by service charges on deposit accounts and other service charges, commissions and fees charged for other services provided, less the operating costs of providing the full range of banking and exchange services to our customers. Gain on sale of securities, exchange fees on real estate 1031 transactions, increase in cash surrender value of bank owned life insurance and unrealized gains or losses on the Companys trading account have traditionally comprised other areas of non-interest income.
SUMMARY: Results of Operations 3rd Quarter
We incurred a net loss for the three month and nine month periods ending September 30 due to the continuing economic recession and continued deterioration in our borrowers ability to pay for debts previously contracted. The geographic diversity of our loan portfolio has not protected us from the systemic risk of a global recession. Sharply reduced GDP, employment, housing and securities market levels have affected every aspect of our operations. The $15 million loss taken after U.S. Treasury conservatorship of FNMA and FHLMC, has compounded the problem of poor credit quality. As a result, additional capital and/or substantial shrinkage of assets held are the continued focal points of the Company.
27
Losses as a result of greater volume of non-performing assets, a higher loan loss provision, increasing OREO expenses and a valuation allowance on our deferred tax asset are all reflected in our results of operations for the 2009 periods under review. These losses have resulted in a decrease in the Bank and Companys Stockholders equity and regulatory capital. The Banks Stockholders equity was $7 million at September 30, 2009 and as a result our Bank and Company have become under capitalized under prompt corrective action calculations promulgated by the FDIC. Please refer to Table 6 for our current ratios, which reflect the Bank to be under capitalized, and the consolidated Holding Company to be critically under capitalized.
Our gross non-performing assets have continued to increase from those volumes reported at December 31, 2008 and now total $64 million, as compared to $50 million at June 30, 2009 and $32 million at March 31, 2009 compared to $29 million at December 31, 2008. We have every expectation that our weak economic environment will not substantially improve during the rest of 2009, and economic uncertainties are likely to extend into 2010.
Because of our level of classified assets, our use of brokered funds and our reduced capital levels, on June 29, 2009 the FDIC and NFID jointly issued to our Bank an Order to Cease and Desist. Among other things, the Order requires us to maintain certain capital levels, reduce the amount of commercial real estate loans, refrain from increasing the amount of brokered deposits held by the Bank and prepare and submit progress reports to the FDIC and NFID.
As a result of the Bank being under capitalized under the prompt corrective action rules, it is subject to certain restrictions and actively seeking additional risk-based capital either directly through the sale of securities or indirectly through the substantial reduction of Bank assets. We have engaged Sandler ONeill Advisors, LLP, a financial advisory firm to assist us in these efforts. We expect that any sale of securities would most likely be through a private placement to various investors; however, at the current time we have no outstanding agreements from various financing sources and loan sales at reasonable prices have not been forthcoming.
If our Company were not successful in raising additional capital, it is likely that we would not be able to become fully compliant with the provisions of the Order and as a result we could be subject to further enforcement actions.
The net loss before tax items for the quarter ended September 30, 2009 was $9 million as compared with loss of $35 million for the quarter ended September 30, 2008. The basic and diluted losses per share for the third quarter of 2009 was $1.52 compared with losses per share of $6.01 for the same quarter of 2008. The Companys quarterly return on average equity was (56.1)% and quarterly return on average assets was (1.52)% for the quarter ended September 30, 2009, compared to (219.56)% and (22.25)% respectively, for the quarter ended September 30, 2008. The primary drivers behind the variance in net income for the third quarter of 2009 relative to the same quarter of 2008 are as follows:
2009 third quarter versus the third quarter of 2008:
· The economic downturn which started during the second half of 2007 in the national, state, and regional economies has continued through the second half of 2009 and is likely to further impact earnings for all of 2009 and perhaps 2010.
· For the quarter ended September 30, 2009, $7 million was added to the provision for loan losses to reflect continued deterioration in specifically identified loans.
· The Bank has experienced continued increases in non-accrual loans and non-performing assets over each of the past seven quarters.
· The Company provided an $8 million valuation allowance for all outstanding deferred tax assets during the quarter ended June 30, 2009.
28
· The Company posted a goodwill impairment of $3 million during the quarter ended June 30, 2009.
· The Company has reduced the number of financial centers by three during the last three quarters.
· The Companys staff continues to be reduced through attrition and reductions.
· The Company previously closed Rocky Mountain 1031 Exchange and sold Granite Exchange on June 30, 2009.
2008 Third quarter versus the third quarter of 2007:
· Exclusive of investment losses and impairments, related tax provisions and the one-time non-cash goodwill impairments, pre tax operating income for the quarter was $405,000.
· The challenging economic conditions starting in 2007 with the deterioration of the real estate markets expanded during the third quarter of 2008 into severe turmoil in credit markets and the general economy. FOMC actions and consumer flight to safety concerns have placed increased pressure on the Companys net interest margins, affecting the Companys market value, the result of which was a one-time, non-cash goodwill impairment of $27 million based on the decline in the market value of our common stock.
· The actions of the Treasury Departments placement of Freddie Mac (FHLMC) and Fannie Mae (FNMA) into conservatorship rendered the preferred securities the Company owned worthless, and the Company recorded an other than temporary impairment of $8 million net of taxes.
· The turmoil in the credit markets led the Company to recognize a one time $626,000 charge in other than temporary impairment for several trust preferred securities held by the Company issued by other bank holding companies.
· Interest income decreased $2.6 million or 22%.
· Interest expense decreased $1.9 million or about 31%.
· Net interest income before the provision for loan losses decreased $711,000 or 13%.
· For the quarter ended September 30, 2008 $150,000 was added to the provision for loan losses.
· Non-interest loss was $14.1 million for the third quarter of 2008, a reduction from earnings of $163,000 for the same period in 2007. This was caused by a $562,000 increase in trading asset losses and $13.6 million net change in losses and impairments on investments.
· Non-interest expense decreased $380,000 or 9%, exclusive of the $26.9 million goodwill impairment charge.
Quarterly Average balances and rates are provided in Table 1.
SUMMARY: Results of Operations YTD
The Companys net loss for the nine months ended September 30, 2009 before the tax valuation allowance was $23 million as compared with loss of $40 million for the nine months ended September 30, 2008. Basic and diluted losses per share for the first nine months of 2009 were $5.37 compared with loss per share of $6.01 for the same period of 2008. The Companys YTD return on average equity was (103.5)% and YTD return on average assets was (5.37)% for the nine months ended September 30, 2009, compared to (61.57)% and (7.29)% respectively, for the same period ended September 30, 2008. The primary drivers behind the variance in net income for the first nine months of 2009 relative to the same period of 2008 are as follows:
2009 Year-to-date versus year-to-date 2008:
· The economic downturn which started during the second half of 2007 in the national, state, and regional economies has accelerated through the third quarter of 2009 and is likely to impact earnings for all of 2009 and 2010.
29
· For the nine months ended September 30, 2009, $17 million was added to the provision for loan losses to reflect continued deterioration in specifically identified loans.
· The Bank has experienced continued increases in non-accrual loans and non-performing assets over each of the past seven quarters.
· The Company provided a valuation allowance for the deferred tax asset during the nine months ended September 30, 2009 in the amount of $8 million and a goodwill impairment of $3 million.
· The Company has reduced the number of financial centers by five over the past year, including three during the past nine months.
· The Companys staff continues to be reduced through attrition and reductions.
· The Company has closed one 1031 office and sold the other 1031 company.
2008 Year-to-date versus year-to-date 2007:
· The continuing turmoil in the money markets and attendant credit crises has impacted the stock prices of many financial companies, including the Company. This resulted in impairment of the Companys goodwill which was reflected in a one time, non-cash charge in the amount of $27 million.
· The Treasury Departments conservatorship of FNMA and FHLMC rendered the preferred securities the Company owned worthless, resulting in a loss of $8 million net of taxes.
· Interest income decreased $5.4 million or 16%.
· Interest expense decreased $4.3 million or about 24%.
· Net interest income before the provision for loan losses decreased $1.1 million or about 7%.
· The provision for loan losses increased $680,000 or 89% over September 30, 2007.
· Non-interest loss was $14.0 million for the first nine months of 2008 compared with income of $1.2 million for the same period in 2007, as a result of unrealized and realized losses in investments amounting to $15.0 million.
· Non-interest expense decreased $871,000 or 6%, not including the non-cash goodwill impairment costs.
· The benefit for taxes was increased by the investment losses and impairments and by the effects of permanent book/tax differences including $1.2 million of non-taxable interest and dividends.
The impact to the Company from these items and others of both a positive and negative nature will be discussed in more detail as they pertain to the Companys overall comparative performance for the periods ending September 30, 2009 throughout the analysis sections of the report.
YTD Average balances and rates are provided in Table 1a.
SUMMARY: Financial Condition
The Companys total assets were $539 million at September 30, 2009 a decrease of $17 million or 3%, from total assets of $556 million reported at December 31, 2008. The most significant characteristics of and changes in the Companys balance sheet during the first nine months of 2009 are outlined below:
· Additional funds allocated to maintain excess liquidity during uncertain times.
· Transfer of most held-to-maturity securities to available-for-sale for increased liquidity.
· Surrender of all deferred compensation plans for senior management.
· A reduction in gross loans of $54 million or 12% to $386 million since December 31, 2008 and $69 million or 13% since September 30, 2008.
· An increase in total deposits of $19 million or 4% from December 31, 2008 and $24 million or 5% since September 30, 2008.
30
· A reduction in brokered funds garnered from external sources of $109 million since December 31, 2008.
· A valuation allowance for the Companys deferred tax asset of $8 million, and a $3 million reduction of goodwill.
· A continuing emphasis on restructuring and reducing the balance sheet to enhance our net interest margin and maintain the highest available capital ratios.
2008 over 2007:
· For the nine months ended September 30, 2008 investment securities decreased nearly $15 million from December 31, 2007 or 19%. Average investment securities increased $20 million or 23% for the nine months ended September 30, 2008 as compared to the same period in 2007.
· Gross loans decreased $20 million to $455 million at September 30, 2008 compared to December 31, 2007. Average gross loans as of September 30, 2008 showed a decrease of $13 million or about 3% from the average at September 30, 2007.
· For the nine months ended September 30, 2008 total assets decreased $69 million or 11% to $558 million from December 31, 2007. Compared with the YTD period ending September 30, 2007 average assets decreased $20 million or 3%.
· Total deposits increased by $10 million or 2% during the nine month period ending September 30, 2008 to $461 million. YTD average deposits decreased $46 million to $451 million or 9% at September 30, 2008 compared with the same period in 2007.
· Short term borrowings from FHLB decreased by $40 million.
· Exchange deposits at non-affiliated financial institutions decreased $3 million.
Net interest income is the difference between interest income on earning assets such as loans and securities, and interest expense paid on liabilities such as deposits and borrowings, and continues to be our largest revenue source. Net interest income is affected by the level of interest rates, changes in interest rates and by changes in the amount and composition of interest-earning assets and interest-bearing liabilities.
Quarterly Analysis
Net interest income for the third quarter of 2009 was $2.4 million, a decrease of $2.5 million or about 51% compared to the third quarter of 2008. This decrease was primarily due to the decreases in rates earned on interest earning assets coupled with higher levels of non-accruals and ORE. Average loans were $53 million less, or 12% for the quarter ended September 30, 2009 compared to the same period in the prior year. Average deposits were $56 million higher, or 12% for the quarter ended September 30, 2009 compared to September 30, 2008. Average investments increased by $59 million or 55% during the third quarter of 2009 compared to the third quarter 2008. Average gross loans, net of deferred fees and costs, as a percent of average assets was 68% and 73% for the quarters ended September 30, 2009 and 2008, respectively.
Continued concern about loan quality has been the focus of the Bank during the third quarter of 2009. Deteriorating real estate market conditions appeared in the third quarter of 2007 and have continued into 2009. Management attention to increases in non-performing assets and concern about real estate values led the Company to substantially increase the provision for loan losses for the year ended December 31, 2008 and the third quarter of 2009. Management believes that the allowance for loan losses adequately covers the inherent losses in the loan portfolio; however, no assurance can be given that further additions will not be required, especially in light of overriding economic uncertainties.
31
Table 1 sets forth, for the periods indicated, information regarding, (i) the total dollar amount of interest income from interest earning assets and the resultant average yields, (ii) the total dollar amount of interest expense on interest bearing liabilities and the resultant average cost; (iii) net interest income; (iv) interest rate spread; and (v) net interest margin (net interest income divided by average interest-earning assets). Average balances are based on average daily balances during the indicated periods and rates are annualized based on the number of days in the period subject to review, and the number of days in the year.
The Companys net interest margin, which represents net interest income as a percentage of average interest earning assets, decreased to 1.67% from 3.45% during the three months ended September 30, 2009 as compared to the same period in 2008, respectively, a decrease of one hundred seventy-eight basis points or 52%, primarily due to lower interest rates garnered for excess funds held, as well as higher volumes of non-earning assets, and lower rates earned on performing loans. The dramatic changes in the interest rate environment brought about by the FOMCs activities have impacted both the asset and liability side of the balance sheet; however, the majority of the change has been felt in the rates earned on the Companys investment and loan portfolios, with deposit interest rates generally sticky in a downward rate environment. The Companys weighted average prime rate for the third quarter of 2009 was 3.25% as compared to 5.09% for the full year of 2008, while there have been no changes in the prime rate since December 16th, 2008, when it was set at its current level.
In addition, the change in the mix of both assets and liabilities has had a lesser impact on the Companys net interest margin. The Company decreased its use of short term average borrowed funds to $44 million during the third quarter of 2009 when compared to $71 million for the same period in 2008.
YTD Analysis
Net interest income for the first nine months of 2009 was $9 million, a decrease of $6 million or about 42% compared to the first nine months of 2008. This decrease was primarily due to the decreases in rates earned on interest earning assets coupled with higher volumes of non-performing assets. Average loans decreased about $41 million, or 9% for the nine months ended September 30, 2009 compared to the same period in the prior year. While average investments increased by $21 million or 19% during the first nine months of 2009 compared to the first nine months of 2008, shorter term investments increased at a faster rate. Average gross loans, net of deferred fees and costs, as a percent of average assets was 73.0% for each of the nine month periods.
Continued concern about loan quality has been the focus of the Bank during the first nine months of 2009. Declining real estate market conditions appeared in the third quarter of 2007 and have continued into 2009. Managements attention to increases in non-performing assets and concern about real estate values led the Company to substantially increase the provision for loan losses for year-to-date 2009. Management believes that the allowance for loan losses adequately covers the inherent losses in the loan portfolio; however, given the state of the economy and the real estate markets, no assurance can be given that further additions will not be required.
The Companys net interest margin, which represents net interest income as a percentage of average interest earning assets, decreased to 2.18% from 3.62% during the nine months ended September 30, 2009 as compared to the same period in 2008, respectively, a decrease of one hundred forty-four basis points or 40%.
32
The change in the mix of both assets and liabilities has had an impact on the Companys net interest margin. The Company reduced its use of short term average borrowed funds to $30 million during the first nine months of 2009 when compared to $75 million for the same period in 2008. The Company experienced a decrease in the need for borrowed funds as a result of Money Market and Certificate of Deposit promotions which ran throughout the first quarters of 2009.
The Companys weighted average prime rate for the first nine months of 2009 was 3.25% compared with 5.09% for the full year of 2008.
Provision and Allowance for Loan Losses
The allowance for loan losses is maintained at a level determined by management to be adequate to absorb losses inherent in the loan portfolio. This allowance is increased by the provision charged to income and by recoveries on loans previously charged off. The allowance id decreased through charge-offs of uncollectible loans. Arriving at an appropriate level of allowance for loan losses necessarily involves a high degree of judgment and is determined based on managements ongoing evaluation. As discussed under Critical Accounting Policies, we believe that the methods we utilize to determine the allowance for loan losses constitute a critical accounting policy. Although we utilize judgment in providing for losses, for the reasons discussed under Critical Accounting Policies and Credit Risk Management there can be no assurance that we will not have to increase the amount of our historical provisions for loan losses in future periods. Please see Table 5.
Quarterly Analysis
We provided $7 million and $150,000 for probable loan losses in the quarters ended September 30, 2009, and 2008, respectively. At September 30, 2009 the Companys allowance for loan and lease losses was 3.9% of outstanding loans. The Company had 37 non-accrual loans amounting to $45 million at September 30, 2009, and 18 non-accrual loans amounting to $22 million at September 30, 2008. The Company charged-off $8.6 million in loans for the quarter ended September 30, 2009 and $195,000 for the third quarter of 2008. Including the non-accrual loans, there were fifty 30 day or more past due loans as of September 30, 2009, and twenty-four during the same period of 2008. In an estimation of potential losses associated with off-balance-sheet loan commitments and standby letters of credit, we provided an additional allowance of $14,000 which is included with other liabilities on the Companys balance-sheet.
YTD Analysis
We provided $17 million and $1 million for probable loan losses in the nine months ended September 30, 2009, and 2008, respectively. The Company charged-off $10 million in loans for the nine months ended September 30, 2009 and $1.5 million for the same period in 2008. The Company also estimates an allowance for potential losses associated with off-balance-sheet loan commitments and standby letters of credit. At September 30, 2009 and 2008 this allowance was $172,000 or 0.94% and $157,000 or 0.41% of outstanding loan commitments, respectively. This allowance is included with other liabilities on the Companys balance-sheet and any related increases or decreases in the allowance are included in other expense.
Quarterly Analysis
Third quarter non-interest income (excluding realized and unrealized investment and asset gains and losses) totaled $200,000, a decrease of $145,000 or 42% from the same quarter of 2008. There was no exchange fee income for the quarter ending September 30, 2009 as compared to $15,000 for the same period in 2008 reflecting both lower volumes of exchange transactions and the subsequent closure of
33
1031 operating offices. The Company had $19,000 in unrealized losses in trading securities for the third quarter of 2009 as compared to losses of $802,000 over the same period in 2008. Gains on the sale of assets amounted to $470,000 for the quarter ending September 30, 2009 as compared to losses of $14,000 for the same period in 2008.
Gains and losses from the sale of securities are subject to market and economic conditions and, as a result, there can be no assurance that gains or losses reported in any period will continue in the future. Such gains or losses are not a factor in the computation of the Companys efficiency ratio.
Service charges on deposit accounts and other service charges, commissions and fees decreased $59,000 to $180,000 from the same period in 2008. Exchange fee income decreased $15,000 for the quarter ending September 30, 2009 as compared to the same period in 2008, due to the closure of this division.
YTD Analysis
YTD non-interest income (excluding realized and unrealized investment and asset gains and losses) totaled $541,000, a decrease of $481,000 or 47% from the same period of 2008. There were $19,000 unrealized losses in trading securities; a decrease of $968,000 or 98% from $987,000 over the same period in 2008. Realized losses on the sale of investments were $531,000 for the first nine months of 2009 compared with losses of $14 million for the same period in 2008. Gains on the sale of assets amounted to $364,000 for the nine months ending September 30, 2009 as compared to losses of $55,000 for the same period in 2008.
Gains and losses from the sale of securities are subject to market and economic conditions and, as a result, there can be no assurance that gains or losses reported in any period will continue in the future. Such gains or losses are not a factor in the computation of the Companys efficiency ratio.
Service charges on deposit accounts and other service charges, commissions and fees decreased $170,000 to $503,000 from the same period in 2008. Exchange fee income decreased $62,000 to $11,000 for the nine months ending September 30, 2009 as compared to the same period in 2008, reflecting fewer transactions and the inactivity of that division during the past few quarters.
Quarterly Analysis
Exclusive of goodwill impairment charges, non-interest expense was $4.5 million and $3.8 million for the quarters ended September 30, 2009 and 2008, respectively, which represented an increase of approximately $617,000 or 16%. The increase was primarily due to OREO expenses posted during the quarter of $581,000. All other areas of non-interest expenses declined for the third quarter of 2009 when compared to the same period of 2008 except for FDIC assessment increases and the costs of consultants to assist us in certain endeavors. Expense categories that decreased the most include salaries and benefit costs and occupancy expenses. These decreases amounted to $798,000 and were offset by substantial increases noted in OREO expenses and other professional and regulatory assessment costs. The efficiency ratio was 172% and 692% for the quarters ended September 30, 2009 and 2008, respectively. For a description of the methodology we used to calculate the efficiency ratio, please see Note (a) to Table 3.
Salary and employee benefit expense for the quarter ended September 30, 2009 was $1.7 million, a decrease of $537,000 from the same quarter 2008. The full time equivalent (FTE) staffing level is 79 at September 30, 2009 and was 102 as of September 30, 2008, a decrease of 23%. For the quarter ended September 30, 2009, such salary costs approximated 1.19% of average earning assets, as compared to 1.58% for the same period in 2008. In addition, there were severance payments made during the first and second quarters of 2009 having to do with staff reductions.
34
Occupancy and equipment expense amounted to $421,000 for the quarter ended September 30, 2009, a decrease of $261,000 or 38% from $682,000 the same quarter in 2008. The Company now has four Nevada banking offices, one banking office in California, and a data operations center. Occupancy expenses for the quarter ended September 30, 2009 approximated 0.29% of average earning assets, as compared to 0.48% for the same period in 2008.
Accounting and legal costs amounted to $192,000 for the quarter ended September 30, 2009 an increase of $91,000 or 90% over the same period in 2008. Legal and accounting costs for September 30, 2009 represent 0.13% of average earning assets compared with 0.07% for the same period during 2008, and are primarily comprised of audit and accounting costs, internal routines and controls reviews, and legal costs.
Other professional services expense totaled $357,000 and $41,000 at September 30, 2009 and 2008, respectively, an increase of $316,000 or 770% and represent additional costs incurred for consultants hired to assist in raising capital and amending the TARP application. Other professional service costs represent 0.25% of average earning assets compared with 0.03% for the same period in 2008.
An impairment charge to goodwill amounted to $26.9 million at September 30, 2008 which represented 18.9% of average earning assets, there was no corresponding charge during the third quarter of 2009.
The remainder of expenses which were not noted separately above amounted to $1.8 million and $816,000 at September 30, 2009 and 2008, respectively, a $984,000 increase or 121%. For the quarter ended September 30, 2009 these other expenses represented 0.31% of average earning assets, as compared to 0.24% for the same period of 2008.
An increasing portion of non-interest expense has been the substantial increase in FDIC insurance assessments over the past three and nine month periods. For the quarter ended September 30, 2009 such costs were $223,000 as compared to $90,000 for the same period of 2008. During these periods, not only has the assessment percentage increased, but a one-time special assessment was imposed during the second quarter of 2009.
Table 3 sets forth the various non-interest income and expense items for the periods indicated.
YTD Analysis
Non-interest expense was $18 million during the nine months ended September 30, 2009 and $40 million (inclusive of goodwill impairment charges) for the YTD period ended September 30, 2008, respectively, which represented a decrease of approximately $22 million or 55%. Salaries and employee benefits as well as occupancy costs decreased the most, while regulatory assessments and ORE expenses skyrocketed. This salary and benefit decrease was almost $2 million which was overshadowed by increases in OREO expenses and regulatory assessment costs of $4 million. The efficiency ratio was 145% and 257% for the nine months ended September 30, 2009 and 2008, respectively. For a description of the methodology we used to calculate the efficiency ratio, please see Note (a) to Table 3.
Salary and employee benefit expense for the nine months ended September 30, 2009 was $5.7 million, compared with $7.3 for the same period 2008. For the nine months ended September 30, 2009, such salary costs approximated 1.38% of average earning assets, as compared to 1.70% for the same period in 2008. Included in salaries and benefits for the nine months ending September 30, 2009 and 2008, there
35
was $170,000 and $211,000 of share-based compensation, respectively. The related tax benefit on share-based compensation was not material to either quarter. These costs continue to be reflected in the Companys Consolidated Statements of Operations although no economic benefit has been transmitted to the option holders.
Occupancy and equipment expense amounted to $1.7 million for the YTD period ended September 30, 2009, a decrease of $300,000 or 15% from the same period in 2008. Occupancy expenses for the nine months ended September 30, 2009 approximated 0.41% of average earning assets, as compared to 0.47% for the same period in 2008. The Company has closed five financial centers over the past year.
OREO costs amounted to $3 million for the nine months ending September 30, 2009 compared to $106,000 for the same period in 2008. Such costs represent 0.78% of average earning assets for the YTD period ending September 30, 2009 compared with 0.02% for the same period in 2008. FDIC insurance costs have risen dramatically over the past year, and are expected to substantially increase as a result of increases in coverage recently announced, during the rest of 2009. Such costs were $1 million for the first nine months of 2009 as compared to $266,000 for the same period of 2008.
Other professional services expense totaled $683,000 and $174,000 at September 30, 2009 and 2008, respectively, an increase of $509,000 or 293%. Other professional service costs are primarily comprised of consultant costs who are retained for an amended TARP application, TRUPS defeasance and M & A support. These costs represent 0.17% of average earning assets for 2009 as compared with 0.04% for the same period in 2008.
Goodwill impairment charges for the nine month period ending September 30, 2009 were $3 million as compared to $27 million in 2008.
The remainder of expenses which were not separately noted can be found numerically represented in Table 3, where their relative comparisons to average earning asset ratios can be noted. Non-interest expense was $18 million and $40 million for the YTD period ended September 30, 2009 and 2008, respectively, which represented a decrease of approximately $22 million or 55%.
During the second quarter of 2009 the Company established a valuation allowance in the amount of $8 million due to the decreased likelihood of the future capture of deferred tax assets. The Company reported a tax benefit of $5 million for the nine month period ending September 30, 2008.
Our available for sale investment portfolio had net unrealized losses of $506,000 at September 30, 2009 and $491,000 at December 31, 2008. At September 30, 2009 the unrealized loss represented 0.6% of securities available for sale, which is included in comprehensive income. Comprehensive income or loss differs from our net income during the respective periods as a result of changes in the amount of unrealized gains and losses on our portfolio of securities available for sale. However, the change in value of our liabilities, which tend to fall in rising interest rate environments and rise in falling interest rate environments, is not included in other comprehensive income. We quantify, monitor, and actively manage the interest rate risk of interest earning assets with interest bearing liabilities based on budgetary assumptions, anticipated balance sheet modifications and changes in rates earned and rates paid. The Company believes that the comprehensive loss reported in the financial statements is due to changes in interest rates and does not reflect impairment in the quality of the securities contained in the investment portfolio, nor a permanent impairment in value. However, as financial rates start to increase over the term
36
based on expectations of future Federal Open Market Committee (FOMC) actions, and credit markets continue to change, it is entirely possible that the AFS investment portfolio could further depreciate in value over the remainder of the year.
Another component of comprehensive income is the result of the adoption of the Employers Accounting for Defined Benefit Pension and Other Postretirement Plans (ASC 715-60-55) topic by the Company in 2006. As part of the Companys accounting for certain postretirement plans, there was recognition of a prior service cost which was anticipated to be amortized over an estimated eleven year life from the date of the Plan in 2005. Subsequent to the forfeiture of all related postretirement plans, the remaining prior service cost was recovered during the first quarter of 2009, resulting in an increase to equity.
Our consolidated total assets were $539 million and $556 million at September 30, 2009 and December 31, 2008, respectively. Total average assets were $580 million and $633 million for the nine months ended September 30, 2009 and 2008, respectively, a decrease of 8%.
The Companys contraction over the past year has been brought about by a number of considerations having to do with underlying economic conditions, including the relative strength of our borrowers, investment portfolio weaknesses, funding sources and costs, and regulatory guidance.
The national, regional, and local economies where we do business have been subject to substantial disruption. The level of economic activity, the increasing number of retail and consumer bankruptcies, increasing commercial property vacancy rates and falling real estate values have severely affected the cash flow of our borrowers and the relative quality of our real estate related loan portfolio. This has caused increasing delinquencies, a higher level of non-performing loans and an increased level of Other Real Estate Owned. Further, we have not had a great deal of new lending opportunities in other than real estate related areas.
The current economic recession has also affected the rates of return on our investment portfolio, the relative values of municipal obligations, and the volume of overnight funds kept for exigencies. As markets stabilize, perhaps we will have more faith in longer term investments that carry higher rates of return.
The bane of any financial organization is high cost funding sources. In our growth mode over the past few years we increased our reliance on external funding sources, such as brokered CDs and higher levels of borrowed funds. Some of this reliance was due to the disintermediation caused by the Treasurys guarantee of money market funds held by broker/dealers with no concomitant guarantee on such funds held by banks, and some was to ensure additional liquidity to fund projected loan volumes. With a contracting economy and no loan growth, our need to continue such levels of external funding is diminished and we are shrinking the Bank to right size it based on capital levels reduced by intangible and GSE write-downs taken in 2008 and the loan loss, deferred tax valuation allowance, the goodwill impairment, and OREO provisions taken during 2009. Further, regulatory guidance recently noted in stress tests performed on nineteen large institutions has convinced us that economic uncertainties may be more severe than earlier thought, and the preservation of capital is more important than ever before. The imposition of an FDIC and NFID Order has also influenced our balance sheet activities.
37
Securities and Other Earning Assets
Quarterly Analysis
The securities portfolio was $84 million at September 30, 2009 and averaged $84 million during the third quarter of 2009 as compared to $60 million and an average of $98 million in the third quarter of 2008. The securities portfolio consists primarily of Mortgage-backed securities, Municipal securities and U.S. Government agency securities. The average yield on investments was 2.40% for the quarter ended September 30, 2009 and 4.53% for the quarter ended September 30, 2008. Securities available for sale had a net unrealized loss of $506,000 at September 30, 2009 as compared to the net unrealized loss of $491,000 at December 31, 2008. These unrealized gains and losses do not impact net income or regulatory capital but are recorded as adjustments to Stockholders equity. Unrealized gains and losses are a component of Comprehensive Income.
At September 30, 2009 debt securities had an aggregate depreciation of about 0.6% from the Companys amortized cost basis as compared to 1% at December 31, 2008. In the available for sale portfolio thirty-seven securities have an unrealized loss as of September 30, 2009. In nineteen of those securities the unrealized loss has exceeded one year. In analyzing an issuers financial condition, management considers whether the securities are issued by the federal government or its agencies, whether downgrades by bond rating agencies have occurred, and industry analysts reports. Five corporate securities (bank pooled trust preferred securities) were written down in 2009. Management determined that an OTTI existed due to the inactive market for these securities and, consequently, recorded a $1.3 million pre-tax impairment charge. Regarding the remainder of the investment portfolio; as management has the ability and intent to hold debt securities until maturity, or for the foreseeable future if classified as available for sale, no declines are deemed to be other than temporary, there are no declines in value that are not related to the current interest rate environment and there are no declines that may not be related to recent credit market turmoil.
Effective duration is a measure of duration which considers changes in cash flows and is based on the expected price volatility of a security. Generally the greater the duration of the security, the greater will be its percentage price volatility. The effective duration is presented in years and is equal to the approximate percentage change in price per 100 basis point change in rates. The effective duration of the Banks investment securities portfolio at September 30, 2009 is 3.61, as compared with 3.63 as of September 30, 2008. The change is primarily due to the relative volume of state, county and municipal securities with longer maturities, and changing money market conditions. At December 31, 2008 the portfolios effective duration was 3.05. The Companys investment securities portfolio duration does not substantially differ from that of the Bank, since approximately 99% of the Companys securities portfolio is held in the subsidiary bank.
Management evaluates securities for other-than-temporary impairment on a quarterly basis, or more frequently when economic or market concerns warrant such evaluation. Consideration is given to (1) the length of time and the extent to which the fair value has been less than cost, (2) the financial condition and near-term prospects of the issuer, and (3) the intent and ability of the Company to retain its investment in the issuer for a period of time sufficient to allow for any anticipated recovery in fair value.
The ratio of average total investments to average total assets was 28.4%, 16.9% and 17.4% at the quarter ended September 30, 2009, the year ended December 31, 2008 and the quarter ended September 30, 2008, respectively.
At September 30, 2009 the Company did not have an equity trading account while at September 30, 2008 such account was $84,000.
38
YTD Analysis
The securities portfolio, excluding trading securities was $84 million at September 30, 2009 and averaged $77 million during the first nine months of 2009 as compared to an average of $98 million in the first nine months of 2008. The average yield on investments was 2.66% for the nine months ended September 30, 2009 and 5.11% for the same period ended September 30, 2008, which was bolstered by the preferential returns on the now defunct GSEs.
The ratio of average total investments to average total assets was 22%, 17% and 17% at the nine months ended September 30, 2009, the year ended December 31, 2008 and the nine months ended September 30, 2008, respectively.
The Company had $83,000 in an equity trading portfolio at December 31, 2008 which was sold during the first quarter of 2009. The sale of such portfolio resulted in a realized loss of $22,000 for the YTD period ending September 30, 2009. Further, the Company reduced the carrying value of a limited market equity investment by $100,000 during the third quarter of 2009.
Quarterly Analysis
Gross loans including fair value loans amounted to $386 million at September 30, 2009, $440 million at December 31, 2008, and $454 million at September 30, 2008. Total loans, before allowance for loan losses, averaged $405 million for the third quarter of 2009, a decrease of $53 million or 12% from the average amount of such loans during the third quarter of 2008. With slowing economic activity in our local markets, loan growth has slowed as well. Management believes it is unlikely that this will change during the rest of 2009.
As noted in Table 4 Composition of the Loan Portfolio, real estate construction loans amounted to $73 million and $114 million at September 30, 2009 and September 30, 2008, respectively. These loans decreased $41 million or 36% from the amount of such loans at September 30, 2008. Commercial construction loans decreased the most at $14 million followed by single family construction which decreased $11 million and the acquisition and development loans which declined $12 million. These items taken together represents the majority of the decreases from September 30, 2008 balances. The decreases in construction loans are due to payoffs, pay downs, general economic decline in the local, regional and national real estate markets, and conversion of such loans to OREO upon foreclosures.
The yield on average loans for the quarter ending September 30, 2009 was 5.37% as compared to 6.72% for the same period in 2008. This one hundred thirty-five basis point deterioration in yield was due to rate decreases and the increased level of non-accrual loans.
Term real estate loans amounted to $241 million as of September 30, 2009 compared to $251 million for the quarter ending September 30, 2008, a decrease of $10 million or 4%. Single family residence term loans increased $4 million or 85% to $9 million compared to the first nine months of 2008 and represent the majority of the year to year increase, along with the $7 million or 57% increase in multi-family loans. Commercial term loans decreased $18 million or 7% to $226 million over the first nine months of 2008.
Commercial and industrial loans approximated $63 million and $80 million at September 30, 2009 and September 30, 2008, respectively. Commercial and industrial loans decreased about $17 million or 21% over the balances at September 30, 2008.
Consumer loans were $8 million for both periods under review.
39
The ratio of average total loans to average total assets for the third quarter of 2009 was 68% and 73% at September 30, 2008. The Company has thirty-seven non-accrual loans totaling $45.5 million as of September 30, 2009 with specific reserves of $5.7 million. The Company had twenty-seven loans on non-accrual totaling $24 million as of December 31, 2008 and eighteen loans totaling $21.8 million for the period ending September 30, 2008.
In addition to the non-accrual loans the Company had eleven additional impaired loans with a value of $8.1 million with specific reserves of $1.3 million. In addition to the non-accrual loans the Company had six impaired loans with a value of $900,000 with specific reserves of $144,000 for the nine months ending September 30, 2008. At September 30, 2009 total impaired loans had related allowances for loan and lease losses of $7 million. Loans are placed on non-accrual status when it becomes likely that the obligor may be unable to fully repay contracted principal and interest. The security, or lack thereof, for any obligation of a borrower is not a factor in the determination of the time a particular loan may be found to be impaired, or when a related valuation allowance may be established.
YTD Analysis
Total loans, before allowance for loan losses, averaged $421 million for the first nine months of 2009, a decrease of $41 million or 9% from the average amount of such loans during the first nine months of 2008.
As acquisition and development and construction loans have had project completion over the past year, they have generally been termed out, thereby reducing construction loan totals and increasing term loan totals. Those that have had cash flow interruptions have been placed on non-accrual status or have been foreclosed upon and contributed to the increase in reported OREO at September 30, 2009.
Overall, the loan portfolio has been shrinking due to programmed payments, loan payoffs, charge-offs and the moratorium on real estate lending set into place during late 2007.
The yield on average loans for the nine months ending September 30, 2009 was 5.94% as compared to 7.09% for the same period in 2008. This one hundred and fifteen basis point deterioration in yield or 16% was largely due to rate decreases as noted in Table 2, as well as the level of non-performing assets.
The ratio of average total loans to average total assets for both nine month periods under review was 73%.
Nonperforming Assets
Nonperforming assets consists of nonperforming loans, (which do not include accruing loans 90 days or more overdue, none for all periods under review), other real estate owned, repossessed assets and certain securities available for sale. The Company had 37 non-accrual loans totaling $45.5 million at September 30, 2009, and $18.4 million in OREO, therefore, non-performing assets (NPAs) totaled $64 million. The Company had 27 non-accrual loans totaling $24 million and $2.2 million in OREO in December 31, 2008 for total NPAs of $26.2 million as compared to 18 non-accrual loans totaling $21.8 million and $2.9 million in OREO as of September 30, 2008, for a total of $24.7 million in NPAs. The following table outlines the Companys nonperforming assets as of September 30, 2009 and 2008.
40
|
|
September 30, 2009 |
|
September 30, 2008 |
|
||||||||
(dollars in thousands) |
|
Balance |
|
Estimated |
|
Balance |
|
Estimated |
|
||||
Non-performing loans |
|
|
|
|
|
|
|
|
|
||||
Commercial and revolving lines of credit |
|
$ |
14,338 |
|
$ |
2,422 |
|
$ |
3,990 |
|
$ |
|
|
SBA guaranteed |
|
293 |
|
44 |
|
620 |
|
40 |
|
||||
Real Estate Construction |
|
25,478 |
|
2,586 |
|
12,041 |
|
1,426 |
|
||||
Real Estate Term |
|
5,383 |
|
619 |
|
5147 |
|
|
|
||||
Consumer |
|
|
|
|
|
|
|
|
|
||||
Total non-performing loans |
|
45,492 |
|
5,671 |
|
21,798 |
|
1,466 |
|
||||
|
|
|
|
|
|
|
|
|
|
||||
Other impaired loans |
|
|
|
|
|
|
|
|
|
||||
Commercial and revolving lines of credit |
|
519 |
|
403 |
|
180 |
|
58 |
|
||||
SBA loans |
|
119 |
|
7 |
|
434 |
|
87 |
|
||||
Real Estate Construction |
|
|
|
|
|
|
|
|
|
||||
Real Estate Term |
|
5,455 |
|
1,139 |
|
|
|
|
|
||||
Consumer |
|
|
|
|
|
|
|
|
|
||||
Total accruing impaired loans |
|
6,093 |
|
1,549 |
|
614 |
|
145 |
|
||||
|
|
|
|
|
|
|
|
|
|
||||
Total Impaired Loans |
|
$ |
51,585 |
|
$ |
7,220 |
|
$ |
22,412 |
|
$ |
1,611 |
|
OREO
The Company has twenty-two properties in other real estate owned (OREO) totaling $18.4 million at September 30, 2009 as compared to $2.2 million at December 31, 2008 and $2.9 million at September 30, 2008. For the nine months ending September 30, 2009 a net $16.2 million was added to OREO. Property is placed in OREO at a value supported by current appraisals less the estimated total costs of disposal. A descriptive listing of each property follows.
41
(dollars in thousands)
Date Placed in |
|
Description |
|
Location |
|
OREO |
|
|
2/20/08 |
|
1.76 acre residential lot Pleasant Valley |
|
Reno NV |
|
$ |
97 |
|
5/28/08 |
|
Partially developed 12.27 acre site with 41 residential paper lots |
|
Jackson, CA |
|
$ |
1,760 |
|
3/13/09 |
|
6 finished condominium units |
|
Reno, NV |
|
$ |
871 |
|
3/30/09 |
|
Subdivision of 25 mostly finished single family residence lots |
|
Elk Grove, CA |
|
$ |
1,588 |
|
3/30/09 |
|
10 acre commercial parcel with 2 leased industrial buildings |
|
Marysville, CA |
|
$ |
2,103 |
|
3/30/09 |
|
Finished lot for 8 unit condominium development |
|
Sacramento, CA |
|
$ |
298 |
|
5/6/09 |
|
40 converted condominium units |
|
Laguna West, CA |
|
$ |
588 |
|
5/22/09 |
|
3 commercial retail/office buildings (16525 sf) |
|
Dixon, CA |
|
$ |
1,832 |
|
5/28/09 |
|
Commercial lot S (1 of 2) Lincoln Crossing Marketplace |
|
Lincoln, CA |
|
$ |
340 |
|
5/28/09 |
|
Commercial lot T (2 of 2) Lincoln Crossing Marketplace |
|
Lincoln, CA |
|
$ |
600 |
|
5/28/09 |
|
10 completed condominium units |
|
Sacramento, CA |
|
$ |
1,767 |
|
6/19/09 |
|
Studio condominium |
|
Reno, NV |
|
$ |
42 |
|
6/29/09 |
|
2000 sf warehouse/office |
|
Minden, NV |
|
$ |
140 |
|
6/30/09 |
|
1540 sf Townehome |
|
Reno, NV |
|
$ |
110 |
|
7/13/09 |
|
Residential lot |
|
Reno, NV |
|
$ |
130 |
|
7/27/09 |
|
Retail Strip Center |
|
North Highlands, CA |
|
$ |
894 |
|
8/5/09 |
|
1/3 Acre Res. Lot at Tahoe Donner |
|
Truckee, CA |
|
$ |
233 |
|
8/24/09 |
|
2 Acre Commercial parcel |
|
North Highlands, CA |
|
$ |
521 |
|
9/16/09 |
|
4.09 Acre Commercial Land |
|
Chico, CA |
|
$ |
1,455 |
|
9/23/09 |
|
36.5 Acre Residential Land N. Vineyard Station |
|
Sacramento, CA |
|
$ |
378 |
|
9/23/09 |
|
Retail/Office Bldg |
|
Tahoe City, CA |
|
$ |
3,720 |
|
9/29/09 |
|
19 SFR lots in Somersett SBE |
|
Reno, NV |
|
$ |
1,301 |
|
|
|
|
|
|
|
|
|
|
|
|
OREO Valuation Allowance |
|
|
|
$ |
(2,368 |
) |
|
|
|
|
|
|
|
|
|
Total OREO at September 30, 2009 |
|
|
|
$ |
18,400 |
|
Total deposits were $485 million and $466 million as of September 30, 2009 and December 31, 2008 respectively, an increase of $19 million or 4%. Core deposits (deposits excluding certificates of deposit greater than $100,000), have decreased about $40 million or 10% since December 31, 2008. At December 31, 2008 this amount included $131 million of brokered deposits while such deposits now total $72 million. At September 30, 2009 total deposits were $485 million, while core deposits were $342 million, and comprised 70% of total deposits. The ratio of gross loans to deposits was 80% and 94% at September 30, 2009 and December 31, 2008, respectively.
Quarterly Analysis
Non-interest bearing deposits were $43 million at September 30, 2009, $52 million at December 31, 2008, and $53 million at September 30, 2008. Average non-interest bearing deposits totaled $47 million during the third quarter of 2009, which represented 9% of average total deposits. This compares with $60 million and 13%, respectively for the third quarter of 2008. Our non interest bearing deposit volumes have decreased as a result of the flight to safety of a number of our larger commercial account customers after the US Treasury disbursed billions of dollars to certain large banks now perceived as too big to fail. It is likely that this condition may continue to exist for an extended period. For non-interest bearing deposits for the 12 month period ending September 30, 2009, this is an average decrease of about 20% since last year. Such accounts are now fully insured by the FDIC.
Interest bearing deposits were $441 million, $414 million and $408 million at September 30, 2009, December 31, 2008, and September 30, 2008, respectively. Average interest-bearing deposits were $464 million, an increase of approximately $69 million during the quarter ended September 30, 2009, as compared to the average of $395 million in interest-bearing deposits during the quarter ended September 30, 2008. Such accounts are now guaranteed to $250,000 by the FDIC.
42
The cost of interest bearing deposits for the quarter ended September 30, 2009 was 3.27% as compared to 3.35% for the same period in 2008 or a decrease of 2%. This eight basis point decrease in cost was the primary result of rate reductions, as noted in Table 2.
Included in the deposit categories above are public deposits, which averaged $1.6 million for the quarter ending September 30, 2009 and $8 million for the same period of 2008. Public deposits include deposits received from state and local governments, school districts, and other public entities in our market area. Many of these deposits exceed the FDIC insurance coverage amounts and require us to pledge specific collateral or maintain private insurance to support such deposit accounts, which we have reduced over the last year.
YTD Analysis
Average non-interest bearing deposits totaled $51 million during the first nine months of 2009, which represented 10% of average total deposits. This compares with $58 million and 13%, respectively for the first nine months of 2008. This is a decrease of $7 million or 12% for non-interest bearing deposits for the YTD period ending September 30, 2009.
Average interest-bearing deposits were $447 million, an increase of approximately $54 million during the nine months ended September 30, 2009 or 14%, as compared to the average of $393 million in interest-bearing deposits during the same period ended September 30, 2008.
The cost of interest bearing deposits for the quarter ended September 30, 2009 was 3.30% as compared to 3.65% for the same period in 2008. This thirty-five basis point decrease in cost was primarily rate decreases, as well as over-riding money market conditions
Included in the deposit categories above are public deposits, which averaged $1.9 million for the nine months ending September 30, 2009 and $8 million for the same period of 2008. Public deposits include deposits received from state and local governments, school districts, and other public entities in our market area. Many of these deposits exceed the FDIC insurance coverage amounts and require us to pledge specific collateral or maintain private insurance to support such deposit accounts. We have reduced our volume of public deposits over the past year and are likely to continue doing so.
In the current period, non-interest bearing deposit growth has been hard to attain. Previously, our local markets were besieged by credit unions and larger regional banks aggressively targeting customers with offers of free consumer and/or business accounts, as well as with relatively high short term interest rates on interest bearing deposits. However, unfavorable media attention surrounding community banking has precipitated a flight to safety seen in large too big to fail institutions. Management believes this may continue for an extended period of time.
We use short-term and long-term borrowings to fund the growth of earning assets in excess of deposit growth. Short-term borrowings, which include federal funds purchased and overnight FHLB advances, amounted to $25 million at September 30, 2009 and $22 million at December 31, 2008, respectively. The Company has a Federal Home Loan Bank (FHLB) advance line of credit in the amount of $51 million which is predicated on the value of collateral held, and on September 30, 2009, the gross amount of all collateral was $51 million. At September 30, 2009 the Company had $26 million of borrowing capacity from that source. The Bank has currently applied and been approved to borrow funds from the Federal Reserve Bank; however, we have not yet sent collateral in order to begin drawing funds.
43
Long term other borrowed funds includes FHLB term advances, subordinated debt, capital lease obligations and other debt with maturities greater than one year. The Company had no FHLB long term advances, and $20.6 million in subordinated debt as of September 30, 2009 and $5.0 million and $20.6 million, respectively as of December 31, 2008.
The Companys 1031 qualified intermediaries during their course of business may place exchange liability deposits with non-affiliated financial institutions. There were no such deposits at September 30, 2009 and $208,000 at December 31, 2008. On September 30, 2009 there were no 1031 deposits at Nevada Security Bank and nearly $5 million at December 31, 2008, given that at the close of business on June 30, 2009 the Company no longer had an active 1031 division.
The United States Treasury guided recent stress testing of financial institutions, and indicated that increased capital may be required for all supervised financial institutions. As a result, management was compelled to transfer held-to-maturity securities to the available-for-sale portfolio this year to enhance the Banks capital and liquidity position.
Further, there has been recent interagency guidance concerning funding and liquidity risk management by the regulators to codify their current best practices on the quantification and attribution of liquidity risks. Their belief is that such risks should be explicit and transparent at the line management level, including consideration of how liquidity would be affected under stressed conditions.
Off-Balance Sheet Arrangements
In the usual course of business, the Company makes commitments to extend credit as long as there are no violations of any conditions established in the outstanding contractual arrangement. Commitments to extend credit were $18.2 million at September 30, 2009 as compared to $34 million at December 31, 2008. These commitments represented 5% and 8% of outstanding gross loans at each of the periods noted, respectively. The Companys stand-by letters-of-credit totaled $286,000 as of September 30, 2009 and $2 million at December 31, 2008.
The importance to and effect on the Companys revenues, expenses, cash flows, liquidity, capital resources and market risk support from the unused portion of the commitments to provide credit cannot be reasonably predicted because there is no guarantee that the lines of credit will ever be used.
The primary goal of our risk management program is to determine how certain existing or emerging issues in the financial services industry specifically, and those external to our industry, generically, may affect the nature and extent of the risks faced by the Company. Based on a periodic self-evaluation, we determine key issues and develop plans and/or objectives to address risk. Our board of directors and management believe that the nine applicable risk categories consist of compliance, credit, foreign exchange, interest rate, liquidity, price, strategic, reputation and transaction risk. Each risk category is viewed from a quantity of risk perspective (high, medium or low) coupled with a quality of risk perspective review. In addition, an aggregate level of risk is assigned as a whole, and the direction of risk (stable, increasing or decreasing) is determined. Each risk category and the overall risk level is compared to regulatory views and internal criteria on a regular basis and then reported to the board with an accompanying explanation as to the existence of any differences. The risk program includes risk identification, measurement, control and monitoring.
44
Our board of directors has established the overall strategic direction of the Company. It approves our overall risk policies and oversees our overall risk management process. The board has established an asset/liability management committee which has been charged with overseeing certain key interest rate risks. In addition, there is a management risk committee comprised of senior officers which identify and monitor key operational risks.
Our strategy for credit risk management includes a loan administration emphasizing centralized policies and uniform underwriting criteria for all loans, based on certain categorizations. The strategy also includes diversification on a geographic, (to the extent possible), industry and customer level, regular credit examinations and quarterly management review of large loans and loans with a deterioration of credit quality. We maintain an internal rating system that provides a mechanism to regularly monitor the credit quality of our loan portfolio. The rating system is intended to identify and measure the credit quality of lending relationships. We strive to identify potential problem loans early, place loans on non-accrual promptly and maintain adequate reserve levels.
As noted in Table 4, our real estate loan portfolio accounted for 82% of the total loan portfolio as of September 30, 2009 and 80% at December 31, 2008. This portfolio consists primarily of loans secured by commercial property and construction and land development loans.
Commercial loans accounted for 16% of the total loan portfolio as of September 30, 2009 as compared to 18% at December 31, 2008. Commercial loans are generally made to small and medium size businesses located within our market areas. These loans are not concentrated in any particular industry, but reflect the economies of our market areas. Commercial loans consist primarily of loans secured by various pieces of equipment or machinery and other corporate assets which may include real property. There were no USDA purchased loans outstanding as of September 30, 2009, while at December 31, 2008 there was $858,000 outstanding.
Consumer loans have remained relatively constant at 2% of outstanding loans for all of the periods under review.
The goal of asset liability management is the prudent control of market risk, liquidity and capital. Asset-liability management is governed by policies reviewed and approved annually by our board of directors and monitored periodically by a board committee. The board delegates responsibility for asset-liability management to the Asset Liability Management Committee (ALCO), which sets strategic directives that guide the day-to-day asset-liability management of our activities. The ALCO also reviews and approves all major interest rate risk, liquidity and capital management programs.
Market risk is the sensitivity of income to changes in interest rates, commodity prices and other market driven rates or prices. We are primarily exposed to non-trading market risk in our investment and loan portfolios. The volatility of financial markets in the recent past has exacerbated any market risk previously noted, and it is not certain that such volatility will be dampened as the economy continues to slow, or starts to recover from the bottom, whenever it occurs.
45
Interest rate risk, including mortgage prepayment risk, is by far the most significant non-credit risks to which we are exposed. Interest rate risk is the sensitivity of income to changes in interest rates. Changes in interest rates as well as fluctuations in the level and duration of assets and liabilities, affect net interest income, our primary source of revenue. This risk arises directly from our core banking activities lending and deposit gathering. In addition to directly impacting net interest income, changes in the level of interest rates can also affect (i) the amount of loans originated and sold by us, (ii) the ability of borrowers to repay adjustable or variable rate loans, (iii) the average maturity of loans, (iv) the rate of amortization of premiums paid on securities, (v) the fair value of our saleable assets, (vi) the amount of unrealized gains and losses on securities available for sale, the volume of interest bearing non-maturity deposits and (vii) the early withdrawal likelihood of customer originated certificates of deposit.
The primary objective of interest-rate risk management is to control our exposure to interest-rate risk both within limits approved by our board and guidelines established by the ALCO. These limits and guidelines reflect our tolerance for interest-rate risk over both short-term and long-term horizons. We attempt to control interest-rate risk by identifying, quantifying, and where appropriate, changing our exposure.
We quantify and measure interest-rate exposure using an outsourced BancWare model to dynamically simulate net interest income under various interest rate scenarios over a 12 and 24 month period. Simulated scenarios include deliberately extreme interest rate shocks and more gradual interest rate ramps. Key assumptions in these simulation analyses relate to behavior of interest rates and spreads, increases or decreases of product balances and the behavior of our deposit and loan customers. The most material assumptions relate to the prepayment of mortgage assets (including term real estate loans and mortgage-backed securities). The risk of prepayment tends to increase when interest rates fall, as long as credit markets are not frozen and customers have sufficient cash to prepay outstanding obligations. Since future prepayment behavior of loan customers is uncertain, the resultant interest rate sensitivity of loan assets cannot be precisely determined. Complicating our efforts to measure interest rate risk is the uncertainty of the maturity, repricing and/or runoff of some of our assets and liabilities.
To cope with these uncertainties, we give careful attention to our assumptions. For example, in the case of prepayment of real estate secured assets, the majority of assumptions are derived from vendor supported models that are periodically tested using observed loan prepayment behavior; however, at least annually we perform an independent prepayment analysis based on our own portfolio attributes, which supports that portion of our BancWare model data base. Further, we rate shock our lending portfolio based on risk ratings assigned to each loan by type, to more accurately determine likely net interest margins for subsequent periods. These modified rate shocks are meant to provide support guidelines for subsequent loan loss reserve adequacy tests, so that we may track historical rates earned on weighted risk factors apparent in our loan portfolio.
Our policy on interest-rate risk simulation specifies that if interest rates were to shift gradually up or down 100 basis points and 200 basis points, estimated net interest income for the subsequent 12 months should change by less than 7% and 14%, respectively. At all periods under review, estimated net interest income changes met all guidelines established.
Liquidity represents the ability to fund asset growth and accommodate deposit withdrawals and meet other funding requirements. Liquidity risk is the danger that the Company cannot meet anticipated or unexpected funding requirements or can meet them only at excessive cost. Liquidity is measured by the
46
ability to raise cash when needed at a reasonable cost. Many factors affect a companys ability to meet liquidity needs, including variations in the markets served, its asset-liability mix, its reputation and credit standing in the market and general economic conditions.
Recent disruptions in the financial and credit markets have had the effect of substantially reducing overall liquidity in the marketplace. As a result of these conditions and a deterioration of the Banks financial condition, two federal funds lines were closed by our correspondent banks. To offset the decrease in such funds availability, we have created a borrowing capacity at the Federal Reserve Bank Discount Window. This borrowing capacity will supplement our current Federal Home Loan Bank of San Francisco line availability.
In addition to traditional retail deposits, the Company has various other liquidity sources, including proceeds from maturities of securities and loans and the use of borrowed funds such as FHLB advances and brokered deposits. We continually monitor and forecast our liquidity position. There are several methods we use for this purpose, including daily review of cash and due from balances, federal funds sold or borrowed positions, monthly review of balance sheet changes, liquidity ratios, periodic liquidity forecasts and review of contingent funding plans.
Net cash used in operating activities, consisting primarily of the activities of securities and loans, was $21 million for the nine months ended September 30, 2009, as compared to $22 million provided by operating activities for the same period in 2008. The change in operating activities for 2009 was primarily due to the decrease in earnings, increases in OREO, the reduction of 1031 activity as a result of economic factors in local real estate markets and the forfeiture of the deferred compensation plans.
For the nine months ended September 30, 2009, the net cash provided by investing activities was $32 million, as compared to cash provided by financing of $19 million for the same period of 2008. The change in investing activities for 2009 was primarily due to securities and reflects a contraction in the loan portfolio, both due to the difficulties in the current economic environment.
Net cash provided by financing activities, was $13 million for the nine months ended September 30, 2009, as compared to cash used in financing activities of $26 million for the period ended September 30, 2008. This change from 2008 reflects greater deposit volumes.
As of September 30, 2009, non-pledged securities comprised about $31 million or 37% of our securities portfolio. Other forms of balance sheet liquidity on that date include vault cash and balances due from banks which totaled $93 million. In addition to the liquidity inherent in our balance sheet as noted above, we have off-balance-sheet liquidity in the form of lines of credit from the Federal Home Loan Bank of San Francisco, and a line in process at the Federal Reserve Bank.
As of September 30, 2009 the Company had about $103 million of immediately accessible liquidity, defined as cash that could be raised within 1-3 days through available cash, securities and borrowings. This represented approximately 22% of total deposits and 65% of non-maturity deposits. We believe that the level of our liquidity is sufficient to meet current and future funding requirements.
At September 30, 2009, Stockholders equity amounted to $7 million or approximately 1% of total assets. Capital guidelines issued by The Federal Deposit Insurance Corporation (FDIC) and Federal Reserve Board require us and our banking subsidiary to maintain certain ratios, as set forth in Table 6. As indicated in such table, we do not currently exceed minimum regulatory capital requirements.
47
The Federal Deposit Insurance Corporation (FDIC) has promulgated risk-based capital guidelines for all state non-member banks such as the Bank. These guidelines establish a risk-adjusted ratio relating capital to different categories of assets and off-balance-sheet exposures. There are two categories of capital under the guidelines. The first is Tier 1 Capital which includes common stockholders equity and qualifying minority interest in consolidated subsidiaries, less goodwill and certain other deductions, notably the unrealized net gains or losses (after tax adjustments) on available for sale investment securities carried at fair market value. The second is Tier 2 Capital which includes preferred stock, certain types of debt equity, and the allowance for loan losses, subject to certain limitations.
The Company uses a variety of measures to evaluate its capital adequacy, with risk-based capital ratios calculated separately for the Company and the Bank. Management reviews these capital measurements on a quarterly basis and takes appropriate action to ensure that they are within established internal and external guidelines. The ability to obtain capital is dependent upon the capital markets, as well as the historical and expected performance of our Bank and Company. Both our Bank and our Company are considered to be under capitalized at September 30, 2009. As part of the consent order, which was entered into on June 29, 2009, there exist requirements that the Bank shall develop and adopt a capital plan within 45 days. This plan calls for the maintenance of the Banks Tier 1 Capital equal to 8% of the Banks total assets within 90 days and 9% by year end. Further, by September 27, 2009, the Bank shall have maintained risk based capital equal to 11.25% of total risk weighted assets and by December 31, 2009 the Bank shall maintain a total risk based capital ratio of 12%. Our management is currently attempting to implement strategies to return to well capitalized. There are, however, no events or conditions that, since the date of the Order though the filing of this document, have changed the Banks or the Companys classification as under capitalized.
The Board of Directors, in responding to these financial challenges and increasing regulatory scrutiny, has initiated a number of strategies aimed at increasing capital, reducing lending exposures, increasing liquidity, strengthening earnings and evaluating various strategic options through the assistance of investment banking firms well known to our Company.
Such plans completed to date include, but are not limited to: 1) the forfeiture of retirement plan assets held by the Company for the benefit of certain senior personnel. The reduction of the accrued liability enhanced first quarter earnings, contributing both liquidity as a result of the cash received upon liquidation of the assets, earnings for the year, and hence, capital; 2) the closure of under-performing branches and the concomitant reduction in staffing levels, positively affecting earnings by reducing operating costs; 3) shrinking the Bank by reducing the level of brokered deposits through cash flow provided by deposits, investments and loans; and 4) enhancing capital ratios by collection of loans, reduction of asset size and other activities appropriate to the economic conditions surrounding the Company.
While we continue to persevere in our quest to right-size the organization in response to current economic considerations and heightened regulatory supervision of all financial institutions, we are ever cognizant that in the current financial environment, the best laid plans may go awry. Economic risks and regulatory actions could precipitate declines in the results anticipated by the Company during 2009 which could adversely affect the Companys continuing operations.
As previously noted, under capital adequacy guidelines, the regulatory framework for prompt corrective action and the Order, the Bank must meet specific capital guidelines that involve quantitative measures of the Banks assets, liabilities and certain off-balance sheet items as calculated under regulatory accounting practices. The Banks capital amounts and classifications are also subject to qualitative judgments by regulators about components, risk weightings and other factors. Our regulators have deemed us to be under capitalized and have placed constraints on our operating practices. Those constraints include, but are not limited to, regulatory approval to accept brokered deposits, restrictions on capital distributions, expansion, asset growth, management changes, rates paid on deposits and other items.
48
The BANK HOLDING AND SUBSIDIARIES
ITEM 3: QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Refer to the discussion on Market Risk contained in Managements Discussion and Analysis section of this 10-Q.
ITEM 4T: CONTROLS AND PROCEDURES
Evaluation of Disclosure Controls and Procedures
The Companys Chief Executive Officer and its Chief Financial Officer, after evaluating the effectiveness of the Companys disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) as of the end of the period covered by this report have concluded that, the Companys disclosure controls and procedures were adequate and effective to ensure that material information relating to the Company and its consolidated subsidiaries would be made known to them by others within those entities, particularly during the period in which this quarterly report was being prepared.
To assure that financial information is reliable and assets are safeguarded, management maintains an effective system of internal controls and procedures, important elements of which include: careful selection, training and development of operating and financial managers; an organization that provides appropriate division of responsibility; and communications aimed at ensuring that Company policies and procedures are understood throughout the organization. In establishing internal controls, management weighs the costs of such systems against the benefits it believes such systems will provide.
It should be noted that in designing and evaluating the disclosure controls and procedures, management recognized that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives, and management necessarily was required to apply its judgment in evaluating the cost-benefit relationship of possible controls and procedures. The Company has designed its disclosure controls and procedures to reach a level of reasonable assurance of achieving desired control objectives and, based on the evaluation described above, the Companys Chief Executive Officer and Chief Financial Officer (Principal Accounting Officer) concluded that the Companys disclosure controls and procedures were effective at reaching that level of reasonable assurance.
Disclosure controls and procedures are designed to ensure that information required to be disclosed by us in the reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commissions rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed by us in the reports that we file under the Exchange Act is accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, as appropriate to allow timely decisions regarding required disclosure.
The Companys assessment of the effectiveness of its internal control over financial reporting has been completed. Such assessments have been documented and made a part of the permanent record of Sarbanes-Oxley Act Section 404 compliance.
Changes in Internal Controls
There were no substantive changes in the Companys internal controls or in other factors that could significantly affect the Companys internal controls subsequent to the end of the period covered by this
49
report. While the Company believes the present design of its disclosure controls and procedures are effective to achieve its goal, future events affecting its business may cause the Company to modify its disclosure controls and procedures.
The Company does not expect that its disclosure controls and procedures and internal control over financial reporting will prevent all error and fraud. A control procedure, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the control procedure are met. Because of the inherent limitations in all control procedures, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, within the Company have been detected. These inherent limitations include the realities that judgments in decision-making can be faulty, and that breakdowns in controls or procedures can occur because of simple error or mistake. Additionally, controls can be circumvented by the individual acts of some persons, by collusion of two or more people, or by management override of the control. The design of any control procedure is based in part upon certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions; over time, controls become inadequate because of changes in conditions, or the degree of compliance with the policies or procedures may deteriorate. Because of the inherent limitations in a cost-effective control procedure, misstatements due to error or fraud may occur and not be detected.
In the normal course of business, the Company is involved in various legal proceedings. In the opinion of management, any liability resulting from such proceeding would not have a material adverse effect on the Companys financial condition or results of operations.
This Quarterly Report on Form 10-Q includes forward-looking statements and information and is subject to the safe harbor provisions of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934. These forward-looking statements (which involve The Bank Holdings (the Companys) plans, beliefs and goals, refer to estimates or use similar terms) involve certain risks and uncertainties that could cause actual results to differ materially from those in the forward-looking statements.
Our business exposes us to certain risks. The factors contained below, among others, could cause our financial condition and results of operations to be materially and adversely affected. If this were to happen, the value of our common stock could decline, perhaps significantly. The factors that could cause actual results to differ from forward-looking statements include, but are not limited to the following, as well as those discussed elsewhere herein:
· acts or threats of terrorism or actions taken by the United States or other governments as a result of such acts or threats, including possible military action, could further adversely affect business and economic conditions in the United States generally and in our principal markets, which could have an adverse effect on our financial performance and that of our borrowers and on the financial markets and the price of our common stock;
50
· abrupt and/or unforeseen, as well as continual changes in the extensive laws, regulations and policies governing financial institution holding companies and their subsidiaries could further alter our business environment and affect our operations;
· changes in the extensive laws, regulations and policies governing financial institution holding companies and their subsidiaries has substantially and is like to continue to alter the current business environment and affect our operations;
· general economic or industry conditions have been and could continue to be less favorable than expected, resulting in a deterioration in credit quality, a change in the allowance for loan losses or a reduced demand for credit or fee-based products and services;
· concentrations of real estate loans could further subject us to increased risk in the event of a real estate recession or natural disaster;
· changes in the domestic interest rate environment could reduce net interest income and could increase credit losses;
· the conditions of the securities markets could change, which could adversely affect, among other things, the value or credit quality of our assets, the availability and terms of funding necessary to meet our liquidity needs and our ability to originate loans and leases;
· competitive pressures could intensify and affect our profitability, including as a result of continued industry consolidation, the increased availability of financial services from nonbanks, technological developments such as the internet, or bank regulatory reform;
· loss of key personnel, social or demographic displacements;
· the potential need to adapt to industry changes in information technology systems, on which we are highly dependent, could present operational issues or require significant capital spending;
· operational risks and interruptions including data processing systems failure or fraud;
· our investments in our businesses and in related technology could require additional incremental spending, and might not produce expected deposit and loan growth and anticipated contributions to our earnings;
· we operate in a competitive environment dominated by larger financial service providers which have lower cost structures and offer a wider panoply of services;
You should not place undue reliance on any forward-looking statements. Forward-looking statements speak only as of the date they are made, and we undertake no obligation to update them in light of new information or future events except to the extent required by federal securities laws. Additional factors that could cause actual results to differ materially from those expressed in the forward-looking statements are discussed in the 2008 Annual Report on Form 10-K of The Bank Holdings filed with the Securities and Exchange Commission (SEC) and available at the SECs internet site (http://www.sec.gov).
51
ITEM 2: Unregistered Sales of Equity Securities and Use of Proceeds
· None
ITEM 3: Defaults Upon Senior Securities
· not applicable.
ITEM 4: Submission of Matters to a Vote of Security Holders
On July 29, 2009 the Annual Meeting of Shareholders was held. Proxies were solicited by the Companys management pursuant to Regulation 14 under the Securities Exchange Act of 1934. There was no solicitation in opposition to managements nominees for directorship as listed in the proxy statement, and all such nominees were duly elected pursuant to the vote of shareholders. The directors noted below were elected to serve a one year term. The votes tabulated were:
|
|
Authority Given |
|
Authority Withheld |
|
Edward Allison |
|
3,361,472 |
|
639,193 |
|
Robert Barone |
|
3,350,776 |
|
649,889 |
|
Marybel Batjer |
|
3,351,034 |
|
649,631 |
|
Keith Capurro |
|
3,484,961 |
|
515,704 |
|
Edward Coppin |
|
3,506,101 |
|
494,564 |
|
David A Funk |
|
3,474,351 |
|
526,314 |
|
Harold Giomi |
|
3,418,022 |
|
582,643 |
|
Jesse Haw |
|
3,394,755 |
|
605,910 |
|
(a) On June 29, 2009 Nevada Security Bank entered into an Agreement with the FDIC and NFID as described under Note 2 to our unaudited consolidated financial statements; Going Concern and Regulatory Actions.
(b) None.
(a) The following documents are included or incorporated by reference in this Quarterly Report on Form 10-Q.
Exhibit Number |
|
Description |
|
|
|
Exhibit No.31.1 |
|
Certification of Hal Giomi Pursuant to Rules 13a-14(a) and 15d 14(a) under the Securities Exchange Act of 1934, as amended (2) |
Exhibit No.31.2 |
|
Certification of Jack Buchold Pursuant to Rules 13a-14(a) and 15d 14(a) under the Securities Exchange Act of 1934, as amended (2) |
Exhibit No.32.1 |
|
Certification of Hal Giomi Pursuant to 18 U.S.C. § 1350 (2) |
Exhibit No.32.2 |
|
Certification of Jack Buchold Pursuant to 18 U.S.C. § 1350 (2) |
(1) Data required for Earnings per Share, is provided in Note 7 to the condensed, consolidated financial statements in this report.
(2) Filed herewith.
52
Table 1 - QUARTERLY Average Balances and Rates
The following table sets forth, for the periods indicated, information regarding (i) the total dollar amount of interest income and the interest-earning assets resultant average yields; (ii) the total dollar amount of interest expense on interest-bearing liabilities and the resultant average cost; (iii) net interest income; (iv) interest rate spread; and (v) net interest margin.
|
|
For the Quarter Ended September 30, |
|
For the Quarter Ended September 30, |
|
||||||||||||
|
|
2009 (a),(b) |
|
2008 (a),(b) |
|
||||||||||||
|
|
Average |
|
|
|
Yield/ |
|
Average |
|
|
|
Yield/ |
|
||||
|
|
Balance |
|
Interest |
|
Rate |
|
Balance |
|
Interest |
|
Rate |
|
||||
|
|
(Dollars in thousands) |
|
||||||||||||||
Assets |
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
Investments: |
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
Fed Funds Sold & Int Bearing Deposits |
|
$ |
80,192 |
|
$ |
54 |
|
0.27 |
% |
$ |
2,552 |
|
$ |
10 |
|
1.56 |
% |
Securities |
|
83,726 |
|
953 |
|
4.52 |
% |
98,158 |
|
1,145 |
|
4.64 |
% |
||||
Equity |
|
3,865 |
|
6 |
|
0.62 |
% |
7,686 |
|
82 |
|
4.24 |
% |
||||
Total Investments |
|
167,783 |
|
1,013 |
|
2.40 |
% |
108,396 |
|
1,237 |
|
4.53 |
% |
||||
Loans: (c) |
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
Agriculture |
|
0 |
|
|
|
0.00 |
% |
1,109 |
|
11 |
|
3.95 |
% |
||||
Commercial |
|
65,132 |
|
657 |
|
4.00 |
% |
78,895 |
|
1,224 |
|
6.17 |
% |
||||
Real Estate Construction |
|
80,989 |
|
577 |
|
2.83 |
% |
118,133 |
|
1,793 |
|
6.04 |
% |
||||
Real Estate Term |
|
250,074 |
|
4,160 |
|
6.60 |
% |
250,495 |
|
4,577 |
|
7.27 |
% |
||||
Consumer |
|
8,160 |
|
78 |
|
3.79 |
% |
7,662 |
|
116 |
|
6.02 |
% |
||||
Credit Card and Overdraft Protection |
|
303 |
|
8 |
|
10.47 |
% |
335 |
|
13 |
|
15.44 |
% |
||||
Other |
|
71 |
|
|
|
0.00 |
% |
1,258 |
|
|
|
0.00 |
% |
||||
Total Loans |
|
404,729 |
|
5,480 |
|
5.37 |
% |
457,887 |
|
7,734 |
|
6.72 |
% |
||||
Total Earning Assets |
|
572,512 |
|
6,493 |
|
4.50 |
% |
566,283 |
|
8,971 |
|
6.30 |
% |
||||
Non-Earning Assets |
|
19,245 |
|
|
|
|
|
58,552 |
|
|
|
|
|
||||
Total Assets |
|
$ |
591,757 |
|
|
|
|
|
$ |
624,835 |
|
|
|
|
|
||
Liabilities and Shareholders Equity |
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
Interest Bearing Deposits: |
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
NOW |
|
$ |
10,161 |
|
$ |
21 |
|
0.82 |
% |
$ |
12,385 |
|
$ |
18 |
|
0.58 |
% |
Savings Accounts |
|
9,807 |
|
26 |
|
1.05 |
% |
26,205 |
|
101 |
|
1.53 |
% |
||||
Money Market |
|
145,332 |
|
931 |
|
2.54 |
% |
88,464 |
|
484 |
|
2.18 |
% |
||||
IRAs |
|
10,523 |
|
87 |
|
3.28 |
% |
4,132 |
|
43 |
|
4.14 |
% |
||||
Certificates of Deposit<$100,000 |
|
184,320 |
|
1,903 |
|
4.10 |
% |
199,608 |
|
2,123 |
|
4.23 |
% |
||||
Certificates of Deposit>$100,000 |
|
104,155 |
|
856 |
|
3.26 |
% |
64,562 |
|
558 |
|
3.44 |
% |
||||
Total Interest Bearing Deposits |
|
464,298 |
|
3,824 |
|
3.27 |
% |
395,356 |
|
3,327 |
|
3.35 |
% |
||||
Borrowed Funds: |
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
Short term debt |
|
44,408 |
|
103 |
|
0.92 |
% |
71,401 |
|
423 |
|
2.36 |
% |
||||
Long term debt |
|
20,619 |
|
158 |
|
3.04 |
% |
27,619 |
|
312 |
|
4.49 |
% |
||||
Total Borrowed Funds |
|
65,027 |
|
261 |
|
1.59 |
% |
99,020 |
|
735 |
|
2.95 |
% |
||||
Total Interest Bearing Liabilities |
|
529,325 |
|
4,085 |
|
3.06 |
% |
494,376 |
|
4,062 |
|
3.27 |
% |
||||
Demand Deposits |
|
46,904 |
|
|
|
|
|
60,150 |
|
|
|
|
|
||||
Other Liabilities |
|
(147 |
) |
|
|
|
|
6,982 |
|
|
|
|
|
||||
Shareholders Equity |
|
15,675 |
|
|
|
|
|
63,327 |
|
|
|
|
|
||||
Total Liab & Shareholders Equity |
|
$ |
591,757 |
|
|
|
|
|
$ |
624,835 |
|
|
|
|
|
||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
Interest Rate Spread (d) |
|
|
|
|
|
1.44 |
% |
|
|
|
|
3.03 |
% |
||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
Interest Income/Earning Assets |
|
|
|
|
|
4.50 |
% |
|
|
|
|
6.30 |
% |
||||
Interest Expense/Earning Assets |
|
|
|
|
|
2.83 |
% |
|
|
|
|
2.85 |
% |
||||
Net Interest Income and Margin (e) |
|
|
|
$ |
2,408 |
|
1.67 |
% |
|
|
$ |
4,909 |
|
3.45 |
% |
(a) Average balances are obtained from the best available daily or monthly data.
(b) Yields are not reflected on a tax equivalent basis.
(c) Loans are gross of the allowance for possible loan losses, and net of deferred fees and related direct costs.
(d) Represents the difference between the yield on interest-earning assets and the cost of interest-bearing liabilities.
(e) Net interest margin represents net interest income as a percentage of average interest-earning assets.
53
Table 1a - YTD Average Balances and Rates
The following table sets forth, for the periods indicated, information regarding (i) the total dollar amount of interest income and the interest-earning assets resultant average yields; (ii) the total dollar amount of interest expense on interest-bearing liabilities and the resultant average cost; (iii) net interest income; (iv) interest rate spread; and (v) net interest margin.
|
|
For the Nine Months Ended September 30, |
|
For the Nine Months Ended September 30, |
|
||||||||||||
|
|
2009 (a),(b) |
|
2008 (a),(b) |
|
||||||||||||
|
|
Average |
|
|
|
Yield/ |
|
Average |
|
|
|
Yield/ |
|
||||
|
|
Balance |
|
Interest |
|
Rate |
|
Balance |
|
Interest |
|
Rate |
|
||||
|
|
(Dollars in thousands) |
|
||||||||||||||
Assets |
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
Investments: |
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
Fed Funds Sold & Int Bearing Deposits |
|
$ |
48,402 |
|
$ |
94 |
|
0.26 |
% |
$ |
2,993 |
|
$ |
47 |
|
2.10 |
% |
Securities |
|
76,761 |
|
2,454 |
|
4.28 |
% |
98,068 |
|
3,887 |
|
5.29 |
% |
||||
Equity |
|
4,135 |
|
21 |
|
0.65 |
% |
7,314 |
|
214 |
|
3.91 |
% |
||||
Total Investments |
|
129,298 |
|
2,569 |
|
2.66 |
% |
108,375 |
|
4,148 |
|
5.11 |
% |
||||
Loans: (c) |
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
Agriculture |
|
388 |
|
19 |
|
6.55 |
% |
1,022 |
|
1 |
|
0.13 |
% |
||||
Commercial |
|
69,546 |
|
2,886 |
|
5.55 |
% |
80,776 |
|
4,020 |
|
6.65 |
% |
||||
Real Estate Construction |
|
91,223 |
|
2,580 |
|
3.78 |
% |
132,934 |
|
6,921 |
|
6.95 |
% |
||||
Real Estate Term |
|
251,009 |
|
12,963 |
|
6.90 |
% |
239,264 |
|
13,226 |
|
7.38 |
% |
||||
Consumer |
|
8,235 |
|
231 |
|
3.75 |
% |
7,605 |
|
338 |
|
5.94 |
% |
||||
Credit Card and Overdraft Protection |
|
318 |
|
35 |
|
14.72 |
% |
318 |
|
36 |
|
15.12 |
% |
||||
Other |
|
415 |
|
|
|
0.00 |
% |
608 |
|
|
|
0.00 |
% |
||||
Total Loans |
|
421,134 |
|
18,714 |
|
5.94 |
% |
462,527 |
|
24,542 |
|
7.09 |
% |
||||
Total Earning Assets |
|
550,432 |
|
21,283 |
|
5.17 |
% |
570,902 |
|
28,690 |
|
6.71 |
% |
||||
Non-Earning Assets |
|
29,198 |
|
|
|
|
|
61,893 |
|
|
|
|
|
||||
Total Assets |
|
$ |
579,630 |
|
|
|
|
|
$ |
632,795 |
|
|
|
|
|
||
Liabilities and Shareholders Equity |
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
Interest Bearing Deposits: |
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
NOW |
|
$ |
10,988 |
|
$ |
41 |
|
0.50 |
% |
$ |
12,317 |
|
$ |
72 |
|
0.78 |
% |
Savings Accounts |
|
12,117 |
|
70 |
|
0.77 |
% |
30,635 |
|
508 |
|
2.22 |
% |
||||
Money Market |
|
135,133 |
|
2,630 |
|
2.60 |
% |
93,621 |
|
1,806 |
|
2.58 |
% |
||||
IRAs |
|
8,424 |
|
225 |
|
3.57 |
% |
4,091 |
|
134 |
|
4.38 |
% |
||||
Certificates of Deposit<$100,000 |
|
194,072 |
|
5,757 |
|
3.97 |
% |
186,416 |
|
6,301 |
|
4.51 |
% |
||||
Certificates of Deposit>$100,000 |
|
86,583 |
|
2,306 |
|
3.56 |
% |
65,469 |
|
1,919 |
|
3.92 |
% |
||||
Total Interest Bearing Deposits |
|
447,317 |
|
11,029 |
|
3.30 |
% |
392,549 |
|
10,740 |
|
3.65 |
% |
||||
Borrowed Funds: |
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
Short term debt |
|
29,553 |
|
402 |
|
1.82 |
% |
75,122 |
|
1,467 |
|
2.61 |
% |
||||
Long term debt |
|
22,755 |
|
861 |
|
5.06 |
% |
27,725 |
|
1,008 |
|
4.86 |
% |
||||
Total Borrowed Funds |
|
52,308 |
|
1,263 |
|
3.23 |
% |
102,847 |
|
2,475 |
|
3.21 |
% |
||||
Total Interest Bearing Liabilities |
|
499,625 |
|
12,292 |
|
3.29 |
% |
495,396 |
|
13,215 |
|
3.56 |
% |
||||
Demand Deposits |
|
50,890 |
|
|
|
|
|
58,352 |
|
|
|
|
|
||||
Other Liabilities |
|
(966 |
) |
|
|
|
|
4,175 |
|
|
|
|
|
||||
Shareholders Equity |
|
30,081 |
|
|
|
|
|
74,872 |
|
|
|
|
|
||||
Total Liab & Shareholders Equity |
|
$ |
579,630 |
|
|
|
|
|
$ |
632,795 |
|
|
|
|
|
||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
Interest Rate Spread (d) |
|
|
|
|
|
1.88 |
% |
|
|
|
|
3.15 |
% |
||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
Interest Income/Earning Assets |
|
|
|
|
|
5.17 |
% |
|
|
|
|
6.71 |
% |
||||
Interest Expense/Earning Assets |
|
|
|
|
|
2.99 |
% |
|
|
|
|
3.09 |
% |
||||
Net Interest Income and Margin (e) |
|
|
|
$ |
8,991 |
|
2.18 |
% |
|
|
$ |
15,475 |
|
3.62 |
% |
(a) Average balances are obtained from the best available daily or monthly data.
(b) Yields are not reflected on a tax equivalent basis.
(c) Loans are gross of the allowance for possible loan losses, and net of deferred fees and related direct costs.
(d) Represents the difference between the yield on interest-earning assets and the cost of interest-bearing liabilities.
(e) Net interest margin represents net interest income as a percentage of average interest-earning assets.
54
Table 2 - Changes in Net Interest Income
The following table presents certain information regarding changes in our interest income and interest expense for the periods indicated. For each category of interest-earning assets and interest-bearing liabilities, information is provided with respect to changes attributable to (i) changes in volume (change in volume multiplied by prior year rate), (ii) changes in rate (change in rate multiplied by prior year volume) and (iii) changes in rate/volume (change in rate multiplied by change in volume).
|
|
For the Quarter Ended September 30, |
|
For the Nine Months Ended September 30, |
|
||||||||||||||||||||
|
|
2009 vs. 2008 |
|
2009 vs. 2008 |
|
||||||||||||||||||||
|
|
Increase (Decrease) Due to |
|
Increase (Decrease) Due to |
|
||||||||||||||||||||
|
|
|
|
|
|
Rate and |
|
Total |
|
|
|
|
|
Rate and |
|
Total |
|
||||||||
|
|
Volume |
|
Rate |
|
Volume (1) |
|
Change |
|
Volume |
|
Rate |
|
Volume (1) |
|
Change |
|
||||||||
|
|
(Dollars in thousands) |
|
(Dollars in thousands) |
|
||||||||||||||||||||
Interest Income |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||
Investments: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||
Federal funds sold and other short term investments |
|
$ |
304 |
|
$ |
(9 |
) |
$ |
(251 |
) |
$ |
44 |
|
$ |
710 |
|
$ |
42 |
|
$ |
(705 |
) |
$ |
47 |
|
Securities |
|
(168 |
) |
(30 |
) |
7 |
|
(191 |
) |
(841 |
) |
745 |
|
(1,335 |
) |
(1,431 |
) |
||||||||
Equity |
|
(41 |
) |
(73 |
) |
37 |
|
(77 |
) |
(93 |
) |
178 |
|
(280 |
) |
(195 |
) |
||||||||
Total Investment Income |
|
95 |
|
(112 |
) |
(207 |
) |
(224 |
) |
(224 |
) |
965 |
|
(2,320 |
) |
(1,579 |
) |
||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||
Loans: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||
Agriculture |
|
|
|
|
|
|
|
|
|
(1 |
) |
(49 |
) |
68 |
|
18 |
|
||||||||
Commerical |
|
635 |
|
1 |
|
10 |
|
646 |
|
(557 |
) |
663 |
|
(1,240 |
) |
(1,134 |
) |
||||||||
Real Estate Construction |
|
32 |
|
(664 |
) |
(15 |
) |
(647 |
) |
(2,164 |
) |
3,147 |
|
(5,324 |
) |
(4,341 |
) |
||||||||
Real Estate Term |
|
2,003 |
|
167 |
|
197 |
|
2,367 |
|
647 |
|
856 |
|
(1,766 |
) |
(263 |
) |
||||||||
Consumer |
|
(4,428 |
) |
(2,190 |
) |
2,119 |
|
(4,499 |
) |
28 |
|
125 |
|
(260 |
) |
(107 |
) |
||||||||
Credit Card and OD Protection |
|
(111 |
) |
162 |
|
(156 |
) |
(105 |
) |
|
|
1 |
|
(2 |
) |
(1 |
) |
||||||||
Other |
|
(10 |
) |
(13 |
) |
10 |
|
(13 |
) |
|
|
|
|
|
|
|
|
||||||||
Total Loan Income |
|
(1,879 |
) |
(2,537 |
) |
2,165 |
|
(2,251 |
) |
(2,047 |
) |
4,743 |
|
(8,524 |
) |
(5,828 |
) |
||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||
Total Interest Income |
|
(1,784 |
) |
(2,649 |
) |
1,958 |
|
(2,475 |
) |
(2,271 |
) |
5,708 |
|
(10,844 |
) |
(7,407 |
) |
||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||
Interest Expense |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||
Interest Bearing Deposits: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||
Now Accounts |
|
|
|
|
|
21 |
|
21 |
|
(8 |
) |
26 |
|
(49 |
) |
(31 |
) |
||||||||
Savings |
|
(4 |
) |
15 |
|
(3 |
) |
8 |
|
(306 |
) |
330 |
|
(462 |
) |
(438 |
) |
||||||||
Money market |
|
459 |
|
67 |
|
304 |
|
830 |
|
798 |
|
(18 |
) |
44 |
|
824 |
|
||||||||
IRAs |
|
(426 |
) |
246 |
|
(217 |
) |
(397 |
) |
141 |
|
25 |
|
(75 |
) |
91 |
|
||||||||
Certificates of deposit<$100M |
|
1,875 |
|
(1 |
) |
(14 |
) |
1,860 |
|
258 |
|
764 |
|
(1,566 |
) |
(544 |
) |
||||||||
Certificates of deposit>$100M |
|
(1,015 |
) |
(487 |
) |
235 |
|
(1,267 |
) |
617 |
|
174 |
|
(404 |
) |
387 |
|
||||||||
Total interest-bearing deposits |
|
889 |
|
(160 |
) |
326 |
|
1,055 |
|
1,500 |
|
1,301 |
|
(2,512 |
) |
289 |
|
||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||
Borrowed Funds |
|
423 |
|
(202 |
) |
(118 |
) |
103 |
|
(887 |
) |
443 |
|
(768 |
) |
(1,212 |
) |
||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||
Total interest expense |
|
1,312 |
|
(362 |
) |
208 |
|
1,158 |
|
613 |
|
1,744 |
|
(3,280 |
) |
(923 |
) |
||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||
Net Interest Income |
|
$ |
(3,096 |
) |
$ |
(2,287 |
) |
$ |
1,750 |
|
$ |
(3,633 |
) |
$ |
(2,884 |
) |
$ |
3,964 |
|
$ |
(7,564 |
) |
$ |
(6,484 |
) |
(1) Includes changes in interest income and expense not due solely to volume or rate changes.
55
Table 3 - Non-Interest Income and Non-Interest Expense
The following table sets forth the various components of the Companys non-interest income and expense for the periods indicated.
|
|
For the Quarter Ended September 30, |
|
For the Nine Months Ended September 30, |
|
||||||||||||||||
|
|
2009 |
|
% of Total |
|
2008 |
|
% of Total |
|
2009 |
|
% of Total |
|
2008 |
|
% of Total |
|
||||
|
|
(Dollars in thousands) |
|
|
|
|
|
|
|
|
|
||||||||||
Other Operating Income |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
Service charges on deposit accounts |
|
$ |
168 |
|
27.05 |
% |
$ |
178 |
|
-1.26 |
% |
$ |
488 |
|
15.62 |
% |
$ |
459 |
|
-3.28 |
% |
Other service charges, commissions and fees |
|
12 |
|
1.93 |
% |
14 |
|
-0.10 |
% |
29 |
|
0.93 |
% |
35 |
|
-0.25 |
% |
||||
Loan & ORE charges and fees |
|
488 |
|
78.58 |
% |
47 |
|
-0.33 |
% |
454 |
|
14.53 |
% |
179 |
|
-1.28 |
% |
||||
Income on bank owned life insurance |
|
0 |
|
0.00 |
% |
91 |
|
-0.65 |
% |
27 |
|
0.86 |
% |
276 |
|
-1.97 |
% |
||||
Exchange fee income |
|
0 |
|
0.00 |
% |
15 |
|
-0.11 |
% |
11 |
|
0.35 |
% |
73 |
|
-0.52 |
% |
||||
Unrealized gains (loss) on trading securities |
|
0 |
|
0.00 |
% |
-802 |
|
5.69 |
% |
|
|
-0.67 |
% |
-987 |
|
7.04 |
% |
||||
Unrealized (loss) on fair value loans |
|
0 |
|
0.00 |
% |
0 |
|
0.00 |
% |
1 |
|
0.00 |
% |
1 |
|
-0.01 |
% |
||||
(Loss)/gain on sale of assets |
|
0 |
|
0.00 |
% |
-14 |
|
0.10 |
% |
-104 |
|
-3.26 |
% |
-55 |
|
0.39 |
% |
||||
(Loss)/ Gain on the sale of investments |
|
-47 |
|
-7.57 |
% |
-13,613 |
|
96.66 |
% |
-531 |
|
-16.35 |
% |
-13,996 |
|
99.86 |
% |
||||
Gain on surrender of deferred compensation plan |
|
0 |
|
0.00 |
% |
0 |
|
0.00 |
% |
2,750 |
|
88.00 |
% |
0 |
|
0.00 |
% |
||||
Total non-interest income |
|
621 |
|
100.00 |
% |
-14,084 |
|
100.00 |
% |
3,125 |
|
100.00 |
% |
-14,015 |
|
100.00 |
% |
||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
As a percentage of average earning assets |
|
|
|
0.44 |
% |
|
|
-12.47 |
% |
|
|
1.14 |
% |
|
|
-4.95 |
% |
||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
Other Operating Expense: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
Salaries and employee benefits |
|
1,706 |
|
37.91 |
% |
2,243 |
|
7.28 |
% |
5,679 |
|
32.01 |
% |
7,272 |
|
18.22 |
% |
||||
Occupancy costs |
|
421 |
|
9.36 |
% |
682 |
|
2.21 |
% |
1,699 |
|
9.58 |
% |
1,988 |
|
4.98 |
% |
||||
Advertising and marketing costs |
|
101 |
|
2.24 |
% |
127 |
|
0.41 |
% |
357 |
|
2.01 |
% |
402 |
|
1.01 |
% |
||||
Data processing costs |
|
102 |
|
2.27 |
% |
132 |
|
0.43 |
% |
390 |
|
2.20 |
% |
390 |
|
0.98 |
% |
||||
Deposit services costs |
|
242 |
|
5.38 |
% |
21 |
|
0.07 |
% |
521 |
|
2.94 |
% |
583 |
|
1.46 |
% |
||||
Accounting and legal costs |
|
192 |
|
4.27 |
% |
101 |
|
0.33 |
% |
661 |
|
3.73 |
% |
801 |
|
2.01 |
% |
||||
Goodwill impairment |
|
0 |
|
0.00 |
% |
26,911 |
|
87.39 |
% |
2,653 |
|
14.95 |
% |
26,911 |
|
67.42 |
% |
||||
OREO expenses |
|
581 |
|
12.91 |
% |
43 |
|
0.14 |
% |
3,227 |
|
18.19 |
% |
106 |
|
0.27 |
% |
||||
Other professional services |
|
357 |
|
7.93 |
% |
41 |
|
0.13 |
% |
683 |
|
3.85 |
% |
174 |
|
0.44 |
% |
||||
Regulatory assessment |
|
223 |
|
4.96 |
% |
90 |
|
0.29 |
% |
1,003 |
|
5.65 |
% |
266 |
|
0.67 |
% |
||||
Telephone & data communication |
|
73 |
|
1.62 |
% |
79 |
|
0.26 |
% |
228 |
|
1.29 |
% |
279 |
|
0.70 |
% |
||||
Loan servicing costs |
|
32 |
|
0.71 |
% |
18 |
|
0.06 |
% |
33 |
|
0.19 |
% |
28 |
|
0.07 |
% |
||||
Provision for undisb loan commitments |
|
14 |
|
0.31 |
% |
-2 |
|
-0.01 |
% |
51 |
|
0.29 |
% |
-42 |
|
-0.11 |
% |
||||
Postage |
|
22 |
|
0.49 |
% |
26 |
|
0.08 |
% |
68 |
|
0.38 |
% |
83 |
|
0.21 |
% |
||||
Directors fees |
|
90 |
|
2.00 |
% |
59 |
|
0.19 |
% |
81 |
|
0.46 |
% |
219 |
|
0.55 |
% |
||||
Travel and education services |
|
34 |
|
0.76 |
% |
38 |
|
0.12 |
% |
110 |
|
0.62 |
% |
150 |
|
0.38 |
% |
||||
Stationery and supplies |
|
28 |
|
0.62 |
% |
45 |
|
0.15 |
% |
85 |
|
0.48 |
% |
126 |
|
0.32 |
% |
||||
Other |
|
282 |
|
6.27 |
% |
141 |
|
0.46 |
% |
213 |
|
1.20 |
% |
179 |
|
0.45 |
% |
||||
Total non-interest expense |
|
4,500 |
|
100.00 |
% |
30,794 |
|
100.00 |
% |
17,742 |
|
100.00 |
% |
39,915 |
|
100.00 |
% |
||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
As a percentage of average earning assets |
|
|
|
3.13 |
% |
|
|
26.68 |
% |
|
|
4.31 |
% |
|
|
9.35 |
% |
||||
Net non-interest income/expense as a percentage of average earning assets |
|
|
|
2.70 |
% |
|
|
38.88 |
% |
|
|
3.55 |
% |
|
|
12.63 |
% |
||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
Efficiency ratio (a) |
|
|
|
172.35 |
% |
|
|
691.69 |
% |
|
|
144.70 |
% |
|
|
257.33 |
% |
||||
(a) Represents non-interest expense as a percentage of net interest income and non-interest income excluding realized securities gains and losses.
56
Table 4 - Composition of Loan Portfolio
The following table sets forth the composition of our loan portfolio at the dates indicated.
|
|
As of |
|
As of |
|
As of |
|
|||||||||
|
|
September 30, |
|
September 30, |
|
December 31, |
|
|||||||||
|
|
2009 (1) |
|
2008 (1) |
|
2008 (1) |
|
|||||||||
|
|
|
|
% of |
|
|
|
% of |
|
|
|
% of |
|
|||
|
|
Amount |
|
Loans |
|
Amount |
|
Loans |
|
Amount |
|
Loans |
|
|||
|
|
(Dollars in thousands) |
|
|||||||||||||
USDA Agriculture Loans |
|
$ |
|
|
0.00 |
% |
$ |
1,103 |
|
0.24 |
% |
$ |
858 |
|
0.19 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||
Commercial and Industrial |
|
|
|
|
|
|
|
|
|
|
|
|
|
|||
Revolving Lines of Credit |
|
30,332 |
|
48.30 |
% |
46,287 |
|
10.21 |
% |
42,999 |
|
9.75 |
% |
|||
Other Collateral |
|
32,210 |
|
51.29 |
% |
34,207 |
|
7.54 |
% |
36,263 |
|
8.22 |
% |
|||
Unsecured |
|
8,588 |
|
13.68 |
% |
6,561 |
|
1.45 |
% |
7,580 |
|
1.72 |
% |
|||
Participations |
|
-8,326 |
|
-13.26 |
% |
-7,500 |
|
-1.65 |
% |
-8,479 |
|
-1.92 |
% |
|||
Total Commerical and Industrial Loans |
|
62,804 |
|
16.32 |
% |
79,555 |
|
17.54 |
% |
78,363 |
|
17.76 |
% |
|||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||
Real Estate Construction: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|||
Acquisition and Land |
|
50,496 |
|
69.39 |
% |
62,005 |
|
13.67 |
% |
61,409 |
|
13.92 |
% |
|||
Single Family Residences |
|
4,197 |
|
5.77 |
% |
14,926 |
|
3.29 |
% |
14,262 |
|
3.23 |
% |
|||
Multi-family |
|
0 |
|
0.00 |
% |
2,603 |
|
0.57 |
% |
2,127 |
|
0.48 |
% |
|||
Commerical |
|
24,679 |
|
33.91 |
% |
38,591 |
|
8.51 |
% |
34,671 |
|
7.86 |
% |
|||
Government Guaranteed |
|
0 |
|
0.00 |
% |
4,325 |
|
0.95 |
% |
1,658 |
|
0.38 |
% |
|||
Participations |
|
-6,600 |
|
-9.07 |
% |
-8,950 |
|
-1.97 |
% |
-9,290 |
|
-2.11 |
% |
|||
Total Real Estate Construction |
|
72,772 |
|
18.91 |
% |
113,500 |
|
25.04 |
% |
104,837 |
|
23.76 |
% |
|||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||
Real Estate Term: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|||
Single Family Residences |
|
8,672 |
|
3.60 |
% |
4,676 |
|
1.03 |
% |
5,405 |
|
1.23 |
% |
|||
Multi-family |
|
20,699 |
|
8.59 |
% |
13,199 |
|
2.91 |
% |
13,920 |
|
3.15 |
% |
|||
Commerical |
|
226,146 |
|
93.90 |
% |
243,763 |
|
53.75 |
% |
241,414 |
|
54.71 |
% |
|||
Government Guaranteed |
|
0 |
|
0.00 |
% |
2,226 |
|
0.49 |
% |
767 |
|
0.17 |
% |
|||
Participations |
|
-14,677 |
|
-6.09 |
% |
-12,746 |
|
-2.81 |
% |
-12,673 |
|
-2.87 |
% |
|||
Total Real Estate Term |
|
240,840 |
|
62.59 |
% |
251,118 |
|
55.37 |
% |
248,833 |
|
56.40 |
% |
|||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||
Total Real Estate Loans |
|
313,612 |
|
81.50 |
% |
364,618 |
|
80.40 |
% |
353,670 |
|
80.16 |
% |
|||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||
Consumer Loans: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|||
Consumer |
|
1,517 |
|
18.06 |
% |
1,761 |
|
0.39 |
% |
1,757 |
|
0.40 |
% |
|||
Home Equity Lines of Credit |
|
6,509 |
|
77.48 |
% |
6,125 |
|
1.35 |
% |
6,107 |
|
1.38 |
% |
|||
Credit Cards and Overdraft Protection |
|
375 |
|
4.46 |
% |
333 |
|
0.07 |
% |
338 |
|
0.08 |
% |
|||
Other |
|
0 |
|
0.00 |
% |
8 |
|
0.00 |
% |
128 |
|
0.03 |
% |
|||
Total Consumer Loans |
|
8,401 |
|
2.18 |
% |
8,227 |
|
1.81 |
% |
8,330 |
|
1.89 |
% |
|||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||
Total Loans, before allowance |
|
384,817 |
|
100.00 |
% |
453,503 |
|
100.00 |
% |
441,221 |
|
100.00 |
% |
|||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||
Less: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|||
Allowance for Loan Losses |
|
14,900 |
|
4.72 |
% |
7,198 |
|
1.59 |
% |
8,061 |
|
|
|
|||
Net Loans |
|
369,917 |
|
|
|
446,305 |
|
|
|
432,226 |
|
|
|
|||
(1) Deferred fees and costs have been deducted from loan totals.
57
Table 5 - Table of Activity in the Allowance for Loan Losses
The following table sets forth information concerning the activity in our allowance for loan losses during the periods indicated.
|
|
For the Quarters Ended |
|
For the Nine Months Ended |
|
||||||||
|
|
September 30, |
|
September 30, |
|
September 30, |
|
September 30, |
|
||||
|
|
2009 |
|
2008 |
|
2009 |
|
2008 |
|
||||
|
|
(Dollars in thousands) |
|
(Dollars in thousands) |
|
||||||||
|
|
|
|
|
|
|
|
|
|
||||
Allowance at the beginning of the period |
|
$ |
16,163 |
|
$ |
7,241 |
|
$ |
8,061 |
|
$ |
7,276 |
|
|
|
|
|
|
|
|
|
|
|
||||
Charge-offs: |
|
|
|
|
|
|
|
|
|
||||
Agricultural |
|
|
|
|
|
|
|
|
|
||||
Commercial & industrial loans |
|
1,487 |
|
|
|
1,588 |
|
98 |
|
||||
Real estate construction |
|
6,535 |
|
195 |
|
7,407 |
|
1,440 |
|
||||
Real estate term |
|
327 |
|
|
|
363 |
|
|
|
||||
Consumer loans |
|
229 |
|
|
|
1,072 |
|
2 |
|
||||
Total Loans Charged-Off |
|
8,578 |
|
195 |
|
10,430 |
|
1,540 |
|
||||
|
|
|
|
|
|
|
|
|
|
||||
Recoveries: |
|
|
|
|
|
|
|
|
|
||||
Agricultural |
|
|
|
|
|
|
|
|
|
||||
Commercial & industrial loans |
|
|
|
2 |
|
10 |
|
5 |
|
||||
Real estate construction |
|
|
|
|
|
|
|
|
|
||||
Real estate term |
|
|
|
|
|
|
|
|
|
||||
Consumer loans |
|
|
|
|
|
|
|
17 |
|
||||
Total Loans Recovered |
|
|
|
2 |
|
10 |
|
22 |
|
||||
|
|
|
|
|
|
|
|
|
|
||||
Net loan charge offs |
|
8,578 |
|
193 |
|
10,420 |
|
1,518 |
|
||||
|
|
|
|
|
|
|
|
|
|
||||
Provision charged to expense |
|
7,315 |
|
150 |
|
17,259 |
|
1,440 |
|
||||
|
|
|
|
|
|
|
|
|
|
||||
Balance |
|
$ |
14,900 |
|
$ |
7,198 |
|
$ |
14,900 |
|
$ |
7,198 |
|
|
|
|
|
|
|
|
|
|
|
||||
Average loans outstanding during period * |
|
$ |
388,938 |
|
$ |
457,887 |
|
$ |
410,041 |
|
$ |
462,527 |
|
Total loans outstanding at end of period * |
|
$ |
384,816 |
|
$ |
453,503 |
|
$ |
384,816 |
|
$ |
453,503 |
|
* Deferred fees and costs have been deducted from loan totals |
|
|
|
|
|
|
|
||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
RATIOS |
|
|
|
|
|
|
|
|
|
||||
Net Charge-offs to Average Loans |
|
2.21 |
% |
0.17 |
% |
2.54 |
% |
0.66 |
% |
||||
Allowance for Loan Losses to Gross Loans at End of Period |
|
3.87 |
% |
1.59 |
% |
3.87 |
% |
1.59 |
% |
||||
Net Loan Charge-offs to Allowance for Loan Losses at End of Period |
|
57.57 |
% |
2.68 |
% |
69.93 |
% |
21.09 |
% |
||||
Net Loan Charge-offs to Provision for Loan Losses |
|
117.27 |
% |
128.67 |
% |
60.37 |
% |
105.42 |
% |
||||
58
Table 6 - Capital Adequacy - Risk-based Ratios
|
|
|
|
|
|
Minimum to |
|
|||||||||
|
|
|
|
Minimum |
|
be Well Capitalized |
|
|||||||||
|
|
|
|
Capital |
|
Under Prompt Corrective |
|
|||||||||
|
|
Actual |
|
Requirement |
|
Action Provisions |
|
|||||||||
(Dollars in thousands) |
|
Amount |
|
Ratio |
|
Amount |
|
Ratio |
|
Amount |
|
Ratio |
|
|||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||
September 30, 2009 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|||
Total Capital to Risk Weighted Assets |
|
|
|
|
|
|
|
|
|
|
|
|
|
|||
The Bank Holdings |
|
$ |
6,574 |
|
3.44 |
% |
$ |
28,221 |
|
8.00 |
% |
NA |
|
NA |
|
|
Nevada Security Bank |
|
$ |
24,199 |
|
7.65 |
% |
$ |
43,052 |
|
8.00 |
% |
$ |
53,814 |
|
10.00 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||
Tier 1 Capital to Risk Weighted Assets |
|
|
|
|
|
|
|
|
|
|
|
|
|
|||
The Bank Holdings |
|
$ |
13,148 |
|
1.72 |
% |
$ |
25,195 |
|
4.00 |
% |
NA |
|
NA |
|
|
Nevada Security Bank |
|
$ |
29,021 |
|
6.38 |
% |
$ |
23,547 |
|
4.00 |
% |
$ |
35,321 |
|
6.00 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||
Tier 1 Capital to Average Assets |
|
|
|
|
|
|
|
|
|
|
|
|
|
|||
The Bank Holdings |
|
$ |
13,148 |
|
1.04 |
% |
$ |
25,195 |
|
4.00 |
% |
NA |
|
NA |
|
|
Nevada Security Bank |
|
$ |
29,021 |
|
4.11 |
% |
$ |
23,547 |
|
4.00 |
% |
$ |
29,434 |
|
5.00 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||
June 30, 2009 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|||
Total Capital to Risk Weighted Assets |
|
|
|
|
|
|
|
|
|
|
|
|
|
|||
The Bank Holdings |
|
$ |
55,889 |
|
9.77 |
% |
$ |
40,095 |
|
8.00 |
% |
NA |
|
NA |
|
|
Nevada Security Bank |
|
$ |
36,634 |
|
8.84 |
% |
$ |
33,153 |
|
8.00 |
% |
$ |
51,860 |
|
10.00 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||
Tier 1 Capital to Risk Weighted Assets |
|
|
|
|
|
|
|
|
|
|
|
|
|
|||
The Bank Holdings |
|
$ |
38,671 |
|
6.76 |
% |
$ |
27,736 |
|
4.00 |
% |
NA |
|
NA |
|
|
Nevada Security Bank |
|
$ |
31,330 |
|
7.56 |
% |
$ |
16,576 |
|
4.00 |
% |
$ |
31,116 |
|
6.00 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||
Tier 1 Capital to Average Assets |
|
|
|
|
|
|
|
|
|
|
|
|
|
|||
The Bank Holdings |
|
$ |
27,744 |
|
4.85 |
% |
$ |
22,969 |
|
4.00 |
% |
NA |
|
NA |
|
|
Nevada Security Bank |
|
$ |
31,626 |
|
5.53 |
% |
$ |
22,876 |
|
4.00 |
% |
$ |
31,112 |
|
5.00 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||
March 31, 2009 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|||
Total Capital to Risk Weighted Assets |
|
|
|
|
|
|
|
|
|
|
|
|
|
|||
The Bank Holdings |
|
$ |
52,561 |
|
11.37 |
% |
$ |
36,974 |
|
8.00 |
% |
NA |
|
NA |
|
|
Nevada Security Bank |
|
$ |
51,446 |
|
11.33 |
% |
$ |
36,311 |
|
8.00 |
% |
$ |
45,389 |
|
10.00 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||
Tier 1 Capital to Risk Weighted Assets |
|
|
|
|
|
|
|
|
|
|
|
|
|
|||
The Bank Holdings |
|
$ |
46,258 |
|
10.01 |
% |
$ |
18,487 |
|
4.00 |
% |
NA |
|
NA |
|
|
Nevada Security Bank |
|
$ |
45,143 |
|
9.95 |
% |
$ |
18,156 |
|
4.00 |
% |
$ |
27,233 |
|
6.00 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||
Tier 1 Capital to Average Assets |
|
|
|
|
|
|
|
|
|
|
|
|
|
|||
The Bank Holdings |
|
$ |
45,258 |
|
7.64 |
% |
$ |
24,223 |
|
4.00 |
% |
NA |
|
NA |
|
|
Nevada Security Bank |
|
$ |
45,143 |
|
8.04 |
% |
$ |
22,452 |
|
4.00 |
% |
$ |
28,065 |
|
5.00 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||
December 31, 2008 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|||
Total Capital to Risk Weighted Assets |
|
|
|
|
|
|
|
|
|
|
|
|
|
|||
The Bank Holdings |
|
$ |
56,248 |
|
11.63 |
% |
$ |
38,694 |
|
8.00 |
% |
NA |
|
NA |
|
|
Nevada Security Bank |
|
$ |
50,450 |
|
10.58 |
% |
$ |
38,140 |
|
8.00 |
% |
$ |
47,676 |
|
10.00 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||
Tier 1 Capital to Risk Weighted Assets |
|
|
|
|
|
|
|
|
|
|
|
|
|
|||
The Bank Holdings |
|
$ |
50,269 |
|
10.39 |
% |
$ |
19,347 |
|
4.00 |
% |
NA |
|
NA |
|
|
Nevada Security Bank |
|
$ |
44,471 |
|
9.33 |
% |
$ |
19,070 |
|
4.00 |
% |
$ |
28,605 |
|
6.00 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||
Tier 1 Capital to Average Assets |
|
|
|
|
|
|
|
|
|
|
|
|
|
|||
The Bank Holdings |
|
$ |
50,269 |
|
8.89 |
% |
$ |
22,621 |
|
4.00 |
% |
NA |
|
NA |
|
|
Nevada Security Bank |
|
$ |
44,471 |
|
7.94 |
% |
$ |
22,413 |
|
4.00 |
% |
$ |
28,016 |
|
5.00 |
% |
59
Table 7 -QUARTERLY DATA (UNAUDITED)
(Dollars in thousands)
|
|
2009 |
|
2008 |
|
|||||||||||||||||
|
|
Third |
|
Second |
|
First |
|
Fourth |
|
Third |
|
Second |
|
First |
|
|||||||
|
|
Quarter |
|
Quarter |
|
Quarter |
|
Quarter |
|
Quarter |
|
Quarter |
|
Quarter |
|
|||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||
Interest Income |
|
$ |
6,493 |
|
$ |
6,844 |
|
$ |
7,946 |
|
$ |
8,136 |
|
$ |
8,971 |
|
$ |
9,411 |
|
$ |
10,308 |
|
Interest Expense |
|
4,085 |
|
4,209 |
|
3,997 |
|
4,275 |
|
4,062 |
|
4,170 |
|
4,983 |
|
|||||||
Net interest income |
|
2,408 |
|
2,635 |
|
3,949 |
|
3,861 |
|
4,909 |
|
5,241 |
|
5,325 |
|
|||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||
Provision for Loan Losses |
|
7,315 |
|
7,660 |
|
2,284 |
|
2,585 |
|
150 |
|
1,140 |
|
150 |
|
|||||||
Net interest income after Provision for Loan Losses |
|
(4,907 |
) |
(5,025 |
) |
1,665 |
|
1,276 |
|
4,759 |
|
4,101 |
|
5,175 |
|
|||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||
Non-interest income |
|
621 |
|
(297 |
) |
2,801 |
|
(1,299 |
) |
(14,084 |
) |
151 |
|
(82 |
) |
|||||||
Non-interest expenses |
|
4,500 |
|
9,312 |
|
3,929 |
|
4,495 |
|
30,794 |
|
4,535 |
|
4,586 |
|
|||||||
|
|
. |
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||
Income (Loss) before taxes |
|
(8,787 |
) |
(14,634 |
) |
537 |
|
(4,518 |
) |
(40,119 |
) |
(283 |
) |
507 |
|
|||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||
Income/(losses) attributable to Minority Shareholders |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||
Provision (Benefit) for taxes |
|
|
|
7,546 |
|
703 |
|
(1,645 |
) |
(5,073 |
) |
(308 |
) |
(2 |
) |
|||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||
Net Income (Loss) |
|
$ |
(8,787 |
) |
$ |
(22,180 |
) |
$ |
(166 |
) |
$ |
(2,873 |
) |
$ |
(35,046 |
) |
$ |
25 |
|
$ |
509 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||
Other Comprehensive income (loss), unrealized gains/losses on securities available-for-sale |
|
832 |
|
(1,337 |
) |
(517 |
) |
(617 |
) |
791 |
|
(510 |
) |
(155 |
) |
|||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||
Comprehensive Income (Loss) |
|
$ |
(10,608 |
) |
$ |
(23,517 |
) |
$ |
(683 |
) |
$ |
(3,490 |
) |
$ |
(34,255 |
) |
$ |
(485 |
) |
$ |
354 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||
Earnings (loss) per common share: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||
Basic |
|
$ |
(1.97 |
) |
$ |
(3.83 |
) |
$ |
(0.03 |
) |
$ |
(0.50 |
) |
$ |
(6.01 |
) |
$ |
0.00 |
|
$ |
0.09 |
|
Diluted |
|
$ |
(1.97 |
) |
$ |
(3.83 |
) |
$ |
(0.03 |
) |
$ |
(0.50 |
) |
$ |
(6.01 |
) |
$ |
0.00 |
|
$ |
0.09 |
|
60
Table 8 - Operating Segment Information
Segment information is divided into the Parent, Bank and non-bank segments. Non-bank segments includes the Companys 1031 qualified intermediary companies.
|
|
For the Nine Months Ending |
|
For the Nine Months Ending |
|
||||||||||||||||||||||||||
Condensed Income Statement |
|
September 30, 2009 |
|
September 30, 2008 |
|
||||||||||||||||||||||||||
(in thousands - unaudited) |
|
Bank |
|
1031 |
|
Parent |
|
Eliminations |
|
Consolidated |
|
Bank |
|
1031 |
|
Parent |
|
Eliminations |
|
Consolidated |
|
||||||||||
Interest Income |
|
$ |
21,293 |
|
$ |
49 |
|
$ |
(10 |
) |
$ |
(49 |
) |
$ |
21,283 |
|
$ |
28,278 |
|
$ |
558 |
|
$ |
398 |
|
$ |
(544 |
) |
$ |
28,690 |
|
Interest Expense |
|
11,806 |
|
(0 |
) |
535 |
|
(49 |
) |
12,292 |
|
12,673 |
|
310 |
|
776 |
|
(544 |
) |
13,215 |
|
||||||||||
Provision for Loan Losses |
|
17,259 |
|
|
|
|
|
|
|
17,259 |
|
1,440 |
|
|
|
|
|
|
|
1,440 |
|
||||||||||
Non-interest Income |
|
3,092 |
|
11 |
|
22 |
|
|
|
3,126 |
|
(7,999 |
) |
64 |
|
(6,080 |
) |
|
|
(14,015 |
) |
||||||||||
Non-interest Expense |
|
16,716 |
|
204 |
|
821 |
|
|
|
17,741 |
|
27,935 |
|
772 |
|
11,208 |
|
|
|
39,915 |
|
||||||||||
Net Income/(Loss) before taxes and other |
|
(21,396 |
) |
(144 |
) |
(1,344 |
) |
|
|
(22,884 |
) |
(21,769 |
) |
(460 |
) |
(17,666 |
) |
|
|
(39,895 |
) |
||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||||
Income/(Loss) attributable to minority shareholders |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||||
Income Taxes/(Benefit) |
|
6,804 |
|
21 |
|
1,424 |
|
|
|
8,249 |
|
(2,518 |
) |
(169 |
) |
(2,696 |
) |
|
|
(5,383 |
) |
||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||||
NET INCOME/(LOSS) |
|
$ |
(28,200 |
) |
$ |
(165 |
) |
$ |
(2,767 |
) |
$ |
|
|
$ |
(31,133 |
) |
$ |
(19,251 |
) |
$ |
(291 |
) |
$ |
(14,970 |
) |
$ |
|
|
$ |
(34,512 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||||
Statement of Condition |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||||
ASSETS |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||||
Cash and Due from Banks |
|
$ |
50,191 |
|
$ |
6 |
|
$ |
1,179 |
|
$ |
(1,185 |
) |
$ |
50,191 |
|
$ |
6,138 |
|
$ |
7,748 |
|
$ |
77 |
|
$ |
(7,616 |
) |
$ |
6,347 |
|
Investments |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||||
Investments in subsidiaries |
|
|
|
|
|
25,110 |
|
(25,110 |
) |
|
|
|
|
|
|
52,868 |
|
(52,868 |
) |
|
|
||||||||||
Investment Portfolio |
|
86,703 |
|
|
|
914 |
|
|
|
87,617 |
|
69,781 |
|
692 |
|
2,851 |
|
|
|
73,324 |
|
||||||||||
Loans (net) |
|
369,916 |
|
|
|
|
|
|
|
369,916 |
|
446,305 |
|
|
|
|
|
|
|
446,305 |
|
||||||||||
Fixed Assets |
|
6,762 |
|
|
|
88 |
|
|
|
6,850 |
|
6,711 |
|
68 |
|
118 |
|
|
|
6,897 |
|
||||||||||
Intangibles |
|
1,406 |
|
|
|
|
|
|
|
1,406 |
|
4,139 |
|
|
|
|
|
|
|
4,139 |
|
||||||||||
Other Assets |
|
23,165 |
|
|
|
9 |
|
|
|
23,174 |
|
19,035 |
|
70 |
|
2,152 |
|
(53 |
) |
21,204 |
|
||||||||||
Total Assets |
|
$ |
538,143 |
|
$ |
6 |
|
$ |
27,300 |
|
$ |
(26,295 |
) |
$ |
539,154 |
|
$ |
552,109 |
|
$ |
8,578 |
|
$ |
58,066 |
|
$ |
(60,537 |
) |
$ |
558,216 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||||
LIABILITIES |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||||
Deposits |
|
486,064 |
|
|
|
|
|
(1,185 |
) |
484,879 |
|
461,332 |
|
|
|
|
|
(299 |
) |
461,033 |
|
||||||||||
Borrowing |
|
25,060 |
|
|
|
20,619 |
|
|
|
45,679 |
|
34,500 |
|
|
|
20,619 |
|
|
|
55,119 |
|
||||||||||
Other Liabilities |
|
845 |
|
|
|
276 |
|
|
|
1,121 |
|
3,798 |
|
8,189 |
|
(2,183 |
) |
(7,370 |
) |
2,434 |
|
||||||||||
Total Liabilities |
|
511,969 |
|
|
|
20,895 |
|
(1,185 |
) |
531,679 |
|
499,630 |
|
8,189 |
|
18,436 |
|
(7,669 |
) |
518,586 |
|
||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||||
Stockholders equity |
|
26,175 |
|
6 |
|
6,405 |
|
(25,110 |
) |
7,475 |
|
52,479 |
|
389 |
|
39,630 |
|
(52,868 |
) |
39,630 |
|
||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||||
Total Liabilities and Stockholders Equity |
|
$ |
538,144 |
|
$ |
6 |
|
$ |
27,300 |
|
$ |
(26,295 |
) |
$ |
539,154 |
|
$ |
552,109 |
|
$ |
8,578 |
|
$ |
58,066 |
|
$ |
(60,537 |
) |
$ |
558,216 |
|
61
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
|
|
THE BANK HOLDINGS |
||
|
|
|
|
|
Date: |
November 16, 2009 |
|
by: |
/s/ Harold G. Giomi |
|
|
|
Harold G. Giomi |
|
|
|
|
Chief Executive Officer |
|
|
|
|
|
|
Date: |
November 16, 2009 |
|
by: |
/s/ Jack B. Buchold |
|
|
|
Jack B. Buchold |
|
|
|
|
Chief Financial Officer |
|
|
|
|
(principal financial and accounting officer) |
62