Attached files
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EX-32.1 - EXHIBIT 32.1 - MISSION COMMUNITY BANCORP | ex32-1.htm |
EX-31.2 - EXHIBIT 31.2 - MISSION COMMUNITY BANCORP | ex31-2.htm |
EX-32.2 - EXHIBIT 32.2 - MISSION COMMUNITY BANCORP | ex32-2.htm |
EX-31.1 - EXHIBIT 31.1 - MISSION COMMUNITY BANCORP | ex31-1.htm |
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-Q
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þ
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QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
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For the quarterly period ended June 30, 2012
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OR
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o
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TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
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Commission file number 333-12892
MISSION COMMUNITY BANCORP
(Exact name of registrant as specified in its charter)
California
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77-0559736
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(State or other jurisdiction
of incorporation)
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(I.R.S. Employer
Identification No.)
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3380 S. Higuera St., San Luis Obispo, California 93401
(Address of principal executive offices)
(805) 782-5000
Issuer’s telephone number
Not applicable
(Former name, former address and former fiscal year, if changed since last report)
Indicate by check mark whether the issuer (1) has filed all reports required to be filed by Section 13 or 15(d) of the Exchange Act during the past 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 þ No o
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Website, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 or Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).
þ Yes o No
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer o
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Accelerated filer o
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Non-accelerated filer o
(Do not check if a smaller reporting company)
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Smaller reporting company þ
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Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
Yes o No þ
APPLICABLE ONLY TO CORPORATE ISSUERS
State the number of shares outstanding of each of the issuer’s classes of common equity, as of the latest practicable date: 7,855,066 shares of common stock outstanding as of August 3, 2012.
Page 1 of 52
Mission Community Bancorp
June 30, 2012
Index
PART I – FINANCIAL INFORMATION | ||
Item 1. Financial Statements (Unaudited) | ||
Condensed Consolidated Balance Sheets at June 30, 2012 and December 31, 2011
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3 | |
Condensed Consolidated Statements of Operations for the Three-Month and Six-Month Periods Ended June 30, 2012 and 2011
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4 | |
Consolidated Statements of Comprehensive Income for the Three-Month and Six-Month Periods Ended June 30, 2012 and 2011
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5 | |
Condensed Consolidated Statements of Changes of Shareholders’ Equity for the Six-Month Period Ended June 30, 2012
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6 | |
Condensed Consolidated Statements of Cash Flows for the Six-Month Periods Ended June 30, 2012 and 2011
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7 | |
Notes to Consolidated Financial Statements
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8 | |
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations | 30 | |
Item 3. Quantitative and Qualitative Disclosures About Market Risk | 47 | |
Item 4. Controls and Procedures | 47 | |
PART II – OTHER INFORMATION | ||
Item 1. Legal Proceedings | 48 | |
Item 1A. Risk Factors | 48 | |
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds | 48 | |
Item 3. Defaults Upon Senior Securities | 48 | |
Item 4. Mine Safety Disclosures | 48 | |
Item 5. Other Information | 48 | |
Item 6. Exhibits | 49 |
Page 2 of 52
PART I
Item 1. Financial Statements
Mission Community Bancorp and Subsidiaries
Condensed Consolidated Balance Sheets
Unaudited
(dollars in thousands)
June 30, 2012
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December 31, 2011
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|||||||
Assets
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||||||||
Cash and due from banks
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$ | 27,256 | $ | 61,621 | ||||
Certificates of deposit in other banks
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5,176 | 3,592 | ||||||
Investment securities available for sale
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171,472 | 128,310 | ||||||
Loans held for sale
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4,280 | 3,720 | ||||||
Loans, net of unearned income
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219,351 | 229,949 | ||||||
Less allowance for loan and lease losses
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(3,781 | ) | (3,326 | ) | ||||
Net loans
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215,570 | 226,623 | ||||||
Federal Home Loan Bank stock and other stock, at cost
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3,800 | 3,926 | ||||||
Premises and equipment
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16,027 | 16,282 | ||||||
Other real estate owned
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2,299 | 5,220 | ||||||
Company owned life insurance
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7,901 | 7,786 | ||||||
Core deposit intangible asset, net of accumulated amortization
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2,967 | 3,170 | ||||||
Accrued interest and other assets
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2,228 | 3,062 | ||||||
Total Assets
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$ | 458,976 | $ | 463,312 | ||||
Liabilities and Shareholders' Equity
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||||||||
Deposits:
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||||||||
Noninterest-bearing demand
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$ | 126,003 | $ | 105,105 | ||||
Money market, NOW and savings
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159,483 | 156,273 | ||||||
Time certificates of deposit
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123,159 | 149,196 | ||||||
Total deposits
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408,645 | 410,574 | ||||||
Junior subordinated debt securities
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5,548 | 5,491 | ||||||
Accrued interest and other liabilities
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2,130 | 4,271 | ||||||
Warrant liability
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150 | 5,184 | ||||||
Total liabilities
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416,473 | 425,520 | ||||||
Mezzanine financing:
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||||||||
Redeemable Bancorp-issued preferred stock, Series A, B and C; liquidation value of $1,205
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1,205 | 1,205 | ||||||
Redeemable subsidiary-issued preferred stock; liquidation value of $6,400 at June 30, 2012, and $7,000 at December 31, 2011
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6,400 | 7,000 | ||||||
Shareholders' equity:
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||||||||
Common stock - 50,000,000 shares authorized; issued and outstanding: 7,855,066 at June 30, 2012 and 7,755,066 at December 31, 2011
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41,325 | 40,825 | ||||||
Additional paid-in capital
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8,533 | 3,505 | ||||||
Accumulated deficit
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(17,095 | ) | (16,438 | ) | ||||
Accumulated other comprehensive income
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2,135 | 1,695 | ||||||
Total shareholders' equity
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34,898 | 29,587 | ||||||
Total Liabilities and Shareholders' Equity
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$ | 458,976 | $ | 463,312 |
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
Page 3 of 52
Mission Community Bancorp and Subsidiaries
Condensed Consolidated Statements of Operations
Unaudited
(dollars in thousands, except per share data)
For the Three Months Ended
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For the Six Months Ended
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|||||||||||||||
June 30, 2012
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June 30, 2011
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June 30, 2012
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June 30, 2011
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Interest Income
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||||||||||||||||
Interest and fees on loans
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$ | 4,351 | $ | 1,697 | $ | 8,650 | $ | 3,486 | ||||||||
Interest on investment securities
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707 | 461 | 1,339 | 880 | ||||||||||||
Other interest income
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24 | 6 | 68 | 16 | ||||||||||||
Total interest income
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5,082 | 2,164 | 10,057 | 4,382 | ||||||||||||
Interest Expense
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||||||||||||||||
Interest on money market, NOW and savings deposits
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69 | 104 | 141 | 219 | ||||||||||||
Interest on time certificates of deposit
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196 | 229 | 452 | 476 | ||||||||||||
Other interest expense
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82 | 25 | 164 | 55 | ||||||||||||
Total interest expense
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347 | 358 | 757 | 750 | ||||||||||||
Net interest income
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4,735 | 1,806 | 9,300 | 3,632 | ||||||||||||
Provision for loan and lease losses
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225 | - | 450 | - | ||||||||||||
Net interest income (loss) after provision for loan and lease losses
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4,510 | 1,806 | 8,850 | 3,632 | ||||||||||||
Non-interest income
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||||||||||||||||
Service charges on deposit accounts
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248 | 121 | 455 | 198 | ||||||||||||
Gain on sale of loans
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- | 35 | 8 | 141 | ||||||||||||
Loan servicing fees, net of amortization
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44 | 35 | 82 | 59 | ||||||||||||
Gain on sale or call of available-for-sale securities
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526 | - | 527 | - | ||||||||||||
Gain (loss) or writedown of other real estate owned and premises and equipment
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70 | 70 | (288 | ) | 23 | |||||||||||
Change in fair value of warrant liability
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49 | 407 | 79 | 959 | ||||||||||||
Other income and fees
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127 | 56 | 239 | 168 | ||||||||||||
Total non-interest income
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1,064 | 724 | 1,102 | 1,548 | ||||||||||||
Non-interest expense
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||||||||||||||||
Salaries and employee benefits
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2,370 | 1,448 | 4,853 | 2,763 | ||||||||||||
Occupancy expenses
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467 | 331 | 922 | 652 | ||||||||||||
Furniture and equipment
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256 | 112 | 435 | 226 | ||||||||||||
Data processing
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549 | 262 | 1,341 | 463 | ||||||||||||
Professional fees
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326 | 403 | 735 | 533 | ||||||||||||
Marketing and business development
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91 | 56 | 216 | 93 | ||||||||||||
Office supplies and expenses
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182 | 67 | 392 | 126 | ||||||||||||
Insurance and regulatory assessments
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170 | 81 | 323 | 226 | ||||||||||||
Loan and lease expenses
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126 | 123 | 190 | 160 | ||||||||||||
Other real estate expenses
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103 | 42 | 149 | 98 | ||||||||||||
Amortization of core deposit intangible asset
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101 | - | 202 | - | ||||||||||||
Other expenses
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308 | 167 | 500 | 317 | ||||||||||||
Total non-interest expense
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5,049 | 3,092 | 10,258 | 5,657 | ||||||||||||
Income (loss) before income taxes
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525 | (562 | ) | (306 | ) | (477 | ) | |||||||||
Income tax expense
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3 | 5 | 3 | 5 | ||||||||||||
Net income (loss)
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$ | 522 | $ | (567 | ) | $ | (309 | ) | $ | (482 | ) | |||||
Less dividends on preferred stock
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173 | 64 | 348 | 128 | ||||||||||||
Net income (loss) attributable to common stock
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$ | 349 | $ | (631 | ) | $ | (657 | ) | $ | (610 | ) | |||||
Per Common Share Data:
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||||||||||||||||
Net income (loss) - basic
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$ | 0.04 | $ | (0.09 | ) | $ | (0.08 | ) | $ | (0.09 | ) | |||||
Net income (loss) - diluted
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$ | 0.04 | $ | (0.09 | ) | $ | (0.08 | ) | $ | (0.09 | ) | |||||
Average common shares outstanding - basic
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7,766,055 | 7,094,274 | 7,760,561 | 7,094,274 | ||||||||||||
Average common shares outstanding - diluted
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7,766,055 | N/A | N/A | N/A |
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
Page 4 of 52
Mission Community Bancorp and Subsidiaries
Consolidated Statements of Comprehensive Income
Unaudited
(dollars in thousands)
For the Three Months Ended
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For the Six Months Ended
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|||||||||||||||
June 30, 2012
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June 30, 2011
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June 30, 2012
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June 30, 2011
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|||||||||||||
Net income (loss)
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$ | 522 | $ | (567 | ) | $ | (309 | ) | $ | (482 | ) | |||||
Other comprehensive income:
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||||||||||||||||
Unrealized gains arising during the period on available-for-sale securities, net of taxes of $-0-
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678 | 1,109 | 967 | 925 | ||||||||||||
Less reclassification adjustment for securities gains included in net income
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(526 | ) | - | (527 | ) | - | ||||||||||
Other comprehensive income
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152 | 1,109 | 440 | 925 | ||||||||||||
Comprehensive income
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$ | 674 | $ | 542 | $ | 131 | $ | 443 |
Mission Community Bancorp and Subsidiaries
Condensed Consolidated Statement of Changes in Shareholders' Equity
(Unaudited - dollars in thousands)
Common Stock
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Additional
Paid-In |
Accumulated
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Accumulated
Other |
|||||||||||||||||||||
Shares
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Amount
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Capital
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Deficit
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Income
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Total
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|||||||||||||||||||
Balance at December 31, 2011, as previously reported
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7,755,066 | $ | 40,825 | $ | 2,375 | $ | (16,438 | ) | $ | 1,695 | $ | 28,457 | ||||||||||||
Adjustment to net contribution from shareholder recognized in additional paid-in capital for Santa Lucia merger
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- | - | 1,130 | - | - | 1,130 | ||||||||||||||||||
Balance at January 1, 2012, as adjusted
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7,755,066 | $ | 40,825 | $ | 3,505 | $ | (16,438 | ) | $ | 1,695 | $ | 29,587 | ||||||||||||
Exercise of common stock warrants
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100,000 | 500 | 500 | |||||||||||||||||||||
Dividends declared on subsidiary-issued preferred stock
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(348 | ) | (348 | ) | ||||||||||||||||||||
Stock-based compensation
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73 | 73 | ||||||||||||||||||||||
Cancellation of warrants accounted for as liabilities
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4,955 | 4,955 | ||||||||||||||||||||||
Net (loss)
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(309 | ) | (309 | ) | ||||||||||||||||||||
Other comprehensive income
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- | - | - | - | 440 | 440 | ||||||||||||||||||
Balance at June 30, 2012
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7,855,066 | $ | 41,325 | $ | 8,533 | $ | (17,095 | ) | $ | 2,135 | $ | 34,898 |
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
Page 5 of 52
Mission Community Bancorp and Subsidiaries
Condensed Consolidated Statements of Cash Flows
(Unaudited - dollars in thousands)
For the Six Months Ended
|
||||||||
June 30, 2012
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June 30, 2011
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|||||||
Operating Activities
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||||||||
Net (loss) income
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$ | (309 | ) | $ | (482 | ) | ||
Adjustments to reconcile net (loss) income to net cash (used in) operating activities:
|
||||||||
Depreciation
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479 | 252 | ||||||
Accretion of discount on securities and loans, net
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684 | 257 | ||||||
Amortization of core deposit intangible asset
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202 | - | ||||||
Accretion of discount on assets acquired in merger
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(1,670 | ) | - | |||||
Amortization of discount on liabilities assumed in merger
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56 | - | ||||||
Provision for loan and lease losses
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450 | - | ||||||
Stock-based compensation
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73 | 69 | ||||||
Gain on sale of available-for-sale securities
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(527 | ) | - | |||||
Gain on sale of loans
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(8 | ) | (141 | ) | ||||
Gains on disposition of loans held for sale
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(26 | ) | (46 | ) | ||||
Change in the fair value of warrant liability
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(79 | ) | (959 | ) | ||||
Net losses and writedowns of fixed assets or other real estate owned
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288 | (23 | ) | |||||
Increase in company-owned life insurance
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(115 | ) | (45 | ) | ||||
Net increase in accrued taxes receivable
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- | - | ||||||
Other, net
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(145 | ) | (260 | ) | ||||
Proceeds from loan sales
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101 | 1,440 | ||||||
Loans originated for sale
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- | (1,562 | ) | |||||
Net cash used in operating activities
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(546 | ) | (1,500 | ) | ||||
Investing Activities
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||||||||
Net decrease (increase) in deposits in other banks
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(1,584 | ) | 248 | |||||
Purchase of available-for-sale securities
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(87,337 | ) | (22,033 | ) | ||||
Proceeds from maturities, calls and paydowns of available-for-sale securities
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19,557 | 6,142 | ||||||
Proceeds from sales of available-for-sale securities
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24,873 | - | ||||||
Net decrease (increase) in loans held for investment
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6,582 | (766 | ) | |||||
Net decrease in loans held for sale
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3,456 | 3,926 | ||||||
Net decrease in Federal Home Loan Bank and other stock
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126 | 193 | ||||||
Purchases of premises and equipment
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(247 | ) | (191 | ) | ||||
Additional investments in other real estate owned
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- | (111 | ) | |||||
Proceeds from sale of premises and equipment
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17 | - | ||||||
Proceeds from sale of other real estate owned
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3,132 | 1,507 | ||||||
Net cash provided by (used in) investing activities
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(31,425 | ) | (11,085 | ) | ||||
Financing Activities
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||||||||
Net increase (decrease) in demand deposits and savings accounts
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24,108 | 1,797 | ||||||
Net increase (decrease) in time deposits
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(26,037 | ) | 7,243 | |||||
Net decrease in other borrowings
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(600 | ) | (349 | ) | ||||
Additional costs of 2010 shareholder rights offering
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- | (40 | ) | |||||
Proceeds from exercise of common stock warrants
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500 | - | ||||||
Payment of dividends on preferred stock
|
(365 | ) | (128 | ) | ||||
Net cash provided by (used in) financing activities
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(2,394 | ) | 8,523 | |||||
Net increase (decrease) in cash and cash equivalents
|
(34,365 | ) | (4,062 | ) | ||||
Cash and cash equivalents at beginning of period
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61,621 | 10,817 | ||||||
Cash and cash equivalents at end of period
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$ | 27,256 | $ | 6,755 | ||||
Non-cash changes:
|
||||||||
Change in unrealized gains (losses) on available-for-sale securities
|
440 | 925 | ||||||
Loans reclassified to held for sale
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4,583 | - | ||||||
Real estate acquired by foreclosure
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492 | 1,069 | ||||||
Adjustments to net contribution from shareholder recognized in additional paid-in capital for Santa Lucia merger
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1,130 | - | ||||||
Cancellation of warrants accounted for as liabilities
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(4,955 | ) | - | |||||
Supplemental disclosures of cash flow information:
|
||||||||
Interest paid
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933 | 760 | ||||||
Taxes paid
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3 | 2 |
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
Page 6 of 52
Mission Community Bancorp and Subsidiary
Notes to Condensed Consolidated Financial Statements (unaudited)
Note 1 – Basis of Presentation and Management Representations
The unaudited consolidated financial statements include accounts of Mission Community Bancorp (“the Company”) and its subsidiaries, Mission Community Bank (“the Bank”) and Mission Asset Management, Inc. (“MAM”), and the Bank’s subsidiary, Mission Community Development Corporation. All material inter-company balances and transactions have been eliminated.
These financial statements have been prepared in accordance with the Securities and Exchange Commission’s rules and regulations for quarterly reporting and, therefore, do not necessarily include all information and footnote disclosures normally included in financial statements prepared in accordance with generally accepted accounting principles. These financial statements should be read in conjunction with the Company’s Form 10-K for the year ended December 31, 2011, which was filed on March 30, 2012.
Operating results for interim periods are not necessarily indicative of operating results for an entire fiscal year. In the opinion of management, the unaudited financial statements for the three-month and six-month periods ended June 30, 2012 and 2011 reflect all adjustments, consisting only of normal recurring adjustments, necessary for a fair presentation of the Company’s financial position and results of operations.
The Bank has been organized as a single reporting segment and operates five branches in the Central Coast area of California (in the cities of San Luis Obispo, Paso Robles, Atascadero, Arroyo Grande and Santa Maria). In addition, the Bank operates a loan production office in San Luis Obispo, with a primary focus on Small Business Administration (“SBA”) lending, and a Food and Agriculture Division, operating through a loan production office in Oxnard, California.
The Bank’s primary source of revenue is providing real estate, commercial (including SBA-guaranteed loans) and agricultural loans to customers, who are predominately small and middle-market businesses and individuals.
The Bank’s deposits are insured by the Federal Deposit Insurance Corporation (FDIC) up to applicable legal limits.
Certain reclassifications have been made to prior period balances to conform to classifications in 2012, with no impact to previously reported net loss or shareholders’ equity.
Note 2 – Stock Based Compensation Plans
The Company has a stock option plan, adopted in 1998, which is more fully described in Note J to the consolidated financial statements in the Company’s Annual Report on Form 10-K. The 1998 Stock Option Plan has been terminated with respect to the granting of future options under the Plan. In 2008 the Company adopted the Mission Community Bancorp 2008 Stock Incentive Plan, which provides for the grant of various equity awards, including stock options.
Page 7 of 52
On September 27, 2011 the Board of Directors of the Company approved and adopted the Mission Community Bancorp 2011 Equity Incentive Plan (the “2011 Plan”). The 2011 Plan has also been approved by the Company’s shareholders. The 2011 Plan provides for the issuance of both “incentive” and “nonqualified” stock options, restricted stock awards, stock appreciation rights and stock awards. Awards under the 2011 Plan may be made to salaried officers and employees of the Company and its affiliates, to non-employee directors of the Company and its affiliates, and to consultants providing services to the Company and its affiliates. Awards under the 2011 Plan may be granted on such terms and conditions as are established by the Board of Directors or an authorized Committee of the Board of Directors in its discretion. Awards may be granted as performance-based compensation under section 162(m) of the Internal Revenue Code.
The Company determines the fair value of options granted on the date of grant using a Black-Scholes-Merton option pricing model, which uses assumptions based on expected option life, expected stock volatility and the risk-free interest rate. The expected volatility assumptions used by the Company are based on the historical volatility of the Company’s common stock over the most recent period commensurate with the estimated expected life of the Company’s stock options. The Company bases its expected life assumption on its historical experience and on the terms and conditions of the stock options it grants to employees. The risk-free rate is based on the U.S. Treasury yield curve for the periods within the contractual life of the options in effect at the time of the grant. The Company also makes assumptions regarding estimated forfeitures that will impact the total compensation expenses recognized.
No options were granted in the six months ended June 30, 2012. The fair values of options granted in the six months ended June 30, 2011, were estimated on the date of grant using the following assumptions:
Date of grant
|
1/25/2011
|
4/4/2011
|
||||||
Number of options granted
|
20,000 | 20,000 | ||||||
Exercise price
|
$ | 5.00 | $ | 5.00 | ||||
Market price of common stock
|
$ | 3.65 | $ | 3.61 | ||||
Expected stock price volatility
|
37.4 | % | 37.3 | % | ||||
Expected option life (years)
|
6
|
6
|
||||||
Risk-free interest rate
|
2.32 | % | 2.53 | % | ||||
Weighted average fair value of all options granted during the period:
|
||||||||
3 months ended 6/30/11
|
$ | 1.07 | ||||||
6 months ended 6/30/11
|
$ | 1.08 |
Page 8 of 52
During the three-month periods ended June 30, 2012 and 2011, the Company recognized pre-tax stock-based compensation expense of $38,000 and $35,000, respectively. For the six-month periods ended June 30, 2012 and 2011, stock-based compensation expense was recognized totaling $73,000 and $69,000, respectively. As of June 30, 2012, the Company has unvested options outstanding with unrecognized compensation expense totaling $233,000, which is scheduled to be recognized as follows (in thousands):
July 1 through December 31, 2012
|
$ | 71 | ||
2013
|
85 | |||
2014
|
29 | |||
2015
|
29 | |||
2016
|
19 | |||
Total unrecognized compensation cost
|
$ | 233 |
No options outstanding were “in the money” as of June 30, 2012.
The following table summarizes information about stock option activity for the six months ended June 30, 2012:
Shares
|
Weighted-
Average |
Weighted-
Average(Years)
|
Aggregate
Intrinsic |
|||||||||||||
Outstanding at beginning of period
|
297,219 | $ | 7.84 | |||||||||||||
Options granted
|
- | |||||||||||||||
Options exercised
|
- | |||||||||||||||
Options forfeited
|
( 19,819 | ) | 20.48 | |||||||||||||
Outstanding at end of period
|
277,400 | $ | 6.94 | 7.9 | $ | - | ||||||||||
Options exercisable at end of period
|
131,838 | $ | 8.67 | 6.9 | $ | - | ||||||||||
Options Vested or Expected to Vest
|
277,400 | $ | 6.94 | 7.9 | $ | - |
Page 9 of 52
Note 3 — Investment Securities
Investment securities have been classified in the consolidated balance sheets as available for sale according to management’s intent. The amortized cost of securities and their approximate fair values as of the balance sheet dates were as follows:
(in thousands)
|
Amortized
Cost |
Gross
Unrealized |
Gross
Unrealized |
Estimated
Fair |
||||||||||||
June 30, 2012:
|
||||||||||||||||
U.S. Government agencies
|
$ | 64,113 | $ | 617 | $ | (13 | ) | $ | 64,717 | |||||||
Residential mortgage-backed securities
|
82,098 | 1,285 | (48 | ) | 83,335 | |||||||||||
Municipal securities
|
4,593 | 230 | - | 4,823 | ||||||||||||
Corporate debt securities
|
3,037 | 2 | (12 | ) | 3,027 | |||||||||||
Asset-backed securities
|
15,495 | 88 | (13 | ) | 15,570 | |||||||||||
$ | 169,336 | $ | 2,222 | $ | (86 | ) | $ | 171,472 |
December 31, 2011:
|
||||||||||||||||
U.S. Government agencies
|
$ | 26,098 | $ | 331 | $ | (12 | ) | $ | 26,417 | |||||||
Residential mortgage-backed securities
|
88,209 | 1,122 | (38 | ) | 89,293 | |||||||||||
Municipal securities
|
4,820 | 239 | (2 | ) | 5,057 | |||||||||||
Corporate debt securities
|
2,059 | - | (4 | ) | 2,055 | |||||||||||
Asset-backed securities
|
5,429 | 79 | (20 | ) | 5,488 | |||||||||||
$ | 126,615 | $ | 1,771 | $ | (76 | ) | $ | 128,310 |
The scheduled maturities of investment securities at June 30, 2012, were as follows. Actual maturities may differ from contractual maturities because some investment securities may allow the right to call or prepay the obligation with or without call or prepayment penalties.
(in thousands)
|
Available-for-Sale Securities
|
|||||||
Amortized
Cost |
Fair
Value |
|||||||
Within one year
|
$ | 7,476 | $ | 7,506 | ||||
Due in one year to five years
|
41,730 | 41,876 | ||||||
Due in five years to ten years
|
47,827 | 48,386 | ||||||
Due in greater than ten years
|
72,303 | 73,704 | ||||||
$ | 169,336 | $ | 171,472 |
Page 10 of 52
Investment securities in a temporary unrealized loss position as of each balance sheet date are shown in the following table, based on the length of time they have been continuously in an unrealized loss position:
(in thousands)
|
Less than 12 Months
|
12 Months or Longer
|
Total
|
|||||||||||||||||||||
Fair
Value |
Unrealized
Losses |
Fair
Value |
Unrealized
Losses |
Fair
Value |
Unrealized
Losses |
|||||||||||||||||||
June 30, 2012:
|
||||||||||||||||||||||||
U.S. Government agencies
|
6,991 | $ | 13 | $ | - | $ | - | $ | 6,991 | $ | 13 | |||||||||||||
Residential mortgage-backed securities
|
18,392 | 48 | - | - | 18,392 | 48 | ||||||||||||||||||
Municipal securities
|
- | - | - | - | - | - | ||||||||||||||||||
Corporate debt securities
|
1,988 | 12 | - | - | 1,988 | 12 | ||||||||||||||||||
Asset-backed securities
|
2,402 | 13 | - | - | 2,402 | 13 | ||||||||||||||||||
$ | 29,773 | $ | 86 | $ | - | $ | - | $ | 29,773 | $ | 86 |
December 31, 2011:
|
||||||||||||||||||||||||
U.S. Government agencies
|
$ | 2,082 | $ | 12 | $ | - | $ | - | $ | 2,082 | $ | 12 | ||||||||||||
Residential mortgage-backed securities
|
9,731 | 38 | - | - | 9,731 | 38 | ||||||||||||||||||
Municipal securities
|
240 | 2 | - | - | 240 | 2 | ||||||||||||||||||
Corporate debt securities
|
1,055 | 4 | - | - | 1,055 | 4 | ||||||||||||||||||
Asset-backed securities
|
1,585 | 20 | - | - | 1,585 | 20 | ||||||||||||||||||
$ | 14,693 | $ | 76 | $ | - | $ | - | $ | 14,693 | $ | 76 |
As of June 30, 2012, the Company held 11 securities that had been in an unrealized loss position for less than 12 months. No securities have been in an unrealized loss position for 12 months or longer as of June 30, 2012. The unrealized losses relate principally to changes in market interest rate conditions. All of the securities continue to pay as scheduled. When analyzing the issuer’s financial condition, management considers the length of time and extent to which the market value has been less than cost; the historical and implied volatility of the security; the financial condition of the issuer of the security; and the Bank’s intent and ability to hold the security to recovery. As of June 30, 2012, management does not have the intent to sell these securities nor does it believe it is more likely than not that it will be required to sell these securities before maturity or the recovery of amortized cost basis. Based on the Bank’s evaluation of the above and other relevant factors, the Bank does not believe the securities that are in an unrealized loss position as of June 30, 2012, are other than temporarily impaired.
No securities were sold in the first six months of 2011. Gains totaling $526,000 were recognized in the second quarter of 2012 on sales of $24,873,000 of securities.
As of June 30, 2012, investment securities carried at $10,410,000 were pledged to secure public deposits, as required by law. Investment securities carried at $20,980,000 as of June 30, 2012, were pledged to secure borrowing facilities from the Federal Home Loan Bank of San Francisco.
Page 11 of 52
Note 4 — Loans
The Company’s loan portfolio consists primarily of loans to borrowers within the Central Coast area of California. Although the Company seeks to avoid concentrations of loans to a single industry or based upon a single class of collateral, real estate and real estate associated businesses are among the principal industries in the Company’s market area and, as a result, the loan and collateral portfolios are concentrated in those industries and in that geographic area.
The following table shows the composition of the Company’s loans by type:
Loan Composition
|
||||||||||||||||
(Dollars in thousands)
|
||||||||||||||||
June 30, 2012
|
December 31, 2011
|
|||||||||||||||
Type of Loan
|
Amount
|
Percentage
|
Amount
|
Percentage
|
||||||||||||
Construction and land development
|
$ | 17,293 | 7.7 | % | $ | 18,022 | 7.6 | % | ||||||||
Commercial real estate - owner-occupied
|
68,264 | 30.5 | % | 70,153 | 30.0 | % | ||||||||||
Commercial real estate - non-owner-occupied
|
64,484 | 28.8 | % | 64,382 | 27.6 | % | ||||||||||
Residential real estate
|
34,224 | 15.3 | % | 32,609 | 14.0 | % | ||||||||||
All other real estate loans
|
2,003 | 0.9 | % | 2,321 | 1.0 | % | ||||||||||
Commercial and industrial loans
|
28,780 | 12.9 | % | 30,176 | 12.9 | % | ||||||||||
Agricultural loans
|
3,119 | 1.4 | % | 9,272 | 4.0 | % | ||||||||||
Municipal loans
|
2,384 | 1.1 | % | 2,393 | 1.0 | % | ||||||||||
Leases, net of unearned income
|
1,722 | 0.8 | % | 2,323 | 1.0 | % | ||||||||||
Consumer loans
|
1,358 | 0.6 | % | 2,018 | 0.9 | % | ||||||||||
Total loans
|
$ | 223,631 | 100.0 | % | $ | 233,669 | 100.0 | % |
The table above includes loans held for sale as follows:
Loans Held for Sale*
|
||||||||||||||||
(Dollars in thousands)
|
||||||||||||||||
June 30, 2012
|
December 31, 2011
|
|||||||||||||||
Type of Loan
|
Amount
|
% of Total Loans
|
Amount
|
% of Total Loans
|
||||||||||||
Commercial
|
$ | 571 | 0.3 | % | $ | 115 | 0.0 | % | ||||||||
Real estate
|
1,955 | 0.9 | % | 3,030 | 1.3 | % | ||||||||||
Construction and land development
|
1,754 | 0.8 | % | 575 | 0.2 | % | ||||||||||
Total loans held for sale
|
$ | 4,280 | 1.9 | % | $ | 3,720 | 1.6 | % |
* Consists of all loans held at Mission Asset Management, Inc. and SBA-guaranteed loans held for sale at Mission Community Bank
Loans and leases, other than those held for sale, are carried at the principal amount outstanding, net of any deferred loan origination fee income and deferred direct loan origination costs, and net of any unearned interest on discounted loans. A separate allowance for loan and lease losses is provided for loans held for investment. Loans held for sale, including $1,648,000 of impaired loans, are carried at the lower of cost or fair value, with no allowance for loan losses.
Page 12 of 52
As of June 30, 2012, and December 31, 2011, loans totaling $199,255,000 and $98,111,000, respectively, were pledged to secure potential borrowing facilities from the Federal Home Loan Bank of San Francisco.
Note 5 — Credit Quality and the Allowance for Loan and Lease Losses
An allowance for loan and lease losses is provided for loans held for investment (i.e., not held for sale). Loans held for sale are carried on the consolidated balance sheets at the lower of cost or fair value, therefore no related allowance for loan losses is provided.
Following is a summary of the changes in the allowance for loan and lease losses for the three-month and six-month periods ended June 30:
Three Months Ended
|
Six Months Ended
|
|||||||||||||||
June 30, 2012
|
June 30, 2011
|
June 30, 2012
|
June 30, 2011
|
|||||||||||||
Balance at beginning of period
|
$ | 3,562 | $ | 3,245 | $ | 3,326 | $ | 3,198 | ||||||||
Provision for loan and lease losses charged to expense
|
225 | - | 450 | - | ||||||||||||
Loans charged off
|
(121 | ) | (92 | ) | (122 | ) | (100 | ) | ||||||||
Recoveries on loans previously charged off
|
115 | 29 | 127 | 84 | ||||||||||||
Balance at end of period
|
$ | 3,781 | $ | 3,182 | $ | 3,781 | $ | 3,182 |
Page 13 of 52
Changes in the allowance for loan and lease losses for the three-month and six-month periods ended June 30, 2012 and 2011, are shown below disaggregated by portfolio segment:
Three Months Ended June 30, 2012
|
||||||||||||||||||||
Loan Portfolio Segment
|
Balance at Beginning of Period
|
Provision for Loan Losses Charged (Credited) to Expense
|
Less Loans Charged Off
|
Plus Recoveries on Loans Previously Charged Off
|
Balance at End of Period
|
|||||||||||||||
Construction and land development
|
$ | 149 | $ | 217 | $ | - | $ | - | $ | 366 | ||||||||||
Commercial real estate - owner-occupied
|
256 | 247 | - | 1 | 504 | |||||||||||||||
Commercial real estate - non-owner-occupied
|
539 | 345 | - | - | 884 | |||||||||||||||
Residential real estate
|
711 | (53 | ) | - | - | 658 | ||||||||||||||
All other real estate loans
|
4 | 3 | - | - | 7 | |||||||||||||||
Commercial and industrial loans
|
1,562 | (330 | ) | (100 | ) | 66 | 1,198 | |||||||||||||
Consumer and all other loans and lease financing
|
185 | (79 | ) | (21 | ) | 48 | 133 | |||||||||||||
Unallocated
|
156 | (125 | ) | - | - | 31 | ||||||||||||||
Totals
|
$ | 3,562 | $ | 225 | $ | (121 | ) | $ | 115 | $ | 3,781 |
Three Months Ended June 30, 2011
|
||||||||||||||||||||
Loan Portfolio Segment
|
Balance at Beginning of Year
|
Provision for Loan Losses Charged (Credited) to Expense
|
Less Loans Charged Off
|
Plus Recoveries on Loans Previously Charged Off
|
Balance at End of Period
|
|||||||||||||||
Construction and land development
|
$ | 625 | $ | (502 | ) | $ | - | $ | - | $ | 123 | |||||||||
Commercial real estate - owner-occupied
|
312 | 81 | - | - | 393 | |||||||||||||||
Commercial real estate - non-owner-occupied
|
475 | 239 | - | - | 714 | |||||||||||||||
Residential real estate
|
431 | 168 | (83 | ) | - | 516 | ||||||||||||||
All other real estate loans
|
3 | 1 | - | - | 4 | |||||||||||||||
Commercial and industrial loans
|
920 | 100 | (9 | ) | 26 | 1,037 | ||||||||||||||
Consumer and all other loans and lease financing
|
110 | - | - | 3 | 113 | |||||||||||||||
Unallocated
|
369 | (87 | ) | - | - | 282 | ||||||||||||||
Totals
|
$ | 3,245 | $ | - | $ | (92 | ) | $ | 29 | $ | 3,182 |
Page 14 of 52
Six Months Ended June 30, 2012
|
||||||||||||||||||||
Loan Portfolio Segment
|
Balance at Beginning of Period
|
Provision for Loan Losses Charged (Credited) to Expense
|
Less Loans Charged Off
|
Plus Recoveries on Loans Previously Charged Off
|
Balance at End of Period
|
|||||||||||||||
Construction and land development
|
$ | 157 | $ | 209 | $ | - | $ | - | $ | 366 | ||||||||||
Commercial real estate - owner-occupied
|
253 | 250 | - | 1 | 504 | |||||||||||||||
Commercial real estate - non-owner-occupied
|
675 | 208 | - | - | 883 | |||||||||||||||
Residential real estate
|
640 | 18 | - | - | 658 | |||||||||||||||
All other real estate loans
|
4 | 3 | - | - | 7 | |||||||||||||||
Commercial and industrial loans
|
1,363 | (140 | ) | (101 | ) | 76 | 1,198 | |||||||||||||
Consumer and all other loans and lease financing
|
124 | (19 | ) | (21 | ) | 50 | 134 | |||||||||||||
Unallocated
|
110 | (79 | ) | - | - | 31 | ||||||||||||||
Totals
|
$ | 3,326 | $ | 450 | $ | (122 | ) | $ | 127 | $ | 3,781 |
Six Months Ended June 30, 2011
|
||||||||||||||||||||
Loan Portfolio Segment
|
Balance at Beginning of Year
|
Provision for Loan Losses Charged (Credited) to Expense
|
Less Loans Charged Off
|
Plus Recoveries on Loans Previously Charged Off
|
Balance at End of Period
|
|||||||||||||||
Construction and land development
|
$ | 531 | $ | (408 | ) | $ | - | $ | - | $ | 123 | |||||||||
Commercial real estate - owner-occupied
|
164 | 216 | - | 10 | 390 | |||||||||||||||
Commercial real estate - non-owner-occupied
|
697 | 17 | - | - | 714 | |||||||||||||||
Residential real estate
|
501 | 85 | (83 | ) | 14 | 517 | ||||||||||||||
All other real estate loans
|
4 | 1 | - | - | 5 | |||||||||||||||
Commercial and industrial loans
|
1,021 | (32 | ) | (9 | ) | 57 | 1,037 | |||||||||||||
Consumer and all other loans and lease financing
|
124 | (5 | ) | (8 | ) | 3 | 114 | |||||||||||||
Unallocated
|
156 | 126 | - | - | 282 | |||||||||||||||
Totals
|
$ | 3,198 | $ | - | $ | (100 | ) | $ | 84 | $ | 3,182 |
The Company assigns asset quality (i.e., risk) ratings to all loans except pools of homogeneous loans and those asset quality ratings are continuously reviewed and updated by management at least quarterly or as conditions dictate. These asset quality ratings are also subject to semi-annual examination by independent specialists engaged by the Company, and also by its regulators. During these internal reviews, management monitors and analyzes the financial condition of borrowers and guarantors, trends in the industries in which borrowers operate and the fair values of collateral securing these loans. These credit quality indicators are used to assign an asset quality rating to each individual loan. The asset quality ratings can be grouped into five major categories, defined as follows:
Pass – A pass loan meets all of the Company’s underwriting criteria and provides adequate protection for the Bank through the paying capacity of the borrower and/or the value and marketability of the collateral.
Special Mention – A special mention loan has potential weaknesses that deserve management’s close attention. If left uncorrected, these potential weaknesses may result in deterioration of the repayment prospects for the loan or in the Company’s credit position at some future date. Special Mention loans are not adversely classified and do not expose the Company to sufficient risk to warrant adverse classification.
Substandard – A substandard loan is not adequately protected by the current sound worth and paying capacity of the borrower or the value of the collateral pledged, if any. Loans classified as substandard have a well-defined weakness or weaknesses that jeopardize the liquidation of the debt. They are characterized by the distinct possibility that the Company will sustain some loss if the deficiencies are not corrected. Substandard loans have a high probability of payment default, or they have other well defined weaknesses, and are generally characterized by current or expected unprofitable operations, inadequate debt service coverage, inadequate liquidity, or marginal capitalization.
Doubtful – Loans classified doubtful have all the weaknesses inherent in those classified as substandard with the added characteristic that the weaknesses make collection or liquidation in full, on the basis of currently existing facts, conditions and values, highly questionable and improbable.
Loss – Loans classified as loss are considered uncollectible and are of such little value that their continuance as bankable assets is not warranted. Loans classified as loss are charged off immediately.
Page 15 of 52
The following table shows the Company’s loan portfolio (excluding loans held for sale) allocated by management’s internal asset quality ratings as of the dates indicated:
Loans by Asset Quality Rating (excluding loans held for sale*)
|
Asset Quality Ratings
|
|||||||||||||||||||
(in thousands)
|
Pass
|
Special
Mention |
Substandard
|
Doubtful
|
Total
Loans |
|||||||||||||||
As of June 30, 2012:
|
||||||||||||||||||||
Construction and land development
|
$ | 14,996 | $ | 127 | $ | 418 | $ | - | $ | 15,541 | ||||||||||
Commercial real estate - owner-occupied
|
63,475 | - | 3,713 | - | 67,188 | |||||||||||||||
Commercial real estate - non-owner-occupied
|
58,524 | 5,108 | 872 | - | 64,504 | |||||||||||||||
Residential real estate
|
32,027 | - | 1,214 | - | 33,241 | |||||||||||||||
All other real estate
|
1,880 | - | - | - | 1,880 | |||||||||||||||
Commercial and industrial
|
30,228 | 275 | 3,406 | - | 33,909 | |||||||||||||||
Consumer and all other loans and lease financing
|
3,088 | - | - | - | 3,088 | |||||||||||||||
Total loans, net of unearned income
|
$ | 204,218 | $ | 5,510 | $ | 9,623 | $ | - | $ | 219,351 |
As of December 31, 2011:
|
||||||||||||||||||||
Construction and land development
|
$ | 13,931 | $ | 157 | $ | 3,359 | $ | - | $ | 17,447 | ||||||||||
Commercial real estate - owner-occupied
|
68,899 | - | 4,566 | - | 73,465 | |||||||||||||||
Commercial real estate - non-owner-occupied
|
49,139 | 5,154 | 5,116 | - | 59,409 | |||||||||||||||
Residential real estate
|
27,672 | 491 | 3,365 | - | 31,528 | |||||||||||||||
All other real estate
|
1,895 | 138 | - | - | 2,033 | |||||||||||||||
Commercial and industrial
|
32,154 | 250 | 6,841 | 88 | 39,333 | |||||||||||||||
Consumer and all other loans and lease financing
|
6,734 | - | - | - | 6,734 | |||||||||||||||
Total loans, net of unearned income
|
$ | 200,424 | $ | 6,190 | $ | 23,247 | $ | 88 | $ | 229,949 |
* Loans held for sale consists of all loans held at Mission Asset Management, Inc. and SBA-guaranteed loans held for sale at Mission Community Bank
Page 16 of 52
The following table shows an aging analysis of the loan portfolio (excluding loans held for sale) as of the dates indicated. Also shown are loans on non-accrual, those that are past due and still accruing interest and troubled debt restructurings:
(in thousands)
|
||||||||||||||||||||||||||||||||
Commercial Real Estate
|
Consumer and | |||||||||||||||||||||||||||||||
Construction
and Land Development |
Owner-Occupied
|
Non-Owner-Occupied | Residential Real Estate | All Other Real Estate | Commercial and Industrial |
All Other
Loans and Leases
|
Total Loans | |||||||||||||||||||||||||
As of June 30, 2012:
|
||||||||||||||||||||||||||||||||
Recorded Balance of Loans Past Due:
|
||||||||||||||||||||||||||||||||
30-59 Days
|
$ | - | $ | 858 | $ | - | $ | 185 | $ | - | $ | 1,497 | $ | 8 | $ | 2,548 | ||||||||||||||||
60-89 Days
|
219 | 961 | - | - | - | 81 | - | 1,261 | ||||||||||||||||||||||||
90+ Days
|
- | 581 | - | - | - | 97 | - | 678 | ||||||||||||||||||||||||
Total Past Due
|
219 | 2,400 | - | 185 | - | 1,675 | 8 | 4,487 | ||||||||||||||||||||||||
Loans in Current Payment Status
|
15,322 | 64,788 | 64,504 | 33,056 | 1,880 | 32,234 | 3,080 | 214,864 | ||||||||||||||||||||||||
Total Loans
|
$ | 15,541 | $ | 67,188 | $ | 64,504 | $ | 33,241 | $ | 1,880 | $ | 33,909 | $ | 3,088 | $ | 219,351 | ||||||||||||||||
Loans 90+ Days Past Due and Accruing1
|
$ | - | $ | - | $ | - | $ | - | $ | - | $ | - | $ | - | $ | - | ||||||||||||||||
Accruing Troubled Debt Restructurings
|
- | - | - | - | - | - | - | - | ||||||||||||||||||||||||
Loans in Non-accrual Status
|
963 | 2,053 | 104 | 1,117 | - | 1,452 | - | 5,689 |
As of December 31, 2011:
|
||||||||||||||||||||||||||||||||
Recorded Balance of Loans Past Due:
|
||||||||||||||||||||||||||||||||
30-59 Days
|
$ | 492 | $ | 594 | $ | - | $ | - | $ | - | $ | 549 | $ | - | $ | 1,635 | ||||||||||||||||
60-89 Days
|
- | - | - | 423 | - | 220 | - | 643 | ||||||||||||||||||||||||
90+ Days
|
1,323 | 1,033 | 21 | 147 | - | 627 | - | 3,151 | ||||||||||||||||||||||||
Total Past Due
|
1,815 | 1,627 | 21 | 570 | - | 1,396 | - | 5,429 | ||||||||||||||||||||||||
Loans in Current Payment Status
|
15,632 | 71,838 | 59,388 | 30,958 | 2,033 | 37,937 | 6,734 | 224,520 | ||||||||||||||||||||||||
Total Loans
|
$ | 17,447 | $ | 73,465 | $ | 59,409 | $ | 31,528 | $ | 2,033 | $ | 39,333 | $ | 6,734 | $ | 229,949 | ||||||||||||||||
Loans 90+ Days Past Due and Accruing1
|
$ | - | $ | - | $ | - | $ | - | $ | - | $ | - | $ | - | $ | - | ||||||||||||||||
Accruing Troubled Debt Restructurings
|
- | - | - | - | - | - | - | - | ||||||||||||||||||||||||
Loans in Non-accrual Status
|
2,031 | 1,429 | 122 | 1,296 | - | 2,107 | - | 6,985 |
1 Includes pooled loans acquired with deteriorated credit quality. Management evaluates estimated cash flows subsequent to acquisition. If cash flows have not decreased, the pooled acquired loans remain in performing status.
The Company considers a loan to be impaired when it is probable that the Company will be unable to collect all amounts due (principal and interest) according to the contractual terms of the loan agreement. Loans for which the terms have been modified, and for which the borrower is experiencing financial difficulties, are generally considered to be troubled debt restructurings (“TDR’s”). TDR’s typically present an elevated level of credit risk as the borrowers are not able to perform according to the original contractual terms. Both non-accrual loans and TDR’s are generally considered to be impaired.
Concessions granted in TDR’s typically are intended to reduce the borrower’s cash requirements, such as an extension of the payment terms or a change in the interest rate charged. TDR’s with extended payment terms are accounted for as impaired until adequate performance is established. A reduction in the interest rate for a borrower experiencing financial difficulties would result in a change to TDR status if the restructured loan yield is below the yield for a new loan with comparable risk. TDR’s with below-market rates are considered impaired until fully collected. TDR’s may be reported as non-accrual, rather than TDR, if they are not performing under the restructured terms or if adequate payment performance under the restructured terms has yet to be established.
Four TDR's totaling $743,000 were effected in the first six months of 2012 and one for $7,000 in the first six months of 2011. No TDR's were in accruing status and less than 90 days past due as of June 30, 2012, and none were accruing as of December 31, 2011. The Bank has no commitments to lend additional funds under loans classified as TDR's as of June 30, 2012.
Page 17 of 52
Following are summaries of the investment in impaired loans (excluding loans held for sale) as of the dates indicated, including the related allowance for loan losses and cash-basis income recognized:
(in thousands)
|
||||||||||||||||||||||||||||||||||||
Commercial Real Estate
|
Consumer and | |||||||||||||||||||||||||||||||||||
Construction
and Land Development |
Owner-Occupied |
Non-Owner-Occupied
|
Residential Real Estate
|
All Other Real Estate
|
Commercial and Industrial
|
All Other
Loans and Leases
|
Unallocated
|
Total Loans
|
||||||||||||||||||||||||||||
Loans Held for Investment as of June 30, 2012:
|
||||||||||||||||||||||||||||||||||||
Recorded Investment:
|
||||||||||||||||||||||||||||||||||||
Impaired Loans With an Allowance Recorded
|
$ | 199 | $ | 581 | $ | - | $ | 185 | $ | - | $ | 326 | $ | - | $ | 1,291 | ||||||||||||||||||||
Impaired Loans With No Allowance Recorded
|
544 | 1,294 | - | - | - | 590 | - | 2,428 | ||||||||||||||||||||||||||||
Total Loans Individually Evaluated For Impairment
|
743 | 1,875 | - | 185 | - | 916 | - | 3,719 | ||||||||||||||||||||||||||||
Loans Collectively Evaluated For Impairment
|
11,988 | 49,100 | 52,940 | 28,213 | 1,880 | 30,551 | 2,904 | 177,576 | ||||||||||||||||||||||||||||
Loans Acquired With Deteriorated Credit Quality
|
2,810 | 16,213 | 11,564 | 4,843 | - | 2,442 | 184 | 38,056 | ||||||||||||||||||||||||||||
Total Loans Held for Investment
|
$ | 15,541 | $ | 67,188 | $ | 64,504 | $ | 33,241 | $ | 1,880 | $ | 33,909 | $ | 3,088 | $ | 219,351 | ||||||||||||||||||||
Unpaid Principal Balance:
|
||||||||||||||||||||||||||||||||||||
Impaired Loans With An Allowance Recorded
|
$ | 200 | $ | 594 | $ | - | $ | 190 | $ | - | $ | 353 | $ | - | $ | 1,337 | ||||||||||||||||||||
Impaired Loans With No Allowance Recorded
|
547 | 1,370 | - | - | - | 1,143 | - | 3,060 | ||||||||||||||||||||||||||||
Total Loans Individually Evaluated For Impairment
|
747 | 1,964 | - | 190 | - | 1,496 | - | 4,397 | ||||||||||||||||||||||||||||
Loans Collectively Evaluated For Impairment
|
11,988 | 49,100 | 52,940 | 28,213 | 1,880 | 30,551 | 2,904 | 177,576 | ||||||||||||||||||||||||||||
Loans Acquired With Deteriorated Credit Quality
|
6,632 | 17,954 | 13,317 | 6,835 | - | 4,330 | 188 | 49,256 | ||||||||||||||||||||||||||||
Total Loans Held for Investment
|
$ | 19,367 | $ | 69,018 | $ | 66,257 | $ | 35,238 | $ | 1,880 | $ | 36,377 | $ | 3,092 | $ | 231,229 | ||||||||||||||||||||
Related Allowance for Loan and Lease Losses:
|
||||||||||||||||||||||||||||||||||||
Impaired Loans With An Allowance Recorded
|
$ | 2 | $ | 13 | $ | - | $ | 124 | $ | - | $ | 135 | $ | - | $ | 274 | ||||||||||||||||||||
Impaired Loans With No Allowance Recorded
|
- | - | - | - | - | - | - | - | ||||||||||||||||||||||||||||
Total Loans Individually Evaluated For Impairment
|
2 | 13 | - | 124 | - | 135 | - | 274 | ||||||||||||||||||||||||||||
Loans Collectively Evaluated For Impairment
|
364 | 491 | 884 | 534 | 7 | 1,063 | 133 | $ | 31 | 3,507 | ||||||||||||||||||||||||||
Loans Acquired With Deteriorated Credit Quality
|
- | - | - | - | - | - | - | - | ||||||||||||||||||||||||||||
Total Loans Held for Investment
|
$ | 366 | $ | 504 | $ | 884 | $ | 658 | $ | 7 | $ | 1,198 | $ | 133 | $ | 31 | $ | 3,781 | ||||||||||||||||||
For the Six Months Ended June 30, 2012:
|
||||||||||||||||||||||||||||||||||||
Average Recorded Investment in Impaired Loans:
|
||||||||||||||||||||||||||||||||||||
Impaired Loans With An Allowance Recorded
|
$ | 66 | $ | 588 | $ | - | $ | 125 | $ | - | $ | 350 | $ | - | $ | 1,129 | ||||||||||||||||||||
Impaired Loans With No Allowance Recorded
|
181 | 1,298 | - | - | - | 470 | - | 1,949 | ||||||||||||||||||||||||||||
Total Loans Individually Evaluated For Impairment
|
$ | 247 | $ | 1,886 | $ | - | $ | 125 | $ | - | $ | 820 | $ | - | $ | 3,078 | ||||||||||||||||||||
Interest Income Recognized on Impaired Loans:
|
||||||||||||||||||||||||||||||||||||
Impaired Loans With An Allowance Recorded
|
$ | - | $ | - | $ | - | $ | - | $ | - | $ | - | $ | - | $ | - | ||||||||||||||||||||
Impaired Loans With No Allowance Recorded
|
- | - | - | - | - | - | - | - | ||||||||||||||||||||||||||||
Total Loans Individually Evaluated For Impairment
|
$ | - | $ | - | $ | - | $ | - | $ | - | $ | - | $ | - | $ | - |
Page 18 of 52
(in thousands)
|
|
|||||||||||||||||||||||||||||||||||
Commercial Real Estate
|
Consumer and | |||||||||||||||||||||||||||||||||||
Construction
and Land Development |
Owner-Occupied
|
Non-Owner-Occupied | Residential Real Estate | All Other Real Estate | Commercial and Industrial | All Other Loans and Leases |
Unallocated
|
Total Loans
|
||||||||||||||||||||||||||||
Loans Held for Investment as of December 31, 2011: | ||||||||||||||||||||||||||||||||||||
Recorded Investment:
|
||||||||||||||||||||||||||||||||||||
Impaired Loans With an Allowance Recorded
|
$ | - | $ | - | $ | - | $ | - | $ | - | $ | 396 | $ | - | $ | 396 | ||||||||||||||||||||
Impaired Loans With No Allowance Recorded
|
- | 1,028 | - | - | - | 423 | - | 1,451 | ||||||||||||||||||||||||||||
Total Loans Individually Evaluated For Impairment
|
- | 1,028 | - | - | - | 819 | - | 1,847 | ||||||||||||||||||||||||||||
Loans Collectively Evaluated For Impairment
|
11,617 | 57,980 | 42,406 | 27,103 | 2,033 | 34,519 | 6,547 | 182,205 | ||||||||||||||||||||||||||||
Loans Acquired With Deteriorated Credit Quality
|
5,830 | 14,457 | 17,003 | 4,425 | - | 3,995 | 187 | 45,897 | ||||||||||||||||||||||||||||
Total Loans Held for Investment
|
$ | 17,447 | $ | 73,465 | $ | 59,409 | $ | 31,528 | $ | 2,033 | $ | 39,333 | $ | 6,734 | $ | 229,949 | ||||||||||||||||||||
Unpaid Principal Balance:
|
||||||||||||||||||||||||||||||||||||
Impaired Loans With An Allowance Recorded
|
$ | - | $ | - | $ | - | $ | - | $ | - | $ | 443 | $ | - | $ | 443 | ||||||||||||||||||||
Impaired Loans With No Allowance Recorded
|
- | 1,045 | - | - | - | 518 | - | 1,563 | ||||||||||||||||||||||||||||
Total Loans Individually Evaluated For Impairment
|
- | 1,045 | - | - | - | 961 | - | 2,006 | ||||||||||||||||||||||||||||
Loans Collectively Evaluated For Impairment
|
11,617 | 57,980 | 42,406 | 27,103 | 2,033 | 34,519 | 6,547 | 182,205 | ||||||||||||||||||||||||||||
Loans Acquired With Deteriorated Credit Quality
|
9,981 | 16,350 | 18,954 | 5,129 | - | 6,132 | 191 | 56,737 | ||||||||||||||||||||||||||||
Total Loans Held for Investment
|
$ | 21,598 | $ | 75,375 | $ | 61,360 | $ | 32,232 | $ | 2,033 | $ | 41,612 | $ | 6,738 | $ | 240,948 | ||||||||||||||||||||
Related Allowance for Loan and Lease Losses:
|
||||||||||||||||||||||||||||||||||||
Impaired Loans With An Allowance Recorded
|
$ | - | $ | - | $ | - | $ | - | $ | - | $ | 81 | $ | - | $ | 81 | ||||||||||||||||||||
Impaired Loans With No Allowance Recorded
|
- | - | - | - | - | - | - | - | ||||||||||||||||||||||||||||
Total Loans Individually Evaluated For Impairment
|
- | - | - | - | - | 81 | - | 81 | ||||||||||||||||||||||||||||
Loans Collectively Evaluated For Impairment
|
157 | 253 | 675 | 640 | 4 | 1,282 | 124 | $ | 110 | 3,245 | ||||||||||||||||||||||||||
Loans Acquired With Deteriorated Credit Quality
|
- | - | - | - | - | - | - | - | ||||||||||||||||||||||||||||
Total Loans Held for Investment
|
$ | 157 | $ | 253 | $ | 675 | $ | 640 | $ | 4 | $ | 1,363 | $ | 124 | $ | 110 | $ | 3,326 | ||||||||||||||||||
For the Year Ended December 31, 2011:
|
||||||||||||||||||||||||||||||||||||
Average Recorded Investment in Impaired Loans:
|
||||||||||||||||||||||||||||||||||||
Impaired Loans With An Allowance Recorded
|
$ | - | $ | - | $ | - | $ | - | $ | - | $ | 224 | $ | - | $ | 224 | ||||||||||||||||||||
Impaired Loans With No Allowance Recorded
|
- | 1,011 | - | - | - | 341 | - | 1,352 | ||||||||||||||||||||||||||||
Total Loans Individually Evaluated For Impairment
|
$ | - | $ | 1,011 | $ | - | $ | - | $ | - | $ | 565 | $ | - | $ | 1,576 | ||||||||||||||||||||
Interest Income Recognized on Impaired Loans: | ||||||||||||||||||||||||||||||||||||
Impaired Loans With An Allowance Recorded
|
$ | - | $ | - | $ | - | $ | - | $ | - | $ | - | $ | - | $ | - | ||||||||||||||||||||
Impaired Loans With No Allowance Recorded
|
- | - | - | - | - | - | - | - | ||||||||||||||||||||||||||||
Total Loans Individually Evaluated For Impairment
|
$ | - | $ | - | $ | - | $ | - | $ | - | $ | - | $ | - | $ | - |
The amount of the allowance for loan losses provided for impaired loans represents the aggregate amount by which the recorded investment in each impaired loan exceeds its fair value. Fair value for this purpose is determined by computing either the present value of expected future cash flows discounted at the loan’s effective interest rate or, if repayment is expected solely from the collateral, the fair value of the underlying collateral less estimated costs to sell, based on current appraisals. In some cases, impaired loans are partially charged off, such that there is no excess of the recorded investment over the fair value of the loan, as determined above.
Changes in the accretable discount for loans purchased with credit quality deterioration follows:
Six Months Ended
|
||||
(in thousands)
|
June 30,
2012 |
|||
Balance at beginning of period
|
$ | 3,289 | ||
Measurement period adustments to Santa Lucia Bank fair values
|
(428 | ) | ||
Accretion to interest income
|
(690 | ) | ||
Loans reclassified to held for sale
|
(355 | ) | ||
Loans charged off
|
- | |||
Transfers from non-accretable discount to accretable
|
158 | |||
Balance at end of period
|
$ | 1,974 |
Page 19 of 52
Note 6 — Preferred and Common Stock and Loss per Share
Bancorp-Issued Preferred Stock
As a result of a change in control in 2010, the Company is likely to lose its status as a Community Development Financial Institution (“CDFI”), which may trigger redemption provisions of some or all of the Company’s Series A, B and C preferred. Therefore, those series of preferred stock are carried at their redemption values in the consolidated balance sheets and are classified as mezzanine financing rather than equity.
On December 28, 2011, after receiving the required regulatory approvals, the Company redeemed 100% of its Series D (TARP) preferred stock.
Common Stock
On April 27, 2010, there was an initial closing (the “Initial Closing”) under the Securities Purchase Agreement dated December 22, 2009, as amended (the “Securities Purchase Agreement”), by and between the Company and Carpenter Fund Manager GP, LLC (the “Manager”) on behalf of and as General Partner of Carpenter Community BancFund, L.P., Carpenter Community BancFund-A, L.P. and Carpenter Community BancFund—CA, L.P. (the “Investors”). At the Initial Closing the Investors purchased, for an aggregate purchase price of $10 million, 2,000,000 shares of the common stock of the Company paired with warrants to purchase 2,000,000 shares of the common stock. On June 15, 2010, the Investors purchased, for an aggregate purchase price of $15 million, 3,000,000 additional shares of common stock and warrants to purchase 3,000,000 shares of common stock in the second closing under the Securities Purchase Agreement (the “Second Closing”). The warrants issued in the Initial Closing and in the Second Closing, collectively referred to herein as the “Investor Warrants,” were issued for a term of five years from issuance at an exercise price of $5.00 per share and contained customary anti-dilution provisions.
The Company used a substantial majority of the proceeds from the First and Second Closings to enable a newly-formed wholly-owned subsidiary of the Company, Mission Asset Management, Inc., to purchase from the Bank certain non-performing loans and other real estate owned assets.
The Securities Purchase Agreement further provided that the Company would conduct a rights offering to its existing shareholders, pursuant to which each shareholder was offered the right to purchase 15 additional shares of common stock, paired with a warrant, for each share held, at a price of $5.00 per unit of common stock and warrant (five-year term and $5.00 exercise price). The rights offering closed on December 15, 2010, with 748,672 shares being issued and warrants to purchase 748,672 shares of common stock being issued. Net proceeds from the rights offering totaled $3,527,000.
Mission Asset Management, Inc. Preferred Stock and Company Warrants
On October 21, 2011, for an aggregate purchase price of $10 million, Mission Asset Management, Inc. issued 10,000 shares of its newly authorized Series A Non-Cumulative Perpetual Preferred Stock (“MAM Preferred Stock”) and the Company issued warrants to purchase an aggregate of 2,202,641 shares of the Company’s common stock in a private placement (the “Company Warrants”). The Company Warrants were issued for a term of 10 years from issuance at an exercise price of $4.54 per share. In December 2011, a total of 660,792 Company Warrants were exercised and $3,000,000 of the MAM Preferred Stock was liquidated. In June 2012 a total of 100,000 Company Warrants were exercised and an additional $600,000 of the MAM Preferred Stock was liquidated. These preferred shares include redemption provisions that are outside the control of the Company. Accordingly, these preferred shares are presented as mezzanine financing at their redemption value of $6,400,000 as of June 30, 2012.
Page 20 of 52
In addition to customary anti-dilution provisions, the Investor Warrants and the Company Warrants referred to above contain certain anti-dilution features that have caused these warrants to be reflected as derivative liabilities pursuant to ASC 815—at their fair values—in the consolidated balance sheets rather than as components of equity. Subsequent changes in their fair values are recognized as gains or losses through non-interest income, which impacts net loss and loss per share in the consolidated statement of operations. In March 2012 all Investor Warrants and substantially all of the Company Warrants (i.e., those issued to the Investors) were cancelled and replaced with 6,487,800 warrants having approximately the equivalent aggregate fair value as the cancelled warrants but without the anti-dilution features that call for derivative accounting treatment. Accordingly, $4,955,000 (the fair value of the cancelled warrants immediately prior to cancellation) was transferred from warrant liability to additional paid-in capital in March 2012.
Activity in the Company’s outstanding warrants follows:
Shares
|
Weighted
Average |
|||||||
Outstanding January 1, 2011
|
5,748,672 | 5.00 | ||||||
Warrants granted in 2011
|
2,202,641 | $ | 4.54 | |||||
Warrants exercised in 2011
|
( 660,792 | ) | 4.54 | |||||
Outstanding December 31, 2011
|
7,290,521 | $ | 4.90 | |||||
Warrants granted in 1st qtr. 2012
|
6,487,800 | $ | 5.00 | |||||
Warrants cancelled in 1st qtr. 2012
|
( 6,387,973 | ) | 4.90 | |||||
Warrants exercised in 2nd qtr. 2012
|
( 100,000 | ) | 5.00 | |||||
Outstanding June 30, 2012
|
7,290,348 | $ | 4.99 |
Prior to the Initial Closing, the Manager was the largest shareholder of the Company, beneficially owning 333,334 shares of the common stock of the Company or 24.7% of the issued and outstanding shares. As of June 30, 2012, following the Second Closing, the rights offering, the 2011 warrants exercise, and the 2012 warrants exercise, the Manager is the beneficial owner of 6,028,179 shares of the common stock of the Company (not including warrants), or 76.7% of the issued and outstanding shares.
Page 21 of 52
Loss per Share
The following table shows the calculation of earnings (loss) per common share and the allocation of the Company’s net loss among common stock and the various classes of preferred stock:
(in thousands, except per share data)
|
Three Months Ended
|
Six Months Ended
|
||||||||||||||
June 30, 2012
|
June 30, 2011
|
June 30, 2012
|
June 30, 2011
|
|||||||||||||
Net income (loss)
|
$ | 522 | $ | (567 | ) | $ | (309 | ) | $ | (482 | ) | |||||
Less dividends on preferred stock:
|
||||||||||||||||
Non-convertible subsidiary-issued preferred stock
|
173 | - | 348 | - | ||||||||||||
TARP preferred stock (Series D)
|
- | 64 | - | 128 | ||||||||||||
Net income allocated to all classes of preferred stock
|
173 | 64 | 348 | 128 | ||||||||||||
Net income (loss) attributable to common stock
|
$ | 349 | $ | (631 | ) | $ | (657 | ) | $ | (610 | ) | |||||
Average common shares outstanding
|
7,766,055 | 7,094,274 | 7,760,561 | 7,094,274 | ||||||||||||
Dilutive effect of outstanding stock options
|
- | - | - | - | ||||||||||||
Average common shares used for diluted EPS
|
7,766,055 | 7,094,274 | 7,760,561 | 7,094,274 | ||||||||||||
Basic earnings (loss) per common share
|
$ | 0.04 | $ | (0.09 | ) | $ | (0.08 | ) | $ | (0.09 | ) | |||||
Diluted earnings (loss) per common share
|
$ | 0.04 | $ | (0.09 | ) | $ | (0.08 | ) | $ | (0.09 | ) |
No dilutive effect of outstanding stock options (and therefore no change to earnings (loss) per common share) has been presented for the three months ended June 30, 2011, or for either of the six-month periods presented, because the result would be anti-dilutive.
Note 7 —Income taxes
Due to a limitation on the Company’s ability to recognize deferred tax assets, no federal income tax expense or benefit was recognized for the six-month periods ended June 30, 2012 and 2011.
Note 8 — Fair Value Measurement
The following tables present information about the Company’s assets and liabilities measured at fair value on a recurring and non-recurring basis as of June 30, 2012 and December 31, 2011, and indicates the fair value hierarchy of the valuation techniques utilized by the Company to determine such fair value:
|
·
|
Level 1—Quoted prices in active markets for identical assets or liabilities
|
|
·
|
Level 2—Estimates based on significant other observable inputs that market participants would use in pricing the asset or liability
|
|
·
|
Level 3—Estimates based on significant unobservable inputs that reflect the entity’s own assumptions about the assumptions market participants would use in pricing the asset or liability. Valuation techniques include management’s judgment, which may be a significant factor.
|
Page 22 of 52
For some assets or liabilities, the inputs used to measure fair value may fall into more than one level of the fair value hierarchy. In such cases, the asset or liability is identified based on the lowest level input that is significant to the fair value measurement. The Company’s assessment of the significance of a particular input to the fair value measurement requires judgment and considers factors specific to the asset or liability.
The following assumptions were used in the Black-Scholes simulation model to determine the fair value of the warrant liability for the 2011 warrants as of June 30, 2012 and for the 2011 and 2010 warrants as of December 31, 2011:
As of June 30, 2012
|
As of December 31, 2011
|
|||||||||||||||
2011
Warrants |
2011
Warrants |
June 2010
Warrants |
April 2010
Warrants |
|||||||||||||
Outstanding common stock warrants subject to fair value accounting
|
153,876 | 1,541,849 | 3,000,000 | 2,000,000 | ||||||||||||
Warrant exercise price
|
$ | 4.54 | $ | 4.54 | $ | 5.00 | $ | 5.00 | ||||||||
Market price of common stock
|
$ | 3.01 | $ | 3.35 | $ | 3.35 | $ | 3.35 | ||||||||
Average risk-free interest rate
|
1.54 | % | 1.89 | % | 0.36 | % | 0.36 | % | ||||||||
Average expected volatility
|
34.61 | % | 33.57 | % | 44.01 | % | 45.07 | % | ||||||||
Average expected life (in years)
|
9.31 | 9.81 | 3.46 | 3.32 | ||||||||||||
Expected dividend yield
|
0.00 | % | 0.00 | % | 0.00 | % | 0.00 | % |
Assets and liabilities measured at fair value on a recurring basis are summarized below:
(in thousands)
|
Fair Value Measurements Using
|
|||||||||||||||
June 30, 2012
|
Level 1
|
Level 2
|
Level 3
|
Total
|
||||||||||||
Available for sale securities:
|
||||||||||||||||
U.S. Government agencies
|
$ | - | $ | 64,717 | $ | - | $ | 64,717 | ||||||||
Mortgage-backed securities
|
- | 83,335 | - | 83,335 | ||||||||||||
Municipal securities
|
- | 4,823 | - | 4,823 | ||||||||||||
Corporate debt securities
|
- | 3,027 | - | 3,027 | ||||||||||||
Asset-backed securities
|
- | 15,570 | - | 15,570 | ||||||||||||
Total available-for-sale securities
|
- | 171,472 | - | 171,472 | ||||||||||||
Loans held for sale
|
- | - | 4,280 | 4,280 | ||||||||||||
Warrant liability
|
- | - | (150 | ) | (150 | ) | ||||||||||
Total net assets measured at fair value on a recurring basis
|
$ | - | $ | 171,472 | $ | 4,130 | $ | 175,602 |
December 31, 2011
|
||||||||||||||||
Available for sale securities:
|
||||||||||||||||
U.S. Government agencies
|
$ | - | $ | 26,417 | $ | - | $ | 26,417 | ||||||||
Mortgage-backed securities
|
- | 89,293 | - | 89,293 | ||||||||||||
Municipal securities
|
- | 5,057 | - | 5,057 | ||||||||||||
Corporate debt securities
|
- | 2,055 | - | 2,055 | ||||||||||||
Asset-backed securities
|
- | 5,488 | - | 5,488 | ||||||||||||
Total available-for-sale securities
|
- | 128,310 | - | 128,310 | ||||||||||||
Loans held for sale
|
- | - | 3,720 | 3,720 | ||||||||||||
Warrant liability
|
- | - | (5,184 | ) | (5,184 | ) | ||||||||||
Total net assets measured at fair value on a recurring basis
|
$ | - | $ | 128,310 | $ | (1,464 | ) | $ | 126,846 |
Page 23 of 52
The fair value of securities available for sale equals quoted market prices, if available. If quoted market prices are not available, fair value is determined using quoted market prices for similar securities. There were no changes in the valuation techniques used during 2012 or 2011 and there were no transfers into or out of Levels 1, 2 or 3 of the fair value hierarchy during the six months ended June 30, 2012.
Loans held for sale that are measured at fair value on a recurring basis consist of all loans held by the company’s MAM subsidiary. Those loans are carried at the lower of cost or fair value and, accordingly, have been subject to recurring fair value adjustments. Fair value for those loans is determined by assessing the probability of borrower default using historical payment performance and available cash flows to the borrower, then projecting the amount and timing of cash flows to MAM, including collateral liquidation if repayment weaknesses exist.
Management monitors the availability of observable market data to assess the appropriate classifications of financial instruments within the fair value hierarchy. Changes in economic conditions or model-based valuation techniques may require the transfer of financial instruments from one fair value level to another. In such instances, the transfer is reported at the beginning of the reporting period.
Page 24 of 52
Management evaluates the significance of transfers between levels based upon the nature of the financial instrument and size of the transfer relative to total assets, total liabilities or total earnings.
Assets and liabilities measured at fair value on a non-recurring basis are summarized below:
(in thousands)
|
Fair Value Measurements Using
|
Current
Period |
||||||||||||||||||
June 30, 2012
|
Level 1
|
Level 2
|
Level 3
|
Total
|
(Losses)
|
|||||||||||||||
Financial assets measured at fair value on a non-recurring basis:
|
||||||||||||||||||||
Impaired loans, net of specific reserves--
|
||||||||||||||||||||
Construction and land development
|
$ | - | $ | - | $ | 741 | $ | 741 | $ | 2 | ||||||||||
Commercial real estate - owner-occupied
|
- | - | 1,862 | 1,862 | 13 | |||||||||||||||
Commercial real estate - non-owner-occupied
|
- | - | - | - | - | |||||||||||||||
Residential real estate
|
- | - | 61 | 61 | 124 | |||||||||||||||
All other real estate
|
- | - | - | - | - | |||||||||||||||
Commercial and industrial
|
- | - | 781 | 781 | 115 | |||||||||||||||
Consumer and all other loans and lease financing
|
- | - | - | - | - | |||||||||||||||
Total impaired loans, net of charge-offs and specific reserves
|
$ | - | $ | - | $ | 3,445 | $ | 3,445 | $ | 254 | ||||||||||
Non-financial assets measured at fair value on a non-recurring basis:
|
||||||||||||||||||||
Other real estate owned
|
$ | - | $ | - | $ | 2,299 | $ | 2,299 | $ | (288 | ) |
Fair Value Measurements Using
|
Full Year
Gains |
|||||||||||||||||||
December 31, 2011
|
Level 1
|
Level 2
|
Level 3
|
Total
|
(Losses)
|
|||||||||||||||
Financial assets measured at fair value on a non-recurring basis:
|
||||||||||||||||||||
Impaired loans, net of specific reserves--
|
||||||||||||||||||||
Commercial and industrial
|
$ | - | $ | - | $ | 521 | $ | 521 | $ | (145 | ) | |||||||||
Residential real estate
|
$ | - | $ | - | $ | - | - | $ | (87 | ) | ||||||||||
Commercial real estate - non-owner-occupied
|
- | - | - | - | (116 | ) | ||||||||||||||
Construction and land development
|
- | - | - | - | (21 | ) | ||||||||||||||
Total impaired loans, net of charge-offs and specific reserves
|
$ | - | $ | - | $ | 521 | $ | 521 | $ | (369 | ) | |||||||||
Non-financial assets measured at fair value on a non-recurring basis:
|
||||||||||||||||||||
Other real estate owned
|
$ | - | $ | - | $ | 5,220 | $ | 5,220 | $ | (113 | ) |
The following methods were used to estimate the fair value of each class of assets above. The fair value of impaired loans is based on the present value of expected future cash flows discounted at the loan’s effective interest rate or the fair value of the underlying collateral less estimated costs to sell if repayment is expected solely from the collateral. Collateral values are estimated using Level 2 inputs based on observable market data or Level 3 inputs based on customized discounting criteria. Collateral-dependent impaired loans are categorized as Level 3 due to ongoing real estate conditions resulting in inactive market data which, in turn, required the use of unobservable inputs and assumptions in fair value measurements. Impaired loans were measured and reported at fair value through specific valuation allocations of the allowance for loan and lease losses and/or partial charge-offs of the impaired loans.
Page 25 of 52
The fair value of other real estate owned is based on the values obtained through property appraisals, which can include observable and unobservable inputs. Other real estate owned fair values are categorized as Level 3 due to ongoing real estate conditions resulting in inactive market data which required the use of unobservable inputs and assumptions in fair value measurements.
The following table presents a reconciliation of net assets measured at fair value on a recurring basis using significant unobservable inputs (Level 3) during the first six months of 2012 and 2011:
(in thousands)
|
Level 3 Securities Available for Sale, Loans Held for Sale and Warrant Liability
|
|||||||
Six Months Ended June 30
|
||||||||
2012
|
2011
|
|||||||
Balance at beginning of year
|
$ | (1,464 | ) | $ | 10,086 | |||
Net increase (decrease) in SBA loans held for sale
|
(93 | ) | 244 | |||||
Loans held for sale transfered into Level 3
|
4,282 | - | ||||||
Settlements - principal reductions in loans held for sale
|
(969 | ) | (4,186 | ) | ||||
Loan participations sold to related party
|
(2,168 | ) | - | |||||
Loans held for sale transferred to other real estate owned
|
(492 | ) | (1,069 | ) | ||||
Loans held for sale valuation reserve
|
- | (75 | ) | |||||
Cancellation of warrants accounted for as liabilities
|
4,955 | - | ||||||
Changes in fair value of warrant liability
|
79 | 959 | ||||||
Balance at end of period
|
$ | 4,130 | $ | 5,959 |
“Settlements” in the above table relate to actual cash payments received from borrowers on loans held for sale and do not represent refinancings or write-downs to fair value. The following methods and assumptions were used to estimate the fair value of significant financial instruments that are not carried at fair value in the consolidated balance sheet:
Financial Assets. The carrying amounts of cash and short-term investments are considered to approximate fair value. Short-term investments include federal funds sold and interest bearing deposits with other banks. For investment securities, fair values are based on quoted market prices, where available. If quoted market prices are not available, fair values are estimated using other observable data, which may include dealer quotes, market spreads, cash flows, the U.S. Treasury yield curve, live trading levels, trade execution data, market consensus prepayment speeds, credit information and the bond’s terms and conditions, among other factors. The fair value of loans (including loans held for sale) are estimated using a combination of techniques, including discounting estimated future cash flows and quoted market prices of similar instruments, where available, and are considered to be within Level 2. Impaired loans are within Level 3 of the fair value hierarchy. The carrying value of accrued interest receivable approximates fair value. The carrying amount of FHLB and FRB stock approximate their fair value.
Page 26 of 52
Financial Liabilities. The carrying amounts of deposit liabilities payable on demand and short-term borrowed funds are considered to approximate fair value. For fixed maturity (i.e., time) deposits, which are within Level 2 of the fair value hierarchy, fair value is estimated by discounting estimated future contractual cash flows using currently offered rates for deposits of similar remaining maturities. The fair value of junior subordinated debt securities (Level 2) is based on rates currently available to the Bank for debt with similar terms and remaining maturities.
Off-Balance Sheet Financial Instruments. The fair value of commitments to extend credit and standby letters of credit is estimated using the fees currently charged to enter into similar agreements. The fair value of these financial instruments is not material.
The estimated fair value of financial instruments is summarized as follows:
(in thousands)
|
June 30, 2012
|
December 31, 2011
|
||||||||||||||
Carrying Value
|
Fair Value
|
Carrying Value
|
Fair Value
|
|||||||||||||
Financial Assets:
|
||||||||||||||||
Cash and due from banks
|
$ | 27,256 | $ | 27,256 | $ | 61,621 | $ | 61,621 | ||||||||
Interest-bearing deposits in other banks
|
5,176 | 5,176 | 3,592 | 3,592 | ||||||||||||
Investment securities
|
171,472 | 171,472 | 128,310 | 128,310 | ||||||||||||
Loans held for sale
|
4,280 | 4,280 | 3,720 | 3,720 | ||||||||||||
Loans, net of allowance for loan and lease losses
|
215,570 | 213,272 | 226,623 | 224,721 | ||||||||||||
Federal Home Loan Bank and other stocks
|
3,800 | 3,800 | 3,926 | 3,926 | ||||||||||||
Accrued interest receivable
|
1,277 | 1,277 | 1,450 | 1,450 | ||||||||||||
Financial Liabilities:
|
||||||||||||||||
Deposits
|
408,645 | 408,912 | 410,574 | 411,323 | ||||||||||||
Junior subordinated debt securities
|
5,548 | 4,176 | 5,491 | 4,527 | ||||||||||||
Accrued interest payable
|
205 | 205 | 330 | 330 | ||||||||||||
Warrant liability
|
150 | 150 | 5,184 | 5,184 |
Note 9 — Business Combination
On October 21, 2011, Santa Lucia Bank, Atascadero, California (“SL Bank”), was merged with and into the Bank (the “Bank Merger”) under an Agreement and Plan of Merger dated June 24, 2011, by and among Bancorp, the Bank, the Manager, as General Partner of Carpenter Community BancFund L.P. and Carpenter Community BancFund-A., L.P. (the “Funds”), Santa Lucia Bancorp (“SL Bancorp”) and SL Bank. For Bancorp and the Bank, this transaction is accounted for based on transactions between entities under common control, as our largest shareholder, the Funds, contributed Santa Lucia Bank to the Company immediately following the merger of SL Bancorp into a wholly-owned subsidiary of the Funds.
The Bank Merger was undertaken to increase the Company’s market share in its primary market—San Luis Obispo County and northern Santa Barbara County. The combined bank had $455 million in assets and $414 million in deposits immediately following the Bank Merger and continues to operate under the Mission Community Bank name, with full-service branch offices in San Luis Obispo and Santa Barbara counties in the cities of San Luis Obispo, Paso Robles, Atascadero, Arroyo Grande and Santa Maria. With the acquisition, the Company has initiated a strategic plan to build what it believes will be the premier California Central Coast banking franchise. This initiative is designed to capitalize on the distinctive characteristics of the Central Coast banking markets in San Luis Obispo, Santa Barbara, Ventura, and Monterey counties.
Page 27 of 52
SL Bank’s results of operations have been included in the Company’s results beginning October 22, 2011. The excess of the fair value of net assets of $906,000 arising from the acquisition was recognized in additional paid-in capital in the fourth quarter of 2011. The fair values of assets acquired and liabilities assumed are subject to adjustment during the first twelve months after the acquisition date if additional information becomes available to indicate a more accurate or appropriate value for an asset or liability. Assets that were particularly susceptible to adjustment included certain loans, other real estate owned and certain premises and equipment. During the first quarter of 2012, management recorded a $428,000 increase in loans, based on the estimated fair value of certain loans. In the second quarter of 2012, management recorded a $569,000 increase in the fair value of premises and equipment and a $194,000 increase in the fair value of other real estate owned, based on real estate appraisals. Also in the second quarter of 2012, a $61,000 decrease to accrued interest receivable on investments was recorded. These measurement period adjustments have been presented on a retrospective basis, consistent with applicable accounting guidance. As of June 30, 2012, the Company does not expect any more measurement period adjustments. The following table summarizes the adjusted estimated fair value of assets acquired and liabilities assumed from SL Bank recognized as of the acquisition date (in thousands):
Recognized amounts of identifiable assets acquired and liabilities assumed:
|
||||
Financial assets--
|
||||
Cash and cash equivalents
|
$ | 53,998 | ||
Investment securities
|
21,487 | |||
Loans
|
122,374 | |||
Federal Home Loan Bank and other stocks
|
1,574 | |||
Company-owned life insurance
|
4,690 | |||
Other financial assets
|
1,024 | |||
Total financial assets
|
205,147 | |||
Premises and equipment
|
13,591 | |||
Other real estate owned
|
2,742 | |||
Identifiable intangible assets
|
3,237 | |||
Other assets
|
289 | |||
Financial liabilities:
|
||||
Deposits
|
(220,102 | ) | ||
Junior subordinated debt securities
|
(2,380 | ) | ||
Other financial liabilities
|
(162 | ) | ||
Total financial liabilities
|
(222,644 | ) | ||
Other liabilities
|
(325 | ) | ||
Identifiable net assets acquired / net contribution from shareholder
|
$ | 2,037 |
Page 28 of 52
The following table presents pro forma information as if the acquisition of SL Bank had occurred on January 1, 2011. The pro forma information includes adjustments for interest income on loans and securities acquired, amortization of intangibles arising from the transaction, depreciation expense on property acquired, and interest expense on deposits acquired. The pro forma financial information is not necessarily indicative of the results of operations as they would have been had the transactions been effected on the assumed date.
(in thousands)
|
Three Months Ended
June 30, |
Six Months Ended
June 30, |
||||||
Interest income
|
$ | 5,518 | $ | 11,355 | ||||
Non-interest income
|
1,015 | 1,997 | ||||||
Net (loss)
|
(452 | ) | (179 | ) | ||||
Basic and diluted loss per share
|
$ | (0.10 | ) | $ | (0.10 | ) |
Note 10 — Recent Accounting Pronouncements
Fair Value Measurement
In May 2011, FASB issued Accounting Standards Update (“ASU”) ASU 2011-04, Fair Value Measurement (Topic 820) – Amendments to Achieve Common Fair Value Measurements and Disclosure Requirements in U.S. GAAP and IFRS. ASU 2011-04 amends Topic 820, Fair Value Measurements and Disclosures, to converge the fair value measurement guidance under U.S. generally accepted accounting principles and International Financial Reporting Standards. ASU 2011-04 clarifies the application of existing fair value measurement requirements, changes certain principles in Topic 820 and requires additional fair value disclosures. ASU 2011-04 is effective for interim and annual periods beginning after December 15, 2011. Adoption of ASU 2011-04 in the quarter ended March 31, 2012, did not have a significant on the Company’s consolidated financial statements.
Comprehensive Income
In June 2011, FASB issued ASU 2011-05, Comprehensive Income (Topic 220) – Presentation of Comprehensive Income. ASU 2011-05 amends Topic 220, Comprehensive Income, to require that all nonowner changes in shareholders’ equity be presented in either a single continuous statement of comprehensive income or in two separate but consecutive statements. Additionally, ASU 2011-05 requires entities to present, on the face of the financial statements, reclassification adjustments for items that are reclassified from other comprehensive income to net income in the statement or statements where the components of net income and the components of other comprehensive income are presented. The option to present components of other comprehensive income as part of the statement of changes in shareholders’ equity was eliminated. ASU 2011-05 is effective for interim and annual periods beginning after December 15, 2011. Additionally, in December 2011, FASB issued ASU 2011-12, Deferral of the Effective Date for Amendments to the Reclassification of Items Out of Accumulated Other Comprehensive Income in ASU 2011-05. ASU 2011-12 defers the effective date for the changes in ASU 2011-05 that specifically refer to the presentation of the effects of reclassification adjustments out of accumulated other comprehensive income on the components of net income and other comprehensive income on the face of the financial statements for all periods presented. ASU 2011-12 reinstates the requirements of the presentation of reclassifications out of accumulated other comprehensive income that were in place before the issuance of ASU 2011-05. The Company will continue to disclose the effects of reclassifications in the footnotes to the financial statements. The effective date for ASU 2011-12 is the same as for ASU 2011-05. Neither ASU 2011-05 nor ASU 2011-12 had a significant impact on the consolidated financial statements.
Page 29 of 52
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
Forward-Looking Statements
Some matters discussed in this Form 10-Q may be “forward-looking statements” within the meaning of the Private Litigation Reform Act of 1995 and therefore may involve risks, uncertainties and other factors which may cause our actual results to be materially different from the results expressed or implied by our forward-looking statements. These statements generally appear with words such as “anticipate,” “believe,” “estimate,” “may,” “intend,” and “expect.” Although management believes that the assumptions and expectations reflected in such forward-looking statements are reasonable, it can give no assurance that such expectations will prove to be correct. Factors that could cause actual results to differ from results discussed in forward-looking statements include, but are not limited to: economic conditions (both generally and in the markets where the Bank operates); competition from other providers of financial services offered by the Bank; government regulation and legislation; changes in interest rates; material unforeseen changes in the financial stability and liquidity of the Bank’s credit customers; and other risks detailed in the Company’s filings with the Securities and Exchange Commission, all of which are difficult to predict and which may be beyond the control of the Company or the Bank. The Company undertakes no obligation to revise forward-looking statements to reflect events or changes after the date of this discussion or to reflect the occurrence of unanticipated events.
Overview of Results of Operations and Financial Condition
|
·
|
The Company earned $522 thousand for the second quarter of 2012, as compared with a net loss of $(567) thousand for the second quarter of 2011. Net income applicable to common stock was $349 thousand in the most recent quarter, as compared to a net loss applicable to common stock of $(631) thousand for the same period in 2011.
|
|
·
|
For the first six months of 2012 the Company incurred a net loss of $(309) thousand, as compared with a net loss of $(482) thousand for the first six months of 2011. Net loss applicable to common stock was $(657) thousand in the first half of 2012, as compared to a net loss applicable to common stock of $(610) thousand for the same period in 2011.
|
|
·
|
A $225 thousand provision for loan losses was recorded in the second quarter of 2012, and a $450 thousand provision for loan losses was recorded for the six months. No loan loss provision was recognized in the first half of 2011.
|
|
·
|
Net interest income for the three-month period ended June 30, 2012, was $4.735 million, an increase of $2.929 million from the same period in 2011. For the first six months of 2012, net interest income was $9.300 million, as compared to $3.632 million for the first half of 2011. The increase in net interest income was primarily due to the acquisition of Santa Lucia Bank in the fourth quarter of 2011. See Note 9 to the Unaudited Consolidated Financial Statements included elsewhere in this report for additional information with respect to the acquisition of Santa Lucia Bank.
|
|
·
|
The net interest margin (net interest income as a percentage of average interest earning assets) increased by 1.09%, to 4.50%, for the three-month period ended June 30, 2012, as compared to the same period in 2011. For the six month periods, the net interest margin increased by 95 basis points, from 3.46% in 2011 to 4.41% in the first half of 2012.
|
Page 30 of 52
|
·
|
For the three months ended June 30, 2012, non-interest income increased by $340 thousand from the same period in 2011, primarily due $526 thousand in gains on sales of securities, which was partially offset by decreased income from changes in the fair value of warrant liability. For the first six months of 2012, non-interest income decreased by $446 thousand compared to the first six months of 2011, due to an $880 thousand decrease in income from changes in the fair value of warrant liability, partially offset by $527 thousand in gains on sales of securities.
|
|
·
|
Non-interest expense increased by $1.957 million for the second quarter of 2012, as compared to the same quarter in 2011. Principal factors relating to the increase were overall increases in salaries and benefits and other operating costs in 2012 with an asset size approximately double that of a year earlier, additional officers hired over the past year in preparation for planned growth, additional software and network management costs related to integrating Santa Lucia Bank, and amortization of the core deposit intangible asset.
|
|
·
|
Total assets decreased by $4.3 million (0.9 %) from December 31, 2011 to June 30, 2012, primarily attributable to a $10.5 million decrease in loans, as loan repayments exceeded demand for new bankable credits.
|
|
·
|
Non-performing assets decreased from $13.6 million as of December 31, 2011 to $9.6 million on June 30, 2012, primarily due to sales of foreclosed real estate.
|
Income Summary
For the second quarter of 2012, the Company’s net income was $522 thousand, as compared with a net loss of $(567) thousand for the second quarter of 2011. Net income applicable to common stock was $349 thousand in the most recent quarter, as compared to a net loss applicable to common stock of $(631) thousand for the same period in 2011.
Return on average assets (annualized) was 0.46% for the second quarter of 2012, as compared with a loss on average assets of (1.02)% for the second quarter of 2011. Annualized return on average equity was 6.16% for the second quarter of 2012 as compared with a loss on average equity of (6.59)% for the comparable 2011 period.
For the six months ended June 30, 2012, annualized loss on average assets was (0.14)%, as compared with (0.44)% for the same period in 2011. Annualized loss on average equity for the first half of 2012 was (1.95)%, as compared with (2.86)% for the first half of 2011.
Net Interest Income
Net interest income is the largest source of the Bank’s operating income. For the three-month period ended June 30, 2012, net interest income was $4.735 million, an increase of $2.929 million from the same period in 2011, primarily due to the Santa Lucia Bank acquisition in October 2011. In addition to the increase in net interest income due to the higher volume of assets and liabilities from that acquisition, the net interest margin for the second quarter of 2012 includes $921 thousand of discount accretion on the assets acquired and liabilities assumed ($1.680 million for the six months).
Page 31 of 52
The net interest margin (net interest income as a percentage of average interest earning assets) was 4.50%, for the three-month period ended June 30, 2012, an increase of 1.09% over the same period in 2011. For the six month periods, the net interest margin increased by 95 basis points, from 3.46% in 2011 to 4.41% in the first half of 2012. Discount accretion mentioned in the previous paragraph accounts for 87 basis points of the increase in net interest margin for the three months and 78 basis points of the increase for the six months.
The following tables show the relative impact of changes in average balances of interest earning assets and interest bearing liabilities, and interest rates earned and paid by the Company and the Bank on those assets and liabilities for the three-month and six-month periods ended June 30, 2012 and 2011:
Consolidated Net Interest Analysis
(Dollars in thousands)
For the Three Months Ended
|
||||||||||||||||||||||||
June 30, 2012
|
June 30, 2011
|
|||||||||||||||||||||||
Average
Balance |
Interest
|
Average
Rate |
Average
Balance |
Interest
|
Average
Rate |
|||||||||||||||||||
ASSETS
|
||||||||||||||||||||||||
Interest-earning assets:
|
||||||||||||||||||||||||
Loans, net of unearned income*
|
$ | 228,537 | $ | 4,351 | 7.66 | % * | $ | 117,587 | $ | 1,697 | 5.79 | % * | ||||||||||||
Investment securities*
|
160,239 | 707 | 1.77 | % * | 82,932 | 461 | 2.23 | % * | ||||||||||||||||
Other interest income
|
34,926 | 24 | 0.28 | % | 12,051 | 6 | 0.21 | % | ||||||||||||||||
Total interest-earning assets / interest income
|
423,702 | 5,082 | 4.82 | % | 212,570 | 2,164 | 4.08 | % | ||||||||||||||||
Non-interest-earning assets:
|
||||||||||||||||||||||||
Allowance for loan losses
|
(3,667 | ) | (3,250 | ) | ||||||||||||||||||||
Cash and due from banks
|
2,885 | 1,728 | ||||||||||||||||||||||
Premises and equipment
|
15,807 | 3,173 | ||||||||||||||||||||||
Other assets
|
15,303 | 8,353 | ||||||||||||||||||||||
Total assets
|
$ | 454,030 | $ | 222,574 | ||||||||||||||||||||
LIABILITIES AND SHAREHOLDERS' EQUITY
|
||||||||||||||||||||||||
Interest-bearing liabilities:
|
||||||||||||||||||||||||
Interest-bearing deposits:
|
||||||||||||||||||||||||
Transaction accounts
|
$ | 26,934 | $ | 10 | 0.15 | % | $ | 11,590 | $ | 18 | 0.62 | % | ||||||||||||
Savings and Money Market deposit accounts
|
128,604 | 59 | 0.19 | % | 54,496 | 86 | 0.63 | % | ||||||||||||||||
Certificates of deposit
|
128,677 | 196 | 0.61 | % | 87,577 | 229 | 1.05 | % | ||||||||||||||||
Total interest-bearing deposits
|
284,215 | 265 | 0.38 | % | 153,663 | 333 | 0.87 | % | ||||||||||||||||
Other short-term borrowings
|
11 | - | 1.09 | % | - | - | - | |||||||||||||||||
Federal Home Loan Bank advances
|
1,520 | 1 | 0.24 | % | - | - | - | |||||||||||||||||
Trust preferred securities
|
5,531 | 81 | 5.83 | % | 3,093 | 25 | 3.27 | % | ||||||||||||||||
Total borrowed funds
|
7,062 | 82 | 4.62 | % | 3,093 | 25 | 3.27 | % | ||||||||||||||||
Total interest-bearing liabilities / interest expense
|
291,277 | 347 | 0.48 | % | 156,756 | 358 | 0.92 | % | ||||||||||||||||
Non-interest-bearing liabilities:
|
||||||||||||||||||||||||
Non-interest-bearing deposits
|
118,266 | 25,761 | ||||||||||||||||||||||
Other liabilities
|
10,427 | 5,556 | ||||||||||||||||||||||
Total liabilities
|
419,970 | 188,073 | ||||||||||||||||||||||
Shareholders' equity
|
34,060 | 34,501 | ||||||||||||||||||||||
Total liabilities and shareholders' equity
|
$ | 454,030 | $ | 222,574 | ||||||||||||||||||||
Net interest-rate spread
|
4.34 | % | 3.16 | % | ||||||||||||||||||||
Impact of non-interest-bearing sources and other changes in balance sheet composition
|
0.16 | % | 0.25 | % | ||||||||||||||||||||
Net interest income / margin on earning assets
|
$ | 4,735 | 4.50 | % ** | $ | 1,806 | 3.41 | % ** |
*No taxable-equivalent adjustment has been made on municipal securities and loans because no tax benefits are currently being recognized by the Company. Net loan accretion and fees (costs) included in loan interest income for the three-month periods ended June 30, 2012 and 2011, were $912 thousand and $(16) thousand, respectively.
** Net interest income as a % of earning assets
Page 32 of 52
Consolidated Net Interest Analysis
(Dollars in thousands)
For the Six Months Ended
|
||||||||||||||||||||||||
June 30, 2012
|
June 30, 2011
|
|||||||||||||||||||||||
Average
Balance |
Interest
|
Average
Rate |
Average
Balance |
Interest
|
Average
Rate |
|||||||||||||||||||
ASSETS
|
||||||||||||||||||||||||
Interest-earning assets:
|
||||||||||||||||||||||||
Loans, net of unearned income*
|
$ | 231,553 | $ | 8,650 | 7.51 | % * | $ | 118,594 | $ | 3,486 | 5.93 | % * | ||||||||||||
Investment securities*
|
143,396 | 1,339 | 1.88 | % * | 79,120 | 880 | 2.24 | % * | ||||||||||||||||
Other interest income
|
48,753 | 68 | 0.28 | % | 13,686 | 16 | 0.24 | % | ||||||||||||||||
Total interest-earning assets / interest income
|
423,702 | 10,057 | 4.77 | % | 211,400 | 4,382 | 4.18 | % | ||||||||||||||||
Non-interest-earning assets:
|
||||||||||||||||||||||||
Allowance for loan losses
|
(3,541 | ) | (3,238 | ) | ||||||||||||||||||||
Cash and due from banks
|
2,520 | 1,578 | ||||||||||||||||||||||
Premises and equipment
|
15,797 | 3,191 | ||||||||||||||||||||||
Other assets
|
16,954 | 7,978 | ||||||||||||||||||||||
Total assets
|
$ | 455,432 | $ | 220,909 | ||||||||||||||||||||
LIABILITIES AND SHAREHOLDERS' EQUITY
|
||||||||||||||||||||||||
Interest-bearing liabilities:
|
||||||||||||||||||||||||
Interest-bearing deposits:
|
||||||||||||||||||||||||
Interest-bearing demand accounts
|
$ | 27,055 | $ | 21 | 0.16 | % | $ | 11,401 | $ | 38 | 0.67 | % | ||||||||||||
Savings and Money Market deposit accounts
|
129,075 | 120 | 0.19 | % | 53,243 | 181 | 0.68 | % | ||||||||||||||||
Certificates of deposit
|
135,171 | 452 | 0.67 | % | 86,987 | 476 | 1.11 | % | ||||||||||||||||
Total interest-bearing deposits
|
291,301 | 593 | 0.41 | % | 151,631 | 695 | 0.92 | % | ||||||||||||||||
Other short-term borrowings
|
6 | - | 1.09 | % | 191 | 5 | 4.75 | % | ||||||||||||||||
Federal Home Loan Bank advances
|
760 | 1 | 0.24 | % | - | - | - | |||||||||||||||||
Trust preferred securities
|
5,517 | 163 | 5.93 | % | 3,093 | 50 | 3.29 | % | ||||||||||||||||
Total borrowed funds
|
6,283 | 164 | 5.24 | % | 3,284 | 55 | 3.37 | % | ||||||||||||||||
Total interest-bearing liabilities / interest expense
|
297,584 | 757 | 0.51 | % | 154,915 | 750 | 0.98 | % | ||||||||||||||||
Non-interest-bearing liabilities:
|
||||||||||||||||||||||||
Non-interest-bearing deposits
|
113,078 | 26,181 | ||||||||||||||||||||||
Other liabilities
|
12,963 | 5,843 | ||||||||||||||||||||||
Total liabilities
|
423,625 | 186,939 | ||||||||||||||||||||||
Shareholders' equity
|
31,807 | 33,970 | ||||||||||||||||||||||
Total liabilities and shareholders' equity
|
$ | 455,432 | $ | 220,909 | ||||||||||||||||||||
Net interest-rate spread
|
4.26 | % | 3.20 | % | ||||||||||||||||||||
Impact of non-interest-bearing sources and other changes in balance sheet composition
|
0.15 | % | 0.26 | % | ||||||||||||||||||||
Net interest income / margin on earning assets
|
$ | 9,300 | 4.41 | % ** | $ | 3,632 | 3.46 | % ** |
*No taxable-equivalent adjustment has been made on municipal securities and loans because no tax benefits are currently being recognized by the Company. Loan accretion and loan fees (net of loan origination costs) included in loan interest income for the six-month periods ended June 30, 2012 and 2011, were $1,668 thousand and $(14) thousand, respectively.
** Net interest income as a % of earning assets
Excluding the merger-related discount accretion from the above tables, the average rates for the first six months of 2012 would have been as follows: loans 6.06%; total interest-earning assets 3.98%; certificates of deposit 0.76%; total interest-bearing deposits 0.45%; trust preferred securities 3.51%; total interest-bearing liabilities 0.50%; and net interest margin 3.63%.
Page 33 of 52
Shown in the following tables are the relative impacts on net interest income of changes in the average outstanding balances (volume) of earning assets and interest bearing liabilities, together with changes in the rates earned and paid by the Bank and the Company on those assets and liabilities, for the three-month and six-month periods ended June 30, 2012 and 2011. Changes in interest income and expense that are not attributable specifically to either rate or volume are allocated proportionately among both variances.
Consolidated Rate / Volume Variance Analysis
(In thousands)
Three Months Ended June 30, 2012
|
||||||||||||
Compared to 2011
|
||||||||||||
Increase (Decrease)
in interest income and expense
due to changes in:
|
||||||||||||
Volume
|
Rate
|
Total
|
||||||||||
Interest-earning assets:
|
||||||||||||
Loans, net of unearned income
|
$ | 1,983 | $ | 671 | $ | 2,654 | ||||||
Investment securities
|
357 | (111 | ) | 246 | ||||||||
Other interest income
|
16 | 2 | 18 | |||||||||
Total increase in interest income
|
2,356 | 562 | 2,918 | |||||||||
Interest-bearing liabilities:
|
||||||||||||
Transaction accounts
|
12 | (20 | ) | (8 | ) | |||||||
Savings deposits
|
61 | (88 | ) | (27 | ) | |||||||
Certificates of deposit
|
85 | (118 | ) | (33 | ) | |||||||
Total interest-bearing deposits
|
158 | (226 | ) | (68 | ) | |||||||
Other short-term borrowings
|
- | - | - | |||||||||
FHLB advances
|
1 | - | 1 | |||||||||
Trust preferred securities
|
29 | 27 | 56 | |||||||||
Total borrowed funds
|
30 | 27 | 57 | |||||||||
Total increase (decrease) in interest expense
|
188 | (199 | ) | (11 | ) | |||||||
Increase in net interest income
|
$ | 2,168 | $ | 761 | $ | 2,929 |
Page 34 of 52
Consolidated Rate / Volume Variance Analysis
(In thousands)
Six Months Ended June 30, 2012
Compared to 2011 |
||||||||||||
Increase (Decrease)
in interest income and expense |
||||||||||||
Volume
|
Rate
|
Total
|
||||||||||
Interest-earning assets:
|
||||||||||||
Loans, net of unearned income
|
$ | 4,020 | $ | 1,144 | $ | 5,164 | ||||||
Investment securities
|
619 | (160 | ) | 459 | ||||||||
Other interest income
|
49 | 3 | 52 | |||||||||
Total increase in interest income
|
4,688 | 987 | 5,675 | |||||||||
Interest-bearing liabilities:
|
||||||||||||
Transaction accounts
|
26 | (43 | ) | (17 | ) | |||||||
Savings deposits
|
133 | (194 | ) | (61 | ) | |||||||
Certificates of deposit
|
204 | (228 | ) | (24 | ) | |||||||
Total interest-bearing deposits
|
363 | (465 | ) | (102 | ) | |||||||
Other short-term borrowings
|
(3 | ) | (2 | ) | (5 | ) | ||||||
FHLB advances
|
1 | - | 1 | |||||||||
Trust preferred securities
|
56 | 57 | 113 | |||||||||
Total borrowed funds
|
54 | 55 | 109 | |||||||||
Total increase (decrease) in interest expense
|
417 | (410 | ) | 7 | ||||||||
Increase in net interest income
|
$ | 4,271 | $ | 1,397 | $ | 5,668 |
The tables above show the effect of the significantly higher volume of assets and liabilities from the acquisition of SL Bank in October 2011, as well as the impact of lower rates paid on deposit accounts.
Based on current economic forecasts, the Bank anticipates that short-term interest rates will remain at a very low level throughout 2012 and 2013. If so, we expect to see certificate of deposit rates continue to decline, although the pace of that decline is expected to slow. With loan rates remaining relatively stable, this decrease in deposit rates should result in a slight improvement in our net interest margin. In the early stage of the next cycle of rising interest rates we would expect to see deposits reprice somewhat faster than loans, as “floors” (minimum rates) have been implemented on approximately 82% of the variable rate loan portfolio, or approximately $125 million in loans. Many of those floor rates are currently higher than the rate would be without the imposition of the floor. As a result, that portion of the variable rate loan portfolio will not generate a material increase in interest income until the prime rate increases by at least 55 basis points from its current level. The remaining 18% of variable rate loans will respond to rising rates more quickly. A potential risk to the net interest margin would be any additional loans that might be placed in non-accrual status in the coming months. Additional non-accrual loans would put downward pressure on the net interest margin.
Page 35 of 52
Provision for Loan Losses
The Bank recorded a $225 thousand provision for loan losses for the three months ended June 30, 2012, and $450 thousand for the six months then ended, as compared with no loan loss provision for the first six months of 2011.
Loan charge-offs totaled $121 thousand (with $115 thousand in recoveries) for the second quarter of 2012, as compared with $92 thousand of charge-offs and $29 thousand of recoveries for the same period in 2011. For the first six months of 2012, charge-offs totaled $122 thousand (with $127 thousand of recoveries), as compared to $100 thousand of charge-offs and $84 thousand of recoveries for the first half of 2011. The ratio of allowance for loan losses to total loans was 1.69% at June 30, 2012, as compared with 1.42% as of December 31, 2011.
The Bank makes provisions for loan losses when required to bring the total allowance for loan losses to a level deemed appropriate for the risk in the loan portfolio. The determination of the appropriate level for the allowance is based on such factors as historical loss experience, the volume and type of lending conducted, the amount of nonperforming loans, regulatory standards, general economic conditions, and other factors related to the collectability of loans in the portfolio.
The provision for loan losses and allowance for loan losses reflect management’s consideration of the various risks in the loan portfolio. Additional discussion of loan quality and the allowance for loan losses is provided in the Asset Quality, Potential Problem Loans and Allowance for Loan and Lease Losses sections of this report.
Non-Interest Income
Non-interest income represents service charges on deposit accounts and other non-interest related charges and fees, including gains and servicing fees from the sale of loans and gains or losses on sales of securities and other real estate owned. For the three-month period ended June 30, 2012, non-interest income was $1.064 million, an increase of $340 thousand from the same period in 2011. For the first six months of 2012, non-interest income was $1.102 million, as compared to $1.548 million for the same period in 2011.
Page 36 of 52
The following table shows the major components of non-interest income:
Non-Interest Income
(In thousands)
|
For the Three Months Ended June 30,
|
For the Six Months Ended June 30,
|
||||||||||||||||||||||||||||||
$ Amount
|
Change
|
$ Amount
|
Change
|
|||||||||||||||||||||||||||||
2012
|
2011
|
$ | % | 2012 | 2011 | $ | % | |||||||||||||||||||||||||
Service charges on deposit accounts
|
$ | 248 | $ | 121 | $ | 127 | 105 | % | $ | 455 | $ | 198 | $ | 257 | 130 | % | ||||||||||||||||
Gain on sale of loans
|
- | 35 | (35 | ) | -100 | % | 8 | 141 | (133 | ) | -94 | % | ||||||||||||||||||||
Loan servicing fees, net of amortization
|
44 | 35 | 9 | 26 | % | 82 | 59 | 23 | 39 | % | ||||||||||||||||||||||
Gain on sale or call of available-for-sale securities
|
526 | - | 526 |
nm
|
527 | - | 527 |
nm
|
||||||||||||||||||||||||
Net gains(losses) or writedowns of fixed assets or other real estate
|
70 | 70 | - | 0 | % | (288 | ) | 23 | (311 | ) | -1352 | % | ||||||||||||||||||||
Change in fair value of warrant liability
|
49 | 407 | (358 | ) | -88 | % | 79 | 959 | (880 | ) | -92 | % | ||||||||||||||||||||
Other income and fees
|
127 | 56 | 71 | 127 | % | 239 | 168 | 71 | 42 | % | ||||||||||||||||||||||
Total non-interest income
|
$ | 1,064 | $ | 724 | $ | 340 | 47 | % | $ | 1,102 | $ | 1,548 | $ | (446 | ) | -29 | % |
nm - not meaningful
The increase in the second quarter of 2012 was primarily due to $526 thousand in gains on sales of securities, which was partially offset by decreased income from changes in the fair value of warrant liability. The decrease in non-interest income for the six-month period was primarily due to write-downs on the value of other real estate owned and decreased income from changes in the fair value of warrant liability, partially offset by gains on the sale of securities.
Non-Interest Expense
Non-interest expense represents salaries and benefits, occupancy expenses, professional fees, outside services, and other miscellaneous expenses necessary to conduct business. Non-interest expenses increased by $1.957 million, or 63%, for the three months ended June 30, 2012, as compared to the second quarter of 2011. For the six months ended June 30, 2012, non-interest expense increased by $4.601 million, or 81%, as compared to the first six months of 2011.
The following table shows the major components of non-interest expenses:
Non-Interest Expense
(In thousands)
For the Three Months Ended June 30,
|
For the Six Months Ended June 30,
|
|||||||||||||||||||||||||||||||
$ Amount
|
Change
|
$ Amount
|
Change
|
|||||||||||||||||||||||||||||
2012
|
2011
|
$ | % | 2012 | 2011 | $ | % | |||||||||||||||||||||||||
Salaries and employee benefits
|
$ | 2,370 | $ | 1,448 | $ | 922 | 64 | % | $ | 4,853 | $ | 2,763 | $ | 2,090 | 76 | % | ||||||||||||||||
Occupancy expenses
|
467 | 331 | 136 | 41 | % | 922 | 652 | 270 | 41 | % | ||||||||||||||||||||||
Furniture and equipment
|
256 | 112 | 144 | 129 | % | 435 | 226 | 209 | 92 | % | ||||||||||||||||||||||
Data processing
|
549 | 262 | 287 | 110 | % | 1,341 | 463 | 878 | 190 | % | ||||||||||||||||||||||
Professional fees
|
326 | 403 | (77 | ) | -19 | % | 735 | 533 | 202 | 38 | % | |||||||||||||||||||||
Marketing and business development
|
91 | 56 | 35 | 63 | % | 216 | 93 | 123 | 132 | % | ||||||||||||||||||||||
Office supplies and expenses
|
182 | 67 | 115 | 172 | % | 392 | 126 | 266 | 211 | % | ||||||||||||||||||||||
Insurance and regulatory assessments
|
170 | 81 | 89 | 110 | % | 323 | 226 | 97 | 43 | % | ||||||||||||||||||||||
Loan and lease expenses
|
126 | 123 | 3 | 2 | % | 190 | 160 | 30 | 19 | % | ||||||||||||||||||||||
Other real estate expenses
|
103 | 42 | 61 | 145 | % | 149 | 98 | 51 | 52 | % | ||||||||||||||||||||||
Amortization of core deposit intangible asset
|
101 | - | 101 |
nm
|
202 | - | 202 |
nm
|
||||||||||||||||||||||||
Other
|
308 | 167 | 141 | 84 | % | 500 | 317 | 183 | 58 | % | ||||||||||||||||||||||
Total non-interest expense
|
$ | 5,049 | $ | 3,092 | $ | 1,957 | 63 | % | $ | 10,258 | $ | 5,657 | $ | 4,601 | 81 | % |
nm = not meaningful
Page 37 of 52
The increase in non-interest expense was principally from:
|
·
|
Salaries and benefits, due to employees added with the Santa Lucia acquisition, as well as additional officers hired over the past year in preparation for planned growth,
|
|
·
|
Software and network management costs, due to the integration of Santa Lucia Bank, including necessary system upgrades (included in data processing expenses in the table above), and
|
|
·
|
Overall increases in operating costs in 2012 with an asset size approximately double that of a year earlier.
|
Partially offsetting these increased expenses were reductions in professional fees related to the Santa Lucia Bank acquisition, which totaled $184 thousand for the first half of 2012 ($60 thousand for the second quarter) and $254 thousand for the first six months and second quarter of 2011.
Income Taxes
Due to a limitation on the Company’s ability to recognize deferred tax assets, no federal income tax benefit and minimal tax expense was recognized for the first six months of 2012 and 2011.
Balance Sheet Analysis
At June 30, 2012, consolidated assets totaled $459.0 million, as compared with $463.3 million at December 31, 2011. This represents a decrease of $4.3 million (0.9%) over the past six months. Total loans decreased $10.0 million (4.3%) over that period, while securities and cash equivalents increased $10.4 million (5.4%), deposits decreased $1.9 million (0.5%) and shareholders’ equity increased $5.3 million (18.0%). The increase in shareholders’ equity was primarily due to additional paid-in capital transferred from the warrant liability for warrants cancelled during the first quarter. See also the Capital section of this report.
The following table shows balance sheet growth trends over the past five quarters:
Balance Sheet Growth
(dollars in thousands)
Increase(Decrease) From Previous Quarter End
|
||||||||||||||||||||||||||||||||||||||||
June 30, 2012
|
March 31, 2012
|
December 31, 2011
|
September 30, 2011
|
June 30, 2011
|
||||||||||||||||||||||||||||||||||||
$ | % | $ | % | $ | % | $ | % | $ | % | |||||||||||||||||||||||||||||||
Total Assets
|
$ | 1,202 | 0.3 | % | $ | (5,538 | ) | -1.2 | % | $ | 228,665 | 97.5 | % | $ | 9,378 | 4.2 | % | $ | 7,650 | 3.5 | % | |||||||||||||||||||
Earning Assets
|
1,300 | 0.3 | % | (2,210 | ) | -0.5 | % | 200,547 | 89.4 | % | 9,092 | 4.2 | % | 10,711 | 5.2 | % | ||||||||||||||||||||||||
Loans
|
(2,278 | ) | -1.0 | % | (7,699 | ) | -3.3 | % | 114,382 | 95.9 | % | 2,991 | 2.6 | % | (1,516 | ) | -1.3 | % | ||||||||||||||||||||||
Deposits
|
3,365 | 0.8 | % | (5,294 | ) | -1.3 | % | 219,028 | 114.3 | % | 9,266 | 5.1 | % | 7,622 | 4.4 | % | ||||||||||||||||||||||||
Shareholders' Equity
|
1,038 | 3.1 | % | 4,273 | 14.4 | % | (3,443 | ) | -10.4 | % | (223 | ) | -0.7 | % | 512 | 1.6 | % |
Page 38 of 52
Loans
The following table shows the composition of our loans by type of loan (including loans held for sale):
Loan Composition
(Dollars in thousands)
June 30, 2012
|
December 31, 2011
|
|||||||||||||||
Type of Loan
|
Amount
|
Percentage
|
Amount
|
Percentage
|
||||||||||||
Construction and land development
|
$ | 17,293 | 7.7 | % | $ | 18,022 | 7.6 | % | ||||||||
Commercial real estate - owner-occupied
|
68,264 | 30.5 | % | 70,153 | 30.0 | % | ||||||||||
Commercial real estate - non-owner-occupied
|
64,484 | 28.8 | % | 64,382 | 27.6 | % | ||||||||||
Residential real estate
|
34,224 | 15.3 | % | 32,609 | 14.0 | % | ||||||||||
All other real estate loans
|
2,003 | 0.9 | % | 2,321 | 1.0 | % | ||||||||||
Commercial and industrial loans
|
28,780 | 12.9 | % | 30,176 | 12.9 | % | ||||||||||
Agricultural loans
|
3,119 | 1.4 | % | 9,272 | 4.0 | % | ||||||||||
Municipal loans
|
2,384 | 1.1 | % | 2,393 | 1.0 | % | ||||||||||
Leases, net of unearned income
|
1,722 | 0.8 | % | 2,323 | 1.0 | % | ||||||||||
Consumer loans
|
1,358 | 0.6 | % | 2,018 | 0.9 | % | ||||||||||
Total loans
|
$ | 223,631 | 100.0 | % | $ | 233,669 | 100.0 | % |
The table above shows a $10.0 million decrease in loans outstanding since December 31, 2011—primarily due to loan pay-downs, but also due to $2.2 million of loan participations sold to an affiliated organization.
Asset Quality
Non-accrual loans (including loans held for sale) totaled $7.3 million at June 30, 2012, as compared to $8.6 million at December 31, 2011 and $8.0 million at June 30, 2011 (before the Santa Lucia Bank acquisition).
Management classifies loans as non-accrual when principal or interest is past due 90 days or more based on the contractual terms of the loan, unless the loan is well-secured and in the process of collection. Loans that are not past-due 90 days or more will also be classified as non-accrual when, in the opinion of management, there exists a reasonable doubt as to the full and timely collection of either principal or interest. Once a loan is classified as non-accrual, it may not be reclassified as an accruing loan until all principal and interest payments are brought current and the loan is considered to be collectible as to both principal and interest.
Restructured loans are those loans with concessions in interest rates or repayment terms due to financial difficulties of the borrower. Foreclosed real estate represents real estate acquired in satisfaction of loans through foreclosure or other means and is carried on an individual asset basis at the lower of the recorded investment in the related loan or the estimated fair value of the property, less selling expenses.
Page 39 of 52
The following table presents information about the Company’s non-performing loans, including quality ratios as of June 30, 2012, December 31, 2011 and June 30, 2011:
Non-Performing Assets*
(in thousands)
June 30
2012 |
December 31
2011 |
June 30
2011 |
||||||||||
Loans in nonaccrual status:
|
||||||||||||
Nonaccrual loans held for investment
|
$ | 5,689 | $ | 6,557 | $ | 3,275 | ||||||
Nonaccrual loans held for sale**
|
1,648 | 1,997 | 4,762 | |||||||||
Loans past due 90 days or more and accruing
|
- | - | - | |||||||||
Restructured loans in accruing status
|
- | - | 7 | |||||||||
Total nonperforming loans
|
7,337 | 8,554 | 8,044 | |||||||||
Foreclosed real estate
|
1,899 | 4,626 | 2,268 | |||||||||
Total nonperforming assets
|
$ | 9,236 | $ | 13,180 | $ | 10,312 | ||||||
Real estate held by parent company
|
400 | 400 | 565 | |||||||||
Total nonperforming loans and other real estate owned
|
$ | 9,636 | $ | 13,580 | $ | 10,877 | ||||||
Allowance for loan and lease losses allocated to impaired loans
|
$ | 274 | $ | 81 | $ | 202 | ||||||
Allowance for loan and lease losses allocated to loans held for sale**
|
- | - | - | |||||||||
Allowance for loan and lease losses allocated to all other loans
|
3,507 | 3,245 | 2,980 | |||||||||
Total allowance for loan and lease losses
|
$ | 3,781 | $ | 3,326 | $ | 3,182 | ||||||
Asset quality ratios:
|
||||||||||||
Non-performing assets to total assets
|
2.01 | % | 2.84 | % | 4.58 | % | ||||||
Excluding loans held for sale**
|
1.67 | % | 2.43 | % | 2.58 | % | ||||||
Non-performing loans to total loans
|
3.28 | % | 3.66 | % | 6.92 | % | ||||||
Excluding loans held for sale**
|
2.59 | % | 2.85 | % | 3.09 | % | ||||||
Allowance for loan and lease losses to total loans
|
1.69 | % | 1.42 | % | 2.74 | % | ||||||
Excluding loans held for sale**
|
1.72 | % | 1.45 | % | 2.99 | % | ||||||
Allowance for loan and lease losses to total non-performing loans
|
52 | % | 39 | % | 40 | % | ||||||
Excluding non-performing loans held for sale**
|
66 | % | 51 | % | 97 | % |
* Table combines bank and non-bank subsidiaries
** Loans held for sale consists of all loans held at Mission Asset Management, Inc. and SBA-guaranteed loans held for sale at Mission Community Bank. Loans held for sale are carried at fair value.
For comparison, ratios in the table above are presented both with and without loans held for sale. Although declining, the level of non-performing loans continues to be high by historical standards, due to the significant downturn in the economy and reduction in real estate collateral values over the past three years. The $7.3 million of non-performing loans as of June 30, 2012, includes $1.2 million of SBA-guaranteed loans, which are supported by $724 thousand of SBA loan guarantees. The remaining $6.1 million of non-performing loans are loans which management has determined to be impaired. A determination of impairment is one of expected payment nonperformance, but not necessarily probability of loss. Based on a loan-by-loan analysis of collateral values or the present value of estimated cash flows, the extent of the impairment of those impaired loans in excess of amounts already charged off is estimated to be $274 thousand, and has been provided in the allowance for loan and lease losses.
Page 40 of 52
Nonperforming assets (which are comprised of nonperforming loans and foreclosed real estate) at June 30, 2012 were $9.6 million, a decrease of $4.0 million from the $13.6 million balance at December 31, 2011. Foreclosed real estate represents real property taken by the Bank from the borrower either through foreclosure or through a deed in lieu of foreclosure, and is carried at the lesser of cost or fair market value, less estimated selling costs.
The following table provides a summary of the change in the balance of other real estate owned for the six months ended June 30, 2012:
Other Real Estate Owned
(dollars in thousands)
Six Months Ended
June 30, 2012 |
||||
Balance of foreclosed real estate at beginning of year, as previously reported
|
$ | 4,626 | ||
Adjustment to fair value of other real estate acquired in Santa Lucia merger
|
194 | |||
Real estate held by parent company
|
400 | |||
Total other real estate owned at beginning of year, as adjusted
|
$ | 5,220 | ||
Foreclosures during the period
|
492 | |||
Additional investments in other real estate
|
- | |||
Sales of other real estate to related party
|
(2,425 | ) | ||
Sales of other real estate to unrelated parties
|
(630 | ) | ||
Writedowns on other real estate, net of gains on sale
|
(358 | ) | ||
Balance of other real estate owned at end of period
|
$ | 2,299 |
Potential Problem Loans
At June 30, 2012, the Company had approximately $4.5 million of loans that were not categorized as non-performing but for which known information about the borrower’s financial condition caused management to have concern about the ability of the borrower to comply with the repayment terms of the loan. The $4.5 million of potential problem loans are supported by $173 thousand of SBA loan guarantees.
Potential problem loans were identified through the ongoing loan review process and are subject to continuing management attention. Management has provided in the allowance for loan and lease losses for potential losses related to these loans, based on an evaluation of current market conditions, loan collateral, other secondary sources of repayment and cash flow generation.
While credit quality as of June 30, 2012, as measured by loan delinquencies and by the Company’s internal asset quality rating system, is stable and well managed, there can be no assurances that continuing economic weakness will not lead to new problem loans in future periods. A further decline in economic conditions in the Company’s market area or other factors could adversely impact individual borrowers or the loan portfolio in general. The Company has well defined underwriting standards and expects to continue with prompt collection efforts, but economic uncertainties or changes may cause one or more borrowers to experience problems in the coming months.
Page 41 of 52
Allowance for Loan and Lease Losses
The allowance for loan and lease losses (“ALLL”) at June 30, 2012 totaled $3.781 million, an increase of $455 thousand from December 31, 2011. The ratio of ALLL to total loans at June 30, 2012, was 1.69%, as compared with 1.42% at December 31, 2011. At June 30, 2012 and 2011, the ratio of ALLL to total non-performing loans was 52% and 40%, respectively.
The following table provides an analysis of the changes in the ALLL for the three-month and six-month periods ended June 30, 2012 and 2011:
Allowance for Loan and Lease Losses
(dollars in thousands)
Three Months Ended
March 31, |
Six Months Ended
June 30, |
|||||||||||||||
2012
|
2011
|
2012
|
2011
|
|||||||||||||
Balance at beginning of period
|
$ | 3,562 | $ | 3,245 | $ | 3,326 | $ | 3,198 | ||||||||
Provision for loan losses
|
225 | - | 450 | - | ||||||||||||
Loans charged off
|
(121 | ) | (92 | ) | (122 | ) | (100 | ) | ||||||||
Recoveries of previous charge-offs
|
115 | 29 | 127 | 84 | ||||||||||||
Net (charge-offs) recoveries
|
(6 | ) | (63 | ) | 5 | (16 | ) | |||||||||
Balance at end of period
|
$ | 3,781 | $ | 3,182 | $ | 3,781 | $ | 3,182 | ||||||||
Allowance for loan losses as a percentage of:
|
||||||||||||||||
Period end loans, including loan held for sale
|
1.69 | % | 2.74 | % | 1.69 | % | 2.74 | % | ||||||||
Period end loans, excluding loans held for sale*
|
1.72 | % | 2.99 | % | 1.72 | % | 2.99 | % | ||||||||
Total non-performing loans, including loans held for sale
|
52 | % | 40 | % | 52 | % | 40 | % | ||||||||
Non-performing loans, excluding loans held for sale*
|
66 | % | 97 | % | 66 | % | 97 | % | ||||||||
As a percentage of average loans (annualized):
|
||||||||||||||||
Net charge-offs (recoveries)
|
0.01 | % | 0.21 | % | 0.00 | % | 0.03 | % | ||||||||
Provision for loan losses
|
0.40 | % | 0.00 | % | 0.39 | % | 0.00 | % | ||||||||
Total loans, including loans held for sale
|
$ | 223,631 | $ | 116,324 | $ | 223,631 | $ | 116,324 | ||||||||
Loans excluding loans held for sale
|
219,351 | 106,295 | 219,351 | 106,295 |
* Loans held for sale consists of all loans held at Mission Asset Management, Inc. and SBA-guaranteed loans held for sale at Mission Community Bank. Loans held for sale are carried at fair value.
The Bank makes provisions for loan losses when required to bring the total allowance for loan and lease losses to a level deemed appropriate for the level of risk in the loan portfolio. At least quarterly, management conducts an assessment of the overall quality of the loan portfolio and general economic trends in the local market. The determination of the appropriate level for the allowance is based on that review, considering such factors as historical loss experience for each type of loan, the volume and type of lending conducted, the amount of identified potential loss associated with specific nonperforming loans, collateral values, regulatory policies, general economic conditions, and other factors related to the collectability of loans in the portfolio.
Page 42 of 52
Based on its quarterly review, management believes that the allowance for loan losses at June 30, 2012, is sufficient to absorb losses inherent in the loan portfolio. This assessment is based upon the best available information and does involve uncertainty and matters of judgment. Accordingly, the adequacy of the allowance cannot be determined with precision and could be susceptible to significant change in future periods.
In addition, management has established a reserve for undisbursed loan commitments. As of June 30, 2012 and December 31, 2011, this reserve totaled $381 thousand, and is included in other liabilities in the consolidated balance sheet.
Investments
All securities in the Bank’s investment portfolio are considered to be investment grade. The portfolio consists of a mixture of fixed-rate US agency securities (38%), fixed-rate mortgage-backed securities (38%), floating-rate mortgage-backed securities (11%), fixed-rate tax-exempt municipal securities (3%), and other fixed-rate securities (9%) and floating-rate securities (1%). The Bank has no investments in FannieMae or FreddieMac equity securities (common or preferred) and none of the mortgage-backed securities are backed by “sub-prime” mortgages. The weighted average life of the portfolio is projected to be 3.1 years, with a duration of 2.9 years.
Deposits
Deposits are the primary source of funding for lending and investing needs. Total deposits were $408.6 million as of June 30, 2012, as compared with $410.6 million at December 31, 2011, and $182.3 million at June 30, 2011. The significant increase in deposits since June 30, 2011 is primarily as a result of the acquisition of Santa Lucia Bank in October 2011.
The Bank generally prices interest-bearing deposits at or above the median rate by classification based on periodic interest rate surveys in the local market. Deposit rates are then adjusted, using a deposit pricing model, to balance the cost of funds, funding needs and other asset and liability considerations. The Net Interest Analysis and Rate/Volume Analysis earlier in this Discussion contain information regarding the average rates paid on deposits for the first half and second quarter of 2012 and 2011.
The Bank participates in the Certificate of Deposit Account Registry Service (“CDARS”) program. This program permits the Bank’s customers to place their certificates of deposit at one institution—Mission Community Bank—and have those deposits fully-insured by the FDIC. The CDARS program acts as a clearinghouse, matching deposits from one institution in the CDARS network of approximately 3,000 banks with other network banks (in increments of less than the per-depositor FDIC insurance limit), so funds that a customer places with the Bank essentially remain on the Bank’s balance sheet. The CDARS program has become very attractive since mid-year 2008 as local depositors sought out safety, with yield often a secondary concern. As of June 30, 2012, the Bank had issued $38.2 million of certificates of deposit to local customers through the CDARS program, as compared with $40.9 million as of June 30, 2011.
Page 43 of 52
Borrowings
In addition to the Company’s junior subordinated debt securities, the Bank has a secured borrowing facility through the Federal Home Loan Bank of San Francisco (“FHLB”). As of June 30, 2012 and December 31, 2011, the Bank had no outstanding borrowings from the FHLB.
Capital
Total shareholders’ equity has increased $5.311 million or 18.0%, from December 31, 2011, to June 30, 2012. The increase was primarily due to additional paid-in capital transferred from the warrant liability for warrants cancelled during the quarter.
The following table shows the Bank’s capital ratios, as calculated under regulatory guidelines, compared to the regulatory minimum capital ratios and the regulatory minimum capital ratios needed to qualify as a “well-capitalized” institution at June 30, 2012, and December 31, 2011:
Mission Community Bank
Capital Ratios
(dollars in thousands)
Amount of Capital Required
|
||||||||||||||||||||||||
|
Actual
|
To Be
Well-Capitalized |
To Be Adequately
Capitalized |
|||||||||||||||||||||
Amount
|
Ratio
|
Amount
|
Ratio
|
Amount
|
Ratio
|
|||||||||||||||||||
As of June 30, 2012:
|
||||||||||||||||||||||||
Total Capital (to Risk-Weighted Assets)
|
$ | 38,778 | 14.08 | % | $ | 27,549 | 10.0 | % | $ | 22,039 | 8.0 | % | ||||||||||||
Tier 1 Capital (to Risk-Weighted Assets)
|
$ | 35,325 | 12.82 | % | $ | 16,530 | 6.0 | % | $ | 11,020 | 4.0 | % | ||||||||||||
Tier 1 Capital (to Average Assets)
|
$ | 35,325 | 7.97 | % | $ | 22,171 | 5.0 | % | $ | 17,736 | 4.0 | % | ||||||||||||
As of December 31, 2011:
|
||||||||||||||||||||||||
Total Capital (to Risk-Weighted Assets)
|
$ | 36,437 | 13.25 | % | $ | 27,491 | 10.0 | % | $ | 21,992 | 8.0 | % | ||||||||||||
Tier 1 Capital (to Risk-Weighted Assets)
|
$ | 32,997 | 12.00 | % | $ | 16,494 | 6.0 | % | $ | 10,996 | 4.0 | % | ||||||||||||
Tier 1 Capital (to Average Assets)
|
$ | 32,997 | 8.19 | % | $ | 20,145 | 5.0 | % | $ | 16,116 | 4.0 | % |
Liquidity
The Bank’s liquidity, which primarily represents the ability to meet fluctuations in deposit levels and provide for customers’ credit needs, is managed through various funding strategies that reflect the maturity structures of the sources of funds and the assets being funded. The Bank’s liquidity is further augmented by payments of principal and interest on loans and increases in short-term liabilities such as demand deposits and short-term certificates of deposit. Cash and cash equivalents (primarily federal funds sold) are the primary means for providing immediate liquidity. The Company had $27.3 million in cash and cash equivalents on June 30, 2012, as compared with $61.6 million as of December 31, 2011, as a result of deploying surplus cash into the securities portfolio.
Page 44 of 52
In order to meet the Bank’s liquidity requirements, the Bank endeavors to maintain an appropriate ratio of loans to deposits, and to maintain sufficient off-balance-sheet sources of funds which may be drawn upon when needed. As of June 30, 2012, the Company’s loans-to-deposits ratio was 54%, as compared with 56% as of December 31, 2011. This ratio has been declining over the past several quarters, as demand for quality credits has been weak through the economic downturn, while deposits have been stable-to-growing during this period. A low loan-to-deposit ratio indicates that the Bank has liquidity in place to meet potential needs for loan funding or deposit withdrawals. The Bank’s sources of funding ratio, which measures available off-balance-sheet sources of funds as a percentage of total on-balance-sheet assets, was 59.6% as of June 30, 2012, as compared with 33.8% as of December 31, 2011.
One of the off-balance-sheet sources of funds is potential borrowing capacity through the FHLB. FHLB borrowings are collateralized by loans and/or investments and can be structured over various terms ranging from overnight to ten years. As of June 30, 2012, the Bank had no outstanding borrowings from the FHLB. Interest rates and terms for FHLB borrowings are generally more favorable than the rates for similar term brokered certificates of deposit or for federal funds purchased. The Bank has the potential (on a secured basis) to borrow from the FHLB up to approximately 25 percent of its total assets. Based on this limitation and loans and securities pledged as of June 30, 2012, up to $94.4 million could be borrowed from the FHLB if needed. FHLB borrowings may be used from time to time when needed as part of the Bank’s normal liquidity management to fund asset growth on a cost-effective basis. The Bank has adequate loans and securities to pledge as collateral should it need additional liquidity that cannot be funded by deposits.
The Bank also has the ability to access the Federal Reserve Board’s “Discount Window” for additional secured borrowing should the need arise.
Off-Balance-Sheet Arrangements
In the normal course of business, the Bank enters into financial commitments to meet the financing needs of its customers, including commitments to extend credit and standby letters of credit. Those instruments involve, to varying degrees, elements of credit and interest rate risk not recognized in the consolidated balance sheets.
Page 45 of 52
As of the dates indicated, the Bank had the following outstanding financial commitments whose contractual amount represents credit risk:
Loan Commitments
|
||||||||||||
(in thousands)
|
June 30,
2012 |
December 31,
2011 |
June 30,
2011 |
|||||||||
Commitments to Extend Credit
|
$ | 47,297 | $ | 38,702 | $ | 22,255 | ||||||
Standby Letters of Credit
|
1,060 | 2,444 | 761 | |||||||||
|
$ | 48,357 | $ | 41,146 | $ | 23,016 |
The Bank’s exposure to credit loss in the event of nonperformance on commitments to extend credit and standby letters of credit is represented by the contractual amount of those instruments. Management has established a reserve for undisbursed loan commitments. As of June 30, 2012, and December 31, 2011, this reserve totaled $381 thousand and is included in other liabilities in the consolidated balance sheets.
The Bank uses the same credit policies in making commitments as it does for loans reflected in the financial statements. The effect on the Bank’s revenues, expenses, cash flows and liquidity from the unused portion of commitments to provide credit cannot be reasonably predicted, as there is no guarantee the lines of credit will ever be used.
Effects of Inflation and Economic Issues
A financial institution’s asset and liability structure is substantially different from that of an industrial firm in that primarily all assets and liabilities of a bank are monetary in nature, with relatively little investment in fixed assets or inventories. Inflation has an important impact on the growth of total assets and the resulting need to increase equity capital at higher than normal levels in order to maintain an appropriate equity to assets ratio. Management believes that the impact of inflation on financial results depends on the Company’s ability to react to changes in interest rates and, by such reaction, reduce the inflationary impact on performance. Management has attempted to structure the mix of financial instruments and manage interest rate sensitivity in order to minimize the potential adverse effects of inflation or other market forces on net interest income and, therefore, earnings and capital.
San Luis Obispo and Santa Barbara Counties continue to have unemployment rates (8.5% and 7.9%, respectively, as of June 2012), that are not materially higher or lower than the nationwide rate of 8.2%, but are significantly below the California statewide seasonally-adjusted rate of 10.7%. San Luis Obispo County’s rate is down from a high of 10.6% early in 2010, while Santa Barbara County’s rate peaked at 10.1%. As unemployment increased during the Great Recession, real estate values declined significantly and, after several years of strong appreciation, residential and commercial sale activity—and especially construction activity—slowed dramatically. Although the economy appears to be improving slowly, there can be no assurance that growth in the local economy will accelerate or that real estate values will return to pre-2006 levels in the near term.
Page 46 of 52
Item 3. Quantitative and Qualitative Disclosures About Market Risk
Not applicable.
Item 4. Controls and Procedures
Evaluation of Disclosure Controls and Procedures
Disclosure controls and procedures are designed to ensure that information required to be disclosed by the Company in the reports it files or submits under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission’s rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed by the Company in the reports that it files under the Exchange Act is accumulated and communicated to management, including the principal executive officer and the principal financial officer, as appropriate to allow timely decisions regarding required disclosure.
Management had previously determined that the Company’s internal control over financial reporting as of December 31, 2011 was ineffective, resulting in the restatement of certain consolidated financial statements included in previous 1934 Act filings. The restated financial statements were filed on March 30, 2012. Specifically, management determined that the Company did not maintain effective control over the financial reporting process utilized to interpret applicable accounting literature for certain warrants and preferred stock, which resulted in a misstatement of shareholders’ equity and loss per share.
Remediation Efforts
The Company has been actively remediating this material weakness, focusing remediation efforts on establishing additional accounting and financial reporting processes when events or transactions occur outside of the Company’s usual and routine course of business. While we had processes in place to identify and apply changes in accounting standards, we enhanced these processes to better research and evaluate the nuances of complex accounting standards and their application to non-routine transactions. Additionally, we have improved training and communication among our accounting staff, our legal team, our consultants and our internal and external auditors. Management will continue to review and make necessary changes to the overall design of our internal control environment.
Page 47 of 52
Under the supervision of our management, including our principal executive officer and principal financial officer, the Company conducted, as of June 30, 2012, an assessment of the effectiveness of the design and operation of our disclosure controls and procedures. Based on that evaluation, our principal executive officer and the principal financial officer have concluded that our disclosure controls and procedures, as remediated, were effective as of June 30, 2012.
Changes in Internal Control Over Financial Reporting
Other than as mentioned above, there were no changes in our internal control over financial reporting during the quarter ended June 30, 2012, that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
PART II - OTHER INFORMATION
Item 1.
|
Legal Proceedings
|
There are no material legal proceedings to which the Company is a party or to which any of its property is subject.
Item 1A.
|
Risk Factors
|
Not applicable.
Item 2.
|
Unregistered Sales of Equity Securities and Use of Proceeds
|
None.
Item 3.
|
Defaults Upon Senior Securities
|
None.
Item 4.
|
Mine Safety Disclosures
|
Not applicable.
Item 5.
|
Other Information
|
None.
Page 48 of 52
Item 6.
|
Exhibits
|
Exhibit Index:
Exhibit #
|
||
2.1
|
Plan of Reorganization and Agreement of Merger dated as of October 4, 2000 (A)
|
|
3.1
|
Restated Articles of Incorporation (I)
|
|
3.2
|
Certificate of Amendment to Articles of Incorporation (L)
|
|
3.3
|
Certificate of Amendment to Articles of Incorporation (Y)
|
|
3.4
|
Amended and Restated Bylaws (DD)
|
|
4.1
|
Certificate of Determination for Series A Non-Voting Preferred Stock (B)
|
|
4.2
|
Certificate of Determination for Series B Non-Voting Preferred Stock (B)
|
|
4.3
|
Certificate of Determination for Series C Non-Voting Preferred Stock (D)
|
|
4.4
|
Indenture dated as of October 14, 2003 by and between Registrant and Wells Fargo Bank, National Association, as trustee (E)
|
|
4.5
|
Declaration of Trust of Mission Community Capital Trust I dated October 10, 2003 (E)
|
|
4.6
|
Amended and Restated Declaration of Trust of Mission Community Capital Trust I dated October 14, 2003 by and among the Registrant, Wells Fargo Delaware Trust Company, as Trustee, and Anita M. Robinson and William C. Demmin, as Administrators (E)
|
|
4.7
|
Guarantee Agreement dated October 14, 2003 between Registrant, as Guarantor, and Wells Fargo Bank, National Association, as Guarantee Trustee (E)
|
|
4.8
|
Certificate of Determination for Series D Preferred Stock (R)
|
|
4.9
|
Form of Common Stock Purchase Warrant (Z)
|
|
4.10
|
Form of Warrant Agreement for warrants issued pursuant to subscription rights (AA)
|
|
4.11
|
Form of Warrant Issued to Replace Warrants Issued in 2010 Private Placement (EE)
|
|
4.12
|
Form of Warrant Issued to Replace Warrants Issued in 2011 Private Placement (EE)
|
|
4.13
|
Amended and Restated Declaration of Trust, dated as of April 28, 2006, of Santa Lucia Bancorp (CA) Capital Trust (FF)
|
|
4.14
|
Indenture dated as of April 28, 2006, between Wells Fargo Bank, National Association, as Trustee, and Santa Lucia Bancorp (FF)
|
|
4.15
|
First Supplemental Indenture dated as of October 21, 2011 between Wells Fargo Bank, National Association, as trustee, and Mission Community Bancorp (FF)
|
|
10.1
|
Purchase and Sale Agreement and Lease dated January, 1997, as amended (B)
|
|
10.2
|
Intentionally omitted
|
|
10.3
|
Lease Agreement – Paso Robles (B)
|
|
10.4
|
Lease Agreement – Arroyo Grande (B)
|
|
10.5
|
1998 Stock Option Plan, as amended (B)
|
|
10.6
|
Lease Agreement – 569 Higuera, San Luis Obispo (D)
|
|
10.7
|
Intentionally omitted
|
|
10.8
|
Lease Agreement – 3480 S. Higuera, San Luis Obispo (F)
|
|
10.9
|
Salary Protection Agreement — Mr. Pigeon (G)
|
|
10.10
|
Intentionally omitted
|
Page 49 of 52
Exhibit #
|
||
10.11
|
Employment Agreement dated June 3, 2007 between Brooks Wise and Mission Community Bank (J)
|
|
10.12
|
Financial Advisory Services Agreement dated January 4, 2007 between the Company and Seapower Carpenter Capital, Inc. (K)
|
|
10.13
|
Build-to-Suit Lease Agreement between Walter Bros. Construction Co., Inc. and Mission Community Bank for property at South Higuera Street and Prado Road in San Luis Obispo, California (N)
|
|
10.14
|
Lease Agreement – 1670 South Broadway, Santa Maria (O)
|
|
10.15
|
Mission Community Bancorp 2008 Stock Incentive Plan (P)
|
|
10.16
|
Amendment No. 1 to Second Amended and Restated Employment Agreement dated December 29, 2008 by and among Mission Community Bancorp, Mission Community Bank, and Anita M. Robinson (Q)
|
|
10.17
|
Amendment No. 1 to Employment Agreement dated December 29, 2008 by and among Mission Community Bancorp, Mission Community Bank, and Brooks W. Wise (Q)
|
|
10.18
|
Amended and Restated Salary Protection Agreement dated December 29, 2008 by and between Mission Community Bank and Ronald B. Pigeon (Q)
|
|
10.19
|
Letter Agreement dated January 9, 2009 between Mission Community Bancorp and the United States Department of Treasury, which includes the Securities Purchase Agreement—Standard Terms attached thereto, with respect to the issuance and sale of the Series D Preferred Stock (R)
|
|
10.20
|
Side Letter Agreement dated January 9, 2009 amending the Stock Purchase Agreement between Mission Community Bancorp and the Department of the Treasury (R)
|
|
10.21
|
Side Letter Agreement dated January 9, 2009 between Mission Community Bancorp and The Department of the Treasury regarding maintenance of two open seats on the Board of Directors (R)
|
|
10.22
|
Side Letter Agreement dated January 9, 2009 between Mission Community Bancorp and The Department of the Treasury regarding CDFI status (R)
|
|
10.23
|
Securities Purchase Agreement dated December 22, 2009 between the Company and Carpenter Fund Manager GP, LLC (“Securities Purchase Agreement”) (U)
|
|
10.24
|
Amendment No. 1 to Securities Purchase Agreement dated March 17, 2010 (V)
|
|
10.25
|
Amendment No. 2 to Employment Agreement of Brooks Wise dated March 22, 2010 (W)
|
|
10.26
|
Amendment No. 2 to Securities Purchase Agreement dated March 17, 2010 (X)
|
|
10.27
|
Employment Agreement dated July 1, 2010 between James W. Lokey and Mission Community Bancorp (Y)
|
|
10.28
|
Agreement and Plan of Merger dated as of June 24, 2011 by and among Carpenter Fund Manager GP, LLC; Mission Community Bancorp; Mission Community Bank; Santa Lucia Bancorp and Santa Lucia Bank (BB)
|
|
10.29
|
2011 Equity Incentive Plan (CC)
|
|
31.1
|
Certification of CEO pursuant to Section 302 of Sarbanes Oxley Act
|
|
31.2
|
Certification of CFO pursuant to Section 302 of Sarbanes Oxley Act
|
|
32.1
|
Certification of CEO pursuant to Section 906 of Sarbanes Oxley Act
|
|
32.2
|
Certification of CFO pursuant to Section 906 of Sarbanes Oxley Act
|
(A)
|
Included in the Company’s Form 8-K filed on December 18, 2000, and incorporated by reference herein. | ||
(B)
|
Included in the Company’s Form 10-KSB filed on April 2, 2001, and incorporated by reference herein. | ||
(C)
|
Included in the Company’s Form 10-QSB filed August 12, 2002, and incorporated by reference herein. | ||
(D) |
Included in the Company’s Form 10-QSB filed on November 12, 2002, and incorporated by reference herein.
|
||
(E)
|
Included in the Company’s Form 8-K filed on October 21, 2003, and incorporated by reference herein. | ||
(F)
|
Included in the Company’s Form 10-QSB filed on August 10, 2004, and incorporated by reference herein.
|
||
(G)
|
Included in the Company’s Form 8-K filed on January 19, 2005, and incorporated by reference herein.
|
||
(H)
|
Intentionally omitted
|
Page 50 of 52
(I)
|
Included in the Company’s Form 10-QSB filed on August 14, 2006, and incorporated by reference herein.
|
||
(J)
|
Included in the Company’s Form 8-K filed on June 13, 2007, and incorporated by reference herein.
|
||
(K)
|
Included in the Form SB-2 Registration Statement of the Company filed on June 13, 2007, and incorporated by reference herein.
|
||
(L)
|
Included in Pre-Effective Amendment No. 1 to the Form SB-2 Registration Statement of the Company filed on July 24, 2007, and incorporated by reference herein.
|
||
(M)
|
Included in the Company’s Form 8-K filed on August 14, 2007, and incorporated by reference herein.
|
||
(N)
|
Included in the Company’s Form 8-K filed on October 23, 2007, and incorporated by reference herein.
|
||
(O)
|
Included in the Company’s Form 10-KSB filed on March 28, 2008, and incorporated by reference herein.
|
||
(P)
|
Included in the Company’s Form 10-Q filed on May 15, 2008, and incorporated by reference herein.
|
||
(Q)
|
Included in the Company’s Form 8-K filed on December 30, 2008, and incorporated by reference herein.
|
||
(R)
|
Included in the Company’s Form 8-K filed on January 14, 2009, and incorporated by reference herein.
|
||
(S)
|
Included in the Company’s Form 10-Q filed on August 14, 2009, and incorporated by reference herein.
|
||
(T)
|
Included in the Company’s Form 10-K filed on March 16, 2009, and incorporated by reference herein.
|
||
(U)
|
Included in the Company’s From 8-K filed on December 24, 2009, and incorporated by reference herein.
|
||
(V)
|
Included in the Company’s Form 8-K filed on March 22, 2010, and incorporated by reference herein.
|
||
(W)
|
Included in the Company’s Form 8-K filed on March 26, 2010, and incorporated by reference herein.
|
||
(X)
|
Included in the Company’s Form 8-K filed on June 1, 2010, and incorporated by reference herein.
|
||
(Y)
|
Included in the Company’s Form 8-K filed on August 2, 2010, and incorporated by reference herein.
|
||
(Z)
|
Included in the Company’s Form S-1 Registration Statement filed on August 31, 2010, and incorporated by reference herein.
|
||
(AA)
|
Included in Amendment No. 1 to the Company’s Form S-1 Registration Statement filed on October 1, 2010, and incorporated by reference herein.
|
||
(BB)
|
Included in the Company’s Form 8-K filed on June 27, 2011, and incorporated by reference herein.
|
||
(CC)
|
Included in the Company’s Form 8-K filed on September 30, 2011, and incorporated by reference herein.
|
||
(DD)
|
Included in the Company's Form 8-K filed on March 29, 2012, and incorporated herein by reference.
|
||
(EE)
|
Included in the Company's Form 8-K on filed on March 26, 2012, and incorporated herein by reference.
|
||
(FF)
|
Included in the Company's Form 8-K filed on October 27, 2012, and incorporated herein by reference.
|
Page 51 of 52
Signatures
Pursuant to the requirements of Section 13 of the Securities Exchange Act of 1934, the Company has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
MISSION COMMUNITY BANCORP
By: /s/ James W. Lokey
JAMES W. LOKEY
Chairman and Chief Executive Officer
Dated: August 7, 2012
By: /s/ Mark R. Ruh
MARK R. RUH
Executive Vice President and Chief Financial Officer
Dated: August 7, 2012
Page 52 of 52