Attached files
file | filename |
---|---|
EX-31.1 - EXHIBIT 31.1 - FNB BANCORP/CA/ | ex31_1.htm |
EX-31.2 - EXHIBIT 31.2 - FNB BANCORP/CA/ | ex31_2.htm |
EX-32 - EXHIBIT 32 - FNB BANCORP/CA/ | ex32.htm |
EXCEL - IDEA: XBRL DOCUMENT - FNB BANCORP/CA/ | Financial_Report.xls |
SECURITIES AND EXCHANGE COMMISSION
Washington D.C. 20549
FORM 10-Q
Quarterly Report
Pursuant to Section 13 or 15(d) of
the Securities Exchange Act of 1934
For the Quarterly Period Ended September 30, 2014
FNB BANCORP
(Exact name of registrant as specified in its charter)
California
(State or other jurisdiction of incorporation)
000-49693 | 91-2115369 | |
(Commission File Number) | (IRS Employer Identification No.) |
975 El Camino Real, South San Francisco, California | 94080 | |
(Address of principal executive offices) | (Zip Code) |
Registrant’s telephone number, including area code: (650) 588-6800
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x No o
Indicate by check mark whether the registrant has submitted electronically and posted on its Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). x 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. (Check one):
Large accelerated filer o | Accelerated filer o | |
Non-accelerated filer x | Smaller reporting company o |
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes o No x
Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date: Common Stock as of October 31, 2014: 4,051,424 shares.
FNB BANCORP
QUARTERLY REPORT ON FORM 10-Q
TABLE OF CONTENTS
2 |
Item 1. | Financial Statements. |
FNB BANCORP AND SUBSIDIARY
(UNAUDITED)
ASSETS
September 30, | December 31, | |||||||
(Dollar amounts in thousands) | 2014 | 2013 | ||||||
Cash and due from banks | $ | 15,220 | $ | 14,007 | ||||
Interest-bearing time deposits with financial institutions | 4,068 | 5,543 | ||||||
Securities available-for-sale, at fair value | 267,924 | 263,988 | ||||||
Loans, net of allowance for loan losses of $10,774 and $9,879 on September 30, 2014 and December 31, 2013 | 568,533 | 552,343 | ||||||
Bank premises, equipment, and leasehold improvements, net | 12,239 | 12,512 | ||||||
Bank owned life insurance | 12,424 | 12,151 | ||||||
Other equity securities | 5,769 | 5,300 | ||||||
Accrued interest receivable | 3,670 | 3,808 | ||||||
Other real estate owned, net | 755 | 5,318 | ||||||
Goodwill | 1,841 | 1,841 | ||||||
Prepaid expenses | 444 | 701 | ||||||
Other assets | 14,535 | 14,418 | ||||||
Total assets | $ | 907,422 | $ | 891,930 | ||||
LIABILITIES AND STOCKHOLDERS’ EQUITY | ||||||||
Deposits | ||||||||
Demand, noninterest bearing | 209,407 | 198,523 | ||||||
Demand, interest bearing | 74,789 | 80,746 | ||||||
Savings and money market | 393,929 | 370,194 | ||||||
Time | 104,031 | 124,152 | ||||||
Total deposits | 782,156 | 773,615 | ||||||
Federal Home Loan Bank advances | 16,000 | 15,000 | ||||||
Note payable | 5,700 | — | ||||||
Accrued expenses and other liabilities | 10,974 | 9,066 | ||||||
Total liabilities | 814,830 | 797,681 | ||||||
Stockholders’ equity | ||||||||
Preferred stock - series C - no par value, authorized and outstanding 9,450 shares on December 31, 2013 (liquidation preference of $1,000 per share) | — | 9,450 | ||||||
Common stock, no par value, authorized 10,000,000 shares; issued and outstanding 4,051,127 shares at September 30, 2014 and 3,978,505 shares at December 31, 2013 | 61,114 | 59,317 | ||||||
Retained earnings | 30,560 | 26,738 | ||||||
Accumulated other comprehensive earnings (loss), net of tax | 918 | (1,256 | ) | |||||
Total stockholders’ equity | 92,592 | 94,249 | ||||||
Total liabilities and stockholders’ equity | $ | 907,422 | $ | 891,930 |
See accompanying notes to consolidated financial statements.
3 |
FNB BANCORP AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF EARNINGS
(UNAUDITED)
(Dollar amounts and average shares are in thousands, except earnings per share amounts)
Three months ended | Nine months ended | |||||||||||||||
September 30, | September 30, | |||||||||||||||
2014 | 2013 | 2014 | 2013 | |||||||||||||
Interest income: | ||||||||||||||||
Interest and fees on loans | $ | 7,899 | $ | 7,808 | $ | 23,423 | $ | 23,986 | ||||||||
Interest on taxable securities | 883 | 911 | 2,577 | 2,389 | ||||||||||||
Interest on tax-exempt securities | 498 | 505 | 1,478 | 1,514 | ||||||||||||
Interest time deposits with other financial institutions | 20 | 35 | 66 | 125 | ||||||||||||
Total interest income | 9,300 | 9,259 | 27,544 | 28,014 | ||||||||||||
Interest expense: | ||||||||||||||||
Interest on deposits | 472 | 555 | 1,417 | 1,876 | ||||||||||||
Interest on Federal Home Loan Bank advances | 3 | 5 | 14 | 5 | ||||||||||||
Interest on note payable | 63 | — | 131 | — | ||||||||||||
Total interest expense | 538 | 560 | 1,562 | 1,881 | ||||||||||||
Net interest income | 8,762 | 8,699 | 25,982 | 26,133 | ||||||||||||
Provision for loan losses | — | 225 | 75 | 1,335 | ||||||||||||
Net interest income after provision for loan losses | 8,762 | 8,474 | 25,907 | 24,798 | ||||||||||||
Noninterest income: | ||||||||||||||||
Service charges | 644 | 658 | 1,928 | 1,993 | ||||||||||||
Net gain on sale of available-for-sale securities | 100 | 37 | 139 | 152 | ||||||||||||
Bank-owned life insurance earnings | 86 | 90 | 273 | 279 | ||||||||||||
Other income | 211 | 193 | 727 | 622 | ||||||||||||
Total noninterest income | 1,041 | 978 | 3,067 | 3,046 | ||||||||||||
Noninterest expense: | ||||||||||||||||
Salaries and employee benefits | 4,241 | 4,099 | 12,636 | 12,827 | ||||||||||||
Occupancy expense | 704 | 812 | 2,078 | 2,620 | ||||||||||||
Equipment expense | 405 | 387 | 1,202 | 1,171 | ||||||||||||
Professional fees | 395 | 405 | 1,427 | 1,212 | ||||||||||||
FDIC assessment | 165 | 180 | 525 | 540 | ||||||||||||
Telephone, postage and supplies | 284 | 271 | 883 | 985 | ||||||||||||
Advertising | 118 | 70 | 339 | 363 | ||||||||||||
Data processing expense | 151 | 163 | 430 | 489 | ||||||||||||
Low income housing expense | 109 | 110 | 329 | 329 | ||||||||||||
Surety insurance | 68 | 77 | 202 | 198 | ||||||||||||
Directors expense | 63 | 63 | 189 | 189 | ||||||||||||
Gain on sale of other real estate owned, net | — | — | (220 | ) | — | |||||||||||
Other real estate owned expense, net | — | 22 | 87 | 100 | ||||||||||||
Other expense | 352 | 291 | 1,000 | 1,051 | ||||||||||||
Total noninterest expense | 7,055 | 6,950 | 21,107 | 22,074 | ||||||||||||
Earnings before provision (benefit) for income taxes | 2,748 | 2,502 | 7,867 | 5,770 | ||||||||||||
Provision (benefit) for income taxes | 925 | (629 | ) | 2,581 | 330 | |||||||||||
Net earnings | 1,823 | 3,131 | 5,286 | 5,440 | ||||||||||||
Dividends and discount accretion on preferred stock | — | 251 | 170 | 581 | ||||||||||||
Net earnings available to common stockholders | $ | 1,823 | $ | 2,880 | $ | 5,116 | $ | 4,859 | ||||||||
Earnings per share data: | ||||||||||||||||
Basic | $ | 0.45 | $ | 0.73 | $ | 1.27 | $ | 1.24 | ||||||||
Diluted | $ | 0.44 | $ | 0.71 | $ | 1.23 | $ | 1.21 | ||||||||
Weighted average shares outstanding: | ||||||||||||||||
Basic | 4,048 | 3,949 | 4,021 | 3,922 | ||||||||||||
Diluted | 4,175 | 4,045 | 4,156 | 4,015 |
See accompanying notes to consolidated financial statements.
4 |
FNB BANCORP AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF COMPREHENSIVE EARNINGS
(UNAUDITED)
(Dollar amounts in thousands) | Three months ended | Nine months ended | ||||||||||||||
September 30, | September 30, | |||||||||||||||
2014 | 2013 | 2014 | 2013 | |||||||||||||
Net earnings | $ | 1,823 | $ | 3,131 | $ | 5,286 | $ | 5,440 | ||||||||
Unrealized holding (loss) gain on available-for-sale securities, net of tax benefit (expense) of $185 and ($1,567) for three and nine months ended September 30, 2014, and net of tax benefit of $19 and $3,093 for three and nine months ended September 30, 2013 | (266 | ) | (27 | ) | 2,256 | (4,450 | ) | |||||||||
Reclassification adjustment for gain on available-for-sale securities sold, net of tax of $41 and $57 for three and nine months ended September 30, 2014, and $15 and $62 for three and nine months ended September 30, 2013, respectively | (59 | ) | (22 | ) | (82 | ) | (90 | ) | ||||||||
Other comprehensive (loss) earnings | (325 | ) | (49 | ) | 2,174 | (4,540 | ) | |||||||||
Total comprehensive earnings | $ | 1,498 | $ | 3,082 | $ | 7,460 | $ | 900 |
See accompanying notes to consolidated financial statements.
5 |
FNB BANCORP AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
(Dollar amounts in thousands) | Nine months ended | |||||||
September 30 | ||||||||
2014 | 2013 | |||||||
Cash flow from operating activities: | ||||||||
Net earnings | $ | 5,286 | $ | 5,440 | ||||
Adjustments to reconcile net earnings to net cash provided by operating activities: | ||||||||
Net gain on sale of securities available-for-sale | (139 | ) | (152 | ) | ||||
Depreciation, amortization and accretion | 2,599 | 2,803 | ||||||
Gain on sale of other real estate owned | (220 | ) | — | |||||
Stock-based compensation expense | 208 | 192 | ||||||
Earnings on bank owned life insurance | (273 | ) | (279 | ) | ||||
Change in net deferred loan fees | (54 | ) | 382 | |||||
Provision for loan losses | 75 | 1,335 | ||||||
Decrease (Increase) in accrued interest receivable | 138 | (95 | ) | |||||
Decrease in prepaid expense | 257 | 631 | ||||||
Increase in other assets | (117 | ) | (319 | ) | ||||
Increase in accrued expenses and other liabilities | 409 | 1,478 | ||||||
Net cash provided by operating activities | 8,169 | 11,416 | ||||||
Cash flows from investing activities | ||||||||
Purchase of securities available-for-sale | (32,703 | ) | (93,256 | ) | ||||
Proceeds from matured/called/sold securities available-for-sale | 30,893 | 33,180 | ||||||
Net (investment) redemption, in other equity securities | (469 | ) | 164 | |||||
Maturities of time deposits of other banks | 1,475 | 6,237 | ||||||
Proceeds from sale of other real estate owned | 1,461 | — | ||||||
Net investment in other real estate owned | (78 | ) | (25 | ) | ||||
Net increase in loans | (12,811 | ) | (18,318 | ) | ||||
Purchases of bank premises, equipment, leasehold improvements | (629 | ) | (873 | ) | ||||
Proceeds from sale of equipment | — | 13 | ||||||
Net cash used in investing activities | (12,861 | ) | (72,878 | ) |
See accompanying notes to consolidated financial statements.
6 |
FNB BANCORP AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
(Dollar amounts in thousands) | Nine months ended | |||||||
September 30 | ||||||||
2014 | 2013 | |||||||
Cash flows from financing activities | ||||||||
Net increase in demand and savings deposits | 28,662 | 53,469 | ||||||
Net decrease in time deposits | (20,121 | ) | (40,697 | ) | ||||
Increase in FHLB advances | 1,000 | 42,780 | ||||||
Proceeds from notes payable | 6,000 | — | ||||||
Payment on notes payable | (300 | ) | — | |||||
Dividends paid on common stock | (848 | ) | (677 | ) | ||||
Exercise of stock options | 1,132 | 693 | ||||||
Redemption of preferred stock series C | (9,450 | ) | (3,150 | ) | ||||
Dividends paid on preferred stock series C | (170 | ) | (449 | ) | ||||
Net cash provided by financing activities | 5,905 | 51,969 | ||||||
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS | 1,213 | (9,493 | ) | |||||
Cash and cash equivalents at beginning of period | 14,007 | 27,861 | ||||||
Cash and cash equivalents at end of period | $ | 15,220 | $ | 18,368 | ||||
Additional cash flow information: | ||||||||
Interest paid | $ | 1,568 | $ | 1,977 | ||||
Income taxes paid | 2,387 | 575 | ||||||
Tax benefit on exercise of stock options | 457 | 164 | ||||||
Non-cash investing and financing activities: | ||||||||
Accrued dividends | 446 | 376 | ||||||
Change in unrealized gain in available for-sale securities, net of tax | 2,174 | (4,540 | ) | |||||
OREO sales funded by loan origination | 3,400 | — |
See accompanying notes to consolidated financial statements.
7 |
FNB BANCORP AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2014
(UNAUDITED)
NOTE A – BASIS OF PRESENTATION
FNB Bancorp (the “Company”) is a bank holding company registered under the Bank Holding Company Act of 1956, as amended. The Company was incorporated under the laws of the State of California on February 28, 2001. The consolidated financial statements include the accounts of FNB Bancorp and its wholly-owned subsidiary, First National Bank of Northern California (the “Bank”). The Bank provides traditional banking services in San Mateo and San Francisco counties.
All intercompany transactions and balances have been eliminated in consolidation. The financial statements include all adjustments of a normal and recurring nature, which are, in the opinion of management, necessary for a fair presentation of the financial position and results of operations for the periods presented.
The accompanying unaudited consolidated financial statements have been prepared in accordance with the instructions to Form 10-Q and, therefore, do not include all information and footnotes normally included in annual financial statements prepared in conformity with accounting principles generally accepted in the United States of America. Accordingly, these consolidated financial statements should be read in conjunction with the consolidated audited financial statements and notes thereto for the year ended December 31, 2013. Results of operations for interim periods are not necessarily indicative of results for the full year.
NOTE B – STOCK OPTION PLANS
Stock option expense is recorded based on the fair value of option contracts issued. The fair value is determined by the expected contract term, the risk free interest rate, the volatility of the Company’s stock price and the level of dividends the Company is expected to pay.
The expected term of options granted is derived from historical plan behavior and represents the period of time that options granted are expected to be outstanding. The risk-free rate for periods within the contractual life of the option is based on the U. S. Treasury yield curve in effect at the time of the grant.
The amount of compensation expense for options recorded in the quarter ended September 30, 2014 was $69,000 and $71,000 for the quarter ended September 30, 2013. There was an income tax benefit of $24,000 for the quarter ended September 30, 2014 and an income tax benefit of $43,000 quarter ended September 30, 2013. The amount of compensation expense for options recorded in the nine months ended September 30, 2014 and September 30, 2013 was $208,000 and $192,000, respectively. There was an income tax benefit of $457,000 and $164,000 for the nine months ended September 30, 2014 and September 30, 2013, respectively.
8 |
The intrinsic value for options exercised during the three months ended September 30, 2014 was $32,000. The intrinsic value for options exercised during the nine months ended September 30, 2014 was $848,000. The intrinsic value for options exercised during the nine months ended September 30, 2013 was $577,000. The intrinsic value for options exercised during the three months ended September 30, 2013 was $6,000. There were no options granted for the first nine months ended September 30, 2014. There were 60,785 options granted for the nine months ended September 30, 2013.
The amount of total unrecognized compensation expense related to non-vested options at September 30, 2014 was $688,000, and the weighted average period over which it will be amortized is 3.4 years.
NOTE C – EARNINGS PER SHARE CALCULATION
Earnings per common share (EPS) are computed based on the weighted average number of common shares outstanding during the period. Basic EPS excludes dilution and is computed by dividing net earnings available to common stockholders (after deducting dividends and related accretion on preferred stock) by the weighted average of common shares outstanding. Diluted EPS reflects the potential dilution that could occur if securities or other contracts to issue common stock were exercised or converted into common stock. The number of potential common shares included in the quarterly diluted EPS is computed using the average market price during the three months included in the reporting period under the treasury stock method. The number of potential common shares included in year-to-date diluted EPS is a year-to-date weighted average of potential shares included in each quarterly diluted EPS computation. All common stock equivalents are anti-dilutive when a net loss occurs. A 5% stock dividend was declared in the fourth quarter of 2013, and prior per share amounts have been adjusted to reflect the 5% stock dividend.
Earnings per share have been computed based on the following:
(All amounts in thousands) | Three months ended | Nine months ended | ||||||||||||||
September 30, | September 30, | |||||||||||||||
2014 | 2013 | 2014 | 2013 | |||||||||||||
Net earnings | $ | 1,823 | $ | 3,131 | $ | 5,286 | $ | 5,440 | ||||||||
Dividends and discount accretion on preferred stock | — | 251 | 170 | 581 | ||||||||||||
Net earnings available to common shareholders | $ | 1,823 | $ | 2,880 | $ | 5,116 | $ | 4,859 | ||||||||
Average number of shares outstanding | 4,048 | 3,949 | 4,021 | 3,922 | ||||||||||||
Effect of dilutive options | 127 | 96 | 135 | 93 | ||||||||||||
Average number of shares outstanding used to calculate diluted earnings per share | 4,175 | 4,045 | 4,156 | 4,015 | ||||||||||||
Anti-dilutive options not included | 62 | 132 | 62 | 198 |
9 |
NOTE D – SECURITIES AVAILABLE FOR SALE
The amortized cost and fair values of securities available-for-sale are as follows:
(Dollar amounts in thousands) | Amortized | Unrealized | Unrealized | Fair | ||||||||||||
cost | gains | losses | value | |||||||||||||
September 30, 2014 | ||||||||||||||||
U.S. Treasury securities | $ | 3,973 | $ | — | $ | (42 | ) | $ | 3,931 | |||||||
Obligations of U.S. government agencies | 65,287 | 293 | (419 | ) | 65,161 | |||||||||||
Mortgage-backed securities | 81,890 | 752 | (1,297 | ) | 81,345 | |||||||||||
Obligations of states and political subdivisions | 80,206 | 2,521 | (233 | ) | 82,494 | |||||||||||
Corporate debt | 35,011 | 229 | (247 | ) | 34,993 | |||||||||||
$ | 266,367 | $ | 3,795 | $ | (2,238 | ) | $ | 267,924 | ||||||||
December 31, 2013: | ||||||||||||||||
U.S. Treasury securities | $ | 3,069 | $ | 12 | $ | (54 | ) | $ | 3,027 | |||||||
Obligations of U.S. government agencies | 73,691 | 488 | (860 | ) | 73,319 | |||||||||||
Mortgage-backed securities | 79,873 | 360 | (2,373 | ) | 77,860 | |||||||||||
Obligations of states and political subdivisions | 82,526 | 1,467 | (1,317 | ) | 82,676 | |||||||||||
Corporate debt | 26,958 | 330 | (182 | ) | 27,106 | |||||||||||
$ | 266,117 | $ | 2,657 | $ | (4,786 | ) | $ | 263,988 |
An analysis of gross unrealized losses of the available-for-sale investment securities portfolio as of September 30, 2014 and December 31, 2013 follows:
(Dollar amounts in thousands) | Less than | 12 Months | ||||||||||||||||||||||
Total | 12 Months | Total | or Longer | Total | Total | |||||||||||||||||||
Fair | Unrealized | Fair | Unrealized | Fair | Unrealized | |||||||||||||||||||
Value | Losses | Value | Losses | Value | Losses | |||||||||||||||||||
September 30,2014 | ||||||||||||||||||||||||
U.S. Treasury securities | $ | 1,924 | $ | (2 | ) | $ | 2,007 | $ | (40 | ) | $ | 3,931 | $ | (42 | ) | |||||||||
Obligations of U.S. Government agencies | 14,334 | (56 | ) | 23,057 | (363 | ) | 37,391 | (419 | ) | |||||||||||||||
Mortgage-backed securities | 12,737 | (98 | ) | 41,249 | (1,199 | ) | 53,986 | (1,297 | ) | |||||||||||||||
Obligations of states and political subdivisions | 4,517 | (43 | ) | 10,473 | (190 | ) | 14,990 | (233 | ) | |||||||||||||||
Corporate debt | 13,540 | (174 | ) | 6,892 | (73 | ) | 20,432 | (247 | ) | |||||||||||||||
Total | $ | 47,052 | $ | (373 | ) | $ | 17,365 | $ | (1,865 | ) | $ | 130,730 | $ | (2,238 | ) |
10 |
(Dollar amounts in thousands) | Less than | 12 Months | ||||||||||||||||||||||
Total | 12 Months | Total | or Longer | Total | Total | |||||||||||||||||||
Fair | Unrealized | Fair | Unrealized | Fair | Unrealized | |||||||||||||||||||
Value | Losses | Value | Losses | Value | Losses | |||||||||||||||||||
December 31, 2013: | ||||||||||||||||||||||||
U. S. Treasury securities | $ | 2,002 | $ | (54 | ) | $ | — | $ | — | $ | 2,002 | $ | (54 | ) | ||||||||||
Obligations of U.S. Government agencies | 40,108 | (860 | ) | — | — | 40,108 | (860 | ) | ||||||||||||||||
Mortgage-backed securities | 51,419 | (2,015 | ) | 5,664 | (358 | ) | 57,083 | (2,373 | ) | |||||||||||||||
Obligations of states and political subdivisions | 33,265 | (1,248 | ) | 1,083 | (69 | ) | 34,348 | (1,317 | ) | |||||||||||||||
Corporate debt | 10,857 | (180 | ) | 498 | (2 | ) | 11,355 | (182 | ) | |||||||||||||||
Total | $ | 137,651 | $ | (4,357 | ) | $ | 7,245 | $ | (429 | ) | $ | 144,896 | $ | (4,786 | ) |
At September 30, 2014, there were sixty securities in an unrealized loss position for greater than twelve consecutive months. Management periodically evaluates each security in an unrealized loss position to determine if the impairment is temporary or other-than-temporary. Management reviews market rates, the entity’s financial condition and any relevant news items or legal/tax/ regulatory changes. The unrealized losses are due solely to interest rate changes and the Company does not intend to sell nor expects it will be required to sell investment securities identified with impairments prior to the earliest of forecasted recovery or the maturity of the underlying investment security. Management has determined that no investment security was other-than-temporarily impaired at September 30, 2014 and December 31, 2013.
The amortized cost and carrying value of available-for-sale debt securities as of September 30, 2014 by contractual maturity, are shown below. Expected maturities may differ from contractual maturities because borrowers may have the right to call or prepay obligations with or without call or prepayment penalties.
September 30, 2014:
(Dollar amounts in thousands) | Amortized | Fair | ||||||
Cost | Value | |||||||
Available-for-sale: | ||||||||
Due in one year or less | $ | 10,271 | $ | 10,360 | ||||
Due after one through five years | 114,769 | 115,007 | ||||||
Due after five years through ten years | 103,673 | 104,740 | ||||||
Due after ten years | 37,654 | 37,817 | ||||||
$ | 266,367 | $ | 267,924 |
For the nine months ended September 30, 2014, gross realized gains amounted to $151,000 on securities sold for $10,505,000. For the nine months ended September 30, 2013, gross realized gains amounted to $152,000 on securities sold for $12,428,000. For the nine months ended September 30, 2014, there were $12,000 gross realized losses on securities sold for $2,109,000, but for the nine months ended September 30, 2013, there were no gross realized losses. For the three months ended September 30, 2014, gross realized gains amounted to $112,000 on securities sold for $5,219,000. For the three months ended September 30, 2013, gross realized gains were $37,000 on securities sold for $4,118,000.
11 |
For the three months ended September 30, 2014, gross realized losses were $12,000 on securities sold for $1,849,000. For the three months ended September 30, 2013, there were no gross realized losses.
At September 30, 2014, securities with an amortized cost of $65,066,000 and fair value of $65,711,000 were pledged as collateral for public deposits and for other purposes required by law.
NOTE E - LOANS
Loans are summarized as follows at September 30, 2014 and December 31, 2013:
(Dollar amounts in thousands) | Total | |||||||||||||||
FNB | Balance | |||||||||||||||
Bancorp | September 30, | |||||||||||||||
September 30, 2014: | Originated | PNCI | PCI | 2014 | ||||||||||||
Commercial real estate | $ | 286,295 | $ | 33,076 | $ | 1,323 | $ | 320,694 | ||||||||
Real estate construction | 32,738 | 1,963 | — | 34,701 | ||||||||||||
Real estate multi-family | 43,219 | 10,502 | — | 53,721 | ||||||||||||
Real estate 1 to 4 family | 114,218 | 6,015 | — | 120,233 | ||||||||||||
Commercial & industrial | 39,739 | 9,177 | — | 48,916 | ||||||||||||
Consumer loans | 1,483 | — | — | 1,483 | ||||||||||||
Gross loans | 517,692 | 60,733 | 1,323 | 579,748 | ||||||||||||
Net deferred loan fees | (441 | ) | — | — | (441 | ) | ||||||||||
Allowance for loan losses | (10,774 | ) | — | — | (10,774 | ) | ||||||||||
Net loans | $ | 506,477 | $ | 60,733 | $ | 1,323 | $ | 568,533 |
PNCI = purchased, not credit impaired
PCI = purchased, credit impaired
Total | ||||||||||||||||
FNB | Balance | |||||||||||||||
Bancorp | December 31 | |||||||||||||||
(Dollar amounts in thousands) | Originated | PNCI | PCI | 2013 | ||||||||||||
Commercial real estate | $ | 285,938 | $ | 37,936 | $ | 1,325 | $ | 325,199 | ||||||||
Real estate construction | 31,290 | 3,028 | — | 34,318 | ||||||||||||
Real estate multi-family | 34,357 | 11,786 | — | 46,143 | ||||||||||||
Real estate 1 to 4 family | 98,196 | 8,707 | — | 106,903 | ||||||||||||
Commercial & industrial | 38,287 | 10,217 | — | 48,504 | ||||||||||||
Consumer loans | 1,650 | — | — | 1,650 | ||||||||||||
Gross loans | 489,718 | 71,674 | 1,325 | 562,717 | ||||||||||||
Net deferred loan fees | (495 | ) | — | — | (495 | ) | ||||||||||
Allowance for loan losses | (9,869 | ) | (10 | ) | — | (9,879 | ) | |||||||||
Net loans | $ | 479,354 | $ | 71,664 | $ | 1,325 | $ | 552,343 |
PNCI = purchased, not credit impaired
PCI = purchased, credit impaired
12 |
Allowance for Credit Losses | ||||||||||||||||||||||||||||
For the Three Months Ended September 30, 2014 | ||||||||||||||||||||||||||||
(Dollar amounts in thousands) | ||||||||||||||||||||||||||||
Real | Real | |||||||||||||||||||||||||||
Estate | Estate | |||||||||||||||||||||||||||
Commercial | Real Estate | Multi | 1 to | Commercial | ||||||||||||||||||||||||
Real estate | Construction | family | 4 family | & industrial | Consumer | Total | ||||||||||||||||||||||
Allowance for credit losses | ||||||||||||||||||||||||||||
Beginning balance | $ | 6,215 | $ | 717 | $ | 465 | $ | 2,250 | $ | 1,166 | $ | 46 | $ | 10,859 | ||||||||||||||
Provision | — | — | — | — | — | — | — | |||||||||||||||||||||
Charge-offs | (83 | ) | — | — | — | (17 | ) | (6 | ) | (106 | ) | |||||||||||||||||
Recoveries | 5 | — | — | 1 | 14 | 1 | 21 | |||||||||||||||||||||
Ending balance | $ | 6,632 | $ | 567 | $ | 263 | $ | 2,058 | $ | 1,190 | $ | 64 | $ | 10,774 | ||||||||||||||
Ending balance: individually evaluated for impairment | $ | 111 | $ | — | $ | — | $ | 429 | $ | 177 | $ | — | $ | 717 | ||||||||||||||
Ending balance: collectively evaluated for impairment | $ | 6,521 | $ | 567 | $ | 263 | $ | 1,629 | $ | 1,013 | $ | 64 | $ | 10,057 | ||||||||||||||
Allowance for Credit Losses | ||||||||||||||||||||||||||||
For the Nine Months Ended September 30, 2014 | ||||||||||||||||||||||||||||
(Dollar amounts in thousands) | ||||||||||||||||||||||||||||
Real | Real | |||||||||||||||||||||||||||
Estate | Estate | |||||||||||||||||||||||||||
Commercial | Real Estate | Multi | 1 to | Commercial | ||||||||||||||||||||||||
Real estate | Construction | family | 4 family | & industrial | Consumer | Total | ||||||||||||||||||||||
Allowance for credit losses | ||||||||||||||||||||||||||||
Beginning balance | $ | 5,763 | $ | 734 | $ | 293 | $ | 1,788 | $ | 1,237 | $ | 64 | $ | 9,879 | ||||||||||||||
Charge-offs | (83 | ) | (183 | ) | — | (62 | ) | (28 | ) | (26 | ) | (382 | ) | |||||||||||||||
Recoveries | 1,057 | — | — | 2 | 139 | 4 | 1,202 | |||||||||||||||||||||
Provision | (105 | ) | 16 | (30 | ) | 330 | (158 | ) | 22 | 75 | ||||||||||||||||||
Ending balance | $ | 6,632 | $ | 567 | $ | 263 | $ | 2,058 | $ | 1,190 | $ | 64 | $ | 10,774 | ||||||||||||||
Ending balance: individually evaluated for impairment | $ | 111 | $ | — | $ | — | $ | 429 | $ | 177 | $ | — | $ | 717 | ||||||||||||||
Ending balance: collectively evaluated for impairment | $ | 6,521 | $ | 567 | $ | 263 | $ | 1,629 | $ | 1,013 | $ | 64 | $ | 10,057 |
13 |
Recorded Investment in Loans at September 30, 2014 | ||||||||||||||||||||||||||||
(Dollar amounts in thousands) | Real | Real | ||||||||||||||||||||||||||
Estate | Estate | |||||||||||||||||||||||||||
Commercial | Real Estate | Multi | 1 to | Commercial | ||||||||||||||||||||||||
Real Estate | Construction | family | 4 family | & industrial | Consumer | Total | ||||||||||||||||||||||
Loans: | ||||||||||||||||||||||||||||
Ending balance | $ | 320,695 | $ | 34,701 | $ | 53,721 | $ | 120,233 | $ | 48,916 | $ | 1,483 | $ | 579,749 | ||||||||||||||
Ending balance: individually evaluated for impairment | $ | 10,158 | $ | 2,378 | $ | — | $ | 4,292 | $ | 2,170 | $ | — | $ | 18,998 | ||||||||||||||
Ending balance: collectively evaluated for impairment | $ | 310,537 | $ | 32,323 | $ | 53,721 | $ | 115,941 | $ | 46,746 | $ | 1,483 | $ | 560,751 | ||||||||||||||
Allowance for Credit Losses | ||||||||||||||||||||||||||||
AS of and For the Year Ended December 31, 2013 | ||||||||||||||||||||||||||||
(Dollar amounts in thousands) | ||||||||||||||||||||||||||||
Real | Real | |||||||||||||||||||||||||||
Estate | Estate | |||||||||||||||||||||||||||
Commercial | Real Estate | Multi | 1 to | Commercial | ||||||||||||||||||||||||
Real estate | Construction | family | 4 family | & industrial | Consumer | Total | ||||||||||||||||||||||
Allowance for credit losses | ||||||||||||||||||||||||||||
Beginning balance | $ | 4,812 | $ | 857 | $ | $ | 1,516 | $ | 1,875 | $ | 64 | $ | 9,124 | |||||||||||||||
Charge-offs | (262 | ) | (81 | ) | — | (385 | ) | (57 | ) | (7 | ) | (792 | ) | |||||||||||||||
Recoveries | 35 | 50 | — | 3 | 73 | 1 | 162 | |||||||||||||||||||||
Provision | 1,178 | (92 | ) | 293 | 654 | (654 | ) | 6 | 1,385 | |||||||||||||||||||
Ending balance | $ | 5,763 | $ | 734 | $ | 293 | $ | 1,788 | $ | 1,237 | $ | 64 | $ | 9,879 | ||||||||||||||
Ending balance: individually evaluated for impairment | $ | 165 | $ | — | $ | — | $ | 254 | $ | 176 | $ | — | $ | 595 | ||||||||||||||
Ending balance: collectively evaluated for impairment | $ | 5,598 | $ | 734 | $ | 293 | $ | 1,534 | $ | 1,061 | $ | 64 | $ | 9,284 |
14 |
Recorded Investment in Loans at December 31, 2013 | ||||||||||||||||||||||||||||
(Dollar amounts in thousands) | Real | Real | ||||||||||||||||||||||||||
Estate | Estate | |||||||||||||||||||||||||||
Commercial | Real Estate | Multi | 1 to | Commercial | ||||||||||||||||||||||||
Real Estate | Construction | family | 4 family | & industrial | Consumer | Total | ||||||||||||||||||||||
Loans: | ||||||||||||||||||||||||||||
Ending balance | $ | 325,199 | $ | 34,318 | $ | 46,143 | $ | 106,903 | $ | 48,504 | $ | 1,650 | $ | 562,717 | ||||||||||||||
Ending balance: individually evaluated for impairment | $ | 17,974 | $ | 189 | $ | 375 | $ | 4,077 | $ | 2,497 | $ | — | $ | 25,112 | ||||||||||||||
Ending balance: collectively evaluated for impairment | $ | 307,225 | $ | 34,129 | $ | 45,768 | $ | 102,826 | $ | 46,007 | $ | 1,650 | $ | 537,605 | ||||||||||||||
Allowance for Credit Losses | ||||||||||||||||||||||||||||
(Dollar amounts in thousands) | ||||||||||||||||||||||||||||
Real | Real | |||||||||||||||||||||||||||
Estate | Estate | |||||||||||||||||||||||||||
Commercial | Real Estate | Multi | 1 to | Commercial | ||||||||||||||||||||||||
Real Estate | Construction | family | 4 family | & industrial | Consumer | Total | ||||||||||||||||||||||
Allowance for credit losses | ||||||||||||||||||||||||||||
Beginning balance | $ | 5,331 | $ | 742 | $ | 329 | $ | 1,791 | $ | 1,491 | $ | 61 | $ | 9,745 | ||||||||||||||
Charge-offs | (23 | ) | — | — | (141 | ) | (56 | ) | (5 | ) | (225 | ) | ||||||||||||||||
Recoveries | 2 | — | — | 1 | — | — | 3 | |||||||||||||||||||||
Provision | 211 | 9 | (76 | ) | 109 | (28 | ) | — | 225 | |||||||||||||||||||
Ending balance | $ | 5,521 | $ | 751 | $ | 253 | $ | 1,760 | $ | 1,407 | $ | 56 | $ | 9,748 | ||||||||||||||
Ending balance: individually evaluated for impairment | $ | 193 | $ | 13 | $ | — | $ | 225 | $ | 209 | $ | 1 | $ | 641 | ||||||||||||||
Ending balance: collectively evaluated for impairment | $ | 5,328 | $ | 738 | $ | 253 | $ | 1,535 | $ | 1,198 | $ | 55 | $ | 9,107 |
15 |
Allowance for Credit Losses | ||||||||||||||||||||||||||||
For the Nine Months Ended September 30, 2013 | ||||||||||||||||||||||||||||
(Dollar amounts in thousands) | ||||||||||||||||||||||||||||
Real | Real | |||||||||||||||||||||||||||
Estate | Estate | |||||||||||||||||||||||||||
Commercial | Real Estate | Multi | 1 to | Commercial | ||||||||||||||||||||||||
Real Estate | Construction | family | 4 family | & industrial | Consumer | Total | ||||||||||||||||||||||
Allowance for credit losses | ||||||||||||||||||||||||||||
Beginning balance | $ | 4,811 | $ | 857 | $ | — | $ | 1,516 | $ | 1,876 | $ | 64 | $ | 1,940 | ||||||||||||||
Charge-offs | (262 | ) | (81 | ) | — | (385 | ) | (56 | ) | (6 | ) | (62 | ) | |||||||||||||||
Recoveries | 6 | — | — | 2 | 70 | 1 | 71 | |||||||||||||||||||||
Provision | 966 | (25 | ) | 253 | 627 | (483 | ) | (3 | ) | (486 | ) | |||||||||||||||||
Ending balance | $ | 5,521 | $ | 751 | $ | 253 | $ | 1,760 | $ | 1,407 | $ | 56 | $ | 1,463 | ||||||||||||||
Ending balance: individually evaluated for impairment | $ | 193 | $ | 13 | $ | — | $ | 225 | $ | 209 | $ | 1 | $ | 210 | ||||||||||||||
Ending balance: collectively evaluated for impairment | $ | 5,328 | $ | 738 | $ | 253 | $ | 1,535 | $ | 1,198 | $ | 55 | $ | 1,253 | ||||||||||||||
Recorded Investment in Loans at September 30, 2013 | ||||||||||||||||||||||||||||
(Dollar amounts in thousands) | Real | Real | ||||||||||||||||||||||||||
Estate | Estate | |||||||||||||||||||||||||||
Commercial | Real Estate | Multi | 1 to | Commercial | ||||||||||||||||||||||||
Real Estate | Construction | family | 4 family | & industrial | Consumer | Total | ||||||||||||||||||||||
Loans: | ||||||||||||||||||||||||||||
Ending balance | $ | 333,845 | $ | 26,587 | $ | 51,094 | $ | 108,231 | $ | 47,076 | $ | 1,691 | $ | 568,524 | ||||||||||||||
Ending balance: individually evaluated for impairment | $ | 19,010 | $ | 192 | $ | 643 | $ | 3,719 | $ | 3,155 | $ | 1 | $ | 26,720 | ||||||||||||||
Ending balance: collectively evaluated for impairment | $ | 314,835 | $ | 26,395 | $ | 50,451 | $ | 104,512 | $ | 43,921 | $ | 1,690 | $ | 541,804 |
16 |
Impaired Loans | ||||||||||||||||||||
As of and for the nine months ended September 30, 2014 | ||||||||||||||||||||
Unpaid | Average | |||||||||||||||||||
(Dollar amounts in thousands) | Recorded | Principal | Related | Recorded | Income | |||||||||||||||
Investment | Balance | Allowance | Investment | Recognized | ||||||||||||||||
With no related allowance recorded | ||||||||||||||||||||
Commercial real estate | $ | 3,163 | $ | 3,163 | $ | — | $ | 3,161 | $ | 126 | ||||||||||
Commercial real estate construction | 2,378 | 2,561 | — | 1,849 | 104 | |||||||||||||||
Real estate - multi family | — | — | — | — | — | |||||||||||||||
Residential - 1 to 4 family | 1,091 | 1,091 | — | 862 | 35 | |||||||||||||||
Commercial and industrial | 2,503 | 3,584 | — | 2,527 | 171 | |||||||||||||||
Total | 9,135 | 10,399 | — | 8,399 | 436 | |||||||||||||||
With an allowance recorded | ||||||||||||||||||||
Commercial real estate | $ | 5,092 | $ | 5,094 | $ | 111 | $ | 5,172 | $ | 195 | ||||||||||
Commercial real estate construction | — | — | — | — | — | |||||||||||||||
Residential - 1 to 4 family | 3,201 | 3,352 | 429 | 3,323 | 101 | |||||||||||||||
Commercial and industrial | 1,570 | 1,957 | 177 | 1,747 | 14 | |||||||||||||||
Consumer | — | — | — | — | — | |||||||||||||||
Total | 9,863 | 10,403 | 717 | 10,242 | 296 | |||||||||||||||
Total | ||||||||||||||||||||
Commercial real estate | $ | 8,255 | $ | 8,257 | $ | 111 | $ | 8,333 | $ | 321 | ||||||||||
Commercial real estate construction | 2,378 | 2,561 | — | 1,849 | 104 | |||||||||||||||
Real estate - multi family | — | — | — | — | — | |||||||||||||||
Residential - 1 to 4 family | 4,292 | 4,443 | 429 | 4,185 | 136 | |||||||||||||||
Commercial and industrial | 4,073 | 5,541 | 177 | 4,274 | 185 | |||||||||||||||
Consumer | — | — | — | — | — | |||||||||||||||
Grand total | $ | 18,998 | $ | 20,802 | $ | 717 | $ | 18,641 | $ | 746 |
17 |
Impaired Loans | ||||||||||||||||||||
As of and for the year ended December 31, 2013 | ||||||||||||||||||||
Unpaid | Average | |||||||||||||||||||
(Dollar amounts in thousands) | Recorded | Principal | Related | Recorded | Income | |||||||||||||||
Investment | Balance | Allowance | Investment | Recognized | ||||||||||||||||
With no related allowance recorded | ||||||||||||||||||||
Commercial real estate | $ | 12,397 | $ | 13,535 | $ | — | $ | 11,445 | $ | 565 | ||||||||||
Commercial real estate construction | — | — | — | — | — | |||||||||||||||
Real estate multi family | 375 | 375 | — | 384 | 25 | |||||||||||||||
Residential - 1 to 4 family | 1,163 | 1,284 | — | 1,009 | 37 | |||||||||||||||
Commercial and industrial | 1,059 | 1,232 | — | 1,204 | 66 | |||||||||||||||
Total | 14,994 | 16,426 | — | 14,042 | 693 | |||||||||||||||
With an allowance recorded | ||||||||||||||||||||
Commercial real estate | $ | 5,577 | $ | 5,588 | $ | 165 | $ | 4,972 | $ | 254 | ||||||||||
Commercial real estate construction | 189 | 196 | 10 | 198 | 18 | |||||||||||||||
Residential - 1 to 4 family | 2,914 | 2,923 | 254 | 2,989 | 115 | |||||||||||||||
Commercial and industrial | 1,438 | 1,871 | 166 | 1,710 | 15 | |||||||||||||||
Total | 10,118 | 10,578 | 595 | 9,869 | 402 | |||||||||||||||
Total | ||||||||||||||||||||
Commercial real estate | $ | 17,974 | $ | 19,123 | $ | 165 | $ | 16,417 | $ | 819 | ||||||||||
Commercial real estate construction | 189 | 196 | 10 | 198 | 18 | |||||||||||||||
Real estate multi family | 375 | 375 | — | 384 | 25 | |||||||||||||||
Residential - 1 to 4 family | 4,077 | 4,207 | 254 | 3,998 | 152 | |||||||||||||||
Commercial and industrial | 2,497 | 3,103 | 166 | 2,914 | 81 | |||||||||||||||
Grand total | $ | 25,112 | $ | 27,004 | $ | 595 | $ | 23,911 | $ | 1,095 |
Average recorded investment on impaired loans was $18,926,000 for three months ended September 30, 2014; $23,932,000 for nine months ended September 30, 2013; and $27,469,000 for three months ended September 30, 2013.
Interest income on impaired loans of $746,000 was recognized for cash payments received during the nine months ended September 30, 2014, and $1,095,000 was recognized for cash payments received during the year ended December 31, 2013. Interest income recognized for cash payments received for the three months ended September 30, 2014 was $291,000 and for the three months ended September 30, 2013 was $275,000. Interest income recognized for cash payments received for the nine months ended September 30, 2013 was $965,000. The amount of interest on impaired loans not collected for the nine months ended September 30, 2014 was $303,000 and for the year ended December 31, 2013 was $656,000. The cumulative amount of unpaid interest on impaired loans was $3,733,000 for the nine months ended September 30, 2014, and $3,430,000 for the year ended December 31, 2013.
18 |
Nonaccrual loans totaled $5,120,000 and $7,351,000 as of September 30, 2014 and December 31, 2013. The difference between impaired loans and nonaccrual loans represents loans that are restructured, are performing under modified loan agreements, and accruing interest.
Loans on Nonaccrual Status as of | ||||||||
(Dollar amounts in thousands) | September 30, | December 31, | ||||||
2014 | 2013 | |||||||
Commercial real estate | $ | 2,119 | $ | 4,290 | ||||
Real estate - construction | — | 189 | ||||||
Real estate 1 to 4 family | 1,129 | 826 | ||||||
Commercial and industrial | 1,872 | 2,046 | ||||||
Total | $ | 5,120 | $ | 7,351 |
Troubled Debt Restructurings
Total troubled debt restructured loans outstanding at | ||||||||||||||||||||||||
(dollars in thousands) | September 30, 2014 | December 31, 2013 | ||||||||||||||||||||||
Non- | Non- | |||||||||||||||||||||||
Accrual | accrual | Total | Accrual | accrual | Total | |||||||||||||||||||
status | status | modifications | status | status | modifications | |||||||||||||||||||
Commercial real estate | $ | 8,940 | $ | 2,507 | $ | 11,447 | $ | 6,315 | $ | 2,140 | $ | 8,455 | ||||||||||||
Real Estate construction | — | — | — | — | 189 | 189 | ||||||||||||||||||
Real estate 1 to 4 family | 3,675 | — | 3,675 | 2,121 | 529 | 2,650 | ||||||||||||||||||
Commercial & industrial | 297 | 1,814 | 2,111 | 461 | 1,951 | 2,412 | ||||||||||||||||||
Total | $ | 12,912 | $ | 4,321 | $ | 17,233 | $ | 8,897 | $ | 4,809 | $ | 13,706 |
Modification Categories
The Company offers a variety of modifications to borrowers. The modification categories offered can generally be described in the following categories.
Rate Modification – A modification in which the interest rate is changed.
Term modification – A modification in which the maturity date, timing of payments, or frequency of payments is changed.
Interest Only Modification – A modification in which the loan is converted to interest only payments for a period of time.
Payment Modification – A modification in which the dollar amount of the payment is changed, other than an interest only modification described above.
19 |
As of September 30, 2014, there were no commitments for additional funding of troubled debt restructured loans.
Modifications | ||||||||||||
For the nine months | ||||||||||||
ended September 30, 2014 | ||||||||||||
Pre- | Post- | |||||||||||
Modification | Modification | |||||||||||
Outstanding | Outstanding | |||||||||||
Number of | Recorded | Recorded | ||||||||||
Contracts | Investment | Investment | ||||||||||
(Dollar amounts in thousands) | ||||||||||||
Real estate 1 to 4 family | 1 | $ | 575 | $ | 569 | |||||||
Commercial real estate | 3 | 1,454 | 1,449 | |||||||||
Total | 4 | $ | 2,029 | $ | 2,018 |
All restructurings were a modification of interest rate and/or payment. There were no principal reductions granted. There were no payment defaults during the three month period ended September 30, 2014 that were related to receivables modified as TDRs in the last twelve months.
There were no modifications for the three months ended September 30, 2014. There were no payment defaults during the three month period ended September 30, 2014 that were related to receivables modified as TDRs in the last twelve months.
Modifications | ||||||||||||
For the nine months | ||||||||||||
ended September 30, 2013 | ||||||||||||
Pre- | Post- | |||||||||||
Modification | Modification | |||||||||||
Outstanding | Outstanding | |||||||||||
Number of | Recorded | Recorded | ||||||||||
Contracts | Investment | Investment | ||||||||||
(Dollar amounts in thousands) | ||||||||||||
Real Estate Construction | 1 | $ | 200 | $ | 192 | |||||||
Real estate 1 to 4 family | 3 | 1,248 | 1,241 | |||||||||
Commercial real estate | 5 | 4,065 | 4,141 | |||||||||
Total | 9 | $ | 5,513 | $ | 5,574 |
20 |
All restructurings were a modification of interest rate and/or payment. There were no principal reductions granted. There were no payment defaults during the nine month period ended September 30, 2013 that were related to receivables modified as TDRs in the last twelve months.
Modifications | ||||||||||||
For the three months | ||||||||||||
ended September 30, 2013 | ||||||||||||
Pre- | Post- | |||||||||||
Modification | Modification | |||||||||||
Outstanding | Outstanding | |||||||||||
Number of | Recorded | Recorded | ||||||||||
Contracts | Investment | Investment | ||||||||||
(Dollar amounts in thousands) | ||||||||||||
Real estate-1 to 4 family | 2 | 806 | 803 | |||||||||
Commercial real estate | 1 | 384 | 394 | |||||||||
Total | 3 | $ | 1,190 | $ | 1,197 |
All restructurings were a modification of interest rate and/or payment. There were no principal reductions granted. There were no payment defaults during the three month period ended September 30, 2013 that were related to receivables modified as TDRs in the last twelve months.
Risk rating system
Loans to borrowers graded as pass or pooled loans represent loans to borrowers of acceptable or better credit quality. They demonstrate sound financial positions, repayment capacity and credit history. They have an identifiable and stable source of repayment.
Special mention loans have potential weaknesses that deserve management’s attention. If left uncorrected these potential weaknesses may result in a deterioration of the repayment prospects for the asset or in the Bank’s credit position at some future date. These assets are “not adversely classified” and do not expose the Bank to sufficient risk to warrant adverse classification.
Substandard loans are inadequately protected by current sound net worth, paying capacity of the borrower, or pledged collateral. Loans are normally classified as Substandard when there are unsatisfactory characteristics causing more than acceptable levels of risk. A substandard loan normally has one or more well-defined weakness that could jeopardize the repayment of the debt. These well-defined weaknesses may include a) cash flow deficiency, which may jeopardize future payments; b) sale of non-collateral assets has become primary source of repayment; c) the borrower is bankrupt; or d) for any other reason, future repayment is dependent on court action.
Doubtful loans represent credits with weakness inherent in the substandard classification and where collection or liquidation in full is highly questionable. To be classified doubtful, there must be specific pending factors which prevent the Loan Review Officer from determining the amount of loss contained in the credit. When the amount of loss can be reasonably estimated, that amount is classified as “loss” and the remainder is classified as Substandard.
21 |
Real Estate – Multi-Family
Our multi-family commercial real estate loans are secured by multi-family properties located primarily in San Mateo and San Francisco Counties. These loans are made to investors where our primary source of repayment is from cash flows generated by the properties, through rent collections. The borrowers’ promissory notes are secured with recorded liens on the underlying properties. The borrowers would normally also be required to personally guarantee repayment of the loans. The bank uses conservative underwriting standards in reviewing applications for credit. Generally, our borrowers have multiple sources of income, so if cash flow generated from the property declines, at least in the short term, the borrowers can normally cover these short term cash flow deficiencies from their available cash reserves. Risk of loss to the Bank is increased when there are cash flow decreases sufficiently large and for such a prolonged period of time that loan payments can no longer be made by the borrowers.
Commercial Real Estate Loans
Other commercial real estate loans consist of loans secured by non-farm, non-residential properties, including, but not limited to industrial, hotel, assisted care, retail, office and mixed use buildings.
Our commercial real estate loans are made primarily to investors or small businesses where our primary source of repayment is from cash flows generated by the properties, either through rent collection or business profits. The borrower’s promissory notes are secured with recorded liens on the underlying property. The borrowers would normally also be required to personally guarantee repayment of the loan.
The Bank uses conservative underwriting standards in reviewing applications for credit. Generally, our borrowers have multiple sources of income, so if cash flow generated from the property declines, at least in the short term, the borrowers can normally cover these short term cash flow deficiencies from their available cash reserves. Risk of loss to the Bank is increased when there are cash flow decreases sufficiently large and for such a prolonged period of time that loan payments can no longer be made by the borrowers.
Real Estate Construction Loans
O4ur real estate construction loans are generally made to borrowers who are rehabilitating a building, converting a building use from one type of use to another, or developing land and building residential or commercial structures for sale or lease. The borrower’s promissory notes are secured with recorded liens on the underlying property. The borrowers would normally also be required to personally guarantee repayment of the loan. The Bank uses conservative underwriting standards in reviewing applications for credit. Generally, our borrowers have sufficient resources to make the required construction loan payments during the construction and absorption or lease-up period. After construction is complete, the loans are normally paid off from proceeds from the sale of the building or through a refinance to a commercial real estate loan. Risk of loss to the Bank is increased when there are material construction cost overruns, significant delays in the time to complete the project and/or there has been a material drop in the value of the projects in the marketplace since the inception of the loan.
22 |
Real Estate-1 to 4 family Loans
Our residential real estate loans are generally made to borrowers who are buying or refinancing their primary personal residence or a rental property of 1-4 single family residential units. The Bank uses conservative underwriting standards in reviewing applications for credit. Risk of loss to the Bank is increased when borrowers lose their primary source of income and/or property values decline significantly.
Commercial and Industrial Loans
Our commercial and industrial loans are generally made to small businesses to provide them with at least some of the working capital necessary to fund their daily business operations. These loans are generally either unsecured or secured by fixed assets, accounts receivable and/or inventory. The borrowers would normally also be required to personally guarantee repayment of the loan. The Bank uses conservative underwriting standards in reviewing applications for credit. Risk of loss to the Bank is increased when our small business customers experience a significant business downturn, incur significant financial losses, or file for relief from creditors through bankruptcy proceedings.
Consumer Loans
Our consumer and installment loans generally consist of personal loans, credit card loans, automobile loans or other loans secured by personal property. The Bank uses conservative underwriting standards in reviewing applications for credit. Risk of loss to the Bank is increased when borrowers lose their primary source of income, or file for relief from creditors through bankruptcy proceedings.
23 |
Age Analysis of Past Due Loans | ||||||||||||||||||||||||
As of September 30, 2014 | ||||||||||||||||||||||||
(Dollar amounts in thousands) | ||||||||||||||||||||||||
30-59 | 60-89 | |||||||||||||||||||||||
Days | Days | Over | Total | |||||||||||||||||||||
Past | Past | 90 | Past | Total | ||||||||||||||||||||
Originated | Due | Due | Days | Due | Current | Loans | ||||||||||||||||||
Commercial real estate | $ | 331 | $ | 464 | $ | 153 | $ | 948 | $ | 285,347 | $ | 286,295 | ||||||||||||
Real estate construction | — | — | — | — | 32,738 | 32,738 | ||||||||||||||||||
Real estate multi family | — | — | — | — | 43,219 | 43,219 | ||||||||||||||||||
Real estate-1 to 4 family | 108 | 60 | — | 168 | 114,050 | 114,218 | ||||||||||||||||||
Commercial and industrial | 58 | 271 | 1,852 | 2,181 | 37,558 | 39,739 | ||||||||||||||||||
Consumer | — | — | — | — | 1,483 | 1,483 | ||||||||||||||||||
Total | $ | 497 | $ | 795 | $ | 2,005 | $ | 3,297 | $ | 514,395 | $ | 517,692 | ||||||||||||
Purchased | ||||||||||||||||||||||||
Not credit impaired | ||||||||||||||||||||||||
Commercial real estate | $ | 337 | $ | — | $ | — | $ | 337 | $ | 32,739 | $ | 33,076 | ||||||||||||
Real estate construction | — | — | — | — | 1,963 | 1,963 | ||||||||||||||||||
Real estate multi-family | — | — | — | — | 10,502 | 10,502 | ||||||||||||||||||
Real estate-1 to 4 family | — | — | — | — | 6,015 | 6,015 | ||||||||||||||||||
Commercial and industrial | — | — | — | — | 9,177 | 9,177 | ||||||||||||||||||
Total | $ | 337 | $ | — | $ | — | $ | 337 | $ | 60,396 | $ | 60,733 | ||||||||||||
Purchased | ||||||||||||||||||||||||
Credit impaired | ||||||||||||||||||||||||
Commercial real estate | $ | — | $ | — | $ | — | $ | — | $ | 1,323 | $ | 1,323 | ||||||||||||
Real estate construction | — | — | — | — | — | — | ||||||||||||||||||
Real estate multi-family | — | — | — | — | — | — | ||||||||||||||||||
Real estate-1 to 4 family | — | — | — | — | — | — | ||||||||||||||||||
Commercial and industrial | — | — | — | — | — | — | ||||||||||||||||||
Consumer | — | — | — | — | — | — | ||||||||||||||||||
Total | $ | — | $ | — | $ | — | $ | — | $ | 1,323 | $ | 1,323 |
There were no loans past due over 90 days that were still accruing.
24 |
Age Analysis of Past Due Loans | ||||||||||||||||||||||||
As of December 31, 2013 | ||||||||||||||||||||||||
(Dollar amounts in thousands) | ||||||||||||||||||||||||
30-59 | 60-89 | |||||||||||||||||||||||
Days | Days | Over | Total | |||||||||||||||||||||
Past | Past | 90 | Past | Total | ||||||||||||||||||||
Originated | Due | Due | Days | Due | Current | Loans | ||||||||||||||||||
Commercial real estate | $ | 1,403 | $ | — | $ | 2,349 | $ | 3,752 | $ | 282,186 | $ | 285,938 | ||||||||||||
Real estate construction | — | — | — | — | 31,290 | 31,290 | ||||||||||||||||||
Real estate multi family | — | — | — | — | 34,357 | 34,357 | ||||||||||||||||||
Real estate-1 to 4 family | 161 | 75 | 826 | 1,062 | 97,134 | 98,196 | ||||||||||||||||||
Commercial & industrial | 563 | 210 | 2,046 | 2,819 | 35,468 | 38,287 | ||||||||||||||||||
Consumer | 116 | 19 | — | 135 | 1,515 | 1,650 | ||||||||||||||||||
Total | $ | 2,243 | $ | 304 | $ | 5,221 | $ | 7,768 | $ | 481,950 | $ | 489,718 | ||||||||||||
Purchased | ||||||||||||||||||||||||
Not credit impaired | ||||||||||||||||||||||||
Commercial real estate | $ | — | $ | — | $ | 616 | $ | 616 | $ | 37,320 | $ | 37,936 | ||||||||||||
Real estate construction | — | — | 189 | 189 | 2,839 | 3,028 | ||||||||||||||||||
Real estate multi-family | — | — | — | — | 11,786 | 11,786 | ||||||||||||||||||
Real estate-1 to 4 family | — | — | — | — | 8,707 | 8,707 | ||||||||||||||||||
Commercial & industrial | — | — | — | — | 10,217 | 10,217 | ||||||||||||||||||
Total | $ | — | $ | — | $ | 805 | $ | 805 | $ | 70,869 | $ | 71,674 | ||||||||||||
Purchased | ||||||||||||||||||||||||
Credit impaired | ||||||||||||||||||||||||
Commercial real estate | $ | — | $ | — | $ | 1,325 | $ | 1,325 | $ | — | $ | 1,325 | ||||||||||||
Real estate construction | — | — | — | — | — | — | ||||||||||||||||||
Real estate multi-family | — | — | — | — | — | — | ||||||||||||||||||
Real estate-1 to 4 family | — | — | — | — | — | — | ||||||||||||||||||
Commercial & industrial | — | — | — | — | — | — | ||||||||||||||||||
Total | $ | — | $ | — | $ | 1,325 | $ | 1,325 | $ | — | $ | 1,325 |
There were no loans past due over 90 days that were still accruing.
25 |
Credit Quality Indicators | ||||||||||||||||||||
As of December 31, 2013 | ||||||||||||||||||||
(Dollar amounts in thousands) | ||||||||||||||||||||
Special | Sub- | Total | ||||||||||||||||||
Originated | Pass | mention | standard | Doubtful | loans | |||||||||||||||
Commercial real estate | $ | 280,356 | $ | 2,330 | $ | 3,252 | $ | — | $ | 285,938 | ||||||||||
Real estate construction | 29,673 | 573 | 1,044 | — | 31,290 | |||||||||||||||
Real estate multi-family | 34,357 | — | — | — | 34,357 | |||||||||||||||
Real estate-1 to 4 family | 97,514 | — | 429 | 253 | 98,196 | |||||||||||||||
Commercial & industrial | 36,837 | — | 1,439 | 11 | 38,287 | |||||||||||||||
Consumer loans | 1,631 | — | 19 | — | 1,650 | |||||||||||||||
Totals | $ | 480,368 | $ | 2,903 | $ | 6,183 | $ | 264 | $ | 489,718 | ||||||||||
Purchased | ||||||||||||||||||||
Not credit impaired | ||||||||||||||||||||
Commercial real estate | $ | 28,342 | $ | 4,951 | $ | 4,643 | $ | — | $ | 37,936 | ||||||||||
Real estate construction | 1,520 | — | 1,508 | — | 3,028 | |||||||||||||||
Real estate multi-family | 11,786 | — | — | — | 11,786 | |||||||||||||||
Real estate-1 to 4 family | 8,299 | — | 408 | — | 8,707 | |||||||||||||||
Commercial & industrial | 10,217 | — | — | — | 10,217 | |||||||||||||||
Total | $ | 60,164 | $ | 4,951 | $ | 6,559 | $ | — | $ | 71,674 | ||||||||||
Purchased | ||||||||||||||||||||
Credit impaired | ||||||||||||||||||||
Commercial real estate | $ | 1,325 | ||||||||||||||||||
Total | $ | 1,325 |
26 |
Credit Quality Indicators | ||||||||||||||||||||
As of September 30, 2014 | ||||||||||||||||||||
(Dollar amounts in thousands) | ||||||||||||||||||||
Special | Sub- | Total | ||||||||||||||||||
Pass | mention | standard | Doubtful | loans | ||||||||||||||||
Commercial real estate | $ | 282,331 | $ | 1,921 | $ | 2,044 | $ | — | $ | 286,296 | ||||||||||
Real estate construction | 31,603 | — | 1,135 | — | 32,738 | |||||||||||||||
Real estate multi-family | 43,219 | — | — | — | 43,219 | |||||||||||||||
Real estate-1 to 4 family | 113,619 | — | 457 | 142 | 114,218 | |||||||||||||||
Commercial and industrial | 38,766 | — | 973 | — | 39,739 | |||||||||||||||
Consumer loans | 1,483 | — | — | — | 1,483 | |||||||||||||||
Totals | $ | 511,021 | $ | 1,921 | $ | 4,609 | $ | 142 | $ | 517,693 | ||||||||||
Purchased | ||||||||||||||||||||
Not credit impaired | ||||||||||||||||||||
Commercial real estate | $ | 27,233 | $ | — | $ | 5,843 | $ | — | $ | 33,076 | ||||||||||
Real estate construction | 1,963 | — | — | — | 1,963 | |||||||||||||||
Real estate multi-family | 10,502 | — | — | — | 10,502 | |||||||||||||||
Real estate-1 to 4 family | 5,614 | — | 401 | — | 6,015 | |||||||||||||||
Commercial and industrial | 9,177 | — | — | — | 9,177 | |||||||||||||||
Total | $ | 54,489 | $ | — | $ | 6,244 | $ | — | $ | 60,733 | ||||||||||
Credit impaired | ||||||||||||||||||||
Commercial real estate | $ | 1,323 | ||||||||||||||||||
Total | $ | 1,323 |
27 |
Credit Quality Indicators | ||||||||||||||||||||
As of December 31, 2013 | ||||||||||||||||||||
(Dollar amounts in thousands) | ||||||||||||||||||||
Special | Sub- | Total | ||||||||||||||||||
Originated | Pass | mention | standard | Doubtful | loans | |||||||||||||||
Commercial real estate | $ | 280,356 | $ | 2,330 | $ | 3,252 | $ | — | $ | 285,938 | ||||||||||
Real estate construction | 29,673 | 573 | 1,044 | — | 31,290 | |||||||||||||||
Real estate multi-family | 34,357 | — | — | — | 34,357 | |||||||||||||||
Real estate-1 to 4 family | 97,514 | — | 429 | 253 | 98,196 | |||||||||||||||
Commercial & industrial | 36,837 | — | 1,439 | 11 | 38,287 | |||||||||||||||
Consumer loans | 1,631 | — | 19 | — | 1,650 | |||||||||||||||
Totals | $ | 480,368 | $ | 2,903 | $ | 6,183 | $ | 264 | $ | 489,718 | ||||||||||
Purchased | ||||||||||||||||||||
Not credit impaired | ||||||||||||||||||||
Commercial real estate | $ | 28,342 | $ | 4,951 | $ | 4,643 | $ | — | $ | 37,936 | ||||||||||
Real estate construction | 1,520 | — | 1,508 | — | 3,028 | |||||||||||||||
Real estate multi-family | 11,786 | — | — | — | 11,786 | |||||||||||||||
Real estate-1 to 4 family | 8,299 | — | 408 | — | 8,707 | |||||||||||||||
Commercial & industrial | 10,217 | — | — | — | 10,217 | |||||||||||||||
Total | $ | 60,164 | $ | 4,951 | $ | 6,559 | $ | — | $ | 71,674 | ||||||||||
Purchased | ||||||||||||||||||||
Credit impaired | ||||||||||||||||||||
Commercial real estate | $ | 1,325 | ||||||||||||||||||
Total | $ | 1,325 |
(Amounts in thousands) | Non- | |||||||||||
Performing | performing | |||||||||||
At September 30, 2014 | Total | |||||||||||
Commercial real estate | $ | 318,576 | $ | 2,119 | $ | 320,695 | ||||||
Real estate construction | 34,701 | — | 34,701 | |||||||||
Real estate multi family | 53,721 | — | 53,721 | |||||||||
Real estate 1 to 4 family | 119,104 | 1,129 | 120,233 | |||||||||
Commercial and industrial | 47,044 | 1,872 | 48,916 | |||||||||
Consumer | 1,483 | — | 1,483 | |||||||||
Totals | $ | 574,629 | $ | 5,120 | $ | 579,749 |
28 |
(Amounts in thousands) | Non- | |||||||||||
Performing | performing | |||||||||||
At December 31, 2013 | Total | |||||||||||
Commercial real estate | $ | 320,909 | $ | 4,290 | $ | 325,199 | ||||||
Real estate construction | 34,129 | 189 | 34,318 | |||||||||
Real estate multi family | 46,143 | — | 46,143 | |||||||||
Real estate 1 to 4 family | 106,077 | 826 | 106,903 | |||||||||
Commercial and industrial | 46,458 | 2,046 | 48,504 | |||||||||
Consumer | 1,650 | — | 1,650 | |||||||||
Totals | $ | 555,366 | $ | 7,351 | $ | 562,717 |
NOTE F - BORROWINGS
Federal Home Loan Bank advances
There was an overnight advance dated September 30, 2014 in the amount of $16,000,000 at 0.07% which matured on October 1, 2014.
Notes Payable
On March 27, 2014, FNB Bancorp received funding under a $6,000,000 term loan credit facility. This loan carries a variable rate of interest that fluctuates on a monthly basis. The interest rate is based on the 3 month LIBOR rate plus 4%. Payments of $50,000 in principal plus accrued interest are payable monthly. The first loan payment was due May 1, 2014. The maturity date on this credit facility is March 26, 2019. On the maturity date, all outstanding principal plus accrued interest shall become due and payable. FNB Bancorp has pledged its stock ownership in First National Bank of Northern California as collateral subject to the terms and conditions contained in the Loan Agreement and the Pledge and Security Agreement. FNB Bancorp retains the right to prepay this debt at any time upon not less than 7 days’ prior written notice to Lender. The proceeds from this loan were contributed to the Bank as an additional capital contribution.
This capital contribution qualified as Tier 1 capital for the Bank under regulatory capital guidelines.
NOTE G – FAIR VALUE MEASUREMENT
The following tables present information about the Company’s assets and liabilities measured at fair value as of September 30, 2014 and December 31, 2013, and indicate the fair value techniques used by the Company to determine such fair value. In general, fair values determined by Level 1 inputs utilize quoted prices (unadjusted) in active markets for identical assets or liabilities that the Company has the ability to access. Level 2 inputs include quoted prices for similar assets and liabilities in active markets, and inputs other than quoted prices that are observable for the asset or liability, such as interest rates and yield curves that are observable at commonly quoted intervals. Level 3 inputs are unobservable inputs for the asset or liability, and include situations where there is little, if any, market activity for the asset or liability. In certain cases, the inputs used to measure fair value may fall into different levels of the fair value hierarchy. In such cases, the level in the fair value hierarchy within which the fair value measurement in its entirety falls has been determined based on the lowest level input that is significant to the fair value measurement in its entirety. The Company’s assessment of the significance of a particular input to the fair value measurement in its entirety requires judgment, and considers factors specific to the asset or liability.
29 |
The following table presents the recorded amounts of assets measured at fair value on a recurring basis:
Fair Value Measurements | ||||||||||||||||
(Dollar amounts in thousands) | at September 30, 2014, Using | |||||||||||||||
Quoted Prices | ||||||||||||||||
in Active | ||||||||||||||||
Markets | Other | Significant | ||||||||||||||
for Identical | Observable | Unobservable | ||||||||||||||
Fair Value | Assets | Inputs | Inputs | |||||||||||||
Description | 9/30/2014 | (Level 1) | (Level 2) | (Level 3) | ||||||||||||
U. S. Treasury securities | $ | 3,931 | $ | 3,931 | $ | — | $ | — | ||||||||
Obligations of U.S. Government agencies | 65,161 | — | 65,161 | — | ||||||||||||
Mortgage-backed securities | 81,345 | — | 81,345 | — | ||||||||||||
Obligations of states and political subdivisions | 82,494 | — | 82,494 | — | ||||||||||||
Corporate debt | 34,993 | — | 34,993 | — | ||||||||||||
Total assets measured at fair value | $ | 267,924 | $ | 3,931 | $ | 263,993 | $ | — |
Fair Value Measurements | ||||||||||||||||
(Dollar amounts in thousands) | at December 31, 2013, Using | |||||||||||||||
Quoted Prices | ||||||||||||||||
in Active | ||||||||||||||||
Markets | Other | Significant | ||||||||||||||
for Identical | Observable | Unobservable | ||||||||||||||
Fair Value | Assets | Inputs | Inputs | |||||||||||||
Description | 12/31/2013 | (Level 1) | (Level 2) | (Level 3) | ||||||||||||
U. S. Treasury securities | $ | 3,027 | $ | 3,027 | $ | — | $ | — | ||||||||
Obligations of U.S. Government agencies | 73,319 | — | 73,319 | — | ||||||||||||
Mortgage-backed securities | 77,860 | — | 77,860 | — | ||||||||||||
Obligations of states and political subdivisions | 82,676 | — | 82,676 | — | ||||||||||||
Corporate debt | 27,106 | — | 27,106 | — | ||||||||||||
Total assets measured at fair value | $ | 263,988 | $ | 3,027 | $ | 260,961 | $ | — |
30 |
The following tables present the recorded amounts of assets measured at fair value on a non-recurring basis:
Fair Value Measurements | ||||||||||||||||
(Dollar amounts in thousands) | at September 30, 2014, Using | |||||||||||||||
Quoted Prices in | ||||||||||||||||
Active Markets | Other | Significant | ||||||||||||||
for Identical | Observable | Unobservable | ||||||||||||||
Fair Value | Assets | Inputs | Inputs | |||||||||||||
Description | 9/30/2014 | (Level 1) | (Level 2) | (Level 3) | ||||||||||||
Impaired loans: | ||||||||||||||||
Commercial and industrial | $ | 1,077 | — | $ | — | $ | 1,077 | |||||||||
Residential- 1 to 4 family | 58 | — | — | 58 | ||||||||||||
Commercial real estate | 368 | — | — | 368 | ||||||||||||
Total impaired assets measured at fair value | $ | 1,503 | $ | — | $ | — | $ | 1,503 |
Fair Value Measurements | ||||||||||||||||
(Dollar amounts in thousands) | at December 31, 2013, Using | |||||||||||||||
Quoted Prices in | ||||||||||||||||
Active Markets | Other | Significant | ||||||||||||||
for Identical | Observable | Unobservable | ||||||||||||||
Fair Value | Assets | Inputs | Inputs | |||||||||||||
Description | 12/31/2013 | (Level 1) | (Level 2) | (Level 3) | ||||||||||||
Impaired loans: | ||||||||||||||||
Commercial and industrial | $ | 1,908 | $ | — | $ | — | $ | 1,908 | ||||||||
Residential- 1 to 4 family | 411 | — | — | 411 | ||||||||||||
Commercial real estate | 2,491 | — | — | 2,491 | ||||||||||||
Other real estate owned | 1,771 | — | — | 1,771 | ||||||||||||
Total impaired assets measured at fair value | $ | 6,581 | $ | — | $ | — | $ | 6,581 |
The Bank does not record loans at fair value. However, from time to time, if a loan is considered impaired, a specific allocation within the allowance for loan losses may be required. Loans for which it is probable that payment of interest and principal will not be made in accordance with the contractual terms of the loan agreement are considered impaired. The fair value of impaired loans is estimated using one of several methods, including collateral value, market value of similar debt, enterprise value, liquidation value and cash flows. Those impaired loans not requiring an allowance represent loans for which the value of the expected repayments or collateral exceed the recorded investments in such loans. Impaired loans where an allowance is established based on the fair value of collateral or when the impaired loan has been written down to fair value require classification in the fair value hierarchy. If the fair value of the collateral is based on an observable market price or a current appraised value, the Bank records the impaired loans as nonrecurring Level 3. When an appraised value is not available, or management determines the fair value of the collateral is further impaired below the appraised value and there is no observable market price, the Bank also records the impaired loans as nonrecurring Level 3.
Other real estate owned is carried at the lower of historical cost or fair market value less costs to sell. An appraisal (a Level 3 valuation) is obtained at the time the Bank acquires property through the foreclosure process. Any loan balance outstanding that exceeds the appraised value of the property is charged off against the allowance for loan loss at the time the property is acquired. Subsequent to acquisition, the Bank updates the property’s appraised value on at least an annual basis. If the value of the property has declined during the year, a loss due to valuation impairment is recorded along with a corresponding reduction in the book carrying value of the property.
31 |
The Company obtains third party appraisals on its impaired loans held-for-investment and foreclosed assets to determine fair value. When the appraisals are received, Management reviews the assumptions and methodology utilized in the appraisal, as well as the overall resulting value in conjunction with independent data sources such as recent market data and industry-wide statistics. We generally use a 6% discount for selling costs which is applied to all properties, regardless of size. Generally, the third party appraisals apply the “market approach,” which is a valuation technique that uses prices and other relevant information generate by market transactions involving identical or comparable (that is, similar) assets, liabilities, or a group of assets and liabilities, such as a business. Adjustments are then made based on the type of property, age of appraisal, current status of property and other related factors to estimate the current value of collateral. The value of OREO is determined based on independent appraisals, similar to the process used for impaired loans, discussed above, and is generally classified as Level 3.
Fair Values of Financial Instruments.
The following methods and assumptions were used by the Company in estimating the fair value disclosures for financial instruments.
Cash and Cash Equivalents including Interest Bearing Time Deposits with Financial Institutions.
The carrying amounts reported in the balance sheet for cash and short-term instruments are a reasonable estimate of fair value, which will approximate their historical cost.
Securities Available-for-Sale.
Fair values for investment securities are based on quoted market prices, where available. If quoted market prices are not available, fair values are based on quoted market prices of comparable instruments.
Loans Receivable.
For variable-rate loans that reprice frequently and with no significant change in credit risk, fair values are based on carrying values and credit risk factors. For fixed rate loans, fair values are based on discounted cash flows, credit risk factors, and liquidity factors.
Other Equity Securities.
These are mostly Federal Reserve Bank stock and Federal Home Loan Bank stock, carried in Other Assets. They are not traded, and not available for sale, and have no fair market value.
32 |
Deposit liabilities.
The fair values disclosed for demand deposits (e.g., interest and non-interest checking, savings, and money market accounts) are, by definition, equal to the amount payable on demand at the reporting date (i.e., their carrying amounts). The fair values for fixed-rate certificates of deposit are based on discounted cash flows.
Federal Home Loan Bank Advances.
The fair values of Federal Home Loan Bank Advances are based on discounted cash flows. The discount rate is equal to the market rate currently offered on similar products.
Notes payable.
Fair value is equal to the current balance. They represent a corporate loan with a monthly variable rate, based on the 3-month LIBOR rate plus 4%.
Accrued Interest Receivable and Payable
The interest receivable and payable balances approximate their fair value due to the short-term nature of their settlement dates.
Undisbursed loan commitments, lines of credit, Mastercard line and standby letters of credit.
The fair value of these off-balance sheet items are based on discounted cash flows of expected fundings.
The Bank has excluded non-financial assets and non-financial liabilities defined by the Codification (ASC 820-10-15-A), such as Bank premises and equipment, deferred taxes and other liabilities. In addition, the Bank has not disclosed the fair value of financial instruments specifically excluded from disclosure requirements of the Financial Instruments Topic of the Codification (ASC 825-10-50-8), such as Bank-owned life insurance policies.
33 |
The following table provides summary information on the estimated fair value of financial instruments at September 30, 2014:
September 30, 2014 | Carrying | Fair | Fair value measurements | |||||||||||||||||
(Dollar amounts in thousands) | amount | value | Level 1 | Level 2 | Level 3 | |||||||||||||||
Financial assets: | ||||||||||||||||||||
Cash and cash equivalents | $ | 15,220 | $ | 15,220 | $ | 15,220 | ||||||||||||||
Interest-bearing time deposits with financial institutions | 4,068 | 4,110 | 4,110 | |||||||||||||||||
Securities available for sale | 267,924 | 267,924 | 3,931 | 263,993 | ||||||||||||||||
Loans | 579,308 | 590,639 | 590,639 | |||||||||||||||||
Other equity securities | 5,769 | 5,769 | 5,769 | |||||||||||||||||
Accrued interest receivable | 3,670 | 3,670 | 3,670 | |||||||||||||||||
Financial liabilities: | ||||||||||||||||||||
Deposits | 782,156 | 782,434 | 782,434 | |||||||||||||||||
Federal Home Loan Bank advances | 16,000 | 16,000 | 16,000 | |||||||||||||||||
Note payable | 5,700 | 5,700 | 5,700 | |||||||||||||||||
Accrued interest payable | 218 | 218 | 218 | |||||||||||||||||
Off-balance-sheet liabilities: | ||||||||||||||||||||
Undisbursed loan commitments, lines of credit, standby letters of credit and Mastercard lines of credit | — | 1,452 | 1,452 |
The carrying amount of loans includes $5,120,000 of nonaccrual loans (loans that are not accruing interest) as of September 30, 2014. The fair value of nonaccrual loans is based on the collateral values that secure the loans or the cash flows expected to be received.
34 |
The following table provides summary information on the estimated fair value of financial instruments at December 31, 2013:
December 31, 2013 | Carrying | Fair | Fair value measurements | |||||||||||||||||
(Dollar amounts in thousands) | amount | value | Level 1 | Level 2 | Level 3 | |||||||||||||||
Financial assets: | ||||||||||||||||||||
Cash and cash equivalents | $ | 14,007 | $ | 14,007 | $ | 14,007 | ||||||||||||||
Interest-bearing time deposits with financial institutions | 5,543 | 5,543 | 5,543 | |||||||||||||||||
Securities available for sale | 263,988 | 263,988 | 3,027 | 260,961 | ||||||||||||||||
Loans | 562,717 | 563,325 | 563,325 | |||||||||||||||||
Other equity securities | 5,300 | 5,300 | 5,300 | |||||||||||||||||
Accrued interest receivable | 3,808 | 3,808 | 3,808 | |||||||||||||||||
Financial liabilities: | ||||||||||||||||||||
Deposits | 773,615 | 774,012 | 774,012 | |||||||||||||||||
Federal Home Loan Bank advances | 15,000 | 15,000 | 15,000 | |||||||||||||||||
Accrued interest payable | 224 | 224 | 224 | |||||||||||||||||
Off-balance-sheet liabilities: | ||||||||||||||||||||
Undisbursed loan commitments, lines of credit, standby letters of credit and Mastercard lines of credit | — | 1,297 | 1,297 |
The carrying amount of loans includes $7,351,000 of nonaccrual loans (loans that are not accruing interest) as of December 31, 2013. The fair value of nonaccrual loans is based on the collateral values that secure the loans or the cash flows expected to be received.
NOTE G – PREFERRED STOCK
On September 15, 2011, Preferred Stock was issued to the U. S. Treasury as part of the Treasury’s Small Business Lending Fund (“SBLF”), as Preferred Stock – Series C – Non-Cumulative. The initial dividend rate was 5%. Depending on the volume of our small business lending, the dividend rate can be reduced to as low as one percent. If lending does not increase in the first two years, the dividend rate will increase to seven percent. Effective January 1, 2014, the effective dividend increased from 5% to 9%.
On May 6, 2013, 25% or $3,150,000 of the original $12,600,000 was redeemed. On January 24, 2014, FNB Bancorp (the “Company”) redeemed all the remaining outstanding preferred shares that had been issued to the United States Treasury Department through the Small Business Lending Fund (“SBLF”) in a cash redemption transaction. Subsequent to this redemption, the United States Treasury Department no longer has an equity interest in the Company of any kind.
35 |
Item 2. | Management’s Discussion and Analysis of Financial Condition and Results of Operations. |
Forward-Looking Information and Uncertainties Regarding Future Financial Performance.
This report, including management’s discussion below, concerning earnings and financial condition, contains “forward-looking statements”. Forward-looking statements are estimates of or statements about expectations or beliefs regarding the Company’s future financial performance or anticipated future financial condition that are based on current information and that are subject to a number of risks and uncertainties that could cause actual operating results in the future to differ significantly from those expected at the current time. Those risks and uncertainties include, although they are not limited to, the following:
Increased Competition. Increased competition from other banks and financial service businesses, mutual funds and securities brokerage and investment banking firms that offer competitive loan and investment products and competitive market pricing, which could require us to reduce interest rates and loan fees to attract new loans or to increase interest rates that we offer on time deposits, either or both of which could, in turn, reduce interest income and net interest margins. These factors could reduce our ability to attract new deposits and loans and leases.
Liquidity Risk. The stability of funding sources and continued availability of borrowings; our ability to raise capital or incur debt on reasonable terms.
Possible Adverse Changes in Economic Conditions. Adverse changes in national or local economic conditions over an extended period of time could (i) reduce loan demand which could, in turn, reduce interest income and net interest margins; (ii) adversely affect the financial capability of borrowers to meet their loan obligations, which, in turn, could result in increases in loan losses and require increases in provisions for possible loan losses, thereby adversely affecting operating results; and (iii) lead to reductions in real property values that, due to the Company’s reliance on real property to secure many of its loans, could make it more difficult to prevent losses from being incurred on non-performing loans through the sale of such real properties.
Possible Adverse Changes in National Economic Conditions and Federal Reserve Board Monetary Policies. Changes in national economic policies and conditions, such as increases in inflation or declines in economic output often prompt changes in Federal Open Market Committee (“FOMC”) monetary policies that could reduce interest income or increase the cost of funds to the Company, either of which could result in reduced earnings. In addition, deterioration in economic conditions that could result in increased loan and lease losses.
Changes in Regulatory Policies. Changes in federal and national bank regulatory policies, such as increases in capital requirements or in loan loss reserve or asset/liability ratio requirements, liquidity requirements, and the risks associated with concentration in real estate related loans could adversely affect earnings by reducing yields on earning assets or increasing operating costs.
Due to these and other possible uncertainties and risks, readers are cautioned not to place undue reliance on the forward-looking statements contained in this report, which speak only as of the date of this report, or to make predictions based solely on historical financial performance. The Company also disclaims any obligation to update forward-looking statements contained in this report.
36 |
Critical Accounting Policies And Estimates
Management’s discussion and analysis of its financial condition and results of operations are based upon the Company’s financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States of America. The preparation of these financial statements requires the Company to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses, and related disclosure of contingent assets and liabilities. On an on-going basis, the Company evaluates its estimates, including those related to its loans and allowance for loan losses. The Company bases its estimates on current market conditions, historical experience and on various other assumptions that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions. All adjustments that, in the opinion of management, are necessary for a fair presentation for the periods presented have been reflected as required by Regulation S-X, Rule 10-01. The Company believes the following critical accounting policy requires significant judgments and estimates used in the preparation of the consolidated financial statements.
Allowance for Loan Losses
The allowance for loan losses is periodically evaluated for adequacy by management. Factors considered include the Company’s loan loss experience, known and inherent risks in the portfolio, current economic conditions, known adverse situations that may affect the borrower’s ability to repay, regulatory policies, and the estimated value of underlying collateral.
The evaluation of the adequacy of the allowance is based on the above factors along with prevailing and anticipated economic conditions that may impact our borrowers’ ability to repay their loans. Determination of the allowance is based upon objective and subjective judgments by management from the information currently available. Adverse changes in information could result in higher than expected charge-offs and loan loss provisions.
Goodwill
Goodwill arises when the Company’s purchase price exceeds the fair value of the net assets of an acquired business. Goodwill represents the value attributable to intangible elements acquired. The value of goodwill is supported ultimately by profit from the acquired business. A decline in earnings could lead to impairment, which would be recorded as a write-down in the Company’s consolidated statements of earnings. Events that may indicate goodwill impairment include significant or adverse changes in results of operations of the acquired business or asset, economic or political climate; an adverse action or assessment by a regulator; unanticipated competition; and a more-likely-than-not expectation that a reporting unit will be sold or disposed of at a loss.
Other Than Temporary Impairment
Other than temporary impairment (“OTTI”) is triggered if the Company has the intent to sell the security, it is likely that it will be required to sell the security before recovery, or if the Company does not expect to recover the entire amortized cost basis of the security.
37 |
If the Company intends to sell the security or it is likely it will be required to sell the security before recovering its cost basis, the entire impairment loss would be recognized in earnings as an OTTI. If the Company does not intend to sell the security and it is not likely that the Company will be required to sell the security but the Company does not expect to recover the entire amortized cost basis of the security, only the portion of the impairment loss representing credit losses would be recognized in earnings as an OTTI. The credit loss is measured as the difference between the amortized cost basis and the present value of the cash flows expected to be collected of a security. Projected cash flows are discounted by the original or current effective interest rate depending on the nature of the security being measured for potential OTTI. The remaining impairment loss related to all other factors, the difference between the present value of the cash flows expected to be collected and fair value, would be recognized as a charge to other comprehensive income (“OCI”). Impairment losses related to all other factors are to be presented as a separate category within OCI.
For investment securities held to maturity, this amount is accreted over the remaining life of the debt security prospectively based on the amount and timing of future estimated cash flows. The accretion of the OTTI amount recorded in OCI will increase the carrying value of the investment, and would not affect earnings. If there is an indication of additional credit losses the security is re-evaluated accordingly based on the procedures described above.
Provision for and Deferred Income Taxes
The Company is subject to income tax laws of the United States, its states, and the municipalities in which it operates.
The Company considers its income tax provision methodology to be critical, as the determination of current and deferred taxes based on complex analyses of many factors including interpretation of federal and state laws, the difference between tax and financial reporting bases of assets and liabilities (temporary differences), estimates of amounts due or owed, the timing of reversals of temporary differences and current financial standards. Actual results could differ significantly from the estimates due to tax law interpretations used in determining the current and deferred income tax liabilities. Additionally, there can be no assurances that estimates and interpretations used in determining income tax liabilities may not be challenged by federal and state tax authorities.
Recent Accounting Pronouncements
In April 2013, the FASB issued ASU 2013-11, Income Taxes (Topic 740). This ASU requires an entity to present in the financial statements an unrecognized tax benefit as a liability and the unrecognized tax benefit should not be combined with deferred tax assets to the extent that a net operating loss carry-forward, tax loss or credit carry-forward is also not available at the reporting date. The amendment is to be applied prospectively to all unrecognized tax benefits and is effective for annual and interim reporting periods beginning after December 15, 2013. This ASU did not have a material impact on the Company’s consolidated financial statements.
38 |
In January 2014, the FASB issued ASU No. 2014-04, Reclassification of Residential Real Estate Collateralized Consumer Mortgage Loans upon foreclosure. ASU 2014-04 clarifies that an in substance repossession or foreclosure occurs, and a creditor is considered to have received physical possession of residential real estate property collateralizing a consumer mortgage loan, upon either (1) the creditor obtaining legal title to the residential real estate property upon completion of a foreclosure or (2) the borrower conveying all interest in the residential real estate property to the creditor to satisfy that loan through completion of a deed in lieu of foreclosure or through a similar legal agreement. Additionally, the amendments require interim and annual disclosure of both (1) the amount of foreclosed residential real estate property held by the creditor and (2) the recorded investment in consumer mortgage loans collateralized by residential real estate property that are in the process of foreclosure according to local requirements of the applicable jurisdiction. The amendments are effective for annual and interim reports beginning on or after December 15, 2014 and can be applied with a modified retrospective transition method or prospectively. The adoption of ASU 2014-04 is not expected to have a material impact on the Company’s consolidated financial statement.
In June 2014, the FASB issued ASU No. 2014-11, Transfers and Servicing (Topic 860): Repurchase-to-Maturity Transactions, Repurchase Financings, and Disclosures, which changes the accounting for repurchase-to-maturity transactions and repurchase financing arrangements. It also requires additional disclosures about repurchase agreements and other similar transactions. The new guidance aligns the accounting for repurchase-to-maturity transactions and repurchase agreements executed as a repurchase financing with the accounting for other typical repurchase agreements. Going forward, these transactions would all be accounted for as secured borrowings. The ASU also requires new and expanded disclosures. This ASU is effective for the first interim or annual period beginning after December 15, 2014. The adoption of ASU No. 2014-11 is not expected to have a material impact on The Company’s consolidated financial statements.
In August 2014, The FASB issued ASU No.2014-14, Receivables-Troubled Debt Restructurings by Creditors (Subtopic 310-40: Classification of Certain Government-Guaranteed Mortgage Loans upon Foreclosure). The amendments in this ASU require that a mortgage loan be derecognized and that a separate other receivable be recognized upon foreclosure if the following conditions are met: (1) the loan has a government guarantee that is not separable from the loan before foreclosure; (2) at the time of foreclosure, the creditor has the intent to convey the real estate property to the guarantor and make a claim on the guarantee, and the creditor has the ability to recover under that claim; and (3) at the time of foreclosure, any amount of the claim that is determined on the basis of the fair value of the real estate is fixed. Upon foreclosure, the separate other receivable should be measured based on the amount of the loan balance (principal and interest) expected to be recovered from the guarantor. The amendments in this ASU are effective for annual periods, and interim periods within those annual periods, beginning after December 15, 2014. The Company is currently evaluating the impact of this ASU.
Earnings Analysis
Net earnings for the quarter ended September 30, 2014 were $1,823,000, compared to net earnings of $3,131,000 for the quarter ended September 30, 2013, a decrease of $1,308,000, or 41.8%. Net earnings for the nine months ended September 30, 2014 were $5,286,000 compared to net earnings of $5,440,000 for the nine months ended September 30, 2013, a decrease of $154,000 or 2.8%. Cash dividend payments on the preferred shares outstanding were made as scheduled until redeemed. Net earnings during the nine months ended September 30, 2014 compared to the same period in 2013 benefitted from favorable expense comparisons due partly to the closure of our island of Guam office during the second quarter of 2013.
39 |
Net interest income for the quarter ended September 30, 2014 was $8,762,000, compared to $8,699,000 for the quarter ended September 30, 2013. Net interest income for the nine months ended September 30, 2014 was $25,982,000 compared to $26,133,000 for the nine months ended September 30, 2013. Investment yields for the three and nine months ended September 30, 2014 have declined when compared to the same period in 2013 due to declines in market interest rates. Loan yields have also declined due to significant competition by lending competitors.
The following tables present an analysis of net interest income and average earning assets and liabilities for the three-and nine-month periods ended September 30, 2014 compared to the three-and nine-month periods ended September 30, 2013.
TABLE 1 | NET INTEREST INCOME
AND AVERAGE BALANCES FNB BANCORP AND SUBSIDIARY | |||||||||||||||||||||||
Three months ended September 30, | ||||||||||||||||||||||||
2014 | 2013 | |||||||||||||||||||||||
(Dollar amounts in thousands) | Average Balance | Interest | Annualized Average Yield | Average Balance | Interest | Annualized Average Yield | ||||||||||||||||||
INTEREST EARNING ASSETS | ||||||||||||||||||||||||
Loans, gross (1) (2) | $ | 572,402 | $ | 7,899 | 5.47 | % | $ | 543,826 | $ | 7,808 | 5.70 | % | ||||||||||||
Taxable securities | 192,595 | 883 | 1.82 | % | 211,858 | 911 | 1.71 | % | ||||||||||||||||
Nontaxable securities (3) | 75,192 | 665 | 3.51 | % | 73,079 | 674 | 3.66 | % | ||||||||||||||||
Fed funds sold | — | — | n/a | 9 | — | n/a | ||||||||||||||||||
Int time depos-other fin institutions | 4,201 | 20 | 1.89 | % | 8,173 | 35 | 1.70 | % | ||||||||||||||||
Total interest earning assets | 844,390 | 9,467 | 4.50 | % | 836,945 | 9,428 | 4.47 | % | ||||||||||||||||
Cash and due from banks | 18,525 | 20,448 | ||||||||||||||||||||||
Premises | 12,356 | 12,708 | ||||||||||||||||||||||
Other assets | 27,951 | 33,768 | ||||||||||||||||||||||
Total noninterest earning assets | 58,832 | 66,923 | ||||||||||||||||||||||
TOTAL ASSETS | $ | 903,222 | $ | 903,868 | ||||||||||||||||||||
Demand, int bearing | $ | 77,499 | 16 | 0.08 | % | $ | 74,557 | 24 | 0.13 | % | ||||||||||||||
Money market | 326,210 | 309 | 0.38 | % | 322,949 | 312 | 0.38 | % | ||||||||||||||||
Savings | 67,643 | 17 | 0.10 | % | 61,016 | 22 | 0.14 | % | ||||||||||||||||
Time deposits | 105,203 | 130 | 0.49 | % | 140,965 | 197 | 0.55 | % | ||||||||||||||||
FHLB advances | 6,022 | 3 | 0.20 | % | 12,243 | 5 | 0.16 | % | ||||||||||||||||
Note payable | 5,785 | 63 | 0.04 | % | — | — | n/a | |||||||||||||||||
Fed funds purchased | — | — | n/a | 293 | — | — | ||||||||||||||||||
Total interest bearing liabilities | 588,362 | 538 | 0.36 | % | 612,023 | 560 | 0.36 | % | ||||||||||||||||
NONINTEREST BEARING LIABILITIES: | ||||||||||||||||||||||||
Demand deposits | 212,282 | 193,975 | ||||||||||||||||||||||
Other liabilities | 11,123 | 8,142 | ||||||||||||||||||||||
Total noninterest bearing liabilities | 223,405 | 202,117 | ||||||||||||||||||||||
TOTAL LIABILITIES | 811,767 | 814,140 | ||||||||||||||||||||||
Stockholders’ equity | 91,455 | 89,728 | ||||||||||||||||||||||
TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY | $ | 903,222 | $ | 903,868 | ||||||||||||||||||||
NET INTEREST INCOME AND MARGIN ON TOTAL EARNING ASSETS (4) | $ | 8,929 | 4.20 | % | $ | 8,868 | 4.20 | % |
1) | Interest on non-accrual loans is recognized into income on a cash received basis. |
2) | Amounts of interest earned include loan fees of $339,000 and $265,000 for the quarters ended September 30, 2014 and 2013, respectively. |
3) | Tax equivalent adjustments recorded at the statutory rate of 34% that are included in the nontaxable securities portfolio are $167,000 and $169,000 for the quarters ended September 30, 2014 and 2013, respectively, and were derived from nontaxable municipal interest income. |
4) | The annualized net interest margin is computed by dividing net interest income by total average interest earning assets and multiplied by an annualization factor. |
40 |
TABLE 2 | NET INTEREST
INCOME AND AVERAGE BALANCES FNB BANCORP AND SUBSIDIARY | |||||||||||||||||||||||
Nine months ended September 30, | ||||||||||||||||||||||||
2014 | 2013 | |||||||||||||||||||||||
(Dollar amounts in thousands) | Average Balance | Interest | Annualized Average Yield | Average Balance | Interest | Annualized Average Yield | ||||||||||||||||||
INTEREST EARNING ASSETS | ||||||||||||||||||||||||
Loans, gross (1) (2) | $ | 568,090 | $ | 23,423 | 5.51 | % | $ | 549,573 | $ | 23,986 | 5.84 | % | ||||||||||||
Taxable securities | 189,915 | 2,577 | 1.81 | % | 188,059 | 2,389 | 1.70 | % | ||||||||||||||||
Nontaxable securities (3) | 73,674 | 1,973 | 3.58 | % | 73,925 | 2,018 | 3.65 | % | ||||||||||||||||
Fed funds sold | 11 | — | n/a | 27 | — | n/a | ||||||||||||||||||
Int time depos-other fin institutions | 4,689 | 66 | 1.88 | % | 9,723 | 125 | 1.72 | % | ||||||||||||||||
Tot interest earning assets | 836,379 | 28,039 | 4.48 | % | 821,307 | 28,518 | 4.64 | % | ||||||||||||||||
Cash and due from banks | 18,998 | 32,446 | ||||||||||||||||||||||
Premises | 12,473 | 12,725 | ||||||||||||||||||||||
Other assets | 29,397 | 34,316 | ||||||||||||||||||||||
Tot noninterest earning assets | 60,868 | 79,487 | ||||||||||||||||||||||
TOTAL ASSETS | $ | 897,247 | $ | 900,794 | ||||||||||||||||||||
Demand, int bearing | $ | 78,452 | 50 | 0.09 | % | $ | 76,406 | 74 | 0.13 | % | ||||||||||||||
Money market | 323,361 | 908 | 0.38 | % | 310,616 | 1,035 | 0.45 | % | ||||||||||||||||
Savings | 66,477 | 51 | 0.10 | % | 63,673 | 79 | 0.17 | % | ||||||||||||||||
Time deposits | 111,416 | 408 | 0.49 | % | 154,984 | 688 | 0.59 | % | ||||||||||||||||
FHLB advances | 11,996 | 14 | 0.16 | % | 4,530 | 5 | 0.15 | % | ||||||||||||||||
Note payable | 4,039 | 131 | 4.34 | % | — | — | n/a | |||||||||||||||||
Fed funds purchased | — | — | — | 108 | — | — | ||||||||||||||||||
Tot interest bearing liabilities | 595,741 | 1,562 | 0.35 | % | 610,317 | 1,881 | 0.41 | % | ||||||||||||||||
Demand deposits | 201,702 | 187,743 | ||||||||||||||||||||||
Other liabilities | 10,066 | 9,740 | ||||||||||||||||||||||
Tot noninterest bearing liabilities | 211,768 | 197,483 | ||||||||||||||||||||||
TOTAL LIABILITIES | 807,509 | 807,800 | ||||||||||||||||||||||
Stockholders’ equity | 89,738 | 92,994 | ||||||||||||||||||||||
TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY | $ | 897,247 | $ | 900,794 | ||||||||||||||||||||
NET INTEREST INCOME AND MARGIN ON TOTAL EARNING ASSETS (4) | $ | 26,477 | 4.23 | % | $ | 26,637 | 4.34 | % |
(1) | Interest on non-accrual loans is recognized into income on a cash received basis. |
(2) | Amounts of interest earned included loan fees of $996,000 and $856,000 for the nine months ended September 30, 2014 and 2013, respectively. |
(3) | Tax equivalent adjustments recorded at the statutory rate of 34% that are included in the nontaxable securities portfolio are $495,000 and $504,000 for the nine months ended September 30, 2014 and 2013, respectively. Tax equivalent adjustments included in the nontaxable securities portfolio were derived from nontaxable municipal interest income. |
(4) | The annualized net interest margin is computed by dividing net interest income by total average interest earning assets and multiplied by an annualization factor. |
41 |
The various components that contributed to changes in net interest income for the three and nine months ended September 30, 2014 and 2013 are shown in Tables 1 and 2, above. The principal interest earning assets are loans, from a volume as well as from a rate or yield perspective. For the quarter ended September 30, 2014, average loans outstanding represented 67.8% of average earning assets. For the quarter ended September 30, 2013, they represented 65.0% of average earning assets. For the nine months ended September 30, 2014 and 2013, average loans outstanding represented 67.9% and 66.9%, respectively, of average earning assets.
The taxable equivalent yield on average interest earning assets for the quarter ended September 30, 2014 compared to the quarter ended September 30, 2013 increased from 4.47% to 4.50%. Average loans increased by $28,576,000, quarter over quarter, while their yield declined from 5.70% to 5.47%. Interest income on total interest earning assets for the quarter increased $39,000 on a fully-taxable equivalent basis.
For the three months ended September 30, 2014 compared to the three months ended September 30, 2013, the cost on total interest bearing liabilities remained unchanged at 0.36%. Interest on advances from the Federal Home Loan Bank for the quarter ended September 2014 was 0.20%, compared to 0.16% for the quarter ended September 2013. Time deposit interest cost decreased from 0.55% to 0.49%. The time deposit average balance outstanding decreased by $35,762,000, while their expense declined from $197,000 to $130,000. Money market deposits average volume increased $3,261,000, or 1.01%, while their cost was unchanged at 0.38%. Time deposits have been migrating to Money Market accounts during 2014 as rate differences between the two deposit types have narrowed.
For the nine months ended September 30, 2014 compared to the nine months ended September 30, 2013, interest income on interest earning assets decreased $479,000 on a fully-taxable equivalent basis, while average earning assets increased $15,072,000. Average loans increased by $18,517,000. Interest on loans decreased $563,000, while their yields decreased 33 basis points. The cost on total interest bearing liabilities decreased from 0.41% to 0.35%. Time deposit averages decreased $43,568,000 and their yield decreased 10 basis points. Money Market deposit average balances increased $12,745,000, and their cost decreased $127,000. For the nine months ended September 30, 2014, Federal Home Loan Bank advances averaged $11,996,000 and their interest cost was $14,000. For the nine months ended September 30, 2013, Federal Home Loan Bank advances averaged $4,530,000, and their interest cost was $5,000.
For the three and nine month periods ended September 30, 2014 and September 30, 2013, respectively, the following tables show the dollar amount of change in interest income and expense and the dollar amounts attributable to: (a) changes in volume (changes in volume at the current year rate), and b) changes in rate (changes in rate times the prior year’s volume). In this table, the dollar change in rate/volume is prorated to volume and rate proportionately.
42 |
Table 3 | FNB BANCORP AND SUBSIDIARY RATE/VOLUME VARIANCE ANALYSIS | |||||||||||
(Dollar amounts in thousands) | Three Months Ended September 30, 2014 Compared to 2013 | |||||||||||
Interest | Variance Attributable to | |||||||||||
Income/Expense | Rate | Volume | ||||||||||
INTEREST EARNING ASSETS | ||||||||||||
Loans | $ | 91 | $ | (303 | ) | $ | 394 | |||||
Taxable securities | (28 | ) | 60 | (88 | ) | |||||||
Nontaxable securities (1) | (9 | ) | (28 | ) | 19 | |||||||
Interest on time deposits with other financial institutions | (15 | ) | 4 | (19 | ) | |||||||
Total | $ | 39 | $ | (267 | ) | $ | 306 | |||||
INTEREST BEARING LIABILITIES | ||||||||||||
Demand deposits | $ | 8 | $ | 9 | (1 | ) | ||||||
Money market | 3 | 6 | (3 | ) | ||||||||
Savings deposits | 5 | 7 | (2 | ) | ||||||||
Time deposits | 67 | 17 | 50 | |||||||||
FHLB advances | 2 | — | 2 | |||||||||
Note payable | (63 | ) | — | (63 | ) | |||||||
Total | $ | 22 | $ | 39 | $ | (17 | ) | |||||
NET INTEREST INCOME | $ | 61 | $ | (228 | ) | $ | 289 |
(1) | Includes tax equivalent adjustment of $167,000 and $169,000 in the three months ended September 30, 2014 and September 30, 2013, respectively. |
43 |
Table 4 | FNB BANCORP AND SUBSIDIARY RATE/VOLUME VARIANCE ANALYSIS | |||||||||||
(Dollar amounts in thousands) | Nine Months Ended September 30, 2014 Compared to 2013 | |||||||||||
Interest | Variance Attributable to | |||||||||||
Income/Expense | Rate | Volume | ||||||||||
INTEREST EARNING ASSETS | ||||||||||||
Loans | $ | (563 | ) | $ | (1,371 | ) | $ | 808 | ||||
Taxable securities | 188 | 164 | 24 | |||||||||
Nontaxable securities (1) | (45 | ) | (38 | ) | (7 | ) | ||||||
Interest on time deposits with other financial institutions | (59 | ) | 6 | (65 | ) | |||||||
Total | $ | (479 | ) | $ | (1,239 | ) | $ | 760 | ||||
INTEREST BEARING LIABILITIES | ||||||||||||
Demand deposits | $ | 24 | $ | 26 | $ | (2 | ) | |||||
Money market | 127 | 169 | (42 | ) | ||||||||
Savings deposits | 29 | 31 | (2 | ) | ||||||||
Time deposits | 280 | 87 | 193 | |||||||||
FHLB advances | (10 | ) | — | (10 | ) | |||||||
Note payable | (131 | ) | — | (131 | ) | |||||||
Total | $ | 319 | $ | 313 | $ | 6 | ||||||
NET INTEREST INCOME | $ | (160 | ) | $ | (926 | ) | $ | 766 |
(1) | Includes tax equivalent adjustment of $495,000 and $504,000 in the nine months ended September 30, 2014 and September 30, 2013, respectively. |
44 |
Noninterest income
The following table shows the principal components of noninterest income for the periods indicated.
Table 5 | NONINTEREST INCOME | |||||||||||||||
Three months ended September 30, | Variance | |||||||||||||||
(Dollar amounts in thousands) | 2014 | 2013 | Amount | Percent | ||||||||||||
Service charges | $ | 644 | $ | 658 | $ | (14 | ) | -2.1 | % | |||||||
Credit card fees | — | 6 | (6 | ) | -100.0 | % | ||||||||||
Net gain on sale of available-for-sale of securities | 100 | 37 | 63 | 170.3 | % | |||||||||||
Bank-owned life insurance policy earnings | 86 | 90 | (4 | ) | -4.4 | % | ||||||||||
Other income | 211 | 187 | 24 | 12.8 | % | |||||||||||
Total noninterest income | $ | 1,041 | $ | 978 | $ | 63 | 6.4 | % |
Nine months ended September 30, | Variance | |||||||||||||||
(Dollars in thousands) | 2014 | 2013 | Amount | Percent | ||||||||||||
Service charges | $ | 1,928 | $ | 1,993 | $ | (65 | ) | -3.3 | % | |||||||
Credit card fees | — | 16 | (16 | ) | -100.0 | % | ||||||||||
Net gain on sale of available-for-sale securities | 139 | 152 | (13 | ) | -8.6 | % | ||||||||||
Bank-owned life insurance policy earnings | 273 | 279 | (6 | ) | -2.2 | % | ||||||||||
Other income | 727 | 606 | 121 | 20.0 | % | |||||||||||
Total noninterest income | $ | 3,067 | $ | 3,046 | $ | 21 | 0.7 | % |
Noninterest income consists mainly of service charges on deposits, credit card fees, and several other miscellaneous types of income. During the nine months of 2014, the Bank sold $10,505,000 in investment securities for a pre-tax gain of $151,000. In the same period, the Bank sold $2,109,000 in investment securities at a loss of $12,000. During the nine months of 2013, the Company sold approximately $12,428,000 in investment securities at a pre-tax net gain of $152,000. The sales proceeds were reinvested in a variety of investment securities during the same period.
45 |
Noninterest expense
The following table shows the principal components of noninterest expense for the periods indicated.
Table 6 | NONINTEREST EXPENSE | |||||||||||||||
Three months ended September 30, | Variance | |||||||||||||||
(Dollar amounts in thousands) | 2014 | 2013 | Amount | Percent | ||||||||||||
Salaries and employee benefits | $ | 4,241 | $ | 4,099 | $ | 142 | 3.5 | % | ||||||||
Occupancy expense | 704 | 812 | (108 | ) | -13.3 | % | ||||||||||
Equipment expense | 405 | 387 | 18 | 4.7 | % | |||||||||||
Professional fees | 395 | 405 | (10 | ) | -2.5 | % | ||||||||||
FDIC assessment | 165 | 180 | (15 | ) | -8.3 | % | ||||||||||
Telephone, postage & supplies | 284 | 271 | 13 | 4.8 | % | |||||||||||
Advertising expense | 118 | 70 | 48 | 68.6 | % | |||||||||||
Data processing expense | 151 | 163 | (12 | ) | -7.4 | % | ||||||||||
Low income housing expenses | 109 | 110 | (1 | ) | -0.9 | % | ||||||||||
Surety insurance | 68 | 77 | (9 | ) | -11.7 | % | ||||||||||
Directors expense | 63 | 63 | 0 | 0.0 | % | |||||||||||
Other real estate owned expense, net | — | 22 | (22 | ) | -100.0 | % | ||||||||||
Other expense | 352 | 291 | 61 | 21.0 | % | |||||||||||
Total noninterest expense | $ | 7,055 | $ | 6,950 | $ | 105 | 1.5 | % |
NONINTEREST EXPENSE | ||||||||||||||||
Nine months ended September 30, | Variance | |||||||||||||||
(Dollars in thousands) | 2014 | 2013 | Amount | Percent | ||||||||||||
Salaries and employee benefits | $ | 12,636 | $ | 12,827 | $ | (191 | ) | -1.5 | % | |||||||
Occupancy expense | 2,078 | 2,620 | (542 | ) | -20.7 | % | ||||||||||
Equipment expense | 1,202 | 1,171 | 31 | 2.6 | % | |||||||||||
Professional fees | 1,427 | 1,212 | 215 | 17.7 | % | |||||||||||
FDIC assessment | 525 | 540 | (15 | ) | -2.8 | % | ||||||||||
Telephone, postage & supplies | 883 | 985 | (102 | ) | -10.4 | % | ||||||||||
Advertising | 339 | 363 | (24 | ) | -6.6 | % | ||||||||||
Data processing expense | 430 | 489 | (59 | ) | -12.1 | % | ||||||||||
Low income housing expenses | 329 | 329 | 0 | 0.0 | % | |||||||||||
Surety insurance | 202 | 198 | 4 | 2.0 | % | |||||||||||
Directors expense | 189 | 189 | 0 | 0.0 | % | |||||||||||
Other real estate owned expense, net | 87 | 100 | (13 | ) | -13.0 | % | ||||||||||
Gain on sale of other real estate owned, net | (220 | ) | — | (220 | ) | n/a | ||||||||||
Other expense | 1,000 | 1,051 | (51 | ) | -4.9 | % | ||||||||||
Total noninterest expense | $ | 21,107 | $ | 22,074 | $ | (967 | ) | -4.4 | % |
Noninterest expense consists mainly of salaries and employee benefits. For the three months ended September 30, 2014 compared to three months ended September 30, 2013, it represented 60.1% and 59.0% of total noninterest expenses. For the nine months ended September 30, 2014 and 2013, it was 59.9% and 58.1%, respectively, of total noninterest expenses.
46 |
Provision for Loan Losses
There was no provision for loan losses for the three months ended September 30, 2014, because the level was considered adequate to provide for probable losses inherent in the loan portfolio. The growth in the loan portfolio has been in-line with management expectations, and credit metrics have continued to improve during the quarter. There was a provision for loan losses of $225,000 for the three months ended September 30, 2013. There was a provision for loan losses of $75,000 and $1,335,000 for the nine months ended September 30, 2014 and 2013, respectively.
The allowance for loan losses was $10,774,000 or 1.86% of total gross loans at September 30, 2014, compared to $9,748,000 or 1.71% of total gross loans at September 30, 2013. The allowance for loan losses is maintained at a level considered adequate for management to provide for probable loan losses inherent in the loan portfolio. Loans charged-off during the first nine months of 2014 were significantly lower than during the same time period during 2013, reflecting the improvement in the level of problem loans within our loan portfolio on a year over year basis. A significant allocation of our allowance for loan losses exists to reflect the degree of uncertainty related to the credit risk and performance of the Oceanic Bank portfolio since its acquisition.
Income Taxes
The effective tax rate for the quarter ended September 30, 2014 was of 33.7% which compares to a 25.1% effective tax rate benefit for the quarter ended September 30, 2013. The effective tax rate for the nine months ended September 30, 2014 and September 30, 2013, was an effective tax rate of 32.8% and 5.7%, respectively. During the third quarter of 2013, the Bank recorded a tax benefit of $1,334,000. This tax benefit was primarily the result of the reversal of our deferred tax valuation reserve. Taxable income levels and forecasted net income have risen to levels where management no longer believes the deferred tax valuation allowance is necessary. All low income housing tax credit carry-forwards are now expected to be realized. Tax preference items which affect our effective tax rate include changing amounts invested in tax-advantaged securities, available Low Income Housing Credits, and amounts of interest in come on qualifying loans in Enterprise Zones.
Asset and Liability Management
Ongoing management of the Company’s interest rate sensitivity limits interest rate risk through monitoring the mix and maturity of loans, investments and deposits. Management regularly reviews the Company’s position and evaluates alternative sources and uses of funds as well as changes in external factors. Various methods are used to achieve and maintain the desired interest rate sensitivity position including the sale or purchase of assets and product pricing.
In order to ensure that sufficient funds are available for loan growth and deposit withdrawals, as well as to provide for general needs, the Company must maintain an adequate level of liquidity. Asset liquidity comes from the Company’s ability to convert short-term investments into cash and from the maturity and repayment of loans and investment securities. Liability liquidity comes from the Company’s customer base, which provides core deposit growth.
47 |
The overall liquidity position of the Company is closely monitored and evaluated regularly. Management believes the Company’s liquidity sources at September 30, 2014, are adequate to meet its operating needs in 2014 and our liquidity positions are sufficient to meet our liquidity needs in the near term.
Financial Condition
Assets. Total assets increased to $907,422,000 at September 30, 2014 from $891,930,000 at December 31, 2013. The increases were primarily $3,936,000 in securities-available-for-sale and $16,190,000 in net loans, with a net decrease of $4,634,000 in all other asset categories
Loans. Gross loans (before net loan fees) at September 30, 2014 were $579,749,000, an increase of $17,032,000 over December 31, 2013. During the first nine months of 2014, gross commercial real estate loans decreased $4,504,000, real estate construction loans increased $383,000, real estate multi-family loans increased $7,578,000, real estate loans secured by 1 to 4 family residences increased $13,330,000, commercial and industrial loans increased $412,000, and consumer loans decreased by $167,000. The portfolio breakdown was as follows:
TABLE 7 | LOAN PORTFOLIO | |||||||||||||||
September 30 | Percent | December 31 | Percent | |||||||||||||
(Dollar amounts in thousands) | 2014 | 2013 | ||||||||||||||
Commercial real estate | $ | 320,695 | 55 | % | $ | 325,199 | 58 | % | ||||||||
Real estate construction | 34,701 | 6 | % | 34,318 | 6 | % | ||||||||||
Real estate multi family | 53,721 | 9 | % | 46,143 | 8 | % | ||||||||||
Real estate-1 to 4 family | 120,233 | 21 | % | 106,903 | 19 | % | ||||||||||
Commercial & industrial | 48,916 | 8 | % | 48,504 | 9 | % | ||||||||||
Consumer loans | 1,483 | 0 | % | 1,650 | 0 | % | ||||||||||
Gross loans | 579,749 | 100 | % | 562,717 | 100 | % | ||||||||||
Net deferred loan fees | (441 | ) | 0 | % | (495 | ) | 0 | % | ||||||||
Total | $ | 579,308 | 100 | % | $ | 562,222 | 100 | % |
Allowance for loan losses. Management of the Company is responsible for assessing the overall risks within the Bank’s loan portfolio, assessing the specific loss expectancy, and determining the adequacy of the allowance for loan losses. The level of the allowance is determined by internally generating credit quality ratings, reviewing economic conditions in the Company’s market area, and considering the Company’s historical loan loss experience. The Company’s management considers changes in national and local economic conditions, as well as the condition of various market segments. It also reviews any changes in the nature and volume of the portfolio. Management watches for the existence and effect of any concentrations of credit, and changes in the level of such concentrations. It also reviews the effect of external factors, such as competition and legal and regulatory requirements. Finally, the Company is committed to maintaining an adequate allowance, identifying credit weaknesses by consistent review of loans, and maintaining the ratings and changing those ratings in a timely manner as circumstances change.
48 |
A summary of transactions in the allowance for loan losses for the nine months ended September 30, 2014 and September 30, 2013, respectively, is as follows:
TABLE 8 | ALLOWANCE FOR LOAN LOSSES | |||||||
(Dollar amounts in thousands) | Nine months ended September 30, | |||||||
2014 | 2013 | |||||||
Balance, beginning of period | $ | 9,879 | $ | 9,124 | ||||
Provision for loan losses | 75 | 1,335 | ||||||
Recoveries | 1,202 | 79 | ||||||
Amounts charged off | (382 | ) | (790 | ) | ||||
Balance, end of period | $ | 10,774 | $ | 9,748 |
During the nine months ended September 30, 2014, there was a provision for loan losses of $75,000, compared to $1,335,000 for the same period in 2013.
In management’s judgment, the allowance was adequate to absorb losses currently inherent in the loan portfolio at September 30, 2014. However, changes in prevailing economic conditions in the Company’s markets or in the financial condition of its customers could result in changes in the level of nonperforming assets and charge-offs in the future and, accordingly, changes in the allowance.
The allowance is affected by a number of factors, and does not necessarily move in tandem with the level of gross loans outstanding. Management continues to monitor the factors that affect the allowance, and is prepared to make adjustments as they become necessary.
Nonperforming assets. Nonperforming assets consist of nonaccrual loans, loans that are 90 days or more past due but are still accruing interest and other real estate owned. At September 30, 2014, there was $5,875,000 in nonperforming assets, compared to $12,669,000 at December 31, 2013. Nonaccrual loans were $5,120,000 at September 30, 2014, compared to $7,351,000 at December 31, 2013. There were no loans past due 90 days and still accruing at either date.
There was one property valued at $755,000 in Other Real Estate Owned at September 30, 2014, and four properties valued at $5,318,000 in Other Real Estate Owned at December 31, 2013. Three of these were sold in the first nine months of 2014, for a net gain of $220,000. Management intends to aggressively market these properties. While management believes these properties will sell, there can be no assurance that these properties will not sell quickly given the current real estate market, nor can the expected sales price be accurately predicted.
Deposits. Deposits are gathered primarily from our customers in San Francisco, San Mateo and Santa Clara counties. Although the Financial District, Sutter and Guam branches were closed in 2013, there was a modest growth in deposits for the nine months of 2014, with deposits moving towards money market and savings, and away from time deposits. Deposits decreased by $8,066,000 or 1.0% in the third quarter of 2014, primarily an increase of $5,553,000 in noninterest bearing demand deposits, with a decrease of $7,374,000 in interest bearing demand deposits, and a decrease of $6,245,000 in savings, money market and time certificates of deposit.
49 |
In September 30, 2014 compared to December 31, 2013, noninterest bearing demand deposits increased by $10,884,000, savings and money market increased by $23,735,000, while interest bearing demand declined $5,957,000 and time deposits declined $20,121,000.
The following table sets forth the maturity schedule of the time certificates of deposit on September 30, 2014:
TABLE 9 | ||||||||||||
(Dollar amounts in thousands) | Under | $100,000 | ||||||||||
Maturities | $100,000 | or more | Total | |||||||||
Three months or less | $ | 9,105 | $ | 18,754 | $ | 27,859 | ||||||
Over three through six months | 7,065 | 25,108 | 32,173 | |||||||||
Over six through twelve months | 8,749 | 11,429 | 20,178 | |||||||||
Over twelve months | 9,603 | 14,218 | 23,821 | |||||||||
Total | $ | 34,522 | $ | 69,509 | $ | 104,031 |
Regulatory Capital. The following table shows the risk-based capital ratios and leverage ratios at September 30, 2014 and December 31, 2013 for the Bank:
TABLE 10 | Minimum “Well | |||||||||||
September 30, | December 31, | Capitalized” | ||||||||||
Regulatory Capital Ratios | 2014 | 2013 | Requirements | |||||||||
Total Regulatory Capital Ratio | 14.30 | % | 14.12 | % | ≥ | 10.00 | % | |||||
Tier 1 Capital Ratio | 13.05 | % | 12.86 | % | ≥ | 6.00 | % | |||||
Leverage Ratio | 10.16 | % | 9.67 | % | ≥ | 5.00 | % |
Liquidity. Liquidity is a measure of the Company’s ability to convert assets into cash with minimal loss. As of September 30, 2014, liquid assets were $287,212,000, or 31.7% of total assets. As of December 31, 2013, liquid assets were $283,538,000, or 31.8% of total assets. Liquidity consists of cash and due from banks, federal funds sold, and securities available-for-sale. The Company’s primary uses of funds are loans, and the primary sources of funds are deposits. The Company also has federal funds borrowing facilities totaling $30,000,000, a Federal Home Loan Bank line up to 30% of total eligible assets, and a Federal Reserve Bank borrowing facility.
The relationship between total net loans and total deposits is a useful additional measure of liquidity. A higher loan to deposit ratio may lead to a loss of liquid assets in the future. This must be balanced against the fact that loans represent the highest interest earning assets. A lower loan to deposit ratio means lower potential income. On September 30, 2014, net loans were at 72.7% of deposits. On December 31, 2013, net loans net loans were at 71.4% of deposits.
For further information on the Company’s cash flow positions refer to the Consolidated Statements of Cash Flows.
50 |
Off-Balance Sheet Items
The Company has certain ongoing commitments under operating leases. These commitments do not significantly impact operating results. As of September 30, 2014 and December 31, 2013, commitments to extend credit and letters of credit were the only financial instruments with off-balance sheet risk. The Company has not entered into any contracts for financial derivative instruments such as futures, swaps, options or similar instruments. Loan commitments and letters of credit were $145,168,000 and $132,041,000 at September 30, 2014 and December 31, 2013, respectively. As a percentage of net loans, these off-balance sheet items represent 25.5% and 23.9% respectively. The Company does not expect all commitments to be funded.
Item 3. | Quantitative and Qualitative Disclosures about Market Risk. |
Market risk is the risk of loss to future earnings, to fair values of assets or to future cash flows that may result from changes in the price or value of a financial instrument. The value of a financial instrument may change as a result of changes in interest rates and other market conditions. Market risk is attributed to all market risk sensitive financial instruments, including loans, investment securities, deposits and borrowings. The Company does not engage in trading activities or participate in foreign currency transactions for its own account. Accordingly, exposure to market risk is primarily a function of asset and liability management activities and of changes in market rates of interest.
Changes in rates can cause or require increases in the rates paid on deposits that may take effect more rapidly or may be greater than the increases in the interest rates that the Company is able to charge on loans and the yields that it can realize on its investments. The extent of that market risk depends on a number of variables including the sensitivity to changes in market interest rates and the maturities of the Company’s interest earning assets and deposits.
Item 4. | Controls and Procedures. |
Disclosure Controls and Procedures: An evaluation of the Company’s disclosure controls and procedures based on criteria established in “Internal Control-Integrated Framework” issued in 1992 by the Committee of Sponsoring Organizations of the Treadway Commission (“COSO”) was carried out under the supervision and with the participation of the Company’s Chief Executive Officer, (principal executive officer) Chief Financial Officer (principal financial officer) and other members of the Company’s senior management as of the end of the Company’s fiscal quarter ended September 30, 2014. The Company’s Chief Executive Officer (principal executive officer) and Chief Financial Officer (principal financial officer) concluded that the Company’s disclosure controls and procedures are effective in ensuring that material information required to be disclosed by the Company in the reports it files and submits under the Exchange Act is recorded, processed, summarized and reported as and when required and that such information is communicated to the Company’s management, including the principal executive officer and the principal financial officer, to allow timely decisions regarding required disclosures. The evaluation did not identify any change in the Company’s internal control over financial reporting that occurred during the quarter ended September 30, 2014 that has materially affected, or is reasonably likely to materially affect, the Company’s internal control over financial reporting.
51 |
Management of FNB Bancorp (the “Company”) is responsible for establishing and maintaining adequate internal control over financial reporting, and for performing an assessment of the effectiveness of internal control over financial reporting as of September 30, 2014. Internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. The Company’s system of internal control over financial reporting includes those policies and procedures that (i) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transaction and dispositions of the assets of the Company; (ii) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the Company are being made only in accordance with authorizations of Management and Directors of the Company; and (iii) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of the Company’s assets that could have a material effect on the financial statements.
This quarterly report does not include an attestation report of the Company’s independent registered public accounting firm regarding internal control over financial reporting. Management’s report was not subject to the attestation by the Company’s independent registered public accounting firm pursuant to rules of the Securities and Exchange Commission that permit the Company to provide only management’s report in this quarterly report.
Item 1. | Legal Proceedings |
There are no material legal proceedings adverse to the Company or First National Bank to which any director, officer, affiliate of the Company, or 5% stockholder of the Company, or any associate of any such director, officer, affiliate or 5% stockholder of the Company are a party, and none of the foregoing persons has a material interest adverse to the Company or First National Bank. From time to time, the Company and/or First National Bank are a party to claims and legal proceedings arising in the ordinary course of business. The Company’s management is not aware of any material pending legal proceedings to which either it or First National Bank may be a party or has recently been a party, which will have a material adverse effect on the financial condition or results of operations of the Company and First National Bank, taken as a whole.
Item 1A. | Risk Factors |
During the course of normal operations, the Bank and the Company manage a variety of risks including, but not limited to, credit risk, operational risk, interest rate risk and regulatory compliance risk. For a more complete discussion of the risk factors facing the Bank and the Company, please refer to the section entitled “Item 1A – Risk Factors” in the Company’s December 31, 2013 Form 10-K.
On July 21, 2010, the Dodd-Frank Wall Street Reform and Consumer Protection Act (the “Act”) was signed into law. The purpose of this legislation was to bring about regulatory changes and oversight that would help stop past abuses from recurring in the future. This legislation gives new powers to the FDIC and the Federal Reserve Bank that they may use in the execution of their duties as regulators and overseers of the banking industry. It also created a new federal consumer protection agency named the Consumer Financial Protection Bureau (“CFPB”).
52 |
All existing consumer laws and regulations will be transferred to the CFPB. This Act is expected to enable regulators to issue numerous new banking regulations and requirements that have not yet been fully developed or promulgated. The ultimate effect the Act has on the Company’s operations will ultimately be determined by the significance of the new banking regulations that are issued as a result of the Act. Management’s ability to effectively integrate Oceanic Holding, Inc. could have a negative impact on earnings and the financial position of the Company.
Item 2. | Unregistered Sales of Equity Securities and Use of Proceeds |
None.
Item 4. | Mine Safety Disclosures |
Not Applicable.
Item 6. | Exhibits |
Exhibits |
31: Rule 13a-14(a)/15d-14(a) Certifications |
32: Section 1350 Certifications |
Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.
FNB BANCORP | |||
(Registrant) | |||
Dated: | |||
November 12, 2014. | By: | /s/ Thomas C. McGraw | |
Thomas C. McGraw | |||
Chief Executive Officer | |||
(Authorized Officer) | |||
By: | /s/ David A. Curtis | ||
David A. Curtis | |||
Senior Vice President | |||
Chief Financial Officer | |||
(Principal Financial Officer) |
53 |