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Table of Contents

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549


FORM 10-Q


 

(Mark One)

 

[ X ]

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the quarterly period ended March 31, 2016.

 

Or

 

[    ]

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the transition period from ______to ______.

 

 

Commission File Number:  000-25020

 

GRAPHIC

(Exact name of registrant as specified in its charter)

 

California

 

77-0388249

(State or other jurisdiction of

 

(I.R.S. Employer

incorporation or organization)

 

Identification No.)

 

1222 Vine Street,

 

93446

Paso Robles, California

 

 

(Address of principal executive offices)

 

(Zip Code)

 

 

(805) 369-5200

(Registrant’s telephone number, including area code)

 

Not Applicable

(Former name, former address and former fiscal year, if changed since last report)

 

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 [    ]

 

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).  YES [ X ]   NO [   ]

 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or smaller reporting company.  See definitions of “large accelerated filer,” “accelerated filer,” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

 

Large accelerated filer [    ]

 

Accelerated filer [ X ]

 

Non-accelerated filer [    ] (Do not check if a smaller reporting company)

 

Smaller reporting company [    ]

 

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). YES [   ]    NO [ X ]

 

As of May 2, 2016 there were 34,195,314 shares of the registrant’s common stock outstanding.

 

 

 



Table of Contents

 

Heritage Oaks Bancorp

and Subsidiaries

 

Table of Contents

 

 

 

 

 

Page

 

 

 

 

 

Part I.

 

Financial Information

 

 

 

 

 

 

 

 

Item 1.

Financial Statements (Unaudited).

 

 

 

 

 

 

 

 

 

Condensed Consolidated Balance Sheets at March 31, 2016 and December 31, 2015

 

4

 

 

 

 

 

 

 

Condensed Consolidated Statements of Income for the Three Months Ended March 31, 2016 and March 31, 2015

 

5

 

 

 

 

 

 

 

Condensed Consolidated Statements of Comprehensive Income for the Three Months Ended March 31, 2016 and March 31, 2015

 

6

 

 

 

 

 

 

 

Condensed Consolidated Statements of Shareholders’ Equity for the Three Months Ended March 31, 2016 and March 31, 2015

 

7

 

 

 

 

 

 

 

Condensed Consolidated Statements of Cash Flows for the Three Months Ended March 31, 2016 and March 31, 2015

 

8

 

 

 

 

 

 

 

Notes to Condensed Consolidated Financial Statements

 

9

 

 

 

 

 

 

Item 2.

Management’s Discussion and Analysis of Financial Condition and Results of Operations.

 

37

 

 

 

 

 

 

Item 3.

Quantitative and Qualitative Disclosures About Market Risk

 

63

 

 

 

 

 

 

Item 4.

Controls and Procedures.

 

65

 

 

 

 

 

Part II.

 

Other Information

 

 

 

 

 

 

 

 

Item 1.

Legal Proceedings.

 

66

 

 

 

 

 

 

Item 1A.

Risk Factors.

 

66

 

 

 

 

 

 

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds.

 

66

 

 

 

 

 

 

Item 3.

Defaults Upon Senior Securities.

 

67

 

 

 

 

 

 

Item 4.

Mine Safety Disclosures.

 

67

 

 

 

 

 

 

Item 5.

Other Information.

 

67

 

 

 

 

 

 

Item 6.

Exhibits.

 

67

 

 

 

 

 

 

 

Signatures

 

68

 

2


 

 


Table of Contents

 

Part I.  Financial Information

 

Item 1. Financial Statements

 

Condensed Consolidated Financial Statements and the notes thereto begin on the next page.

 

3



Table of Contents

 

Heritage Oaks Bancorp

and Subsidiaries

Condensed Consolidated Balance Sheets (Unaudited)

 

 

 

March 31,

 

December 31,

 

 

 

2016

 

2015

 

 

 

(dollars in thousands)

 

Assets

 

 

 

 

 

Cash and due from banks

 

  $

14,804

 

  $

15,610

 

Interest earning deposits in other banks

 

38,771

 

54,313

 

Total cash and cash equivalents

 

53,575

 

69,923

 

Investment securities available for sale, at fair value

 

441,705

 

450,935

 

Loans held for sale, at lower of cost or fair value

 

6,560

 

9,755

 

Gross loans held for investment

 

1,291,346

 

1,247,280

 

Net deferred loan fees

 

(1,160)

 

(1,132)

 

Allowance for loan and lease losses

 

(17,565)

 

(17,452)

 

Net loans held for investment

 

1,272,621

 

1,228,696

 

Premises and equipment, net

 

36,843

 

37,342

 

Bank-owned life insurance

 

33,069

 

32,850

 

Goodwill

 

24,885

 

24,885

 

Deferred tax assets, net

 

18,715

 

21,272

 

Federal Home Loan Bank stock

 

7,853

 

7,853

 

Other intangible assets, net

 

4,055

 

4,298

 

Other assets

 

13,239

 

11,930

 

Total assets

 

  $

1,913,120

 

  $

1,899,739

 

 

 

 

 

 

 

Liabilities

 

 

 

 

 

Non-interest bearing deposits

 

  $

524,025

 

  $

514,559

 

Interest bearing deposits

 

1,058,564

 

1,050,402

 

Total deposits

 

1,582,589

 

1,564,961

 

Short term FHLB borrowing

 

29,500

 

38,500

 

Long term FHLB borrowing

 

73,512

 

65,021

 

Junior subordinated debentures

 

10,485

 

10,438

 

Other liabilities

 

8,704

 

14,385

 

Total liabilities

 

1,704,790

 

1,693,305

 

Shareholders’ Equity

 

 

 

 

 

Common stock, no par value; authorized: 100,000,000 shares;

 

 

 

 

 

issued and outstanding: 34,129,425 shares and 34,353,014, shares as of

 

 

 

 

 

March 31, 2016 and December 31, 2015, respectively.

 

163,923

 

165,517

 

Additional paid in capital

 

8,460

 

8,251

 

Retained earnings

 

34,134

 

32,200

 

Accumulated other comprehensive income

 

1,813

 

466

 

Total shareholders’ equity

 

208,330

 

206,434

 

Total liabilities and shareholders’ equity

 

  $

1,913,120

 

  $

1,899,739

 

 

The accompanying notes are an integral part of these condensed consolidated financial statements.

 

4



Table of Contents

 

Heritage Oaks Bancorp

and Subsidiaries

Condensed Consolidated Statements of Income (Unaudited)

 

 

 

For the Three Months Ended

 

 

 

March 31,

 

 

 

2016

 

2015

 

 

 

(dollars in thousands, except per share data)

 

 

 

 

 

 

 

Interest Income

 

 

 

 

 

Loans, including fees

 

  $

 14,615

 

  $

 15,088

 

Investment securities

 

2,200

 

1,667

 

Other interest-earning assets

 

200

 

173

 

Total interest income

 

17,015

 

16,928

 

Interest Expense

 

 

 

 

 

Deposits

 

879

 

889

 

Other borrowings

 

518

 

541

 

Total interest expense

 

1,397

 

1,430

 

Net interest income before provision for loan losses

 

15,618

 

15,498

 

Provision for loan and lease losses

 

-

 

-

 

Net interest income after provision for loan and lease losses

 

15,618

 

15,498

 

Non-Interest Income

 

 

 

 

 

Fees and service charges

 

1,287

 

1,207

 

Gain on sale of investment securities

 

551

 

505

 

Gain on derivative instruments

 

532

 

-

 

Net gain on sale of mortgage loans

 

458

 

386

 

Earnings on BOLI

 

287

 

211

 

Other mortgage fee income

 

91

 

138

 

Other income

 

201

 

554

 

Total non-interest income

 

3,407

 

3,001

 

Non-Interest Expense

 

 

 

 

 

Salaries and employee benefits

 

6,318

 

6,259

 

Professional services

 

1,886

 

1,406

 

Occupancy and equipment

 

1,627

 

1,587

 

Information technology

 

600

 

601

 

Regulatory assessments

 

310

 

297

 

Sales and marketing

 

244

 

317

 

Amortization of intangible assets

 

243

 

262

 

OREO Write-downs

 

217

 

-

 

Loan department expense

 

213

 

286

 

Communication costs

 

125

 

141

 

Other expense

 

838

 

657

 

Total non-interest expense

 

12,621

 

11,813

 

Income before income taxes

 

6,404

 

6,686

 

Income tax expense

 

2,419

 

2,617

 

Net income

 

  $

 3,985

 

  $

 4,069

 

 

 

 

 

 

 

Earnings Per Common Share

 

 

 

 

 

Basic

 

  $

 0.12

 

  $

 0.12

 

Diluted

 

  $

 0.12

 

  $

 0.12

 

Dividends Declared Per Common Share

 

  $

 0.06

 

  $

 0.05

 

 

The accompanying notes are an integral part of these condensed consolidated financial statements.

 

5



Table of Contents

 

Heritage Oaks Bancorp

and Subsidiaries

Condensed Consolidated Statements of Comprehensive Income (Unaudited)

 

 

 

For the Three Months Ended,

 

 

 

March 31,

 

 

 

2016

 

2015

 

 

 

(dollars in thousands)

 

Net income

 

  $

3,985

 

  $

4,069

 

Other comprehensive income, net of tax:

 

 

 

 

 

Unrealized holding gains on securities arising during the period

 

2,875

 

2,755

 

Reclassification for net gains on investments included in net income

 

(551)

 

(505)

 

Other comprehensive income, before income tax expense

 

2,324

 

2,250

 

Income tax expense related to items of other comprehensive income

 

977

 

946

 

Other comprehensive income

 

1,347

 

1,304

 

Comprehensive income

 

  $

5,332

 

  $

5,373

 

 

The accompanying notes are an integral part of these condensed consolidated financial statements.

 

6


 


Table of Contents

 

Heritage Oaks Bancorp

and Subsidiaries

Condensed Consolidated Statements of Shareholders’ Equity (Unaudited)

 

 

 

 

 

 

 

 

 

 

 

 

 

Accumulated

 

 

 

 

 

 

 

Common Stock

 

Additional

 

 

 

Other

 

Total

 

 

 

Preferred

 

Number of

 

 

 

Paid-In

 

Retained

 

Comprehensive

 

Shareholders’

 

 

 

Stock

 

Shares

 

Amount

 

Capital

 

Earnings

 

Income

 

Equity

 

 

 

(dollars in thousands, except per share data)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance, December 31, 2014

 

  $

1,056

 

33,905,060

 

  $

164,196

 

  $

6,984

 

  $

24,772

 

  $

932

 

  $

197,940

 

Dividends declared ($0.05 per share)

 

 

 

 

 

 

 

 

 

(1,713)

 

 

 

(1,713)

 

Exercise of stock options

 

 

 

17,353

 

75

 

 

 

 

 

 

 

75

 

Share-based compensation

 

 

 

 

 

 

 

241

 

 

 

 

 

241

 

Tax benefit of share-based compensation

 

 

 

 

 

 

 

27

 

 

 

 

 

27

 

Net issuance of restricted share awards

 

 

 

28,105

 

 

 

 

 

 

 

 

 

-    

 

Net income

 

 

 

 

 

 

 

 

 

4,069

 

 

 

4,069

 

Other comprehensive income

 

 

 

 

 

 

 

 

 

 

 

1,304

 

1,304

 

Balance, March 31, 2015

 

  $

1,056

 

33,950,518

 

  $

164,271

 

  $

7,252

 

  $

27,128

 

  $

2,236

 

  $

201,943

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance, December 31, 2015

 

  $

-    

 

34,353,014

 

  $

165,517

 

  $

8,251

 

  $

32,200

 

  $

466

 

  $

206,434

 

Dividends declared ($0.06 per share)

 

 

 

 

 

 

 

 

 

(2,051)

 

 

 

(2,051)

 

Repurchases of common stock

 

 

 

(226,170)

 

(1,635)

 

 

 

 

 

 

 

(1,635)

 

Exercise of stock options

 

 

 

6,830

 

41

 

 

 

 

 

 

 

41

 

Share-based compensation

 

 

 

 

 

 

 

207

 

 

 

 

 

207

 

Tax benefit of share-based compensation

 

 

 

 

 

 

 

2

 

 

 

 

 

2

 

Net forfeiture of restricted share awards

 

 

 

(4,249)

 

 

 

 

 

 

 

 

 

-    

 

Net income

 

 

 

 

 

 

 

 

 

3,985

 

 

 

3,985

 

Other comprehensive income

 

 

 

 

 

 

 

 

 

 

 

1,347

 

1,347

 

Balance, March 31, 2016

 

  $

-    

 

34,129,425

 

  $

163,923

 

  $

8,460

 

  $

34,134

 

  $

1,813

 

  $

208,330

 

 

The accompanying notes are an integral part of these condensed consolidated financial statements.

 

7



Table of Contents

 

Heritage Oaks Bancorp

and Subsidiaries

Condensed Consolidated Statements of Cash Flows (Unaudited)

 

 

 

For the Three Months Ended

 

 

 

March 31,

 

 

 

2016

 

2015

 

 

 

(dollars in thousands)

 

Cash Flows from Operating Activities

 

 

 

 

 

Net income

 

  $

3,985

 

  $

4,069

 

Adjustments to reconcile net income to net cash used in operating activities:

 

 

 

 

 

Depreciation and amortization

 

544

 

479

 

Write-downs on premises and equipment held for sale

 

-

 

138

 

Amortization of premiums / discounts

 

1,783

 

1,482

 

Amortization of intangible assets

 

243

 

262

 

Accretion of discount on acquired and purchased loans, net

 

(223)

 

(907)

 

Share-based compensation expense

 

207

 

241

 

Gain on sale of available for sale securities

 

(551)

 

(505)

 

Gain on sale of loans held for sale

 

(458)

 

(386)

 

Originations of loans held for sale

 

(29,402)

 

(40,038)

 

Proceeds from sale of loans held for sale

 

33,055

 

33,517

 

Net increase in bank owned life insurance

 

(219)

 

(160)

 

Decrease in deferred tax assets, net

 

1,580

 

1,466

 

Write-downs on OREO

 

217

 

-    

 

Tax impact of share-based compensation

 

(2)

 

(27)

 

Decrease in other assets and other liabilities, net

 

(1,210)

 

257

 

Net cash provided by (used in) operating activities

 

9,549

 

(112)

 

Cash Flows from Investing Activities

 

 

 

 

 

Purchase of securities, available for sale

 

(58,049)

 

(65,085)

 

Sale of securities, available for sale

 

57,279

 

46,528

 

Proceeds from principal paydowns of securities, available for sale

 

11,127

 

10,954

 

Increase in loans, net

 

(49,820)

 

(13,659)

 

Recoveries on previously charged-off loans

 

123

 

184

 

Purchase of property, premises and equipment, net

 

(45)

 

(772)

 

Net cash used in investing activities

 

(39,385)

 

(21,850)

 

Cash Flows from Financing Activities

 

 

 

 

 

Increase in deposits, net

 

17,631

 

65,471

 

Proceeds from Federal Home Loan Bank borrowing

 

70,000

 

36,000

 

Repayments of Federal Home Loan Bank borrowing

 

(70,500)

 

(38,000)

 

Proceeds from exercise of stock options, including tax benefits

 

43

 

102

 

Dividends paid

 

(2,051)

 

(1,713)

 

Repurchases of common stock

 

(1,635)

 

-    

 

Net cash provided by financing activities

 

13,488

 

61,860

 

Net (decrease) increase in cash and cash equivalents

 

(16,348)

 

39,898

 

Cash and cash equivalents, beginning of period

 

69,923

 

35,580

 

Cash and cash equivalents, end of period

 

  $

53,575

 

  $

75,478

 

 

 

 

 

 

 

Supplemental Cash Flow Information

 

 

 

 

 

Cash Flow Information

 

 

 

 

 

Interest paid

 

  $

1,386

 

  $

1,348

 

Income taxes paid

 

  $

1,300

 

  $

-

 

Non-Cash Flow Information

 

 

 

 

 

Change in unrealized gain on available for sale securities

 

  $

2,875

 

  $

2,755

 

Loans transferred to foreclosed assets

 

  $

-

 

  $

433

 

 

The accompanying notes are an integral part of these condensed consolidated financial statements.

 

8



Table of Contents

 

Note 1.  Summary of Significant Accounting Policies

 

Description of Business

 

Heritage Oaks Bancorp (“Bancorp”) is a California corporation organized in 1994 to act as the holding company for Heritage Oaks Bank (the “Bank”), which opened for business in 1983.  The Bank, which is the Company’s sole operating subsidiary, operates branches within San Luis Obispo and Santa Barbara Counties and has a loan production office in Ventura County.  The Bank offers traditional banking products such as checking, savings, money market accounts and certificates of deposit, as well as mortgage, commercial, and consumer loans to customers who are predominately small to medium-sized businesses and to individuals.  As such, the Company is subject to a concentration risk associated with its banking operations in San Luis Obispo and Santa Barbara Counties, and to a lesser degree Ventura County. No one customer accounts for more than 10% of revenue or assets in any period presented and the Company has no assets nor does it generate any revenue from outside of the United States. While the chief decision-makers of the Company monitor the revenue streams of the various products and services, operations are managed and financial performance is evaluated on a Company-wide basis.  Operating segments are aggregated into one as operating results for all segments are similar. Accordingly, all of the financial service operations are considered by management to be aggregated in one reportable operating segment.

 

Basis of Presentation

 

The accompanying unaudited condensed consolidated financial statements of the Company have been prepared in accordance with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, certain information and notes required by accounting principles generally accepted in the United States of America (“U.S. GAAP”) for annual financial statements are not included herein. In the opinion of management, all adjustments (which consist solely of normal recurring accruals) considered necessary for a fair presentation of results for the interim periods presented have been included. These interim unaudited condensed consolidated financial statements should be read in conjunction with the financial statements and related notes contained in the Company’s 2015 Annual Report filed on Form 10-K with the Securities and Exchange Commission on March 4, 2016; file number 000-25020.

 

The condensed consolidated financial statements include the accounts of Bancorp and its wholly-owned financial subsidiary, Heritage Oaks Bank.  All significant inter-company balances and transactions have been eliminated.

 

Operating results for the three months ended March 31, 2016 are not necessarily indicative of the results that may be expected for the year ending December 31, 2016.

 

Investment in Non-Consolidated Subsidiaries

 

The Company accounts for its investment in Heritage Oaks Capital Trust II, Mission Community Capital Trust I, and Santa Lucia Bancorp (CA) Capital Trust, as unconsolidated subsidiaries using the equity method of accounting, as the Company is not the primary beneficiary of the trust.  The sole purpose of each of these trusts is for the issuance of trust preferred securities.

 

Reclassifications

 

Certain items in the prior year financial statements were reclassified to conform to the current presentation.  Reclassifications had no effect on prior year net income or shareholders’ equity.

 

Use of Estimates in the Preparation of Condensed Consolidated Financial Statements

 

The preparation of condensed consolidated financial statements in conformity with accounting principles generally accepted in the United States of America (“U.S. GAAP”), and general practices within the banking industry require management to make estimates and assumptions.  These estimates and assumptions affect the reported amounts of assets and liabilities at the date of the condensed consolidated financial statements and the reported amounts of revenues and expenses during the reporting period.  Actual results could differ from these estimates.

 

Significant Accounting Policies

 

The significant accounting policies that the Company applies are detailed in Note 1. Summary of Significant Accounting Policies, of the Company’s 2015 Annual Report filed on Form 10-K.  There have been no changes to these policies or their application during the three months ended March 31, 2016.

 

9



Table of Contents

 

Note 1.  Summary of Significant Accounting Policies – continued

 

Recent Accounting Standards Updates

 

Recent Accounting Guidance Adopted

 

In September, 2015, the FASB issued ASU No. 2015-16, Simplifying the Accounting for Measurement Period Adjustments (Topic 805). This ASU eliminates the requirement to restate prior period financial statements for measurement period adjustments to assets acquired and liabilities assumed in a business combination.  The new guidance under this update requires the cumulative impact of measurement period adjustments be recognized in the period the adjustment is determined. This update does not change what constitutes a measurement period adjustment, nor does it change the length of the measurement period. The new standard is effective for interim annual periods beginning after December 15, 2015 and should be applied prospectively to measurement period adjustments that occur after the effective date. This update did not have an impact on the Company’s condensed consolidated financial statements.

 

Recent Accounting Guidance Not Yet Effective

 

In March 2016, the FASB issued ASU No. 2016-09, Compensation – Stock Compensation: Improvements to Employee Share-Based Payment Accounting (Topic 718). This update simplifies several aspects of accounting for share-based payment transactions, including the income tax consequences, classification of awards as either equity or liabilities, and classification on the statement of cash flow. The new guidance under the update requires all excess tax benefits and tax deficiencies be recognized as income tax expense or benefit on the income statement.  The amendments within the update are effective for fiscal years and all interim periods beginning after December 31, 2016, with early adoption permitted. The Company is currently in the process of evaluating the impact of the adoption of this update, but does not expect a material impact on the Company’s financial statements.

 

In February 2016-02, the FASB issued ASU 2016-02, Leases (Topic 842). This update improves the understanding and comparability of lessees’ financial commitments by requiring lease assets and lease liabilities to be recognized on the balance sheet for those leases classified as operating leases under current U.S. GAAP. This ASU requires a lessee to recognize on the balance sheet a lease liability to make lease payments and a right of use asset, representing the right to use the underlying asset, during the term of the lease.  This update is effective for fiscal years beginning after December 15, 2018, including interim periods within those fiscal years, using a modified retrospective approach, with early adoption permitted. The Company is currently in the process of evaluating the impact of the adoption of this update will have on its financial statements.

 

In January 2016, the FASB issued ASU No. 2016-01, Recognition and Measurement of Financial Assets and Financial Liabilities (Topic 825).  The amendments in this update require that public entities measure equity investments with readily determinable fair values, at fair value, with changes in their fair value recorded through net income.  This ASU also clarifies that an entity should evaluate the need for a valuation allowance on a deferred tax asset related to available for sale securities in combination with the entity’s other deferred tax assets. The amendments within the update are effective for fiscal years and all interim periods beginning after December 15, 2017.  The Company is currently in the process of evaluating the impact of the adoption of this update, but does not expect a material impact on the Company’s financial statements.

 

In May 2014, the FASB issued ASU No. 2014-09, Revenue from Contracts with Customers (Topic 606). This update requires an entity to recognize revenue as performance obligations are met, in order to reflect the transfer of promised goods or services to customers in an amount that reflects the consideration the entity is entitled to receive for those goods or services. The following steps are applied in the updated guidance: (1) identify the contract(s) with a customer; (2) identify the performance obligations in the contract; (3) determine the transaction price; (4) allocate the transaction price to the performance obligations in the contract; and (5) recognize revenue when, or as, the entity satisfies a performance obligation. The amendments within this update are effective for the quarter ending March 31, 2018. The Company is currently in the process of evaluating the impact of the adoption of this update, but does not expect a material impact on the Company’s financial statements.

 

10



Table of Contents

 

Note 2. Fair Value of Assets and Liabilities

 

Recurring Basis

 

The following table provides a summary of the financial instruments the Company measures at fair value on a recurring basis as of March 31, 2016 and December 31, 2015:

 

 

 

As of

 

Fair Value Measurements Using

 

 

 

March 31,

 

Quoted Prices in

 

Significant Other

 

Significant

 

 

 

2016

 

Active Markets for

 

Observable

 

Unobservable

 

 

 

Assets At

 

Identical Assets

 

Inputs

 

Inputs

 

 

 

Fair Value

 

(Level 1)

 

(Level 2)

 

(Level 3)

 

 

 

(dollars in thousands)

 

Assets

 

 

 

 

 

 

 

 

 

Available for sale investments:

 

 

 

 

 

 

 

 

 

Obligations of U.S. government agencies

 

  $

45,353

 

  $

-   

 

  $

45,353

 

  $

-

 

Mortgage backed securities

 

 

 

 

 

 

 

 

 

U.S government sponsored entities and agencies

 

250,994

 

-   

 

250,994

 

-

 

Non-agency

 

33,256

 

-   

 

33,256

 

-

 

State and municipal securities

 

101,783

 

-   

 

101,783

 

-

 

Asset backed securities

 

10,263

 

-   

 

10,263

 

-

 

Other investments

 

56

 

56

 

-    

 

-

 

Derivative financial instruments:

 

 

 

 

 

 

 

 

 

Interest rate swaps

 

877

 

-   

 

877

 

 

 

Total assets measured on a recurring basis

 

  $

442,582

 

  $

56

 

  $

442,526

 

  $

-

 

Liabilities

 

 

 

 

 

 

 

 

 

Derivative financial instruments:

 

 

 

 

 

 

 

 

 

Interest rate swaps

 

  $

877

 

  $

-   

 

  $

877

 

  $

-

 

Total liabilities measured on a recurring basis

 

  $

877

 

  $

-   

 

  $

877

 

  $

-

 

 

 

 

As of

 

Fair Value Measurements Using

 

 

 

December 31,

 

Quoted Prices in

 

Significant Other

 

Significant

 

 

 

2015

 

Active Markets for

 

Observable

 

Unobservable

 

 

 

Assets At

 

Identical Assets

 

Inputs

 

Inputs

 

 

 

Fair Value

 

(Level 1)

 

(Level 2)

 

(Level 3)

 

 

 

(dollars in thousands)

 

Assets

 

 

 

 

 

 

 

 

 

Available for sale investments:

 

 

 

 

 

 

 

 

 

Obligations of U.S. government agencies

 

  $

47,318

 

  $

-   

 

  $

47,318

 

  $

-

 

Mortgage backed securities

 

 

 

 

 

 

 

 

 

U.S government sponsored entities and agencies

 

245,235

 

-   

 

245,235

 

-

 

Non-agency

 

34,317

 

-   

 

34,317

 

-

 

State and municipal securities

 

108,406

 

-   

 

108,406

 

-

 

Asset backed securities

 

15,627

 

-   

 

15,627

 

-

 

Other investments

 

32

 

32

 

-    

 

-

 

Derivative financial instruments:

 

 

 

 

 

 

 

 

 

Interest rate swaps

 

-    

 

-   

 

-    

 

-

 

Total assets measured on a recurring basis

 

  $

450,935

 

  $

32

 

  $

450,903

 

  $

-

 

Liabilities

 

 

 

 

 

 

 

 

 

Derivative financial instruments:

 

 

 

 

 

 

 

 

 

Interest rate swaps

 

  $

-    

 

  $

-   

 

  $

-    

 

  $

-

 

Total liabilities measured on a recurring basis

 

  $

-    

 

  $

-   

 

  $

-    

 

  $

-

 

 

11



Table of Contents

 

Note 2. Fair Value of Assets and Liabilities - continued

 

There were no transfers between levels of fair value measures during the three months ended March 31, 2016 and December 31, 2015 for assets measured at fair value on a recurring basis. As of March 31, 2016 and December 31, 2015, there were no assets or liabilities classified as Level 3.

 

Non-recurring Basis

 

The Company may be required, from time to time, to measure certain assets and liabilities at fair value on a non-recurring basis. These include assets and liabilities that are measured at the lower of cost or fair value, and that were recognized at fair value which was below cost. Certain impaired loans are recorded in the Company’s condensed consolidated financial statements using the discounted cash flow method versus the collateral method. The discounted cash flow method as prescribed by ASC 310 Receivables, is not a fair value measurement since the discount rate utilized is the loan’s effective interest rate, which is not considered a market rate for those loans. The discounted cash flow approach is used to measure impairment for certain impaired loans, because of the significant payment history and the global cash flow analysis performed on each borrower.

 

 

 

As of

 

Fair Value Measurements Using

 

 

 

 

March 31,

 

Quoted Prices in

 

Significant Other

 

Significant

 

 

 

 

2016

 

Active Markets for

 

Observable

 

Unobservable

 

Year To

 

 

Assets At

 

Identical Assets

 

Inputs

 

Inputs

 

Date Losses

 

 

Fair Value

 

(Level 1)

 

(Level 2)

 

(Level 3)

 

(Recoveries)

 

 

(dollars in thousands)

Assets

 

 

 

 

 

 

 

 

 

 

Other real estate owned

 

$

111

 

$

-

 

$

111

 

$

-

 

$

217

Total assets measured on a non-recurring basis

 

$

111

 

$

-

 

$

111

 

$

-

 

$

217

 

 

 

As of

 

Fair Value Measurements Using

 

 

 

 

December 31,

 

Quoted Prices in

 

Significant Other

 

Significant

 

 

 

 

2015

 

Active Markets for

 

Observable

 

Unobservable

 

Year To

 

 

Assets At

 

Identical Assets

 

Inputs

 

Inputs

 

Date Losses

 

 

Fair Value

 

(Level 1)

 

(Level 2)

 

(Level 3)

 

(Recoveries)

 

 

(dollars in thousands)

Assets

 

 

 

 

 

 

 

 

 

 

Other real estate owned

 

$

-

 

$

-

 

$

-

 

$

-

 

$

-

Total assets measured on a non-recurring basis

 

$

-

 

$

-

 

$

-

 

$

-

 

$

-

 

There were no transfers between levels of fair value measures during the three months ended March 31, 2016 for assets measured at fair value on a non-recurring basis.

 

12



Table of Contents

 

Note 2. Fair Value of Assets and Liabilities - continued

 

Fair Value of Financial Instruments

 

The following table provides a summary of the estimated fair value of financial instruments at March 31, 2016 and December 31, 2015:

 

 

 

 

 

Fair Value Measurements Using

 

 

 

 

As of

 

Quoted Prices in

 

Significant Other

 

Significant

 

 

 

 

March 31, 2016

 

Active Markets for

 

Observable

 

Unobservable

 

 

 

 

Carrying

 

Identical Assets

 

Inputs

 

Inputs

 

 

 

 

Amount

 

(Level 1)

 

(Level 2)

 

(Level 3)

 

Fair Value

 

 

(dollars in thousands)

Assets

 

 

 

 

 

 

 

 

 

 

Cash and cash equivalents

 

$

53,575

 

$

53,575

 

$

-

 

$

-

 

$

53,575

Investment securities available for sale

 

441,705

 

56

 

441,649

 

-

 

441,705

Federal Home Loan Bank stock

 

7,853

 

-

 

-

 

-

 

N/A

Loans receivable, net

 

1,272,621

 

-

 

-

 

1,283,978

 

1,283,978

Loans held for sale

 

6,560

 

-

 

6,560

 

-

 

6,560

Interest rate swaps

 

877

 

-

 

877

 

-

 

877

Accrued interest receivable

 

6,002

 

-

 

2,181

 

3,821

 

6,002

Liabilities

 

 

 

 

 

 

 

 

 

 

Non-interest bearing deposits

 

524,025

 

524,025

 

-

 

-

 

524,025

Interest bearing deposits

 

1,058,564

 

-

 

1,058,428

 

-

 

1,058,428

Federal Home Loan Bank advances

 

103,012

 

-

 

104,734

 

-

 

104,734

Junior subordinated debentures

 

10,485

 

-

 

-

 

7,838

 

7,838

Interest rate swaps

 

877

 

-

 

877

 

-

 

877

Accrued interest payable

 

401

 

-

 

401

 

-

 

401

 

 

 

 

 

Fair Value Measurements Using

 

 

 

 

As of

 

Quoted Prices in

 

Significant Other

 

Significant

 

 

 

 

December 31, 2015

 

Active Markets for

 

Observable

 

Unobservable

 

 

 

 

Carrying

 

Identical Assets

 

Inputs

 

Inputs

 

 

 

 

Amount

 

(Level 1)

 

(Level 2)

 

(Level 3)

 

Fair Value

 

 

(dollars in thousands)

Assets

 

 

 

 

 

 

 

 

 

 

Cash and cash equivalents

 

$

69,923

 

$

69,923

 

$

-

 

$

-

 

$

69,923

Investment securities available for sale

 

450,935

 

32

 

450,903

 

-

 

450,935

Federal Home Loan Bank stock

 

7,853

 

-

 

-

 

-

 

N/A

Loans receivable, net

 

1,228,696

 

-

 

-

 

1,250,903

 

1,250,903

Loans held for sale

 

9,755

 

-

 

9,755

 

-

 

9,755

Interest rate swaps

 

-

 

-

 

-

 

-

 

-

Accrued interest receivable

 

6,256

 

-

 

2,589

 

3,667

 

6,256

Liabilities

 

 

 

 

 

 

 

 

 

 

Non-interest bearing deposits

 

514,559

 

514,559

 

-

 

-

 

514,559

Interest bearing deposits

 

1,050,402

 

-

 

1,051,731

 

-

 

1,051,731

Federal Home Loan Bank advances

 

103,521

 

-

 

104,718

 

-

 

104,718

Junior subordinated debentures

 

10,438

 

-

 

-

 

8,195

 

8,195

Interest rate swaps

 

-

 

-

 

-

 

-

 

-

Accrued interest payable

 

390

 

-

 

390

 

-

 

390

 

Information on off-balance sheet instruments as of March 31, 2016 and December 31, 2015 follows:

 

 

 

March 31, 2016

 

December 31, 2015

 

 

 

Notional

 

Cost to Cede

 

Notional

 

Cost to Cede

 

 

 

Amount

 

or Assume

 

Amount

 

or Assume

 

 

 

(dollars in thousands)

 

Off-balance sheet instruments, commitments to extend credit and standby letters of credit

 

$

254,780

 

$

2,548

 

$

255,093

 

$

2,551

 

 

13



Table of Contents

 

Note 3. Investment Securities

 

The following table sets forth the amortized cost and fair values of the Company’s investment securities, all of which are reported as available for sale at March 31, 2016 and December 31, 2015:

 

 

 

March 31, 2016

 

 

 

 

Gross

 

Gross

 

 

 

 

Amortized

 

Unrealized

 

Unrealized

 

 

 

 

Cost

 

Gains

 

Losses

 

Fair Value

 

 

(dollars in thousands)

Obligations of U.S. government agencies

 

$

45,486

 

$

247

 

$

(380)

 

$

45,353

Mortgage backed securities

 

 

 

 

 

 

 

 

U.S. government sponsored entities and agencies

 

250,950

 

1,254

 

(1,210)

 

250,994

Non-agency

 

33,377

 

80

 

(201)

 

33,256

State and municipal securities

 

97,977

 

3,902

 

(96)

 

101,783

Asset backed securities

 

10,687

 

-

 

(424)

 

10,263

Other investments

 

100

 

-

 

(44)

 

56

Total available for sale securities

 

$

438,577

 

$

5,483

 

$

(2,355)

 

$

441,705

 

 

 

December 31, 2015

 

 

 

 

Gross

 

Gross

 

 

 

 

Amortized

 

Unrealized

 

Unrealized

 

 

 

 

Cost

 

Gains

 

Losses

 

Fair Value

 

 

(dollars in thousands)

Obligations of U.S. government agencies

 

$

47,478

 

$

269

 

$

(429)

 

$

47,318

Mortgage backed securities

 

 

 

 

 

 

 

 

U.S. government sponsored entities and agencies

 

246,561

 

986

 

(2,312)

 

245,235

Non-agency

 

34,645

 

-

 

(328)

 

34,317

State and municipal securities

 

105,164

 

3,486

 

(244)

 

108,406

Asset backed securities

 

16,183

 

-

 

(556)

 

15,627

Other investments

 

100

 

-

 

(68)

 

32

Total available for sale securities

 

$

450,131

 

$

4,741

 

$

(3,937)

 

$

450,935

 

Those investment securities available for sale which have an unrealized loss position at March 31, 2016 and December 31, 2015 are detailed below:

 

 

 

March 31, 2016

 

 

Less Than Twelve Months

 

Twelve Months or More

 

Total

 

 

Fair

 

Unrealized

 

Fair

 

Unrealized

 

Fair

 

Unrealized

 

 

Value

 

Loss

 

Value

 

Loss

 

Value

 

Loss

 

 

(dollars in thousands)

Obligations of U.S. government agencies

 

$

16,425

 

$

(129)

 

$

16,671

 

$

(251)

 

$

33,096

 

$

(380)

Mortgage backed securities

 

 

 

 

 

 

 

 

 

 

 

 

U.S. government sponsored entities and agencies

 

90,460

 

(770)

 

17,901

 

(440)

 

108,361

 

(1,210)

Non-agency

 

8,662

 

(108)

 

6,020

 

(93)

 

14,682

 

(201)

State and municipal securities

 

7,207

 

(96)

 

-

 

-

 

7,207

 

(96)

Asset backed securities

 

-

 

-

 

10,263

 

(424)

 

10,263

 

(424)

Other investments

 

56

 

(44)

 

-

 

-

 

56

 

(44)

Total

 

$

122,810

 

$

(1,147)

 

$

50,855

 

$

(1,208)

 

$

173,665

 

$

(2,355)

 

14



Table of Contents

 

Note 3. Investment Securities - continued

 

 

 

December 31, 2015

 

 

Less Than Twelve Months

 

Twelve Months or More

 

Total

 

 

Fair

 

Unrealized

 

Fair

 

Unrealized

 

Fair

 

Unrealized

 

 

Value

 

Loss

 

Value

 

Loss

 

Value

 

Loss

 

 

(dollars in thousands)

Obligations of U.S. government agencies

 

$

34,533

 

$

(429)

 

$

-    

 

$

-    

 

$

34,533

 

$

(429)

Mortgage backed securities

 

 

 

 

 

 

 

 

 

 

 

 

U.S. government sponsored entities and agencies

 

131,570

 

(1,485)

 

31,558

 

(827)

 

163,128

 

(2,312)

Non-agency

 

31,400

 

(317)

 

2,917

 

(11)

 

34,317

 

(328)

State and municipal securities

 

15,660

 

(243)

 

235

 

(1)

 

15,895

 

(244)

Asset backed securities

 

-

 

-

 

15,626

 

(556)

 

15,626

 

(556)

Other investments

 

32

 

(68)

 

-

 

-

 

32

 

(68)

Total

 

$

213,195

 

$

(2,542)

 

$

50,336

 

$

(1,395)

 

$

263,531

 

$

(3,937)

 

A total of 70 and 104 securities were in an unrealized loss position as of March 31, 2016 and December 31, 2015, respectively. As of March 31, 2016, the Company believes that unrealized losses on its investment securities are not attributable to credit quality, but rather fluctuations in market prices. In the case of the agency mortgage related securities, contractual cash flows are guaranteed by agencies of the U.S. Government. While the Company’s investment security holdings have contractual maturity dates that range from 1 to 40 years, they have a much shorter effective duration dependent on the instrument’s priority in the overall cash flow structure and the characteristics of the loans underlying the investment security.

 

Management does not intend to sell and it is unlikely that management will be required to sell the securities prior to their anticipated recovery. As of March 31, 2016, the Company does not believe unrealized losses related to any of its securities are other than temporary.

 

The proceeds from the sales and calls of securities and the associated gains and losses for the three months ended March 31, 2016 and 2015 are listed below:

 

 

 

Three Months Ended

 

 

 

March 31,

 

 

 

2016

 

2015

 

 

 

(dollars in thousands)

 

Proceeds

 

$

57,279

 

$

47,033

 

Gross gains

 

871

 

679

 

Gross losses

 

(320)

 

(174)

 

 

The income tax expense related to these net realized gains was $0.2 million for the three months ended March 31, 2016 and 2015.

 

15



Table of Contents

 

Note 3. Investment Securities - continued

 

The table below provides a maturity distribution of available for sale investment securities at March 31, 2016 and December 31, 2015. The table reflects the expected lives of mortgage-backed securities, based on the Company’s historical prepayment experience, because borrowers have the right to prepay obligations without prepayment penalties.  Included in the Company’s mortgage-backed securities are Home Equity Conversion Mortgages, which typically possess prepayment characteristics that differ from traditional mortgage-backed securities, such that prepayment activity is not as closely correlated with changes in interest rates. Contractual maturities are reflected for all other security types. Actual maturities may differ from contractual maturities because borrowers may have the right to call or prepay obligations with or without call or prepayment penalties.

 

 

 

March 31, 2016

 

December 31, 2015

 

 

 

Amortized

 

 

 

Amortized

 

 

 

 

 

Cost

 

Fair Value

 

Cost

 

Fair Value

 

 

 

(dollars in thousands)

 

Due one year or less

 

$

42,074

 

$

42,099

 

$

51,049

 

$

50,978

 

Due after one year through five years

 

135,547

 

135,609

 

153,444

 

152,916

 

Due after five years through ten years

 

170,078

 

173,405

 

182,996

 

184,870

 

Due after ten years

 

90,878

 

90,592

 

62,642

 

62,171

 

Total

 

$

438,577

 

$

441,705

 

$

450,131

 

$

450,935

 

 

 

Securities having an amortized cost and a fair value of $160.9 million and $163.9 million, respectively at March 31, 2016, and $153.9 million and $155.2 million, respectively at December 31, 2015 were pledged to secure public deposits. At March 31, 2016 and December 31, 2015, there were no holdings of securities of any one issuer, other than the U.S. Government and its agencies, in an amount greater than 10% of total securities.

 

The following table summarizes earnings on investment securities, both taxable, and those that are exempt from federal taxation for the three months ended March 31, 2016 and 2015:

 

 

 

For the Three Months Ended

 

 

 

March 31,

 

 

 

2016

 

2015

 

 

 

(dollars in thousands)

 

Taxable earnings on investment securities

 

 

 

 

 

Obligations of U.S. government agencies

 

$

138

 

$

135

 

Mortgage backed securities

 

1,254

 

854

 

State and municipal securities

 

187

 

62

 

Asset backed securities

 

42

 

47

 

Earnings on investment securities exempt from federal taxation

 

 

 

 

 

State and municipal securities

 

579

 

569

 

Total

 

$

2,200

 

$

1,667

 

 

16



Table of Contents

 

Note 4. Loans and Allowance for Loan and Lease Losses

 

The following table provides a summary of outstanding loan balances as of March 31, 2016 and December 31, 2015:

 

 

 

March 31, 2016

 

December 31, 2015

 

 

Non-PCI

 

PCI

 

Total Loans

 

Non-PCI

 

PCI

 

Total Loans

 

 

Loans

 

Loans

 

Receivable

 

Loans

 

Loans

 

Receivable

 

 

(dollars in thousands)

Real Estate Secured

 

 

 

 

 

 

 

 

 

 

 

 

Commercial

 

$

599,581

 

$

5,661

 

$

605,242

 

$

573,559

 

$

5,685

 

$

579,244

Residential 1 to 4 family

 

170,459

 

576

 

171,035

 

165,256

 

573

 

165,829

Farmland

 

129,787

 

-

 

129,787

 

120,566

 

-

 

120,566

Multi-family residential

 

81,807

 

-

 

81,807

 

79,381

 

-

 

79,381

Construction and land

 

32,717

 

267

 

32,984

 

35,387

 

282

 

35,669

Home equity lines of credit

 

29,738

 

-

 

29,738

 

31,387

 

-

 

31,387

Total real estate secured

 

1,044,089

 

6,504

 

1,050,593

 

1,005,536

 

6,540

 

1,012,076

Commercial

 

 

 

 

 

 

 

 

 

 

 

 

Commercial and industrial

 

168,683

 

683

 

169,366

 

164,025

 

783

 

164,808

Agriculture

 

64,492

 

1,454

 

65,946

 

62,911

 

1,452

 

64,363

Total commercial

 

233,175

 

2,137

 

235,312

 

226,936

 

2,235

 

229,171

Consumer

 

5,441

 

-

 

5,441

 

6,033

 

-

 

6,033

Total loans held for investment

 

1,282,705

 

8,641

 

1,291,346

 

1,238,505

 

8,775

 

1,247,280

Deferred loan fees

 

(1,160)

 

-

 

(1,160)

 

(1,132)

 

-

 

(1,132)

Allowance for loan and lease losses

 

(17,486)

 

(79)

 

(17,565)

 

(17,373)

 

(79)

 

(17,452)

Total net loans held for investment

 

$

1,264,059

 

$

8,562

 

$

1,272,621

 

$

1,220,000

 

$

8,696

 

$

1,228,696

 

 

 

 

 

 

 

 

 

 

 

 

 

Loans held for sale

 

$

6,560

 

$

-    

 

$

6,560

 

$

9,755

 

$

-    

 

$

9,755

 

17



Table of Contents

 

Note 4. Loans and Allowance for Loan and Lease Losses – continued

 

Non-PCI acquired loans totaled $151.7 million and $163.8 million as of March 31, 2016 and December 31, 2015, respectively, and are included in total non-PCI loans in the table above.  The decline in these loan balances is attributable to loan prepayments, payoffs, and scheduled principal reduction.

 

Loans held for sale consist of single-family residential mortgage loans under contract to be sold in the secondary market. In most cases these loans are sold within thirty to sixty days.

 

Concentration of Credit Risk

 

The Company held loans that were collateralized by various forms of real estate, including residential 1 to 4 family loans originated and held for sale, totaling $1.1 billion at March 31, 2016 and $1.0 billion at December 31, 2015, respectively.  These loans are generally made to borrowers located in the counties of San Luis Obispo, Santa Barbara, and Ventura.  The Company attempts to reduce its concentration of credit risk by making loans which are diversified by product type.  While Management believes that the collateral presently securing this portfolio is adequate, there can be no assurance that deterioration in the California real estate market, or the impact of the current California drought on our real estate collateralized loans, would not expose the Company to significantly greater credit risk.

 

Loans Serviced for Others

 

Loans serviced for others are not included in the Company’s consolidated financial statements.  The unpaid principal balance of loans serviced for others, exclusive of Small Business Administration (“SBA”) loans, was $32.4 million and $38.0 million at March 31, 2016 and December 31, 2015, respectively.  Periodically, the Company originates SBA loans for sale for which it retains the servicing of the guaranteed portion of the loan sold. At March 31, 2016 and December 31, 2015, the unpaid principal balance of SBA loans serviced for others totaled $7.9 million and $8.5 million, respectively.  The Company did not sell any SBA loans as of March 31, 2016.  The gain on sale of SBA loans is included as a component of other income in non-interest income.

 

Pledged Loans

 

At March 31, 2016, the Bank has pledged $656.9 million of loans to the FHLB of San Francisco to secure a credit facility totaling $453.1 million under a blanket lien. Of this credit facility, $10.2 million is available as a line of credit, while the remainder is available for potential future borrowings.  The Bank also has a collateralized borrowing line with the Federal Reserve Bank of San Francisco, which is secured by $5.0 million of loans at March 31, 2016.

 

Purchased Credit Impaired Loans

 

As part of the acquisition of Mission Community Bancorp in 2014 (the “MISN Transaction”), the Company acquired certain loans classified as PCI loans. These loans have exhibited evidence of deterioration in credit quality since their origination, and at their acquisition it was deemed probable all contractually required payments would not be collected.

 

18



Table of Contents

 

Note 4. Loans and Allowance for Loan and Lease Losses – continued

 

The table below summarizes the unpaid principal balance and carrying amount of PCI loans as of March 31, 2016 and December 31, 2015:

 

 

 

 

March 31, 2016

 

December 31, 2015

 

 

 

Unpaid Principal
Balance

 

Carrying
Amount

 

Unpaid Principal
Balance

 

Carrying
Amount

 

 

 

(dollars in thousands)

 

Real Estate Secured

 

 

 

 

 

 

 

 

 

Commercial

 

$

7,075

 

$

5,661

 

$

7,139

 

$

5,685

 

Residential 1 to 4 family

 

872

 

576

 

875

 

573

 

Construction and land

 

360

 

267

 

382

 

282

 

Total real estate secured

 

8,307

 

6,504

 

8,396

 

6,540

 

Commercial

 

 

 

 

 

 

 

 

 

Agriculture

 

1,500

 

1,454

 

1,500

 

1,452

 

Commercial and industrial

 

1,018

 

683

 

1,211

 

783

 

Total commercial

 

2,518

 

2,137

 

2,711

 

2,235

 

Total PCI loans

 

$

10,825

 

$

8,641

 

$

11,107

 

$

8,775

 

 

The following table summarizes activity in the accretable yield, or income expected to be collected on PCI loans for the three months ended March 31, 2016 and 2015:

 

 

 

For the Three Months Ended,

 

 

 

March 31,

 

 

 

2016

 

2015

 

 

 

(dollars in thousands)

 

Beginning balance

 

$

3,821

 

$

4,374

 

Accretion of income

 

(216)

 

(678)

 

Reclassifications from nonaccretable difference (1)

 

113

 

547

 

Ending balance

 

$

3,718

 

$

4,243

 

 

(1)          Reclassification from nonaccretable difference is attributed to positive changes in expected future cash flows on PCI loans.

 

19



Table of Contents

 

Note 4. Loans and Allowance for Loan and Lease Losses – continued